UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
Commission File #0-6072
EMS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Georgia | 58-1035424 |
(State or other jurisdiction of | (IRS Employer ID Number) |
660 Engineering Drive |
|
Norcross, Georgia | 30092 |
(Address of principal executive offices) | (Zip Code) |
Registrant's Telephone Number, Including Area Code: (770) 263-9200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or amendment to this Form 10-K: [X]
The aggregate market value of voting stock held by persons other than directors or executive officers on March 23, 2001 was $ 137.7 million, based on a closing price of $ 15.88 per share. The basis of this calculation does not constitute a determination by the registrant that all of its directors and executive officers are affiliates as defined in Rule 405.
As of March 23, 2001, the number of shares of the registrant's common stock outstanding was 8,816,936 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Company's 2000 Annual Report to Shareholders and definitive proxy statement for the 2001 Annual Meeting of Shareholders of the registrant is incorporated herein by reference in Parts II, III and IV of this Annual Report on Form 10-K.
PART I
ITEM 1. Business
GENERAL
SUMMARY
EMS Technologies, Inc. (the "Company") designs, manufactures and markets products that are important in many kinds of wireless communications. The Company focuses on the needs of the mobile information user, with an increasing emphasis on broadband applications for high-data-rate, high-capacity wireless communications.
The Company is organized around two reportable business segments: Space and Technology, and Wireless Products. Each segment is separately managed and comprises products and services that share distinct operating characteristics. However, the Company believes that one of its competitive strengths is the technological and marketing synergy that occurs between the segments, as well as between the Company's various product lines. The Company believes that this synergy creates a path for highly advanced technologies to migrate to products for broader markets.
This segment manufactures custom-designed, highly engineered hardware for use in space and satellite communications, radar, surveillance and military counter-measures. A major strategic emphasis in this segment is the development of broadband technologies for use in high-data-rate, high-capacity satellite communications systems. The Company believes such systems will have an important role in the future delivery of a wide range of services, including Internet access, and that these systems will have technical features that make them competitive with hard-wired alternatives. Orders in this segment typically involve long-term contracts with production schedules that can extend a year or more, and most revenues are recognized under percentage-completion accounting. Hardware is sold to prime contractors or systems integrators rather than end-users. The Space and Technology segment accounted for 42%, 49% and 33% of consolidated net sales in 2000, 1999 and 1998, respectively.
The Wireless Products segment manufactures standardized antennas, terminals, and other wireless network products for use in logistics, healthcare information management, transportation, PCS/cellular communications, and satellite communications. The manufacturing cycle for each order is generally just a few days, and revenues are recognized upon shipment of hardware. Hardware is marketed to end-users and to third-parties who incorporate their products and services with the Company's hardware for delivery to an end-user. The Wireless Products segment accounted for 58%, 51% and 67% of consolidated net sales in 2000, 1999 and 1998, respectively.
The discussion of the Company's business set forth in this Item 1 is qualified by the materials appearing below under the heading "RISK FACTORS AND FORWARD-LOOKING STATEMENTS."
BACKGROUND
In its Space and Technology segment, the Company has developed strong expertise in components and subsystems. In the mid-1970's, the Company pioneered the use of electronic beam-forming networks ("BFNs"). A BFN allows a satellite to electronically adjust its antenna pattern in orbit. BFN technology was originally used by defense communications satellites to combat interference from the ground, but it has become important in a wide range of modern communications satellites. The Company's heritage in BFN technology has led to the development of "spot-beam" technology that allows commercial satellites to cover specific areas on the earth's surface; when coupled with the use of high frequencies such as the Ka band, this spot-beam technology allows for high-data-rate communications and very high capacity. The Company also produced the first all-electronic switch matrix to provide flexible interconnectivity between uplink and downlink channels in a commercial communications satellite.
In 1999, the Company added expertise in space systems, payload integration and ground terminal technologies by acquiring the Space Systems and Products Division of Spar Aerospace Limited, based in Montreal. This division has long been one of the leading competitors in the Canadian and international space industries. It has produced payloads and full antenna systems for major communications and remote sensing satellites, as well as robotics for NASA's Space Shuttle.
In the Wireless Products segment, there are three main product lines: (1) wireless networks, (2) wireless infrastructure products, and (3) SATCOM products. In the first of these, the Company has developed wireless local-area computer networks that provide mobility and real-time data communications. These products enhance productivity of mobile workers and improve accuracy of transaction processing operations. The principal market is for material management functions in warehouses and distribution centers (the "logistics" market). Another important market relates to automation of patient care records in the healthcare environment (the "healthcare" market). More recently, the Company has applied its technologies in route-accounting and transportation (the "transportation" market), in which mobile computers are used by delivery and trucking personnel to track sales and inventory.
The Company's fastest growing wireless product line over the past four years has been a line of cellular/PCS base station antennas ("wireless infrastructure"). The leading product in this line (marketed under the "DualPol" trademark) employs polarization-diversity technology. These antennas allow cell-site tower structures that are much simpler and less obtrusive than conventional antenna towers. In addition, these antennas offer superior coverage and resistance to signal-fading, as compared with networks with conventional vertical polarization antennas. The Company also offers a full line of lower-priced, conventional antennas for both cellular and PCS networks. These products, along with a family of accessory products, are marketed to service providers and to original equipment manufacturers ("OEMs") domestically and internationally.
The Company has also established an industry-leading position in the market for mobile SATCOM (satellite communications) antennas and terminals. Initially these products were developed for international search and rescue, in which satellite technology helps locate downed aircraft or oceangoing ships in distress. The most successful component of the Company's SATCOM product lines was developed for advanced communications by corporatejets. In these aeronautical applications, the Company's antennas are mounted atop the jet's stabilizer and automatically change position to remain pointed at a communications satellite during flight; these systems provide voice, data and video communications via satellite. The Company has recently begun introducing other SATCOM products, including an airborne antenna system to deliver multi-channel video to commercial aircraft, a packet-data terminal to provide messaging/tracking services to over-the-road trucks, and an antenna for satellite-based monitoring of locomotives.
MARKETS AND PRODUCTS
Space and Technology Markets
In the U.S., satellite technology was historically funded by the military for defense applications. Commercial use was cost-effective only for specialized high-capacity applications in the telecommunications and broadcast industries. However, satellite-based voice and data networks are increasingly being used for a variety of lower-cost, high-volume commercial applications as a result of improvements in satellite technology. New commercial applications include mobile telephony and data communications.
Satellites provide a number of advantages over terrestrial facilities for many high-speed communications service applications:
(1) Satellites enable high-speed communications service where a terrestrial alternative is not available or is not adequate.
(2) Unlike the cost of terrestrial networks, the cost to provide services by satellite does not increase with the distance between sending and receiving stations.
(3) Finally, in contrast to the installation of fiber optic cable, satellite networks can be rapidly and cost-effectively deployed.
Demand for commercial satellites will be determined by several factors, including:
(1) growth in demand for new satellite-based applications, such as mobile communications or data services,
(2) growth in business networking,
(3) growth in direct-to-home television and related voice, video and data systems,
(4) development of new satellite-based communications architectures to provide basic telephone and television services in developing regions of the world, and
(5) replenishment of orbiting satellite constellations nearing the end of their useful lives.
Several large-scale telecommunications projects are in various stages of development and implementation. They are contributing to the projected demand for commercial satellites. Satellite size and weight have a direct effect on launch cost and capacity. As a result, for these new systems to be commercially viable, the satellite designs must use systems and components that are lighter, smaller, and more highly integrated than in the past.
Proposed system architecture is also affecting the design of ground-based terminals for future satellite networks. New proposed systems will operate at high frequencies. Several systems will be based on a constellation of satellites, each with its own complicated antenna system, to produce coverage patterns on the earth that are similar to cellular telephone systems. Because of the high frequencies and small cells used by these new systems, the ground terminals will be much smaller and more affordable than their lower-frequency predecessors, and will require smaller antennas with lower transmitter power. Ground terminals for LEO (low earth orbiting) systems will also need to include low-cost scanning antennas to track the satellites as they move overhead, handing-off from one satellite to the next as the constellation progresses.
Space and Technology Products
The Company designs and manufactures innovative satellite communications products. These products include satellite systems, subsystems and components that address the need for reliable, high-speed communications systems. The Company believes that the next generation of commercial communications satellites will be able to utilize technologies, such as multiple spot-beam antennas, highly integrated on-board switching, and advanced hub-and-terminal equipment, in which the Company has significant experience. The products developed by the Company for the Space and Technology segment comprise six main lines:
1. Antenna products
2. Microwave and power products
3. Ferrite products
4. Digital command and control products
5. Optical products, and
6. Broadband products.
- Antenna Products
For over thirty years, EMS has been providing innovative products for satellite antennas. The Company has experience in a variety of frequency ranges, including the UHF, S, C, X, Ku, Ka, Q, V and W bands. Employing a wide variety of technologies and architectures for fixed, mobile and broadcast applications, the Company's antenna products include:
- shaped reflectors,
- dual aperture shaped reflectors,
- direct radiating arrays,
- steerable antennas,
- omni antennas,
- Gregorian and Cassegrain antennas,
- lens antennas,
- deployable reflectors,
- dual polarized antennas, and
- phased arrays.
In October 2000, EMS's Ku-Band and S-Band antennas were deployed on the International Space Station. These antennas will be the primary voice, video and data link for astronaut crews and their science experiments. The Company's antenna products are also well positioned in growth markets such as broadband service systems like Anik-F2 and mobile telephony systems like AceS-2 and Inmarsat IV. Varying by frequency or market served, EMS's antennas pace industry standards by maximizing available spacecraft power and reducing radio interference between beams.
The Company's RADARSAT-2 imaging array is another example of highly advanced antennas that use active phase technology to image objects on Earth regardless of the weather. The RADARSAT-2 program will launch in 2003 and become the first to commercially market very high-resolution radar images for mapping and resource management customers. EMS met critical design milestones for RADARSAT-2 in 2000, and sees growing international customer interest in our radar imaging capabilities.
EMS is providing or has provided antenna products to otherprominent space programs such as TDRSS, MSAT, Inmarsat, Koreasat, SkyBridge and Anik-B, C, D and E. Currently under development are antennas systems for anticipated high-capacity multimedia satellite systems such as SkyBridge.
- Microwave and Power Products
Microwave products and subsystems are an instrumental part of many commercial, defense and space systems. Microwave products control the microwave communications signals processed in a spacecraft. Microwave products include low-noise amplifiers, repeaters, transponders, and solid-state power amplifiers.
Power products provide highly efficient (up to 95%) conditioning of electric power aboard a spacecraft. In addition to their efficiency, the Company's power products have low mass and very low noise levels, and are hardened against the radiation that spacecraft experience at various orbit levels.
The Company's microwave and power products, such as crystal oscillators, electronic power conditioners, transponders, and low noise amplifiers, have become industry standards, as evidenced by new contracts in 2000 with NEC, TRW, and Lockheed Martin. The same microwave technologies are being used to build the next generation of international search and rescue satellite (SARSAT) signal repeater panels, to be installed on selected civil government satellites, to allow immediate location of distress signals from planes, ships, and lost hikers.
The Company is also providing or has provided microwave and power products to such programs as ACeS, Brazilsat, Anik-E, TDRSS, ERS-1, Radarsat, the International Space Station, MSAT, Telstar, Intelsat, Galaxy and Astrolink.
- Ferrite Products
EMS pioneered the use of ferrite materials in space and defense systems. Ferrite products provide phase and amplitude control of communications signals. The design, development and manufacture of ferrite products require considerable specialized in-house capabilities. These products include ferrite circulators, isolators, phase shifters, switches and switching networks, and transmit-receive networks. Ferrite products are integrated into satellite, shipboard, ground-based and airborne applications, including
- direct broadcast,
- direct audio,
- commercial and military communications,
- earth observation,
- multimedia, and
- defense systems.
As commercial satellites operate at higher frequency levels and claim available bandwidth, EMS has seen increasing demand for its Ka- and L-Band switching products. Customers of EMS's high power ferrite switching devices include Astrolink, XM-Radio, and others. The Company is also building autotrack modulators and LNA redundancy switches for Space Systems Loral. EMS won significant ferrite-based switch assembly contracts from Alcatel for Syracuse-III and MT-Sat-1R.
The Company's ferrite products have also been utilized in such programs as GEOSAT, ENVISAT, TDRS, MILSTAR, and ACTS.
- Digital Command and Control Products
The Company has a long heritage of supplying space-qualified computers, controllers and digital signal processors. This equipment is used for antenna pointing mechanism electronics, payload control, attitude control, power switching, command decoding, and telemetry gathering. Major space programs that use the Company's products include Brazilsat, Intelsat IV, TEDRSS, ERS-1, Radarsat, the Space Shuttle, the International Space Station, and Anik B and E.
Over 25 EMS-built processors and digital products are critical elements in the Canadian Space Agency's robotic arm and related contributions to the International Space Station. Workstations to control the robotic systems were also completed by EMS for launch in 2001. The significant advancements EMS has made in spacecraft data-processing capacity are being applied to the next generation of space computers and processors for both manned and unmanned systems, promising a 100-fold improvement in on-board computation power.
- Optical Products and Scientific Instruments
The Company has developed optical instruments and components for space agencies and commercial customers. The Company's latest optical product, the CalTracÔ star tracker, is a high-speed scientific instrument that uses the position of the stars to provide attitude control information for stabilizing a satellite's flight. The CalTracÔ star tracker product flew in 2000 as an experiment on Space Shuttle flights 101 and 106. New CalTracÔ customers in 2000 included Alenia Spazio and Bristol Aerospace, for the RADARSAT-2 and SCISAT spacecraft. The Company has also provided optical instruments to such programs as WINDII, Viking, and NASA Image.
Under contract to the Canadian Space Agency, EMS makes other fundamental science instruments, like the recently awarded MAESTRO spectrometer for Canada's SCISAT program. Meanwhile, EMS continues work on Canada's contribution to the Next Generation Space Telescope, which will one day replace the Hubble space telescope. .
- Broadband Products
The latest Space and Technology product line is devoted to emerging broadband, multimedia satellite applications. The Company is developing products for both the satellite payload and the ground terminal/hub station elements of future broadband systems. An important element of EMS's terminal products is the MF-TDMA (multi-frequency time division multiple access) architecture that the Company has developed to enhance system capacity. Another key element in the Company's broadband initiative is its experience in the development of high-frequency (Ka-band) antenna and beam-shaping technology that allows for frequency re-use and high capacity.
The Company is currently developing a new broadband application for SES Astra, Europe's largest provider of direct-to-home satellite broadcast services. The new system will utilize existing SES satellites, and it will create the first commercial Ka-band system for high-speed two-way communications - including Internet access - via satellite. This system is a very big "pipe" (40 Mbps downlink and 2Mbps uplink) that offers bandwidth-on-demand and extremely fast data speeds. The system also uses the DVB-RCS open standard for broadband communications that EMS helped develop. In 2000, the Company delivered prototype and pre-production interactive terminals for testing. The Company also delivered a hub station and conducted a successful public demonstration of the system in Luxembourg. The Company expects to begin commercial production of satellite interactive terminals for the SES Astra system in the second half of 2001. SES Astra expects to rollout its service beginning in late 2001.
The Company's work with SES Astra is just one of several broadband contracts and initiatives that the Company is pursuing. EMS believes that its leadership and experience on these programs will put it in good position to participate in other Ka-band opportunities as they develop.
Wireless Products and Markets
The Company's wireless products are focused on the markets for (1) wireless infrastructure, (2) wireless local area computer networks for logistics, and (3) mobile SATCOM.
Wireless Infrastructure
Wireless Infrastructure Market
National and international infrastructure for terrestrial-based wireless communications has been expanding to support growing worldwide demand. This demand is being fueled by:
(1) decreasing prices for wireless handsets,
(2) a more favorable regulatory environment,
(3) greater competition among service providers, and
(4) more availability of services and RF spectrum.
In addition, many developing countries are installing wireless telephone networks as an alternative to installing, expanding or upgrading traditional hard-wired networks. Emerging wireless data applications may also expand the market by allowing service providers to increase revenue-generating traffic on their networks.
Specific technological trends are also affecting the wireless industry. For example, the continuing growth of the wireless communications market has strained the capacity of traditional analog cellular systems that can carry only one call per channel of radio spectrum. As a result, many service providers are installing new digital equipment to increase per-channel capacity by factors ranging from three to eight. In addition, service providers are constructing PCS digital networks that operate at twice the frequency level of cellular systems; this provides the greater bandwidth necessary for an expanded range of voice and data services. However, PCS technology requires smaller cells than analog technology and, as a result, approximately four times the number of base stations to complete its geographical build-out.
Although existing systems have been almost exclusively devoted to the mobile voice/paging market, several proposed systems would offer high-speed wireless services to both businesses and consumers as an alternative to wireline approaches. Initial system applications appear to be in point-to-multipoint communications, for which several service providers have licensed spectrum and are conducting field tests. Base station antennas in point-to-multipoint systems emulate the multiple-beam antennas designed for space, and TDMA switching technology could be implemented with hardware very similar to the Company's satellite technologies described previously in this document.
In 2000, the infrastructure buildout in North American provided a very good market for the Company's antennas. During the year, the Company's won new supply contracts to major service providers such as VoiceStream Wireless, Nextel, AT&T Fixed Wireless, Bechtel, Sprint and Cricket. Based upon industry analysts' reports, the Company believes itself to be the leading supplier of base station antennas for PCS/cellular communications systems in North America. In the first quarter of 2001, EMS further expanded its manufacturing capacity by establishing new facilities in Brazil, and by beginning to build omni antennas at the Company's Space and Technology plant in Montreal. The Company is also investigating opportunities to begin manufacturing in China before the end of 2001
In addition to technical performance of the antennas, key competitive factors in this market are manufacturing capacity and ability to provide quick turnaround time in response to an order. Early in 2000, the Company restructured its production lines to a highly efficient continuous-manufacturing approach, and later consolidated all five of its engineering and production operations into one building. As a result, the Company was able to produce over 100,000 antennas in 2000, which nearly tripled the output of the previous year, and its surge manufacturing capacity has increased from 750 antennas a week to almost 4,000 per week.
Wireless Infrastructure Products
The Company has developed several advanced base station antennas for the PCS/cellular wireless infrastructure market:
- Dual Polarization Antenna Products.
