SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
[x] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive additional materials
[ ] Soliciting Material Pursuant to Rule 240.14a-11 or Rule 240.14a-12 [ ]
Confidential, for use of the Commission Only (as permitted by
Rule 14a-6(e) (2))
STERLING ELECTRONICS CORPORATION
- - --------------------------------------------------------------------------------
(Name of Registgrant as Specified in its
Charter) N.A.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 (1)
Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paiud
previously. Identify the previous filing by registration statement number, or
the form or Schedule and the date of its filing.
(1) Amount Previously Paid
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
STERLING ELECTRONICS CORPORATION
4201 Southwest Freeway, Houston, Texas 77027
*****
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held On
Tuesday, August 26, 1997
*****
To the Shareholders of STERLING ELECTRONICS CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders of Sterling
Electronics Corporation, (the "Company") will be held at the Company's offices,
4201 Southwest Freeway, Houston, Texas, August 26, 1997, at 3:00 o'clock p.m.,
Houston time, for the following purposes:
1. To elect six (6) directors of the Company to serve for the ensuing year
and until their successors are duly elected and qualified.
2. To consider and adopt the Company's 1997 Stock Option Plan.
3. To consider and act upon management's recommendation that Ernst & Young
LLP, Certified Public Accountants, be appointed as independent auditors for the
fiscal year ending March 28, 1998.
4. To transact such other business as may properly come before the meeting.
In accordance with applicable law and the bylaws of the company, only
shareholders of record at the close of business on July 11, 1997, are entitled
to notice of this meeting and to vote and it or any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Leon Webb, Jr.,Secretary
July 18, 1997
Houston, Texas
IMPORTANT
Please complete, sign and date the enclosed proxy and return it promptly in
the enclosed return envelope which has been provided for your convenience,
whether or not you plan to attend the meeting. The prompt return of the proxies
will assure a quorum and reduce solicitation.
<PAGE>
STERLING ELECTRONICS CORPORATION
4201 Southwest Freeway, Houston, Texas 77027
*****
Annual Meeting of Shareholders to be held
August 26, 1997
*****
PROXY STATEMENT
*****
This proxy statement is being first mailed or otherwise delivered to
shareholders commencing about July 25, 1997, for the Annual Meeting of
Shareholders of Sterling Electronics Corporation (the "Company"), to be held at
the Company's principal executive offices, 4201 Southwest Freeway, Houston,
Texas, 77027, at 3:00 o'clock p.m., Houston time, on Tuesday, August 26, 1997,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders.
RECORD DATE
The close of business on July 11, 1997, has been fixed as the record date
for the determination of shareholders entitled to receive notice of, and to
vote, at the Annual Meeting.
ANNUAL REPORT
A copy of the Company's Annual Report to shareholders for the fiscal year
ended March 29, 1997 is being mailed to you herewith. This Annual Report should
not be considered as part of this Proxy Statement or incorporated herein by
reference. Additional copies of the Annual Report, Notice of Annual meeting,
Proxy Statement and Proxy may be obtained from the offices of the Secretary of
the Company, 4201 Southwest Freeway, Houston, Texas, 77027. Mailing address:
P.O. Box 1229, Houston, Texas 77251-1229, Attention: Leon Webb, Jr.
REVOCATION OF PROXY
Any shareholder executing the Proxy enclosed herewith shall have the power
to revoke the same at any time prior to the voting of the Proxy. The termination
of the Proxy's authority by any shareholder shall be ineffective until written
notice has been given to the Secretary of the Company.
SOLICITATION
THE ENCLOSED PROXY IS BEING FURNISHED AND SOLICITED BY AND ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY. In addition to the solicitation by mail,
officers and regular employees of the Company may solicit proxies by telephone,
e-mail, facsimile transmission, or in person for which no additional
compensation is made. Independent contract labor may be obtained to assist in
the mail-out and solicitation of the proxies for which it will be reasonably
compensated. Brokers and other custodians, nominees and fiduciaries may be
requested to forward solicitation material to the beneficial owners of the stock
registered in the names of such persons and to request authority for the
execution of proxies, and the Company will, upon request, reimburse them for
their reasonable and necessary expenses in doing so. Management is not aware of
any matter coming before this Annual Meeting that will necessitate dissenting
shareholders rights or appraisal rights.
OUTSTANDING STOCK
On June 2, 1997, the Company had outstanding 7,114,203 shares of Common
Stock. Each shareholder will be entitled to cast one vote in person or by Proxy
for each share of Common Stock held. No cumulative voting is permitted.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table of director nominees sets forth the Common Stock of Sterling
Electronics Corporation owned by each such nominee as of June 2, 1997. The
following table sets forth as of such date the information indicated concerning
the security ownership of the Company by the only known persons to own
beneficially 5% or more of the Company's outstanding equity securities, each of
the non-director nominee named executive officers, and all directors and
executive officers of the Company as a group.
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Class
T.D. McGinty 46,707(b) *
4201 Southwest Freeway
Houston, TX 77027
C.M. O'Brien 24,842(b) *
4201 Southwest Freeway
Houston, TX 77027
W. B. Turner 48,444(b) *
4201 Southwest Freeway
Houston, TX 77027
All Directors & 724,261(a) 10.2%
Executive Officers as
a group (15 persons) * Less than 1%
(a) Includes 336,249 shares which may be acquired from the Company within
60 days upon exercise of options pursuant to the Sterling Electronics
Corporation 1992 Incentive Stock Option Plan (the "1992 Plan"), non-qualified
stock option grants, the 1993 Directors' Non-Qualified Stock Option Plan (the
"1993 Plan") and the Sterling Electronics Corporation 1994 Stock Option Plan
(the "1994 Plan").
(b) Includes 5,513 shares for Mr. McGinty, 11,143 shares for Mr. O'Brien
and 5,513 shares for Mr. Turner which may be acquired from the Company within 60
days upon exercise of options pursuant to the 1992 Plan and/or the 1994 Plan.
ELECTION OF DIRECTORS
In accordance with the provisions of the bylaws of the Company, six (6)
directors will be elected at the Annual Meeting, each to serve for one year or
until his successor is elected and qualified. It is intended that unless
otherwise directed, the enclosed Proxy will be voted in favor of the election of
the nominees named in the following table.
Certain information concerning the nominees, each of whom has agreed to
stand for election, is set forth below. Each of the named nominees listed in the
following table is currently a director of the Company and was elected to his
present term of office at the Annual Meeting of Shareholders on August 27, 1996.
Shares of Common Stock
of the Company Beneficially
Owned and Percent of
Name, Age and Outstanding shares as of
Tenure Of Nominee Position With Company June 2, 1997(a)
JAY H. GOLDING Director 37,627 *
52 Years
Director since 1992
S.M. LAMBERT, Ph.D. Director 12,966 *
65 Years
Director since 1974
HERSCHEL G. MALTZ Director 13,990 *
66 Years
Director since 1965
DAVID A . SPOLANE Executive Vice President 178,222 2.5%
42 Years & Director (b)
Director since 1994
RONALD S. SPOLANE Chairman of the Board, 221,871 3.1%
42 Years Chief Executive Officer &
Director since 1992 President (b)
DAVID R. TOOMIM Director 19,862 *
77 Years
Director since 1976
* Less than 1%
(a) Includes shares which may be acquired from the Company within 60 days
upon exercise of options as follows: Jay H. Golding - 11,864 shares, S.M.
Lambert - 11,864 shares, Herschel G. Maltz - 11,864 shares, D.A. Spolane -
70,246 shares, R.S. Spolane - 140,700 shares and David R. Toomim - 11,864
shares.
(b) Mr. David A. Spolane and Mr. Ronald S. Spolane are brothers.
Mr. Golding has been a private investor and serves as Chairman of both Port
Chester Industries and American International Partners, L.C. Prior to 1989, Mr.
Golding was CEO of Hi-Port Industries, a public company engaged in the packaging
of chemical based consumer products. Mr. Golding also serves as Chairman of the
Board of Bogan Aerotech, Inc., a privately held company engaged in the aerospace
industry. He is also Chairman of the Board of American International Partners,
L.C., a merchant banking company with development interests in Southeast Asia.
Dr. Lambert has been an independent management consultant for more than
five years. Prior to 1986, Dr. Lambert was the Senior Vice President of
Corporate Planning for LTV Corporation, a public company engaged in a variety of
businesses including steel, shipping, energy, defense and aerospace. Prior to
joining LTV Corporation, he was an executive with Shell Oil Company in Houston,
Texas.
Mr. Maltz is Chairman of the Company's Compensation Committee. Though
primarily a private investor, from 1993 through 1995 he was Chairman of the
Board and Chief Executive Officer of IPS Systems, Inc. a privately held company
engaged in the distribution of products for apartment maintenance. During 1992,
Mr. Maltz was President of Petrolon, Inc., a privately held company engaged in
the marketing and distribution of engine additives. Prior to joining Petrolon,
he was a private investor for two years. He was previously President and a
Director of Century Papers, Inc., a public company engaged in the wholesale
distribution of paper products. Mr. Maltz is also a director of Charter
Bancshares, Inc., a publicly held bank holding company.
Mr. D. A. Spolane became Executive Vice President with senior
responsibility for sales and marketing in the distribution operations in March
1994. From 1987 through March 1994, he was a Vice President with responsibility
for the Company's semiconductor marketing program. Mr. Spolane has been an
employee of the Company in various sales and marketing capacities since 1976.
Mr. R. S. Spolane has been Chairman of the Company's Board of Directors and
Chief Executive Officer since January 1994. In August 1993, he became President
and Chief Operating Officer. From 1991 through August 1993, Mr. Spolane held the
position of Executive Vice President with senior responsibility for sales and
marketing in the distribution operations. He has been an employee of the Company
since 1976 and has held various positions in computer services, financial
administration, sales and marketing.
Mr. Toomim is Chairman of the Company's Audit Committee. Since 1981, he has
been an attorney with Schlanger, Mills, Mayer & Grossberg, L.L.P., a Houston law
firm. Mr. Toomim is a retired partner of Deloitte & Touche, a public accounting
firm. Schlanger, Mills, Mayer & Grossberg, L.L.P. provides legal services for
the Company. During fiscal 1997 the Company paid Schlanger, Mills, Mayer &
Grossberg, L.L.P. approximately $102,000 for legal services.
Should any one or more of the foregoing nominees not be a candidate for
director when the election is held, it is the intention of the persons named in
the enclosed Proxy to vote for the election of a substitute nominee proposed by
the management. However, the Management has no reason to believe that the
nominees will be unable to serve if elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
(PROXY ITEM NO. 1).
