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[LOGO of ALDILA]
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March 26, 1997
To Our Stockholders:
On behalf of the Board of Directors, I cordially invite you
to attend the Annual Meeting of Stockholders of Aldila, Inc., to
be held Tuesday, May 6, 1997, at 9:00 a.m. at the Rancho Bernardo
Inn, 17550 Bernardo Oaks Drive, San Diego, California 92128, in
the San Bernardo West Room. The formal notice and proxy
statement for the Annual Meeting are attached to this letter.
It is important that you sign, date and return your proxy
card in the enclosed envelope as soon as possible, even if you
currently plan to attend the Annual Meeting. By doing so, you
will ensure that your shares are represented and voted at the
meeting. If you decide to attend, you can still vote your shares
in person, if you wish.
On behalf of the Board of Directors, I thank you for your
cooperation and I look forward to seeing you on May 6th.
Very truly yours,
[signature of Gary T. Barbera]
Gary T. Barbera
Chairman of the Board
ALDILA, INC.
15822 BERNARDO CENTER DRIVE
SAN DIEGO, CALIFORNIA 92127
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1997
TO THE STOCKHOLDERS OF ALDILA, INC.
Notice is hereby given that the Annual Meeting of
Stockholders of Aldila, Inc. (the "Company") will be held at the
Rancho Bernardo Inn, 17550 Bernardo Oaks Drive, San Diego,
California 92128, on Tuesday, May 6, 1997, at 9:00 a.m., Pacific
time, for the following purposes:
1. ELECTION OF DIRECTORS. To elect by vote of the holders
of Common Stock a total of nine persons to the Board of
Directors to serve until the next Annual Meeting of
Stockholders and until their successors are elected and
have qualified. The Board of Directors' nominees are:
Gary T. Barbera Donald C. Klosterman
Peter E. Bennett Wm. Brian Little
Marvin M. Giles, III Peter R. Mathewson
Vincent T. Gorguze Chapin Nolen
John J. Henry
2. AMENDMENT OF 1994 STOCK INCENTIVE PLAN. To act upon a
proposal to amend the Company's 1994 Stock Incentive
Plan.
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS. To ratify the Board of Directors'
selection of Deloitte & Touche LLP as the Company's
independent accountants for the fiscal year ending
December 31, 1997.
4. OTHER BUSINESS. To consider and act upon such other
business as may properly come before the meeting.
Only stockholders of record at the close of business on
March 21, 1997 will be entitled to notice of the Annual Meeting
and to vote at the Annual Meeting and at any adjournments
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
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[signature of Robert J. Cierzan]
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Robert J. Cierzan
Secretary
Dated: March 26, 1997
WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING IN
PERSON, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD AS PROMPTLY AS POSSIBLE. YOU MAY REVOKE YOUR PROXY IF YOU
DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO VOTE YOUR SHARES
IN PERSON.
ALDILA, INC.
15822 BERNARDO CENTER DRIVE
SAN DIEGO, CALIFORNIA 92127
(619) 592-0404
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1997
GENERAL
This proxy statement is furnished to stockholders of Aldila,
Inc., a Delaware corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the
Company (the "Board" or "Board of Directors") for use at the
Annual Meeting of Stockholders to be held at 9:00 a.m., Pacific
time, on Tuesday, May 6, 1997, at the Rancho Bernardo Inn, 17550
Bernardo Oaks Drive, San Diego, California 92128, and any
adjournments thereof (the "Annual Meeting" or "Meeting").
Common stockholders of record as of the close of business on
March 21, 1997, will be entitled to vote at the Meeting or any
adjournments thereof. As of the record date, the Company had
outstanding 15,711,152 shares of Common Stock, each entitled to
one vote on all matters to be voted upon. This proxy statement,
the accompanying form of proxy and the Company's annual report to
stockholders for the fiscal year ended December 31, 1996 are
being mailed on or about March 26, 1997, to each stockholder
entitled to vote at the Meeting.
VOTING AND REVOCATION OF PROXIES
VOTING
If the enclosed proxy is executed and returned in time and
not revoked, all shares represented thereby will be voted. Each
proxy will be voted in accordance with the stockholder's
instructions. If no such instructions are specified, the proxies
will be voted FOR the election of each person nominated for
election as a director, FOR the amendment of the Company's 1994
Stock Incentive Plan (the "1994 Stock Incentive Plan"), and FOR
the ratification of the Board's selection of Deloitte & Touche
LLP as the Company's independent accountants for the fiscal year
ending December 31, 1997.
Assuming a quorum is present, the affirmative vote by the
holders of a plurality of the votes cast at the Meeting will be
required for the election of directors; the affirmative vote of a
majority of the votes cast at the Meeting will be required for
the amendment of the Company's 1994 Stock Incentive Plan; the
affirmative vote of a majority of the votes cast at the Meeting
will be required for the ratification of the Board's selection of
Deloitte & Touche LLP as the Company's independent accountants;
and the affirmative vote of a majority of the votes cast at the
Meeting will be required to act on all other matters to come
before the Annual Meeting. An automated system administered by
the Company's transfer agent tabulates the votes. For purposes
of determining the number of votes cast with respect to any
voting matter, only those cast "for" or "against" are included.
Abstentions and broker non-votes are counted only for purposes of
determining whether a quorum is present at the Meeting. With
respect to all matters (other than the election of directors),
abstentions and broker non-votes will have the effect of reducing
the number of affirmative votes required to achieve a majority of
the votes cast.
REVOCATION
A stockholder giving a proxy may revoke it at any time
before it is voted by delivery to the Company of a subsequently
executed proxy or a written notice of revocation. In addition,
returning your completed proxy will not prevent you from voting
in person at the Annual Meeting should you be present and wish to
do so.
ELECTION OF DIRECTORS
The Company's Restated Bylaws give the Board the power to
set the number of directors at no less than one nor more than
twenty-one. The size of the Company's Board is currently set at
nine. On January 7, 1997, Edmond S. Abrain resigned from the
Board of Directors and his positions as President and Chief
Operating Officer of the Company and all subsidiaries thereof.
The Board has appointed Peter R. Mathewson to fill the vacancy on
the Board of Directors effective January 7, 1997. Directors hold
office until the next annual meeting of stockholders and until
their successors are elected and have qualified.
Unless otherwise directed, proxies in the accompanying form
will be voted FOR the nominees listed below. If any one or more
of the nominees is unable to serve for any reason or withdraws
from nomination, proxies will be voted for the substitute nominee
or nominees, if any, proposed by the Board of Directors. The
Board has no knowledge that any nominee will or may be unable to
serve or will or may withdraw from nomination. All of the
following nominees are current directors of the Company whose
terms end at the 1997 Annual Meeting. Information concerning
nominees for director is set forth below.
Prior to the Company's initial public offering in June 1993
(the "June Offering"), there were only three directors of the
Company, all of whom were general partners of an affiliate of the
Company's then majority stockholder. On April 23, 1993, each
director of Aldila Golf Corp., the Company's sole direct
subsidiary as of that date, was elected to serve as a director of
the Company. Accordingly, reference to service with the Company
through April 23, 1993 means only service with Aldila Golf Corp.
and the predecessor company to Aldila Golf Corp.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE BOARD OF
DIRECTORS' NOMINEES FOR DIRECTORS TO BE ELECTED BY THE HOLDERS OF
COMMON STOCK.
NOMINEES FOR ELECTION BY HOLDERS OF COMMON STOCK
GARY T. BARBERA has been Chairman of the Board of the
Company since January 1, 1996. He has been Chief Executive
Officer of the Company since June 1992 and a director of Aldila
since September 1988. Mr. Barbera was President and Chief
Operating Officer from September 1988 to December 31, 1995. From
December 1986 to January 1988, Mr. Barbera was President and
Chief Operating Officer at Dickey-John Corp., a company
specializing in electronic controls and agricultural
manufacturing. Previously, Mr. Barbera was Group Vice President
for Bourns, Inc. a private electronics manufacturer. From 1979
to 1985, Mr. Barbera was Chief Executive Officer of Oak
Technology, Inc., a subsidiary of Oak Industries, which produced
laminates for a variety of products. Age: 59
PETER E. BENNETT has been a director of the Company since
November 1994. Mr. Bennett has been the President and a Senior
Partner of Liberty Partners L.P. since September 1992. From July
1982 to August 1992, he was a Senior Vice President of Merrill
Lynch Interfunding Inc. He is a director of Datamax Corp., "A"-
Company, Arcade, Inc., PlayPower, Inc., a manufacturer of
commercial playground equipment, Polaris Pool Systems, PADCOM,
Inc. and Regulus Group, LLC. Age: 55.
MARVIN M. GILES, III has been a director of the Company
since October 1993. He has been President of Pros, Incorporated
("Pros") since he co-founded that company in 1973. Pros is a
business management firm that specializes in representing
professional athletes, particularly golfers including Davis Love
III, Tom Kite and Lanny Wadkins. Mr. Giles is also an
accomplished golfer. He was the 1972 U.S. Amateur Champion and
the 1975 British Amateur Champion. Mr. Giles was the 1993 U.S.
Walker Cup Captain and played on four Walker Cup teams from 1969-
1975. Age: 54.
VINCENT T. GORGUZE was Chairman of the Board of the Company
from September 1988 until December 31, 1995 and is currently
serving as Chairman Emeritus. He was Chief Executive Officer of
the Company from September 1988 until June 1992 and has served as
a consultant to the Company following his service as Chief
Executive Officer. Since 1978, Mr. Gorguze has been Chairman and
CEO of Sinclair & Rush, Inc., a plastics company and since July,
1995 has served as Chairman and CEO of PlayPower, Inc. Mr.
Gorguze previously held various executive positions with Emerson
Electric from 1962 to 1978, including Vice Chairman, President
and Chief Operating Officer. Age: 80
JOHN J. HENRY has been a director of the Company since
November 1994. Mr. Henry has been the Vice Chairman of Sinclair
& Rush since September 1978. Mr. Henry previously held various
executive positions with Rockwell International Corp. from 1967
to 1978, including Sr. Vice President and President of the
Admiral Corporation. He is a director of Astrotech International
Corporation, PlayPower, Inc. and Duquesne University. Age 70.
DONALD C. KLOSTERMAN has been a director of the Company
since March 1994. Mr. Klosterman was the Chairman of the Board
of NTN Communications, Inc. ("NTN Communications") from April
1983 until September 1994. Since September 1994, he has been a
Director of NTN Communications. NTN Communications is a
satellite broadcasting company that provides interactive
entertainment programming. From July 1994 to November 1995, Mr.
Klosterman served as President of Pacific Casino Management Inc.,
a casino operator. Mr. Klosterman also currently serves on the
Board of Directors of the Bel Air Country Club. Age: 67.
WM. BRIAN LITTLE has been a director of the Company since
January 1992. Since January 1995 he has been a private investor.
From January 1994 to December 1994, he was a Special Limited
Partner of FLC Partnership, the General Partner of Forstmann
Little. He was a General Partner of FLC Partnership from 1978
when he co-founded Forstmann Little until December 1993. He is a
director of The Topps Company, Inc. and Department 56, Inc. Age:
55.
PETER R. MATHEWSON has been a director of the Company since
January 1997 and has been a Vice President of the Company since
1990. Since January 1997, Mr. Mathewson has also served as
President and Chief Operating Officer of Aldila Golf Corp., the
Company's operating subsidiary that conducts its core golf
operations. Mr. Mathewson has been with the Company since
September 1973 and has held various positions, including: plant
manager, production manager, shipping and receiving supervisor,
and purchasing agent. Age: 46.
CHAPIN NOLEN has been a director of the Company since
November 1994. Mr. Nolen has been a director and was President
of Combe, Incorporated from 1970 to 1995 and is currently serving
as Vice Chairman of its Board of Directors. He is a director of
Forbes Products Corporation and the Cosmetic Toiletry and
Fragrance Association. Age: 64.
FURTHER INFORMATION CONCERNING
THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company directs the management
of the business and affairs of the Company, as provided by
Delaware law, and conducts its business through meetings of the
Board and four standing committees: Executive, Audit,
Compensation and Stock Option. In addition, from time to time,
special committees may be established under the direction of the
Board when necessary to address specific issues. The Company has
no nominating or similar committee.
COMMITTEES OF THE BOARD -- BOARD MEETINGS
The Board of Directors of the Company held five meetings in
fiscal 1996. Each director, other than Donald C. Klosterman,
attended 75% or more of the aggregate of (i) meetings of the
Board held during the period for which he or she served as a
director and (ii) meetings of all committees held during the
period for which he or she served on those committees. Average
attendance at all such meetings of the Board and committees was
approximately 93%.
The EXECUTIVE COMMITTEE of the Board has the authority,
between meetings of the Board of Directors, to exercise all
powers and authority of the Board in the management of the
business and affairs of the Company that may be lawfully
delegated to it under Delaware law. The Committee is chaired by
Vincent T. Gorguze, and its other members are Gary T. Barbera and
Wm. Brian Little. The Executive Committee held two meetings in
fiscal 1996.
The AUDIT COMMITTEE's principal functions are to (i) review
the adequacy of the Company's system of internal control, (ii)
review the independent auditor's proposed audit scope and
approach, (iii) conduct a post-audit review of the financial
statements and audit findings including any significant
suggestions for improvements provided to management by the
independent auditors, (iv) review the performance and fee
arrangements of the independent auditors and (v) recommend the
appointment of the independent auditors. The Audit Committee
reports to the Board, and has lines of communication with
management and the independent auditors (including private
meetings). The Audit Committee is currently comprised of John J.
Henry, as chairman, Peter E. Bennett and Chapin Nolen. The Audit
Committee held four meetings in fiscal 1996.
The COMPENSATION COMMITTEE is charged with the
responsibility of supervising and administering the Company's
compensation policies, management awards, reviewing salaries,
approving significant changes in salaried employee benefits, and
recommending to the Board such other forms of remuneration as it
deems appropriate. The Compensation Committee is currently
comprised of Mr. Little, as chairman, and Peter E. Bennett and
Donald C. Klosterman. The Compensation Committee held two
meetings in fiscal 1996.
The STOCK OPTION COMMITTEE's principal functions are to
determine individuals to whom stock options will be granted under
the Company's 1994 Stock Incentive Plan the terms on which such
options will be granted, and to administer the 1994 Stock
Incentive Plan. The Stock Option Committee is currently
comprised of Mr. Little, who is the chairman, Mr. Klosterman and
Marvin M. Giles, who are independent, non-employee directors, and
"disinterested persons" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934 (the "Exchange Act"). The
Stock Option Committee also retains administrative responsibility
over the Company's 1992 Stock Option Plan. The Stock Option
Committee held two meetings in fiscal 1996.