The Company's "DualPol (trademark)" antenna utilizes polarization diversity to combine the functionality of three vertically-polarized antennas (two receive and one transmit) into a single, compact device. With fewer antennas required, "DualPol (trademark)" technology allows the supporting antenna tower to be much smaller and less expensive than a traditional cellular/PCS antenna site, which must support the weight and wind-loading of a large mounting structure atop the tower. An increasingly important factor in establishing the location of a cell site is the aesthetics of the tower structure. Unlike traditional vertical polarization cellular antennas, the Company's "DualPol (trademark)" antennas can be mounted in a very compact configuration that can fit on top of existing utility poles, or be disguised, for example, in a clock tower. The mounting flexibility not only benefits the service provider in obtaining site approvals, but also results in lower installation and structure costs. Further, these antennas offer superior coverage and resistance to signal-fading, as compared with networks with conventional vertical polarization antennas.
The Company's "AcCELLerator (trademark)" antenna combines multiple "DualPol (trademark)" antennas pre-packaged in a compact cylindrical enclosure that provides the same multi-sector coverage as a large, nine-antenna, spatially-diverse base station, yet with a much smaller, less visually-obtrusive structure.
In 2000, the Company introduced a "Micro AcCELLerator (trademark)" line. This much smaller version of the "AcCELLerator (trademark)" antenna was originally designed to help a Houston service provider gain zoning approval for new cell sites. Micro AcCELLerator™ antennas provide a complete, three-sector cell site in a highly integrated package as small as six inches in diameter, which is mounted atop an unobtrusive monopole.
- Vertical Polarization Antenna Products
The Company's lower-cost vertical polarization antennas apply "beam-shaping" techniques of amplitude and phase weighting to achieve the most effective antenna performance for specific applications. The Company's "OptiFill (trademark)" antennas are designed for use in a typical crowded coverage area. These antennas utilize null filling, upper sidelobe suppression and electronic down tilt to lower co-channel interference, reduce the number of dropped calls, and improve sound quality. The Company's "OptiRange (trademark)" antennas are designed to maximize "gain" and are useful in systems that have large cells, such as rural areas or initial urban system roll-outs with a small number of base stations.
Wireless Local Area Networks
Markets for Wireless Local Area Networks
Major technological advances and changes in the regulatory environment have led to the development and proliferation of wireless computer networks that extend the reach of existing hard-wired networks. Wireless local area networks (LANs) now accommodate notebook computers, pen-based notepads and other handheld computer terminals, as well as terminals for mounting on vehicles, such as forklifts. By providing network connectivity for mobile users, these products increase the accuracy, timeliness and convenience of data collection and information access. Traditionally, these wireless LAN systems were developed for operation using narrow band UHF radios at 450 MHz. The current generation of wireless LAN systems typically operates at 900 MHz with data rates in the range of 56-64 Kbps. The next generation of wireless LAN systems support even higher data rates of 1 Mbps and operate at 2.4 GHz. Future video transmissions and conferencing systems will likely use the 5.7 GHz frequency band where transmission rates of up to 25 Mbps are foreseen. The development of these advanced products is also creating new applications in established industrial markets and in vertical markets, such as transportation and service applications.
The Company's wireless LANs have been installed at more than 5,000 sites world wide, including the facilities of many Fortune 500 companies and some of the world's largest materials handling installations, such as distribution centers and seaports.
In 2000, the automotive market for logistics applications was very good for EMS, with major rollouts for GM and Ford in Europe, as well as Michelin and Goodyear. Other major customers during 2000 included Proctor & Gamble, paper and pulp supplier Fort James (now owned by Georgia Pacific), and Graybar (largest electrical distributor in U.S.). Leading wholesale retailer Costco also began using the MX family of terminals to manage inventory flow between its distribution centers and stores.
Another very good market in 2000 was for applications in seaports/container ports. With the new projects closed in 2000, the Company's roster of worldwide port installations grew to 130. There were new installations in the ports of Hamburg (Europe's second-largest), Barcelona, Hong Kong, and Kobe Japan. The Company believes that its new Spire™ antenna offered a competitive edge by providing better wireless coverage in these sprawling sites.
The Company's business outside of Europe and North America grew 40% compared with the previous year. Despite the strong U.S. dollar, logistics products had double-digit growth in Europe, including four consecutive quarters of record revenues from Europe. The Company added new operations in Italy, which gives the Company a direct presence in all of Europe's top markets. EMS also expanded beyond Europe with new sales offices in Australia and the UAE in Dubai. In domestic markets, the Company continued to work closely with the leading warehouse management software VAR's including Provia and McHugh Software International, which recently certified the Company's products and designated EMS as a preferred supplier
Wireless Local Area Network Products
The Company's wireless logistics systems, which generally incorporate bar-code-scanning capabilities, are compatible with commonly used customer-owned host computers, and can be configured for a variety of applications. A typical system consists of mobile computer terminals that incorporate radio transmitters and receivers, a base station that communicates with these terminals, a controller that provides an interface between the base station and host computer, and software that manages and facilitates the communications process.
- Mobile Computers
The Company offers several types of mobile computers, all of which utilize radio frequency technology:
(2) Vehicle-mounted mobile computers are larger, heavy-duty products for use on forklifts, cranes and other mobile materials handling equipment,
(3) A table-top model is used for fixed positions where computer cabling is not practical, and
(4) Wireless modems provide wireless communication capabilities for other devices, such as small computers or process controllers.
All mobile computers incorporate built-in radios that operate either in a licensed, narrow frequency band or in an unlicensed broader, "spread spectrum" frequency band. The Company's mobile computers incorporate Intel (registered trademark) processors that allow support for either terminal emulation or client-server applications.
In 2000, the Company introduced a new generation of mobile computers with more computing power than previous generations, as well as power-management features and better ergonomics. The MX1 mobile computer was the first of these new models to be introduced, and in less than a year it became the Company's leading seller (in both dollar volume and units). The Company believes that another model - the MX3 mobile computer - will further differentiate this product line from the competition by supporting the Windows CE operating system and offering many of the performance features of a desktop PC in a handheld computer.
- Radio Base Stations and Controllers
The wireless communications link between the mobile computer terminal and the host computer or network is completed by a radio base station and controller. The radio base station and controller may be integrated into a single unit for smaller systems. A base station converts the radio signals from a mobile computer terminal to digital signals recognizable by the host computer, and also converts data from the host computer into radio signals for transmission to the terminals. Radio base stations can operate effectively in facilities of many sizes and structural designs.
Controllers provide the critical interface between the radio base station and the host computer. The Company's controllers provide transparent connectivity to all widely accepted computer architectures without modifications of existing applications software and network structure. Controllers also manage complex transmission traffic with sophisticated programming algorithms.
The base station/controller, remote wireless access points and antennas comprise the "backbone" of a wireless network. The Company's wireless networks are based on open-standards (IEEE 802.11b), wireless networks, so that customers can easily integrate wireless products from other leading vendors.
- Other Logistics Products
In addition to the basic system hardware, the Company offers various accessory products and services:
(1) Bar code scanners,
(2) Battery chargers,
(3) Portable printers,
(4) Software products for system communications, integrated applications and terminal emulation, and
(5) Repair and maintenance services.
SATCOM Products
Market for SATCOM Products
The first aeronautical systems for telephony utilized a ground-based network. These networks were not only limited in the voice-quality of their communications, but they were unable to provide coverage over water for international travel. Further evolution of aeronautical telephony involved the use of a special antenna aboard the aircraft that allowed the use of satellite transmissions, not only for voice but also for limited data and FAX capabilities. Current developments are directed towards higher-speed satellite-based video and Internet-access applications. Reflecting the need for mobile communications in the business world, aeronautical SATCOM systems of some type are now commonly used in corporate jets around the world.
The Company believes that it is the top supplier of antennas for voice/data communications aboard corporate aircraft, with over 90% share of this market. To date, there are about 1,000 EMS installations on over 50 different types of aircraft. During 2000, the Company signed major contracts with Gulfstream, Honeywell and Bombardier-the industry's largest users of general aviation communications equipment.
SATCOM Products
The Company's line of SATCOM products include the following:
- Aeronautical Antennas
The Company has developed a family of aeronautical communications products, including an industry-leading INMARSAT antenna, the AMT-50, which is a mechanically-steered antenna that is connected to an aircraft's navigational system and automatically remains directed toward a geostationary communications satellite for voice and low data-rate communications. This antenna is either mounted within the aircraft's tail stabilizer or under a small, unobtrusive radome atop an aircraft's tail stabilizer. The Company believes that this product has the leading market share in the high-end corporate jet market. The Company has also developed its "CALQUEST (trademark)" product, which is a complete satellite telephone system for use over North and Central America on a wide range of turbo-prop and jet aircraft.
The Company has also developed a steerable antenna system designed to provide live television to jet aircraft from a broadcast satellite. The system includes a low-profile mechanically steerable antenna system, mechanical positioner, and a beam steering unit to keep the antenna properly pointed at the satellite during the motion associated with flight. The DBS antenna and AMT-50 can be mounted together under a single radome (designed and supplied by the Company) atop a jet's stabilizer. These products are sold by the Company as part of a full system for delivery of live video service to aircraft, provided by the Honeywell.
The latest aeronautical antenna from the Company is used in a multi-channel video system for commercial aircraft. The video system includes the Company's antennas, electronics, and small flat-panel video screens installed in each seat-back, and is installed and marketed by the Company's customer. The Company's antennas for video systems are now deployed with a startup carrier based in New York, and the Company is pursuing other possible distribution agreements to expand the marketing of this product.
EMS is developing an aeronautical product called the ADT-1000 that will provide aircraft operators with high-speed data capability using the new Aeronautical M4 and Mobile Packet Data Services from Inmarsat. These services, which have been operational in the land transportable market for nearly 2 years, will support data rates of up to 64kbits per second, a considerable advance on current service offerings available in the market. These new services will provide economical airborne access to e-mail, Internet and corporate intranet.
- Other SATCOM Products
The Company is a leading provider of the ground station equipment associated with satellite-based "search and rescue" systems, including the local-user terminals that process information received from satellites. The local-user terminal determines the location of the maritime or aviation beacons that transmit distress signals to the satellite system, and typically displays the results for intervention by emergency authorities. This terminal technology can also be adapted for routine tracking and management of aviation and maritime fleets.
In 2000, the Company introduced the next generation of search-and-rescue products-the GEOLUT. This is a new ground terminal that reduces the critical time needed to detect and identify distress beacon signals relayed through satellites in geostationary orbit. This new system is PC-based and can be efficiently managed through Internet protocols. EMS has sold seven GEOLUT systems to government customers in Canada, the U.K., Brazil and New Zealand. Last year, the Company also enhanced its ability to provide a one-stop-shop to the search-and-rescue market by acquiring DSSI, an Ottawa-based supplier of command-and-control systems for rescue coordination centers and other emergency response services. EMS now can provide equipment for a complete search-and-rescue solution, from detection and location of distress beacons by satellite ground stations, to incident management by mission control and rescue coordination centers.
The Company has also developed SATCOM antennas for use aboard railroad locomotives. These antennas provide the link for satellite-based remote monitoring services offered by General Electric Transportation Systems.
The latest SATCOM product to be introduced is a new packet-data terminal, the PDT-100, which provides fail-safe, two-way messaging and location information virtually anywhere in North America. The PDT-100 features GPS technology and combines what the Company believes are the highest data rates with the lowest terminal and airtime prices currently offered in the market. These terminals are initially targeted for over-the-road trucking industry, and EMS has already received million-dollar-plus orders from trucking firms in Canada and on the U.S. west coast. The Company is also pursuing opportunities in tracking military ground vehicles.
SALES AND MARKETING
The Company's sales and marketing strategy varies depending upon the product line. Due to the technical nature of the Company's products, some of these sales efforts must be conducted primarily by internal personnel with a strong engineering background. Particularly in the Space and Technology segment, many of these personnel have other engineering or management responsibilities within the Company. The Company also utilizes independent marketing representatives, both in the U.S. and internationally. These individuals are selected for their knowledge of the local market and their ability to provide technical support and ongoing, direct contact with the Company's current and potential customers.
In the Space and Technology segment, the development of major business opportunities often involves significant bid and proposal effort; this work can include complex engineering to determine the technical feasibility and cost effectiveness of various design approaches. Most of the Company's bid and proposal costs are reported in cost of sales, although a portion of these costs is classified as selling, general and administrative expenses. Total bid and proposal costs were $3.6 million in 2000, $2.6 million in 1999, and $2.5 million in 1998.
The markets for space and satellite communications comprise a relatively small number of customers, which are typically well known large corporations. The Company's Space and Technology marketing efforts rely on ongoing communications with this base of potential customers, both to determine the customers' future needs and to inform customers of the Company's capabilities. Because the Company can often receive multiple orders from many of these customers, technical support and service after the sale are also crucial to maintaining a strong supply relationship.
The Company's sales and marketing strategy for wireless products involves:
(1) direct sales to end users, and
(2) indirect sales through third parties who often incorporate their products and services with the Company's hardware for delivery to an end-user. Third parties include:
(a) strategic partners,
(b) value-added re-sellers,
(c) original equipment manufacturers, and
(d) distributors, including representatives in 35 countries.
For wireless infrastructure, sales and marketing are performed by internal staff plus three regional sales offices in North America. Direct sales of logistics systems are performed by an internal sales support staff, 20 regional sales persons in North America, and six European subsidiaries. For marketing of SATCOM products, the Company relies on its relationships with major airframe manufacturers, avionics manufacturers, a network of completion centers that install aeronautical products, and value-added resellers.
BACKLOG
The backlog of consolidated orders at December 31, 2000 was $202 million compared with $133 million one year earlier. Wireless Products customers typically require short delivery cycles, and this segment does not develop substantial order backlog. However, backlog is very important in the Space and Technology segment, due to the long-term nature of that business. The backlog for Space and Technology at December 31, 2000 was $171 million compared with $112 million one year earlier.
MATERIALS
Materials used in the Company's space and electronics products consist primarily of magnetic microwave ferrites, metals such as aluminum and brass, permanent magnet materials, and electronic components such as transistors, diodes, IC's, resistors, capacitors and printed circuit boards. Most of the magnetic microwave ferrite materials are purchased from two suppliers, and permanent magnet materials are purchased from a limited number of suppliers. Electronic components and metals are available from a larger number of suppliers and manufacturers.
The electronic components and supplies, printed circuit assemblies, keypad assemblies and molded parts needed for the Company's wireless products are generally available from a variety of sources. Bar code scanners are included in almost all orders, and a significant number of the scanners are purchased from Symbol Technologies, Inc., which is also a competitor of the Company; however, there are alternative suppliers that manufacture and sell bar code scanners under license agreements with Symbol. The Company believes that its logistics competitors also rely on scanning equipment purchased from or licensed by Symbol. In addition, Symbol and the Company have a license agreement, which allows the Company to utilize Symbol's patented integrated scanning technology in certain products.
The Company's advanced technology products often require sophisticated subsystems supplied or cooperatively developed by third parties having specialized expertise, production skills and economies of scale. Important examples include application-specific integrated circuitry, and computers incorporated in wireless network products. In such cases, the performance, reliability, and timely delivery of the Company's products can be heavily dependent on the effectiveness of those third parties.
The Company believes that its present sources of required materials are adequate. The Company does not believe that the loss of any supplier or subassembly manufacturer would have a material adverse effect on its business. In the past, shortages of supplies and delays in the receipt of necessary components have not had a material adverse effect on shipments of the Company's products. However from time to time, the Company's introduction of new terminal products for its wireless networks business, or its performance on Space and Technology programs, has been affected by quality and schedule problems with developers/suppliers of critical subsystems.
COMPETITION
The Company believes itself to be, in sales, a major independent supplier of (1) satellite components, subsystems and systems, (2) base station antennas and other wireless infrastructure products for cellular and PCS mobile networks, (3) wireless local-area computer network products, mainly for logistics systems, and (4) aeronautical SATCOM communications systems for voice, telephony and video. However, the Company's markets are highly competitive. Some of the Company's competitors have substantial resources and facilities that exceed those of the Company, and the Company also competes against smaller, specialized firms.
In the Space and Technology segment, the Company competes with divisions of certain large U.S. industrial concerns, such as Raytheon, Hughes, Loral, M/A-Com, Inc., and Rockwell, as well as non-U.S. companies such as COMDEV and RACAL. Some of these companies, as well as others, are potential competitors of the Company for certain contracts and potential customers on other contracts. Certain major customers could also elect to internally develop and manufacture the products that they presently purchase from the Company.
In the Wireless Products segment, the Company competes with divisions of certain large U.S. and international companies, including Allen Telecom, Andrew Corporation and Ericcson in the wireless infrastructure market, and Unova, Symbol Technologies, Teklogix Corp. and Telxon Corporation in the logistics market.
The Company believes that the key competitive factors in both the Space and Technology segment and the Wireless Products segment continue to be product performance, technical expertise and support to customers, adherence to delivery schedules, and price.
RESEARCH AND DEVELOPMENT
The Company conducts most of its research and development in the Space and Technology segment in direct response to the unique technical requirements of a customer's order, and most of these costs are included with the overall manufacturing costs for specific orders.
However, the Company also conducts substantial internally funded research and development activities. In 2000, 1999 and 1998, the Company spent $27.7 million, $21.8 million and $13.1 million, respectively, in internally sponsored research and development.
EMPLOYEES
As of December 31, 2000, the Company and its subsidiaries employed a total of approximately 1,800 persons. Over 70% of the Company's employees are directly involved in engineering or manufacturing activities.
RISK FACTORS
The business operations of EMS Technologies, Inc. involve significant risks and uncertainties that could adversely affect its financial condition, results of operations, and future development. In addition to domestic economic conditions, which can change unexpectedly and generally affect U.S. businesses, these risks and uncertainties include the following:
- Competitive Technology Could be Superior
The markets in which EMS competes are very sensitive to technological advances. As a result, technological developments by competitors can cause our products to be less desirable to customers, or even to become obsolete.
- Competitors' Marketing Strategies Can Affect Our Results
EMS operates in competitive markets. Its competitors may pursue aggressive marketing strategies, such as significant price discounting. These competitive activities can reduce EMS's sales and profit margins below expected levels.
- Major Potential Sales Require that Customers Find Adequate Funding
Major communications infrastructure programs, such as proposed satellite communications systems or PCS/cellular systems for large urban areas, are important sources of our current and planned future revenues. We also participate in a number of large defense programs. Programs of this nature cannot proceed unless the customer can raise adequate funds, from either governmental or private sources. As a result, our expected revenues can be affected by political developments or by conditions in private capital markets. They can also be affected by whether private capital markets are receptive to a customer's proposed business plans.