EXECUTIVE OFFICERS
In addition to Messrs. D.A. Spolane and R.S. Spolane, the Company has the
following executive officers:
Name Age Position(s) with the Company
Ronald Barnard 55 Senior Vice President
David Goforth 39 Senior Vice President
Jack K. Killoren 45 Senior Vice President
J.V. McConkey, III 55 Senior Vice President
Thomas D. McGinty 57 Senior Vice President
Christopher O'Brien 41 Senior Vice President
Byron Turner 63 Senior Vice President
Mac McConnell 43 Vice President-Finance & CFO
Leon Webb, Jr. 53 Vice President-Secretary and
Treasurer
Mr. Barnard became a Senior Vice President with senior responsibility for
Sterling's northeast region in March 1994. From March 1991 through March 1994
Mr. Barnard was a Vice President with responsibility for Sterling's northeast
region. From 1986 through 1991, Mr. Barnard was the general manager of
Sterling's Boston sales office.
Mr. Goforth became a Senior Vice President with senior responsibility for
Sterling's connector marketing program in March 1994. For the previous six years
Mr. Goforth was a Vice President with responsibility for Sterling's connector
marketing program.
Mr. Killoren became Senior Vice President with senior responsibility for
marketing in March 1994. For the seven previous years Mr. Killoren was Vice
President with responsibility for passive and electro-mechanical product
marketing.
Mr. McConkey has been a Senior Vice President with senior responsibility
for Sterling's southwest region for over five years.
Mr. McGinty has been a Senior Vice President with senior responsibility for
materials management for over five years.
Mr. O'Brien became Senior Vice President with senior responsibility for
sales in April 1996. For the two previous years Mr. O'Brien was Vice President
with responsibility for Sterling's mid-west region. From April 1992 through
March 1994 Mr. O'Brien was the Company's regional manager for the mid-west
region. Prior to joining the Company in April 1992 Mr. O'Brien was employed by
Reptron Electronics, Inc. as regional manager of the mid-west region.
Mr. Turner has been a Senior Vice President with senior responsibility for
Sterling's south central region for over five years.
Mr. McConnell, CPA, became Vice President-Finance and Chief Financial
Officer in December, 1992. From June 1990 to December 1992 he was Vice
President-Finance of Interpak Holdings, Inc. (a public company) and Chemtrusion,
Inc. and Finance Director of Bamberger Polymers, Inc. (a public company),
affiliated companies involved in trading, distributing, packaging, warehousing
and compounding thermoplastic resins. From 1987 through 1990, Mr. McConnell was
a partner of Ernst & Young, a public accounting firm.
Mr. Webb has been the Vice President-Secretary and Treasurer for over five
years.
Officers serve at the discretion of the Board.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Sterling maintains an audit committee consisting of Messrs. Golding, Maltz
and Toomim. This committee met two times during the prior year at which times
all members of the committee were present. This committee's primary functions
are to review the scope and results of audits by Sterling's independent
auditors, internal accounting controls, the extent of other services performed
by the independent auditors and the cost of all accounting and financial
services.
The Company's compensation committee consists of Messrs. Lambert and Maltz.
This committee met two times during the prior fiscal year. This committee's
responsibilities include approving (i) all remuneration of senior management and
directors, (ii) the granting of stock options and (iii) other benefits for
senior management and directors.
The Company does not have a nominating committee.
During the prior fiscal year, the Board of Directors met six times. Mr.
Golding attended four of the six meetings. The remaining directors attended 75%
or more of the meetings.
DIRECTORS COMPENSATION
Directors who are not employees of the Company each receive an annual fee
of $15,000 and $1,000 for attendance at each Board of Directors' meeting. All
fees, at the director's election, may be deferred under the Company's deferred
compensation program. Officers of the Company do not receive additional
compensation for attendance at Board of Directors' meetings or committee
meetings. Additionally, on June 28, 1993, on March 10, 1994 and on October 15,
1996 each non-employee director received a non-qualified stock option, issued
pursuant to the 1993 Plan, to purchase 3,307 shares of common stock at $5.44 per
share, 3,307 shares of common stock at $10.43 and 5,250 shares of common stock
at $10.95, respectively.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth a summary of the compensation paid during
the past three fiscal years for services rendered in all capacities to the
Company and its subsidiaries by the Chief Executive Officer and the four other
most highly compensated executive officers.
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation(1) Long Term Compensation
Securities
Restricted Underlying
Name and Other Annual Stock Options All Other
Principal Position Year Salary Bonus(2) Compensation Awards($) SARSs(#) Compensation(3)
<S> <C> <C> <C> <C> <C> <C> <C>
R.S. SPOLANE 1997 $237,000 $267,570 210,000
Chairman of the Board 1996 $234,083 $307,620
Chief Executive 1995 $227,692 $216,000 10,500
Officer & President
D.A. SPOLANE 1997 $135,000 $192,211 157,500 $1,875
Executive Vice 1996 $133,648 $263,110 $1,875
President and 1995 $130,000 $175,884 7,350 $1,875
Director
T.D. MCGINTY 1997 $126,543 $192,211 10,500
Senior Vice President 1996 $123,659 $263,110
Materials Management 1995 $120,000 $175,884 5,250
C.M. O'BRIEN 1997 $120,000 $168,185 26,250 $1,875
Senior Vice President 1996 $ 98,786 $259,363 $1,875
Sales 1995 $ 95,407 $229,423 5,250 $1,875
W. B. TURNER 1997 $140,010 $155,368 8,400
Senior Vice President 1996 $135,706 $235,896
Southcentral Area 1995 $129,112 $143,646 5,250
Manager
- - ----------------------
</TABLE>
(1) Includes amounts which were deferred, at the officer's election, under
the Company's deferred compensation program.
(2) Includes amounts paid in the Company's common stock pursuant to the
Company's Incentive Bonus Plan. In each fiscal year, 20% of the bonuses for the
named executive officers were paid in the Company's common stock.
(3) Amount contributed by the Company as 401(k) Plan matching
contributions.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
The following table provides information relating to the exercise of stock
options by the named executive officers during the last fiscal year, and the
number and value of unexercised stock options held by such officers at March 29,
1997.
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
at Fiscal at Fiscal
Shares Year-End Year-End
Acquired Value Unexercisable(U) Unexercisable(U)
Name on Exercise Realized(1) Exercisable(E) Exercisable(E)(2)
R.S. SPOLANE 210,000U $296,250U
88,200E $411,926E
D.A. SPOLANE 157,500U $222,188U
30,871E $100,676E
T.D. McGINTY 10,500U $12,312U
5,513E $ 9,340E
C.M. O'BRIEN 2,205 $20,870 26,250U $34,551U
5,513E $ 9,340E
W.B. TURNER 8,400U $ 9,850U
5,513E $ 9,340E
- - --------------
1) Computed as the difference between the option exercise price and the
market value of the Common Stock at the date of exercise.
2) Computed as the difference between the option exercise prices and
$12.125 (the closing price of the Common Stock at fiscal year-end).
EMPLOYMENT AGREEMENTS
The Company and Ronald S. Spolane are parties to an employment agreement
dated as of September 18, 1995, pursuant to which Ronald S. Spolane is employed
as the Chairman of the Board, President and Chief Executive Officer of the
Company. Such agreement has an initial term of 5 years and is subject to
automatic one year extensions on the anniversary date of such agreement unless
either the Company or Mr. Spolane gives written notice that they do not desire
to extend the term of the employment agreement. Pursuant to such agreement,
Ronald Spolane will receive (i) a salary of $237,000 per year, (ii) a formula
bonus based on the earnings and results of operations of the Company, (iii) a
Company car, (iv) medical, dental and prescription drug coverage, and (iv)
inclusion of Mr. Spolane in any other benefit plan for senior employees of the
Company.
The Company's employment agreement with Ronald S. Spolane also contains
change of control provisions. If during the thirty-six months following a
"change in control" of the Company, R. S. Spolane's employment is terminated
other than for cause, then he would be entitled to receive a lump sum severance
benefit equal to three times the sum of (i) his annual salary for the prior
year, (ii) the greater of (X) the bonus that R.S. Spolane would have earned
under his bonus formula for the current year annualized, or (Y) the bonus paid
to him for the prior year, and (iii) an amount for the agreed value of certain
employee benefits being provided to Mr. Spolane (currently $38,000). If such
amounts are subject to tax (the "Excise Tax") imposed by Section 4999 and/or
280G of the Internal Revenue Code of 1986 (the "Code"), then the Company will
also pay to R.S. Spolane an amount such that the net amount retained by Mr.
Spolane after deduction of the Excise Tax shall be equal to the amount R.S.
Spolane would have been entitled to receive prior to the imposition of the
Excise Tax. The employment agreement with R.S. Spolane defines "change of
control" as (i) the existing directors do not constitute two-thirds of the Board
of Directors, (ii) the acquisition of 25% or more of the Company's common stock
by a person or group, (iii) any merger or consolidation in which the existing
board of directors of the Company do not constitute at least two-thirds of the
board of the surviving corporation, and (iv) any other transaction deemed by
two-thirds of the Company's existing directors to constitute a change of
control.
Following a change of control and the termination of R.S. Spolane's
employment other than for "cause", all stock options granted to R.S. Spolane
will immediately become vested and R.S. Spolane will be entitled to participate
in the Company's employee benefit plans for three years following such
termination.
Pursuant to the employment agreement, R.S. Spolane has agreed not to
compete against the Company or solicit customers, employees or suppliers of the
Company for a period of one year following a change of control event, or two
years following a termination for any other cause.
The Company and D.A. Spolane are parties to an employment agreement dated
as of September 18, 1995, pursuant to which D.A. Spolane is employed as an
Executive Vice President and Operating Officer of the Company. Such agreement
has an initial term of 5 years and is subject to automatic one year extensions
on the anniversary date of such agreement unless either the Company or D.A.
Spolane gives written notice that they do not desire to extend the term of the
employment agreement. Pursuant to such agreement, D.A. Spolane will receive (i)
a salary of $135,000 per year, (ii) a formula bonus based on the earnings and
results of operations of the Company, (iii) a Company car, (iv) medical, dental
and prescription drug coverage, and (iv) inclusion of D.A. Spolane in any other
benefit plan for senior employees of the Company.
