ELCOM
INTERNATIONAL
April 9, 1999
To the Stockholders of Elcom International, Inc.:
The Annual Meeting of Stockholders of Elcom International, Inc. will be
held at 10:00 A.M. (EDT), on May 12, 1999, at Occasions Banquet Facility, 1369
Providence Highway, Norwood, Massachusetts.
We will be reporting on your Company's activities and you will have an
opportunity to ask questions about our technology and operations.
The Board of Directors hopes that you are planning to attend the Annual
Meeting personally, and we look forward to greeting you. Whether or not you
expect to attend in person, the return of the enclosed Proxy as soon as possible
would be greatly appreciated and will ensure that your shares will be
represented at the Annual Meeting. If you do attend the Annual Meeting, you may,
of course, withdraw your Proxy should you wish to vote in person.
On behalf of the Board of Directors and management of Elcom
International, Inc., I would like to thank you for choosing to be a stockholder
of our Company. We appreciate your continued support and confidence.
Sincerely yours,
Robert J. Crowell
Chairman and Chief Executive Officer
10 Oceana Way- Norwood, MA 02062 - voice (781) 440-3333 - fax (781) 762-1540
<PAGE>
ELCOM INTERNATIONAL, INC.
10 Oceana Way, Norwood, Massachusetts 02062
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Elcom
International, Inc. (the "Company") will be held at Occasions Banquet Facility,
1369 Providence Highway, Norwood, Massachusetts, on May 12, 1999 at 10:00 A.M.
(EDT), for the following purposes:
1. To fix the size of the Board of Directors at six and to elect
two Directors of the class whose term of office will otherwise
expire in 1999 for a three-year term ending at the Annual
Meeting of Stockholders in 2002;
2. To ratify, approve and adopt Amendment Number Two to The 1997
Stock Option Plan of Elcom International, Inc., as amended;
and
3. To transact such other business as may properly come before
the Annual Meeting of Stockholders and any adjournments or
postponements thereof.
Holders of record of shares of Common Stock as of the close of business
on March 23, 1999 are entitled to receive notice of and to vote at the Annual
Meeting of Stockholders.
It is important that your shares be represented at the Annual Meeting.
For that reason we ask that you promptly sign, date and mail the enclosed Proxy
Card in the return envelope provided. Stockholders who attend the Annual Meeting
may revoke their Proxies and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS,
Laurence F. Mulhern
Secretary
Norwood, Massachusetts,
April 9, 1999.
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ELCOM INTERNATIONAL, INC.
10 Oceana Way, Norwood, Massachusetts 02062
PROXY STATEMENT
Mailed on or about April 9, 1999
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 12, 1999
--------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
Proxies by the Board of Directors of Elcom International, Inc., a Delaware
corporation (the "Company"), to be used at the 1999 Annual Meeting of
Stockholders (the "Annual Meeting") of the Company to be held on May 12, 1999,
and any adjournments or postponements thereof. The time, place and purposes of
the Annual Meeting are stated in the Notice of Annual Meeting of Stockholders,
which accompanies this Proxy Statement.
The accompanying Proxy is solicited by the Board of Directors of the
Company and will be voted in accordance with the instructions contained thereon,
if it is returned duly executed and is not revoked. If no choice is specified on
the Proxy, it will be voted FOR fixing the size of the Board of Directors at six
and the election of the individuals nominated for election to the Board of
Directors, and FOR the ratification, approval and adoption of Amendment Number
Two to The 1997 Stock Option Plan of the Company, as amended. A stockholder may
revoke a Proxy at any time before it is exercised by delivery of written notice
to the Secretary of the Company or by delivery of a duly executed Proxy bearing
a later date.
The costs of soliciting Proxies will be borne by the Company. Brokers,
custodians and fiduciaries will be requested to forward proxy soliciting
materials to the owners of stock held in their name and the Company will
reimburse them for their out-of-pocket expenses in connection therewith. In
addition to solicitation by mail, the Company's Directors, officers and
employees, without additional compensation, may solicit Proxies by telephone,
mail and personal interview.
The record date for determination of stockholders entitled to vote at the
Annual Meeting is the close of business on March 23, 1999. On that date, there
were 27,416,155 shares of Common Stock of the Company outstanding and entitled
to vote. The Company's Certificate of Incorporation does not provide for
cumulative voting rights, and each share of Common Stock is entitled to one
vote.
At the Annual Meeting, the inspectors of election appointed by the Board of
Directors for the Annual Meeting will determine the presence of a quorum and
will tabulate the results of stockholder voting. Pursuant to the Company's
By-Laws, the holders of a majority of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting, present in person or represented by
Proxy, constitute a quorum. The shares represented at the Annual Meeting by
Proxies which are marked, with respect to the election of Directors, "withheld"
or, with respect to the other proposal, "abstain," will be counted as shares
present for the purpose of determining whether a quorum is present. Under
applicable rules, brokers who hold shares in street name for beneficial owners
have the authority to vote on certain items when they have not received
instructions from such beneficial owners. Pursuant to such rules, brokers that
do not receive instruction are entitled to vote with respect to fixing the size
of the Board of Directors and the election of Directors, but not with respect to
the proposal to ratify, approve and adopt Amendment Number Two to The 1997 Stock
Option Plan of Elcom International, Inc., as amended. Under applicable Delaware
law, if a broker returns a Proxy and has not voted on a certain proposal, such
broker non-votes will count for purposes of determining a quorum.
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Pursuant to the Company's By-Laws, at the Annual Meeting, a plurality of
the votes cast by the shares entitled to vote and present in person or
represented by Proxy is sufficient to fix the size of the Board of Directors and
to elect a nominee as a Director. In the election of Directors, votes may be
cast in favor or withheld; votes that are withheld and broker non-votes will
have no effect on the outcome of the election of Directors, so long as a
plurality of the votes cast are cast for the Director nominees.
In the case of the proposal to ratify, approve and adopt Amendment Number
Two to The 1997 Stock Option Plan of Elcom International, Inc., as amended, the
affirmative vote of the majority of the votes cast by shares of Common Stock
entitled to vote on this matter and present in person or represented by Proxy at
the Annual Meeting is required to approve this proposal and a vote may be cast
for, cast against or abstained from, this proposal. Abstentions will count as
present for purposes of this proposal and will have the effect of a vote against
the proposal. Broker non-votes are not considered shares entitled to vote on
this matter and therefore, will have no effect on the outcome of this proposal,
so long as a majority of the votes cast are cast for this proposal.
Unless otherwise directed, the persons named in the accompanying proxy
will vote FOR fixing the size of the Board of Directors at six and the election
of the Director nominees, and FOR the ratification, approval and adoption of
Amendment Number Two to The 1997 Stock Option Plan of Elcom International, Inc.,
as amended.
All other questions and matters brought before the Annual Meeting shall be
decided by the vote of the holders of a majority of the outstanding shares
entitled to vote thereon present in person or represented by Proxy at the Annual
Meeting, unless otherwise provided by law or by the Certificate of Incorporation
or By-Laws of the Company. In voting for such other proposals, votes may be cast
in favor, against or abstained. Abstentions will count as present for purposes
of the proposal on which the abstention is noted and will have the effect of a
vote against such proposal. Broker non-votes, however, are not counted as
present and entitled to vote for purposes of determining whether a proposal has
been approved and therefore, will have no effect on the outcome of any such
proposal.
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ELECTION OF DIRECTORS
The members of the Company's Board of Directors are divided into three
classes with the term of office of one class expiring each year. At the Annual
Meeting, two Directors will be elected to serve a three-year term until the
Annual Meeting in 2002 and until their successors have been duly elected and
qualified. The Nominating Committee of the Board of Directors has submitted that
the size of the Company's Board of Directors be fixed at six, as currently
established, and has nominated John W. Ortiz and James Rousou to stand for
election as Directors at the Annual Meeting. Messrs. Ortiz and Rousou are
presently Directors of the Company.
Unless otherwise directed, the persons named in the accompanying Proxy will
vote for fixing the size of the Company's Board of Directors at six and for the
election of the two nominees set forth in the table below as Directors of the
Company for a three-year term. In the event of the death or inability to act of
either of the nominees, the Proxies will be voted for the election as a Director
of such other person as the Board of Directors or its Nominating Committee may
recommend. In no event will the accompanying Proxy be voted for more than two
nominees or for persons other than those named below and any such substitute
nominee for either of them.
The following tables list the nominees for election at the Annual Meeting
and those Directors who will continue in office subsequent to the Annual
Meeting, and certain other information with respect to each individual.
Nominees for Election at the 1999 Annual Meeting
NAME AGE POSITION
-------------------- --- --------------------------------------
John W. Ortiz (1)(2) 75 Director of the Company
James Rousou 51 Director and a Corporate Executive Vice
President of the Company
---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
John W. Ortiz, a Director of the Company since December 1993, is a retired
investor who was an executive at South Shore Bank where he was employed from
1942 to 1989, most recently as Senior Vice President and Group Head of
Commercial Lending. Mr. Ortiz also presided as the president of the New England
Chapter of Robert Morris Associates and as a director of the Massachusetts
Higher Education Loan Corporation at times during his banking career. Mr. Ortiz
is a graduate of Northeastern University's Bachelor of Arts program.
James Rousou was Lantec's (as hereafter defined) Chairman and Chief
Executive Officer from September 1993 to March 1996 and, since November 1995,
has been a Corporate Executive Vice President of the Company. On April 1, 1996,
Mr. Rousou was appointed Chief Executive Officer of Elcom Services Group, Inc.
("Elcom Services Group") a wholly-owned subsidiary of the Company, and
subsequently also was appointed President. As of April 15, 1998, Mr. Rousou
ceased to be the President and Chief Executive Officer of Elcom Services Group,
but continues as a Corporate Executive Vice President at the Company with
specific responsibility for directing and reviewing the strategies, policies and
operational performance of the Company's non-U.S. operations. From September
1991 to August 1993, Mr. Rousou was the Managing Director of JWP Information
Services Ltd. (a PC remarketer in the United Kingdom) and from January 1991 to
August 1991 he was Managing Director, and from June 1990 to December 1990,
Finance Director, of Businessland (U.K.) Ltd. (a PC remarketer), until it was
acquired by JWP. Mr. Rousou holds a Bachelor of Science Degree in Economics and
Finance from the London School of Economics and has been a Fellow of the
Institute of Chartered Accountants in England and Wales since 1973. See "--
Board Observer."
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Vote Required
The affirmative vote of a plurality of the shares of Common Stock voting in
person or represented by proxy shall be required to fix the size of the Board of
Directors at six and to elect the Director nominees. Unless otherwise directed,
the persons named in the accompanying proxy will vote FOR fixing the size of the
Board of Directors at six and the election of the Director nominees.
Directors Continuing In Office
NAME AGE POSITION
- --------------------------- ----- --------------------------------------------
Robert J. Crowell 47 Chairman of the Board of Directors and Chief
Executive Officer of the Company
William W. Smith (1)(2)(3) 47 Vice Chairman and a Director of the Company
Richard J. Harries, Jr. (1)(3) 61 Director of the Company
- ----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
Robert J. Crowell, the Company's founder, has been the Chairman of the
Board of Directors and Chief Executive Officer of the Company since its
inception in 1992. Mr. Crowell has founded and managed several companies in the
PC industry since 1977. From May 1990 to April 1992, he was the Chairman, and
from May 1990 to January 1992, Chief Executive Officer also, of JWP Information
Services, Inc., a subsidiary of JWP INC. ("JWP"), with approximately $1.4
billion in 1992 revenues. See "--JWP." From 1983 to 1990, Mr. Crowell was the
Chairman and Chief Executive Officer of NEECO, Inc. ("NEECO"), a publicly-held
national PC reseller which was acquired by JWP (forming JWP Information
Services, Inc.) in May 1990 for approximately $100 million. From 1977 to 1983,
Mr. Crowell founded and managed New England Electronics Co., Inc. (which was
renamed NEECO and became a public company in 1986), and Microamerica
Distributing Co., Inc. ("Microamerica"), a PC products distributor which Mr.
Crowell founded in 1979 as a subsidiary of NEECO. Microamerica was later
spun-off by its acquirer and subsequently merged with Softsel to form Merisel, a
PC products distributor. Mr. Crowell also founded Professional Software, Inc. in
1980, a PC-based word processing and database software company ("Professional
Software"), which was sold in 1986. In April 1992, Mr. Crowell entered into a
part-time employment relationship with Cumulus Corporation, a privately held
assembler and remarketer of IBM-compatible PCs located in Cleveland, Ohio. Mr.
Crowell was employed on a part-time basis to act as Vice Chairman of the Board
of Cumulus Corporation until he resigned on August 18, 1992. On January 7, 1993,
an involuntary petition for bankruptcy proceedings was filed against Cumulus
Corporation under Chapter 7 of the United States Bankruptcy Code. Mr. Crowell
holds a Magna Cum Laude Bachelor of Science degree in Accounting from the
University of Massachusetts and is a Vietnam veteran.
William W. Smith has been Vice Chairman and a Director of the Company since
March 1993. Mr. Smith develops real estate and has been semi-retired since
August 1991. Mr. Smith joined NEECO as a major stockholder in 1978 and served as
Chief Financial Officer until its acquisition by JWP in May 1990. Mr. Smith
continued to serve as Chief Financial Officer of JWP Information Services, Inc.
until December 1990, then he served as a consultant until he retired in August
1991. See "--JWP." Mr. Smith is a Vietnam Veteran and holds a Magna Cum Laude
Bachelor of Science degree in Accounting from the University of Massachusetts.
Richard J. Harries, Jr., a Director of the Company since December 1993,
rejoined IBM North America as a Business Partner Senior Sales Executive in 1997.
During 1995 and 1996, Mr. Harries was a Director of Sales of the Institute for
Software Advancement. From July 1992 to August 1995, upon retiring from IBM
after twenty-five years of service, Mr. Harries worked as the general manager of
Tascor; was a sales and marketing consultant; and was an independent distributor
for Equinox, Inc. Prior thereto, from 1988 to July 1992, Mr. Harries served as a
National Account Executive for IBM. During his career with IBM, Mr. Harries has
held a number of executive marketing and sales management positions, including
ten years of experience in IBM's National Distribution
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Division Reseller Channel where he was responsible for field sales and marketing
programs. Mr. Harries holds a Bachelor of Arts Degree in Political Science and a
Master of Arts Degree in Economics from Boston College.