- Public Acceptance of New Communications Systems Affects Purchases by Our Customers
Construction and expansion of new communications systems depends on public demand for the new services. As a result, growth rates in our revenues from wireless infrastructure products and proposed high-speed satellite communications systems are likely to be heavily affected by the timing and extent of public willingness to buy mobile and/or broadband communications services.
- We Often Encounter Technical Problems
Technical difficulties can cause delays and additional costs for EMS. We are particularly exposed to this risk in product development efforts, and in fixed-price contracts on technically advanced programs that require novel approaches and solutions.
- We May Be Liable For Financial Damages If We Are Unable To Deliver On A Customer's Schedule
The Company's products may perform mission-critical functions in space applications. If the Company experiences technical problems and is unable to adhere to a customer's schedule, the customer could experience costly launch delays or re-procurements from other vendors. The customer may then be contractually entitled to substantial financial damages from the Company.
- New Product Transitions Can Be Costly and Disruptive
Because our businesses involve constant efforts to improve existing technology, EMS regularly introduces new generations of products. During these transitions, customers may reduce purchases of older equipment more rapidly than we expect, which can cause lower revenues and excessive inventories. In addition, product transitions create uncertainty about both production costs and customer acceptance. These potential problems are generally more severe if our product introduction schedule is delayed by technical development problems.
- Our Products May Unexpectedly Infringe on Third-Party Patents
As we regularly develop and introduce new technology, we have a risk that our new products or manufacturing techniques infringe on patents held or currently being processed by others. The U.S. Patent Office does not publish patents that are in process, and its processing typically takes at least two years and often even longer. Thus, we may be affected by a patent granted well after EMS has introduced an infringing product. In addition, questions of whether a particular product infringes a particular patent can involve significant uncertainty. As a result of these factors, third-party patents may interfere with marketing plans, or may, from time to time, create significant expense to defend infringement claims or respond to customer indemnification claims.
- We Depend on Highly Skilled Employees
Because our products and programs are technically sophisticated, EMS must attract and retain employees with advanced technical and program-management skills. Other employers also often recruit persons with these skills, both generally and in focused engineering fields.
- We Depend on Highly Skilled Suppliers
In addition to our requirements for basic materials and electronic components, our advanced technological products often require sophisticated subsystems supplied or cooperatively developed by third parties having specialized expertise, production skills and economies of scale. In such cases, our ability to perform according to contract requirements, or to introduce new products on the desired schedule, can be heavily dependent on our ability to identify and engage appropriate suppliers, and on the effectiveness of those suppliers in meeting our development and delivery objectives.
- The Export License Process for Space Products Has BecomeUncertain
As a result of 1998 legislation, products for use on commercial satellites are included on the U.S. Munitions List and are subject to State Department licensing requirements. The licensing process is time-consuming, and political considerations can increase the time and difficulty of obtaining licenses for export of technically advanced products. The license process may prevent particular sales, and in general has created schedule uncertainties that are encouraging foreign customers, such as those in Western Europe, to develop internal or other foreign sources rather than use U.S. suppliers.
- Export Controls on Space Technology Restrict our Ability to Hold Technical Discussions with Customers, Suppliers and Internal Engineering Resources
U.S. export controls severely limit unlicensed technical discussions with any persons who are not U.S. citizens. As a result, the Company is restricted in its ability to hold technical discussions between U.S. personnel and current or prospective non-U.S. customers or suppliers, between Canadian personnel and current or prospective U.S. customers or suppliers, and between U.S. employees and non-U.S. (including Canadian) employees. These restrictions reduce the Company's ability to win cross-border space work, to utilize cross-border supply sources, to deploy technical expertise in the most effective manner, and to pursue cooperative development programs involving its U.S. and Canadian space facilities.
- Conditions in Other Countries Affect Our Revenues
International sales significantly affect EMS's financial performance. Economic conditions in customer countries, and exchange rate movements that affect the local-currency cost of our products, are particularly important in our wireless local-area network and PCS/cellular infrastructure businesses.
- In Some Markets, We Depend on Marketing Relationships with Other Companies
In the healthcare, mobile satellite communications, and route accounting markets, the Company does not have established distribution channels. Rather, we are seeking to develop marketing relationships with other companies that have, for example, specialized software and established customer service systems. EMS's success in these markets will be heavily affected by whether we can identify and structure effective relationships with these other companies.
- EMS's Quarterly Results Are Volatile and Difficult to Predict
The quarterly earnings contributions of some of our product lines are heavily dependent on customer orders or product shipments in the final weeks or days of the quarter. This can create volatility in quarterly results, and hinders our ability to determine in advance whether quarterly earnings will meet prevailing analyst expectations.
- The Company Will Require Additional Financing As Its Business Grows
The Company's current cash and available credit facilities are not large enough to finance either potential growth in certain business areas, or synergistic acquisitions to complement the Company's technical and product capabilities.
FORWARD-LOOKING STATEMENTS
The discussions of the Company's business in this Report, and in other public documents or statements that may from time to time incorporate or refer to these disclosures, contain various statements that are or may be deemed to be forward-looking. Forward-looking statements include, but are not limited to:
(1) statements about what the Company or management believes or expects,
(2) statements about anticipated technological developments or anticipated market response to or impact of current or future technological developments or product offerings,
(3) statements about trends in markets that are served or pursued by the Company,
(4) statements implying that the Company's technology or products are well suited for particular emerging markets, and
(5) statements about the Company's plans for product developments or market initiatives.
These forward-looking statements may differ materially from actual results due to the variety of risks and uncertainties that affect the Company, including those set forth under the foregoing "Risk Factors" heading.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the executive officers of the Company is set forth below:
Alfred G. Hansen, age 67, became Chief Executive Officer in January 2001. Mr. Hansen joined the Company as President and Chief Operating Officer in January 2000. He became a Director in 1999. From 1998 through 1999, Mr. Hansen was President of A.G. Hansen Associates, Inc., Marietta, Georgia, an aerospace marketing and manufacturing consultant. From 1995 to 1998, Mr. Hansen served as Executive Vice President of Lockheed Martin Aeronautical Systems, with broad operational responsibilities for its aerospace business, and as a Vice President of its parent company, Lockheed Martin Corporation. Mr. Hansen retired from the U.S. Air Force in 1989 as a four-star general, serving in his last assignment as Commander of the Air Force Logistics Command.
Don T. Scartz, age 58, has served as Senior Vice President and Chief Financial Officer of the Company since 1995; he has also served as Treasurer since 1981, as Vice President-Finance from 1981 to 1995, and as Secretary from 1982 to 1991. He joined the Company as Controller in 1978. He also serves as the Chief Financial Officer of each of the Company's operating subsidiaries. He became a Director of the Company in 1995.
William S. Jacobs, age 55, became General Counsel and Secretary of the Company in 1992, and Vice President in 1993. He is also responsible for the legal affairs of the operating subsidiaries. Previously, he was engaged in the private practice of law, and in such capacity had served as the Company's principal corporate legal counsel since 1982.
Gerald S. Bush, age 44, is Senior Vice President of the Company, and President of its Space and Technologies Group. He joined the Company in January 1999, when the Company acquired the Satellite Products business of Spar Aerospace Limited ("Spar") where Dr. Bush had been Vice President and General Manager since 1998. Dr. Bush joined Spar in 1981 as a structural and thermal analyst. He served as a program manager until 1995, when he became Director of Manufacturing for Spar's Satellite Products business, and in 1996 he became Vice President of Operations for that business.
John J. Farrell, age 49, is Senior Vice President of the Company and President of its Wireless Products Group. He joined the Company in May 1995 as President and Chief Operating Officer of the LXE subsidiary (which conducts the logistics business). Previously, he had been Senior Vice-President and Chief Operating Officer of Oki Telecom Group, a world-wide supplier of cellular telephones, since 1993. During the three years prior to 1993, he directed Oki's marketing and sales efforts.
T. Gerald Hickman, age 60, was appointed in March 2000 to the position of Vice President and General Manager, EMS Wireless. He joined the Company in 1988 as Vice President, Marketing, and prior to his current position was a Vice President in the Company's EMS Wireless division.
Neilson A. Mackay, age 60, is Vice President and General Manager, SATCOM Products. He joined the Company in January 1993, when the Company acquired an Ottawa, Ontario-based space SATCOM business of which he was serving as President.
Donald F. Osborne, age 41, is Vice President and General Manager, Space and Technologies, Montreal, since late 1999. He joined the Company in January 1999, when the Company acquired the Satellite Products business of Spar Aerospace Limited (Spar) where Mr. Osborne had been Vice President, Marketing since 1998. Mr. Osborne joined Spar in 1988 as a mechanical engineer.
Jay Grove, age 38, is Vice President and General Manager, Spaceand Technologies, Atlanta. He joined the Company in January 2001. Formerly he wasdirector of Mobile SATCOM Systems for ViaSat, Inc., an advanced digital satellite telecommunications and wireless signal processing equipment provider.
ITEM 2. Properties
The Company's corporate headquarters and its Georgia operations are located in two buildings owned by the Company (comprising 250,000 square feet of floor space on 21 acres), as well as in 142,000 square feet of leased office space (leases to expire prior to 2004) in two other buildings, all located in or near Technology Park, Norcross, Georgia, a suburb of Atlanta. The combined Georgia facilities comprise clean rooms, a microelectronics laboratory, materials storage and control areas, assembly and test areas, offices, engineering laboratories, a ferrites laboratory, drafting and design facilities, a machine shop, a metals finishing facility, and painting facilities.
The Company's Canadian operations include a 330,000 square foot facility surrounded by 34 acres of undeveloped land in a suburb of Montreal. One-fourth of the facility comprises manufacturing, assembly and laboratory space, including an advanced near-field and far-field test range area and a subsystem and payload integration area. Three-fourths of the facility is used for engineering and administrative office space. The facility's location in the province of Quebec affords it significant tax incentives and credits sponsored by the provincial government. The Company also leases approximately 63,000 square feet of office and manufacturing space for its operations located in Ottawa, Ontario; the lease on this facility expires in 2007.
ITEM 3. Legal Proceedings
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not Applicable
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The common stock of EMS Technologies, Inc. is traded in the over-the-counter market (Nasdaq symbol ELMG). At March 23, 2001 there were approximately 1,000 shareholders of record, and the Company believes that there were approximately 4,000 beneficial shareholders, based upon broker requests for distribution of Annual Meeting materials. The price range of the stock is shown below:
2000 Price Range | 1999 Price Range | |||||||||||||
High | Low | High | Low | |||||||||||
First Quarter | $ | 29.00 | 11.50 | 17.75 | 12.31 | |||||||||
Second Quarter | 22.44 | 13.50 | 14.63 | 11.38 | ||||||||||
Third Quarter | 18.75 | 15.00 | 14.38 | 11.00 | ||||||||||
Fourth Quarter | 16.50 | 9.69 | 12.75 | 7.69 | ||||||||||
The Company has never paid a cash dividend with respect to shares of its common stock and has retained its earnings to provide cash for the operation and expansion of its business. Future dividends, if any, will be determined by the Board of Directors in light of the circumstances then existing, including the Company's earnings and financial requirements and general business conditions.
ITEM 6. Selected Financial Data
Information required for this item is incorporated herein by reference to the Selected Financial Data contained in the Company's 2000 Annual Report to Shareholders, and is included in Exhibit 13.1. (To be filed by amendment pursuant to Rule 12(b)-25(b)).
ITEM 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Information required for this item is incorporated herein by reference to the Management's Discussion and Analysis of Results of Operations and Financial Condition contained in the Company's 2000 Annual Report to Shareholders, and is included in Exhibit 13.1. (To be filed by amendment pursuant to Rule 12(b)-25(b)).
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
At December 31, 2000, the Company had the following market risk sensitive instruments (in thousands):
Revolving credit loan, maturing in November 2003, | ||
interest payable quarterly at a variable rate | ||
(9.00% at the end of 2000) | $ | 30,543 |
Revolving credit loan, maturing in February 2001, | ||
interest payable at a variable rate | ||
(7.95% at the end of 2000) | 16,895 | |
--------- | ||
Total market-sensitive debt | $ | 47,438 |
===== |
At December 31, 2000, the Company also had intercompany accounts that eliminate in consolidation but that are considered market risk sensitive instruments:
Short-Term Due to Parent, payable by European subsidiaries in the following countries and
arising from purchase of the Parent's products for sale in Europe:
|
| Exchange Rate |
|
|
|
|
|
|
|
|
|
|
| |||
|
| ($U.S. per unit of |
|
| $U.S. in thousands | |||||||||||
|
| local currency) |
|
| (Reporting Currency) | |||||||||||
------------------------ | --------------------------- | |||||||||||||||
Belgium |
|
| .02336 | /Franc |
|
|
|
|
|
| $ | 397 |
|
|
|
|
France |
|
| .42764 | /Franc |
|
|
|
|
|
|
| 1,146 |
|
|
|
|
Germany |
|
| .48183 | /Mark |
|
|
|
|
|
|
| 171 |
|
|
|
|
Netherlands |
|
| .10631 | /Guilder |
|
|
|
|
|
|
| 240 |
|
|
|
|
Sweden |
|
| .14367 | /Krona |
|
|
|
|
|
|
| 1,968 |
|
|
|
|
United Kingdom |
|
| 1.49321 | /Pound |
|
|
|
|
|
|
| 352 |
|
|
|
|
.55875 | /Dollar | 52 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ------ |
|
|
|
|
Total short-term due to parent |
|
|
|
|
|
|
| $ | 4,326 |
|
|
|
| |||
|
|
|
|
|
|
|
|
| ==== |
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|
|
| |||
ITEM 8. Financial Statements and Supplementary Data
Information required for this item is incorporated herein by reference to the Consolidated Financial Statements and Notes to Consolidated Financial Statements contained in the Company's 2000 Annual Report to Shareholders, and is included in Exhibit 13.1. (To be filed by amendment pursuant to Rule 12(b)-25(b)).
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information concerning directors called for by this Item is contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders and is incorporated herein by reference. The information concerning executive officers called for by this Item is set forth under the caption "Executive Officers of the Registrant" in Item 1 hereof.
ITEM 11. Executive Compensation
The information called for by this Item is contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this Item is contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
The information called for by this Item is contained in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders and is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements are contained in the Company's 2000 Annual Report to Shareholders, and are incorporated herein by reference to Exhibit 13.1.
Independent Auditors' Report
Consolidated Statements of Earnings -
Years ended December 31, 2000, 1999 and 1998
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Stockholders' Equity and
Comprehensive Income - Years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Selected Financial Data
Management's Discussion and Analysis of Results of Operations and Financial Condition
(a) 2. Financial Statement Schedules
Independent Auditors' Report
II. Valuation and Qualifying Accounts -
Years ended December 31, 2000, 1999 and 1998
All other schedules are omitted as the required information is inapplicable, or the information is presented in the financial statements or related notes.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EMS Technologies, Inc.:
Under date of February 8, 2001, we reported on the consolidated balance sheets of EMS Technologies, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000, as contained in the 2000 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 2000. In our report specified above, we state that we did not audit the financial statements of EMS Technologies Canada, Ltd., a wholly-owned subsidiary, which statements were audited by other auditors whose report has been furnished to use. Our opinion, insofar as it relates to the amounts included for EMS Technologies Canada, Ltd., is based solely on the report of the other auditors. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, based on our audits and the report of other auditors, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Atlanta, Georgia
February 8, 2001
SCHEDULE II
Years ended December 31, 2000, 1999 and 1998 | |||||||||||||||||||||||||
---------------------------------------------------------------------------------------------- | |||||||||||||||||||||||||
Additions | |||||||||||||||||||||||||
Balance at | charge to | Balance | |||||||||||||||||||||||
beginning | costs and | at end | |||||||||||||||||||||||
Classification | of year | expenses | Deductions | Other | of year | ||||||||||||||||||||
------------------- | ---------------- | -------------- | --------------- | --------- | ---------- | ||||||||||||||||||||
Allowance for Doubtful Accounts: | |||||||||||||||||||||||||
1998 | $ | 270 | 40 | - | - | 310 | |||||||||||||||||||
1999 | 310 | - | 17 | - | 293 | ||||||||||||||||||||
2000 | 293 | 624 | - | - | 917 | ||||||||||||||||||||
Reserve for Inventory: | |||||||||||||||||||||||||
1998 | $ | 1,060 | - | (274) | - | 786 | |||||||||||||||||||
1999 | 786 | 172 | - | - | 958 | ||||||||||||||||||||
2000 | 958 | 414 | - | - | 1,372 | ||||||||||||||||||||
Reserve for Deferred Tax Assets: | |||||||||||||||||||||||||
1998 | $ | 5,992 | - | (4,664) | (a) | - | 1,328 | ||||||||||||||||||
1999 | 1,328 | 1,671 | (b) | - | - | 2,999 | |||||||||||||||||||
2000 | 2,999 | 2,435 | (b) | - | - | 5,434 | |||||||||||||||||||
(b) The 2000 and 1999 increases in the reserve for deferred tax assets related primarily to the net change in the underlying deferred tax assets associated with the Montreal operations that the Company acquired in 1999. These deferred tax assets were fully reserved at acquisition due to uncertainty about realization. As a result, this change in reserves had no effect on the Company's 2000 or 1999 statement of earnings.
(a)3. Exhibits
The following exhibits are filed as part of this report:
3.1Second Amended and Restated Articles of Incorporation of EMS Technologies, Inc., effective March 22, 1999. (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998).
3.2 Bylaws of EMS Technologies, Inc., as amended through March 15, 1999 (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998).
4.1 EMS Technologies, Inc. Stockholder Rights Plan dated as of April 6, 1999 (incorporated by reference to Exhibit 4.1 to the Company's Report on Form 8-K dated April 6, 1999).
4.2 Agreement with respect to long-term debt pursuant to Item 601(b)(4)(iii)(A).
4.3 Second Amended and Restated Loan Agreement, dated November 9, 1998, between the Company and SunTrust Bank, Atlanta, together with Amendment and Consent dated as of January 29, 1999, and Second Amendment dated as of February 24, 1999 (incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998).
10.1 Agreement concerning employment status effective January 26, 2001, by and between the Company and Thomas E. Sharon.
10.2 Letter dated January 17, 2000 between the Company and Alfred G. Hansen concerning the terms of his employment as President and Chief Operating Officer (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
10.3 Employment Agreement, dated as of August 10, 1998, by and between the Company and John J. Farrell, Jr. (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998).