The Company's employment agreement with D.A. Spolane also contains change
of control provisions. If during the thirty-six months following a "change in
control" of the Company, D.A. Spolane's employment is terminated other than for
cause, then he would be entitled to receive a lump sum severance benefit equal
to three times the sum of (i) his annual salary for the prior year, (ii) the
greater of (X) the bonus that D.A. Spolane would have earned under his bonus
formula for the current year annualized, or (Y) the bonus paid to him for the
prior year, and (iii) an amount for the agreed value of certain employee
benefits being provided to D.A. Spolane (currently $38,000). If such amounts are
subject to Excise Tax, then the Company will also pay to D.A. Spolane an amount
such that the net amount retained by D.A. Spolane after deduction of the Excise
Tax shall be equal to the amount D.A. Spolane would have been entitled to
receive prior to the imposition of the Excise Tax. The employment agreement with
D.A. Spolane defines "change of control" as (i) the existing directors do not
constitute two-thirds of the Board of Directors, (ii) the acquisition of 25% or
more of the Company's common stock by a person or group, (iii) any merger or
consolidation in which the existing board of directors of the Company do not
constitute at least two-thirds of the board of the surviving corporation, and
(iv) any other transaction deemed by two-thirds of the Company's existing
directors to constitute a change of control.
Following a change of control and the termination of D.A. Spolane's
employment other than for cause, all stock options granted to Mr. Spolane will
immediately become vested and D.A. Spolane will be entitled to participate in
the Company's employee benefit plans for three years following such termination.
Pursuant to the employment agreement, D.A. Spolane has agreed not to
compete against the Company or solicit customers, employees or suppliers of the
Company for a period of one year following a change of control event, or two
years following a termination for any other cause.
SEVERANCE PLANS
Upper Management Severance Plan
On November 14, 1995, the Company adopted its Upper Management Severance
Plan. Such plan covers the senior employees of the Company designated by the
Chief Executive Officer of the Company as senior employees and who have been
employed by the Company for at least six months, other than an employee who is a
party to an employment agreement with change of control provisions. Ronald S.
Spolane and David A. Spolane each have employment agreements with change of
control provisions and, therefore, are not covered by this plan.
Under the Company's Upper Management Severance Plan, if during the twelve
month period following any "change of control" a covered senior employee is
terminated other than for "cause" or if during the twelve month period following
a "hostile change of control", a covered senior employee is terminated for any
reason, then such covered senior employee will be entitled to receive a
severance payment equal to the sum of (X) one year salary, and (Y) the greater
of such covered senior employee's last year bonus or the average of such covered
senior employee's bonus for the three prior years. Such severance payment would
be paid one-half within 30 days of such covered senior employee's termination of
employment with the Company and the balance one year from such termination date.
The covered senior employee's receipt of the severance payment is conditioned on
the covered senior employee agreeing to not compete against the Company and to
not solicit employees, suppliers or customers of the Company for a one-year
period following termination. In addition, the covered senior employee must hold
in confidence all of the Company's confidential information and trade secrets in
the possession of such terminated covered senior employee. The Company may
require that a terminated covered senior employee sign a written agreement
agreeing to be bound by such provisions as a condition to the receipt of the
severance payment.
Such plan defines change of control in the same manner as in the employment
agreements with R.S. Spolane and D.A. Spolane. The term "hostile change of
control" refers to any change of control that is not approved by a majority of
the Company's directors.
Broad Base Severance Plan
On November 14, 1995, the Company also adopted its Broad Base Severance
Plan. The Company's Broad Base Severance Plan covers all employees of the
Company who have been employed by the Company for at least twelve months and who
are not covered by either the Company's Upper Management Severance Plan or an
employment agreement with change of control provisions. If during the twelve
month period following any Hostile Change of Control, any covered employee is
terminated for other than cause or voluntarily quits, then such covered employee
will receive a severance benefit equal to one week's salary for each full year
of employment with the Company prior to the date of such termination. Such
amount shall be paid to the covered employee in a lump sum payment within 30
days of such termination. It is a condition of the receipt of such severance
benefit that a covered employee not solicit the Company's customers or employees
for a period equal to one week for each one year of employment by the Company
prior to termination.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
As members of the Compensation Committee (the "Committee") it is our duty
to oversee compensation practices for the Company's senior executive officers.
The Committee's responsibilities include the review of salaries, benefits, and
other compensation of the Company's senior managers and making recommendations
to the full Board of Directors with respect to these matters. The Committee is
comprised entirely of Board members who are independent, non-employee directors
of the Company.
The Committee's primary objective in establishing compensation programs and
levels for the Company's executive officers is to support the Company's goal of
maximizing the value of shareholders' interests in the Company. To achieve this
objective, the Committee believes it is necessary to:
- Set levels of base compensation that will attract and retain superior
executives in a highly competitive environment. The compensation philosophy is
to pay a moderate to low base salary and to provide attractive incentives to
earn additional income based on operating results.
- Encourage long-term decision making that enhances shareholder value. The
Committee believes that this objective is promoted by emphasizing grants of
stock options and paying a portion of annual incentives in common stock, thereby
creating a direct link between shareholder value creation and executive
compensation.
- Provide incentive compensation that varies directly with both Company
performance and individual contribution to that performance.
Base Salary
The Committee annually reviews each executive officer's base salary. The
factors which influence Committee determinations regarding base salary include:
job performance, level of responsibilities, comparable levels of pay among
executives at regional and national market competitors (with a special emphasis
placed on salaries paid by companies that constitute the Peer Group Index),
internal compensation equity considerations, prior experience, and breadth of
knowledge.
Mr. R.S. Spolane's annual base salary at the beginning of fiscal 1994 was
$90,000. This base salary was increased to $125,000 in August 1993 upon being
named President of the Company. In connection with becoming Chairman of the
Board in January 1994, his annual base salary was increased to $225,000
beginning April 1, 1994. Beginning on June 29, 1995, Mr. R.S. Spolane's base
salary was increased by 5.3% to $237,000.
Annual Incentives
Certain employees of the Company, including Mr. R.S. Spolane, Mr. D.A.
Spolane, Mr. McGinty, Mr. O'Brien and Mr. Turner participate in an incentive
bonus plan whereby the employee earns as a bonus a certain percentage of the
operating income, in excess of an established baseline amount, of the operations
under the employee's supervision. Pursuant to the Incentive Bonus Plan approved
by the shareholders at the August 27, 1991 Annual Meeting, 20% of the fiscal
1997 bonuses were paid in the Company's common stock valued at $12.12 per share
(the average closing price of the common stock for the five trading days prior
to May 30, 1997, the date the bonus was paid). The percentage of operating
income and the baseline amount for each employee and the percentage to be paid
in common stock are approved by the Board of Directors at the beginning of the
fiscal year.
The fiscal 1997 bonus formula for Mr. R.S. Spolane was set at the beginning
of the year as 1.75% of earnings before income taxes, subject to certain
adjustments, if earnings before income taxes equaled or exceeded $12,000,000.
Under the formula, the bonus as a percentage of earnings would decline as
earnings before income taxes declined below $12,000,000. Under this formula for
fiscal 1997, Mr. R. S. Spolane earned a bonus of $267,570.
Long-Term Incentives
The Company reinforces the importance of producing satisfactory returns to
shareholders over the long-term by granting stock options. Stock option awards
provide executives with the opportunity to acquire an equity interest in the
Company and align the executives' interests with those of the shareholders to
create shareholder value as reflected by increases in the price of the Company's
common stock.
Option exercise prices are equal to 100% of the fair market value of the
Company's shares on the date of option grant and become exercisable in annual
installments. This ensures that participants will derive benefits only as
shareholders realize corresponding gains over an extended time period.
During fiscal 1997 the Committee granted stock options to each of the
executive officers of the Company. These stock option awards are designed to
serve as incentives based upon the Company's financial performance and
shareholder returns over time.
Compensation Committee:
S.M. Lambert & Herschel G. Maltz
STOCK PERFORMANCE GRAPH
The following graph compares the performance of Sterling Electronics
Corporation for the periods indicated with the performance of the Standard &
Poor's 500 Stock Index and the average performance of a group consisting of the
Company's peer corporations on a line-of-business basis. The corporations making
up the Peer Group Index are Arrow Electronics, Inc., Avnet, Inc., Bell
Industries, Inc., Jaco Electronics, Inc., Kent Electronics Corp., Marshall
Industries, Milgray Electronics, Inc., Nu Horizons Electronics, Corp.,
Pioneer-Standard Electronics, Inc., Western Micro Technology, Inc., Wyle
Electronics, Inc. and Zing Technologies, Inc. Total return indices reflect
reinvested dividends and are weighted on a market capitalization basis at the
beginning of each measurement period.
TOTAL RETURN TO SHAREHOLDERS (Performance results from
March 31, 1992 through March 31, 1997)
Reinvested Dividends
[GRAPHIC OMITTED]
At March 31
1992 1993 1994 1995 1996 1997
Sterling $100 $121.05 $260.56 $250.02 $378.60 $275.65
S&P 500 $100 $115.23 $116.93 $135.13 $178.51 $213.89
Peer Group $100 $144.07 $176.91 $201.27 $253.49 $270.21
Assumes $100 invested on March 31, 1992 in Sterling Electronics
Corporation, S&P 500 and Peer Group.
EXECUTIVE SALARY CONTINUATION PROGRAM
In 1976, the Company established an Executive Salary Continuation Program
for selected key employees to be funded through life insurance. The program is
voluntary (approximately 16 active employees as of June 2, 1997 participate in
the program) with each participating employee contributing to the program. The
annual benefits, beginning at age 65, depend upon the employee's age and health
at the time of joining the program and the amount of the employee's monthly
contribution to the program. The Company is the owner and beneficiary of each
participant's insurance policy in this program and is contractually obligated to
pay death or salary continuation benefits.
The benefits under this program shall be paid in 120 equal monthly
installments beginning when the participant attains the age of 65 years. Messrs.
Turner, R.S. Spolane and McGinty are participants in the program, with annual
benefit payments beginning at age 65 of $25,312, $81,840 and $25,207,
respectively. Mr. D.A. Spolane and Mr. O'Brien are not participants in the
program.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the New York Stock
Exchange. Officers, directors and 10% shareholders are required by regulations
promulgated by the Securities and Exchange Commission to furnish the Company
copies of all Section 16(a) reports they file.
Based solely on a review of the copies of Forms 3, 4 and 5, and all
amendments thereto, furnished to the Company, the Company believes all Section
16(a) filing requirements to its officers, directors and 10% beneficial owners
were complied with during fiscal 1997 except the following: a Form 4 Statement
of Changes in Beneficial Ownership to report one sale of the Company's Common
Stock by Mr. W.B. Turner was filed delinquently.
PROPOSAL TO ADOPT THE STERLING ELECTRONICS CORPORATION
1997 STOCK OPTION PLAN (PROXY ITEM NO. 2)
The Company currently has an incentive stock option plan that was approved
by the shareholders of the Company on August 23, 1994 (the "1994" Plan"). The
1994 Plan provides for the issuance of options to purchase up to 551,250 shares
of Common Stock of the Company. The Company has already granted options to
purchase 517,144 shares of Common Stock authorized to be granted under the 1994
Plan. Because the Company has already granted options for 94 percent of the
shares authorized under the 1994 Plan, the Board of Directors and the
Compensation Committee have determined that it is in the best interest of the
Company and the shareholders to adopt the Sterling Electronics Corporation 1997
Stock Option Plan (the "1997" Plan).