JWP
JWP acquired NEECO in 1990 and operated its United States computer reseller
and system integration services businesses through an indirect subsidiary, JWP
Information Services, Inc. ("Information Services"). Mr. Crowell and Mr. Smith
were executive officers of Information Services until their resignations in
April, 1992 and December 1990, respectively. On August 9, 1993, JWP sold
substantially all of its United States computer business operations, comprising
substantially all of the assets of Information Services, to Entex Information
Services, Inc., which is now a competitor of Elcom Services Group. In October
1993, following that sale, Information Services filed a voluntary petition under
Chapter 7 of the United States Bankruptcy Code.
Board Observer
Pursuant to a stockholders agreement, originally entered into in June 1995
in connection with the acquisition of a group of entities which owned a United
Kingdom PC products reseller ("Lantec") by and among certain of the former
stockholders of Lantec, the Company and Robert J. Crowell, and amended and
restated as of April 6, 1996 (the "Lantec Stockholders' Agreement"), until June
22, 2002, as long as the former stockholders of Lantec are the record owners of
at least 2,500,000 shares of Common Stock (including, on an
as-if-exercised-basis, any shares underlying warrants), such stockholders shall
have the right to designate an observer (the "Board Observer") to attend
meetings of the Company's Board of Directors and committees thereof. No Observer
has the right to vote on any matter presented to the Board of Directors or any
committee thereof. Since the election of James Rousou, a Corporate Executive
Vice President of the Company, as a Director in 1996, Mr. Rousou also has
continued in his role as Board Observer. The Lantec Stockholders' Agreement also
provides that the former stockholders of Lantec may renounce their Board
Observer right.
Directors And Terms Of Office
The By-Laws of the Company provide that the Board of Directors shall
consist of such number of Directors, between five and fifteen, as are elected by
the stockholders from time to time. The number of Directors is currently fixed
at six. The Board is divided into three classes, with Directors serving
three-year staggered terms. John W. Ortiz and James Rousou serve as a Class I
Directors, and hold office until the 1999 Annual Meeting of Stockholders;
Richard J. Harries, Jr., serves as a Class II Director, and holds office until
the 2000 Annual Meeting of Stockholders; and Robert J. Crowell and William W.
Smith, serve as Class III Directors, and hold office until the 2001 Annual
Meeting of Stockholders. Messrs. Ortiz and Rousou are standing for re-election
to three year terms as Directors at the Annual Meeting. Mr. Richard Cordsen
resigned from the Board of Directors in June 1998, and his replacement, James G.
Jameson resigned from the Board in December 1998. Accordingly, the Board has one
open Class II Director seat, which the Board intends to fill when a suitable
candidate is identified.
Committees Of The Board Of Directors
The Board of Directors has three standing committees: a Compensation
Committee, an Audit Committee and a Nominating Committee. The Compensation
Committee has the authority to: (i) administer the Company's stock option plans,
including the selection of optionees and the timing of option grants; (ii)
review and/or approve compensation and bonus payments made to Company
Executives; and (iii) review and monitor key employee compensation and benefits
policies and administer the Company's management compensation plans. The
Compensation Committee did not meet during 1998, as the Compensation Committee's
actions are generally taken by unanimous written consent. The members of the
Compensation Committee are Messrs. Smith (Chairman), Harries and Ortiz.
The Audit Committee recommends the annual appointment of the Company's
auditors, with whom the Audit Committee reviews the scope of audit and non-audit
assignments and related fees, the accounting principles used by the Company in
financial reporting, internal financial control procedures and the adequacy of
such internal
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control procedures. The Audit Committee met two times during 1998 and also
conducted an additional meeting in early 1999 relative to the 1998 audit.
Messrs. Smith and Ortiz serve as the members of the Audit Committee.
The Nominating Committee considers the appropriate size of the Board of
Directors, reviews potential candidates for election as Directors of the
Company, and makes recommendations to the Board of Directors as to the size of
the Board and nominees for election thereto. Messrs. Smith and Harries serve as
the members of the Nominating Committee. The Nominating Committee does not
consider stockholder nominations. The Nominating Committee did not meet during
1998, having taken its action by unanimous written consent.
The Board of Directors met nine times during the 1998 calendar year and
each Director attended at least 75% of the aggregate of (i) the total number of
meetings of the Board of Directors during the period he served as a Director,
and (ii) the total number of meetings held by Committees of the Board on which
he served.
Director Compensation
Except for the grant of stock options as set forth in the following
paragraph, the Company's Directors are not compensated for any meetings that
they attend, but are reimbursed for expenses that are incurred in attending such
meetings.
1995 Non-Employee Director Stock Option Plan
Non-employee Directors are entitled to participate in the 1995 Non-Employee
Director Stock Option Plan (the "Director Plan"), adopted by the Board of
Directors in October 1995, and approved by stockholders in November 1995. A
total of 250,000 shares of Common Stock have been reserved for issuance under
the Director Plan. The Director Plan provides for an automatic grant of an
option to purchase 5,000 shares of Common Stock to each non-employee Director
serving as such on October 9, 1995 or for persons who become a non-employee
Director thereafter, on their date of election or appointment as applicable.
After the initial option is granted to the non-employee Director, he or she is
automatically granted an option to purchase 5,000 shares on June 1 of each
subsequent year that he or she is then a non-employee Director. Options granted
under the Director Plan have a term of ten years. One-third of the shares
subject to each option vest on each anniversary date of the grant of the option
so long as the optionee continues to serve as a Director on such dates. The
exercise price of the options is the fair market value per share of the
Company's Common Stock on the date of the grant of the option, which was $14.25
per share and $8.13 per share for the 20,000 options granted pursuant to the
Director Plan in 1996 and 1995, respectively. In addition, on December 20, 1996,
each of the non-employee Directors was granted an option to purchase 5,000
shares (an aggregate of 20,000 shares) under the Company's 1993 Stock Option
Plan (as hereinafter defined) at $7.50 per share. As reported last year, at an
April 3, 1997 Board meeting, all of such non-employee Director options were
repriced to $6.57 per share; see "Executive Compensation -- Stock Option
Repricing." Messrs. Cordsen, Harries, Ortiz and Smith are the Company's current
non-employee Directors who received such option grants and repricing thereof. On
June 1, 1998 and June 2, 1997, 20,000 additional options were granted under the
Director Plan at per share prices of $4.25 and $5.875, respectively. Mr. Cordsen
resigned from the Board effective as of June 30, 1998, and all of his stock
options subsequently lapsed without any being exercised.
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APPROVAL OF AMENDMENT NUMBER TWO TO THE 1997 STOCK OPTION PLAN OF
ELCOM INTERNATIONAL, INC., AS AMENDED
The stockholders will be asked at the Annual Meeting to ratify, approve and
adopt Amendment Number Two to The 1997 Stock Option Plan of Elcom International,
Inc., as amended (the "1997 Stock Option Plan"). As originally adopted by the
Board of Directors on April 29, 1997, the 1997 Stock Option Plan covered
1,000,000 shares, and it was then amended by the Board (Amendment Number One) on
February 17, 1998 to cover 2,000,000 shares of the Company's Common Stock and
was thereafter approved by the Company's stockholders at the 1998 Annual
Meeting. On March 11, 1999, subject to stockholder approval at the Annual
Meeting, the Board of Directors approved an increase of shares of Common Stock
covered by the 1997 Stock Option Plan to 3,000,000. Pursuant to the 1997 Stock
Option Plan, "key personnel", which includes officers, employees and directors
of the Company, as well as other persons who render services as independent
contractors to the Company, or any of its affiliates, who in the judgment of the
Compensation Committee, are important to the successful operation of the Company
or a subsidiary, are eligible to receive incentive stock options ("ISOs") and/or
non-qualified stock options ("NQOptions").
The Board of Directors believes that substantial benefits accrue to the
Company from the granting of stock options to key personnel. Such options
encourage employees to acquire a proprietary interest in the Company through
stock ownership and thereby afford them a greater incentive to enhance the value
of the Company's Common Stock through their own efforts in improving the
Company's business. The granting of options also has proven instrumental in
attracting and retaining key executives and other employees. Accordingly, the
Company will, from time to time during the effective period of the Plan, grant
to such key personnel as may be selected to participate in the 1997 Stock Option
Plan, options to purchase Common Stock on the terms and subject to the
conditions set forth in the 1997 Stock Option Plan. The Company had
approximately 1,000 employees as of December 31, 1998.
The substantial majority of the Company's currently outstanding stock
options are priced well in excess of the current fair market value of the
Company's Common Stock. The Board of Directors believes that this situation
frustrates the purposes of the Company's stock option plans. Accordingly, during
late 1998, the Board of Directors was evaluating certain plans and was
considering a proposal to reprice a portion of the "above-market" outstanding
options at fair market value, and to reprice another portion of such options
slightly above market value, in exchange for the affected key employee's
agreement to cancel the remaining portion of his or her "above-market" options.
However, actions by the Financial Accounting Standards Board (the "FASB") in
December 1998 caused the Board of Directors to discontinue evaluation of this
potential approach. In essence, the FASB has released certain data which
indicates that the Company could be exposed to compensation expense charges in
its statements of operations relative to changes in the Company's Common Stock
price for any stock options repriced after December 15, 1998. If the FASB
proposal is adopted, the timing of when these charges would be required to be
recorded in the Company's financial statements is indefinite, although the
general anticipation is that such charges could be required by the end of 1999
or in early 2000. Generally, when required, the compensation charges to be
recorded would equal the change in the Company's Common Stock price, times the
number of shares repriced which, over the long term, could represent a material
charge to the Company's statement of operations if the Board of Directors
proceeded with any repricing of stock options. In addition, the FASB actions
also has hampered the desirability of having employees voluntarily canceling
their above-market stock options, as any stock options granted to an employee
within six months of such a cancellation would be subject to the variable
accounting noted above, thus exposing the Company to a potential compensation
expense charge in its statement of operations. If adopted, the FASB proposal
would also require that the variable accounting discussed above be applied to
all options granted to non-employee Directors. See "Executive Compensation --
Stock Option Repricing."
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In light of the FASB actions noted above, the Board of Directors has
decided, subject to stockholder approval, to increase the number of shares of
Common Stock covered by the 1997 Stock Option Plan in order to ensure that the
Company has adequate options available for grant to key personnel whose current
options (if any) are generally priced well in excess of the current fair market
value of the Company's Common Stock, creating, in management's opinion, a
disincentive. In addition, an adequate number of options covering shares of
Common Stock are needed in order to grant options to key personnel who may be
employed in the future. The Board of Directors believes that having additional
shares covered by the 1997 Stock Option Plan is essential to retain its senior
executives whose stock options are generally priced well in excess of the fair
market value of the Company's Common Stock. The departure of several senior
executives could, in the Board of Director's opinion, have a material adverse
effect on the Company.
For these reasons, the Board of Directors adopted Amendment Number Two to
The 1997 Stock Option Plan and, accordingly, believes that approval of Amendment
Number Two is in the best interests of the Company and recommends that
stockholders vote FOR the proposal to ratify, approve and adopt Amendment Number
Two to the 1997 Stock Option Plan, as amended.
The full text of the 1997 Stock Option Plan, as amended, is attached hereto
as Exhibit A. Important details about specific provisions of the 1997 Stock
Option Plan are more fully described below, but the following summary is not
intended to be complete and it is qualified in its entirety by reference to the
1997 Stock Option Plan, as amended.
Duration and Administration of the 1997 Stock Option Plan
The 1997 Stock Option Plan is administered by the Compensation Committee of
the Board (the "Committee"), presently comprised of Messrs. Harries, Ortiz and
Smith. Members of the Committee must be persons who qualify as "outside
directors" under Section 162(m) of the Internal Revenue Code and who are
"non-employee directors" under Rule 16(b)(3) of the Securities Exchange Act of
1934. Subject to the terms and conditions of the 1997 Stock Option Plan, and in
addition to the other authorizations granted to the Committee under the 1997
Stock Option Plan, the Committee shall have full and final authority in its
absolute discretion to (a) select the optionees to whom options will be granted,
(b) determine the number of shares of Common Stock subject to any option, (c)
determine the time when options will be granted, (d) determine the option price
of Common Stock subject to an option, (e) determine the time when Common Stock
subject to an option may be purchased, (f) prescribe the form of the option
agreements governing the options which are granted under the 1997 Stock Option
Plan and to set the provisions of such option agreements as the Committee may
deem necessary or desirable provided such provisions are not contrary to the
terms and conditions of the 1997 Stock Option Plan, (g) adopt, amend and rescind
such rules and regulations as, in the Committee's opinion, may be advisable in
the administration of the 1997 Stock Option Plan, and (h) construe and interpret
the 1997 Stock Option Plan, the rules and regulations and the instruments
evidencing options granted under the 1997 Stock Option Plan and to make all
other determinations deemed necessary or advisable for the administration of the
1997 Stock Option Plan. If Amendment Number Two to the 1997 Stock Option Plan is
not ratified, approved and adopted by stockholders at the Annual Meeting, grants
under the 1997 Stock Option Plan will be limited to an aggregate of 2,000,000
shares, as approved by stockholders at the 1998 Annual Meeting
Any decision made or action taken by the Committee in connection with the
administration, interpretation, and implementation of the 1997 Stock Option Plan
and of its rules and regulations, shall, to the extent permitted by law, be
conclusive and binding upon all optionees under the 1997 Stock Option Plan and
upon any person claiming under or through such an optionee. Neither the
Committee nor any of its members shall be liable for any action taken by the
Committee pursuant to the 1997 Stock Option Plan. No member of the Committee
shall be liable for the action of any other Committee member.
The 1997 Stock Option Plan will expire by its terms on April 29, 2007.