10.4 Employment Agreement, dated as of August 10, 1998, by and between the Company and Don T. Scartz (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998).
10.5 EMS Technologies, Inc. Directors' Stock Purchase Plan effective January 1, 2000 (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
10.6 1981 Incentive Stock Option Plan, as amended and restated February 6, 1987, and further amended through March 23, 1989.
10.7 Electromagnetic Sciences, Inc. 1986 Non-Qualified Stock Option Plan, as amended through July 31, 1992.
10.8 Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan as amended through October 3, 1996 (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement No. 333- 14235 on Form S-4).
10.9 Amendments adopted May 2, 1997, to the Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.10 EMS Technologies, Inc. 1997 Stock Incentive Plan, as adopted January 24, 1997, and amended through April 28,2000 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000).
10.11 Form of Stock Option Agreement evidencing options granted prior to 2001 to executive officers under the EMS Technologies, Inc. 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.12 Form of Stock Option Agreement evidencing options granted after 2000 to executive officer under the EMS Technologies, Inc. 1997 Stock Incentive Plan, together with related Terms of Officer Stock Option, Form 1/25/01.
10.13 Form of Stock Option Agreement evidencing options granted automatically to non-employee members of the Board of Directors upon their initial election to the Board, under the EMS Technologies, Inc. 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
10.14 Form of Stock Option Agreement evidencing options granted automatically to non-employee members of the Board of Directors, following five years of service, under the EMS Technologies, Inc. 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
10.15 Form of Stock Option Agreement evidencing options granted to executive officers under the Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997.)
10.16 Form of Stock Option Agreement dated May 15, 1995, evidencing option granted to John J. Farrell, Jr. under the 1992 Stock Incentive Plan.
10.17 Form of Stock Option Agreement evidencing options granted automatically under the 1992 Stock Incentive Plan, on a one-time basis and prior to 1998, to non-employee members of the Board of Directors.
10.18 Form of Stock Option Agreement evidencing option granted September 26, 1990 to an executive officer under the LXE Inc. 1989 Stock Incentive Plan, and thereafter converted into an option for a reduced number of shares, at the same aggregate exercise price, under the Company's 1992 Stock Incentive Plan (incorporated by reference Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996).
10.19 Form of Stock Option Agreement dated May 15, 1995, evidencing option granted to John J. Farrell, Jr. under the LXE Inc. 1989 Stock Incentive Plan, and thereafter converted into an option for a reduced number of shares, at the same aggregate exercise price, under the Company's 1992 Stock Incentive Plan.
10.20 Stock Option Agreement dated January 7, 2000, evidencing option granted to Alfred G. Hansen (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
10.21 EMS Technologies, Inc. Executive Annual Incentive Compensation Plan, as amended through April 30, 1999 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1999).
10.22 Form of Indemnification Agreement between the Company and its directors (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.23 Form of Indemnification Agreement between the Company and its Vice President and General Counsel (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.24 Form of split-dollar life insurance agreement between the Company and certain of its officers (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.25 Form of split-dollar life insurance agreement effective January 1, 1993, between the Company and William S. Jacobs (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998).
10.26 Form of note evidencing indebtedness to the Company of its Chief Executive Officer and certain other executive officers (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1998).
10.27 Letter, dated December 12, 2000, governing credit facility between EMS Technologies Canada, Ltd., a consolidated subsidiary of the Company, and Canadian Imperial Bank of Commerce, including Schedule-Standard Credit Terms.
13.1 Those portions of the Company's 2000 Annual Report to Shareholders incorporated by reference into this Annual Report on Form 10-K.
22.1 Subsidiaries of the registrant.
23.1 Independent Public Accountants' (KPMG LLP) Consent to incorporation by reference in Registration Statements Nos. 2-76455, 2-78442, 2-94049, 33-31216, 33-41042, 33-50528, 333-20843, 333-32425, 333-35842 and 333-86973, each on Form S-8.
23.2 Independent Chartered Accountants' (Ernst and Young LLP) Consent to incorporation by reference in Registration Statements Nos. 2-76455, 2-78442, 2-94049, 33-31216, 33-41042, 33-50528, 333-20843, 333-32425, 333-35842 and 333-86973, each on Form S-8.
99.1 Ernst and Young LLP independent chartered accountants' report.
(b). Reports on Form 8-K.
No Reports on Form 8-K were filed by the Company during the quarter ended December 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EMS TECHNOLOGIES, INC.
By: /s/ Alfred G. Hansen Date: 4/2/01
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature |
| Title | Date | |||
/s/ |
| Alfred G. Hansen |
| President and Chief Executive Officer, | April 2, 2001 | |
| Alfred G. Hansen |
| and Director (Principal Executive Officer) |
| ||
/s/ |
| Don T. Scartz | Senior Vice President and | April 2, 2001 | ||
| Don T. Scartz |
| Chief Financial Officer, Treasurer, and |
| ||
Director (Principal Financial and Accounting Officer) |
/s/ |
| Jerry H. Lassiter | Director | April 2, 2001 | ||
| Jerry H. Lassiter |
|
|
/s/ |
| John B. Mowell | Director, Chairman of the Board | April 2, 2001 | ||
| John B. Mowell |
|
|
/s/ |
| Norman E. Thagard | Director | April 2, 2001 | ||
| Norman E. Thagard |
|
|
Exhibit 4.2
AGREEMENT TO FILE INSTRUMENTS
WITH RESPECT TO LONG-TERM DEBT
Pursuant to Regulations S-K Item 601(b)(4)(iii)(A), EMS Technologies, Inc. hereby agrees to cause to be filed with the Securities and Exchange Commission, upon its request, a copy of any instrument, not filed as an exhibit to the Report or Registration Statement to which this Exhibit pertains, with respect to long-term debt of EMS Technologies, Inc. or any consolidated subsidiary of EMS Technologies, Inc.
EMS TECHNOLOGIES, INC.
Date: March 30, 2001 By: /s/ William S. Jacobs
William S. Jacobs
Vice President and General Counsel
Exhibit 10.1
Agreement
Concerning
Employment Status
This Agreement Concerning Employment Status (this "Agreement") is executed by and between Thomas E. Sharon ("Employee") and EMS Technologies, Inc. ("EMS"), effective the 26th day of January, 2001.
Whereas, Employee has heretofore been serving as a Regular Full-Time employee of EMS, under an Employment Agreement effective January 1, 1989, as thereafter amended, most recently by Third Amendment to Employment Agreement effective August 10, 1998 (as so amended, the "Employment Agreement");
Whereas, the Employment Agreement has by its terms expired and terminated, effective December 31, 2000; and
Whereas, the parties desire that Employee continue to provide certain part-time employee services to EMS, on the terms and subject to the conditions set forth herein.
Now therefore, in consideration of the premises and of the mutual undertakings set forth herein, the parties agree as follows:
For the purposes of this Agreement:
During the term of this Agreement, this Section 6 shall supersede in all respects Article Six of the Invention Agreement. All other provisions of the Invention Agreement shall remain in full force and effect in accordance with their terms, except as follows:
Upon termination of Employee's employment under this Agreement, Article Six of the Invention Agreement, as amended by this Agreement and subject to Section 17, shall be reinstated and thereafter remain in effect for the period specified therein.
On or before March 15, 2001, Employee shall pay to EMS any balance then remaining under travel and other advances made to Employee by EMS (which balance is approximately $5,100 on the date hereof), subject to providing written accountings reasonably satisfactory to EMS as to the use of such advances for bona fide business purposes.
Notwithstanding the last two sentences of the immediately preceding paragraph, upon the expiration of this Agreement EMS shall release and surrender to Employee its interest in and lien on such policies if either: (i) during the term of this Agreement Employee is directly responsible for generating one or more contracts for the sale by EMS of its products under which EMS shall be entitled to receive, from credit-worthy customers on or before December 31, 2003, aggregate revenues of not less than $2 million, or (ii) during the term of this Agreement Employee is directly responsible for generating one or more license agreements under which EMS is entitled to receive, from credit-worthy customers on or before December 31, 2002, aggregate revenues for use of its intellectual property of not less than $150,000.00. In the event Employee generates only a fraction of the revenues specified in each of the foregoing clauses (i) and (ii), EMS shall nonetheless release and surrender its interest and lien if the sum of the two fractions equals or exceeds 1.00. Employee agrees that EMS shall not be obligated to enter into any such contracts or license agreements other than on reasonable commercial terms comparable to those at the time in effect for similar transactions with similar parties.
Employee further agrees that in the event any balance shall be owed to EMS under the Stock Purchase Note at any time that Employee exercises his rights to acquire EMS stock under any of his various Stock Option Agreements, Employee hereby grants to EMS, effective the date of any such exercise, a first security interest in the shares of EMS common stock issued to him, net of any shares withheld in payment of taxes or the option exercise price, except that the maximum number of shares so pledged, together with all such shares previously so pledged, shall not exceed the then-remaining principal balance of the Stock Purchase Note divided by 75% of the Fair Market Value (as defined under the EMS 1997 Stock Incentive Plan) of the common stock on the date of exercise. In the event of any such pledge, such security interest shall be perfected by EMS retaining a certificate registered in Employee's name and evidencing such shares, and by Employee delivering to EMS an executed stock transfer power in form reasonably satisfactory to EMS with respect to such shares. EMS may exercise its rights against such security at any time that Employee shall be in default of his obligations under the Stock Purchase Note, to the extent of amounts owed at such time, upon ten days' prior written notice to Employee of such default, by either (i) sale of the appropriate number of shares to or through a market maker for the EMS common stock in the NASDAQ National Market, or (ii) transferring the appropriate number of such shares to EMS and crediting Employee's defaulted obligation based on the average of the closing high bid and low asked prices on the date of transfer as reported in the NASDAQ National Market. Employee shall remain responsible for any balance of principal or interest under the Stock Purchase Note remaining after all such security has been exhausted. Employee may at any time direct that all or a portion of such security be sold on his behalf for application of the proceeds against amounts owed under the Stock Purchase Note. Upon discharge of all of Employee's obligations under the Stock Purchase Note, any remainder of the pledged shares, or of the proceeds from the sale thereof, shall be returned to Employee.
In Witness Whereof,the parties have executed this Agreement Concerning Employment Status on the
26th__ day of January, 2001, effective as of January 26, 2001.
EMS TECHNOLOGIES, INC.
By: /s/ Alfred G. Hansen_________ _/s/ Thomas E. Sharon_______________
Alfred G. Hansen Thomas E. Sharon
President
Exhibit 10.6
As Amended and Restated
on February 6, 1987,
as Thereafter Amended
Through July 31, 1992
ELECTROMAGNETIC SCIENCES, INC.
1981 INCENTIVE STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the meanings hereinafter set forth unless the context clearly indicates to the contrary:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the Stock Option Committee of the Board.
(c) "Company" shall mean Electromagnetic Sciences, Inc.
(d) "Disabled Employee" shall mean an employee of the Company or any Subsidiary who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than twelve months.
(e) "Fair Market Value" at any time shall mean the closing sales price, or the mean between the closing high "bid" and low "asked" prices, as the case may be, of the Stock in the over-the-counter market on the day on which such value is to be determined, as reported by the National Association of Securities Dealers Automated Quotation System or successor national quotation service. If the Stock is listed on a national securities exchange, "Fair Market Value" at any time shall mean the closing sales price of the Stock on such national securities exchange on the day on which such value is to be determined, as reported in the composite quotations for securities traded on such exchange provided by the National Association of Securities Dealers or successor national quotation service. In the event no such quotations are available for the day in question, "Fair Market Value" at any time shall be determined by reference to the appropriate prices on the next preceding day for which such prices are reported.
(f) "Incentive Stock Option" shall mean an option that complies with and is subject to the terms, limitations and conditions of Section 422A of the Internal Revenue Code of 1986, as it may be amended from time to time (the "Code"), and any regulations promulgated with respect thereto (the "Regulations").
(g) "Non-Qualifying Stock Option" shall mean an option that is not an Incentive Stock Option.
(h) "Option" shall mean an option, whether an Incentive Stock Option or a Non-Qualifying Stock Option, to purchase Stock granted pursuant to the provisions of Article VI hereof. (i) "Optionee" shall mean a person to whom an Option has been granted hereunder.
(j) "Option Price" shall mean the price at which an Optionee may purchase a share of stock under a Stock Option Agreement.
(k) "Parent" shall mean any corporation which owns, directly or indirectly, the majority of the outstanding voting stock of the Company.
(l) "Plan" shall mean the Electromagnetic Sciences, Inc. 1981 Incentive Stock Option Plan, the terms of which are set forth herein.
(m) "Purchasable" shall refer to Stock which may be purchased by an Optionee under the terms of this Plan after a certain date specified in his Stock Option Agreement.
(n) "Stock" shall mean the $.10 par value common stock of the Company or, in the event that the outstanding shares of Stock are hereafter changed into or exchanged for shares of a different stock or securities of the Company or some other corporation, such other stock or securities.
(o) "Stock Option Agreement" shall mean an agreement between the Company and the Optionee under which the Optionee may purchase Stock hereunder.
(p) "Subsidiary" shall mean any corporation, the majority of the outstanding voting stock of which is owned, directly or indirectly, by the Company.
ARTICLE II
THE PLAN
2.1 Purpose. The purpose of the Plan is to advance the interests of the Company and its shareholders by affording "key employees", as defined in Article III hereof, of the Company and its Subsidiaries an opportunity to acquire or increase their proprietary interests in the Company by granting such persons Options to purchase Stock. The Options will promote the growth and profitability of the Company and its Subsidiaries because the Optionees will be provided with an additional incentive to achieve the objectives of the Company and its Subsidiaries through participation in its success and growth and by encouraging their continued employment.
2.2 Effective Date. The Plan became effective on October 16, 1981, which is the date of its adoption by the Board. The Plan was approved by the holders of a majority of the shares of capital stock of the Company represented at the annual meeting of its stockholders held on April 23, 1982.
2.3 Termination Date. The Plan shall terminate and no further Options shall be granted hereunder on October 16, 1991, which is the earlier of the tenth anniversary of the date on which the Plan was adopted by the Board or the date on which the Plan was approved by the Company's stockholders.
ARTICLE III
PARTICIPANTS
Any "key employee," including executive personnel and department heads (as well as officers who are also directors), of the Company or a Subsidiary shall be eligible to participate in the Plan, provided that they are full-time employees of the Company or a Subsidiary. Members of the Committee who otherwise qualify as "key employees" shall be eligible to participate.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of Committee. Subject to Section 4.4 hereof, the Plan shall be administered by the Committee. The Committee shall select one of its members as its Chairman and shall hold its meetings at such time and places as it may determine. The Committee shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it may deem necessary. In administering the Plan, the Committee's actions and determinations shall be binding on all interested parties. Subject to the express provisions of the Plan, the Committee shall have the sole discretion and authority to determine the eligible "key employees," those key employees to whom an Option will be granted, the time or times at which the Option may be exercised, the number of shares of Stock subject to the Option, whether the Option is an Incentive Stock Option or a Non-Qualifying Stock Option, and the terms and conditions of the Stock Option Agreement. Subject to the express provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations necessary or advisable in the administration of the Plan, including, without limitation, the amending or altering of the Plan and any Option granted hereunder as may be required to comply with or to conform to any federal, state or local laws or regulations. The Committee shall have the power to authorize the issuance of Stock in accordance with the provisions of the Plan. No member of the Board or the Committee shall be liable to any person for any determination made in good faith with respect to the Plan or any Option granted hereunder.
4.2 Majority Rule. A majority of the members of the Committee shall constitute a quorum, and any action taken by a majority at a meeting at which a quorum is present or any action taken without a meeting evidenced by a writing executed by all the members of the Committee, shall constitute the action of the Committee.
4.3 Company Assistance. The Company shall supply full and timely information to the Committee on all matters relating to eligible persons, their employment, death, retirement, disability or other termination of employment, and such other pertinent facts as the Committee may require. The Company shall furnish the Committee with such clerical and other assistance as is necessary in the performance of its duties.
4.4 Director and Officer Options. A committee of the Board, consisting of two or more directors designated by the Board, shall have sole authority and discretion to grant or modify, or to otherwise exercise powers of the Committee with respect to, Options to or held by employees who are directors of the Company, or are officers of the Company for the purposes of Section 16 of the Securities Exchange Act of 1934, as amended, provided that no director who is not a "disinterested person," for the purposes of Securities and Exchange Commission Rule 16b-3 or any applicable successor thereto, shall serve on such committee. References elsewhere in this Plan to the Board, in the context of grants or modification of, or exercise of discretion with respect to, Options to or held by employees who are directors or such officers, shall be deemed to refer to such committee.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any adjustment pursuant to the provisions of Section 5.2 hereof for transactions occurring after February 6, 1987, the maximum number of shares of Stock which may be issued and sold hereunder shall not exceed 1,500,000 shares. Shares subject to an Option may be either authorized and unissued shares or shares issued and later acquired by the Company; provided, however, that shares of Stock with respect to which an Option has been exercised shall not again be available for option hereunder. If outstanding Options granted hereunder shall terminate or expire for any reason without being wholly exercised prior to the end of the period during which Options may be granted hereunder, new Options may be granted hereunder covering the unexercised shares of the terminated or expired Options.
5.2 Antidilution. In the event that the outstanding shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of merger, consolidation, reorganization, recapitalization, reclassification, combination of shares, stock split-up or stock dividend:
(a) The aggregate number and kind of shares of Stock as to which Options may be granted hereunder shall be adjusted appropriately;
(b) The rights under outstanding Options granted hereunder, both as to the number of subject shares and the Option Price, shall be adjusted appropriately; and
(c) Where dissolution or liquidation of the Company or any merger or combination in which the Company is not a surviving corporation is involved, each outstanding Option granted hereunder shall terminate, but the Optionee shall have the right, immediately prior to such dissolution, liquidation, merger or combination, to exercise his Option, in whole or in part, to the extent that it shall not have been exercised, without regard to any installment exercise provisions, subject, however, to the proviso contained in the following paragraph and to the limitations set forth in Article VI hereof.
The foregoing adjustments and the manner of application thereof shall be determined solely by the Committee, and any such adjustment may provide for the elimination of fractional share interests; provided, however, that no adjustment shall be made in a manner that will cause an Incentive Stock Option held by an Optionee to become a Non-Qualifying Stock Option without the consent of that Optionee. The adjustments required under this Article shall apply to any successor or successors of the Company and shall be made regardless of the number or type of successive events requiring adjustments hereunder.