The Company in the past has used stock options for attracting, retaining
and motivating key employees and directors by providing them incentives to
enhance the growth and profitability of the Company, namely, to provide
incentives to persons with experience and ability so that they will remain in
the employ of the Company or its subsidiaries, to attract new employees whose
services are considered valuable to the Company or its subsidiaries and to
encourage a proprietary interest by such persons in the development and
financial success of the Company.
The 1997 Plan was adopted, subject to shareholder approval, by the Board of
Directors on June 3, 1997. The 1997 Plan provides for the grant to selected
full-time employees of the Company of options to purchase shares of Common
Stock. The options to be granted under the 1997 Plan may be incentive stock
options or nonstatutory stock options. Incentive stock options are intended to
satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Nonstatutory options are not intended to satisfy the
requirements of Section 422 of the Code.
The approval of the 1997 Plan requires the affirmative vote of a majority
of the issued and outstanding shares of common stock held by shareholders who
are present at the meeting, in person or by proxy, and entitled to vote at such
meeting. The 1997 Plan will terminate if the 1997 Plan is not approved by the
shareholders at the meeting.
The following summary of the 1997 Plan does not purport to be complete and
is subject to, and is qualified in its entirety by, the 1997 Plan, a copy of
which is attached hereto as Exhibit A..
Amount of Stock Subject to the 1997 Plan
Under the terms of the 1997 Plan, the Company may grant options to purchase
up to an aggregate of three hundred fifty thousand (350,000) shares of Common
Stock.
Administration of the 1997 Plan
The Compensation Committee (the "Committee") shall administer the 1997
Plan. Under the terms of the 1997 Plan, the Committee shall consist of at least
two persons and all members shall be non-employee directors within the meeting
of Rule 16b-3 (or any successor rule or regulation) promulgated under the
Securities and Exchange Act of 1934.
Eligibility for Plan Awards
Plan awards may be granted to selected key employees of the Company or its
subsidiaries (the "Participants") in consideration for services provided to the
Company or its subsidiaries. The Company currently has two persons serving as
directors who are also full-time employees of the Company. Any employee-director
is eligible to receive plan awards, unless such person serves on the Committee.
Actual participation in the 1997 Plan will be determined in the sole discretion
of the Committee. Therefore, the number of Participants participating in the
1997 Plan in the next fiscal year cannot be determined precisely, nor can the
benefits or amounts that will be received by or allocated to each of the
Participants. Similarly, the benefits which will be allocated to the executive
officers cannot be determined at this time.
Options under the 1997 Plan
The exercise price for options under the 1997 Plan shall be not less than
100% of the fair market value per share on the date of grant of such option. In
the event that an option is granted under the 1997 Plan to any person who, at
the time such option is granted, owns more than 10% of the total combined voting
power of classes of shares of the Company or of any subsidiary of the Company (a
"10% Stockholder"), then the exercise price of the options shall be not less
than 110% of the fair market value of the shares on the date such option is
granted. Fair market value as used in the 1997 Plan means the closing sales
price of Common Stock per share on the day before such option is granted.
Any option granted under the 1997 Plan is exercisable at such times, under
such conditions (including, without limitation, performance criteria with
respect to the Company and/or the optionee), in such amounts and during such
period or periods as the Committee determines on the date of the grant of such
option. Such options. however, shall not be exercisable after the expiration of
ten years from the date such option is granted. In the case of an option granted
to a 10% stockholder, such options shall not be exercisable after the expiration
of five years from the date such options are granted.
Payment for the shares acquired upon exercise of an option under the 1997
Plan shall be made in cash, or if authorized by the Committee, by delivery of
other shares of Common Stock, or by any combination of such methods.
The aggregate fair market value (determined as of the time an option is
granted) of the stock with respect to which incentive options are exercisable
for the first time by any Participant during any calendar year, under the 1997
Plan and all of the Company's other plans, may not exceed $100,000.
The Committee may establish procedures under the 1997 Plan for an optionee:
(1) to pay the exercise price of an option by withholding for the total number
of shares to be acquired upon exercise of an option that number of shares having
a fair market value equal to the exercise price; (2) to have withheld from the
total number of shares to be acquired, in the same manner as (1) above, the
withholding obligation for federal and state income and other taxes; and (3) to
exercise a portion of the option by delivering shares of common stock already
owned by such optionee in payment of the exercise price.
In general, if an optionee ceases to be an employee of the Company or its
subsidiaries for reasons other than disability or death, he or she will have
until the earlier of 30 days from the date of such termination or the date the
option expires to exercise the option, to the extent the optionee was entitled
to exercise the option on the date of termination.
If an optionee is unable to continue to perform services for the Company or
any of its subsidiaries as a result of disability, he or she will have until the
earlier of twelve months from the date of such disability or the date the option
expires to exercise the option, in whole or in part, to the extent the optionee
was entitled to exercise the option on such date. In addition, the optionee must
have been an employee since the date of grant and must be an employee on the
date of disability to take advantage of this provision. These same rules apply
to the exercise of options in the event of the death of an optionee.
An option granted under the 1997 Plan may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of dissent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, and is not
assignable by operation of law or subject to execution, attachment or similar
process.
Capitalization Adjustments; Merger
Subject to any required action by the shareholders of the Company, the
number of shares covered by each outstanding option (as well as the exercise
price covered by any outstanding option) shall be proportionately adjusted for
any increase or decrease in the number of issued shares resulting from a stock
split, payment of a stock dividend with respect to the Common Stock or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company.
The Option Agreements to be entered into under the 1997 Plan may provide
that if the Company (a) shall offer for sale to the shareholders of its common
stock shares of common stock or other classes of stock or other securities of
the Company, or (b) in connection with any transaction shall acquire or shall
cause to be issued rights to acquire shares of stock or other securities of
another corporation for the benefit of or to the holders of common stock of the
Company, the Company will give written notice to optionee of the rights which
are thus to be acquired or issued for the benefit of or to the holders of common
stock of the Company in sufficient time to permit optionee to exercise the
option granted if optionee should elect to do so and to permit optionee to
participate in such rights as a holder in such common stock of the Company.
The Option Agreements may also provide that in the event the Company
proposes to merge or consolidate with another corporation or to sell or dispose
of its properties, assets and business or to dissolve, the Company will give
written notice thereof to the optionee in sufficient time to permit optionee to
exercise the option granted, if optionee should elect to do so and participate
in such transaction as a stockholder of the Company, provided, however, in
connection with any merger or consolidation or other transaction under which the
Company or its holders of shares of common stock will acquire stock other
securities of the continuing, resulting or other corporation in exchange for
their shares of common stock of the Company; provision shall be made for the
reservation for and issuance upon exercise by optionee of the option granted of
optionee's pro rata number of shares or other securities (on the basis of the
number of shares of common stock of the Company as to which the option granted
remains at the time unexercised), at the same aggregate purchase price provided
for in the Option Agreement, the price per unit to be adjusted upward or
downward, according to the increase or decrease of the number of units involved.
The Option Agreements may also provide that in the event the Company
undergoes, or is threatened by, a transaction effecting a significant change in
the business, as determined by the Board of Directors, the waiting period for
exercising will be waived and optionee will be permitted to immediately exercise
the option.
In the event of a Change of Control Transaction (as hereinafter defined),
all outstanding Options granted under the 1997 Plan will vest immediately upon
any such Change of Control Transaction involving the Company. A Change of
Control Transaction is (i) the dissolution of the Company or any Significant
Affiliate, (ii) a liquidation of more than 50 percent in value of the Company or
any Significant Affiliate, (iii) a sale of assets involving 50 percent or more
of the value of the assets of the Company or any Significant Affiliate prior to
such sale, (iv) any merger or reorganization or consolidation of the Company in
which the Company is not the surviving entity, (v) any merger or reorganization
or consolidation of any Significant Affiliate in which the Significant Affiliate
is not the surviving entity (other than a merger or reorganization or
consolidation with the Company or any entity controlled by the Company), (vi)
any sale or the disposition of more than 50 percent of the combined voting
securities of any Significant Affiliate, or (vii) any transaction pursuant to
which the shareholders, as a group, of all the securities of the Company
outstanding prior to the transaction hold, as a group, less than 50 percent of
the combined voting power of the Company or any successor company outstanding
after the transaction. A Significant Affiliate is any affiliate or affiliates
which collectively account for 50% or greater of (i) the total assets of the
Company and all affiliates or (ii) the total sales of the Company and all
affiliates.
Term and Termination of the 1997 Plan
The 1997 Plan will continue in effect for a term of ten years, unless
sooner terminated. The Board may terminate the 1997 Plan at any time in its sole
discretion. No options may be granted under the 1997 Plan after it is
terminated. The termination of the 1997 Plan, or any amendment thereto, shall
not affect any shares previously issued to a Participant or any option
previously granted under the 1997 Plan.
Miscellaneous
The 1997 Plan is not qualified under the provisions of Section 401(a) of
the Code and is not subject to any of the provisions of the Employee Retirement
Income Security Act of 1974, as amended.
Federal Income Tax Consequences
The following is a brief description of the federal income tax consequences
generally arising with respect to options that may be granted under the 1997
Plan. This discussion is intended for the information of shareholders
considering how to vote at the Annual Meeting and not as tax guidance to
optionees.
The options to be granted under the 1997 Plan may be incentive stock
options within the meaning of Section 422 of the Code or nonstatutory options
which are not intended to satisfy the requirements of Section 422 of the Code.
A Participant does not realize taxable income upon the grant or exercise of
incentive stock options under the 1997 Plan. The income tax treatment of any
gain or loss realized upon a Participant's disposition of shares received upon
exercise of incentive options granted under the 1997 Plan depends on the timing
of the disposition. If the Participant holds the shares received upon exercise
of such options for the longer of two years from the date such option was
granted, or one year from the date of exercise, the difference (if any) between
the amount realized from the sale of such shares and the Participant's tax basis
will be taxed as long-term capital gain or loss. If a Participant disposes of
the shares before the end of the applicable holding periods described above
(i.e., he or she makes a "disqualifying disposition"), such Participant may be
deemed to be in receipt of taxable income in the year of the disqualifying
disposition, depending on the selling price. If the selling price exceeds the
fair market value of the option on the date of exercise, the excess of the fair
market value over the exercise price is taxable to the Participant as ordinary
income. If the selling price is less than the exercise price the difference is
treated as capital loss. The Company is not entitled to a deduction for federal
income tax purposes with respect to the grant or exercise of incentive stock
options under the 1997 Plan or the disposition of shares acquired upon exercise
(if applicable holding periods have been met). In the event of a disqualifying
disposition, however, the Company is entitled to a federal income tax deduction
in an amount equal to the ordinary income recognized by the Participant. Certain
Participants may be subject to the alternative minimum tax which in individual
cases could reduce or eliminate any tax benefits from incentive options
available to them under the 1997 Plan.