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Securities Subject to the 1997 Stock Option Plan
Subject to the following, not more than 2,000,000 shares of Common Stock,
and if Amendment Number Two is approved by stockholders, then 3,000,000 shares
of Common Stock, of the Company may be issued pursuant to the 1997 Stock Option
Plan in the aggregate. The maximum number of shares of Common Stock for which
options may be granted under the 1997 Stock Option Plan to any one individual in
any one fiscal year of the Company is 150,000 shares. As of December 31, 1998,
options to acquire 636,775 shares of Common Stock (175,168 of which were vested
as of December 31, 1998) under the 1997 Stock Option Plan have been granted. In
the event of stock splits, stock dividends, combinations, exchanges of shares or
similar capital adjustments, the Board or the Compensation Committee must make
an appropriate adjustment in the options granted under the 1997 Stock Option
Plan, and the aggregate number of shares reserved for issuance thereunder also
shall be adjusted accordingly. If any option expires without having been fully
exercised, the shares with respect to which such option have not been exercised
will be available for further options as will any shares paid or withheld to
satisfy an optionee's withholding tax or option payment liability.
Grant and Method of Exercise
Subject to certain conditions, the duration of each option granted under
the 1997 Stock Option Plan will be determined by the Committee, provided that no
option shall be granted after the tenth anniversary of the establishment of the
1997 Stock Option Plan and no option shall be exercisable later than the tenth
anniversary of the date the option was granted. Each option granted under the
1997 Stock Option Plan may be subject to restrictions with respect to the time
and method of vesting as determined by the Committee. All options granted under
the 1997 Stock Option Plan as of December 31, 1998 have a duration of ten years
and vesting schedules, which vary from one to four years.
ISOs granted under the 1997 Stock Option Plan are exercisable for a period
of up to ten years from the date of grant at an exercise price that is not less
than the fair market value of the Common Stock on the date of the grant, except
that the term of an incentive stock option granted under the Stock Option Plan
to a stockholder owning more than 10% of the voting power of the Company on the
date of grant may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the Common Stock on the date of the grant.
NQOptions may be granted at more or less than fair market value under the 1997
Stock Option Plan. Shares of Common Stock underlying an option shall be
purchased by the optionee (i) giving written notice to the Company of the
Optionee's exercise of the option accompanied by full payment of the purchase
price either in cash or, with the consent of the Committee (which may be
included in the option agreement), in whole or in part in shares of Common Stock
(either by delivery to the Company of already-owned shares or having the Company
withhold shares to be issued) having a fair market value on the date the option
is exercised equal to that portion of the purchase price for which payment in
cash is not made, and (ii) making appropriate arrangements acceptable to the
Company (which may be included in the option agreement) with respect to income
tax withholding, as required, which arrangements may include, at the absolute
discretion of the Committee, in lieu of other withholding arrangements, (a) the
Company withholding from issuance to the Optionee such number of shares of
Common Stock otherwise issuable upon exercise of the option as the Company and
the Optionee may agree, or (b) the Optionee's delivery to the Company of shares
of Common Stock having a fair market value on the date the option is exercised
equal to that portion of the withholding obligation for which payment in cash is
not made. The Committee has discretion to determine the transferability of
options granted under the 1997 Stock Option Plan, which otherwise generally are
not transferable other than upon an Optionee's death.
As of December 31, 1998, a total of 636,775 options (175,168 of which were
exercisable) to acquire shares of the Company's Common Stock had been granted
(net of terminated options) under the 1997 Stock Option Plan at a weighted
average exercise price of $4.77 per share. All of such options were granted at
the fair market value of the Common Stock on the date of grant; see "Executive
Compensation - Option Grants in 1998." Because the 1997 Stock Option Plan was
not adopted until April 29, 1997, none of the options granted under the 1997
Stock Option Plan were repriced at the April 3, 1997 meeting of the Board of
Directors; see "Executive Compensation - Stock Option Repricing".
-9-
<PAGE>
Income Tax Treatment
The Company has been advised that, under current law, certain of the income
tax consequences under the laws of the United States to the Company and to
optionees under the 1997 Stock Option Plan of options granted under the 1997
Stock Option Plan generally should be as set forth in the following summary. The
summary only addresses general United States federal income tax consequences for
optionees under the 1997 Stock Option Plan and the Company.
The options granted under the 1997 Stock Option Plan may be ISOs or NQ
Options for federal income tax purposes. An optionee to whom an option is
granted will not recognize income at the time of grant of an ISO or NQOption,
except in the event a NQOption is granted at less than fair market value, in
which case the recipient thereof will recognize ordinary compensation income to
the extent the total NQOption price is less than the total fair market value of
the shares of Common Stock covered by the option on the date of grant. An
optionee does not recognize income upon exercise of an ISO and the optionee's
tax basis is equal to the option price paid. However, if an optionee disposes of
shares acquired pursuant to an ISO either within two years of the date of the
ISO grant or within one year of the ISO exercise (a "disqualifying disposition")
the optionee will recognize ordinary income equal to the difference, if any,
between the option price paid and the amount realized upon such disposition.
Otherwise, the optionee's capital holding period for shares acquired pursuant to
an ISO commences on the option exercise date. When an optionee exercises an
NQOption, the optionee will recognize ordinary compensation income equal to the
difference, if any, between the option price paid and the fair market value, as
of the date of option exercise, of the shares the optionee purchased. The tax
basis of shares obtained by the exercise of an NQOption to an optionee is equal
to the option price paid, plus ordinary compensation income recognized, and the
optionee's capital holding period for shares acquired commences on the option
exercise date. Subject to applicable provisions of the Internal Revenue Code and
regulations thereunder, the Company generally will be entitled to a federal
income tax deduction in respect of both ISOs disposed of in a disqualifying
disposition and NQOptions exercised, in an amount equal to the ordinary and/or
compensation income recognized by the optionee.
The discussion set forth above does not purport to be a complete analysis
of all potential tax consequences relevant to recipients of options or the
Company or to describe tax consequences based on particular circumstances. It is
based on general United States federal income tax law and interpretational
authorities as of the date of this Proxy Statement, which are subject to change
at any time. The discussion does not address state or local income tax
consequences or income tax consequences for taxpayers who are subject to
taxation in jurisdictions other than the United States.
Vote Required
The affirmative vote of the majority of the shares of Common Stock voting
in person or represented by proxy and entitled to vote thereon shall be required
for the adoption of the proposal to ratify, approve and adopt Amendment Number
Two to The 1997 Stock Option Plan of Elcom International, Inc., as amended.
Unless otherwise directed, the persons named in the accompanying proxy will vote
FOR the adoption of the proposal to ratify, approve and adopt Amendment Number
Two to The 1997 Stock Option Plan of Elcom International, Inc.
-10-
<PAGE>
PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock as
of March 23, 1999 by (i) each Director and nominee for election as a Director of
the Company, (ii) each executive officer named in the Executive Compensation
tables included elsewhere herein, (iii) all Directors and executive officers as
a group, and (iv) each person or group known by the Company to own beneficially
more than 5% of its outstanding shares of Common Stock. All information with
respect to beneficial ownership has been furnished by the respective Director or
executive officer, or by reference to a public filing, as the case may be.
Unless otherwise indicated below, each stockholder named below has sole voting
and investment power with respect to the number of shares set forth opposite his
or its respective name.
Number of
Shares
Beneficially Percentage of
Owned (1) Common Stock (1)
-------------- -----------------
Directors And Executive Officers (2)
Class III Directors - Term expires at the
2001 Annual Meeting
Robert J. Crowell(3) 4,796,445 17.0%
William W. Smith(4) 18,872 *
Class I Directors - Term expires at the
1999 Annual Meeting
John W. Ortiz(4) 18,332 *
James Rousou(5) 1,932,750 6.9%
Class II Director - Term expires at the
2000 Annual Meeting
Richard J. Harries, Jr.(4) 18,332 *
Executive Officers
James G.Jameson -- --
Laurence F. Mulhern(4) 229,304 *
Peter F. McAree(4) 35,250 *
All Directors And Executive Officers
as a Group (8 Persons)(6) 6,648,785 22.9%
Other 5% Beneficial Owners
Shell Pensions Trust Ltd. (Trustee of the
Shell Contributory Pension Fund)
Shell Centre
London SE1 FNA United Kingdom(7) 1,640,000 6.0%
- ----------------
* Less than 1%.
(1) In accordance with Securities and Exchange Commission (the "Commission")
rules, each beneficial owner's holdings have been calculated assuming
full exercise of outstanding options and warrants to acquire Common
Stock which are exercisable by such owner within 60 days after March 23,
1999, while assuming no exercise of outstanding options and warrants
covering Common Stock held by any other person.
(2) For purposes hereof, the address of the Company's Directors and
executive officers is the same as that of the Company: 10 Oceana Way,
Norwood, Massachusetts 02062.
(3) Mr. Crowell is Chairman of the Board of Directors and Chief Executive
Officer of the Company. Mr. Crowell's Common Stock ownership is
comprised of 3,756,928 shares which he owns directly; 188,401 shares
held in a revocable trust for the benefit of Mr. Crowell's daughter, for
which Mr. Crowell serves as Trustee; 131,616 shares held by the Crowell
Educational Foundation with respect to which Mr. Crowell shares the
power to vote and dispose of; and 719,500 shares which he has the right
to acquire within 60 days after March 23, 1999 through the exercise of
stock options. All of such exercisable options are priced in
-11-
<PAGE>
excess of the December 31, 1998 fair market value of the Company's
Common Stock. See "Executive Compensation - Option Grants in 1998, and
Fiscal Year End Option Value Table."
(4) All of the Common Stock beneficially owned by such person is comprised
of shares which he has the right to acquire within 60 days after March
23, 1999 through the exercise of stock options. Substantially all of
such exercisable options are priced in excess of the December 31, 1998
fair market value of the Company's Common Stock. See "Executive
Compensation - Option Grants in 1998, and Fiscal Year End Option Value
Table."
(5) Mr. Rousou is an executive officer and Director of the Company. The
number of shares reflected as beneficially owned by Mr. Rousou includes
1,400,000 shares which he owns directly, warrants to acquire up to an
aggregate of 400,500 shares of Common Stock originally issued in
conjunction with the acquisition by the Company of Lantec, which are
exercisable, and 132,250 shares of Common Stock which Mr. Rousou has the
right to acquire within 60 days after March 23, 1999 through the
exercise of stock options. All of such exercisable options are priced in
excess of the December 31, 1998 fair market value of the Company's
Common Stock. See "Executive Compensation - Option Grants in 1998, and
Fiscal Year End Option Value Table."
(6) Includes 1,572,340 shares of Common Stock which the Directors and
executive officers of the Company have the right to acquire within 60
days after March 23, 1999 through the exercise of warrants and stock
options.
(7) As reported in a Schedule 13D filed with the Commission on
February 2, 1996.
-12-
<PAGE>
MANAGEMENT - EXECUTIVE OFFICERS
The name, age and position of the Company's Executive Officers are as
follows:
Name Age Position
------------------ ----- --------------------------------------
Robert J. Crowell 47 Chairman of the Board of Directors and
Chief Executive Officer of the Company
James Rousou 51 Director and a Corporate Executive Vice President
of the Company
James G. Jameson 50 Former Director and Corporate Executive Vice
President of the Company; Former President and
Chief Executive Officer of Elcom Services Group,
Inc. (United States)
Laurence F. Mulhern 44 Corporate Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of the Company
Peter F. McAree 34 Former Vice President, Finance of the Company;
Former Acting President of elcom.com, inc.
A brief resume for each of the Company's Executive Officers is set forth
below. The brief resumes of Messrs. Crowell and Rousou are set forth above under
the heading "Election of Directors."
James G. Jameson was appointed as a Corporate Executive Vice President of
the Company and as President and Chief Executive Officer of Elcom Services
Group, Inc. on April 13, 1998. On September 17, 1998, Mr. Jameson also was
appointed to the Company's Board of Directors. Mr. Jameson resigned all of his
positions with the Company and Elcom Services Group, Inc. on December 28, 1998.
From 1994 through 1997, Mr. Jameson was the Executive Vice President and Chief
Operating Officer of Beamscope Canada, Inc., a leading Canadian distributor of
home office products, home computer software and video entertainment products.
During 1993, Mr. Jameson was the Vice President, Marketing and Strategic
Planning and prior thereto was the Director, Business Development of Crowntek
Services Group, the largest computer reseller in Canada, which was acquired by
G.E. Capital Corporation.
Laurence F. Mulhern has been the Company's Chief Financial Officer,
Treasurer, Secretary and a Corporate Executive Vice President, or has acted in
similar positions, since July 1993. From 1985 through December 1992, Mr. Mulhern
was Vice President, Finance of Pacific Gateway Properties, Inc., an AMEX-listed
public company which owns and operates income producing real estate. In this
position, Mr. Mulhern was responsible for all financial aspects of the company.
Prior to joining Pacific Gateway Properties, Mr. Mulhern was an Audit Manager
with Arthur Andersen LLP. Mr. Mulhern holds a Bachelor of Science degree in
Accounting from Villanova University and has been a Certified Public Accountant
since 1979.
Peter F. McAree was the acting President of elcom.com, inc., and also was
Vice President, Finance of the Company since March 1997. Mr. McAree was laid off
as of December 18, 1998 in conjunction with the restructuring of elcom.com, inc.
As the acting President of elcom.com, Mr. McAree was responsible for all the
subsidiary's operational, financial and administrative matters. Prior to joining
the Company, Mr. McAree served as Vice President and Chief Financial Officer for
Geerlings and Wade, Inc., a publicly-held national direct marketer of premium
wines. In this position, he was responsible for the operations, finance and
administrative functions of the company. Prior to 1995, Mr. McAree served in the
Enterprise Group of Arthur Andersen LLP, specializing in providing services to
growth-oriented high technology and consumer product companies. Mr. McAree is a
graduate of Bentley College, Waltham, MA, and is a Certified Public Accountant.