ARTICLE VI
OPTIONS
6.1 Option Grant and Agreement. Each Option granted hereunder shall be evidenced by minutes of a meeting or the written consent of either the Committee or the Board and by a written Stock Option Agreement dated as of the date of grant and executed by the Company and the Optionee. As to each grant hereunder, the terms of the Option, including the Option's duration, time or times of exercise, and Option Price, shall be stated in the Stock Option Agreement or incorporated therein by reference to the related resolution or written consent.
6.2 Optionee Limitations.
(a) Neither the Committee nor the Board shall grant an Incentive Stock Option to any person who, at the time the Option would be granted, (i) is not an employee of the Company or any Subsidiary, or (ii) owns or is considered to own stock possessing 10% of the total combined voting power of all classes of stock of the Company, its Parent or any Subsidiary, provided, however, that the limitation in this clause (ii) shall not apply if, at the time an Option is granted, the Option Price is at least 110% of the Fair Market Value of the Stock subject to the Option and such Option by its terms would not be exercisable after five years from the date on which the Option is granted. For the purpose of the foregoing clause (ii), a person shall be considered to own (x)the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants; (y)the stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust in proportion to such persons' stock interest, partnership interest or beneficial interest therein; and (z)the stock which such person may purchase under any outstanding Options of the Company, its Parent or any Subsidiary.
(b) (i) Years Prior to 1987. The aggregate Fair Market Value (determined as of the time any Options are granted) of the stock for which any Optionee may be granted Incentive Stock Options in any calendar year prior to 1987 (under all Incentive Stock Option plans of such Optionee's employer corporation, any parent or subsidiary of such corporation or any predecessor of such corporations, within the meaning of the regulations under the Internal Revenue Code of 1954, as amended), shall not exceed $100,000 plus any unused limit carryover as was permitted by Section 422A of that Code and such regulations;
(ii) Years After 1986. No Incentive Stock Option shall be granted to, nor shall the exercise provisions of any outstanding Incentive Stock Option be amended if held by, any individual who, at the time the Incentive Stock Option is to be granted or amended, would thereby receive or hold Incentive Stock Options pursuant to which the aggregate Fair Market Value (determined at the time the Incentive Stock Options are granted or are deemed to be granted) of the stock with respect to which Incentive Stock Options granted after December 31, 1986, are exercisable for the first time by such individual during any calendar year (under any incentive stock option plan of such Optionee's employer corporation, any parent or subsidiary of such corporation or any predecessor of such corporation, within the meaning of the Regulations) exceeds $100,000; provided, however, that the foregoing restriction on amendment of outstanding Incentive Stock Options shall not preclude an amendment of the exercise provisions of an outstanding Incentive Stock Option if, as a result of such amendment and with the consent of the Optionee, such Option becomes a Non-Qualifying Stock Option.
6.3 Option Price. The Option Price of the Stock subject to each Option shall be determined by the Committee or Board, but shall not be less than the Fair Market Value of the Stock at the time the Option is granted.
6.4 Exercise Period. The period for the exercise of each Option shall be determined by the Committee or Board. With respect to Incentive Stock Options, such period shall not exceed ten years from the date of grant of the Option, and in no instance shall such period exceed ten years plus one day from the date of grant of the Option.
6.5 Option Exercise. Unless otherwise provided in the Stock Option Agreement, an Option shall be exercisable in full or in part at any time prior to expiration of the Option. The Committee or Board shall have the authority in its sole discretion to prescribe in any Stock Option Agreement that the Option may be exercised in installments during the term of the Option.
(a) An Option may be exercised at any time or from time to time during the term of the Option as to any or all full shares which have become Purchasable under the provisions of the Option, provided that no exercise may be with respect to less than 25 shares unless the number of Purchasable Shares remaining under that Option is less than 25. The Option Price is to be paid in full in cash upon the exercise of the Option and the Company shall not be required to deliver certificates for such shares until such payment has been made; provided, however, that in lieu of cash, all or any portion of the Option Price may be paid by tendering to the Company shares of Stock duly endorsed for transfer and owned by the Optionee, to be credited against the Option Price at their Fair Market Value at the time of exercise. The holder of an Option shall not have any of the rights of a stockholder with respect to the shares of Stock subject to the Option until such shares have been issued or transferred to him upon the exercise of his Option.
(b) An Option shall be exercised by written notice of intent to exercise the Option with respect to a specified number of shares of Stock delivered to the Company at its principal office, and by payment in full to the Company in accordance with paragraph 6.5(a) at said office of the amount of the Option Price for the number of shares of Stock with respect to which the Option is then being exercised. In addition to and at the time of payment of the Option Price, the Optionee shall pay to the Company in cash the full amount of any federal and state withholding or other employment taxes applicable to the taxable income of such Optionee resulting from such exercise; provided, however, that in the discretion of the Committee or Board, any Stock Option Agreement may provide that all or any portion of such tax obligations, together with additional taxes not exceeding the actual additional taxes to be owed by the Optionee as a result of such exercise, may, upon the irrevocable election of the Optionee, be paid by tendering to the Company shares of Stock duly endorsed for transfer and owned by the Optionee, or by authorization to the Company to withhold shares of Stock otherwise issuable upon exercise of the Option, in either case in that number of shares having a Fair Market Value at the time of exercise equal to the amount of such taxes thereby being paid, and subject, in the case of any Optionee who is required to file reports under Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), to such restrictions as to the approval and timing of any such election as the Committee or Board may from time to time determine to be necessary or appropriate to satisfy the conditions of the exemption set forth in Rule 16b-3 under the 1934 Act.
6.6 Nontransferability of Option. No Option shall be transferred by an Optionee otherwise than by will or the laws of descent and distribution. During the lifetime of an Optionee, his Option shall be exercisable only by him (or by his guardian or legal representative, should one be appointed).
6.7 Termination of Employment. In the event of termination of the employment by the Company or any Subsidiary of an Optionee, other than a termination that is either (a) for cause or (b) voluntary on the part of such person and without the written consent of the Company or such Subsidiary, such person may exercise his Option at any time within three months (or such longer period not exceeding 27 months as shall be specified by the Committee or Board) after such termination of employment, or at any time within twelve months (or such longer period not exceeding 36 months as shall be specified by the Committee or Board) after such termination if such person was a Disabled Employee upon termination, but in no event later than ten years ten years plus one day in the case of a Non-Qualifying Stock Option) from the date of grant thereof, to the extent of the number of shares of Stock covered by his Option which were Purchasable by him at the date of the termination of his employment. As to shares of Stock not so Purchasable by him, the Option shall terminate on that date. In the event of the termination of the employment of an Optionee from the Company or any Subsidiary, which termination is either (i) for cause or (ii) voluntary on the part of such person and without the written consent of the Company or such Subsidiary, any Option held by him, to the extent not theretofore exercised, shall immediately terminate and no longer be exercisable in whole or in part. Any change in the employment of an Optionee shall not affect that person's Options, so long as such person continues to be an employee of the Company or any Subsidiary. Subject to the foregoing, the Stock Option Agreement may contain such provisions as the Committee or Board shall approve regarding the effect of authorized leaves of absence. Nothing in the Plan or in any Option shall confer on any person any right to continue in the employ of the Company or any Subsidiary, or shall interfere in any way with the right of the Company or any Subsidiary to terminate his employment at any time.
6.8 Death of Holder of Option. In the event any Optionee dies while he is employed by the Company or any Subsidiary, or dies within three months (or such longer period not exceeding 27 months as shall be specified by the Committee or Board) after a termination of employment that is neither (a) for cause nor (b) voluntary on the part of such person and without the written consent of the Company or such Subsidiary, any Option held by him may be exercised (to the extent of the entire number of shares of Stock covered by the Option, whether or not Purchasable by the Optionee at the date of his death, unless the Optionee's termination preceded his death, in which case the Option shall be exercisable only to the extent of the number of shares that were Purchasable thereunder on the date of the Optionee's termination) by a legatee or legatees of such Option under the Optionee's will, or by his personal representatives or distributees, at any time after his death, but in no event after ten years (ten years plus one day in the case of Non-Qualifying Stock Options) from the date of the grant thereof, nor after 24 months (or such longer period not exceeding 48 months as shall be specified by the Committee or Board) subsequent to the death of such Optionee.
6.9 Certain Successor Options. To the extent not inconsistent with the terms, limitations and conditions of Section 422A of the Code and the Regulations thereunder, a Stock Option Agreement issued to a key employee in respect of an option held by such employee to acquire stock of any entity acquired, by merger or otherwise, by the Company, may contain terms that differ from those stated in this Article VI, but solely to the extent necessary to preserve for any such employee the rights and benefits contained in such predecessor option, or to satisfy the requirements of Section 425(a) of the Code and the Regulations thereunder.
ARTICLE VII
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for shares of Stock purchased upon the exercise of any Option or any portion thereof, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which the Stock is then listed;
(b) The completion of any registration or other qualification of such shares under any federal or state law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Committee or Board shall in its sole discretion deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any federal or state governmental agency which he Committee or Board shall in its sole discretion determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise of the Option as the Committee or Board from time to time may establish for reasons of administrative convenience.
ARTICLE VIII
TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
The Board may at any time, upon recommendation of the Committee and notwithstanding Section 2.3 hereof, terminate the Plan, and may at any time and from time to time and in any respect amend or modify the Plan; provided, however, that the Board, without approval of the shareholders of the Company, may not amend the Plan to:
(a) Increase the total number of shares of Stock subject to the Plan, except as contemplated in Section 5.2 hereof;
(b) Withdraw the administration of the Plan from the Committee;
(c) Change or modify the class of employees that may participate in the Plan; or
(d) Otherwise materially increase the benefits accruing to participants under the Plan.
No amendment of the Plan shall alter or impair any of the rights or obligations under any Option theretofore granted under the Plan without the consent of the Optionee.
To the extent specified at the time each Option hereunder is granted, such Options are intended to be Incentive Stock Options. The Committee or the Board may from time to time, if necessary, amend the Plan and with the consent of each Optionee, the Committee or the Board, in their discretion, may amend each Option, in each instance in order to comply with any law or regulation of the Internal Revenue Service pertaining to Incentive Stock Options.
ARTICLE IX
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option, incentive or other compensation plans in effect for the Company or any Subsidiary, nor shall the adoption of the Plan preclude the Company or any Subsidiary from establishing any other forms of incentive or other compensation plan for its employees.
ARTICLE X
MISCELLANEOUS
10.1 Plan Binding on Successors. The Plan shall be binding upon the successors and assigns of the Company.
10.2 Singular, Plural; Gender. Whenever used herein, nouns in the singular shall include the plural, and the masculine pronoun shall include the feminine gender.
10.3 Headings Not Part of Plan. Headings of articles and paragraphs hereof are inserted for convenience and reference, and they do not constitute a part of the Plan.
Exhibit 10.7
As Amended Through March 23, 1989
as Thereafter Amended
Through July 31, 1992
ELECTROMAGNETIC SCIENCES, INC.
1986 NON-QUALIFIED STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the meanings hereinafter set forth unless the context clearly indicates to the contrary:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the Stock Option Committee of the Board.
(c) "Company" shall mean Electromagnetic Sciences, Inc.
(d) "Disabled Employee" shall mean an employee of the Company or any of its Subsidiaries who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than twelve months.
(e) "Fair Market Value" shall mean the closing sales price, or the mean between the closing high "bid" and low "asked" prices, as the case may be, of the Stock in the over-the-counter market on the day on which such value is to be determined, as reported by the National Association of Securities Dealers Automated Quotation System or successor national quotation service. If the Stock is listed on a national securities exchange, "Fair Market Value" shall mean the closing sales price of the Stock on such national securities exchange on the day on which such value is to be determined, as reported in the composite quotations for securities traded on such exchange provided by the National Association of Securities Dealers or successor national quotation service. In the event no such quotations are available for the day in question, "Fair Market Value" shall be determined by reference to the appropriate prices on the next preceding day for which such prices are reported.
(f) "Option" shall mean an option to purchase Stock granted pursuant to the provisions of Article VI hereof.
(g) "Optionee" shall mean a person to whom an Option has been qranted hereunder.
(h) "Option Price" shall mean the price at which an Optionee may purchase a share of stock under a Stock Option Agreement.
(i) "Purchasable" shall refer to Stock which may be purchased by an Optionee under the terms of this Plan after a certain date specified in his Stock Option Agreement.
(j) "Stock" shall mean the $.10 par value common stock of the Company or, in the event that the outstanding shares of Stock are hereinafter changed into or exchanged for shares of a different stock or securities of the Company or some other corporation, such other stock or securities.
(k) "Stock Option Agreement" shall mean an agreement between the Company and the Optionee under which the Optionee may purchase Stock hereunder.
(l) "Subsidiary" shall mean any corporation, the majority of the outstanding voting stock of which is owned, directly or indirectly, by another entity.
ARTICLE II
THE PLAN
2.1 Name. This plan shall be known as the "Electromagnetic Sciences. Inc. 1986 Non-Qualified Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the Company, its Subsidiaries and its shareholders by affording certain officers and other key employees of the Company and its Subsidiaries an opportunity to acquire or increase their proprietary interests in the Company by granting such persons Options to purchase Stock in the Company. The Options will promote the growth and profitability of the Company and its Subsidiaries because the Optionees will be provided with an additional incentive to achieve the Company's objectives through participation in its success and growth and by encouraging their continued employment with the Company.
2.3 Effective Date; Termination Date. The effective date of the Plan is October 9, 1986. The Plan shall terminate, and no further Options shall be granted hereunder, on October 9, 1996.
ARTICLE III
PARTICIPANTS
Any "key employee," as determined by the Board or Committee, including executive personnel and department heads (as well as officers who are also directors), of the company or its Subsidiaries shall be eligible to participate in the Plan, provided that they are full-time employees of the Company or any of its Subsidiaries. Members of the Committee who otherwise qualify as key employees shall be eligible to participate.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of Committee. Subject to section 4.3 hereof, the Plan shall be administered by the Board, which may delegate such authority to the Committee. In administering the Plan, the Board's or Committee's actions and determinations shall be binding on all interested parties. Subject to the express provisions of the Plan, the Board or Committee shall have the sole discretion and authority to determine the eligible "key employees," those key employees to whom an Option will be granted, the time or times at which the Option may be exercised, the number of shares of Stock subject to the Option, and the terms and conditions of the Stock Option Agreement. Subject to the express provisions of the Plan, the Board and Committee shall also have complete authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable in the administration of the Plan, including, without limitation, the amending or altering of the Plan and any Option granted hereunder as may be required to comply with or to conform to any federal, state or local laws or regulations. The Board or Committee shall have the power to authorize the issuance of Stock in accordance with the provisions of the Plan. No member of the Board or the Committee shall be liable to any person for any determination made in good faith with respect to the Plan or any Option granted hereunder.
4.2 Committee Procedures. If delegated authority hereunder, the Committee may make such rules and regulations for the conduct of its business as it may deem necessary or appropriate. A majority of the members of the Committee shall constitute a quorum, and any action taken by a majority at a meeting at which a quorum is present or any action taken without a meeting evidenced by a writing executed by all the members of the Committee, shall constitute the action of the Committee. The Committee shall keep minutes of its meetings.
The Company shall supply full and timely information to the Committee on all matters relating to eligible persons, their employment, death, retirement, disability or other termination of employment, and such other pertinent facts as the Committee may require. The Company shall furnish the Committee with such clerical and other assistance as is necessary in the performance of its duties.
4.3 Director and Officer Options. A committee of the Board, consisting of two or more directors designated by the Board, shall have the sole authority and discretion to grant or modify, or to otherwise exercise powers of the Committee with respect to, Options to or held by employees who are directors of the Company, or are officers of the Company for the purposes of Section 16 of the Securities Exchange Act of 1934, as amended, provided that no director who is not a "disinterested person," for the purposes of Securities and Exchange Commission Rule 16b-3 or any applicable successor thereto, shall serve on such committee. References elsewhere in this plan to the Board, in the context of grants or modification of, or exercise of discretion with respect to, Options to or held by employees who are directors or such officers, shall be deemed to refer to such committee.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant to the provisions of Section 5.2 hereof, the maximum number of shares of Stock which may be issued and sold hereunder shall not exceed 150,000 shares. Shares subject to an Option may be either authorized and unissued shares or shares issued and later acquired by the Company; provided, however, that shares of Stock with respect to which an Option has been exercised shall not again be available for option hereunder. If outstanding Options granted hereunder shall terminate or expire for any reason without being wholly exercised prior to the end of the period during which Options may be granted hereunder, new Options may be granted hereunder covering the unexercised shares of the terminated or expired Options.
5.2 Antidilution. In the event that the outstanding shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of merger, consolidation, reorganization, recapitalization, reclassification, combination of shares, stock split up or stock dividend:
(a) The aggregate number and kind of shares of Stock on which Options may be granted hereunder shall be adjusted appropriately;
(b) The rights under outstanding Options granted hereunder, both as to the number of subject shares and the Option Price, shall be adjusted appropriately; and
(c) Where dissolution or liquidation of the Company or any merger or combination in which the Company is not a surviving corporation is involved, each outstanding Option granted hereunder shall terminate, but the Optionee shall have the right, immediately prior to such dissolution, liquidation, merger or combination, to exercise his Option, in whole or in part, to the extent that it shall not have been exercised, without regard to any installment exercise provisions, subject, however, to the limitations set forth in Article VI hereof.
The foregoing adjustments and the manner of application thereof shall be determined solely by the Board or Committee, and any such adjustment may provide for the elimination of fractional share interests. The adjustments required under this Article shall apply to any successor or successors of the Company and shall be made regardless of the number or type of successive events requiring adjustments hereunder.
ARTICLE VI
OPTIONS
6.1 Option Grant and Agreement. Each Option granted hereunder shall be evidenced by minutes of a meeting or the written consent of the Board or Committee, and by a written Stock Option Agreement dated as of the date of grant and executed by the Company and the Optionee. As to each grant hereunder, the terms of the Option, including the Option's duration, time or times of exercise, and exercise price, shall be stated in the Stock Option Agreement or incorporated therein by reference to the resolution or written consent of the Board or Committee setting the terms of the Option. The terms and conditions of the Option shall be consistent with the Plan.
6.2 Option Price. The Option Price of the Stock subject to each Option shall be determined by the Board or Committee. The Option Price shall not be less than 50% of the Fair Market Value of the Stock on the date the Option is granted.