The grant of a nonstatutory option will create no tax consequences for the
optionee or the Company. Upon exercise of a nonstatutory option, the optionee
must generally recognize ordinary income equal to the fair market value of the
Common Stock acquired on the date of exercise minus the exercise price, and the
Company will be entitled to a deduction equal to the amount recognized as
ordinary income by the optionee. A disposition of shares acquired upon the
exercise of a nonstatutory option generally will result in short-term or
long-term capital gain or loss measured by the difference between the sale price
and the Participant's tax basis (i.e., the exercise price plus the amount
recognized as ordinary income) in such shares. Generally, there will be no tax
consequences to the Company in connection with a disposition of nonstatutory
option shares.
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO ALL INDIVIDUALS.
PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR DETERMINATION AS TO THE
SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROXY ITEM NO. 2
RATIFICATION OF INDEPENDENT AUDITORS (PROXY ITEM NO. 3)
The Board of Directors has selected Ernst & Young LLP as independent
auditors for the Company for the year ending March 28, 1998, which appointment
will be submitted for ratification at the Annual Meeting.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and to have the opportunity to make a statement should they
desire to do so and to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT AUTHORITY BE GRANTED TO APPOINT
ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS (PROXY ITEM NO. 3).
QUORUM
The bylaws of the Company provide that the holders of more than one-half
the issued and outstanding voting shares of the Company shall constitute a
quorum at any meeting of the shareholders. The bylaws also provide that the act
of a majority of the shares at any meeting at which a quorum is present shall be
the act of the shareholders' meeting. In the absence of a quorum at the meeting,
either in person or by proxy, the meeting may be adjourned from time to time
without notice other than announcement at the meeting until a quorum shall be
formed.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals for the 1998 Annual Meeting must be received by the
Secretary of the Company no later than March 20, 1998 for inclusion in the 1998
proxy statement and form of proxy.
OTHER BUSINESS AND REPORTS
The Board of Directors knows of no business to come before the Annual
Meeting other than as stated in the Notice of this meeting. Should any
unexpected business properly come before the meeting, it is the intention of the
persons named in the accompanying Proxy to vote thereon in accordance with their
best judgment in the interest of the Company.
By Order of the Board of Directors
Leon Webb, Jr., Secretary
COMPANY WILL FURNISH WITHOUT CHARGE ADDITIONAL COPIES OF ITS ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 29, 1997 TO INTERESTED SECURITY
HOLDERS ON REQUEST. THE COMPANY WILL FURNISH TO ANY SUCH PERSON ANY EXHIBITS
DESCRIBED IN THE LIST ACCOMPANYING SUCH REPORT UPON PAYMENT OF REASONABLE FEES
RELATING TO THE COMPANY'S FURNISHING SUCH EXHIBITS. REQUESTS FOR COPIES SHOULD
BE DIRECTED TO THE SECRETARY AT THE COMPANY'S ADDRESS PREVIOUSLY SET FORTH. THE
COMPANY WILL FURNISH WITHOUT CHARGE ADDITIONAL COPIES OF ITS ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 29, 1997 TO INTERESTED SECURITY
HOLDERS ON REQUEST. THE COMPANY WILL FURNISH TO ANY SUCH PERSON ANY EXHIBITS
DESCRIBED IN THE LIST ACCOMPANYING SUCH REPORT UPON PAYMENT OF REASONABLE FEES
RELATING TO THE COMPANY'S FURNISHING SUCH EXHIBITS. REQUESTS FOR COPIES SHOULD
BE DIRECTED TO THE SECRETARY AT THE COMPANY'S ADDRESS PREVIOUSLY SET FORTH.
EXHIBIT A
STERLING ELECTRONICS CORPORATION
1997 STOCK OPTION PLAN
Scope and Purpose of Plan
This Sterling Electronic Corporation 1997 Stock Option Plan (the "Plan")
provides for the granting of:
(a) Incentive Options (hereinafter defined) to certain key employees of
Sterling Electronics Corp., a Nevada corporation (the "Corporation"), or of its
Affiliates (hereinafter defined); and
(b) Nonstatutory Options (hereinafter defined) to certain key employees of
the Corporation or of its Affiliates.
The purpose of the Plan is to provide an incentive for key employees of the
Corporation or its Affiliates to provide a means by which selected key persons
may be given an opportunity to purchase Stock of the Corporation, to help secure
and retain the services of key persons, and to provide incentives for such
persons to exert maximum efforts for the success of the Corporation.
SECTION 1. Definitions.
1.1 "Affiliates" shall mean (a) any corporation, other than the
Corporation, in an unbroken chain of corporations ending with the Corporation if
each of the corporations, other than the Corporation, owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain and (b) any corporation,
other than the Corporation, in an unbroken chain of corporations beginning with
the Corporation if each of the corporations, other than the last corporation in
the unbroken chain, owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
1.2 "Agreement" shall mean the written agreement between the Corporation
and a Holder evidencing the Option granted by the Corporation and the
understanding of the parties with respect thereto.
1.3 "Board of Directors" shall mean the board of directors of the
Corporation.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 "Compensation Committee" shall mean the committee appointed pursuant to
Section 3 hereof by the Board of Directors to administer this Plan.
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1.6 "Eligible Individuals" shall mean key employees, including officers and
directors who are also employees of the Corporation or of any of its Affiliates.
1.7 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.8 "Fair Market Value" shall mean:
(a) If shares of Stock of the same class are listed or admitted to unlisted
trading privileges on any national or regional securities exchange at the date
of determining the Fair Market Value, the last reported sale price on such
exchange on the last business day prior to the date in question; or
(b) If shares of Stock of the same class shall not be listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.8(a) and sales prices
therefor in the over-the-counter market shall be reported by the National
Association of Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ")
National Market System at the date of determining the Fair Market Value, the
last reported sale price so reported on the last business day prior to the date
in question; or
(c) If shares of Stock of the same class shall not be listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.8(a) and sales prices
therefor shall not be reported by the NASDAQ National Market System as provided
in Subparagraph 1.8(b), and bid and asked prices therefor in the
over-the-counter market shall be reported by NASDAQ (or, if not so reported, by
the National Quotation Bureau Incorporated) at the date of determining the Fair
Market Value, the average of the closing bid and asked prices on the last
business day prior to the date in question; and
(d) If shares of Stock of the same class shall not be listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.8(a) and sales prices
or bid and asked prices therefor shall not be reported by NASDAQ (or the
National Quotation Bureau Incorporated) as provided in Subparagraph 1.8(b) or
Subparagraph 1.8(c) at the date of determining the Fair Market Value, the value
determined in good faith by the Board of Directors.
For purposes of valuing Options, the Fair Market Value of Stock shall be
determined without regard to any restriction other than one which, by its terms,
will never lapse.
1.9 "Holder" shall mean an Eligible Individual to whom an Option has been
granted.
1.10 "Incentive Options" shall mean stock options that are intended to
satisfy the requirements of section 422 of the Code.
1.11 "Nonstatutory Options" shall mean stock options that are not intended
to satisfy the requirements of section 422 of the Code.
A-2
<PAGE>
1.12 "Options" shall mean either Incentive Options or Nonstatutory Options,
or both.
1.13 "Securities Act" shall mean the Securities Act of 1933, as amended.
1.14 "Significant Affiliate" shall mean any Affiliate or Affiliates which
collectively account for 50% or greater of (i) the total assets of the
Corporation and all Affiliates or (ii) the total sales of the Corporation and
all Affiliates.
1.15 "Stock" shall mean the Corporation's authorized common stock, $0.50
par value per share, together with any other securities with respect to which
Options granted hereunder may become exercisable.
SECTION 2. Stock and Maximum Number of Shares Subject to the Plan.
2.1 Description of Stock and Maximum Shares Allocated. The Stock which may
be issued upon the exercise of an Option may either be unissued or reacquired
shares of Stock, as the Board of Directors may, in its sole and absolute
discretion, from time to time determine.
Subject to the adjustments provided for in Paragraph 6.6, the aggregate
number of shares of Stock to be issued pursuant to the exercise of all Options
granted hereunder may equal but shall not exceed 350,000 shares of Stock.
2.2 Restoration of Unpurchased Shares. If an Option granted hereunder
expires or terminates for any reason during the term of this Plan and prior to
the exercise of the Option in full, the shares of Stock subject to but not
issued under such Option shall again be available for Options granted hereunder
subsequent thereto.
SECTION 3. Administration of the Plan.
3.1 Compensation Committee. The Plan shall be administered by the
Compensation Committee. The Compensation Committee shall consist of not less
than two individuals. In the event that the Stock is registered under Section 12
of the Exchange Act, directors of the Corporation, and all members of the
Compensation Committee shall be Non-Employee Directors of the Company as such
term is defined in Rule 16b-3 promulgated under the Exchange Act:
3.2 Duration, Removal, Etc. The members of the Compensation Committee shall
serve at the pleasure of the Board of Directors, which shall have the power, at
any time and from time to time, to remove members from the Compensation
Committee or to add members thereto. Vacancies on the Compensation Committee,
however caused, shall be filled by action of the Board of Directors.
3.3 Meetings and Actions of the Compensation Committee. The Compensation
Committee shall elect one of its members as its Chairman and shall hold
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its meetings at such times and places as it may determine. All decisions and
determinations of the Compensation Committee shall be made by the majority vote
or decision of all of its members present at a meeting; provided, however, that
any decision or determination reduced to writing and signed by all of the
members of the Compensation Committee shall be as fully effective as if it had
been made at a meeting duly called and held. The Compensation Committee may make
any rules and regulations for the conduct of its business that are not
inconsistent with the provisions hereof and with the bylaws of the Corporation
as it may deem advisable.