-13-
<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services in all capacities with respect to those persons
(collectively, the "Named Executive Officers") who were (i) the Chief Executive
Officer, and (ii) the other executive officers of the Company at the end of the
fiscal year, as well as the individuals that were executive officers during the
year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation(1) Awards
----------------------- --------------------
Shares of Common
Name And Principal Position(1) Stock
------------------------------- Underlying
Year Salary Option Grants (#)
--------- ---------- --------------------
<S> <C> <C> <C>
Robert J. Crowell 1998 $325,000 285,000
Chairman of the Board of Directors and 1997 $ 76,000 325,000
Chief Executive Officer of the Company (2) 1996 $202,000 204,500
James Rousou 1998 $132,000 85,000
Director and a Corporate Executive Vice President of 1997 $190,000 99,750
the Company (3) 1996 $170,000 32,500
James G. Jameson 1998 $205,000 225,000
Former Director and Corporate Executive Vice President 1997 -- --
of the Company; Former President and Chief Executive 1996 -- --
Officer of Elcom Services Group (United States) (4)
Laurence F. Mulhern 1998 $299,000 175,000
Corporate Executive Vice President, Chief Financial 1997 $161,000 21,000
Officer, Treasurer and Secretary of the Company (5) 1996 $142,000 82,500
Peter F. McAree 1998 $136,000 --
Former Vice President, Finance of the Company; 1997 $ 90,000 45,000
Former Acting President of elcom.com, inc. (6) 1996 -- --
</TABLE>
- ---------------
(1) Unless otherwise indicated herein, no Named Executive Officer received a
bonus with respect to each of the three years in the period ended December
31, 1998, and no Named Executive Officer received perquisites or other
personal benefits in excess of the lesser of $50,000 or 10% of such
individual's salary plus annual bonus unless otherwise indicated herein.
(2) On June 1, 1997, the Company and Mr. Crowell entered into an Amended
Employment Agreement (the "1997 Crowell Agreement"), pursuant to which Mr.
Crowell has been retained for a term ending on May 31, 2000 as the Chairman
and Chief Executive Officer of the Company. The 1997 Crowell Agreement
amended and restated the employment agreement between Mr. Crowell and the
Company entered into in September 1995 (the "1995 Crowell Agreement") which
was due for renewal in 1997. The 1997 Crowell Agreement provides for a
minimum annual base salary of $325,000, and a 35% participation in the
Executive Performance Plan, whereas the 1995 Crowell Agreement provided for
a minimum annual base salary of $275,000. Mr. Crowell was not paid any
salary prior to October 1, 1995, when he began receiving an annual salary
pursuant to the 1995 Crowell Agreement. Mr. Crowell elected to forgo
approximately $228,000 and $73,000 of his annual
-14-
<PAGE>
minimum base salary during 1997 and 1996, respectively. See "--Executive
Profit Performance Bonus Plan", "-- Option Grants in 1998" and "--
Employment Contracts."
(3) James Rousou became an executive officer of the Company in June 1995 in
connection with the Company's acquisition of Lantec, of which he was
Chairman and Chief Executive Officer through March 1996. Since November
1995, Mr. Rousou also has served as a Corporate Executive Vice President of
the Company and from April 1, 1996 to April 15, 1998 served as the Chief
Executive Officer of Elcom Services Group. Inc. and was appointed President
of Elcom Services Group in June of 1996. As of April 1, 1996, the Company
and Mr. Rousou entered into an employment agreement which entitled Mr.
Rousou to an annual base salary of $190,000 and provided a bonus
opportunity of up to 30% of his base salary. Mr. Rousou's agreement was
amended effective as of December 15, 1997 to provide a base salary of
$300,000 until April 15, 1998, at which time such base salary was reduced
to $120,000 and to replace Mr. Rousou's bonus opportunity with an 8.8%
participation in the Executive Performance Plan. Under his previous Lantec
Services Agreement, which terminated in March 1996 upon his resignation
from all his Lantec positions, Mr. Rousou received an annual base salary of
100,000 pounds sterling. The 1996 compensation noted above includes amounts
paid under both agreements, but does not include a Lantec pension
contribution of approximately $3,000 and the attributed value of a Lantec
company car of $5,000. Mr. Rousou elected to forgo annual minimum base
salary and bonus amounts totaling $63,000 and $54,000 during 1997 and 1996,
respectively. See "-- Executive Profit Performance Bonus Plan", "-- Option
Grants in 1997" and "-- Employment Contracts."
(4) Mr. Jameson joined the Company on April 13, 1998 as a Corporate Executive
Vice President and as President and Chief Executive Officer of Elcom
Services Group, Inc. (United States). Mr. Jameson also was appointed to the
Company's Board of Directors on September 17, 1998. On December 28, 1998,
Mr. Jameson resigned all of his positions with the Company and Elcom
Services Group, Inc. Pursuant to his employment offer letter, as amended,
Mr. Jameson's base salary was $200,000 and he was provided with an annual
bonus opportunity of $100,000, as well as a "signing bonus" of $20,000. Mr.
Jameson's 1998 compensation includes this $20,000 signing bonus, as well as
bonuses totaling $43,000 (of a $75,000 bonus opportunity) related to
partial achievement of performance objectives during the second, third and
fourth quarters of 1998.
(5) On June 1, 1997, the Company and Mr. Mulhern entered into an Amended
Employment Agreement (the "1997 Mulhern Agreement") pursuant to which Mr.
Mulhern has been retained for a term ending on May 31, 2000 as the Chief
Financial Officer and a Corporate Executive Vice President of the Company.
The 1997 Mulhern Agreement amended and restated the employment agreement
between Mr. Mulhern and the Company entered into in July 1996 (the "1996
Mulhern Agreement"). The 1997 Mulhern Agreement provides for a minimum
annual base salary of $275,000 and a 17.5% participation in the Executive
Performance Plan, whereas the 1996 Mulhern Agreement provided for a minimum
annual base salary of $142,000 and a bonus opportunity of up to 30% of base
salary. Mr. Mulhern elected to forgo approximately $58,000 of his annual
minimum base salary during 1997. See "-- Executive Profit Performance Bonus
Plan", "-- Option Grants in 1997" and "-- Employment Contracts."
(6) Mr. McAree joined the Company on March 24, 1997 as Vice President, Finance,
and was the Acting President of elcom.com, inc. from August 22, 1997 until
late 1998. In connection with the restructuring of elcom.com, Mr. McAree
was laid off effective December 18, 1998, and will receive severance
payments through September 30, 1999. See "-- Employment Contracts."
-15-
<PAGE>
Stock Option Plans
In addition to the 1995 Non-Employee Director Stock Option Plan (the
"Director Plan"), the Company has adopted The Stock Option Plan of Elcom
International, Inc. (the "1993 Stock Option Plan"), The 1995 (Computerware)
Stock Option Plan of the Company (the "Computerware Stock Option Plan"), The
1996 Stock Option Plan of the Company (the "1996 Stock Option Plan"), and the
1997 Stock Option Plan, (collectively hereinafter the "Stock Option Plans")
covering 5,000,000, 1,000,000, 2,400,000 and 3,000,000 shares (1,000,000 of
which are subject to stockholder approval at the Annual Meeting), respectively,
of the Company's Common Stock, pursuant to which officers, employees and
directors of the Company, as well as other persons who render services as
independent contractors to the Company, or any of its affiliates, are eligible
to receive ISOs and/or NQOptions and which generally operate otherwise in a
manner similar to the 1997 Stock Option Plan, as described above. The maximum
number of options that can be granted to any one participant during any one
fiscal year is 500,000 under the 1993 Stock Option Plan, 210,000 under the
Computerware Stock Option Plan, 300,000 under the 1996 Stock Option Plan and
150,000 under the 1997 Stock Option Plan.
The 1993 Stock Option Plan was adopted by the Board of Directors in
February 1993, was approved by the Company's stockholders, and terminates on
February 23, 2003. Of the 5,000,000 shares of Common Stock reserved for issuance
thereunder, as of December 31, 1998, options covering 1,212,173 shares of Common
Stock have been exercised, and options to acquire an aggregate of 3,453,254
shares of Common Stock (2,706,216 of which were exercisable at December 31,
1998) were outstanding at exercise prices ranging from $.11 to $8.80 per share,
and accordingly, options covering 334,573 shares of Common Stock may be granted
under such option plan. The Computerware Stock Option Plan was adopted by the
Board of Directors in February 1995, was approved by the Company's stockholders,
and terminates on February 5, 2005. Of the 1,000,000 shares of Common Stock
reserved for issuance under the Computerware Stock Option Plan, options to
acquire all 1,000,000 shares have been granted at an exercise price of $4.00 per
share, 91,800 of which have been exercised as of December 31, 1998, and 908,200
of which were exercisable as of December 31, 1998. An aggregate of 56,319 shares
of previously owned Common Stock were submitted in payment of the exercise price
and withholding tax obligations with respect to the options exercised under the
Computerware Stock Option Plan, and accordingly, options covering such shares
may be granted under such option plan. The 1996 Stock Option Plan was adopted by
the Board of Directors in August 1996, was approved by the Company's
stockholders and terminates on August 19, 2006. Of the 2,400,000 shares of
Common Stock reserved for issuance under the 1996 Stock Option Plan, as of
December 31, 1998, options covering 63,985 shares of Common Stock have been
exercised, and options to acquire an aggregate of 2,240,885 shares of Common
Stock (718,255 of which were exercisable at December 31, 1998) were outstanding
as of December 31, 1998, at exercise prices ranging from $1.28 to $7.69 per
share, and accordingly, options covering 95,130 shares of Common Stock may be
granted under such option plan. The 1997 Stock Option Plan was adopted by the
Board of Directors in April 1997, initially amended in February 1998, and
approved by stockholders at the 1998 Annual Meeting. The 1997 Stock Option Plan
also was amended in March 1999 to increase the shares covered by 1,000,000 (to a
total of 3,000,000 shares) subject, however, to ratification, approval and
adoption by the stockholders at the Annual Meeting. See "-- Option Repricing."
Change of Control Feature
Generally, all option agreements under the Stock Option Plans,
including those relative to the Named Executive Officers, contain provisions
accelerating the exercisability of the options, or otherwise requiring the cash
payment of the value of the options (represented by the difference between the
option exercise price and the then-current fair market value of the underlying
Common Stock), upon certain defined changes in control or sales of substantially
all of the Company's assets. Such changes of control occur if the Company is
reorganized, consolidated or merged with another company and the Company is not
the surviving company, or if 50% or more of the shares of the capital stock of
the Company which are then issued and outstanding are purchased by a single
person or entity.
-16-
<PAGE>
Option Grants In 1998
Shown below is information relating to grants of stock options pursuant to
the Stock Option Plans during the fiscal year ended December 31, 1998 to the
Named Executive Officers. Such grants also are reflected in the Summary
Compensation Table above.
<TABLE>
<CAPTION>
Individual Grants Potential
------------------------------------------------------------------------- Realizable Value At
Assumed Annual
Rates of Stock Price
% of Total Appreciation for the
Options Exercise Option Term (3)
No. of Granted To or Base ------------------------
Securities Employees Price
Underlying In Fiscal ($ per Grant Expiration
Name Options(1) Year share)(2) Date Date 5% 10%
- ------------------- ------------ -------------- ----------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Crowell (5) 24,400 1.44% $ 4.50(4) 06/01/98 06/01/03 $30,000 $ 67,000
185,600 10.98% 4.09 06/01/98 06/01/08 478,000 1,211,000
75,000 4.44% 1.84 12/15/98 12/15/08 87,000 220,000
James Rousou (5) 70,000 4.14% 4.09 06/01/98 06/01/08 180,000 457,000
15,000 .89% 1.84 12/15/98 12/15/08 17,000 44,000
James G. Jameson (6) 100,000 5.91% 5.09 03/31/98 03/31/08 320,000 812,000
125,000 7.39% 1.44 09/22/98 09/22/08 113,000 286,000
Laurence F. Mulhern (5) 125,000 7.39% 4.09 06/01/98 06/01/08 322,000 816,000
50,000 2.96% 1.84 12/15/98 12/15/08 58,000 147,000
Peter F. McAree - - - - - - -
</TABLE>
- ------------------
(1) The options become fully vested upon certain "changes in control" of the
Company, as described in the Stock Option Plans and the relevant agreements
thereunder. See "--Change of Control Feature."
(2) This price represents the fair market value at the date of grant pursuant
to the terms of the Stock Option Plans.
(3) Potential Realizable Value is based on certain assumed rates of
appreciation pursuant to rules prescribed by the Commission. Actual gains,
if any, on stock option exercises are dependent on the future performance
of the stock. There can be no assurance that the amounts reflected in this
table will be achieved. In accordance with rules promulgated by the
Commission, Potential Realizable Value is based upon the exercise price of
the options.
(4) This price represents 110% of the fair market value at the date of grant
pursuant to the terms of the Stock Option Plans.
(5) All options granted to these individuals in 1998 become fully vested on the
first anniversary of the option grant date.
(6) The options granted to Mr. Jameson on March 31, 1998 were scheduled to vest
over four years as follows: 15% on the first anniversary of grant, 20% on
the second anniversary, 30% on the third anniversary, and 35% on the fourth
anniversary. The options granted to Mr. Jameson on September 22, 1998 were
scheduled to vest over two years as follows: 35% on the first anniversary
of grant and 65% on the second anniversary of grant. These options have
lapsed following Mr. Jameson's resignation from the Company on December 28,
1998.
-17-
<PAGE>
Fiscal Year-End Option Value Table
The following table shows the number of shares of Common Stock acquired
during 1998 by the exercise of options and the related value realized, as well
as the number of shares of Common Stock and values represented by outstanding
stock options held by each of the Named Executive Officers as of December 31,
1998.
<TABLE>
<CAPTION>
Number Of Securities Value Of Unexercised
Underlying In-The-Money
Unexercised Options at Options At
Shares December 31, 1998(#) December 31, 1998($)(1)(2)
Acquired on Value ------------------------------ ------------------------------
Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------- ------------ ------------ --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Crowell 46,154 $ 111,200 719,500(3) 285,000(4) $ -- $ 54,000
James Rousou -- -- 132,500(5) 85,000(6) -- 10,800
James G. Jameson -- -- -- -- -- --
Laurence F. Mulhern -- -- 229,304 (7) 186,200(8) 89,700 36,100
Peter F. McAree -- -- 12,750 (9) 32,250(10) -- --
</TABLE>
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(1) Options are "in-the-money" if the fair market value of the Common Stock
exceeds the exercise price.