AMENDMENT OF 1994 STOCK INCENTIVE PLAN
On February 12, 1997, the Board of Directors approved an
amendment (the "Plan Amendment") to the Company's 1994 Stock
Incentive Plan (the "Plan"). According to the 1994 Stock
Incentive Plan, the effectiveness of the Plan Amendment is
subject to the approval of the stockholders of the Company.
Currently, the maximum number of shares of Common Stock that may
be made the subject of options and awards under the 1994 Stock
Incentive Plan is 1,600,000. The proposed Plan Amendment would
increase the maximum number of shares that may be made the
subject of options and awards granted under the 1994 Stock
Incentive Plan to 3,100,000.
As of March 21, 1997, under the 1994 Stock Incentive Plan,
the Stock Option Committee has granted an aggregate of 1,058,592
options to eligible individuals and is obligated to grant an
additional aggregate of 60,000 options to the non-employee
directors on May 31, 1997. There are currently 541,408 shares of
Common Stock available for grant under the 1994 Stock Incentive
Plan and, if the Plan Amendment is approved, there will be
2,041,408 shares of Common Stock available for grant under the
1994 Stock Incentive Plan. Approximately 70 persons are
currently eligible to participate in the Plan.
The Board of Directors believes that the availability of
these additional options will be critical to the ability of the
Company over the next several years to attract and retain key
employees, particularly in light of the views of the Board of
Directors generally and its Compensation and Stock Option
Committees specifically as to the importance of using significant
equity based incentive compensation to align the interests of the
management of the Company with those of its stockholders. In
determining the number of options to add to the Plan, the Board
of Directors took into account the Company's recent history of
option grants and the likely significant increased level of
overall grants that would result from the need to attract and
properly incentivize on an ongoing basis the management team that
will be hired during the next 12 months to operate the Company's
planned new carbon fiber manufacturing facility.
The principal provisions of the 1994 Stock Incentive Plan,
giving effect to the Plan Amendment, are summarized below. The
following summary of the material provisions of the 1994 Stock
Incentive Plan does not purport to be complete and is qualified
in its entirety by the terms of the 1994 Stock Incentive Plan, a
complete copy of which is attached hereto as Exhibit A and
incorporated herein by reference. All defined terms used herein
shall have the same meanings set forth in the 1994 Stock
Incentive Plan, unless otherwise indicated herein.
The 1994 Stock Incentive Plan is administered by a
"Committee" which is composed of at least two directors of the
Company, each of whom is a "non-employee director" within the
meaning of Rule 16b-3 promulgated under Section 16(b) ("Rule
16b-3") of the Exchange Act and an "outside director" within the
meaning of regulations promulgated under Section 162(m) of the
Code. Pursuant to the 1994 Stock Incentive Plan, the Committee
selects Participants to whom Options and Awards are to be granted
and determines the type, size, terms and conditions of Options
and Awards, including the per share purchase price and vesting
provisions of Options and the restrictions or performance
criteria relating to Restricted Stock and Performance Shares.
The Company's Stock Option Committee serves as the Committee and
administers and interprets the 1994 Stock Incentive Plan as well.
PURPOSE OF THE 1994 STOCK INCENTIVE PLAN
The Board believes that it is important that directors,
executives and key employees have a significant financial stake
in the growth in the value of the Company so as to align their
interests with those of the Company's stockholders. The Board
also believes that in the future it will be easier to attract
highly qualified individuals if the Company can offer them a
meaningful opportunity and incentive to participate in growth in
the value of the Company.
SECURITIES TO BE OFFERED
An aggregate of 3,100,000 Shares of Common Stock of the
Company may be issued or transferred pursuant to the 1994 Stock
Incentive Plan; however, not more than one-third of the allotted
number of Shares in the aggregate may be made the subject of
Restricted Stock Awards and no Eligible Individual may receive
more than 620,000 Shares during the term of the Plan in respect
of Options and Awards. In the event of any Change in
Capitalization, the Committee may adjust the maximum number and
class of Shares with respect to which Awards may be granted under
the 1994 Stock Incentive Plan, the maximum number of Shares with
respect to which Options or Awards may be granted to any Eligible
Individual during the term of the Plan, the number and class of
Shares which are subject to outstanding Options or Awards granted
under the 1994 Stock Incentive Plan and, if applicable, the
purchase price therefor, the number and class of Shares in
respect of which Director Options are to be granted, and the
Performance Objectives relating to Performance Shares. In
addition, if any Option or Award expires or terminates without
having been exercised, the Shares subject to that Option or Award
again become available for grant under the 1994 Stock Incentive
Plan.
INDIVIDUALS WHO MAY PARTICIPATE IN THE
1994 STOCK INCENTIVE PLAN
All of the Company's (and its subsidiaries') salaried
employees and officers and any advisors and consultants who
receive cash compensation from the Company (or any of its
subsidiaries) are eligible to receive Options or Awards under the
1994 Stock Incentive Plan. Options and Awards under the Plan
shall be granted at the sole discretion of the Committee. The
granting of an Option or Award does not confer upon the
participant any right to continue in the employ of the Company or
affect any right or power of the Company to terminate the
services of such participant at any time. Options are also
conferred upon nonemployee directors upon their initial
appointment and annually on the last trading day in May provided
the Director has served at least one year and continues to serve
as a Director as of such date.
AWARDS
Options. The Committee may grant to eligible individuals
Options to purchase Shares. Subject to the provisions of the
Code, Options may either be Incentive Stock Options (within the
meaning of Section 422 of the Code) or Nonqualified Stock
Options. The purchase price of each share of Common Stock (the
"Purchase Price") under each Option shall be established by the
Committee at the time the Option is granted. The Purchase Price
of Options shall not be less than 100% of the Fair Market Value
of a Share on the date the Option is granted (110% in the case of
an Incentive Stock Option granted to a Ten-Percent Stockholder).
Employee Options are exercisable at such times and in such
installments as determined by the Committee, provided, however,
that no Employee Option shall be exercisable after the expiration
of ten years from its grant date (five years in the case of an
Incentive Stock Option granted to a Ten-Percent Stockholder).
The Committee may accelerate the exercisability of any Employee
Option at any time. Under the 1994 Stock Incentive Plan, each
new non-employee director receives Options to purchase 26,314
Shares at the time of joining the Board and Options to purchase
an additional 10,000 Shares each May after serving at least one
year on the Board. The Director Options vest in equal amounts on
the first, second and third anniversary of the date of grant and
have a term of 10 years from the date of grant. The Committee
shall determine the other terms and conditions of Director
Options, which shall not be inconsistent with the provisions of
the Plan and which shall not vary the price, amount or timing of
Director Options provided in Section 6 of the Plan.
Unless set forth in the Agreement evidencing the Option at
the time of grant or at any time thereafter, Options are not
transferable by the Optionee other than by will or the laws of
descent and distribution or pursuant to a domestic relations
order (within the meaning of Rule 16a-12 promulgated under the
Exchange Act) and may be exercised during the Optionee's lifetime
only by the Optionee or the Optionee's guardian or legal
representative. The Purchase Price for Shares acquired pursuant
to the exercise of an Employee Option must be paid (i) in cash,
(ii) by transferring Shares to the Company, or (iii) a
combination of the foregoing, upon such terms and conditions as
determined by the Committee. The Purchase Price for Shares
acquired pursuant to the exercise of Director Options must be
paid in cash. Notwithstanding the foregoing, the Committee may
establish cashless exercise procedures which provide for the
exercise of an Option and sale of the underlying Share by a
registered broker-dealer. Upon a Change in Control, all Options
outstanding under the 1994 Stock Incentive Plan will become
immediately and fully exercisable. In addition, the Optionee
may, to the extent set forth in the Agreement evidencing the
grant of an Employee Option, during the sixty-day period
following the Change in Control surrender for cancellation any
Option (or portion thereof) to the extent unexercised for a cash
payment in an amount equal to the excess, if any, of the Fair
Market Value (or in the case of a Nonqualified Stock Option, the
Adjusted Fair Market Value if greater), on the date preceding the
date of surrender, of the Shares subject to the Option or portion
thereof surrendered, over the aggregate purchase price for such
Shares under the Option or portion thereof surrendered.
Stock Appreciation Rights. The 1994 Stock Incentive Plan
permits the granting of Stock Appreciation Rights to participants
either alone or in connection with an Employee Option. A Stock
Appreciation Right allows the Grantee to receive, upon exercise,
cash and/or Shares, at the discretion of the Committee, in an
amount equal in value to an amount determined by multiplying (i)
the excess, if any, of (x) for those granted in connection with
an Employee Option, the Fair Market Value per share of Common
Stock on the date preceding the exercise date over the Purchase
Price per share of Common Stock under the related Option, or (y)
for those not granted in connection with an Option, the excess of
the Fair Market Value per share of Common Stock on the date
preceding the exercise date over the Fair Market Value per share
of Common Stock on the grant date of the Stock Appreciation
Right, by (ii) the number of Shares as to which such Stock
Appreciation Right is being exercised.
Stock Appreciation Rights granted in connection with an
Employee Option cover the same Shares as those covered by such
Option and are generally subject to the same terms. A Stock
Appreciation Right granted in connection with an Incentive Stock
Option is exercisable only if the Fair Market Value of a Share on
the exercise date exceeds the Purchase Price specified in the
related Incentive Stock Option Agreement. Stock Appreciation
Rights unrelated to Options shall be granted on such terms and
conditions as shall be determined by the Committee, but shall not
have a term of greater than ten years. Upon a Change in Control,
all Stock Appreciation Rights become immediately and fully
exercisable. Upon exercise of a Stock Appreciation Right within
sixty days of a Change in Control, the Grantee will be entitled
to receive a cash payment in an amount equal to (A) the greater
of (x) the Fair Market Value, on the date preceding the date of
surrender, of the Shares subject to the Stock Appreciation Right
or portion thereof surrendered, and (y) the Adjusted Fair Market
Value of the Shares subject to the Stock Appreciation Right or
portion thereof surrendered over (B) the Fair Market Value, on
the date the Stock Appreciation Right was granted, of the Shares
subject to the Stock Appreciation Right or portion thereof
surrendered.
Restricted Stock. The terms of a Restricted Stock Award
shall be determined by the Committee at the time the Award is
made. The Committee may also determine at such time that
dividends paid on such Restricted Stock will be held for the
account of the Grantee or deferred until the lapsing of the
restrictions thereon and, if deferred, whether such dividends
will be reinvested in shares of Common Stock or held in cash. If
deferred dividends are held in cash, they will be paid (together
with any interest accrued thereon) upon the lapsing of
restrictions on Shares of Restricted Stock or forfeited upon the
forfeiture of Shares of Restricted Stock. The extent, if any, to
which the restrictions on Shares of Restricted Stock shall lapse
upon a Change in Control will be determined by the Committee at
the time of the grant of the Award of Restricted Stock and set
forth in the Agreement evidencing the Award.
Performance Shares. The 1994 Stock Incentive Plan permits
the granting of Performance Shares. Performance Shares will be
awarded by the Committee prior to the commencement of the
Performance Cycle to which such shares relate. Performance
Shares will vest upon the attainment by the Company, a
Subsidiary, a Division, or any combination of the foregoing, of
certain Performance Objectives for a specified Performance Cycle.
The Performance Objectives shall be expressed in terms of
earnings per share, pre-tax operating profits, revenue, market
share or any combination of the foregoing. The Performance
Objectives and the length of the Performance Cycle will be
determined by the Committee. The Performance Objectives with
respect to a Performance Cycle shall be established in writing by
the Committee by the earlier of (i) the date on which a quarter
of the Performance Cycle has lapsed or (ii) the date which is
ninety (90) days after the commencement of the Performance Cycle.
Performance Shares are awarded in the form of Shares. The
Committee will determine at the time an Award is made the total
number of Performance Shares subject to an Award and the time or
times at which the Performance Shares will be issued to the
Grantee and such other terms as the Committee shall determine.
At the time an Award of Performance Shares is made, the Committee
may also determine that dividends paid on such Performance Shares
will be held for the account of the Grantee or deferred until the
lapsing of the restrictions thereon and, if deferred, whether
such dividends will be reinvested in shares of Common Stock or
held in cash. If deferred dividends are held in cash, they will
be paid (together with any interest accrued thereon) upon the
lapsing of restrictions on Performance Shares or forfeited upon
the forfeiture of Performance Shares. Upon a Change in Control,
restrictions shall lapse on all or a percentage of the
Performance Shares, as determined by the Committee at the time
the Award is made. In addition, the Agreement evidencing the
grant of Performance Shares shall contain provisions for the
treatment of such Awards (or portions thereof) which do not
become vested as a result of a Change in Control, including,
without limitation, provisions for the adjustment of applicable
Performance Objectives.
ADDITIONAL INFORMATION
The 1994 Stock Incentive Plan provides that in satisfaction
of the federal, state and local income taxes and other amounts as
may be required by law to be withheld (the "Withholding Taxes")
with respect to an Option or Award, the Optionee or Grantee may
make a written election (the "Tax Election"), which may be
accepted or rejected in the discretion of the Committee, to have
withheld a portion of the Shares issuable to him or her having an
aggregate Fair Market Value equal to the Withholding Taxes.
The Committee shall have the authority at the time a grant of
Options or an Award is made to award designated Optionees or
Grantees tax bonuses that shall be paid on the exercise of such
Options or payment of such Awards. The Committee shall have full
authority to determine the amount of any such tax bonus and the
terms and conditions affecting the vesting and payment thereof.
The 1994 Stock Incentive Plan will terminate on the day
preceding the tenth anniversary of its effective date. The Board
may terminate or amend the 1994 Stock Incentive Plan at any time,
except that (i) no such amendment or termination may adversely
affect outstanding Awards, and (ii) to the extent necessary under
applicable law, no amendment will be effective unless approved by
stockholders.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO OPTIONS
In general, an Optionee will not recognize taxable income
upon grant or exercise of an Incentive Stock Option and the
Company will not be entitled to any business expense deduction
with respect to the grant or exercise of an Incentive Stock
Option. (However, upon the exercise of an Incentive Stock
Option, the excess of the Fair Market Value on the date of the
exercise of the Shares received over the exercise price of Shares
will be treated as an adjustment to alternative minimum taxable
income). In order for the exercise of an Incentive Stock Option
to qualify for the foregoing tax treatment, the Optionee
generally must be an employee of the Company or a Subsidiary from
the date the Incentive Stock Option is granted through the date
three months before the date of exercise, except in the case of
death or disability, where special rules apply.