3.4 Compensation Committee's Powers. Subject to the express provisions
hereof, the Compensation Committee shall have the authority, in its sole and
absolute discretion, (a) to adopt, amend, and rescind administrative and
interpretive rules and regulations relating to the Plan; (b) to determine the
terms and provisions of the respective Agreements (which need not be identical),
including provisions defining or otherwise relating to (i) subject to Section 6
of the Plan, the term and the period or periods and extent of exercisability of
the Options, (ii) the extent to which the transferability of shares of Stock
issued upon exercise of Options is restricted, (iii) the effect of termination
of employment upon the exercisability of the Options, and (iv) the effect of
approved leaves of absence (consistent with any applicable regulations of the
Internal Revenue Service); (c) to accelerate the time of exercisability of any
Option that has been granted; (d) to construe the terms of any Agreement and the
Plan; and (e) to make all other determinations and perform all other acts
necessary or advisable for administering the Plan, including the delegation of
such ministerial acts and responsibilities as the Compensation Committee deems
appropriate. The Compensation Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Agreement in the
manner and to the extent it shall deem expedient to carry it into effect, and it
shall be the sole and final judge of such expediency. The Compensation Committee
shall have full discretion to make all determinations on the matters referred to
in this Paragraph 3.4; such determinations shall be final, binding and
conclusive.
SECTION 4. Eligibility and Participation.
4.1 Eligible Individuals. Options may be granted hereunder only to persons
who are Eligible Individuals at the time of the grant thereof. Notwithstanding
any provision contained herein to the contrary, a person shall not be eligible
to receive an Incentive Option hereunder unless he or she is an employee of the
Corporation or an Affiliate, nor shall a person be eligible to receive an
Incentive Option hereunder if he or she, at the time such Incentive Option is
granted, would own (within the meaning of Sections 422 and 424 of the Code)
stock possessing more than ten percent (10%) of the total combined voting power
or value of all classes of stock of the Corporation or of an Affiliate unless at
the time such Incentive Option is granted the exercise price per share of Stock
is at least one hundred and ten percent (110%) of the Fair Market Value of each
share of Stock to which the Incentive Option relates and the Incentive Option is
not exercisable after the expiration of five (5) years from the date it is
granted.
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4.2 No Right to Option. The adoption of the Plan shall not be deemed to
give any person a right to be granted an Option.
SECTION 5. Grant of Options and Certain Terms of the Agreements.
Subject to the express provisions hereof, the Compensation Committee shall
determine which Eligible Individuals shall be granted Options hereunder from
time to time. In making grants, the Compensation Committee shall take into
consideration the contribution the potential Holder has made or may make to the
success of the Corporation or its Affiliates and such other considerations as
the Board of Directors may from time to time specify. The Compensation Committee
shall also determine the number of shares subject to each of such Options, and
shall authorize and cause the Corporation to grant Options in accordance with
such determinations.
The date on which the Compensation Committee completes all action
constituting an offer of an Option to an individual, including the specification
of the number of shares of Stock to be subject to the Option, shall be the date
on which the Option covered by an Agreement is granted, even though certain
terms of the Agreement may not be at such time determined and even though the
Agreement may not be executed until a later time. For purposes of the preceding
sentence, an offer shall be deemed made if the Compensation Committee has
completed all such action except communication of the grant of the Option to the
potential Holder. In no event, however, shall a Holder gain any rights in
addition to those specified by the Compensation Committee in its grant,
regardless of the time that may pass between the grant of the Option and the
actual execution of the Agreement by the Corporation and the Holder.
Each Option granted hereunder shall be evidenced by an Agreement, executed
by the Corporation and the Eligible Individual to whom the Option is granted,
incorporating such terms as the Committee shall deem necessary or desirable.
More than one Option may be granted hereunder to the same Eligible Individual
and be outstanding concurrently hereunder. In the event an Eligible Individual
is granted one or more Incentive Options and one or more Nonstatutory Options,
such grants shall be evidenced by separate Agreements, one for each of the
Incentive Option grants and one for each of the Nonstatutory Option grants.
Each Agreement may contain or otherwise provide for conditions giving rise
to the forfeiture of the Stock acquired pursuant to an Option granted hereunder
or otherwise and such restrictions on the transferability of shares of the Stock
acquired pursuant to an Option granted hereunder or otherwise as the
Compensation Committee in its sole and absolute discretion shall deem proper or
advisable. Such conditions giving rise to forfeiture may include, but need not
be limited to, the requirement that the Holder render substantial services to
the Corporation or its Affiliates for a specified period of time. Such
restrictions on transferability may include, but need not be limited to, options
and rights of first refusal in favor of the Corporation and stockholders of the
Corporation other than the Holder of such shares of Stock who is a party to the
particular Agreement or a subsequent holder of the shares of Stock who is bound
by such Agreement.
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SECTION 6. Terms and Conditions of Options.
All Options granted hereunder shall comply with, be deemed to include, and
shall be subject to the following terms and conditions:
6.1 Number of Shares. Each Agreement shall state the number of shares of
Stock to which it relates.
6.2 Exercise Price. Each Agreement shall state the exercise price per share
of Stock. The exercise price per share of Stock subject to an Incentive Option
shall not be less than the greater of (a) the par value per share of the Stock
or (b) 100% of the Fair Market Value per share of the Stock on the date of the
grant of the Incentive Option. The exercise price per share of Stock subject to
a Nonstatutory Option shall not be less than the greater of (a) the par value
per share of the Stock or (b) [100%] of the Fair Market Value per share of the
Stock on the date of the grant of the Nonstatutory Option. The exercise price
per share of Stock subject to either an Incentive Option or a Nonstatutory
Option shall be determined by the Committee upon the granting of the Option,
subject to the restrictions set forth above.
6.3 Medium and Time of Payment, Method of Exercise, and Withholding Taxes.
The exercise price of an Option shall be payable upon the exercise of the Option
in a manner that is acceptable to the Compensation Committee in its sole
discretion, which form may include cash, shares of Stock or a share or shares of
Stock owned by the Holder and surrendered for actual or deemed multiple
exchanges of shares of Stock, or any combination thereof. Exercise of an Option
shall not be effective until the Corporation has received written notice of
exercise, specifying the number of whole shares to be purchased and accompanied
by payment in full of the aggregate exercise price of the number of shares
purchased. The Corporation shall not in any case be required to sell, issue, or
deliver a fractional share of Stock with respect to any Option.
The Compensation Committee may, in its discretion, require a Holder to pay
to the Corporation at the time of exercise of an Option or portion thereof the
amount that the Corporation deems necessary to satisfy its obligation to
withhold Federal, state or local income or other taxes incurred by reason of the
exercise. Where the exercise of an Option does not give rise to an obligation to
withhold Federal income or other taxes on the date of exercise, the Corporation
may, in its discretion, require a Holder to place shares of Stock purchased
under the Option in escrow for the benefit of the Corporation until such time as
Federal income or other tax withholding is no longer required with respect to
such shares or until such withholding is required on amounts included in the
gross income of the Holder as a result of the exercise of an Option or the
disposition of shares of Stock acquired pursuant thereto. At such later time,
the Corporation, in its discretion, may require a Holder to pay to the
Corporation the amount that the Corporation deems necessary to satisfy its
obligation to withhold Federal, state or local income or other taxes incurred by
reason of the exercise of the Option or the disposition of shares of Stock. Upon
receipt of such payment by the Corporation, such shares of Stock shall be
released from escrow to the Holder.
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6.4 Term, Time of Exercise, and Transferability of Stock and Options. In
addition to such other terms and conditions as may be included in a particular
Agreement granting an Option, an Option shall be exercisable during a Holder's
lifetime only by the Holder or by the Holder's guardian or legal representative
in accordance with the next sentence. An Option shall not be transferrable other
than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder. The provisions of the
remainder of this Paragraph 6.4 shall apply to the extent a Holder's Agreement
does not expressly provide otherwise.
If a Holder (a) voluntarily ceases to be an Eligible Individual or (b)
ceases to be an Eligible Individual by reason that his status as such was
terminated by the Corporation or one of its Affiliates (without cause), the
Option shall terminate thirty days after such Holder ceases to be an Eligible
Individual. If a Holder ceases to be an Eligible Individual by reason of a
termination for "cause", then his options shall terminate on the date of such
termination and any options not previously exercised by such Holder shall
terminate.
Notwithstanding the foregoing, if a Holder ceases to be an Eligible
Individual by reason of (a) disability (as defined in Section 105(d)(4) of the
Code) or (b) death, then the Holder shall have the right for twelve months after
the date of disability or death to exercise to exercise an Option to the extent
such Option is exercisable on the date of his disability.
For purposes of this Paragraph 6.4, the term "cause" means, without regard
to any determination of "cause" or "without cause" under any other applicable
agreement with the individual other than an Agreement hereunder, a termination
of employment, as determined by the Board of Directors of the Corporation or the
board of directors of an Affiliate in the sole discretion exercised in good
faith of such board of directors, for (a) the breach by the Holder of any
employment, nondisclosure, noncompetition, or other agreement to which the
Holder and the Corporation or any Affiliate are parties, (b) the commission by
the Holder of a felony or of a misdemeanor involving moral turpitude, (c) the
participation by the Holder in any fraud, (d) dishonesty by the Holder that is
detrimental to the best interests of the Corporation or any Affiliate, or (e)
willful disloyalty by the Holder to the Corporation or any Affiliate.
That portion of the Option which is not exercisable on the date the Holder
ceases to be an Eligible Individual shall terminate and be forfeited to the
Corporation on the date of such cessation.
Notwithstanding any other provision of this Plan, no Option shall be
exercisable after the expiration of ten (10) years from the date it is granted,
or the period specified in Paragraph 4.1, if applicable. The Compensation
Committee shall have authority to prescribe in any Agreement that the Option
evidenced thereby may be exercised in full or in part as to any number of shares
subject thereto at any time or from time to time during the term of the Option,
or in such installments at such times during said term as the Compensation
Committee may prescribe. Except as provided above and unless otherwise provided
in any Agreement, an Option may be exercised at any time or from
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time to time during the term of the Option. Such exercise may be as to any
or all whole (but no fractional) shares which have become purchasable under the
Option.
Within a reasonable time or such time as may be permitted by law after the
Corporation receives written notice that the Holder has elected to exercise all
or a portion of an Option, accompanied by payment in full of the aggregate
Option exercise price of the number of shares of Stock purchased, the
Corporation shall issue and deliver a certificate representing the shares
acquired in consequence of the exercise and any other amounts payable in
consequence of such exercise. In the event that a Holder exercises both an
Incentive Option, or portion thereof, and a Nonstatutory Stock Option, or a
portion thereof, separate Stock certificates shall be issued, one for the Stock
subject to the Incentive Option and one for the Stock subject to the
Nonstatutory Stock Option. The number of the shares of Stock transferrable due
to an exercise of an Option under this Plan shall not be increased due to the
passage of time, except as may be provided in an Agreement. However, this number
of such shares of Stock which are transferrable may increase due to the
occurrence of certain events which are fully described in Paragraph 6.6.