(2) Represents the total gain which would be realized if all in-the-money
options beneficially held at December 31, 1998 were exercised, determined
by multiplying the number of shares underlying the options by the
difference between the per share option exercise price and $2.56, the
average of the high and low sales prices per share of the Company's Common
Stock on the NASDAQ Stock Market on December 31, 1998 (the last day of
trading in 1998).
(3) These options, covering a total of 719,500 shares of Common Stock at a
weighted average exercise price of $5.99 per share are not "in-the-money"
as of December 31, 1998 and therefore, are excluded from the table of Value
Of Unexercised In-The-Money Options.
(4) Includes options covering a total of 210,000 shares of Common Stock at a
weighted average exercise price of $4.14 per share which are not
"in-the-money" as of December 31, 1998 and therefore, are excluded from the
table of Value Of Unexercised In-The-Money Options.
(5) These options, covering a total of 132,500 shares of Common Stock at a
weighted average exercise price of $7.43 per share are not "in-the-money"
as of December 31, 1998 and therefore, are excluded from the table of Value
of Unexercised In-The-Money Options.
(6) Includes options covering a total of 70,000 shares of Common Stock at a
weighted average exercise price of $4.09 per share are not "in-the-money"
as of December 31, 1998 and therefore, are excluded from the table of Value
of Unexercised In-The-Money Options.
(7) Includes options covering 162,300 shares of Common Stock at a weighted
average exercise price of $5.98 per share which are not "in-the-money" as
of December 31, 1998 and therefore, are excluded from the table of Value Of
Unexercised In-The-Money Options.
(8) Includes options covering 136,200 shares of Common Stock at a weighted
average exercise price of $4.17 per share which are not "in-the-money" as
of December 31, 1998 and therefore, are excluded from the table of Value Of
Unexercised In-The-Money Options.
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(9) These options, covering a total of 12,750 shares of Common Stock at a
weighted average exercise price of $5.29 per share are not "in-the-money"
as of December 31, 1998 and therefore, are excluded from the table of Value
of Unexercised In-The-Money Options.
(10) These options, covering a total of 32,250 shares of Common Stock at a
weighted average exercise price of $5.61 per share are not "in-the-money"
as of December 31, 1998 and therefore, are excluded from the table of Value
of Unexercised In-The-Money Options.
Stock Option Repricing
As previously reported in the Company's 1997 and 1998 proxy materials, on
April 3, 1997 the Board approved the repricing of all then outstanding stock
options, except those granted to Named Executive Officers, granted under the
Stock Option Plans (excluding the 1997 Stock Option Plan) at a price in excess
of $6.57 per share, to a price of $6.57 per share, which approximated the
average trading price of the Company's Common Stock during the month of March
1997. The Board, with Non-Employee Directors abstaining, also repriced options
granted to Non-Employee Directors under the 1993 Stock Option Plan and the
Director Plan (through an amendment to the Director Plan) on the same basis. The
Board took this action in light of the decline in the Company's Common Stock
price which, in its view, was frustrating the purpose of the Stock Option Plans,
since most employees' options were priced well above the current market value of
the Company's Common Stock. This situation was further exacerbated by the very
tight employment markets, particularly for technical personnel, in the
Northeastern United States and in the United Kingdom. The repricing was not
applicable to the 1997 Stock Option Plan, as it was not approved by the Board of
Directors until April 29, 1997 and accordingly, no options were granted
thereunder as of April 3, 1997.
The Board believes that by taking this repricing action it had, to a
certain extent, restored the incentive that the Stock Option Plans were designed
to provide, and at the time, generated a renewed enthusiasm in the Company's
effected personnel. Accordingly, the Board believes that the repricing action
was in the best interests of the Company. Nonetheless, the Board of Directors
now believes that the decline in the Company's Common Stock price during 1998
has once again yielded a situation where the purpose of the Company's Option
Plans has been, to a large degree, frustrated.
The repricing action had no impact on vesting schedules or any other option
term and did not apply to any options held by Named Executive Officers. Of the
7.7 million options outstanding as of December 31, 1997, 1.1 million were
repriced. The repricing action has not had, and is not expected to have any
material impact on the Company's calculation of diluted earnings per share.
Performance Bonus Plans
At the Company's 1998 Annual Meeting, the stockholders approved the Elcom
International, Inc. Executive Profit Performance Bonus Plan For Executive
Officers ("the "Executive Performance Plan") which was approved by the Board of
Directors in September, 1997. The Executive Performance Plan covers, for a
fiscal year, those persons who, on the ninetieth day of that particular fiscal
year, are the executive officers of the Company ("Executive Officers"). As such,
the number of people covered will generally be limited to no more than ten, and
in order to participate in the Executive Performance Plan, the Executive Officer
must be employed as of March 30th of the calendar year and must be awarded a
participation (also by March 30th) by the Compensation Committee of the Board of
Directors (the "Committee").
The Executive Performance Plan provides for incentive compensation payments
(limited in amount to the lesser of: (a) two times the executive's base salary
or (b) one million dollars) to be made to covered Executive Officers based upon
the increase in the Company's reported operating income over the prior year.
Accordingly, the Board of Directors believes that the Executive Performance Plan
provides a substantial incentive to those Executive
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Officers in the best position to affect the Company's operating performance and
that substantial benefits will accrue to the Company from granting
participations in the Executive Performance Plan. Such participations afford the
Executive a substantial incentive to enhance the value of the Company's Common
Stock through their own efforts in improving the Company's operating results.
The granting of participations also is expected to be instrumental in attracting
and retaining key executives. Accordingly, the Company will, from time to time,
grant participations to such Executives as may be selected to participate in the
Executive Performance Plan in accordance with the terms thereof. The Executive
Performance Plan is administered by the Compensation Committee of the Board,
presently comprised of Messrs. Harries, Ortiz and Smith. Members of the
Committee must be persons who qualify as "outside directors" under Section
162(m) of the Internal Revenue Code and who are "non-employee directors" under
Rule 16(b)(3) of the Securities Exchange Act of 1934.
The Executive Performance Plan was effective as of January 1, 1998. The
Executive Performance Plan provides that a bonus pool of up to 20% of the
increase in the Company's reported operating profit (or a reduction in losses)
from one year to the next (the "Bonus Pool") be set aside for payment to the
Company's Executive Officers. The increase in reported operating profit and,
accordingly, the 20% Bonus Pool, is determined after giving effect to the
expense of the Bonus Pool. An Executive Officer's participation in the Bonus
Pool is limited to the lesser of two times his or her annual base salary or $1
million, in any particular year. The individual percentage participations for
the Company's executive officers, had there been a Bonus Pool for 1998 were:
Robert J. Crowell, 35%; James Rousou, 8.8%; and Laurence F. Mulhern, 17.5%. No
changes in these participations have been made in 1999. Since the Company's
reported operating profit declined from 1997 to 1998, there was no Bonus Pool
available in respect of 1998 and no payments were made to Executive Officers for
1998 in respect of the Executive Performance Plan.
Through December 31, 2000, the Executive Performance Plan may not be
terminated or amended in any way that would adversely impact any current
participant, without such participant's written consent. Thereafter, the Board
of Directors or the Committee may amend or terminate the Executive Performance
Plan.
The Elcom International, Inc. Key Personnel Profit Performance Plan (the
"Key Personnel Performance Plan"), which is designed to operate in conjunction
with the Executive Performance Plan, is intended to provide a substantial
incentive to key personnel who are not Executive Officers, but who can, in the
performance of their duties, affect the Company's operating results. The Key
Personnel Performance plan bonus Pool is limited to that portion of the 20%
Bonus Pool calculated under the terms of the Executive Performance Plan less
payments under the Executive Performance Plan. Accordingly, the bonus pool
available under the Key Personnel Performance Plan is generally limited to that
portion of the 20% Bonus Pool calculated under the Executive Performance Plan,
which is either unallocated to Executive Officers or is in excess of the payment
limitations under the Executive Performance Plan (the annual payment to any one
individual is limited in amount to the lesser of: (a) two times the executive's
base salary or (b) one million dollars). Thus, based on existing allocations
under the Executive Performance Plan, for 1998 approximately 38.7% of any Bonus
Pool would have been available for award under the Key Personnel Performance
Plan for 1998. For 1999, neither the number of personnel covered nor the
percentage allocation of the potential bonus pool have yet been determined with
respect to the Key Personnel Performance Plan. The terms and administration of
the Key Personnel Performance Plan generally correspond to those of the
Executive Performance Plan, except that in the case of the Key Personnel
Performance Plan, the annual payout to any one participant is limited to the
lesser of $500,000 or two times the participant's base salary. Because the
Company's operating income declined from 1997 to 1998, there was no Bonus Pool
established for 1998 and no payments were made in respect of 1998 under the
Executive Performance Plan or the Key Personnel Performance Plan.
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Employment Contracts
Effective June 1, 1997, the Company entered into the 1997 Crowell Agreement
pursuant to which Mr. Crowell has been retained for a term ending May 31, 2000,
as the Chairman and Chief Executive Officer of the Company. The 1997 Crowell
Agreement amended and restated the employment agreement between Mr. Crowell and
the Company entered into in September 1995 (the "1995 Crowell Agreement") which
was due for renewal in 1997. The 1997 Crowell Agreement provides for a minimum
annual base salary of $325,000, whereas the 1995 Crowell Agreement provided for
a minimum annual base salary of $275,000. Mr. Crowell was not paid any salary
prior to October 1, 1995, when he began receiving an annual salary pursuant to
the 1995 Crowell Agreement. The 1997 Crowell Agreement provides that Mr. Crowell
is entitled to participate in all Company compensation plans and fringe benefit
plans, on terms at least as favorable as other executives of the Company and
that Mr. Crowell will have a 35% participation in the Executive Performance Plan
Bonus Pool. Under the 1997 Crowell Agreement, Mr. Crowell also is entitled to
receive annual grants of options under the Company's Stock Option Plans to be
made no later than July of each year in amounts commensurate with Mr. Crowell's
position and performance as determined by the Compensation Committee and on
terms no less favorable than the terms for options granted to other executives.
The options generally will be exercisable within a maximum of one year from date
of grant, and, to the maximum extent allowable, shall be ISOs. All options which
are ISOs will have a per share exercise price of 110% of the fair market value
of such shares (so long as Mr. Crowell owns at least 10% of the Company's
outstanding stock) on the date of the grant, and all other options, including
ISOs, if any, granted after he ceases to be a 10% stockholder, will have an
exercise price per share equal to fair market value on the date of grant.
If Mr. Crowell should die, become disabled (as defined) or be terminated
other than "for cause" (as defined), he becomes entitled to receive (i) cash
equal to two times his then annual base salary, payable in 12 equal monthly
installments, (ii) his bonus for that year if such termination occurs after
March 1 of the respective fiscal year, and (iii) all other compensation and
benefits to which he otherwise would have been entitled through the remaining
term of the 1997 Crowell Agreement. After his employment ends, under the 1997
Crowell Agreement, Mr. Crowell is automatically retained as a consultant for two
years (at $125,000 per year) and is precluded from "competing" (as defined
therein) against the Company for a period of three years. The Crowell Agreement
automatically renews for additional one-year terms unless terminated by either
party more than three months prior to the end of the initial term or any renewal
term thereof.
In April 1996, the Company entered into an employment agreement covering an
initial period of eighteen months, under which James Rousou was appointed Chief
Executive Officer of Elcom Services Group and continued as a Corporate Executive
Vice President of the Company. Mr. Rousou also was subsequently appointed
President of Elcom Services Group. The Agreement with Mr. Rousou was amended
effective December 15, 1997 ("the Rousou Agreement"), to increase the base
salary thereunder to $300,000 until April 15, 1998, when the base salary
decreased to $120,000; to provide Mr. Rousou an 8.8% participation in the
Executive Performance Plan; and to put the agreement on a calendar year basis.
These amendments were made because Mr. Rousou ceased to be President and Chief
Executive Officer of Elcom Services Group on April 15, 1998, but will continue
as a Director and Corporate Executive Vice President of the Company. Mr. Rousou
has specific responsibility for directing and reviewing the strategies, policies
and operational performance of the Company's non-U.S. operations. The Rousou
Agreement is subject to automatic renewal at the conclusion of each calendar
year unless Mr. Rousou or the Company provides notice to the contrary at least
six months prior to the conclusion of each calendar year term. The Rousou
Agreement also provides that Mr. Rousou is entitled to participate in all
Company compensation plans and fringe benefit plans, on terms at least as
favorable as other executives. If Mr. Rousou is terminated by the Company other
than "for cause" (as defined), he is entitled to continue to receive his base
salary for a period of 12 months plus a lump sum payment equal to 12 months base
salary, together with any accrued Executive Performance Plan bonus to which he
is entitled.
On June 1, 1997, the Company and Mr. Mulhern entered into the 1997 Mulhern
Agreement pursuant to which Mr. Mulhern has been retained for a term ending on
May 31, 2000 as the Chief Financial Officer and a Corporate Executive Vice
President of the Company. The 1997 Mulhern Agreement amended and restated the
employment agreement between Mr. Mulhern and the Company entered into in July
1996 (the "1996 Mulhern
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Agreement"). The 1997 Mulhern Agreement provides for a minimum annual base
salary of $275,000 and a 17.5% participation in the Executive Performance Plan,
whereas the 1996 Mulhern Agreement provided for a minimum annual base salary of
$142,000 and a bonus opportunity of up to 30% of base salary. The 1997 Mulhern
Agreement is subject to automatic renewal at the conclusion of each term for a
one year period unless Mr. Mulhern or the Company provides notice to the
contrary at least three months prior to the conclusion of each employment year
ending May 31. The Mulhern Agreement also provides that Mr. Mulhern is entitled
to a minimum annual raise of 10% as well as participation in all Company
compensation plans and fringe benefit plans, on terms at least as favorable as
other executives. If Mr. Mulhern dies, becomes disabled (as defined) or is
terminated by the Company other than "for cause" (as defined), he is entitled to
receive an amount equal to two times his base salary which would be paid over a
period of 12 months.