6.3 Exercise Period. The period for the exercise of each Option shall be determined by the Board or Committee.
6.4 Option Exercise. Unless otherwise provided in the Stock Option Agreement, an Option shall be exercisable in full or in part at any time prior to expiration of the Option. The Board or Committee shall have the authority in its sole discretion to prescribe in any Stock Option Agreement that the Option may be exercised in installments during the term of the Option.
An Option may be exercised at any time or from time to time during the term of the Option as to any or all full shares which have become Purchasable under the provisions of the Option, but not at anytime as to less than 25 shares unless the remaining shares that have become so Purchasable are less than 25 shares. Option Price is to be paid in full in cash upon the exercise of the Option and the Company shall not be required to deliver certificates for such shares until such payment has been made; provided, however, that in lieu of cash all or any portion of the Option Price may be paid by tendering to the Company shares of Stock duly endorsed for transfer and owned by the Optionee, to be credited against the Option Price at their Fair Market Value on the date of exercise. The holder of an Option shall not have any of the rights of a stockholder with respect to the shares of Stock subject to the Option until such shares have been issued or transferred to him upon the exercise of his Option.
An Option shall be exercised by written notice of intent to exercise the Option with respect to a specified number of shares of Stock delivered to the Company at its principal office, and by payment in full to the Company in accordance with the preceding paragraph at said office of the Option Price for the number of shares of Stock with respect to which the Option is then being exercised. In addition to and at the time of payment of the Option Price, the Optionee shall pay to the Company in cash the full amount of any federal and state withholding or other employment taxes applicable to the taxable income of such Optionee resulting from such exercise provided, however, that in the discretion of the Board or Committee, any Stock Option Agreement may provide that all or any portion of such tax obligations, together with additional taxes not exceeding the actual additional taxes to be owed by the Optionee as a result of such exercise, may, upon the irrevocable election of the Optionee, be paid by tendering to the Company shares of Stock duly endorsed for transfer and owned by the Optionee, or by authorization to the Company to withhold shares of Stock otherwise issuable upon exercise of the Option, in either case in that number of shares having a Fair Market Value at the time of exercise equal to the amount of such taxes thereby being paid, and subject to such restrictions as to the approval and timing of any such election as the Board or Committee may from time to time determine to be necessary or appropriate to satisfy the conditions of the exemption set forth in Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
6.5 Nontransferability of Option. No Option shall be transferred by an Optionee otherwise than by will or the laws of descent and distribution. During the lifetime of an Optionee, his Option shall be exercisable only by him (or by his guardian or legal representative, should one be appointed).
6.6 Termination of Employment. The Board or the Committee shall have the power to specify, with respect to the Options granted to particular Optionees, the effect upon such Optionee's right to exercise an Option of termination of such Optionee's employment under various circumstances, which effect may include immediate or deferred termination of such Optionee's rights under an Option, or acceleration of the date after which an Option may be exercised in full.
ARTICLE VII
STOCK CERTIFICATES
The Company shall not be required to issue or deliver a certificate for shares of Stock purchased upon the exercise of any Option granted hereunder or any portion thereof, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which the Stock is then listed;
(b) The completion of any registration or other qualification of such shares under any federal or state law or under the rules or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Company upon the advice of counsel shall determine to be necessary or advisable;
(c) The obtaining of any approval or other clearance from any federal or state governmental agency which the Company upon the advice of counsel shall determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise of the Option as may be appropriate for reasons of administrative convenience.
ARTICLE VIII
TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
The Board may at any time terminate the Plan, and may at any time and from time to time and in any respect amend or modify the Plan; provided, however, that if the Plan is approved by the stockholders of the Company, the Board may not thereafter, without further stockholder approval, amend the Plan to:
(a) Increase the total number of shares of Stock subject to the Plan except as contemplated in Section 5.2 hereof;
(b) Change or modify the class of employees that may participate in the Plan; or
(c) Otherwise materially increase the benefits accruing to participants under the Plan.
No termination, amendment or modification of the Plan shall adversely affect any Option previously granted hereunder without the written consent of the Optionee or his guardian, legal representative or legatee.
ARTICLE IX
MISCELLANEOUS
9.1 Plan Binding on Successors. The Plan shall be binding upon the successors and assigns of the Company.
9.2 Singular, Plural; Gender. Whenever used herein, nouns in the singular shall include the plural, and the masculine pronoun shall include the feminine gender.
9.3 Headings, etc., No Part of Plan. Headings of articles and sections hereof are inserted for convenience and reference; they constitute no part of the Plan.
Exhibit 10.12
CONFIDENTIAL MEMORANDUM
and
2000 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
TO:
FROM: Alfred G. Hansen, CEO
SUBJECT: Stock Option Award
____________________________________________________________________________________
I am pleased that you have been selected by the Stock Incentive Plan Committee of the Board of Directors to receive an option for shares of the common stock of EMS Technologies, Inc. When signed by you and validated by the initials of the Company's Secretary, this Memorandum will be the Agreement evidencing your option.
Your option has the following terms:
Grant Date: | Total Shares: | ||
Expiration Date: | Exercise Price: | ||
First Date for Exercise: | |||
Your option is also subject to the other terms specified in the Terms of Stock Option, Form 2/16/00. This document is available on the EMS Intranet, News-Information, Incentive Stock Plan. At that site, you will also find the Plan, and in the near future the Prospectus that describes our options and outlines information, such as tax consequences, related to exercising your option. Atlanta and Ottawa users should use the link http://emstonline/infocentral/stockincentiveplan.htm and Montreal users should use the link http://141.186.3.134/infocentral/stockincentiveplan.htm.
This option grant was recommended by EMS management based on your current and potential contributions to our Company's overall success. It is a long-term incentive, and for this reason requires continued employment to become exercisable, and to remain exercisable for its full six-year life. It is our hope and goal that, as a result of our combined efforts over these six years, EMS stock will become worth substantially more than the exercise price. In this way, the option program allows top performers to share in the Company's long-term growth and success.
I would like to personally welcome you to EMS Technologies. Your valued contribution will ensure the continuous progress of EMS. These stock options allow you to share in the success of the company. I look forward to continuing our work together to achieve our mutual success.
***********************************************
I acknowledge and accept this Stock Option Agreement, including the
terms and conditions set forth in Terms of Stock Option, Form 2/16/00.
Validated
________
________________________________ ________________, 2001 Secretary
Signature
EMS TECHNOLOGIES, INC.
1997 STOCK INCENTIVE PLAN
TERMS OF OFFICER STOCK OPTION
FORM 1/25/01
THIS TERMS OF OFFICER STOCK OPTION sets forth certain terms of, and is included as part of, each Stock Option Agreement (the "Agreement") that specifically refers to this Form and that has been issued from time to time by EMS TECHNOLOGIES, INC., a Georgia corporation (hereinafter referred to as the "Corporation") to certain of its employees (herein, "Employee") who are also officers of the Corporation.
WITNESSETH
WHEREAS, the Board of Directors (the "Board") of the Corporation has adopted a stock incentive plan for the Corporation's and its subsidiary corporations' officers and employees, known as the "EMS Technologies, Inc. 2000 Stock Incentive Plan" (hereinafter referred to as the "Plan");
WHEREAS, the Compensation Committee (the "Committee") is authorized to grant to persons who are Officers (as defined in the Plan) options enabling them to purchase shares of the Corporation's common stock as allocated by the Committee;
WHEREAS, the Committee has determined that the Employee is eligible to participate in the Plan, and that it is in the best interests of the Corporation that the Employee, through such participation, be provided with additional incentive to achieve the Company's objectives; and
WHEREAS, as an employment incentive and to encourage stock ownership, the Committee has granted the Employee an option (the "Option") to purchase the number of shares of the Corporation's common stock set forth in the Agreement.
NOW, THEREFORE, the following terms are included and incorporated in the Agreement:
1.Incorporation of Plan. The Option has been granted pursuant to the provisions of the Plan, which has been provided or made available to the Employee, and the terms of and definitions set forth in the Plan are incorporated by reference into the Agreement and made a part thereof.
2.Grant of Option. Subject to the terms and conditions stated herein, the Agreement, when signed by the Employee and validated by the Corporation's Secretary, evidences the grant by the Corporation to the Employee, not in lieu of salary or other compensation, of the right and option, which is not an ISO, to purchase all or any part of an aggregate of the Number of Shares of the Corporation's $.10 par value common stock (the "Common Stock"), specified in the Agreement, beginning on the First Date for Exercise specified in the Agreement.
The Option shall expire and is not exercisable after 5:00 p.m., Atlanta time, on the Expiration Date specified in the Agreement (the "Expiration Date"), or such other date as determined pursuant to Section 8, 9 or 10.
Notwithstanding the beginning date or dates for exercise set forth in the second preceding paragraph, but subject to the provisions of the preceding paragraph with respect to expiration of the Option, the Option may be exercised as to all or any portion of the full number of shares subject thereto if: (a) a tender offer or exchange offer has been made for shares of the Common Stock, other than one made by the Corporation, provided that the corporation, person or other entity making such offer purchases or otherwise acquires shares of Common Stock pursuant to such offer; or (b) any person or group (as such terms are defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Act")), becomes the holder of 50% or more of the outstanding shares of Common Stock. If either of the events specified in this paragraph has occurred, the Option shall be fully exercisable: (x) in the event of (a) above, during the period commencing on the date the tender offer or exchange offer is commenced and ending on the date such offer expires and is not extended; or (y) in the event of (b) above, during the 30-day period commencing on the date upon which the Corporation is provided a copy of a Schedule 13D or amendment thereto, filed pursuant to Section 13(d) of the Act and the rules and regulations promulgated thereunder, indicating that any person or group has become the holder of 50% or more of the outstanding shares of Common Stock. In the case of (a) above, if the corporation, person or other entity making the offer does not purchase or otherwise acquire shares of Common Stock pursuant to such offer, then the Employee's right under this paragraph to exercise the Option shall terminate, the Employee and the Corporation shall rescind any exercise of the Option pursuant to this paragraph, and the Option shall be reinstated as if such exercise had not occurred.
3.Purchase Price. The price per share to be paid by the Employee for the shares subject to the Option shall be the Exercise Price specified in the Agreement.
4.Exercise Terms. Beginning on the date or dates specified in, and prior to the expiration of the Option as provided in, Section 2, the Employee may exercise the Option as to all such number of shares, or as to any part thereof, at any time and from time to time during the remaining term of the Option; provided that the Employee must exercise the Option for at least the lesser of 100 shares or the unexercised portion of the Option. In the event the Option is not exercised with respect to all or any part of the shares subject to the Option prior to its expiration, the shares with respect to which the Option was not exercised shall no longer be subject to this Option.
5.Option Non-Transferable. The Option and all rights thereunder are neither assignable nor transferable by the Employee otherwise than by will or under the laws of descent and distribution, or pursuant to a Qualified Domestic Relations Order, and during the Employee's lifetime the Option is exercisable only by him or her (or by his or her guardian or legal representative, should one be appointed, or qualified transferee). More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as aforesaid), pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof shall be null and void and without legal effect.
6.Notice of Exercise of Option. The Option may be exercised by the Employee, or by his or her administrator, executor, personal representative or qualified transferee, by a written notice (in substantially the form of the "Notice of Exercise" attached hereto as Annex A) signed by the Employee, or by such administrator, executor, personal representative or qualified transferee, and delivered or mailed to the Corporation at its principal office in Norcross, Georgia, to the attention of the President, Treasurer or such other officer as the Corporation may designate. Any such notice shall (a) specify the number of shares of Common Stock which the Employee or such administrator, executor, personal representative or qualified transferee, as the case may be, then elects to purchase hereunder, and (b) be accompanied by (i) a certified or cashier's check payable to the Corporation, or personal check acceptable to the Corporation, in payment of the total price applicable to such shares as provided herein, or (ii) (subject to any restrictions referred to in Annex A) shares of Common Stock, owned by him or her and duly endorsed or accompanied by stock transfer powers, or in lieu thereof, the form of Attestation of Share Ownership attached as Annex B executed with respect to the number of such shares, having a Fair Market Value equal to the total purchase price applicable to the shares purchased hereunder, or (iii) such a check, and the number of such shares (or attestation with respect thereto) whose Fair Market Value when added to the amount of the check equals the total purchase price applicable to such shares purchased under the Option. Such notice shall also be accompanied by such a check or shares of Common Stock in payment of applicable withholding and employment taxes, or the person exercising this Option shall authorize (by use of Annex B or otherwise) the withholding of shares of Common Stock otherwise issuable under this Option in payment of such taxes, all as set forth on Annex A and subject to any restrictions referred to therein. Upon receipt of any such notice and accompanying payment, and subject to the terms hereof, the Corporation agrees to cause to be issued to the Employee or to such administrator, executor, personal representative or qualified transferee, as the case may be, stock certificates for the number of shares specified in such notice registered in the name of the person exercising the Option.
7.Adjustment in Option. If, between the Date of Grant specified in the Agreement and prior to the complete exercise of the Option, there shall be a change in the outstanding Common Stock by reason of one or more stock splits, stock dividends, combinations or exchanges of shares, recapitalizations or similar capital adjustments, then the number, kind and purchase price of the shares remaining subject to the Option shall be equitably adjusted in accordance with the terms of the Plan, so that the proportionate interest in the Corporation represented by the shares then subject to the Option shall be the same as before the occurrence of such event.
8.Termination of Employment. Except as set forth in Section 10, if the Employee ceases to be employed as an employee of the Corporation or any of its Subsidiaries (such event being hereinafter referred to as a "Termination" and such corporation that employs the Employee from time to time as the "Employer"), before the First Date for Exercise set forth in the Agreement, then the Option shall forthwith terminate on the date of Termination and shall not thereafter be or become exercisable.
In the event of a Termination after the First Date for Exercise set forth in the Agreement, which Termination is (i) voluntary on the part of the Employee and with the written consent of the Employer, (ii) involuntary and without cause, or (iii) the result of retirement at the normal retirement date, as prescribed from time to time by the Employer, or at an earlier date expressly approved by the Employer as an early retirement date for the Employee, the Employee may exercise the Option at any time within a period ending at the earlier of the Expiration Date or 5:00 p.m., Atlanta time, on the third anniversary of such Termination, to the extent of the number of shares that were purchasable thereunder at the date of Termination.
In the event of a Termination that is either (i) for cause or (ii) voluntary on the part of the Employee and not described in the preceding paragraph, the Option, to the extent not theretofore exercised, shall forthwith terminate and shall not thereafter be or become exercisable.
The Option does not confer upon the Employee any right with respect to continuance of employment by the Corporation or any of its Subsidiaries. The Option shall not be affected by any change of employment, so long as the Employee continues to be an employee of the Corporation or any such Subsidiary. In the event the Employer is not the Corporation, and such Employer ceases to be the Corporation's Subsidiary, as a result of a sale of stock or assets or other change of corporate status, then in the discretion of the Committee (but subject to Section 5.2 of the Plan regarding certain transactions affecting the Corporation) either: (i) the Option shall remain in effect as if such sale or other change of status had not occurred, for so long as Employee shall remain an employee of the corporation that previously was such Subsidiary, or of any successor or subsequent Parent of such corporation, or of any Subsidiary of either such corporation or any such Parent or successor; or (ii) concurrent with such sale or change of status, the Corporation shall redeem the Option at a price equal to the number of shares then subject thereto (whether or not then purchasable) multiplied by the excess (if any) of the then Fair Market Value of each such share over the purchase price per share specified in Section 3 (as adjusted pursuant to Section 7).
9.Disabled Employee. In the event of a Termination because the Employee becomes disabled, the Employee (or his or her personal representative) may exercise the Option at any time within a period ending at the earlier of the Expiration Date or 5:00 p.m., Atlanta time, on the first anniversary of such Termination, to the extent of the number of shares that were purchasable thereunder at the date of Termination.
For the purposes of the foregoing paragraph the Employee shall be considered "disabled" if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to last for a continuous period of not less than twelve months.
10.Death of Employee. In the event of the Employee's death while employed by the Corporation or any of its Subsidiaries, or during a period in which the Employee may exercise the Option notwithstanding an earlier Termination, the persons described in Section 6 may exercise the Option at any time within a period ending at the earlier of (i) 5:00 p.m., Atlanta time, on the third anniversary of the Employee's death, or (ii) the Expiration Date, but in any event ending not earlier than 5:00 p.m., Atlanta time, on the first anniversary of the Employee's death. If the Employee was an employee of the Corporation or one of its Subsidiaries at the time of the Employee's death, the Option may be so exercised to the extent of the full number of shares subject thereto. If a Termination occurred prior to Employee's death, the Option may be so exercised only to the extent of the number of shares that were purchasable hereunder at the date of Termination.
11.Competitive Activities. The Option is subject to Section 9.2 of the Plan, which provides that if the Employee provides services to a competitor of the Corporation or any of its Subsidiaries, whether as an employee, officer, director, independent contractor, consultant, agent or otherwise, such services being of a nature that can reasonably be expected to involve the skills and experience used or developed by the Employee while an employee of the Corporation or any such Subsidiary, then the Employee's rights under the Option shall thereupon be forfeited and terminated, subject to a determination to the contrary by the Committee.
12.Binding Agreement. The Agreement, including the terms and condition set forth in this Terms of Stock Option, shall be binding upon the parties hereto and their representatives, successors and assigns.
ANNEX A
EMS TECHNOLOGIES, INC.
1997 STOCK INCENTIVE PLAN
Notice of Exercise
of Stock Option
The undersigned hereby notifies EMS Technologies, Inc. (the "Corporation") of his or her election to exercise an option to purchase ____________ shares of the Corporation's common stock, $.10 par value (the "Common Stock"), pursuant to that Stock Option Agreement (the "Agreement") between ________________________ (the "Employee") and the Corporation dated ____________________, 200__. Accompanying this Notice is (1) a certified or a cashier's check (or other check acceptable to the Corporation) in the amount of $_______________ payable to the Corporation and/or (2) (subject to such restrictions as may be determined to be necessary or appropriate to avoid earnings charges or other adverse consequences to the Corporation under applicable accounting or tax rules or regulations) _______________ shares of the Common Stock presently owned by the undersigned and duly endorsed or accompanied by stock transfer powers, or in lieu thereof, the form of Attestation of Share Ownership attached as Annex B to the Terms of Officer Stock Option referenced in the Agreement, executed with respect to the number of such shares having an aggregate Fair Market Value (as defined in the EMS Technologies, Inc. 1997 Stock Incentive Plan (the "Plan")) as of the date hereof of $_______________, such amounts being equal, in the aggregate, to the purchase price per share set forth in the Agreement multiplied by the number of shares being hereby purchased (in each instance subject to appropriate adjustment pursuant to Section 7 of such Terms of Officer Stock Option).