If the Optionee has held the Shares acquired upon exercise of
an Incentive Stock Option for at least two years after the date
of grant and for at least one year after the date of exercise,
upon disposition of the Shares by the Optionee, the difference,
if any, between the sale price of the Shares and the exercise
price of the Option will be treated as long-term capital gain or
loss. If the Optionee does not satisfy these holding period
requirements, the Optionee will recognize ordinary income at the
time of the disposition of the Shares, generally in an amount
equal to the excess of the Fair Market Value of the Shares at the
time the Option was exercised over the exercise price of the
Option. The balance of gain realized, if any, will be long-term
or short-term capital gain, depending on whether or not the
Shares were sold more than one year after the Option was
exercised. If the Optionee sells the Shares prior to the
satisfaction of the holding period requirements but at a price
below the Fair Market Value of the Shares at the time the Option
was exercised, the amount of ordinary income will be limited to
the excess of the amount realized on the sale over the exercise
price of the Option. If the Optionee includes the ordinary
income in income or the Company complies with applicable
reporting requirements, it will be entitled to a business expense
deduction in the same amount and at the same time as the Optionee
recognizes ordinary income, subject to any deduction limitation
under Section 162(m).
Upon exercise of a Stock Appreciation Right, the Optionee
will recognize ordinary income in an amount equal to the Fair
Market Value of the shares or cash received on the exercise date.
If the Optionee includes such amount in income or the Company
complies with applicable reporting requirements, it will be
entitled to a business expense deduction in the same amount and
at the same time that the holder of the Stock Appreciation Right
recognizes ordinary income, subject to any deduction limitation
under Section 162(m).
In general, an Optionee to whom a Nonqualified Stock Option
is granted will recognize no income and the Company will not be
entitled to any business expense deduction at the time of the
grant of the Option. Upon exercise of a Nonqualified Stock
Option, an Optionee will recognize ordinary income in an amount
equal to the amount by which the Fair Market Value of the Shares
on the date of exercise exceeds the exercise price of the Option.
If the Optionee includes such amount in income or the Company
complies with applicable reporting requirements, it will be
entitled to a business expense deduction in the same amount and
at the same time as the Optionee recognizes ordinary income,
subject to any deduction limitation under Section 162(m).
Section 162(m) of the Code and the regulations thereunder
generally would disallow the Company a federal income tax
deduction for compensation paid to the chief executive officer
and the four other most highly compensated executive officers to
the extent such compensation paid to any of such individuals
exceeds one million dollars in any year. Section 162(m)
generally does not disallow a deduction for payments of qualified
"performance-based compensation" the material terms of which have
been disclosed to and approved by stockholders. The Company
intends that compensation attributable to Options, Stock
Appreciation Rights and Performance Shares granted under the 1994
Stock Incentive Plan will be qualified "performance-based
compensation."
Special rules may apply in the case of an Optionee who is
subject to Section 16(b) of the Exchange Act.
Under certain circumstances, the accelerated vesting or the
cashout or exercise of Options or Stock Appreciation Rights or
the accelerated lapse of restrictions on other Awards in
connection with a Change in Control of the Company might be
deemed an "excess parachute payment" for purposes of the golden
parachute tax provisions of Section 280G of the Code. To the
extent it is so considered, the Optionee may be subject to a 20%
excise tax and the Company may be denied a tax deduction.
A copy of the Plan, as proposed to be amended and restated,
is attached hereto as Exhibit A and incorporated herein by
reference.
MARKET VALUE OF THE SECURITIES UNDERLYING OPTIONS, STOCK
APPRECIATION RIGHTS AND OTHER AWARDS
As of March 21, 1997, the closing price of Common Stock as
reported on the NASDAQ Stock Market was $4.69 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE 1994 STOCK INCENTIVE PLAN.
RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Board has selected the accounting firm of Deloitte &
Touche LLP to audit the Company's financial statements for, and
otherwise act as the Company's independent accountants with
respect to, the fiscal year ending December 31, 1997. Deloitte &
Touche LLP has acted as independent accountants for the Company
since the fiscal year ended December 31, 1991. In accordance
with the Board's resolution, its selection of Deloitte & Touche
LLP as the Company's independent accountants for the current
fiscal year is being presented to stockholders for ratification
at the Annual Meeting. The Company knows of no direct or
material indirect financial interest of Deloitte & Touche LLP in
the Company or any connection of that firm with the Company in
the capacity of promoter, underwriter, voting trustee, officer or
employee.
Members of Deloitte & Touche LLP will be present at the
Meeting, will have an opportunity to make a statement if they so
desire, and will be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE
INDEPENDENT ACCOUNTANTS OF THE COMPANY.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
the shares of Common Stock beneficially owned as of March 7, 1997
by (a) each person or entity who, insofar as the Company has been
able to ascertain, beneficially owned more than 5% of the
Company's Common Stock as of such date, (b) each of the directors
of the Company (all nominees for election as director are current
members of the Board), (c) the Company's Chief Executive Officer
and the four other most highly compensated executive officers of
the Company for the fiscal year ended December 31, 1996 (the
"Named Executive Officers") and (d) all current directors and
executive officers of the Company as a group (11 persons).
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY PERCENT OF
OWNED(1) SHARES(1)
------------ ----------
NAME - -
- -------------------------------------
<S> <C> <C>
Quest Advisory Corp. and Quest
Management Company(2) 1,078,000 6.8%
Edmond S. Abrain 0 *
Gary T. Barbera(3) 273,088 1.7%
Peter E. Bennett(4) 37,544 *
Robert J. Cierzan(5) 103,141 *
Marvin M. Giles, III(6) 34,647 *
Vincent T. Gorguze(7) 542,419 3.4%
John J. Henry(8) 24,744 *
Donald C. Klosterman(9) 29,647 *
Wm. Brian Little(10) 213,238 1.3%
Peter R. Mathewson(11) 85,632 *
Chapin Nolen(12) 22,544 *
Peter J. Piotrowski(13) 63,753 *
All directors and executive officers
as a group (11 persons)(14) 1,430,397 8.9%
<FN>
- -------------------------------
* The percentage of shares of Common Stock beneficially owned
does not exceed one percent of the outstanding shares of
Common Stock.
(1) For purposes of this table, a person or group of persons is
deemed to have "beneficial ownership" of any shares of
Common Stock which such person has the right to acquire
within 60 days following March 21, 1997. For purposes of
computing the percentage of outstanding shares of Common
Stock held by each person or group of persons named above,
any security which such person or persons has or have the
right to acquire within 60 days following March 21, 1997 is
deemed to be outstanding, but is not deemed to be
outstanding for the purpose of computing the percentage
ownership of any other person.
(2) As reported in a joint filing on Schedule 13G dated February
3, 1997 (the "Schedule 13G") by Quest Advisory Corp.
("Quest"), Quest Management Company ("QMC"), and Charles M.
Royce. According to the Schedule 13G, Quest has sole voting
and dispositive power over 879,900 of such shares, QMC has
sole voting and dispositive power over 198,100 of such
shares, and Mr. Royce may be deemed to be a controlling
person of Quest and QMC and, as such, may be deemed to
beneficially own the shares of Common Stock of the Company.
Mr. Royce disclaims beneficial ownership of the shares of
Common Stock held by Quest and QMC.
(3) Includes options to acquire 71,434 shares of Common Stock
that will have vested within 60 days following March 21,
1997. Mr. Barbera also has options to purchase 65,716
shares of Common Stock that will not have vested within 60
days following March 21, 1997. All of the currently owned
shares are owned by The Barbera Trust, of which Mr. Barbera
and his wife are the trustees.
(4) Includes options to acquire 17,544 shares of Common Stock
that will have vested within 60 days following March 21,
1997. Mr. Bennett also has options to purchase 18,770
shares of Common Stock that will not have vested within 60
days following March 21, 1997.
(5) Includes options to acquire 33,667 shares of Common Stock
that will have vested within 60 days following March 21,
1997. Mr. Cierzan also has options to purchase 34,333
shares of Common Stock that will not have vested within 60
days following March 21, 1997. All of the currently owned
shares are owned by Robert J. Cierzan and Lynn M. Cierzan,
JTWROS.
(6) Includes options to acquire 29,647 shares of Common Stock
that will have vested within 60 days following March 21,
1997. Mr. Giles also has options to purchase 16,667 shares
of Common Stock that will not have vested within 60 days
following March 21, 1997.
(7) Includes options to acquire 28,333 shares of Common Stock
that will have vested within 60 days following March 21,
1997. Mr. Gorguze also has options to purchase 56,667
shares of Common Stock that will not have vested within 60
days following March 21, 1997. All of the shares currently
owned by Mr. Gorguze are owned by Gorguze Investments, L.P.,
a limited partnership, of which Mr. Gorguze is sole limited
partner and a corporation, of which Lynn Gorguze, his
daughter, owns 100% of the capital stock, is sole general
partner.
(8) Includes options to acquire 17,544 shares of Common Stock
that will have vested within 60 days following March 21,
1997. Mr. Henry also has options to purchase 18,770 shares
of Common Stock that will not have vested within 60 days
following March 21, 1997.
(9) Reflects options to acquire shares of Common Stock that will
have vested within 60 days following March 21, 1997. Mr.
Klosterman also has options to purchase 16,667 shares of
Common Stock that will not have vested within 60 days
following March 21, 1997.
(10) Includes options to acquire 3,333 shares of Common Stock
that will have vested within 60 days following March 21,
1997. Mr. Little also has options to purchase 16,667 shares
of Common Stock that will not have vested within 60 days
following March 21, 1997. Also includes 26,858 shares held
by Mr. Little's IRA. Also includes 2,350 shares held by
each of Mr. Little's wife and his adult son and daughter, as
to which Mr. Little disclaims beneficial ownership.
(11) Includes options to acquire 40,000 shares of Common Stock
that will have vested within 60 days following March 21,
1997. Mr. Mathewson also has options to purchase 140,000
shares of Common Stock that will not have vested within 60
days following March 21, 1997.
(12) Includes options to acquire 17,544 shares of Common Stock
that will have vested within 60 days following March 21,
1997. Mr. Nolen also has options to purchase 18,770 shares
of Common Stock that will not have vested within 60 days
following March 21, 1997.
(13) Includes options to acquire 36,667 shares of Common Stock
that will have vested within 60 days following March 21,
1997. Mr. Piotrowski also has options to purchase 33,333
shares of Common Stock that will not have vested within 60
days following March 21, 1997.
(14) Includes beneficial ownership of shares of Common Stock
subject to options exercisable within 60 days following
March 21, 1997 and includes the shares held by Gorguze
Investments, L.P.
</FN>
</TABLE>
Section 16(a) of the Exchange Act requires the Company's
directors and executive officers and holders of more than 10% of
the Company's Common Stock to file with the Securities and
Exchange Commission (the "SEC") reports of ownership and changes
in ownership of Common Stock and other equity securities of the
Company on Forms 3, 4 and 5. Based on a review of such forms and
written representations of reporting persons, the Company
believes that during the fiscal year ended December 31, 1996, its
officers and directors and holders of more than 10% of the
Company's Common Stock complied with all applicable Section 16(a)
filing requirements, except that Mr. Abrain filed his initial
Form 3 after becoming a director and executive officer on
February 12, 1996.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information regarding each of the
current executive officers of the Company. Information about
Messrs. Barbera and Mathewson is presented in "ELECTION OF
DIRECTORS - Nominees for Election by Holders of Common Stock."
Officers are appointed by and serve at the discretion of the
Board.
Name Age Position
- ---------------------- --- -------------------------
Gary T. Barbera 59 Chairman of the Board of
Directors, Chief Executive
Officer, and Director
Peter R. Mathewson 46 Vice President and
Director; President and Chief
Operating Officer of Aldila
Golf Corp.
Robert J. Cierzan 50 Vice President, Finance;
Secretary and Treasurer
Peter J. Piotrowski 50 Vice President, Manufacturing
Except for Mr. Mathewson, each executive officer holds the
same position with Aldila Golf Corp., the Company's operating
subsidiary that conducts its core golf operations, as he holds
with the Company.
The principal occupations and positions for the past five
years, and in certain cases prior years, of the executive
officers of the Company who are not also nominees for election as
a director, are as follows. Reference to service with the
Company through April 23, 1993 means only service with Aldila
Golf Corp. and the predecessor company to Aldila Golf Corp.
Robert J. Cierzan has been Secretary and Treasurer of Aldila
since January 1991 and Vice President, Finance since March 1989.
From September 1988 to February 1989, Mr. Cierzan held the
position of Executive Vice President-Finance at Illinois Coil
Spring Company, a diversified manufacturer of springs, automotive
push-pull controls and rubber products.
Peter J. Piotrowski has been the Vice President,
Manufacturing since January 1997. Immediately prior to that he
was the Vice President, Engineering of the Company from April
1989 when he joined the Company. Prior to that, from November
1983 to April 1989, Mr. Piotrowski was the Vice President of
Research and Development and Quality Assurance at the Ben Hogan
Co. Prior to his tenure at the Ben Hogan Co., he was manager of
product engineering for MacGregor Golf Co., and manager of golf
club engineering for Wilson Sporting Goods.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth
the compensation (cash and non-cash, plan and non-plan) paid to
each of the Named Executive Officers for services rendered in all
capacities to the Company during the three fiscal years ended
December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
-------------------------------- --------------
Securities
Fiscal Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation Options (1)
- ---------------------------------- --------- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Gary T. Barbera 1996 $332,900 $ 86,600 $ -- 60,000
Chairman of the Board and 1995 317,000 -- -- 40,000
Chief Executive Officer 1994 304,000 154,100 -- 37,150
Edmond S. Abrain(2) 1996 250,000 65,000 -- 150,000
President and Chief 1995 -- -- -- --
Operating Officer 1994 -- -- -- --
Robert J. Cierzan 1996 137,400 35,700 -- 35,000
Vice President, Finance; 1995 128,000 -- -- 18,000
Secretary and Treasurer 1994 118,200 59,900 15,000
Peter R. Mathewson(3) 1996 119,300 31,000 -- 40,000
Vice President, Manufacturing 1995 111,000 -- 51,803(5) 25,000
1994 102,000 51,600 82,820(5) 15,000
Peter J. Piotrowski(4) 1996 119,200 31,000 -- 30,000
Vice President, Engineering 1995 113,000 -- 67,460(5) 25,000
1994 107,600 54,500 415,668(5) 15,000
<FN>
- -----------------------
(1) All share amounts have been retroactively adjusted to give
effect to the 2-for-1 stock split in the form of a stock dividend
for all stockholders of record on February 22, 1994.