In August 1997, the Company entered into an Employee Benefits Agreement
with Peter F. McAree (the "McAree Agreement") pursuant to which Mr. McAree
continued to be the Vice President, Finance of the Company and the Acting
President of elcom.com, inc., at a base salary of $130,000. In conjunction with
the restructuring of elcom.com during 1998, Mr. McAree was laid off as of
December 18, 1998, and will continue to receive his base salary and other
employment benefits through September 30, 1999.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee describes the
philosophy, objectives and components of the Company's executive compensation
programs for 1998 and discusses the determinations concerning the compensation
for the Chief Executive Officer for 1998.
The members of the Compensation Committee are William W. Smith, Richard J.
Harries, Jr., and John W. Ortiz. Each of Messrs. Smith, Harries and Ortiz are
Non-Employee Directors of the Company.
Compensation Philosophy
In reviewing and overseeing the Company's compensation programs, the
Compensation Committee adheres to a compensation philosophy which provides
executive compensation programs that are designed to: (i) attract and retain key
executives crucial to the long-term success of the Company; (ii) relate to the
achievement of operational and strategic objectives; and (iii) be commensurate
with each executive's performance, experience and responsibilities. In making
its recommendations concerning salaries and awards under compensation plans, the
Committee considers the financial condition and operational performance of the
Company during the prior year, the Company's success in achieving strategic
objectives that may have a long-term beneficial effect on the Company's results
of operations and financial condition, and its assessment of the contributions
of the individual executive officer to the Company's performance and to the
achievement of its strategic objectives. The Committee, however, does not
specifically focus on the compensation levels of executives in peer group
companies in making compensation decisions. The Committee's decisions concerning
compensation are primarily based on subjective decisions concerning the
appropriate levels of compensation and are not the result of a highly
formalistic process. The Committee does not rely extensively on objective
criteria in measuring individual performance.
Compensation Program
As a means of implementing these compensation philosophies and objectives,
the Company's compensation program for executive officers consists of the
following primary elements: salary, participation in the Company's Stock Option
Plans, and participation in the Executive Performance Plan. These particular
elements are further explained below.
Salaries - Salary levels for executive officers reflect the Committee's
subjective judgments of appropriate salaries in light of the duties and
responsibilities inherent in the executives' respective positions. The
particular qualifications of an individual being considered for a position and
his or her level of experience are considered in establishing a salary level
when an individual is first appointed to a given position. The performance and
contribution of the individual to the Company, as well as Company performance,
are the primary criteria
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influencing salary administration. Salaries of executive officers are generally
reviewed each year. In many instances, the primary factor in setting salary
levels was the Company's desire to provide compensation in amounts sufficient to
induce these individuals to join the Company.
Stock Options - The Company uses stock options as a long-term incentive
program for executives. Stock options are used because they directly relate the
amounts earned by the executive, to the amount of appreciation realized by the
Company's stockholders over comparable periods. Stock options also provide
executives with the opportunity to acquire and build a meaningful ownership
interest in the Company. The Committee considers possible grants of stock
options throughout the year. In determining the number of options awarded to an
individual executive, the Committee generally establishes a level of award based
upon the position of the individual and his or her level of responsibility. The
Committee also considers amounts of base salary and/or bonus payments which
executives and other personnel may elect to forgo, in determining the quantity
of options to be granted.
Executive Performance Plan - The Executive Performance Plan reflects the
Committee's desire to provide the Company's executives an opportunity to earn
bonuses based upon actual reported improvements in the Company's performance.
Accordingly, the Committee believes that the Executive Performance Plan provides
a substantial incentive to the executives who are in the best position to affect
the Company's operating performance. The Committee believes that by granting
participations in the Executive Performance Plan, the executives will have a
substantial incentive to enhance the value of the Company's Common Stock through
their own efforts in improving the Company's operating profitability.
Benefit Programs - The executive officers also participate in various
welfare and benefit programs that are generally made available to all salaried
employees. Executive officers also receive certain traditional perquisites,
which are customary for their positions.
Chief Executive Officer Compensation
The compensation arrangements for Mr. Crowell with respect to the 1998
fiscal year were primarily based upon the terms of his employment contract with
the Company, as described under "Executive Compensation--Employment Contracts."
Pursuant to the 1997 Crowell Agreement, Mr. Crowell is entitled to an annual
minimum base salary of $325,000 per year, which amount may be increased but not
decreased at the discretion of the Compensation Committee (which did not occur
during 1998). The Compensation Committee did not conduct any surveys of
competitive, industry or revenue peer groups, but still believes that this
annual base salary would place Mr. Crowell's compensation in the bottom half of
comparable companies' chief executives.
In addition, the 1997 Crowell Agreement provides that Mr. Crowell is
entitled to participate in all of the other Company compensation plans and
fringe benefit plans, on terms at least as favorable as other executives of the
Company and that he participates in the Executive Performance Plan at a minimum
rate of 35% of any bonus pool generated by such plan. Under the 1997 Crowell
Agreement, Mr. Crowell also is entitled to receive annual grants of options
under the Company's Stock Option Plans to be made no later than July of each
year in amounts commensurate with Mr. Crowell's position and performance, as
determined by the Compensation Committee and on terms no less favorable than the
terms for options granted to other executives. An additional option grant was
made to Mr. Crowell by the Committee in December of 1998 which considered, among
other factors, the "out-of-the-money" status of substantially all of Mr.
Crowell's options.
The Compensation Committee reviews and recommends the number of shares
subject to stock options awarded to Mr. Crowell annually, no later than July of
each year based upon a number of factors, but does not utilize pre-established,
specific performance goals in making such decisions. Factors considered included
sales and equity growth, market position, product placement and acceptance,
acquisitions and strategic growth strategies, employee attitudes and the
balancing of short-term and long-term goals. In determining the number of stock
options granted to Mr. Crowell in 1998, the Committee considered its conclusions
from an objective and subjective evaluation, with an emphasis on the impact on
the Company's sustainability and competitiveness within its industry, as well as
his position within the Company, industry stock option grant comparisons and the
ongoing belief that Mr.
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Crowell is under-compensated. In 1998, Mr. Crowell was granted options to
acquire an aggregate of 285,000 shares of Common Stock at a weighted average
exercise price of $3.54 per share.
Section 162(m)
Section 162(m) of the Internal Revenue Code (the "Section") disallows a
tax deduction for any publicly traded company for individual compensation
exceeding $1 million in any year for any of the Named Executive Officers, unless
the compensation is performance-based or otherwise meets an applicable
exemption. Since the aggregate compensation of each of the Company's executive
officers is below the $1 million threshold and since the Committee believes that
options granted under the Company's Stock Option Plans will meet the performance
based provisions under the Section, the Committee currently believes that the
Section will not reduce the tax deduction available to the Company for
compensation paid in 1998 to the Company's executive officers.
Compensation Committee
William W. Smith, Chairman
Richard J. Harries, Jr.
John W. Ortiz
Compensation Committee Interlocks And Insider Participation
The Company's Compensation Committee was formed to review, monitor and
approve the compensation and benefits for the Company's executive officers
(including bonuses, if any), administer the Company's stock option plans and
other management compensation plans and make recommendations to the Board of
Directors regarding such matters. No employees or executive officers of the
Company serve on the Committee. The Committee is currently composed of Messrs.
Harries, Ortiz, and Smith. No interlocking relationship exists between the
Company's Board of Directors or Compensation Committee and the board of
directors or compensation committee of any other company.
CERTAIN TRANSACTIONS
Transactions With and Related to Affiliated Company - The Company
currently owns approximately 3% of the equity of ShopLink Incorporated
("ShopLink"), a development stage entity that has licensed the Company's
PECOS.cm technology to provide an electronic commerce system to market products
to the home consumables market. The Company now accounts for this investment
under the cost method, and has expensed its $4,000 investment in a prior year.
In 1996, ShopLink paid $437,500 for a perpetual license of the Company's
PECOS.cm technology and also granted the Company warrants to acquire 200,000
shares of ShopLink common stock at $2.20 per share as partial consideration for
certain exclusivity rights. In 1997, the license agreement was amended to
eliminate certain ongoing user and transaction fees in exchange for a
supplemental license fee of $350,000, which was paid to the Company, and
cancellation by the Company of all of its warrants to acquire ShopLink common
stock. Under the Amended License Agreement and related Development Agreement,
Extended Maintenance Agreement and Professional Services Agreement, ShopLink is
required to pay additional amounts based on advertising revenues that it
receives, and for services rendered by the Company in customizing and
maintaining the ShopLink implementation, as well as annual maintenance fees.
During 1998, Elcom Systems recognized license and maintenance fees totaling
$66,000 and professional services revenues of $136,000 related to ShopLink. The
Company also was reimbursed by ShopLink for the actual cost of certain rental
expense relative to Company office space occupied by ShopLink and for the cost
of employee benefit expenses that specifically relate to ShopLink's employees.
In addition to the Company's ownership position, Mr. Crowell, the
Company's Chairman and Chief Executive Officer, also was Chairman of ShopLink's
Board of Directors until he stepped down from ShopLink's Board on March 12,
1999. Mr. Crowell currently beneficially owns approximately 21% of ShopLink.
As of September 30, 1997, the Company sold options to acquire its
entire equity ownership interest in ShopLink. The Company received $418,000 in
payment for the options which were exercisable through March 31,
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1999. These options lapsed on March 31, 1999 without any being exercised. The
$418,000 received in payment for the options includes $165,000 from Mr. Crowell.
Litigation Settlement - On March 26, 1997, the Company and certain of its
subsidiaries entered into a Final Agreement of Settlement and Mutual Release of
All Claims and Demands (the "Settlement") with the former owners of Computerware
Business Trust ("Computerware"), which the Company acquired in February 1995,
including the dismissal of all litigation pending against the principal former
owners of Computerware (and related counterclaims against the Company). The
essence of the Settlement includes a confirmation of the merger transaction, and
an agreement by the principal former owners of Computerware to certain volume
and manner-of-sale limitations on their ability to resell their shares of
Company Common Stock. The five principal former owners of Computerware agreed
not to sell more than 10,000 shares of Company Common Stock per day, in the
aggregate. The Settlement also provides for a monthly sale limit of 200,000
shares.
In connection with the Computerware acquisition, the Company and Robert J.
Crowell entered into a Stockholders' Agreement dated February 6, 1995 (the
"Computerware Stockholders' Agreement") with all of the former shareholders of
Computerware, covering all shares of Common Stock issuable as a result of the
acquisition or issuable upon exercise of stock options that certain of such
shareholders received in connection with the Computerware acquisition
(collectively, the "Covered Shares"). The Computerware Stockholders' Agreement
grants the holders of the Covered Shares "piggyback" registration rights until
February 6, 2002.
Stockholder Agreements
On June 22, 1995, the Company acquired all of the equity of Lantec from its
former stockholders, including James Rousou. In connection with the Lantec
acquisition, the Company and Robert J. Crowell entered into the Lantec
Stockholders' Agreement with the former stockholders of Lantec covering all
2,899,820 shares of Common Stock (346,289 of which were sold in the initial
public offering) issued and the 750,000 shares of Common Stock issuable upon
exercise of warrants (the "Lantec Warrants"). The Lantec Stockholders' Agreement
grants "piggyback" registration rights with respect to the aforementioned
shares, including those issuable upon exercise of the Lantec Warrants. In
addition, the Lantec Stockholders' Agreement provides the former Lantec
stockholders with the right to designate an observer to attend meetings of the
Company's Board of Directors and its committees (the "Board Observer Right").
See "Election of Directors--Board Observer." The provisions of the Lantec
Stockholders' Agreement, other than the piggyback registration rights provisions
and the Board Observer Right, terminated in connection with the Company's
initial public offering in December 1995. The piggyback registration rights
expire June 22, 2002 and the Board Observer Right terminates on the earlier to
occur of: (i) June 22, 2002, (ii) such time as all of the former Lantec
stockholders own less than 2,500,000 shares of Common Stock (treating the Lantec
Warrants on an as-if-exercised basis), or (iii) renouncement of the Board
Observer Right by such stockholders.
The Company and Robert J. Crowell have entered into a Securities Agreement,
dated December 10, 1993 and amended on February 1, 1994 (the "Crowell Securities
Agreement"). Pursuant to the Crowell Securities Agreement, Robert J. Crowell was
granted limited preemptive rights to purchase securities of the Company (which
rights have expired) and, until February 2001, "piggyback" registration rights
with respect to 5,000,000 shares of his Common Stock. The balance of Mr.
Crowell's ownership in the Company (including 359,000 shares of Common Stock)
was acquired in conjunction with a 1993 Preferred Stock offering and is subject
to the Preferred Agreements as hereinafter defined. Mr. Crowell has sold 275,000
shares of such Common Stock, which were transferred with associated rights, in
third party sales, and 887,072 shares have been transferred with associated
rights as gifts and in conjunction with estate and family planning matters. An
additional 450,000 of such shares of Common Stock were sold in the Company's
initial public offering.
Substantially all of the current holders of Common Stock that originally
represented the 7,987,296 shares of Preferred Stock (which were converted into
Common Stock in connection with the Company's December 1995 initial public
offering) issued by the Company, including Robert J. Crowell and Shell Pensions
Trust, Ltd. (which is a greater than 5% beneficial owner of the Company's voting
securities) entered into stock purchase agreements with the Company with respect
to the shares of Common Stock, which they purchased as Preferred Stock from the
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Company thereunder in 1993, 1994 and 1995 (the "Preferred Agreements"). Pursuant
to the terms of the respective Preferred Agreements, holders of Preferred Stock
were granted limited "piggyback" registration rights with respect to such shares
(and the Common Stock into which the Preferred Stock has been converted) for a
period of seven years after purchase of the Preferred Stock.