Nothing herein or in any Option granted hereunder shall require the
Corporation to issue any shares upon exercise of any Option if such issuance
would, in the opinion of counsel for the Corporation, constitute a violation of
the Securities Act or any similar or superseding statute or statutes, or any
other applicable statute or regulation, as then in effect. At the time of any
exercise of an Option, the Corporation may, as a condition precedent to the
exercise of such Option, require from the Holder of the Option (or in the event
of his or her death, his or her legal representatives, heirs, legatees, or
distributees) such written representations, if any, concerning his or her
intentions with regard to the retention or disposition of the shares being
acquired by exercise of such Option and such written covenants and agreements,
if any, as to the manner of disposal of such shares as, in the opinion of
counsel to the Corporation, may be necessary to ensure that any disposition by
such Holder (or in the event of his or her death, his or her legal
representatives, heirs, legatees, or distributees), will not involve a violation
of the Securities Act or any similar or superseding statute or statutes, or any
other applicable state or federal statute or regulation, as then in effect.
Shares of Stock issued upon exercise of any Option shall not be transferable
until after six months from the date the Incentive Option is granted.
Certificates for shares of Stock, when issued, may have the following or similar
legend, or statements of other applicable restrictions, endorsed thereon, and,
as described in the preceding sentence, may not be immediately transferable:
The shares of Stock evidenced by this certificate have been issued to the
registered owner in reliance upon written representations that these shares
have been purchased for investment. These shares have not been registered
under the Securities Act of 1933, as amended, or any applicable state
securities laws, in reliance upon an exception from registration. Without
such registration, these shares may not be sold, transferred, assigned or
otherwise disposed of
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unless, in the opinion of the Corporation and its legal counsel, such sale,
transfer, assignment or disposition will not be in violation of the
Securities Act of 1933, as amended, applicable rules and regulations of the
Securities and Exchange Commission, and any applicable state securities
laws.
6.5 Limitation on Aggregate Value of Shares That May Become First
Exercisable During Any Calendar Year Under an Incentive Option. Except as is
otherwise provided in the second paragraph of Paragraph 6.6, with respect to any
Incentive Option granted under this Plan, the sum of:
(a) the aggregate Fair Market Value of shares of Stock subject to such
Incentive Option that first become purchasable in a calendar year under such
Incentive Option, and
(b) the aggregate Fair Market Value of shares of Stock or stock of any
Affiliate (or a predecessor of the Corporation or an Affiliate) subject to any
other incentive stock option (within the meaning of Section 422 of the Code) of
the Corporation or its Affiliates (or a predecessor corporation of any such
corporation), that first become purchasable in a calendar year under such
incentive stock option may not (with respect to any Holder) exceed $100,000,
with such Fair Market Value to be determined as of the date the Incentive Option
or such other incentive stock option is granted.
For purposes of this Paragraph 6.5, "predecessor corporation" means (i) a
corporation that was a party to a transaction described in Section 424(a) of the
Code (or which would be so described if a substitution or assumption under such
section had been effected) with the Corporation, (ii) a corporation which, at
the time the new incentive stock option (within the meaning of section 422 of
the Code) is granted, is an Affiliate of the Corporation or (iii) a predecessor
corporation of any such corporations.
6.6 Adjustments Upon Changes in Capitalization, Merger, Etc. The existence
of outstanding Options shall not affect in any way the right or power of the
Corporation or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Corporation's capital
structure or its business, or any merger or consolidation of the Corporation, or
any issue of bonds, debentures, preferred to prior preference stock ahead of or
affecting the Stock or the rights thereof, or the dissolution or liquidation of
the Corporation, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
If the Corporation shall effect a subdivision or consolidation of shares or
other capital adjustment of, or the payment of a dividend in capital stock or
other equity securities of the Corporation on, its Stock, or other increase or
reduction of the number of shares of the Stock without receiving consideration
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therefor in money, services, or property, or the reclassification of its Stock,
in whole or in part, into other equity securities of the Corporation, then (a)
the number, class and per share price of shares of Stock subject to outstanding
Options hereunder shall be appropriately adjusted (or in the case of the
issuance of other equity securities as a dividend on, or in a reclassification
of, the Stock, the Options shall extend to such other securities) in such a
manner as to entitle an Holder to receive, upon exercise of an Option, for the
same aggregate cash consideration, the same total number and class or classes of
shares (or in the case of a dividend of, or reclassification into, other equity
securities, such other securities) he would have held after such adjustment if
he or she had exercised his or her Option in full immediately prior to the event
requiring the adjustment, or, if applicable, the record date for determining
shareholders to be affected by such adjustment; and (b) the number and class of
shares then reserved for issuance under the Plan (or in the case of a dividend
of, or reclassification into, other equity securities, such other securities)
shall be adjusted by substituting for the total number and class of shares of
stock then reserved, the number and class or classes of shares of stock (or in
the case of a dividend of, or reclassification into, other equity securities,
such other securities) that would have been received by the owner of an equal
number of outstanding shares of Stock as a result of the event requiring the
adjustment. Comparable rights shall accrue to each Holder in the event of
successive subdivisions, consolidations, capital adjustments, dividends or
reclassification of the character described above.
The Agreements to be entered into under this Plan may provide that if the
Corporation (a) shall offer for sale to the shareholders of its Stock shares of
Stock or other classes of stock or other securities of the Corporation, or (b)
in connection with any transaction shall acquire or shall cause to be issued
rights to acquire shares of stock or other securities of another corporation for
the benefit of or to the holders of Stock of the Corporation, the Corporation
will give written notice to Holder of the rights which are thus to be acquired
or issued for the benefit of or the holders of Stock of the Corporation in
sufficient time to permit Holder to exercise the Option granted hereunder if
Holder should elect to do so and to permit Holder to participate in such rights
as a holder in such Stock of the Corporation.
The Agreements may also provide that in the event the Corporation proposes
to merge or consolidate with another corporation or to sell or dispose of its
properties, assets and business or to dissolve, the Corporation will give
written notice thereof to the Holder in sufficient time to permit Holder to
exercise the Option granted hereunder, if Holder should elect to do so and
participate in such transaction as a stockholder of the Corporation; provided,
however, in connection with any merger or consolidation or other transaction
under which the Corporation or its holders of shares of Stock will acquire stock
or other securities of the continuing, resulting or other corporation in
exchange for their shares of Stock of the Corporation, provision shall be made
for the reservation for and issuance upon exercise by Holder of the Option
granted of Holder's pro rata number of shares or other securities (on the basis
of the number of shares of Stock of the Corporation as to which the Option
granted hereunder remains at the time unexercised), at the same aggregate
purchase price provided for in the Agreement, the price per unit
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to be adjusted upward or downward, according to the increase or decrease of the
number of units involved.
The Agreements may also provide that in the event the Corporation
undergoes, or is threatened by, a transaction effecting a significant change in
the business, as determined by the Board of Directors, the waiting period for
exercising will be waived and Holder will be permitted to immediately exercise
the Option granted pursuant to this Plan. Furthermore, in the event of a change
in control of the Corporation and/or its Board of Directors, the Holder may
immediately exercise the Option granted pursuant to this Plan.
If a corporate transaction described in Section 424(a) of the Code which
involves the Corporation is to take place and there is to be no surviving
corporation while an Option remains in whole or in part unexercised, it shall be
canceled by the Board of Directors as of the effective date of any such
corporate transaction but before the date each Holder shall be provided with a
notice of such cancellation and each Holder shall have the right to exercise
such Option in full to the extent it is then still unexercised during a 30-day
period preceding the effective date of such corporate transaction.
Except as hereinbefore expressly provided, the issue by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Corporation convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Stock
then subject to outstanding Options.
In the event of a Change of Control Transaction (as hereinafter defined),
all outstanding Options granted under the Plan will vest immediately upon any
such Change of Control Transaction involving the Corporation. A Change of
Control Transaction is (i) the dissolution of the Corporation or any Significant
Affiliate, (ii) a liquidation of more than 50 percent in value of the
Corporation or any Significant Affiliate, (iii) a sale of assets involving 50
percent or more than the value of the assets of the Corporation or any
Significant Affiliate, (iv) any merger or reorganization or consolidation of the
Corporation in which the Corporation is not the surviving entity, (v) any merger
or reorganization or consolidation of any Significant Affiliate in which the
Significant Affiliate is not the surviving entity (other than a merger or
reorganization or consolidation with the Corporation or any entity controlled by
the Corporation), (vi) any sale or the disposition of more than 50 percent of
the combined voting securities of any Significant Affiliate, or (vii) any
transaction pursuant to which the stockholders, as a group, of all the
securities of the Corporation outstanding prior to the transaction hold, as a
group, less than 50 percent of the combined voting power of the Corporation or
any successor company outstanding after the transaction.
6.7 Rights as a Stockholder. A Holder shall have no right as a stockholder
with respect to any shares covered by his or her Option until a certificate
representing such shares is issued to him or her. No adjustment shall be made
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for dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Paragraph 6.6 hereof.
6.8 Modification, Extension and Renewal of Options. Subject to the terms
and conditions of and within the limitations of the Plan, the Compensation
Committee may modify, extend or renew outstanding Options granted under the
Plan, or accept the surrender of Options outstanding hereunder (to the extent
not theretofore exercised) and authorize the granting of new Options hereunder
in substitution therefor (to the extent not theretofore exercised). The
Compensation Committee may not, however, modify any outstanding Options so as to
specify a lower exercise price or base amount or accept the surrender of
outstanding Options and authorize the granting of new Options in substitution
therefor specifying a lower exercise price. In addition, the Compensation
Committee may not, without the consent of the Holder, modify any outstanding
Options so as to specify a higher or lower exercise price or base amount or
accept the surrender of outstanding Options and authorize the granting of new
Options in substitution therefor specifying a higher or lower exercise price. In
addition, no modification of an Option granted hereunder shall, without the
consent of the Holder, alter or impair any rights or obligations under any
Incentive Option theretofore granted hereunder to such Holder under the Plan,
except as may be necessary, to satisfy the requirements of Section 422 of the
Code.
6.9 Furnish Information. Each Holder shall furnish to the Corporation all
information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
6.10 Obligation to Exercise; Termination of Employment. The granting of an
Option hereunder shall impose no obligation upon the Holder to exercise the same
or any part thereof. In the event of a Holder's termination of employment with
the Corporation or an Affiliate, the unexercised portion of an Option granted
hereunder shall terminate in accordance with Paragraph 6.4 hereof.
6.11 Agreement Provisions. The Agreements authorized under the Plan shall
contain such provisions in addition to those required by the Plan (including,
without limitation, restrictions or the removal of restrictions upon the
exercise of the Option and the retention or transfer of shares thereby acquired)
as the Committee shall deem advisable. Each Agreement shall identify the Option
evidenced thereby as an Incentive Option or a Nonstatutory Option, as the case
may be, and no Agreement shall cover both an Incentive Option and a Nonstatutory
Option. Each Agreement relating to an Incentive Option granted hereunder shall
contain such limitations and restrictions upon the exercise of the Incentive
Option to which it relates as shall be necessary for the Incentive Option to
which such Agreement relates to constitute an incentive stock option, as defined
in Section 422 of the Code.