(2) In January 1997, Edmond S. Abrain resigned in all capacities
held with the Company, including all subsidiaries thereof.
(3) For a description of Mr. Mathewson's current positions with
the Company, see "ELECTION OF DIRECTORS -- Nominees for Election
by Holders of Common Stock."
(4) For a description of Mr. Piotrowski's current position with
the Company, see "EXECUTIVE OFFICERS OF THE COMPANY."
(5) Represents the excess of fair market value of securities
purchased from the Company over the price paid for such
securities.
</FN>
</TABLE>
The following table sets forth information concerning the
grant of stock options during the fiscal year ended December 31,
1996 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS
IN THE FISCAL YEAR ENDED DECEMBER 31, 1996
Individual Grants
------------------------------------------------
Percent of
Total
Options Potential Realizable
Granted to Value at Assumed
Employees Annual Rates of
in Fiscal Exercise or Stock Price
Options Year Base Price Expiration Appreciation for
Name Granted(1) 1996(2) (per share) Date(3) Option Term
- ------------------- ----------- ----------- ----------- ----------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
5% (4) 10%(4)
----------- -----------
Edmond S. Abrain 100,000 19% $4.91 1/02/06(5) $308,800 $782,500
50,000 9% 4.66 5/17/06(5) 146,500 371,500
Gary T. Barbera 60,000 11% 4.66 5/17/06 175,800 445,800
Robert J. Cierzan 35,000 6% 4.66 5/17/06 102,600 261,100
Peter R. Mathewson 40,000 7% 4.66 5/17/06 117,200 297,200
Peter J. Piotrowski 30,000 6% 4.66 5/17/06 87,900 222,900
<FN>
- -------------------------
(1) These options were granted pursuant to the Company's 1994
Stock Incentive Plan, as amended and restated (the "1994
Stock Incentive Plan"). One-third of the total number of
options granted are exercisable on the first anniversary of
the option grant date and thereafter, an additional one-third
of the total number of options granted are exercisable on
each of the second and third anniversaries of the option
grant.
(2) In fiscal 1996, the Company granted a total of 540,000
options to its employees under the Company's 1994 Stock
Incentive Plan. This number was used in calculating the
percentages above.
(3) The options granted under the Company's 1994 Stock Incentive
Plan generally expire on the earliest of (a) the tenth
anniversary of the date of grant, (b) if the Optionee's
employment is terminated as a result of death, disability,
retirement or within two years after a change in control, one
year following termination of employment, (c) if the
Optionee's employment is terminated for any other reason, 30
days following termination of employment or (d) the exercise
in full of the option.
(4) The assumed 5% and 10% annual rates of appreciation over the
term of the options are set forth in accordance with rules
and regulations adopted by the SEC and do not represent the
Company's estimate of stock price appreciation.
(5) Mr. Abrain's options have been terminated following his
resignation in January 1997. These dates represent the
original expiration dates of Mr. Abrain's options.
</FN>
</TABLE>
Aggregated Option Exercises. The following table sets forth
information (on an aggregated basis) concerning each exercise of
stock options during the fiscal year ended December 31, 1996 by
each of the Named Executive Officers and the fiscal year-end
value of unexercised options. The Company has no outstanding
stock appreciation rights, either freestanding or in tandem with
options.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES
IN THE FISCAL YEAR ENDED DECEMBER 31, 1996 AND
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying "In-the-Money"
Shares Unexercised Options at Options at Fiscal
Acquired Fiscal Year-End Year-End(1)
on Value -------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------- -------- -------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Edmond S. Abrain(2) -- -- 0 150,000 -- $ 9,000
Gary T. Barbera -- -- 38,100 99,050 -- 10,800
Robert J. Cierzan -- -- 16,000 52,000 -- 6,300
Peter R. Mathewson -- -- 18,333 61,667 -- 7,200
Peter J. Piotrowski -- -- 18,333 51,667 -- 5,400
<FN>
- ---------------------------------
(1) Options are "in-the-money" at the fiscal year-end if the fair
market value of the underlying securities on such date
exceeds the exercise price of the option. The amounts set
forth above represent the difference between the closing
price of the Company's Common Stock on December 31, 1996 and
the exercise price of the options, multiplied by the
applicable number of options.
(2) Mr. Abrain's options have been terminated following his
resignation in January 1997.
</FN>
</TABLE>
DIRECTOR COMPENSATION
Directors, other than management directors (Gary T.
Barbera and Peter R. Mathewson), currently receive for their
service as directors $2,000 per quarter, $1,000 per Board meeting
attended and $500 per committee meeting attended. Each director,
including each management director and other directors not
receiving directors' fees, is reimbursed for his or her out-of-
pocket expenses arising from attendance at meetings of the Board
or committees thereof.
Pursuant to the Company's 1994 Stock Incentive Plan, on
May 31, 1996, each of the non-employee directors other than Mr.
Gorguze (who, for purposes of the 1994 Stock Incentive Plan
only, continues to be treated as an employee director) who had
more than one year of service (Peter E. Bennett, Marvin M. Giles,
III, John J. Henry, Donald C. Klosterman, Wm. Brian Little, and
Chapin Nolen) received an annual stock option grant of 10,000
shares. Under the 1994 Stock Incentive Plan, each non-employee
director with more than one year of service (currently, Messrs.
Bennett, Giles, Henry, Klosterman, Little and Nolen) will receive
additional options to acquire 10,000 shares annually on the last
trading day in the month of May.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
Vincent T. Gorguze, who was Chairman of the Board until
December 31, 1995, is currently serving as Chairman Emeritus and
provides consulting services, from time to time, to the Company.
Mr. Gorguze and the Company entered into a services agreement as
of January 1, 1996 relating to these consulting services which
expires January 1, 1998, unless earlier terminated as provided
therein. Under the agreement, Mr. Gorguze receives an annual
compensation rate of $150,000 in consideration of the performance
by Mr. Gorguze of his obligations, as provided therein. For the
purposes of the 1994 Stock Incentive Plan, Mr. Gorguze continues
to be treated as an employee director.
The Company has also entered into employment and consulting
agreements in October, 1995, each having a two-year term, with
each of the following Named Executive Officers: Messrs. Barbera,
Cierzan, Mathewson and Piotrowski. Pursuant to each employment
and consulting agreement, each executive officer is currently
paid an annual base salary (currently $350,000 for Mr. Barbera,
$139,100 for Mr. Cierzan, $200,000 for Mr. Mathewson and $120,750
for Mr. Piotrowski) and is entitled to participate in the
Company's Executive Bonus Plan (see "-- Report of the
Compensation and Stock Option Committees on Executive
Compensation"). Pursuant to the agreements, during each calendar
year, the executive officers' salaries will be reviewed at least
once for a possible increase in accordance with the then
prevailing compensation policies of the Company relating to
similarly structured employees. Under each agreement, the
Company shall retain the respective services of each executive
officer as a consultant for a period of time following such
executive officer's termination with the Company. In the event
any executive officer is terminated for any other reason than for
Cause (as such term is defined in the agreement) including as a
result of a change-in-control, then such executive officer shall
be entitled to his base salary (but without any entitlement to
increases in the base salary) at the termination date through the
later of the second anniversary of the date of the agreement and
the first anniversary of the termination date. Mr. Abrain served
under such an employee and consulting agreement during 1996,
which was terminated as a result of his resignation without any
obligation that he continue to serve as a consultant to the
Company.
Except as provided above and except for the provisions in
the 1992 Stock Option Plan and the 1994 Stock Incentive Plan and
related agreements thereto, there are no compensatory plans or
arrangements with respect to any of the above executive officers
(including each of the Named Executive Officers) which are
triggered by, or result from, the resignation, retirement or any
other termination of such executive's employment, a change-in-
control of the Company or a change in such executive's
responsibilities following a change-in-control.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
From January 1992 until April 23, 1993, Wm. Brian Little,
who was on the Compensation Committee throughout 1996, served as
President of the Company and also served in an executive officer
capacity at Aldila Golf Corp. Mr. Little received no
compensation from the Company or any of its subsidiaries for
services rendered in any of such capacities.
REPORT OF THE COMPENSATION AND STOCK OPTION
COMMITTEES ON EXECUTIVE COMPENSATION
Introduction. The Compensation Committee of the Board of
Directors in 1996 was comprised of Peter E. Bennett, Donald C.
Klosterman and Wm. Brian Little. The Company's employee stock
option plans, including its 1994 Stock Incentive Plan, are
administered by the Stock Option Committee, which was comprised
in 1996 of Marvin M. Giles, III, Mr. Klosterman and Mr. Little.
Compensation Objectives and Policies. The principle
objectives of the Company's executive compensation are to: (i)
support the achievement of desired Company performance, (ii)
align the executive officers' interests with the success of the
Company and with the interests of the Company's stockholders and
(iii) provide compensation that will attract and retain superior
talent and reward performance. These objectives are principally
achieved through compensation in the form of annual base
salaries, bonuses and equity investment opportunities.
The Company entered into employment agreements with certain
of its key employees including Gary T. Barbera, Robert J.
Cierzan, Peter J. Piotrowski and Peter R. Mathewson, in October,
1995. These agreements are described in section "-- Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements". On January 1, 1996, Vincent T. Gorguze resigned
as Chairman of the Board and entered into a services agreement
relating to his services as Chairman Emeritus.
Executive officers generally receive salary increases at the
time of their respective employment anniversaries as approved by
the Compensation Committee, taking into consideration the
recommendations of the Company's Chairman and Chief Executive
Officer. In 1996, executive officer salary increases ranged from
5% to 8%. In deciding to provide these salary increases to the
executive officers, the Compensation Committee took into account
the increase in the Company's revenues and earnings for 1996 as
compared to 1995 despite a further decrease in sales to Callaway
Golf Company ("Callaway"), the Company's largest customer,
following the large decrease in 1995, and despite continued
pressure on pricing that had negatively impacted the Company's
gross margin. The Compensation Committee also took into account
the expectation that any bonuses under the Company's Executive
Bonus Plan (the "Bonus Plan"), as described below, for 1996 would
not be significant. Prior to 1995, the Bonus Plan had typically
provided a significant portion of the total compensation for the
executive officers and, accordingly, despite annual salary
increases, each executive officer's total cash compensation in
1996 was lower than it had been in 1993 and 1994.
The Compensation Committee believes that overall 1996
executive compensation levels adequately reflected (i) each
executive's business results and performance in his area of
responsibility, (ii) each executive's contribution to the overall
management team and (iii) each executive's then expected future
contributions to the Company.
In addition to annual base salaries, in 1996, all executive
officers participated in the Company's Executive Bonus Plan (the
"Bonus Plan"). Bonus awards to be granted under the Bonus Plan
were predicated on the actual financial performance of the
Company at the end of the Company's fiscal year as compared to
the target financial performance objectives established by the
Compensation Committee in late 1995 based on the Company's 1996
operating plan. The bonuses awarded were dependent upon the
Company achieving a specified dollar amount of pretax profits and
increased to the extent pretax profits exceeded that minimum
level and achieved various higher levels. The bonus for each
participant was set at a percentage of the participant's base
salary, with the percentage depending on what level of pretax
profits the Company achieved. In establishing the targets and
resulting bonuses, the Committee determined that it was important
that the bonus payment structure be designed to reward executive
officers for high levels of performance by the Company, weighted
so that superior performance (viewed against the performance then
expected in accordance with management's internal projections for
1996 performance as approved by the Board of Directors) would
result in substantially higher bonuses than would result from
merely acceptable performance. While a substantial portion of
the bonus was subject solely to the Company attaining its
quantitative objectives, a portion of the total bonus award was
also subject to a discretionary modifier determined by the
Chairman and Chief Executive Officer allowing him to reduce the
bonus if the executive's individual performance so warranted.
The Company's pre-tax profits did not meet the minimum thresholds
in the Bonus Plan and no bonuses were paid under the Bonus Plan
for 1996. However, the failure to meet the minimum thresholds
for 1996 resulted in part from management decisions in late 1996
that had a negative impact on 1996 sales and profits but were
made with the expectation that these decisions would enhance
relationships with key customers and enhance future financial
performance. The Compensation Committee believed that it was not
appropriate to penalize the Company's senior management for the
consequences of such decisions and, as a result, decided after
the end of 1996 to award discretionary bonuses outside the Bonus
Plan to the executive officers in the amounts reflected in the
Summary Compensation Table above.
The Board of Directors believes that executive officers who
are in a position to make a substantial contribution to the long-
term success of the Company and to build stockholder value should
have a significant stake in the Company's on-going success. To
this end, the Company's compensation objectives have been
designed to be achieved through significant stock ownership in
the Company by executive officers in addition to base salary and
bonus payments.
The purpose of the 1994 Stock Incentive Plan is to provide
an additional incentive to employees to work to maximize
stockholder value and to facilitate broadening and increasing
stock ownership by executives and other key employees. In 1996,
options to purchase an aggregate of 540,000 shares were granted
to employees of the Company as a group, with 315,000 of those
being granted to the Named Executive Officers. The Stock Option
Committee believes that these stock option grants were
appropriate in light of the policy of the Board of Directors that
significant equity ownership by executive officers is an
important contributor to aligning the interests of executive
officers with those of the stockholders of the Company, and the
number of options awarded to individual officers were set based
on the Stock Option Committee's perception, in part in light of
recommendations by the Company's Chairman and Chief Executive
Officer, as to each officer's ability to affect the Company's
overall future performance.
The Stock Option Committee believes that these options,
together with the shares and options previously made available to
executive officers, have provided significant incentives for
executives to increase the value of the Company for the benefit
of all stockholders and have offered executives significant
opportunities to profit personally from their efforts to increase
that value.
The Compensation Committee and the Stock Option Committee
have considered the impact of Section 162(m) of the Internal
Revenue Code on their executive compensation decisions. Section
162(m) generally disallows a federal income tax deduction to any
publicly-held corporation for compensation paid to the chief
executive officer and the four other most highly compensated
executive officers to the extent that such compensation in a
taxable year exceeds $1 million. Section 162(m), however, does
not disallow a deduction for qualified "performance-based
compensation" the material terms of which are disclosed to and
approved by stockholders. The Company's Bonus Plan as in effect
in 1995 does not qualify as performance-based compensation for
the purposes of Section 162(m), although the 1992 Plan and the
1994 Stock Incentive Plan each so qualify. During 1996, the
Compensation Committee believed it unlikely that any executive
officer of the Company would receive in excess of $1 million in
compensation, other than performance-based compensation, and the
Compensation Committee believes that it unlikely that any
executive officer will receive in excess of that amount in 1997.