PERFORMANCE GRAPH
Set forth below is a line graph and a table of the related underlying
data comparing the percentage change in the cumulative total stockholders'
return on the Company's Common Stock against the cumulative total return of the
Total Return Index for The Nasdaq Stock Market - U.S. and Foreign ("NASDAQ
Total"), and the index for NASDAQ Computer and Data Processing Services Stocks
("Industry") for the period beginning with the Company's initial public offering
on December 20, 1995, and as of the last trading day on the NASDAQ in 1995,
1996, 1997 and 1998. The Industry index includes all NASDAQ listed securities
with a Standard Industrial Classification (SIC) of 737. The graph assumes that
the value of an investment in Elcom International, Inc.'s Common Stock, at its
initial public offering price, and each index was $100 on December 20, 1995 and
that all dividends, if any, were reinvested.
Comparison of Elcom International, Inc.'s Common Stock ("The Company"),
The Total Return Index for The Nasdaq Stock Market -U.S. and Foreign
("NASDAQ Total"),and the Index for Nasdaq Computer and
Data Processing Services Stocks (SIC Code 737) ("Industry")
12/20/95 12/29/95 12/31/96 12/31/97 12/31/98
---------- ---------- ---------- ---------- ----------
The Company 100 139 72 64 18
NASDAQ Total 100 103 126 154 212
Industry 100 103 127 156 280
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OTHER MATTERS
Representatives of Arthur Andersen LLP, the Company's independent auditors,
will be present at the Annual Meeting. They will be afforded the opportunity to
make a statement at the Annual Meeting if they so desire, and are expected to be
available to respond to appropriate questions. The Board of Directors is not
aware of any matter to come before the Annual Meeting other than those set forth
in the Notice of Annual Meeting of Stockholders. If other matters, however,
properly come before the Annual Meeting, it is the intention of the persons
named in the accompanying Proxy to vote in accordance with their best judgment
on such matters insofar as the Proxies are not limited to the contrary.
SECTION 16(a)
BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors and persons who beneficially own more than ten percent of
a registered class of the Company's equity securities (i.e., the Common Stock),
to file reports of ownership and changes in ownership of such securities with
the Commission. Officers, Directors and greater-than-ten-percent beneficial
owners are required by applicable regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely upon a review of the copies of the forms furnished to the
Company during or with respect to 1998, and written representations from certain
reporting persons, the Company believes that no Officer, Director or
greater-than-ten-percent beneficial owner failed to file on a timely basis
during the year ended December 31, 1998 any report required by Section 16(a) of
the Securities Exchange Act of 1934.
DATE TO SUBMIT STOCKHOLDER
PROPOSALS FOR 2000 ANNUAL MEETING
Any stockholder who wishes to submit a proposal for inclusion in the proxy
materials to be distributed by the Company in connection with its Annual Meeting
of Stockholders to be held in 2000 must do so no later than December 11, 1999.
To be eligible for inclusion in the 2000 Annual Meeting proxy materials of the
Company, proposals must conform to the requirements set forth in Regulation 14A
under the Securities Exchange Act of 1934. The Company may use its discretion in
voting Proxies with respect to stockholder proposals not included in the
Company's proxy materials for the 2000 Annual Meeting of Stockholders, unless
the Company receives notice of such proposal(s) prior to February 23, 2000.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
Upon the receipt of a written request from any stockholder, the Company
will mail, at no charge to the stockholder, a copy of the Company's Annual
Report on Form 10-K, including the financial statements and schedules required
to be filed with the Commission pursuant to Rule 13a-1 under the Securities
Exchange Act of 1934, for the Company's most recent fiscal year. Written
requests for such Report should be directed to:
Chief Financial Officer
Elcom International, Inc.
10 Oceana Way
Norwood, MA 02062
You are urged to sign and return your Proxy promptly in the enclosed return
envelope to make certain your shares will be voted at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
Laurence F. Mulhern
Secretary
April 9, 1999
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Exhibit A
THE 1997 STOCK OPTION PLAN
OF ELCOM INTERNATIONAL, INC.
April 29, 1997
Elcom International, Inc. hereby adopts a stock option plan for the benefit
of certain persons and subject to the terms and provisions set forth below.
1. Definitions. The following terms shall have the meanings set forth below
whenever used in this instrument:
(a) The word "Affiliate" shall mean any corporation which, on the
effective date of the Plan, is, within the meaning of Section
1563(a) of the Code, a member of a controlled group of
corporations which includes the Company.
(b) The word "Board" shall mean the Board of Directors of the
Company. (c) The word "Code" shall mean the United States
Internal Revenue Code (Title 26 of the United States Code) as the
same may be amended from time to time.
(d) The word "Committee" shall mean the Compensation Committee
appointed by the Board.
(e) The words "Common Stock" shall mean the common stock, par value
$.01 per share, of the Company. (f) The word "Company" shall mean
Elcom International, Inc., a Delaware corporation, and its
Subsidiaries, if any, and any successor thereto which shall
maintain this Plan.
(g) The words "Incentive Stock Option" shall mean any option which
qualifies as an incentive stock option under the terms of Section
422 of the Code.
(h) The words "Key Personnel" shall mean any person whose performance
as an employee (whether or not as Director) or as an independent
contractor or outside Director of the Company or an Affiliate of
the Company is, in the judgment of the Committee,
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important to the successful operation of the Company or a
Subsidiary.
(i) The word "Optionee" shall mean any Key Personnel, or the nominee
designated by such Key Personnel and acceptable to the Committee,
to whom a stock option has been granted pursuant to this Plan, or
the transferee thereof, as allowed by the Committee and/or the
Board.
(j) The word "Plan" shall mean The 1997 Stock Option Plan of Elcom
International, Inc., as it was originally adopted, and as it may
be amended.
(k) The word "Subsidiary" shall mean any entity at least 50% of the
equity of which is owned directly or indirectly by the Company.
(l) The words "Substantial Stockholder" shall mean any Key Personnel
who owns more than 10% of the total combined voting power of all
classes of stock of the Company. Ownership shall be determined in
accordance with Section 424(d) of the Code and lawful applicable
regulations.
2. Purpose of the Plan. The purpose of the Plan is to provide Key Personnel
with greater incentive to serve and promote the interests of the Company and its
stockholders. The premise of the Plan is that, if such Key Personnel acquire a
proprietary interest in the business of the Company or increase such proprietary
interest as they may already hold, then the incentive of such Key Personnel to
work toward the Company's continued success will be commensurately increased.
Accordingly, the Company will, from time to time during the effective period of
the Plan, grant to such Key Personnel as may be selected to participate in the
Plan, options to purchase Common Stock on the terms and subject to the
conditions set forth in the Plan.
3. Effective Date of the Plan. The Plan shall become effective as of April
29, 1997. In the event the Plan is not approved by the requisite vote of the
holders of the outstanding shares of voting capital stock of the Company by
April 29, 1998, any purported Incentive Stock
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<PAGE>
Options granted hereunder shall be thereafter treated as non-qualified stock
options for all purposes hereunder.
4. Administration of the Plan. The Plan shall be administered by the
Committee. Each member of the Committee shall be a "Non-Employee Director"
within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934 or any amendment of or successor to such Rule as may be in effect from
time to time and an "outside director" within the meaning of Section 162(m) of
the Code or any amendment of or successor to such provision as may be in effect
from time to time. A majority of the Committee shall constitute a quorum, and
the acts of a majority of the members present at any meeting at which a quorum
is present, or acts approved in writing by all of the members, shall be acts of
the Committee. Subject to the terms and conditions of the Plan, and in addition
to the other authorizations granted to the Committee under the Plan, the
Committee shall have full and final authority in its absolute discretion:
(a) to select the Key Personnel to whom options will be granted;
(b) to determine the number of shares of Common Stock subject to
any option;
(c) to determine the time when options will be granted;
(d) to determine the option price of Common Stock subject to an
option, including any repricing thereof; (e) to determine the
time or times when each option may be exercised, and the duration
of the exercise period;
(f) to determine whether and to what extent an option is an Incentive
Stock Option; provided, however, that Incentive Stock Options may
only be granted to employees of the Company;
(g) to prescribe the form of the option agreements governing the
options which are granted under the Plan and to set the
provisions of such option agreements as the Committee may deem
necessary or desirable provided such provisions are not contrary
to the terms and
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conditions of either the Plan or, where the option is an
Incentive Stock Option, Section 422 of the Code;
(h) to adopt, amend and rescind such rules and regulations as, in the
Committee's opinion, may be advisable in the administration of
the Plan; and
(i) to construe and interpret the Plan, the rules and regulations and
the instruments evidencing options granted under the Plan and to
make all other determinations deemed necessary or advisable for
the administration of the Plan.
Any decision made or action taken by the Committee in connection with the
administration, interpretation, and implementation of the Plan and of its rules
and regulations, shall, to the extent permitted by law, be conclusive and
binding upon all Optionees under the Plan and upon any person claiming under or
through such an Optionee. Neither the Committee nor any of its members shall be
liable for any act taken by the Committee pursuant to the Plan. No member of the
Committee shall be liable for the act of any other member.
5. Persons Eligible for Options. Subject to the restrictions herein
contained, options may be granted from time to time in the discretion of the
Committee only to such Key Personnel as designated by the Committee (or their
designees acceptable to the Committee, in its sole discretion), whose initiative
and efforts contribute or may be expected to contribute to the continued growth
and future success of the Company and/or its Subsidiaries. Notwithstanding the
preceding sentence, any Key Personnel who renounces in writing any right he or
she may have to receive stock options under the Plan shall not be eligible to
receive any stock options under the Plan. The Committee may grant more than one
option to the same Key Personnel.
6. Shares Subject to the Plan. Subject to the provisions of the next
succeeding provisions of this Section 6, the aggregate number of shares of
Common Stock for
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<PAGE>
which options may be granted under the Plan shall be (1) 3,000,0001 shares of
Common Stock. The maximum number of shares of Common Stock for which options may
be granted under the Plan to any one Key Personnel in any one fiscal year of the
Company is 150,000, subject to the other provisions of this Section 6. Either
treasury or authorized and unissued shares of Common Stock, or both, in such
amounts, within the maximum limit of the Plan, as the Committee shall from time
to time determine, may be so issued. All shares of Common Stock which are the
subject of any lapsed, expired or terminated options may be made available for
reoffering under the Plan to any Key Personnel. In addition, any shares of
Common Stock which are retained to satisfy an Optionee's withholding tax
obligations or which are transferred to the Company by an Optionee to satisfy
such obligations or to pay all or any portion of the option price in accordance
with the terms of the Plan, may be made available for reoffering under the Plan
to any Key Personnel. If an option granted under this Plan is exercised, any
shares of Common Stock which are the subject thereof shall not thereafter be
available for reoffering under the Plan, except in accordance with the preceding
sentence.
In the event that subsequent to the date of adoption of the Plan by the
Board, the outstanding shares of Common Stock are, as a result of a stock split,
stock dividend, combination or exchange of shares, exchange for other
securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization or other such change, including without
limitation any transaction described in Section 424(a) of the Code, increased or
decreased or changed into or exchanged for a different number or kind of shares
of stock or other securities of
- ------------------------------------
(1) Originally 1,000,000 shares, amended by the Board of Directors on February
17, to cover 2,000,000 shares, and approved by stockholders, and amended on
March 11, 1999, subject to stockholder approval, to cover 3,000,000 shares.
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<PAGE>
the Company, then (i) there shall automatically be substituted for each share of
Common Stock subject to an unexercised option granted under the Plan and each
share of Common Stock available for additional grants of options under the Plan
the number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be exchanged, (ii) the option price per
share of Common Stock or unit of securities shall be increased or decreased
proportionately so that the aggregate purchase price for the securities subject
to the option shall remain the same as immediately prior to such event, and
(iii) the Committee shall make such other adjustments to the securities subject
to options, the provisions of the Plan, and option agreements as may be
appropriate, equitable and in compliance with the provisions of Section 424(a)
of the Code to the extent applicable and any such adjustment shall be final,
binding and conclusive as to each Optionee. Any such adjustment shall provide
for the elimination of fractional shares.
7. Option Provisions.
(a) Option Price. The option price per share of Common Stock which is the
subject of an Incentive Stock Option shall be determined by the Committee at the
time of grant but shall not be less than one hundred percent (100%) of the fair
market value of a share of Common Stock on the date the option is granted;
provided, however, that if any Key Personnel to whom an Incentive Stock Option
is granted is, at the time of the grant, a Substantial Stockholder, the option
price per share of Common Stock shall be determined by the Committee but shall
not be less than one hundred ten percent (110%) of the fair market value of a
share of Common Stock on the date the option is granted. The option price per
share of Common Stock under each option granted pursuant to the Plan which is
not an Incentive Stock Option shall be determined by the Committee at the time
of grant. Such fair market value shall be determined in accordance with
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<PAGE>
procedures to be established by the Committee. The day on which the Committee
approves the granting of an option shall be deemed for all purposes hereunder
the date on which the option is granted, unless another effective date for such
grant is specified by the Committee.
(b) Period of Option. The Committee shall determine when each option is to
expire but no option shall be exercisable after ten (10) years have elapsed from
the date upon which the option is granted; provided, however, that no Incentive
Stock Option granted to a person who is a Substantial Stockholder at the time of
the grant of such option shall be exercisable after five (5) years have elapsed
from the date upon which the option is granted.
(c) Limitation on Exercise and Transfer of Option. Except as otherwise
provided in the event of an Optionee's death, or as otherwise determined by the
Committee in any particular instance, whether before or after the date of grant
of an option and subject to any and all terms and conditions as determined by
the Committee in its absolute discretion, only the Optionee may exercise an
option; provided, that a guardian or other legal representative who has been
duly appointed for such Optionee may exercise an option on behalf of the
Optionee. Except as it may otherwise be determined by the Committee in any
particular instance, whether before or after the date of grant of an option and
subject to any and all terms and conditions as determined by the Committee in
its absolute discretion, (a) no option granted hereunder shall be transferable
except as otherwise provided in the event of an Optionee's death or, to the
extent approved by the Committee, pursuant to a qualified domestic relations
order as defined by the Code, or the rules thereunder, and (b) no option granted
hereunder may be pledged or hypothecated, nor shall any such option be subject
to execution, attachment or similar process.