Also accompanying this Notice is my check in the amount of $_______________, in payment of federal and state income withholding and employment taxes applicable to this exercise. The amount of such payment is based on advice received from appropriate officials of the Corporation responsible for the administration of its payroll and employment tax obligations. Alternatively, or in addition, and subject to such restrictions as may be determined in the discretion of the Corporation to be necessary or appropriate to comply with Rule 16b-3 under the Securities Exchange Act of 1934, or to avoid earnings charges or other adverse consequences to the Corporation under applicable accounting or tax rules or regulations, in full or partial payment of such taxes:
(1) I deliver herewith an additional _______________ shares of the Common Stock (or the form of Attestation of Share Ownership with respect thereto) presently owned by me, having an aggregate Fair Market Value as of the date hereof of $_______________; and/or
(2) I hereby authorize the Corporation to withhold, from the shares of Common stock otherwise issuable to me pursuant to this exercise,_______________ such shares having an aggregate Fair Market Value at the date hereof of $_______________.
The sum of (i) any such check plus (ii) the Fair Market Value at the date hereof of any shares of Common Stock specified in the foregoing clauses (1) and (2) is not less than the amount of federal and state withholding and employment taxes applicable to this exercise, and is not greater than the total of all federal and state income and employment taxes to be owed by me as a result of such exercise.
IN WITNESS WHEREOF, the undersigned has set his or her hand and seal, this day of, 20___.
EMPLOYEE OR HIS OR HER ADMINISTRATOR,
EXECUTOR, PERSONAL REPRESENTATIVE OR
QUALIFIED TRANSFEREE
____________________________________
ANNEX B
EMS TECHNOLOGIES, INC.
1997 Stock Incentive Plan
Attestation of Share Ownership
Pursuant to the Notice of Exercise submitted herewith, I have elected to purchase _______________ shares of the common stock of EMS Technologies, Inc. (the "Company"), pursuant to the Stock Option Agreement dated ____________ (the "Option"), at an aggregate exercise price of $___________ (the "Option Price"). I hereby attest to ownership of the shares specified below (the "Shares") and hereby tender the Shares in payment of (i) $__________ of the Option Price, and (ii) $___________ of withholding and related taxes due upon exercise of the Option, in each case based on their Fair Market Value on the date hereof (as determined under the Plan) of $___________ per share).
I certify that I have held the Shares that I am tendering (i) for at least one year after acquiring such Shares through the exercise of an Incentive Stock Option, and (ii) for at least six months after acquiring such Shares in any other manner.
Although the Company has not required me to make actual delivery of certificates evidencing the Shares, as a result of which I (and the co-owner, if any of the Shares) will retain ownership of such Shares, I represent that I, with the consent and agreement of the co-owner (if any) of the Shares, have full power to deliver and convey such certificates to the Company, and therefore could have caused the Company to become sole owner of such Shares. The co-owner of the Shares, by signing this form, consents to these representations and the exercise of the Option by this notice.
Common Stock Certificate(s) No. or Brokerage Account | Number of Shares Represented | Number of Shares Subject to this Attestation |
|
|
|
|
|
|
You are hereby instructed to apply towards the Option Price: (check one)
“ The maximum number of whole shares necessary to pay the Option Price and specified taxes, or, if fewer, the total number of listed Shares, with any remaining amount to be paid by check accompanying the Notice of Exercise.
“ ___________ of the listed Shares with the remaining amount to be paid by check accompanying the Notice of Exercise.
In each case, the balance of the Shares for which the Option is being exercised will be issued as specified in the Notice of Exercise.
__________________________________
Name
_______________________ __________________________________
Date Signature
__________________________________
Co-Owner's Name (if any)
________________________ __________________________________
Date Co-Owner's Signature
Exhibit 10.16
ELECTROMAGNETIC SCIENCES, INC.
1992 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, entered into as of the 15th day of May, 1995 (the "Date of Grant"), by and between ELECTROMAGNETIC SCIENCES, INC., a Georgia corporation (hereinafter referred to as the "Corporation"), and John J. Farrell, Jr. (hereinafter referred to as the "Employee").
W I T N E S S E T H
WHEREAS, the Board of Directors (the "Board") of the Corporation has adopted a stock incentive plan for the Corporation's and its subsidiary corporations' officers and employees, known as the "Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan" (hereinafter referred to as the "Plan");
WHEREAS, the Plan and the Board have authorized the Compensation Committee of the Board (hereinafter referred to as the "Committee") to grant to persons who are Officers (as defined in the Plan) stock options enabling them to purchase the number of shares of the Corporation's common stock allocated to them by the Committee;
WHEREAS, the Committee has determined that the Employee is eligible to participate in the Plan, and that it is in the best interests of the Corporation that the Employee, through such participation, be provided with additional incentive to achieve the Company's objectives; and
WHEREAS, the Committee has accordingly granted the Employee an option to purchase the number of shares of the Corporation's common stock as hereinafter set forth, and the Corporation and the Employee desire to enter into a written agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock ownership and in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1. Incorporation of Plan. This option is granted pursuant to the provisions of the Plan, and the terms of and definitions set forth in the Plan are incorporated by reference into this Stock Option Agreement and made a part hereof. A copy of the Plan has been delivered to, and receipt is hereby acknowledged by, the Employee.
2. Grant of Option. Subject to the terms, restrictions, limitations and conditions stated herein, the Corporation hereby evidences its grant to the Employee, not in lieu of salary or other compensation, of the right and option (hereinafter referred to as the "Option"), which is not an ISO, to purchase all or any part of an aggregate of twenty thousand (20,000) shares of the Corporation's $.10 par value common stock (the "Common Stock"), this Option becoming exercisable and such shares becoming first purchasable as follows:
As to Date First
Number of | Purchasable | ||||
Shares | |||||
5,000 | May 15, 1998 | ||||
5,000 | May 15, 1999 | ||||
5,000 | May 15, 2000 | ||||
5,000 | May 15, 2001 | ||||
The Option shall expire and is not exercisable after 5:00 p.m., Atlanta time, on May 15, 2004, (the "Expiration Date"), or such other date as determined pursuant to Section 8, 9 or 10.
Notwithstanding the beginning date or dates for exercise set forth in the preceding paragraph, but subject to the provisions of such preceding paragraph with respect to expiration of this Option, this Option may be exercised as to all or any portion of the full number of shares subject thereto if: (a) a tender offer or exchange offer has been made for shares of the Common Stock, other than one made by the Corporation, provided that the corporation, person or other entity making such offer purchases or otherwise acquires shares of Common Stock pursuant to such offer; or (b) any person or group (as such terms are defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Act")), becomes the holder of 50% or more of the outstanding shares of Common Stock. If either of the events specified in this paragraph has occurred, the Option shall be fully exercisable: (x) in the event of (a) above, during the period commencing on the date the tender offer or exchange offer is commenced and ending on the date such offer expires and is not extended; or (y) in the event of (b) above, during the 30-day period commencing on the date upon which the Corporation is provided a copy of a Schedule 13D or amendment thereto, filed pursuant to Section 13(d) of the Act and the rules and regulations promulgated thereunder, indicating that any person or group has become the holder of 50% or more of the outstanding shares of Common Stock. In the case of (a) above, if the corporation, person or other entity making the offer does not purchase or otherwise acquire shares of Common Stock pursuant to such offer, then the Employee's right under this paragraph to exercise this Option shall terminate, the Employee and the Corporation shall rescind any exercise of this Option pursuant to this paragraph, and this Option shall be reinstated as if such exercise had not occurred.
3. Purchase Price. The price per share to be paid by the Employee for the shares subject to this Option shall be Thirteen and no/100 dollars ($13.00).
4. Exercise Terms. Beginning on the date or dates specified in, and prior to the expiration of this Option as provided in, Section 2, the Employee may exercise this Option as to all such number of shares, or as to any part thereof, at any time and from time to time during the remaining term of this Option; provided that the Employee must exercise this Option for at least the lesser of 100 shares or the unexercised portion of the Option. In the event this Option is not exercised with respect to all or any part of the shares subject to this Option prior to its expiration, the shares with respect to which this Option was not exercised shall no longer be subject to this Option.
5. Option Non-Transferable. This Option and all rights hereunder are neither assignable nor transferable by the Employee otherwise than by will or under the laws of descent and distribution, or pursuant to a Qualified Domestic Relations Order, and during the Employee's lifetime this Option is exercisable only by him or her (or by his or her guardian or legal representative, should one be appointed, or qualified transferee). More particularly (but without limiting the generality of the foregoing), this Option may not be assigned, transferred (except as aforesaid), pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of this Option contrary to the provisions hereof shall be null and void and without legal effect.
6. Notice of Exercise of Option. This Option may be exercised by the Employee, or by his administrator, executor, personal representative or qualified transferee, by a written notice (in substantially the form of the "Notice of Exercise" attached hereto as Exhibit A) signed by the Employee, or by such administrator, executor, personal representative or qualified transferee, and delivered or mailed to the Corporation at its principal office in Norcross, Georgia, to the attention of the President, Treasurer or such other officer as the Corporation may designate. Any such notice shall (a) specify the number of shares of Common Stock which the Employee or such administrator, executor, personal representative or qualified transferee, as the case may be, then elects to purchase hereunder, and (b) be accompanied by (i) a certified or cashier's check payable to the Corporation, or personal check acceptable to the Corporation, in payment of the total price applicable to such shares as provided herein, or (ii) (subject to any restrictions referred to in Exhibit A) shares of Common Stock, owned by him or her and duly endorsed or accompanied by stock transfer powers, having a Fair Market Value equal to the total purchase price applicable to such shares purchased hereunder, or (iii) such a check, and the number of such shares whose fair market value when added to the amount of the check equals the total purchase price applicable to such shares purchased hereunder. Such notice shall also be accompanied by the Employee's check or shares of Common Stock in payment of applicable withholding and employment taxes, or Employee shall authorize the withholding of shares of Common Stock otherwise issuable under this Option in payment of such taxes, all as set forth on Exhibit A and subject to any restrictions referred to therein. Upon receipt of any such notice and accompanying payment, and subject to the terms hereof, the Corporation agrees to cause to be issued to the Employee or to such administrator, executor, personal representative or qualified transferee, as the case may be, stock certificates for the number of shares specified in such notice registered in the name of the person exercising this Option.
7. Adjustment in Option. If, between the Date of Grant of this Option and prior to the complete exercise thereof, there shall be a change in the outstanding Common Stock by reason of one or more stock splits, stock dividends, combinations or exchanges of shares, recapitalizations or similar capital adjustments, then the number, kind and option price of the shares remaining subject to this Option shall be equitably adjusted in accordance with the terms of the Plan, so that the proportionate interest in the Corporation represented by the shares then subject to the Option shall be the same as before the occurrence of such event.
8. Termination of Employment. Except as set forth in Section 10, if the Employee ceases to be employed as an employee of the Corporation, any Parent or any of its Parent's Subsidiaries (such event being hereinafter referred to as a "Termination" and such corporation that employs the Employee from time to time as the "Employer"), before the earliest date for exercise of this Option set forth in Section 2, then this Option shall forthwith terminate on the date of Termination and shall not thereafter be or become exercisable.
In the event of a Termination after the earliest date for exercise set forth in Section 2, which Termination is either (i) voluntary on the part of the Employee and with the written consent of the Employer, (ii) involuntary and without cause, or (iii) the result of retirement at the normal retirement date, as prescribed from time to time by the Employer, or at an earlier date expressly approved by the Employer as an early retirement date for the Employee, the Employee may exercise this Option at any time within a period ending at the earlier of the Expiration Date or 5:00 p.m., Atlanta time, on the third anniversary of such Termination, to the extent of the number of shares that were purchasable hereunder at the date of Termination.
In the event of a Termination that is either (i) for cause or (ii) voluntary on the part of the Employee and not described in the preceding paragraph, this Option, to the extent not theretofore exercised, shall forthwith terminate and shall not thereafter be or become exercisable.
This Option does not confer upon the Employee any right with respect to continuance of employment by the Corporation, any Parent or any of the Corporation's or its Parent's Subsidiaries. This Option shall not be affected by any change of employment so long as the Employee continues to be an employee of the corporation, any Parent or any such Subsidiary. In the event the Employer is not the Corporation, and such Employer ceases to be the Corporation's Parent, or the Corporation's or its Parent's Subsidiary, as a result of a sale of stock or assets or other change of corporate status, then in the discretion of the Committee (but subject to Section 5.2 of the Plan regarding certain transactions affecting the Corporation) either: (i) this Option shall remain in effect as if such sale of other change of status had not occurred, for so long as Employee shall remain an employee of the corporation that previously was such Parent or Subsidiary, or of any successor or subsequent Parent of such corporation, or of any Subsidiary of either such corporation or any such Parent or successor; or (ii) concurrent with such sale or other change of status, the Corporation shall redeem this Option at a price equal to the number of shares then subject hereto (whether or not then purchasable) multiplied by the excess (if any) of the then Fair Market Value of each such share over the purchase price per share specified in Section 3 (as adjusted pursuant to Section 7).
9. Disabled Employee. In the event of a Termination because the Employee becomes disabled, the Employee (or his personal representative) may exercise this Option at any time within a period ending at the earlier of the Expiration Date or 5:00 p.m., Atlanta time, on the first anniversary of such Termination, to the extent of the number of shares that were purchasable hereunder at the date of Termination.
For the purposes of this Agreement, the Employee shall be considered "disabled" if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to last for a continuous period of not less than twelve months.
10. Death of Employee. In the event of the Employee's death while employed by the Corporation, any Parent or any of its Subsidiaries, or during a period in which the Employee may exercise this Option notwithstanding an earlier Termination, the persons described in Section 6 may exercise this Option at any time within a period ending at the earlier of (i) 5:00 p.m., Atlanta time, on the third anniversary of the Employee's death, or (ii) the Expiration Date, but in any event ending not earlier than 5:00 p.m., Atlanta time, on the first anniversary of the Employee's death. If the Employee was an employee of the Corporation, any Parent or one of its Subsidiaries at the time of the Employee's death, this Option may be so exercised to the extent of the full number of shares covered by the Option. If a Termination occurred prior to Employee's death, this Option may be so exercised only to the extent of the number of shares that were purchasable hereunder at the date of Termination.
11. Binding Agreement. This Agreement shall be binding upon the parties hereto and their representatives, successors and assigns.
IN WITNESS WHEREOF, the Compensation Committee of the Board of Directors of the Corporation has caused this Stock Option Agreement to be executed on behalf of the Corporation and the Corporation's seal to be affixed hereto and attested by the Secretary of the Corporation, and the Employee has executed this Agreement under his seal, all as of the day and year first above written.
ELECTROMAGNETIC SCIENCES, INC.
[CORPORATE SEAL]
ATTEST: | By: | /s/ | Thomas E. Sharon |
Chief Executive Officer | |||
/s/ | William Jacobs | ||
Secretary | |||
/s/ | John J. Farrell, Jr. | ||
Employee |
EXHIBIT A
ELECTROMAGNETIC SCIENCES, INC.
1992 STOCK INCENTIVE PLAN
NOTICE OF EXERCISE
OF STOCK OPTION
The undersigned hereby notifies Electromagnetic Sciences, Inc. (the "Corporation") of his or her election to exercise an option to purchase _________ shares of the Corporation's common stock, $.10 par value (the "Common Stock"), pursuant to that Stock Option Agreement (the "Agreement") between _____________ (the "Employee") and the Corporation dated ______________. Accompanying this Notice is (1) a certified or a cashier's check (or other check acceptable to the Corporation) in the amount of $________ payable to the Corporation and/or (2) (subject to such restrictions as may be determined to be necessary or appropriate to avoid earnings charges or other adverse consequences to the Corporation under applicable accounting or tax rules or regulations) ________ shares of the Common Stock presently owned by the undersigned and duly endorsed or accompanied by stock transfer powers, having an aggregate Fair Market Value (as defined in the Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan (the "Plan")) as of the date hereof of $_______ , such amounts being equal, in the aggregate, to the purchase price per share set forth in Section 3 of the Agreement multiplied by the number of shares being hereby purchased (in each instance subject to appropriate adjustment pursuant to Section 7 of the Agreement).
Also accompanying this Notice is my check in the amount of $__________ , in payment of federal and state income withholding and employment taxes applicable to this exercise. The amount of such payment is based on advice received from appropriate officials of the Corporation responsible for the administration of its payroll and employment tax obligations. Alternatively, or in addition, and subject to such restrictions as may be determined to be necessary or appropriate to comply with Rule 16b-3 under the Securities Exchange Act of 1934, or to avoid earnings charges or other adverse consequences to the Corporation under applicable accounting or tax rules or regulations, in full or partial payment of such taxes:
(1) I deliver herewith an additional ________ shares of the Common Stock presently owned by me, having an aggregate Fair Market Value as of the date hereof of $ _________ ; and/or
(2) I hereby authorize the Corporation to withhold, from the shares of Common stock otherwise issuable to me pursuant to this exercise, ______ such shares having an aggregate Fair Market Value at the date hereof of $_________.
The sum of (i) any such check plus (ii) the Fair Market Value at the date hereof of any shares of Common Stock specified in the foregoing clauses (1) and (2) is not less than the amount of federal and state withholding and employment taxes applicable to this exercise, and is not greater than the total of all federal and state income and employment taxes to be owed by me as a result of such exercise.
IN WITNESS WHEREOF, the undersigned has set his or her hand and seal, this ____day of __________, 19__.
EMPLOYEE OR HIS OR HER ADMINISTRATOR,
EXECUTOR, PERSONAL REPRESENTATIVE OR
QUALIFIED TRANSFEREE
Exhibit 10.17
Outside Directors 4/24/92
ELECTROMAGNETIC SCIENCES, INC.
1992 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, entered into as of the __ th day of _______ , 199_ (the "Date of Grant"), by and between Electromagnetic Sciences, Inc., a Georgia corporation (hereinafter referred to as the "Corporation"), and ______________ (hereinafter referred to as the "Director").