As a result, the Compensation Committee has not taken any steps
to qualify the bonus plan as performance-based compensation,
although it anticipates that the Company would do so before any
executive receives salary, bonus and other non-performance based
compensation in excess of $1 million.
Compensation of Chief Executive Officer. Gary T. Barbera's
compensation during 1996 as Chairman of the Board and Chief
Executive Officer was reviewed in connection with the
Compensation Committee's overall review of executive officer
compensation, at which time the Compensation Committee decided to
increase his base salary from $331,000 to $350,000, effective in
November 1996. As provided above, Mr. Barbera has entered into
an employment and consulting agreement with the Company (See "--
Employment Contracts and Termination of Employment and Change-in-
Control Arrangements"). As described above, Mr. Barbera did not
receive any bonus under the Bonus Plan but was awarded a
discretionary bonus of $86,600. As was the case with the
increases in salary approved for the other executive officers,
the Compensation Committee believed that his and the Company's
performance since his last compensation review and the likelihood
that he would receive no bonus for 1996 justified a modest
increase in his base salary. The Compensation Committee also
took into account the significant contribution of Mr. Barbera in
connection with the Company's efforts to establish a carbon fiber
manufacturing capacity. In May 1996, as part of the general
grant referred to above, the Stock Option Committee awarded Mr.
Barbera options to acquire 60,000 shares of the Company's Common
Stock. The Stock Option Committee believed that this number of
options was appropriate in light of the importance of Mr.
Barbera's position to the Company and his level of stock
ownership. The Compensation Committee also continues to believe
that Mr. Barbera's participation in the Bonus Plan in conjunction
with his stock ownership and employee stock options have provided
substantial incentives for him to create stockholder value.
Compensation Committee Stock Option Committee
---------------------- ----------------------
Peter E. Bennett Marvin M. Giles
Donald C. Klosterman Donald C. Klosterman
Wm. Brian Little Wm. Brian Little
The Board Compensation Committee Report on Executive
Compensation shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement
into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act and shall not otherwise be
deemed filed under such Acts.
PERFORMANCE GRAPH FOR ALDILA, INC. COMMON STOCK
The performance graph for the Company's Common Stock
compares the cumulative total return (assuming reinvestment of
dividends) on the Company's Common Stock with (i) the Center for
Research in Security Prices ("CRSP") Index for NASDAQ Stock
Market (U.S. Companies) (the "Market Index") and (ii) the CRSP
Index for NASDAQ Stocks (SIC 3940 - 3949) -- Dolls, Toys, Games
and Sporting and Athletic Goods (the "Peer Index"), assuming an
investment of $100 on June 8, 1993 (the date the Common Stock
commenced trading on the NASDAQ Stock Market) in each of the
Common Stock, the stock comprising the Market Index and the stock
comprising the Peer Index.
STOCKHOLDER RETURNS (DIVIDENDS REINVESTED)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
INDEXED/CUMULATIVE RETURN
--------------------------------------------
6/8 12/31 12/31 12/31 12/31
COMPANY/INDEX 1993 1993 1994 1995 1996
------------- ---- ---- ---- ---- ----
Aldila 100 134 108 40 46
Market Index 100 112 110 156 192
Peer Index 100 99 89 88 54
NOTES:
A. The index levels are derived from compounded daily returns
that include all dividends.
B. The index levels for the Company, the Market Index and the
Peer Index were each set to 100 at June 8, 1993.
C. The Company's Common Stock index is based on the closing
market price of $10 5/8 (giving retroactive effect to the 2-
for-1 stock split effective February 22, 1994) on June 8,
1993, the day the Company's Common Stock commenced trading.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended
December 31, 1996 (the "1996 Annual Report") is included with the
mailing of this Proxy Statement. The 1996 Annual Report contains
consolidated financial statements of the Company and its
subsidiaries and the report thereon of Deloitte & Touche LLP,
independent accountants.
PROXY SOLICITATION
The cost of soliciting proxies will be paid by the Company.
Chemical Mellon Shareholder Services, 300 South Grand Avenue, 2nd
Floor, Los Angeles, California 90071, has been retained to
solicit proxies by mail, telephone or personal solicitation for a
fee of $5,500 plus expenses. The Company has also arranged for
reimbursement, at the rate suggested by the New York Stock
Exchange, of brokerage houses, nominees, custodians and
fiduciaries for the forwarding of proxy materials to the
beneficial owners of shares held of record. Proxies may also be
solicited by directors, officers and employees of the Company,
but such persons will not be specially compensated for such
services.
PROPOSALS OF STOCKHOLDERS
Under certain circumstances, stockholders are entitled to
present proposals at stockholder meetings. Any such proposal to
be included in the Proxy Statement for the Company's 1998 Annual
Meeting of Stockholders must be received by the Company no later
than November 25, 1997 in a form that complies with applicable
regulations. Proposals should be directed to the Secretary of
the Company.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Exchange Act and in accordance therewith files reports, proxy
statements and other information with the SEC. Reports, proxy
statements and other information filed by the Company may be
inspected and copied at the public reference facilities
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the SEC's Regional
Offices located at 7 World Trade Center (13th Floor), New York,
New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained by mail from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates or, at no charge, may be obtained at the SEC's
web site: http://www.sec.gov. In addition, such material may
also be inspected and copied at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006-1500.
OTHER MATTERS
The Board knows of no matters other than those listed in the
attached Notice of Annual Meeting which are likely to be brought
before the Meeting. However, if any other matter properly comes
before the Meeting, the persons named on the enclosed proxy card
will vote the proxy in accordance with their best judgment on
such matter.
BY ORDER OF THE BOARD OF DIRECTORS
--------------------------------
[signature of Robert J. Cierzan]
--------------------------------
Robert J. Cierzan
Secretary
March 26, 1997
EXHIBIT A
ALDILA, INC.
1994 STOCK INCENTIVE PLAN
(AS PROPOSED TO BE AMENDED AND RESTATED)
ALDILA, INC.
1994 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Plan is to strengthen
Aldila, Inc., a Delaware corporation (the "Company"), by
providing an incentive to its officers, employees, consultants,
directors and advisors and thereby encouraging them to devote
their abilities and industry to the success of the Company's
business enterprise. It is intended that this purpose be
achieved by extending to officers, employees, consultants and
directors of the Company and its subsidiaries an added long-term
incentive for high levels of performance and unusual efforts
through the grant of Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Performance Shares and
Restricted Stock (as each term is hereinafter defined).
2. Definitions. For purposes of the Plan:
2.1 "Adjusted Fair Market Value" means, in the
event of a Change in Control, the greater of (i) the highest
price per Share paid to holders of the Shares in any transaction
(or series of transactions) constituting or resulting in a Change
in Control or (ii) the highest Fair Market Value of a Share
during the ninety (90) day period ending on the date of a Change
in Control.
2.2 "Agreement" means the written agreement
between the Company and an Optionee or Grantee evidencing the
grant of an Option or Award and setting forth the terms and
conditions thereof.
2.3 "Award" means a grant of Restricted Stock, a
Stock Appreciation Right, a Performance Share or any or all of
them.
2.4 "Board" means the Board of Directors of the
Company.
2.5 "Cause" means the commission of an act of
fraud or intentional misrepresentation or an act of embezzlement,
misappropriation or conversion of assets or opportunities of the
Company or any Subsidiary.
2.6 "Change in Capitalization" means any increase
or reduction in the number of Shares, or any change (including,
but not limited to, a change in value) in the Shares or exchange
of Shares for a different number or kind of shares or other
securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-
off, split-up, issuance of warrants or rights or debentures,
stock dividend, stock split or reverse stock split, cash
dividend, property dividend, combination or exchange of shares,
repurchase of shares, change in corporate structure or otherwise.
2.7 A "Change in Control" shall mean the
occurrence during the term of the Plan of:
(a) Any acquisition (other than directly from
the Company) of any voting securities of the Company
(the "Voting Securities") by any 'Person' (as the term
person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), immediately after which such Person
has 'Beneficial Ownership' (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of fifty-one
percent (51%) or more of the then outstanding Shares or
the combined voting power of the Company's then
outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred,
Shares or Voting Securities which are acquired in a 'Non-
Control Acquisition' (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in
Control. A 'Non-Control Acquisition' shall mean an
acquisition by (i) an employee benefit plan (or a trust
forming a part thereof) maintained by (A) the Company or
(B) any corporation or other Person of which a majority
of its voting power or its voting equity securities or
equity interest is owned, directly or indirectly, by the
Company (for purposes of this definition, a
'Subsidiary'), (ii) the Company or its Subsidiaries, or
(iii) any Person in connection with a 'Non-Control
Transaction' (as hereinafter defined);
(b) The individuals who, as of March 2, 1994,
are members of the Board (the "Incumbent Board"), cease
for any reason to constitute at least two-thirds of the
members of the Board; provided, however, that if the
election, or nomination for election by the Company's
common stockholders, of any new director was approved by
a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered
a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual
or threatened 'Election Contest' (as described in Rule
14a-11 promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) The consummation of the Company of:
(i) A merger, consolidation or reorganization
with or into the Company or in which securities of the
Company are issued, unless such merger, consolidation or
reorganization is a "Non-Control Transaction." A "Non-
Control Transaction" shall mean a merger, consolidation
or reorganization with or into the Company or in which
securities of the Company are issued where:
(A) the stockholders of the
Company, immediately before such merger,
consolidation or reorganization, own, directly or
indirectly, immediately following such merger,
consolidation or reorganization, at least sixty
percent (60%) of the combined voting power of the
outstanding voting securities of the corporation
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their
ownership of the Voting Securities immediately
before such merger, consolidation or
reorganization,
(B) the individuals who were
members of the Incumbent Board immediately prior to
the execution of the agreement providing for such
merger, consolidation or reorganization constitute
at least two-thirds of the members of the board of
directors of the Surviving Corporation, and
(C) no Person other than (i) the
Company, (ii) any Subsidiary, (iii) any employee
benefit plan (or any trust forming a part thereof)
that, immediately prior to such merger,
consolidation or reorganization, was maintained by
the Company, or any Subsidiary, or (iv) any Person
who, immediately prior to such merger,
consolidation or reorganization had Beneficial
Ownership of fifty-one percent (51%) or more of the
then outstanding Voting Securities or Shares, has
Beneficial Ownership of fifty-one percent (51%) or
more of the combined voting power of the Surviving
Corporation's then outstanding voting securities or
its common stock;
(ii) A complete liquidation or dissolution
of the Company; or
(iii) The sale or other disposition of all
or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the permitted
amount of the outstanding Shares or Voting Securities as a result
of the acquisition of Shares or Voting Securities by the Company
which, by reducing the number of Shares or Voting Securities
outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a
Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Shares or Voting
Securities by the Company, and after such share acquisition by
the Company, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage
of the then outstanding Shares or Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall
occur.
2.8 "Code" means the Internal Revenue Code of
1986, as amended.
2.9 "Committee" means a committee consisting of at
least two (2) persons appointed by the Board from time to time to
administer the Plan and to perform the functions set forth
herein, each of whom is a Nonemployee Director and an Outside
Director.
2.10 "Company" means Aldila, Inc.
2.11 "Director Option" means an Option granted
pursuant to Section 6.
2.12 "Disability" means a physical or mental
infirmity which impairs the Optionee's ability to perform
substantially his or her duties for a period of one hundred
eighty (180) consecutive days.
2.13 "Division" means any of the operating units or
divisions of the Company designated as a Division by the
Committee.
2.14 "Eligible Director" means a director of the
Company who is not an employee of the Company.
2.15 "Eligible Individual" means any salaried
employee or officer of the Company or a Subsidiary, or any
consultant or advisor who is receiving cash compensation by the
Company or a Subsidiary, designated by the Committee as eligible
to receive Options or Awards subject to the conditions set forth
herein.
2.16 "Employee Option" means an Option granted
pursuant to Section 5.
2.17 "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
2.18 "Fair Market Value" on any date means the
average of the high and low sales prices of the Shares on such
date on the principal national securities exchange on which such
Shares are listed or admitted to trading, or if such Shares are
not so listed or admitted to trading, the arithmetic mean of the
per Share closing bid price and per Share closing asked price on
such date as quoted on the National Association of Securities
Dealers Automated Quotation System or such other market in which
such prices are regularly quoted, or, if there have been no
published bid or asked quotations with respect to Shares on such
date, the Fair Market Value shall be the value established by the
Board in good faith and, in the case of an Incentive Stock
Option, in accordance with Section 422 of the Code.
2.19 "Grantee" means a person to whom an Award has
been granted under the Plan.
2.20 "Incentive Stock Option" means an Option
satisfying the requirements of Section 422 of the Code and
designated by the Committee as an Incentive Stock Option.
2.21 "Nonemployee Director" means a director of the
Company who is a "nonemployee director" within the meaning of
Rule 16b-3 promulgated under the Exchange Act.
2.22 "Nonqualified Stock Option" means an Option
which is not an Incentive Stock Option.
2.23 "Option" means an Employee Option, a Director
Option, or either or both of them.
2.24 "Optionee" means a person to whom an Option
has been granted under the Plan.
2.25 "Outside Director" means a director of the
Company who is an "outside director" within the meaning of
Section 162(m) of the Code and the regulations promulgated
thereunder.
2.26 "Parent" means any corporation which is a
parent corporation (within the meaning of Section 424(e) of the
Code) with respect to the Company.
2.27 "Performance Cycle" means the time period
specified by the Committee at the time Performance Shares are
granted during which the performance of the Company, a Subsidiary
or a Division will be measured.
2.28 "Performance Objectives" has the meaning set
forth in Section 10.2.
2.29 "Performance Shares" means Shares issued or
transferred to an Eligible Individual under Section 10.1.
2.30 "Plan" means the Aldila, Inc. 1994 Stock
Incentive Plan, as amended from time to time.
2.31 "Pooling Period" means, with respect to a
Pooling Transaction, the date on which the combined entity
resulting from such Pooling Transaction publishes thirty days of
combined operating results, or if the Board makes a
determination, such other period following the Pooling
Transaction which the Board reasonably determines is appropriate
in connection with the Pooling Transaction as a means of
qualifying for and pursuing "pooling of interests" accounting
treatment.