(d) Conditions Governing Exercise of Option. The Committee may, in its
absolute discretion, either require that, prior to the exercise of any option
granted hereunder, the
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<PAGE>
Optionee shall have been an employee or independent contractor for a specified
period of time after the date such option was granted, or make any option
granted hereunder immediately exercisable. Each option shall be subject to such
additional or different restrictions or conditions with respect to the time and
method of exercise as shall be prescribed by the Committee. Upon satisfaction of
any such conditions, the option may be exercised in whole or in part at any time
during the option period. Options shall be exercised by the Optionee (i) giving
written notice to the Company of the Optionee's exercise of the option
accompanied by full payment of the purchase price either in cash or, with the
consent of the Committee (which may be included in the option agreement), in
whole or in part in shares of Common Stock (either by delivery to the Company of
already-owned shares or having the Company withhold shares to be issued) having
a fair market value on the date the option is exercised equal to that portion of
the purchase price for which payment in cash is not made, and (ii) making
appropriate arrangements acceptable to the Company (which may be included in the
option agreement)with respect to income tax withholding, as required, which
arrangements may include, at the absolute discretion of the Committee, in lieu
of other withholding arrangements, (a) the Company withholding from issuance to
the Optionee such number of shares of Common Stock otherwise issuable upon
exercise of the option as the Company and the Optionee may agree, or (b) the
Optionee's delivery to the Company of shares of Common Stock having a fair
market value on the date the option is exercised equal to that portion of the
withholding obligation for which payment in cash is not made. Certain
dissolutions or liquidations of the Company or, unless the surviving corporation
assumes said options, mergers or consolidations in which the Company is not the
surviving corporation, may, but need not, cause each outstanding option to
terminate, provided that during the option period each Optionee shall have the
right during the period, if any, prescribed in the option agreement prior to
such dissolution or liquidation, or merger
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<PAGE>
or consolidation in which the Company is not the surviving corporation, to
exercise the then exercisable portion of his or her option in whole or in part
without regard to any limitations contained in the Plan or the option agreement.
Additional provision with respect to acquisitions, mergers, liquidations or
dissolutions may be made in the option agreement.
(e) Termination of Employment, Etc. If an Optionee ceases to be either an
employee, outside Director or independent contractor, of the Company and all
Subsidiaries, as applicable (the "Cessation Date"), then the Committee shall
have absolute discretion to establish, in the option agreement or otherwise, the
restrictions on the exercisability of options granted hereunder. An Optionee's
employment shall not be deemed to have terminated while he is on a military,
sick or other bona fide approved leave of absence from the Company or a
Subsidiary as such a leave of absence is described in Section 1.421-7(h) of the
Federal Income Tax Regulations or any lawful successor regulations thereto. If
the stock option is an Incentive Stock Option, no option agreement shall:
(i) permit any Optionee to exercise any Incentive Stock Option
more than three (3) months after the date the Optionee
ceased to be employed by the Company or any Subsidiary if
the reason for the Optionee's cessation of employment was
other than his death or his disability (as such term is
defined by Section 105(d)(4) of the Code); or
(ii) permit any Optionee to exercise any Incentive Stock Option
more than one (1) year after the date the Optionee ceased to
be employed by the Company or any Subsidiary if the reason
for the Optionee's cessation of employment was the
Optionee's disability (as such term is defined by Section
105(d)(4) of the Code); or
(iii)permit any person to exercise any Incentive Stock Option
more than one (1) year after the date the Optionee ceased to
be employed by the Company or any Subsidiary if either (A)
the reason for the Optionee's cessation of employment was
his death or (B) the Optionee died within three (3) months
after ceasing to be employed by the Company or any
Subsidiary.
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<PAGE>
If any option is by terms of the option agreement exercisable following the
Optionee's death, then such option shall be exercisable by the Optionee's
estate, or the person designated in the Optionee's Last Will and Testament, or
the person to whom the option was transferred by the applicable laws of descent
and distribution or by approval of the Committee.
(f) Limitations on Grant of Incentive Stock Options. In no event may
Incentive Stock Options be granted hereunder to any person other than an
employee of the Company. During the calendar year in which any Incentive Stock
Option first becomes exercisable, the aggregate fair market value of the shares
of Common Stock which are subject to Incentive Stock Options (determined as of
the date the Incentive Stock Options were granted) shall not exceed the sum of
One Hundred Thousand Dollars ($100,000). Options which are not designated as
Incentive Stock Options shall not be subject to the limitations described in the
preceding sentence and shall not be counted when applying such limitation.
(g) Prohibition of Alternative Options. It is intended that Key Personnel
who are employees may be granted, simultaneously or from time to time, Incentive
Stock Options or other stock options, but no eligible Key Personnel shall be
granted alternative rights in Incentive Stock Options and other stock options so
as to prevent options granted as Incentive Stock Options from qualifying as such
within the meaning of Section 422 of the Code.
(h) Waiver by Committee of Conditions Governing Exercise of Option. The
Committee may, in its sole discretion, waive, alter or amend any restrictions or
conditions set forth in an option agreement concerning an Optionee's right to
exercise any option and/or the time and method of exercise.
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<PAGE>
8. Amendments to the Plan. The Committee is authorized to interpret the
Plan and from time to time adopt any rules and regulations for carrying out the
Plan that it may deem advisable. Subject to the approval of the Board, the
Committee may at any time amend, modify, suspend or terminate the Plan. In no
event, however, without the approval of the Company's stockholders, shall any
action of the Committee or the Board result in:
(a) amending, modifying or altering the eligibility requirements
provided in Section 5 hereof; or
(b) increasing or decreasing, except as provided in Section 6
hereof, the maximum number of shares for which options may
be granted; or
(c) decreasing the minimum option price per share at which
options may be granted under the Plan, as provided in
Section 7(a) hereof; or
(d) extending either the maximum period during which an option
is exercisable as provided in Section 7(b) hereof or the
date on which the Plan shall terminate as provided in
Section 12 hereof; or
(e) changing the requirements relating to the Committee;
except as necessary to conform the Plan and/or the option agreements to changes
in the Code or other governing law. No option may be granted during any
suspension of this Plan or after this Plan has terminated and no amendment,
suspension or termination shall, without the Optionee's consent, alter or impair
any of the rights or obligations under an option theretofore granted to such
Optionee under this Plan.
9. Investment Representation, Approvals and Listing. The Committee may
condition its grant of any option hereunder (or any transfer allowed in its
discretion) upon receipt of an investment representation from the Optionee which
shall be substantially similar to the following:
"Optionee agrees that any shares of Common Stock of Elcom
International, Inc. which may be acquired by virtue of the
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<PAGE>
exercise of this option shall be acquired for investment
purposes only and not with a view to distribution or resale;
provided, however, that this restriction shall become
inoperative in the event the shares of Common Stock of Elcom
International, Inc. which are subject to this option shall be
registered under the Securities Act of 1933, as amended, for
issuance to the Optionee or in the event there is presented to
Elcom International, Inc. an opinion of counsel or other
evidence, in either case, satisfactory to Elcom International,
Inc. to the effect that the offer and sale of the shares of
Common Stock of Elcom International, Inc. which are subject to
this option may lawfully be made without registration under
the Securities Act of 1933, as amended".
The Company shall not be required to issue any certificates for shares of Common
Stock upon the exercise of an option granted under the Plan prior to (i)
obtaining any approval from any governmental agency which the Committee shall,
in its sole discretion, determine to be necessary or advisable, (ii) the
admission of such shares to listing on any national securities exchange or the
Nasdaq National Market on which the shares of Common Stock may be listed, (iii)
completion of any registration or other qualification of the shares of Common
Stock under any state or federal law or ruling or regulations of any
governmental body which the Committee shall, in its sole discretion, determine
to be necessary or advisable, or the determination by the Committee, in its sole
discretion, that any registration or other qualification of the shares of Common
Stock is not necessary or advisable, and (iv) obtaining an investment
representation from the Optionee in the form set forth above or in such other
form as the Committee, in its sole discretion, shall determine to be adequate.
10. General Provisions.
(a) Option Agreements Need Not Be Identical. The form and
substance of option agreements, whether granted at the same or different times,
need not be identical.
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<PAGE>
(b) No Right To Be Employed, Etc. Nothing in the Plan or in any
option agreement shall confer upon any Optionee any right to continue in the
employ of the Company or a Subsidiary, or to serve as a member of the Board or
as an independent contractor, or to be entitled to receive any remuneration or
benefits not set forth in the Plan or such option agreement, or to interfere
with or limit either the right of the Company or a Subsidiary to terminate the
employment of, or independent contractor relationship with, such Optionee at any
time or the right of the stockholders of the Company to remove him as a member
of the Board with or without cause.
(c) Optionee Does Not Have Rights Of Stockholder. Nothing
contained in the Plan or in any option agreement shall be construed as entitling
any Optionee to any rights of a stockholder as a result of the grant of an
option until such time as shares of Common Stock are actually issued to such
Optionee pursuant to the exercise of an option.
(d) Successors In Interest. The Plan shall be binding upon the
successors and assigns of the Company.
(e) No Liability Upon Distribution of Shares. The liability
of the Company under the Plan and any distribution of shares of Common Stock
made hereunder is limited to the obligations set forth herein with respect to
such distribution and no term or provision of the Plan shall be construed to
impose any liability on the Company or the Committee in favor of any person with
respect to any loss, cost or expense which the person may incur in connection
with or arising out of any transaction in connection with the Plan, including,
but not limited to, any liability to any Federal, state or local tax authority
and/or any securities regulatory authority.
(f) Taxes. Appropriate provisions shall be made for all taxes
required to be withheld and/or paid in connection with the options or the
exercise thereof, and the transfer of
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<PAGE>
Common Stock pursuant thereto, under the applicable laws or other regulations of
any governmental authority, whether Federal, state or local and whether domestic
or foreign.
(g) Use of Proceeds. The cash proceeds received by the Company
from the issuance of shares of Common Stock pursuant to the Plan will be used
for general corporate purposes, or in such other manner as the Board deems
appropriate.
(h) Expenses. The expenses of administering the Plan shall be
borne by the Company.
(i) Captions. The captions and section numbers appearing in the
Plan are inserted only as a matter of convenience. They do not define, limit,
construe or describe the scope or intent of the provisions of the Plan.
(j) Number. The use of the singular or plural herein shall not
be restrictive as to number and shall be interpreted in all cases as the context
may require.
(k) Gender. The use of the feminine, masculine or neuter
pronoun shall not be restrictive as to gender and shall be interpreted in all
cases as the context may require.
11. Termination of the Plan. The Plan shall terminate on April 29, 2007,
and thereafter no options shall be granted under the Plan. All options
outstanding at the time of termination of the Plan shall continue in full force
and effect according to the terms of the option agreements governing such
options and the terms and conditions of the Plan.
12. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Delaware and any applicable federal
law.
13. Venue. The venue of any claim brought hereunder by an Optionee shall be
Boston, Massachusetts.
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<PAGE>
14. Changes in Governing Rules and Regulations. All references herein to
the Code or sections thereof, or to rules and regulations of the Department of
Treasury or of the Securities and Exchange Commission, shall mean and include
the Code sections thereof and such rules and regulations as are now in effect or
as they may be subsequently amended, modified, substituted or superseded.
IN WITNESS WHEREOF, Elcom International, Inc., by its
appropriate officer duly authorized, has executed this document as of the 29th
day of April, 1997
ELCOM INTERNATIONAL, INC.
By: /s/ Robert J. Crowell
Robert J. Crowell
Chairman of the Board and Chief
Executive Officer
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<PAGE>
PROXY
ELCOM INTERNATIONAL, INC.
Proxy Solicited on Behalf of the Board of Directors of the
Company for the 1999 Annual Meeting of Stockholders, May 12, 1999
The undersigned hereby constitutes and appoints Laurence F. Mulhern and
Michael J. McEachern, and each of them, his or her true and lawful agents and
proxies, with full power of substitution in each, to represent and vote all of
the shares of Common Stock, $.01 par value per share, of Elcom International,
Inc. held of record as of the close of business on March 23, 1999 by the
undersigned at the Annual Meeting of Stockholders of Elcom International, Inc.
to be held at Occasions Banquet Facility, 1369 Providence Highway, Norwood,
Massachusetts at 10:00 a.m. (E.D.T.) on May 12, 1999, and at any adjournment or
postponement thereof, on all matters coming before said meeting.
You are encouraged to specify your choice by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot vote
your shares unless you sign and return this card.
This proxy, when properly executed, will be voted in the manner directed
herein and authorizes the Proxies to take action in their discretion upon
other matters that may properly come before the meeting. If no direction is
made, this proxy will be voted FOR fixing the size of the Board of
Directors at six and the election of both nominees as Directors; and FOR
the ratification, approval and adoption of Amendment Number Two to The 1997
Stock Option Plan of Elcom International, Inc., as amended.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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SEE REVERSE
SIDE
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<PAGE>
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the Annual Meeting of Stockholders, you
can be sure your shares are represented at the meeting by promptly returning
your proxy in the enclosed envelope.
The Board of Directors recommends a vote FOR fixing the size of the Board of
Directors at six and the election of both nominees for Director, and FOR
ratification, approval and adoption of Amendment Number Two to The 1997 Stock
Option Plan of Elcom International, Inc., as amended.
1. ELECTION OF DIRECTORS - To fix the size of the Board of Directors at six
and elect two Directors of the class whose term of office will otherwise
expire in 1999 for a three-year term ending at the Annual Meeting of
Stockholders in 2002.
Nominees for Director: Class I: John W. Ortiz and James Rousou
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FOR WITHHELD
BOTH FROM BOTH
NOMINEES NOMINEES
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----------- For, except vote withheld from the following
nominee: ------------------------------------
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2. RATIFICATION, APPROVAL AND ADOPTION OF AMENDMENT NUMBER TWO TO THE 1997
STOCK OPTION PLAN OF ELCOM INTERNATIONAL, INC., AS AMENDED.
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FOR AGAINST ABSTAIN
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3. IN THEIR DISCRETION TO ACT ON ANY OTHER MATTER OR MATTERS WHICH MAY
PROPERLY COME BEFORE THE ANNUAL MEETING.
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MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
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Please sign exactly as your name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee, or guardian, please
give full title as such.
Signature: Date: Signature: Date:
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