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SECTION 7. Remedies and Legend.
7.1 Remedies. The Corporation shall be entitled to recover from a Holder
reasonable attorneys' fees incurred in connection with the enforcement of the
terms and provisions of the Plan and any Agreement whether by an action to
enforce specific performance or for damages for its breach or otherwise.
7.2 Specific Performance. The Corporation shall be entitled to enforce the
terms and provisions of this Section 7, including the remedy of specific
performance.
7.3 Legend. Each certificate representing shares of Stock issued to a
Holder upon exercise of an Option granted under the Plan shall, if such share is
subject to any transfer restriction (including a right of first refusal) under
the Plan or any Agreement, bear a legend that complies with applicable law with
respect to such restriction, such as:
The shares represented by this certificate are subject to restrictions on
transferability imposed by that certain instrument entitled "Sterling
Electronics Corporation 1997 Stock Option Plan" dated _____________, 1997,
and an agreement thereunder between Sterling Electronics Corporation and
[Holder] dated ___________, 19__, which grants to the Corporation an option
to purchase such shares in certain instances. A copy of such plan and
agreement is on file at the principal office of the Corporation and is
subject to the same right of examination by a stockholder of the
Corporation (in person or by agent, attorney, or accountant) as are the
books and records of the Corporation.
SECTION 8. Duration of Plan.
No Options may be granted hereunder after the date that is 10 years from
the earlier of (a) the date the Plan is adopted by the Board of Directors or (b)
the date the Plan is approved by the stockholders of the Corporation. In
addition, with respect to shares of Stock not currently covered by an
outstanding Option, this Plan may be terminated at any time by the Board of
Directors.
SECTION 9. Amendment of Plan.
The Compensation Committee may at any time terminate or from time to time
amend or suspend the Plan; provided, however, that no such amendment shall,
without approval of the stockholders of the Corporation, except as provided in
Section 6, (a) increase the aggregate number of shares of Stock as to which
Options may be granted under the Plan; (b) increase the maximum period during
which Options may be exercised; or (c) extend the effective period of the Plan.
No Option may be granted during any suspension of the Plan or after the Plan has
been terminated and no amendment,
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suspension or termination shall, without a Holder's consent, alter or
impair any of the rights or obligations under any Option theretofore
granted to such Holder under the Plan.
SECTION 10. General.
10.1 Application of Funds. The proceeds received by the Corporation from
the sale of shares pursuant to Options shall be used for general corporate
purposes.
10.2 Right of the Corporation and Affiliates to Terminate Employment.
Nothing contained in the Plan, or in any Agreement, shall confer upon any Holder
the right to continue in the employ of the Corporation or any Affiliate, or
interfere in any way with the rights of the Corporation or any Affiliate to
terminate his or her employment any time.
10.3 Authority of Compensation Committee. In addition to its authority
expressed herein, the Compensation Committee shall have full and absolute
discretion to make determinations under the Plan and any Agreement and to
interpret the provisions of the Plan and any Agreement.
10.4 No Liability for Good Faith Determinations. Neither the members of the
Board of Directors nor any member of the Compensation Committee shall be liable
for any act, omission, or determination taken or made in good faith with respect
to the Plan or any Option granted under it, and members of the Board of
Directors and the Compensation Committee shall be entitled to indemnification
and reimbursement by the Corporation in respect of any claim, loss, damage, or
expense (including attorneys' fees, the costs of settling any suit, provided
such settlement is approved by independent legal counsel selected by the
Corporation, and amounts paid in satisfaction of a judgment, except a judgment
based on a finding of bad faith) arising therefrom to the full extent permitted
by law and under any directors and officers liability or similar insurance
coverage that may from time to time be in effect.
10.5 Information Confidential. As partial consideration for the granting of
each Option hereunder, the Agreement may, in the Compensation Committee's sole
and absolute discretion, provide that the Holder shall agree with the
Corporation that he or she will keep confidential all information and knowledge
that he or she has relating to the manner and amount of his or her participation
in the Plan; provided, however, that such information may be disclosed as
required by law and may be given in confidence to the Holder's spouse, tax and
financial advisors, or to a financial institution to the extent that such
information is necessary to secure a loan. In the event any breach of this
promise comes to the attention of the Compensation Committee, it shall take into
consideration such breach, in determining whether to recommend the grant of any
future Option to such Holder, as a factor militating against the advisability of
granting any such future Option to such individual.
10.6 Other Benefits. Participation in the Plan shall not preclude the
Holder from eligibility in any other stock option plan of the or any Affiliate
or any old age benefit, insurance, pension, profit sharing, retirement, bonus,
or other extra compensation plans
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which the Corporation or any Affiliate has adopted, or may, at any time,
adopt for the benefit of its employees.
10.7 Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock to the Holder, or to his or her legal
representative, heir, legatee, or distributee, in accordance with the provisions
hereof, shall, to the extent thereof, be in full satisfaction of all claims of
such persons hereunder. The Compensation Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt therefor in such form as it shall
determine.
10.8 No Guarantee of Interests. Neither the Compensation Committee nor the
Corporation guarantees the Stock of the Corporation from loss or depreciation.
10.9 Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Corporation or its Affiliates; provided,
however, the Corporation or an Affiliate may recover any and all damages, fees,
expenses, and/or costs arising out of any actions taken by the Corporation to
enforce its rights hereunder.
10.10 Corporation Records. Records of the Corporation or its Affiliates
regarding the Holder's period of employment, termination of employment and the
reason therefor, leaves of absence, re-employment, and other matters shall be
conclusive for all purposes hereunder, unless determined by the Compensation
Committee to be incorrect.
10.11 Information. The Corporation and its Affiliates shall, upon request
or as may be specifically required hereunder, furnish or cause to be furnished,
all of the information or documentation which is necessary or required by the
Committee to perform its duties and functions under the Plan.
10.12 No Liability of Corporation. The Corporation assumes no obligation or
responsibility to the Holder or his or her legal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of, the
Compensation Committee.
10.13 Corporation Action. Any action required of the Corporation shall be
by resolution of its Board of Directors, by a person authorized to act by
resolution of the Board of Directors, or by a person authorized to act by the
bylaws of the Corporation.
10.14 Severability. If any provision of this Plan is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included herein.
10.15 Notices. Whenever any notice is required or permitted hereunder, such
notice must be in writing and personally delivered or sent by mail or by a
nationally recognized courier service. Any notice required or permitted to be
delivered hereunder shall be deemed to be delivered on the date on which it is
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personally delivered, or, if mailed, whether actually received or not, on
the third business day after it is deposited in the united states mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address which such person has previously specified by
written notice delivered in accordance herewith or, if by courier, 24 hours
after it is sent, addressed as described in this section, or, if by
facsimile machine, the time mechanically recorded on the document by the
facsimile process. The corporation or a holder may change, at any time and
from time to time, by written notice to the other, the address which it, he
or she had previously specified for receiving notices. Until changed in
accordance herewith, the corporation and each holder shall specify as its
and his or her address for receiving notices the address set forth in the
agreement pertaining to the shares to which such notice relates. 10.16
Waiver of Notice. Any person entitled to notice hereunder may waive such
notice.
10.17 Successors. The Plan shall be binding upon the Holder, his or her
legal representatives, heirs, legatees, and distributees, upon the Corporation,
its successors, and assigns, and upon the Compensation Committee and its
successors.
10.18 Headings. The titles and headings of Sections and Paragraphs are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
10.19 Governing Law. All questions arising with respect to the provisions
of the Plan shall be determined by application of the laws of the State of
Nevada except to the extent Nevada law is preempted by federal law. Questions
arising with respect to the provisions of an Agreement that are matters of
contract law shall be governed by the laws of the state specified in the
Agreement, except to the extent preempted by federal law and except to the
extent that Nevada corporate law conflicts with the contract law of such state,
in which event Nevada corporate law shall govern. The obligation of the
Corporation to sell and deliver Stock hereunder is subject to applicable laws
and to the approval of any governmental authority required in connection with
the authorization, issuance, sale, or delivery of such Stock.
10.20 Word Usage. Words used in the masculine shall apply to the feminine
where applicable, and wherever the context of this Plan dictates, the plural
shall be read as the singular and the singular as the plural.
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SECTION 11. Approval of Stockholders.
The Plan shall take effect on the date it is adopted by the Board of
Directors. However, if this Plan is not approved by the holders of a majority of
the outstanding shares of equity securities of the Corporation having voting
rights within twelve months of the date of adoption by the Board of Directors,
none of the Options granted hereunder shall constitute Options.
Adopted by the order of the Board of Directors of Sterling Electronics
Corporation on June 3, 1997.
STERLING ELECTRONICS CORPORATION
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STERLING ELECTRONICS CORPORATION
4201 SOUTHWEST FREEWAY, HOUSTON, TEXAS
JULY 18, 1997
Dear Shareholder,
On behalf of the Board of Directors and Management, you are cordially
invited to attend the Annual Meeting of Shareholders to be held at 3:00 p.m.
local time on Tuesday, August 26, 1997, at the Sterling Electronics Corporate
Headquarters, 4201 Southwest Freeway, Houston, Texas. The formal notice of the
Annual Meeting of Shareholders and Proxy Statement are enclosed.
Your vote is important regardless of the number of shares you own. Please
be sure you are represented at the meeting, whether or not you plan to attend,
by signing, dating and mailing the proxy card promptly. A postage-paid return
envelope is enclosed for your convenience. If you are able to attend the meeting
and wish to vote in person, you may withdraw your proxy at that time.
Sincerely,
Ronald S. Spolane
Chairman and Chief Executive Officer
PROXY STERLING ELECTRONICS CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints R.S. Spolane and D.A. Spolane as Proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote as designated on the reverse side, all the shares of
common stock of Sterling Electronics held on record by the undersigned on July
11, 1997 at the annual meeting of shareholders to be held on August 26, 1997 or
any adjournment thereof.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted for Proposals 1, 2, and 3.
1. ELECTION OF DIRECTORS
R.S. Spolane, David R. Toomim, Jay H. Golding, S.M. Lambert, Ph.D.,
Hershcel G. Maltz, D.A. Spolane
[ ] FOR all nominees [ ] WITHHOLD
listed to the right for all nominees
(except as marked listed to the right
to the contrary)
2. To adopt the Company's 1997 Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to ratify the appointment of Ernst & Young as the independent
auditors of the corporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Dated:___________________, 1997
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Signature
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Signature if held jointly
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