2.32 "Pooling Transaction" means an acquisition of
or by the Company in a transaction which is intended to be
treated as a "pooling of interests" under generally accepted
accounting principles.
2.33 "Restricted Stock" means Shares issued or
transferred to an Eligible Individual pursuant to Section 9.
2.34 "Shares" means the common stock, par value
$.01 per share, of the Company.
2.35 "Stock Appreciation Right" means a right to
receive all or some portion of the increase in the value of the
Shares as provided in Section 8 hereof.
2.36 "Subsidiary" means any corporation which is a
subsidiary corporation (within the meaning of Section 424(f) of
the Code) with respect to the Company.
2.37 "Successor Corporation" means a corporation,
or a parent or subsidiary thereof within the meaning of
Section 424(a) of the Code, which issues or assumes a stock
option in a transaction to which Section 424(a) of the Code
applies.
2.38 "Ten-Percent Stockholder" means an Eligible
Individual, who, at the time an Incentive Stock Option is to be
granted to him or her, owns (within the meaning of
Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes
of stock of the Company, or of a Parent or a Subsidiary.
3. Administration.
3.1 The Plan shall be administered by the
Committee which shall hold meetings at such times as may be
necessary for the proper administration of the Plan. The
Committee shall keep minutes of its meetings. A quorum shall
consist of not less than two members of the Committee and a
majority of a quorum may authorize any action. Any decision or
determination reduced to writing and signed by a majority of all
of the members of the Committee shall be as fully effective as if
made by a majority vote at a meeting duly called and held. Each
member of the Committee shall be a Nonemployee Director and an
Outside Director. No member of the Committee shall be liable for
any action, failure to act, determination or interpretation made
in good faith with respect to this Plan or any transaction
hereunder, except for liability arising from his or her own
willful misfeasance, gross negligence or reckless disregard of
his or her duties. The Company hereby agrees to indemnify each
member of the Committee for all costs and expenses and, to the
extent permitted by applicable law, any liability incurred in
connection with defending against, responding to, negotiation for
the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any
actions in administering this Plan or in authorizing or denying
authorization to any transaction hereunder.
3.2 Subject to the express terms and conditions
set forth herein, the Committee shall have the power from time to
time to:
(a) determine those Eligible Individuals to whom
Employee Options shall be granted under the Plan and the number
of such Employee Options to be granted and to prescribe the terms
and conditions (which need not be identical) of each such
Employee Option, including the purchase price per Share subject
to each Employee Option, and make any amendment or modification
to any Agreement consistent with the terms of the Plan;
(b) select those Eligible Individuals to whom
Awards shall be granted under the Plan and to determine the
number of Stock Appreciation Rights, Performance Shares, and/or
Shares of Restricted Stock to be granted pursuant to each Award,
the terms and conditions of each Award, including the
restrictions or Performance Objectives relating to Shares, the
maximum value of each Performance Share and make any amendment or
modification to any Agreement consistent with the terms of the
Plan;
(c) to construe and interpret the Plan and the
Options and Awards granted hereunder and to establish, amend and
revoke rules and regulations for the administration of the Plan,
including, but not limited to, correcting any defect or supplying
any omission, or reconciling any inconsistency in the Plan or in
any Agreement, in the manner and to the extent it shall deem
necessary or advisable so that the Plan complies with applicable
law including Rule 16b-3 under the Exchange Act and the Code to
the extent applicable, and otherwise to make the Plan fully
effective. All decisions and determinations by the Committee in
the exercise of this power shall be final, binding and conclusive
upon the Company, its Subsidiaries, the Optionees and Grantees
and all other persons having any interest therein;
(d) to determine the duration and purposes for
leaves of absence which may be granted to an Optionee or Grantee
on an individual basis without constituting a termination of
employment or service for purposes of the Plan;
(e) to exercise its discretion with respect to the
powers and rights granted to it as set forth in the Plan; and
(f) generally, to exercise such powers and to
perform such acts as are deemed necessary or advisable to promote
the best interests of the Company with respect to the Plan.
4. Stock Subject to the Plan.
4.1 The maximum number of Shares that may be made
the subject of Options and Awards granted under the Plan is
3,100,000; provided however, that, in the aggregate, not more
than one-third of the number of allotted shares may be made the
subject of Restricted Stock Awards under Section 9 of the Plan
and, provided further, however, that the maximum number of Shares
that any Eligible Individual may receive during the term of the
Plan in respect of Options and Awards may not exceed 620,000
Shares. Upon a Change in Capitalization, the maximum number of
Shares shall be adjusted in number and kind pursuant to
Section 12. The Company shall reserve for the purposes of the
Plan, out of its authorized but unissued Shares or out of Shares
held in the Company's treasury, or partly out of each, such
number of Shares as shall be determined by the Board.
4.2 Upon the granting of an Option or an Award,
the number of Shares available under Section 4.1 for the granting
of further Options and Awards shall be reduced by the number of
Shares in respect of which the Option or Award is granted or
denominated.
4.3 Whenever any outstanding Option or Award or
portion thereof expires, is canceled or is otherwise terminated
for any reason without having been exercised or payment having
been made in respect of the entire Option or Award, the Shares
allocable to the expired, canceled or otherwise terminated
portion of the Option or Award may again be the subject of
Options or Awards granted hereunder.
4.4 Notwithstanding anything contained in this
Section 4, the number of Shares available for Options and Awards
at any time under the Plan shall be reduced to such lesser amount
as may be required pursuant to the methods of calculation
necessary so that the exemptions provided pursuant to Rule 16b-3
under the Exchange Act will continue to be available for
transactions involving all current and future Options and Awards.
In addition, during the period that any Options and Awards remain
outstanding under the Plan, the Committee may make good faith
adjustments with respect to the number of Shares attributable to
such Options and Awards for purposes of calculating the maximum
number of Shares available for the granting of future Options and
Awards under the Plan, provided that following such adjustments
the exemptions provided pursuant to Rule 16b-3 under the Exchange
Act will continue to be available for transactions involving all
current and future Options and Awards.
5. Option Grants for Eligible Individuals.
5.1 Authority of Committee. Subject to the
provisions of the Plan, the Committee shall have full and final
authority to select those Eligible Individuals who will receive
Employee Options, the terms and conditions of which shall be set
forth in an Agreement; provided, however, that no person shall
receive any Incentive Stock Options unless he or she is an
employee of the Company, a Parent or a Subsidiary at the time the
Incentive Stock Option is granted.
5.2 Purchase Price. The purchase price or the
manner in which the purchase price is to be determined for Shares
under each Employee Option shall be determined by the Committee
and set forth in the Agreement; provided, however, that the
purchase price per Share under each Employee Option shall not be
less than 100% of the Fair Market Value of a Share on the date
the Employee Option is granted (110% in the case of an Incentive
Stock Option granted to a Ten-Percent Stockholder).
5.3 Maximum Duration. Employee Options granted
hereunder shall be for such term as the Committee shall
determine, provided that an Incentive Stock Option shall not be
exercisable after the expiration of ten (10) years from the date
it is granted (five (5) years in the case of an Incentive Stock
Option granted to a Ten-Percent Stockholder) and a Nonqualified
Stock Option shall not be exercisable after the expiration of ten
(10) years from the date it is granted. The Committee may,
subsequent to the granting of any Employee Option, extend the
term thereof but in no event shall the term as so extended exceed
the maximum term provided for in the preceding sentence.
5.4 Vesting. Subject to Section 7.4 hereof, each
Employee Option shall become exercisable in such installments
(which need not be equal) and at such times as may be designated
by the Committee and set forth in the Agreement. To the extent
not exercised, installments shall accumulate and be exercisable,
in whole or in part, at any time after becoming exercisable, but
not later than the date the Employee Option expires. The
Committee may accelerate the exercisability of any Employee
Option or portion thereof at any time.
5.5 Modification. No modification of an Employee
Option shall adversely alter or impair any rights or obligations
under the Employee Option without the Optionee's consent.
6. Option Grants for Eligible Directors.
6.1 (a) Initial Grant. Upon his or her initial
appointment or election to the Board, each Eligible Director who
becomes a member of the Board after May 17, 1995 shall be granted
a Director Option in respect of 26,314 Shares.
(b) Annual Grant. On the last trading day in
the month of May on the principal national securities exchange on
which the Shares are listed or admitted to trading thereafter,
each Eligible Director shall be granted a Director Option in
respect of 10,000 Shares; provided, however, that the Eligible
Director has been a member of the Board for at least one year as
of such date and continues to serve as a Director as of such
date.
(c) Agreements. Director Options shall be
evidenced by an Agreement containing such other terms and
conditions not inconsistent with the provisions of this Plan as
determined by the Board; provided, however, that such terms shall
not vary the price, amount or timing of Director Options provided
under this Section 6, including provisions dealing with vesting,
forfeiture and termination of such Director Options.
6.2 Purchase Price. The purchase price for Shares
under each Director Option shall be equal to 100% of the Fair
Market Value of such Shares on the date immediately preceding the
date of grant.
6.3 Vesting. Subject to Sections 6.4 and 7.4,
each Director Option shall become exercisable with respect to one-
third of the Shares subject thereto effective as of each of the
first, second and third anniversaries of the grant date, with any
fractional shares to become exercisable in the last installment;
provided, however, that the Optionee continues to serve as a
Director as of such dates.
6.4 Duration. Each Director Option shall
terminate on the date which is the tenth anniversary of the grant
date, unless terminated earlier as follows:
(a) If an Optionee ceases to serve as a
Director for any reason, that portion of the Director Option
which has not become exercisable pursuant to the preceding
Section or Section 7.4 shall terminate immediately upon the
Director's termination of his service as a Director.
(b) If an Optionee's service as a Director
terminates for any reason other than death or Cause, the Optionee
may for a period of three (3) months after such termination
exercise his or her Option to the extent, and only to the extent,
that such Option or portion thereof was exercisable as of the
date the Optionee's service as a Director terminated, after which
time the Option shall automatically terminate in full.
(c) If an Optionee's service as a Director
terminates for Cause, the Option granted to the Optionee
hereunder shall immediately terminate in full and no rights
thereunder may be exercised.
(d) If an Optionee dies while a Director or
within three (3) months after termination of service as a
Director as described in clause (b) of this Section 6.4 or within
twelve (12) months after termination of service as a Director as
described in clause (c) of this Section 6.4, the Option granted
to the Optionee may be exercised at any time within twelve (12)
months after the Optionee's death by the person or persons to
whom such rights under the Option shall pass by will, or by the
laws of descent or distribution, to the extent, and only to the
extent, that the Option or portion thereof was exercisable on the
date of death or earlier termination of the Optionee's services
as a Director, after which time the Option shall terminate in
full.
6.5 Limitations on Amendment. The provisions in
this Section 6 shall not be amended more than once every six
months, other than to comport with changes in the Code or the
rules and regulations thereunder.
7. Terms and Conditions Applicable to All Options.
7.1 Non-transferability. Unless set forth in the
Agreement evidencing the Option at the time of grant or at any
time thereafter, an Option granted hereunder shall not be
transferable by the Optionee to whom granted otherwise than by
will or the laws of descent and distribution or pursuant to a
domestic relations order (within the meaning of Rule 16a-12
promulgated under the Exchange Act, and an Option may be
exercised during the lifetime of such Optionee only by the
Optionee or his or her guardian or legal representative. The
terms of such Option shall be final, binding and conclusive upon
the beneficiaries, executors, administrators, heirs and
successors of the Optionee.
7.2 Method of Exercise. The exercise of an Option
shall be made only by a written notice delivered in person or by
mail to the Secretary of the Company at the Company's principal
executive office, specifying the number of Shares to be purchased
and accompanied by payment therefor and otherwise in accordance
with the Agreement pursuant to which the Option was granted. The
purchase price for any Shares purchased pursuant to the exercise
of an Employee Option shall be paid in full upon such exercise by
any one or a combination of the following: (i) cash or
(ii) transferring Shares to the Company upon such terms and
conditions as determined by the Committee. The purchase price
for exercise of a Director Option shall be paid in cash. Options
may be exercised through a registered broker-dealer pursuant to
such cashless exercise procedures which are established by the
Committee. Any Shares transferred to the Company as payment of
the purchase price under an Option shall be valued at their Fair
Market Value on the day preceding the date of exercise of such
Option. If requested by the Committee, the Optionee shall
deliver the Agreement evidencing the Option to the Secretary of
the Company who shall endorse thereon a notation of such exercise
and return such Agreement to the Optionee. No fractional Shares
(or cash in lieu thereof) shall be issued upon exercise of an
Option and the number of Shares that may be purchased upon
exercise shall be rounded to the nearest number of whole Shares.
7.3 Rights of Optionees. No Optionee shall be
deemed for any purpose to be the owner of any Shares subject to
any Option unless and until (i) the Option shall have been
exercised pursuant to the terms thereof, (ii) the Company shall
have issued and delivered the Shares to the Optionee and
(iii) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon,
the Optionee shall have full voting, dividend and other ownership
rights with respect to such Shares.
7.4 Effect of Change in Control. Notwithstanding
anything contained in the Plan or an Agreement to the contrary
(other than Section 16), in the event of a Change in Control,
(A) all Options outstanding on the date of such Change in Control
shall become immediately and fully exercisable and (B) upon
termination of an Optionee's employment with, or service as a
Director of, the Company following a Change of Control, Options
held by such Optionee shall remain exercisable until the later of
(x) one year after termination and (y) sixty (60) days following
the expiration of the Pooling Period (in the event the Change of
Control constitutes a Pooling Transaction), but in no event
beyond the stated term of the Option. In addition, as and to the
extent set forth in an Agreement evidencing the grant of an
Employee Option, an Optionee will be permitted to surrender for
cancellation within sixty (60) days after such Change in Control,
any Option or portion of an Option, to the extent not yet
exercised, and the Optionee will be entitled to receive a cash
payment in an amount equal to the excess, if any, of (A) (x) in
the case of a Nonqualified Stock Option, the greater of (1) the
Fair Market Value, on the date preceding the date of surrender,
of the Shares subject to the Option or portion thereof
surrendered or (2) the Adjusted Fair Market Value of the Shares
subject to the Option or portion thereof surrendered or (y) in
the case of an Incentive Stock Option, the Fair Market Value, on
the date preceding the date of surrender, of the Shares subject
to the Option or portion thereof surrendered, over (B) the
aggregate purchase price for such Shares under the Option or
portion thereof surrendered.
8. Stock Appreciation Rights. The Committee may, in
its discretion, either alone or in connection with the grant of
an Employee Option, grant Stock Appreciation Rights in accordance
with the Plan, the terms and conditions of which shall be set
forth in an Agreement. If granted in connection with an Employee
Option, a Stock Appreciation Right shall cover the same Shares
covered by the Employee Option (or such lesser number of Shares
as the Committee may determine) and shall, except as provided in
this Section 8, be subject to the same terms and conditions as
the related Employee Option.
8.1 Time of Grant. A Stock Appreciation Right may
be granted (i) at any time if unrelated to an Option, or (ii) if
related to an Employee Option, either at the time of grant, or at
any time thereafter during the term of the Option.
8.2 Stock Appreciation Right Related to an
Employee Option.
(a) Exercise. Subject to Section 8.7, a
Stock Appreciation Right granted in connection with an Employee
Option shall be exercisable at such time or times and only to the
extent that the related Employee Option is exercisable, and will
not be transferable except to the extent the related Employee
Option may be transferable. A Stock Appreciation Right granted
in connection with an Incentive Stock Option shall be exercisable
only if the Fair Market Value of a Share on the date of exercise
exceeds the purchase price specified in the related Incentive
Stock Option Agreement.
(b) Amount Payable. Upon the exercise of a
Stock Appreciation Right related to an Employee Option, the
Grantee shall be entitled to receive an amount determined by
multiplying (A) the excess of the Fair Market Value of a Share on
the date preceding the date of exercise of such Stock
Appreciation Right over the per Share purchase price under the
related Employee Option, by (B) the number of Shares as to which
such Stock Appreciation Right is being exercised.
Notwithstanding the foregoing, the Committee may limit in any
manner the amount payable with respect to any Stock Appreciation
Right by including such a limit in the Agreement evidencing the
Stock Appreciation Right at the time it is granted.
(c) Treatment of Related Options and Stock
Appreciation Rights Upon Exercise. Upon the exercise of a Stock
Appreciation Right granted in connection with an Employee Option,
the Employee Option shall be canceled to the extent of the number
of Shares as to which the Stock Appreciation Right is exercised,
and upon the exercise of an Employee Option granted in connection
with a Stock Appreciation Right or the surrender of such Employee
Option pursuant to Section 7.4, the Stock Appreciation Right
shall be canceled to the extent of the number of Shares as to
which the Employee Option is exercised or surrendered.
8.3 Stock Appreciation Right Unrelated to an
Option. The Committee may grant to Eligible Individuals Stock
Appreciation Rights unrelated to Options. Stock Appreciation
Rights unrelated to Options shall contain such terms and
conditions as to exercisability (subject to Sections 8.6 and
8.8), vesting and duration as the Committee shall determine, but
in no event shall they have a term of greater than ten (10)
years. Upon exercise of a Stock Appreciation Right unrelated to
an Option, the Grantee shall be entitled to receive an amount
determined by multiplying (A) the excess of the Fair Market Value
of a Share on the date preceding the date of exercise of such
Stock Appreciation Right over the Fair Market Value of a Share on
the date the Stock Appreciation Right was granted, by (B) the
number of Shares as to which the Stock Appreciation Right is
being exercised. Notwithstanding the foregoing, the Committee
may limit in any manner the amount payable with respect to any
Stock Appreciation Right by including such a limit in the
Agreement evidencing the Stock Appreciation Right at the time it
is granted.
8.4 Method of Exercise. Stock Appreciation Rights
shall be exercised by a Grantee only by a written notice
delivered in person or by mail to the Secretary of the Company at
the Company's principal executive office, specifying the number
of Shares with respect to which the Stock Appreciation Right is
being exercised. If requested by the Committee, the Grantee
shall deliver the Agreement evidencing the Stock Appreciation
Right being exercised and the Agreement evidencing any related
Employee Option to the Secretary of the Company who shall endorse
thereon a notation of such exercise and return such Agreement to
the Grantee.
8.5 Form of Payment. Payment of the amount
determined under Sections 8.2(b) or 8.3 may be made in the
discretion of the Committee, solely in whole Shares in a number
determined at their Fair Market Value on the date preceding the
date of exercise of the Stock Appreciation Right, or solely in
cash, or in a combination of cash and Shares. If the Committee
decides to make full payment in Shares and the amount payable
results in a fractional Share, payment for the fractional Share
will be made in cash. Notwithstanding the foregoing, no payment
in the form of cash may be made upon the exercise of a Stock
Appreciation Right pursuant to Sections 8.2(b) or 8.3 to an
officer of the Company or a Subsidiary who is subject to
liability under Section 16(b) of the Exchange Act, unless the
exercise of such Stock Appreciation Right is made either
(i) during the period beginning on the third business day and
ending on the twelfth business day following the date of release
for publication of the Company's quarterly or annual statements
of earnings or (ii) pursuant to an irrevocable election to
receive cash made at least six months prior to the exercise of
such Stock Appreciation Right.
8.6 Modification. No modification of an Award
shall adversely alter or impair any rights or obligations under
the Agreement without the Grantee's consent.
8.7 Effect of Change in Control. Notwithstanding
anything contained in the Plan or an Agreement to the contrary
(other than Section 16), in the event of a Change in Control,
(A) all Stock Appreciation Rights outstanding on the date of such
Change of Control shall become immediately and fully exercisable
and (B) upon termination of a Grantee's employment with, or
Service as a Director of, the Company following a Change in
Control, Stock Appreciation Rights held by such Grantee shall
remain exercisable until the later of (x) one year after
termination and (y) sixty (60) days following the expiration of
the Pooling Period (in the event the Change in Control
constitutes a Pooling Transaction), but in no event beyond the
stated term of the Stock Appreciation Right. In addition, as to
the extent set forth in an Agreement evidencing the grant of a
Stock Appreciation Right unrelated to an Option, a Grantee will
be permitted to surrender for cancellation, within sixty (60)
days after such Change in Control, any Stock Appreciation Right
or portion thereof, to the extent not yet exercised, and the
Grantee will be entitled to receive a cash payment in an amount
equal to the excess, if any, of (A) the greater of (x) the Fair
Market Value, on the date preceding the date of surrender, of the
Shares subject to the Stock Appreciation Right, or portion
thereof surrendered, and (y) the Adjusted Fair Market Value of
the Shares subject to the Stock Appreciation Right or portion
thereof surrendered over (B) the aggregate Fair Market Value, on
the date the Stock Appreciaton Right was granted, of the Shares
subject to the Stock Appreciation Right or portion thereof
surrendered.
9. Restricted Stock.
9.1 Grant. The Committee may grant Awards to
Eligible Individuals of Restricted Stock, which shall be
evidenced by an Agreement between the Company and the Grantee.
Each Agreement shall contain such restrictions, terms and
conditions as the Committee may, in its discretion, determine and
(without limiting the generality of the foregoing) such
Agreements may require that an appropriate legend be placed on
Share certificates. Awards of Restricted Stock shall be subject
to the terms and provisions set forth below in this Section 9.
9.2 Rights of Grantee. Shares of Restricted Stock
granted pursuant to an Award hereunder shall be issued in the
name of the Grantee as soon as reasonably practicable after the
Award is granted provided that the Grantee has executed an
Agreement evidencing the Award, the appropriate blank stock
powers and, in the discretion of the Committee, an escrow
agreement and any other documents which the Committee may require
as a condition to the issuance of such Shares. If a Grantee
shall fail to execute the Agreement evidencing a Restricted Stock
Award, the appropriate blank stock powers and, in the discretion
of the Committee, an escrow agreement and any other documents
which the Committee may require within the time period prescribed
by the Committee at the time the Award is granted, the Award
shall be null and void. At the discretion of the Committee,
Shares issued in connection with a Restricted Stock Award shall
be deposited together with the stock powers with an escrow agent
(which may be the Company) designated by the Committee. Unless
the Committee determines otherwise and as set forth in the
Agreement, upon delivery of the Shares to the escrow agent, the
Grantee shall have all of the rights of a stockholder with
respect to such Shares, including the right to vote the Shares
and to receive all dividends or other distributions paid or made
with respect to the Shares.
9.3 Non-transferability. Until all restrictions
upon the Shares of Restricted Stock awarded to a Grantee shall
have lapsed in the manner set forth in Section 9.4, such Shares
shall not be sold, transferred or otherwise disposed of and shall
not be pledged or otherwise hypothecated, nor shall they be
delivered to the Grantee.
9.4 Lapse of Restrictions.
(a) Generally. Restrictions upon Shares of
Restricted Stock awarded hereunder shall lapse at such time or
times and on such terms and conditions as the Committee may
determine, which restrictions shall be set forth in the Agreement
evidencing the Award.
(b) Effect of Change in Control. The Committee
shall determine at the time of the grant of an Award of
Restricted Stock the extent, if any, to which the restrictions
upon Shares of Restricted Stock shall lapse upon a Change in
Control. The Agreement evidencing the Award shall set forth such
provisions.
9.5 Modification. No modification of an Award
shall adversely alter or impair any rights or obligations under
the Agreement without the Grantee's consent.
9.6 Treatment of Dividends. At the time an Award
of Shares of Restricted Stock is granted, the Committee may, in
its discretion, determine that the payment to the Grantee of
dividends, or a specified portion thereof, declared or paid on
such Shares by the Company shall be (i) deferred until the
lapsing of the restrictions imposed upon such Shares and (ii)
held by the Company for the account of the Grantee until such
time. In the event that dividends are to be deferred, the
Committee shall determine whether such dividends are to be
reinvested in shares of Stock (which shall be held as additional
Shares of Restricted Stock) or held in cash. If deferred
dividends are to be held in cash, there may be credited at the
end of each year (or portion thereof) interest on the amount of
the account at the beginning of the year at a rate per annum as
the Committee, in its discretion, may determine. Payment of
deferred dividends in respect of Shares of Restricted Stock
(whether held in cash or as additional Shares of Restricted
Stock), together with interest accrued thereon, if any, shall be
made upon the lapsing of restrictions imposed on the Shares in
respect of which the deferred dividends were paid, and any
dividends deferred (together with any interest accrued thereon)
in respect of any Shares of Restricted Stock shall be forfeited
upon the forfeiture of such Shares.
9.7 Delivery of Shares. Upon the lapse of the
restrictions on Shares of Restricted Stock, the Committee shall
cause a stock certificate to be delivered to the Grantee with
respect to such Shares, free of all restrictions hereunder.
10. Performance Shares.
10.1 Performance Shares. The Committee, in its
discretion, may grant Awards of Performance Shares to Eligible
Individuals prior to the commencement of the Performance Cycle to
which such Shares relate, the terms and conditions of which,
including the relevant Performance Objectives and Performance
Cycle, shall be set forth in an Agreement between the Company and
the Grantee. Each Agreement may require that an appropriate
legend be placed on Share certificates. Awards of Performance
Shares shall be subject to the following terms and provisions:
(a) Rights of Grantee. The Committee shall
provide at the time an Award of Performance Shares is made, the
time or times at which the actual Shares represented by such
Award shall be issued in the name of the Grantee; provided,
however, that no Performance Shares shall be issued until the
Grantee has executed an Agreement evidencing the Award, the
appropriate blank stock powers and, in the discretion of the
Committee, an escrow agreement and any other documents which the
Committee may require as a condition to the issuance of such
Performance Shares. If a Grantee shall fail to execute the
Agreement evidencing an Award of Performance Shares, the
appropriate blank stock powers and, in the discretion of the
Committee, an escrow agreement and any other documents which the
Committee may require within the time period prescribed by the
Committee at the time the Award is granted, the Award shall be
null and void. At the discretion of the Committee, Shares issued
in connection with an Award of Performance Shares shall be
deposited together with the stock powers with an escrow agent
(which may be the Company) designated by the Committee. Except
as restricted by the terms of the Agreement, upon delivery of the
Shares to the escrow agent, the Grantee shall have, in the
discretion of the Committee, all of the rights of a stockholder
with respect to such Shares, including the right to vote the
Shares and to receive all dividends or other distributions paid
or made with respect to the Shares.
(b) NON-TRANSFERABILITY. Until any
restrictions upon the Performance Shares awarded to a Grantee
shall have lapsed in the manner set forth in Sections 10.3(c) or
10.4, such Performance Shares shall not be sold, transferred or
otherwise disposed of and shall not be pledged or otherwise
hypothecated, nor shall they be delivered to the Grantee. The
Committee may also impose such other restrictions and conditions
on the Performance Shares, if any, as it deems appropriate.
(c) Lapse of Restrictions. Subject to
Section 10.3, restrictions upon Performance Shares awarded
hereunder shall lapse and such Performance Shares shall become
vested at such time as the Performance Objectives set forth in
the Agreement are satisfied on such terms and conditions as the
Committee may, in its discretion, determine at the time an Award
is granted, provided that the Compensation Committee has
certified in writing that the Performance Objectives and other
material terms of the relevant Award were satisfied.
(d) Treatment of Dividends. At the time the
Award of Performance Shares is granted, the Committee may, in its
discretion, determine that the payment to the Grantee of
dividends, or a specified portion thereof, declared or paid on
actual Shares represented by such Award which have been issued by
the Company to the Grantee shall be (i) deferred until the
lapsing of the restrictions imposed upon such Performance Shares
and (ii) held by the Company for the account of the Grantee until
such time. In the event that dividends are to be deferred, the
Committee shall determine whether such dividends are to be
reinvested in shares of Stock (which shall be held as additional
Performance Shares) or held in cash. If deferred dividends are
to be held in cash, there may be credited at the end of each year
(or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum as the Committee, in
its discretion, may determine. Payment of deferred dividends in
respect of Performance Shares (whether held in cash or in
additional Performance Shares), together with interest accrued
thereon, if any, shall be made upon the lapsing of restrictions
imposed on the Performance Shares in respect of which the
deferred dividends were paid, and any dividends deferred
(together with any interest accrued thereon) in respect of any
Performance Shares shall be forfeited upon the forfeiture of such
Performance Shares.
(e) Delivery of Shares. Upon the lapse of
the restrictions on Performance Shares awarded hereunder or on
such later date as the Committee may determine at the time of the
granting of the Performance Shares, the Committee shall cause a
stock certificate to be delivered to the Grantee with respect to
such Shares, free of all restrictions hereunder.
10.2 Performance Objectives. Performance
objectives for Performance Shares (the "Performance Objectives")
shall be expressed in terms of (i) earnings per Share, (ii) pre-
tax operating profits, (iii) revenue, (iv) market share, or
(v) any combination of the foregoing. Performance Objectives may
be in respect of the performance of the Company and its
Subsidiaries (which may be on a consolidated basis), a
Subsidiary, a Division or any combination of the foregoing.
Performance Objectives may be absolute or relative and may be
expressed in terms of a progression within a specified range.
The Performance Objectives with respect to a Performance Cycle
shall be established in writing by the Committee by the earlier
of (i) the date on which a quarter of the Performance Cycle has
elapsed or (ii) the date which is ninety (90) days after the
commencement of the Performance Cycle.
10.3 Effect of Change in Control. Notwithstanding
anything contained in the Plan or any Agreement to the contrary,
in the event of a Change in Control, restrictions shall lapse
immediately on all or a portion of the Performance Shares, as
determined by the Committee at the time of the Award of such
Performance Shares and as set forth in the Agreement, and the
Agreement shall provide for the treatment of such Awards (or
portions thereof) which do not become vested as the result of a
Change in Control, including, but not limited to, provisions for
the adjustment of applicable Performance Objectives.
10.4 Modification. No modification of a
Performance Share shall adversely alter or impair any rights or
obligations under the Agreement without the Grantee's consent.
11. Effect of a Termination of Employment. The
Agreement evidencing the grant of each Employee Option and each
Award shall set forth the terms and conditions applicable to such
Employee Option or Award upon a termination or change in the
status of the employment of the Optionee or Grantee by the
Company, a Subsidiary or a Division (including a termination or
change by reason of the sale of a Subsidiary or a Division), as
the Committee may, in its discretion, determine at the time the
Employee Option or Award is granted or thereafter.
12. Adjustment Upon Changes in Capitalization.
12.1 In the event of a Change in Capitalization,
the Committee shall conclusively determine the appropriate
adjustments, if any, to the (i) maximum number and class of
Shares or other stock or securities with respect to which Options
or Awards may be granted under the Plan, (ii) maximum number of
Shares with respect to which Options or Awards may be granted to
any Eligible Individual during the term of the Plan, (iii) the
number and class of Shares or other stock or securities which are
subject to outstanding Employee Options or Awards granted under
the Plan, and the purchase price therefor, if applicable,
(iv) the number and class of Shares or other securities in
respect of which Director Options are to be granted under
Section 6, and (v) the Performance Objectives.
12.2 Any such adjustment in the Shares or other
stock or securities subject to outstanding Incentive Stock
Options (including any adjustments in the purchase price) shall
be made in such manner as not to constitute a modification as
defined by Section 424(h)(3) of the Code and only to the extent
otherwise permitted by Sections 422 and 424 of the Code.
12.3 If, by reason of a Change in Capitalization,
a Grantee of an Award shall be entitled to, or an Optionee shall
be entitled to exercise an Option with respect to, new,
additional or different shares of stock or securities, such new,
additional or different shares shall thereupon be subject to all
of the conditions, restrictions and performance criteria which
were applicable to the Shares subject to the Award or Option, as
the case may be, prior to such Change in Capitalization.
13. Effect of Certain Transactions. Subject to
Sections 7.4, 8.7, 9.4(b) and 10.3 or as otherwise provided in an
Agreement, in the event of (i) the liquidation or dissolution of
the Company or (ii) a merger or consolidation of the Company (a
"Transaction"), the Plan and the Options and Awards issued
hereunder shall continue in effect in accordance with their
respective terms and each Optionee and Grantee shall be entitled
to receive in respect of each Share subject to any outstanding
Options or Awards, as the case may be, upon exercise of any
Option or payment or transfer in respect of any Award, the same
number and kind of stock, securities, cash, property, or other
consideration that each holder of a Share was entitled to receive
in the Transaction in respect of a Share, provided, however, that
such stock, securities, cash, property, or other consideration
shall remain subject to all of the conditions, restrictions and
performance criteria which were applicable to the Options and
Awards prior to such Transaction.
14. Interpretation. Unless otherwise expressly stated
in the relevant Agreement, each Option, Stock Appreciation Right
and Performance Share is intended to be performance-based
compensation within the meaning of Section 162(m)(4)(C) of the
Code. The Committee shall not be entitled to exercise any
discretion otherwise authorized hereunder with respect to such
Options or Awards if the ability to exercise such discretion or
the exercise of such discretion itself would cause the
compensation attributable to such Options or Awards to fail to
qualify as performance-based compensation.
15. Termination and Amendment of the Plan. The Plan
shall terminate on the day preceding the tenth anniversary of the
date of its adoption by the Board and no Option or Award may be
granted thereafter. The Board may sooner terminate the Plan and
the Board may at any time and from time to time amend, modify or
suspend the Plan; provided, however, that:
(a) No such amendment, modification, suspension or
termination shall impair or adversely alter any Options or Awards
theretofore granted under the Plan, except with the consent of
the Optionee or Grantee, nor shall any amendment, modification,
suspension or termination deprive any Optionee or Grantee of any
Shares which he or she may have acquired through or as a result
of the Plan; and
(b) To the extent necessary under applicable law, no
amendment shall be effective unless approved by the stockholders
of the Company in accordance with applicable law.
16. Pooling Transactions. Notwithstanding anything
contained in the Plan or any Agreement to the contrary, in the
event of a Change in Control which is also intended to constitute
a Pooling Transaction, the Committee shall take such actions, if
any, which are specifically recommended by an independent
accounting firm retained by the Company to the extent reasonably
necessary in order to assure that the Pooling Transaction will
qualify as such, including but not limited to (i) deferring the
vesting, exercise, payment, settlement, or lapsing of
restrictions with respect to any Option or Award, (ii) providing
that the payment or settlement in respect of any Option or Award
be made in the form of cash, Shares or securities of a successor
or acquirer of the Company, or a combination of the foregoing and
(iii) providing for the extension of the term of any Option or
Award to the extent necessary to accommodate the foregoing, but
not beyond the maximum term permitted for any Option or Award.
17. Non-Exclusivity of the Plan. The adoption of the
Plan by the Board shall not be construed as amending, modifying
or rescinding any previously approved incentive arrangement or as
creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
18. Limitation of Liability. As illustrative of the
limitations of liability of the Company, but not intended to be
exhaustive thereof, nothing in the Plan shall be construed to:
(i) give any person any right to be granted an
Option or Award other than at the sole discretion of the
Committee;
(ii) give any person any rights whatsoever with
respect to Shares except as specifically provided in the Plan;
(iii) limit in any way the right of the Company to
terminate the employment of any person at any time; or
(iv) be evidence of any agreement or
understanding, expressed or implied, that the Company will employ
any person at any particular rate of compensation or for any
particular period of time.
19. Regulations and Other Approvals; Governing Law.
19.1 Except as to matters of federal law, this
Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State
of Delaware without giving effect to conflicts of law principles
thereof.
19.2 The obligation of the Company to sell or
deliver Shares with respect to Options and Awards granted under
the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate
by the Committee.
19.3 The Plan is intended to comply with Rule 16b-
3 promulgated under the Exchange Act and the Committee shall
interpret and administer the provisions of the Plan or any
Agreement in a manner consistent therewith. Any provisions
inconsistent with such Rule shall be inoperative and shall not
affect the validity of the Plan.
19.4 The Board may make such changes as may be
necessary or appropriate to comply with the rules and regulations
of any government authority, or to obtain for Eligible
Individuals granted Incentive Stock Options the tax benefits
under the applicable provisions of the Code and regulations
promulgated thereunder.
19.5 (a) Each Option and Award is subject to the
requirement that, if at any time the Committee determines, in its
discretion, that the listing, registration or qualification of
Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with,
the grant of an Option or Award or the issuance of Shares, no
Options or Awards shall be granted or payment made or Shares
issued, in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained
free of any conditions as acceptable to the Committee.
(b) Unless the Committee determines
otherwise and notwithstanding any other provision of the Plan,
each Option or Award is subject to the requirement that an
Optionee or Grantee deliver a fully executed Stockholders
Agreement prior to the issuance of Shares pursuant to an Option
or other Award.
19.6 Notwithstanding anything contained in the
Plan or any Agreement to the contrary, in the event that the
disposition of Shares acquired pursuant to the Plan is not
covered by a then current registration statement under the
Securities Act of 1933, as amended, and is not otherwise exempt
from such registration, such Shares shall be restricted against
transfer to the extent required by the Securities Act of 1933, as
amended, and Rule 144 or other regulations thereunder. The
Committee may require any individual receiving Shares pursuant to
an Option or Award granted under the Plan, as a condition
precedent to receipt of such Shares, to represent and warrant to
the Company in writing that the Shares acquired by such
individual are acquired without a view to any distribution
thereof and will not be sold or transferred other than pursuant
to an effective registration thereof under said Act or pursuant
to an exemption applicable under the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder.
The certificates evidencing any of such Shares shall be
appropriately amended to reflect their status as restricted
securities as aforesaid.
20. Miscellaneous.
20.1 Multiple Agreements. The terms of each
Option or Award may differ from other Options or Awards granted
under the Plan at the same time, or at some other time. The
Committee may also grant more than one Option or Award to a given
Eligible Individual during the term of the Plan, either in
addition to, or in substitution for, one or more Options or
Awards previously granted to that Eligible Individual.
20.2 Withholding of Taxes. (a) At such times as
an Optionee or Grantee recognizes taxable income in connection
with the receipt of Shares or cash hereunder (a "Taxable Event"),
the Optionee or Grantee shall pay to the Company an amount equal
to the federal, state and local income taxes and other amounts as
may be required by law to be withheld by the Company in
connection with the Taxable Event (the "Withholding Taxes") prior
to the issuance, or release from escrow, of such Shares or the
payment of such cash. The Company shall have the right to deduct
from any payment of cash to an Optionee or Grantee an amount
equal to the Withholding Taxes in satisfaction of the obligation
to pay Withholding Taxes. In satisfaction of the obligation to
pay Withholding Taxes to the Company, the Optionee or Grantee may
make a written election (the "Tax Election"), which may be
accepted or rejected in the discretion of the Committee, to have
withheld a portion of the Shares then issuable to him or her
having an aggregate Fair Market Value equal to the Withholding
Taxes.
(b) If an Optionee makes a disposition,
within the meaning of Section 424(c) of the Code and regulations
promulgated thereunder, of any Share or Shares issued to such
Optionee pursuant to the exercise of an Incentive Stock Option
within the two-year period commencing on the day after the date
of the grant or within the one-year period commencing on the day
after the date of transfer of such Share or Shares to the
Optionee pursuant to such exercise, the Optionee shall, within
ten (10) days of such disposition, notify the Company thereof, by
delivery of written notice to the Company at its principal
executive office.
(c) The Committee shall have the authority,
at the time of grant of an Option or Award under the Plan, to
award tax bonuses to designated Optionees or Grantees, to be paid
upon their exercise of Employee Options or payment in respect of
Awards granted hereunder. The amount of any such payments shall
be determined by the Committee. The Committee shall have full
authority in its absolute discretion to determine the amount of
any such tax bonus and the terms and conditions affecting the
vesting and payment thereof.
21. Effective Date. The effective date of the Plan
shall be as determined by the Board, subject only to the approval
by the affirmative vote of the holders of a majority of the
securities of the Company present, or represented, and entitled
to vote at a meeting of stockholders duly held in accordance with
the applicable laws of the State of Delaware within twelve (12)
months of the adoption of the Plan by the Board.
[FRONT OF PROXY CARD]
ALDILA, INC.
The undersigned stockholder of ALDILA, INC. hereby appoints GARY
T. BARBERA, VINCENT T. GORGUZE and WM. BRIAN LITTLE, or any of them,
Proxies of the undersigned, each with full power to act without the
other and with the power of substitution, to represent the
undersigned at the Annual Meeting of Stockholders of Aldila, Inc., to
be held at the Rancho Bernardo Inn, 17550 Bernardo Oaks Drive, San
Diego, California 92128 on Tuesday, May 6, 1997 at 9:00 a.m. (Pacific
time), and at any adjournments or postponements thereof, and to vote
all shares of stock of the Company standing in the name of the
undersigned with all the powers the undersigned would possess if
personally present, in accordance with the instructions below and on
the reverse hereof, and in their discretion upon such other business
as may properly come before the meeting or any adjournments thereof.
THIS PROXY WILL BE VOTED ON THE REVERSE HEREOF, AND WILL BE VOTED
IN FAVOR OF PROPOSALS 1, 2, 3 AND 4 IF NO INSTRUCTIONS ARE INDICATED.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE
-------------------------------------------------
COMMENTS/ADDRESS CHANGE: PLEASE MARK |
COMMENT/ADDRESS CHANGE ON REVERSE SIDE |
|
|
|
| (Continued and to be
| signed on reverse side)
|
|
|
|
[BACK OF PROXY CARD]
<TABLE>
<CAPTION>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. YOUR BOARD OF DIRECTORS [x] PLEASE MARK YOUR
RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS. VOTES AS INDICATED
IN THIS EXAMPLE
<S> <C> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS FOR all WITHHOLD 2. Proposal to amend the [ ] [ ] [ ]
nominees AUTHORITY to 1994 Stock Incentive
listed (except vote for all Plan.
as marked to nominees
the contrary) listed
Nominees: Gary T. Barbera, [ ] [ ] 3. Ratification of the [ ] [ ] [ ]
Peter E. Bennett, Marvin M. appointment of Deloitte
Giles, III, Vincent T. Gorguze, & Touche LLP as the
John J. Henry, Donald C. independent accountants
Klosterman, Wm. Brian Little, of the Company.
Peter R. Mathewson, Chapin Nolen
4. In their discretion, [ ] [ ] [ ]
the Proxies are
authorized to vote upon
such other business as
may properly come
before the meeting or
any adjournment
thereof.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(INSTRUCTION: To withhold authority to vote for any I PLAN TO ATTEND THE MEETING [ ]
individual nominee, write that nominee's name on the line
provided below.)
COMMENTS/ADDRESS CHANGE [ ]
Please mark this box if you have written
------------------------------------ comments or an address change on the reverse
side.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders to be held May 6, 1997 and the Proxy
Statement furnished herewith.
Signature(s) Date , 1997
----------------------------------------------- ---------
Please sign as name appears hereon. When signing as attorney, executor,
administrator, trustee or guardian, give full title as such. If
more than one name appears hereon, all parties should sign.
</TABLE>