W I T N E S S E T H
WHEREAS, the Board of Directors (the "Board") of the Corporation has adopted a stock incentive plan for directors, officers and employees of the Corporation or its subsidiary corporations, which Plan, as amended, is known as the "Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan" (hereinafter referred to as the "Plan");
WHEREAS, on the Date of Grant the Director has been elected to serve as a member of the Board, to whom the Corporation's success is closely tied, and has agreed to so serve; and
WHEREAS, the Plan provides for the automatic one-time grant, to each director who is not an employee of the Company or of any parent or subsidiary of the Company, of a stock option to purchase shares of the Corporation's common stock as hereinafter set forth, and the Corporation and the Director desire to enter into a written agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an incentive and to encourage stock ownership, and in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1. Incorporation of Plan. This option is granted pursuant to the provisions of the Plan and the terms and definitions of the Plan, as it may be amended from time to time, are incorporated herein by reference in this Stock Option Agreement and made a part hereof. A copy of the Plan has been delivered to, and receipt is hereby acknowledged by, the Director.
2. Grant of Option. Subject to the terms, restrictions, limitations and conditions stated herein, the Corporation hereby evidences its grant to the Director of the right and option (hereinafter referred to as the "Option") to purchase all or any part of an aggregate of Ten Thousand (10,000) shares of the Corporations's $.10 par value common stock (the "Common Stock") beginning as follows:
First Date | Number of | |||
Exercisable | Shares | |||
_______, 199_ | 2,000 | |||
_______, 199_ | 2,000 | |||
_______, 199_ | 2,000 | |||
_______, 199_ | 2,000 | |||
_______, 199_ | 2,000 | |||
This option is not an incentive stock option as defined and contemplated in Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
Notwithstanding the beginning date or dates for exercise set forth in the preceding paragraph of this Section, but subject to the provisions of such paragraph with respect to expiration of this Option, this Option may be exercised as to all or any portion of the full number of shares subject thereto if the Corporation is registered under the Securities Exchange Act of 1934, as amended (the "Act"), and either (a) a tender offer or exchange offer has been made for shares of the Common Stock, other than one made by the Corporation, provided that the corporation, person or other entity making such offer purchases or otherwise acquires shares of Common Stock pursuant to such offer, or (b) any person or group (as such terms are defined in Section 13(d)(3) of the Act), becomes the holder of 50% or more of the outstanding shares of Common Stock. If either of the events specified in this paragraph have occurred, this Option shall be fully exercisable: (x) in the event of (a) above, during the period commencing on the date the tender offer or exchange offer is commenced and ending on the date such offer expires and is not extended; or (y) in the event of (b) above, during the 30 day period commencing on the date upon which the Corporation is provided a copy of a Schedule 13D of amendment thereto filed pursuant to Section 13(d) of the Act and the rules and regulations promulgated thereunder, indicating that any person or group has become the holder of 50% or more of the outstanding shares of Common Stock. In the case of (a) above, if the corporation, person or other entity making the offer does not purchase or otherwise acquire shares of Common Stock pursuant to such offer, then the Director's right under this paragraph to exercise this Option shall terminate, the Director and the Corporation shall rescind any exercise of this Option pursuant to this paragraph, and this Option shall be reinstated as if such exercise had not occurred.
3. Purchase Price. The price per share to be paid by the Director for the shares subject to this Option shall be _____ and __/100 Dollars ($ ).
4. Exercise Terms. Beginning on the dates specified above, and prior to the expiration of this Option as provided in Section 2 hereof, the Director may exercise this Option as to all such number of shares, or as to any part thereof, at any time and from time to time during the remaining term of this Option; provided that the Director must exercise this Option for at least the lesser of 100 shares or the unexercised portion of this Option. In the event this Option is not exercised with respect to all or any part of the shares subject to this Option prior to its expiration, the shares with respect to which this Option was not exercised shall no longer be subject to this Option.
5. Option Non-Transferable. This Option and all rights hereunder are neither assignable nor transferable by the Director otherwise than by will or under the laws of descent and distribution, or pursuant to a Qualified Domestic Relations Order, and during the Director's lifetime this Option is exercisable only by him (or by his guardian or legal representative, should one be appointed, or qualified transferee). More particularly (but without limiting the generality of the foregoing), this Option may not be assigned, transferred (except as aforesaid), pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of this Option contrary to the provisions hereof shall be null and void and without legal effect.
6. Notice of Exercise of Option. This Option may be exercised by the Director, or by his administrator, executor, personal representative or qualified transferee, by a written notice (in substantially the form of the "Notice of Exercise" attached hereto as Exhibit A) signed by the Director, or by such administrator, executor, personal representative or qualified transferee, and delivered to the Corporation at its principal office in Norcross, Georgia, to the attention of the Chief Executive Officer, Treasurer or such other officer as the Corporation may designate. Any such notice shall (a) specify the number of shares of Common Stock which the Director or such administrator, executor, personal representative or qualified transferee, as the case may be, then elects to purchase hereunder, and (b) be accompanied by (I) a certified or cashier's check payable to the Corporation, or personal check acceptable to the Corporation, in payment of the total price applicable to such shares as provided herein, or (ii) (subject to any restrictions referred to in Exhibit A) shares of Common Stock, owned by him or her and-duly endorsed or accompanied by stock transfer powers, having a Fair Market Value equal to the total purchase price applicable to such shares purchased hereunder, or (iii) such a check, and the number of such shares who Fair Market Value when added to the amount of the check equals the total purchase price applicable to such shares purchased hereunder. Such notice shall also be accompanied by such a check or shares of Common Stock in payment of applicable withholding and employment taxes, or the person exercising this Option shall authorize the withholding of shares of Common Stock otherwise issuable under this Option in payment of such taxes, all as set forth on Exhibit A and subject to any restrictions referred to therein. Upon receipt of any such notice and accompanying payments, and subject to the terms hereof, the Corporation agrees to cause to be issued to the Director or to his administrator, executor, personal representative or qualified transferee, as the case may be, stock certificates for the number of shares specified in such notice registered in the name of the person exercising this Option.
7. Adjustment in Option. If prior to the complete exercise of this Option, there shall be a change in the outstanding Common Stock by reason of one or more stock splits, stock dividends, combinations or exchanges of shares, recapitalizations or similar capital adjustments, the number, kind and option price of the shares remaining subject to this Option shall be equitably adjusted in accordance with the terms of the Plan, so that the proportionate interest in the Corporation represented by the shares then subject to the Option shall be the same as before the occurrence of such event.
8. Termination as a Director. If the Director for any reason ceases to be a member of the Board of Directors of the Corporation (such event being hereinafter referred to as a "Termination"), then:
(a) To the extent this option shall have become exercisable on or prior to the date of Termination, it shall remain exercisable until the Expiration Date; and
(b) Any portion of this Option that had not become exercisable on or prior to the date of Termination shall immediately terminate and shall not thereafter become exercisable.
This Option does not confer upon the Director any right with respect to continuance as a member of the Board of Directors of the Corporation.
9. Binding Agreement. This Agreement shall be binding upon the parties hereto and their representatives, successors and assigns.
IN WITNESS WHEREOF, the Corporation has caused this Stock Option Agreement to be executed on behalf of the Corporation and the Corporation's seal to be affixed hereto and attested by the Secretary of the Corporation, and the Director has executed this Agreement under his seal, all as of the day and year first above written.
ELECTROMAGNETIC SCIENCES, INC.
[CORPORATE SEAL]
ATTEST: By: Chief Executive Officer
Secretary
DIRECTOR:
EXHIBIT A ELECTROMAGNETIC SCIENCES, INC.
1992 STOCK INCENTIVE PLAN
NOTICE OF EXERCISE
OF STOCK OPTION
The undersigned hereby notifies Electromagnetic Sciences, Inc. (the "Corporation") of his election to exercise his option to purchase shares of the Corporation's common stock, $.10 par value (the "Common Stock"), pursuant to that Stock Option Agreement (the "Agreement) between ("Director") and the Corporation dated ________, 199_. Accompanying this Notice is (1) a certified or a cashier's check (or other check acceptable to the Corporation) in the amount of $ payable to the Corporation, and/or (2) (subject to such restrictions as may be determined to be necessary or appropriate to avoid earnings charges or other adverse consequences to the Corporation under applicable accounting or tax rules or regulations) shares of the Common Stock presently owned by the undersigned and duly endorsed or accompanied by stock transfer powers, having an aggregate Fair Market Value (as defined in the Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan) on the date hereof of $ , such amounts being equal, in the aggregate, to the purchase price per share set forth in Section 3 of the Agreement multiplied by the number of shares being hereby purchased (in each instance subject to appropriate adjustment pursuant to Section 7 of the Agreement).
Also accompanying this Notice is my check in the amount of $ , in payment of federal and state income withholding and employment taxes applicable to this exercise. The amount of such payment is based on advice received from appropriate officials of the Corporation responsible for the administration of its payroll and employment tax obligations. Alternatively, or in addition, and subject to such restrictions as may be determined to be necessary or appropriate to comply with Rule 16b-3 under the Securities Exchange Act of 1934, or to avoid earnings charges or other adverse consequences to the Corporation under applicable accounting or tax rules or regulations, in full or partial payment of such taxes:
(1) I deliver herewith an additional shares of the Common Stock presently owned by me, having an aggregate Fair Market Value on the date hereof of $ ; and/or
(2) I hereby authorize the Corporation to withhold, from the shares of Common Stock otherwise issuable to me pursuant to this exercise, such shares having an aggregate Fair Market Value on the date hereof of $ . The sum of (i) any such check plus (ii) the Fair Market Value on the date hereof of any shares of Common Stock specified in the foregoing clauses (1) and (2) is not less than the amount of federal and state withholding and employment taxes applicable to this exercise, and is not greater than the total of all federal and state income and employment taxes to be owed by me as a result of such exercise.
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this day of , .
DIRECTOR OR HIS ADMINISTRATOR, EXECUTOR,
PERSONAL REPRESENTATIVE OR QUALIFIED
TRANSFEREE
EXHIBIT 10.19
Officers/Non-ISO 03/13/92
LXE INC.
1989 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, entered into as of the 15th day of May, 1995 (the "Date of Grant"), by and between LXE INC., a Georgia corporation (hereinafter referred to as the "Corporation"), and John J. Farrell, Jr. (hereinafter referred to as the "Employee").
W I T N E S S E T H
WHEREAS, the Board of Directors (the "Board") of the Corporation has adopted a stock incentive plan for the Corporation's and certain related corporations' officers and employees, known as the "LXE Inc. 1989 Stock Incentive Plan" (hereinafter referred to as the "Plan");
WHEREAS, the Plan and the Board have authorized the Compensation Committee of the Board (hereinafter referred to as the "Committee") to grant to persons who are Officers (as defined in the Plan) stock options enabling them to purchase the number of shares of the Corporation's common stock allocated to them by the Committee;
WHEREAS, the Committee has determined that the Employee is eligible to participate in the Plan, and that it is in the best interests of the Corporation that the Employee, through such participation, be provided with additional incentive to achieve the Company's objectives; and
WHEREAS, the Committee has accordingly granted the Employee an option to purchase the number of shares of the Corporation's common stock as hereinafter set forth, and the Corporation and the Employee desire to enter into a written agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock ownership and in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1. Incorporation of Plan. This option is granted pursuant to the provisions of the Plan, and the terms of and definitions set forth in the Plan are incorporated by reference into this Stock Option Agreement and made a part hereof. A copy of the Plan has been delivered to, and receipt is hereby acknowledged by, the Employee.
2. Grant of Option. Subject to the terms, restrictions, limitations and conditions stated herein, the Corporation hereby evidences its grant to the Employee, not in lieu of salary or other compensation, of the right and option (hereinafter referred to as the "Option"), which is not an ISO, to purchase all or any part of an aggregate of twenty thousand (20,000) shares of the Corporation's $.01 par value common stock (the "Common Stock"), this Option becoming exercisable and such shares becoming first purchasable as follows:
As to Number of Date First Shares Purchasable 5,000 May 15, 1998 5,000 May 15, 1999 5,000 May 15, 2000 5,000 May 15, 2001
The Option shall expire and is not exercisable after 5:00 p.m., Atlanta time, on May 15, 2004 (the "Expiration Date"), or such other date as determined pursuant to Section 8, 9 or 10.
Notwithstanding the beginning date or dates for exercise set forth in the preceding paragraph, but subject to the provisions of such preceding paragraph with respect to expiration of this Option, this Option may be exercised as to all or any portion of the full number of shares subject thereto if: (a) a tender offer or exchange offer has been made for shares of the Common Stock, other than one made by the Corporation or Electromagnetic Sciences, Inc. ("ELMG"), provided that the corporation, person or other entity making such offer purchases or otherwise acquires shares of Common Stock pursuant to such offer; or (b) any person or group (as such terms are defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Act")), other than ELMG, becomes the holder of 50% or more of the outstanding shares of Common Stock. If either of the events specified in this paragraph has occurred, the Option shall be fully exercisable: (x) in the event of (a) above, during the period commencing on the date the tender offer or exchange offer is commenced and ending on the date such offer expires and is not extended; or (y) in the event of (b) above, during the 30-day period commencing on the date upon which the Corporation is provided a copy of a Schedule 13D or amendment thereto, filed pursuant to Section 13(d) of the Act and the rules and regulations promulgated thereunder, indicating that any person or group has become the holder of 50% or more of the outstanding shares of Common Stock. In the case of (a) above, if the corporation, person or other entity making the offer does not purchase or otherwise acquire shares of Common Stock pursuant to such offer, then the Employee's right under this paragraph to exercise this Option shall terminate, the Employee and the Corporation shall rescind any exercise of this Option pursuant to this paragraph, and this Option shall be reinstated as if such exercise had not occurred.
3. Purchase Price. The price per share to be paid by the Employee for the shares subject to this Option shall be Fifteen and no/100 dollars ($15.00).
4. Exercise Terms. Beginning on the date or dates specified in, and prior to the expiration of this Option as provided in, Section 2, the Employee may exercise this Option as to all such number of shares, or as to any part thereof, at any time and from time to time during the remaining term of this Option; provided that the Employee must exercise this Option for at least the lesser of 100 shares or the unexercised portion of the Option. In the event this Option is not exercised with respect to all or any part of the shares subject to this Option prior to its expiration, the shares with respect to which this Option was not exercised shall no longer be subject to this Option.
5. Option Non-Transferable. This Option and all rights hereunder are neither assignable nor transferable by the Employee otherwise than by will or under the laws of descent and distribution, or pursuant to a Qualified Domestic Relations Order, and during the Employee's lifetime this Option is exercisable only by him or her (or by his or her guardian or legal representative, should one be appointed, or qualified transferee). More particularly (but without limiting the generality of the foregoing), this Option may not be assigned, transferred (except as aforesaid), pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of this Option contrary to the provisions hereof shall be null and void and without legal effect.
6. Notice of Exercise of Option. This Option may be exercised by the Employee, or by his administrator, executor, personal representative or qualified transferee, by a written notice (in substantially the form of the "Notice of Exercise" attached hereto as Exhibit A) signed by the Employee, or by such administrator, executor, personal representative or qualified transferee, and delivered or mailed to the Corporation at its principal office in Norcross, Georgia, to the attention of the President, Treasurer or such other officer as the Corporation may designate. Any such notice shall (a) specify the number of shares of Common Stock which the Employee or such administrator, executor, personal representative or qualified transferee, as the case may be, then elects to purchase hereunder, and (b) be accompanied by (i) a certified or cashier's check payable to the Corporation, or personal check acceptable to the Corporation, in payment of the total price applicable to such shares as provided herein, or (ii) (subject to any restrictions referred to in Exhibit A) shares of Common Stock, owned by him or her and duly endorsed or accompanied by stock transfer powers, having a Fair Market Value equal to the total purchase price applicable to such shares purchased hereunder, or (iii) such a check, and the number of such shares whose Fair Market Value when added to the amount of the check equals the total purchase price applicable to such shares purchased hereunder. Such notice shall also be accompanied by the Employee's check or shares of Common Stock in payment of applicable withholding and employment taxes, or Employee shall authorize the withholding of shares of Common Stock otherwise issuable under this Option in payment of such taxes, all as set forth on Exhibit A and subject to any restrictions referred to therein. Upon receipt of any such notice and accompanying payment, and subject to the terms hereof, the Corporation agrees to cause to be issued to the Employee or to such administrator, executor, personal representative or qualified transferee, as the case may be, stock certificates for the number of shares specified in such notice registered in the name of the person exercising this Option.
7. Adjustment in Option. If, between the Date of Grant of this Option and prior to the complete exercise thereof, there shall be a change in the outstanding Common Stock by reason of one or more stock splits, stock dividends, combinations or exchanges of shares, recapitalizations or similar capital adjustments, then the number, kind and option price of the shares remaining subject to this Option shall be equitably adjusted in accordance with the terms of the Plan, so that the proportionate interest in the Corporation represented by the shares then subject to the Option shall be the same as before the occurrence of such event.
8. Termination of Employment. Except as set forth in Section 10, if the Employee ceases to be employed as an employee of the Corporation, any Parent or any of its Subsidiaries (such event being hereinafter referred to as a "Termination" and such corporation that employs the Employee from time to time as the "Employer"), before the earliest date for exercise of this Option set forth in Section 2, then this Option shall forthwith terminate on the date of Termination and shall not thereafter be or become exercisable.
In the event of a Termination after the earliest date for exercise set forth in Section 2, which Termination is either (i) voluntary on the part of the Employee and with the written consent of the Employer, (ii) involuntary and without cause, or (iii) the result of retirement at the normal retirement date, as prescribed from time to time by the Employer, or at an earlier date expressly approved by the Employer as an early retirement date for the Employee, the Employee may exercise this Option at any time within a period ending at the earlier of the Expiration Date or 5:00 p.m., Atlanta time, on the third anniversary of such Termination, to the extent of the number of shares that were purchasable hereunder at the date of Termination.
In the event of a Termination that is either (i) for cause or (ii) voluntary on the part of the Employee and not described in the preceding paragraph, this Option, to the extent not theretofore exercised, shall forthwith terminate and shall not thereafter be or become exercisable.
This Option does not confer upon the Employee any right with respect to continuance of employment by the Corporation, any Parent or any of its Subsidiaries. This Option shall not be affected by any change of employment, so long as the Employee continues to be an employee of the Corporation, any Parent or any such Subsidiary. In the event the Employer is not the Corporation, and such Employer ceases to be the Corporation's Parent, or the Corporation's or its Parent's Subsidiary, as a result of a sale of stock or assets or other change of corporate status, then in the discretion of the Committee (but subject to Section 5.2 of the Plan regarding certain transactions affecting the Corporation) either: (i) this Option shall remain in effect as if such sale or other change of status had not occurred, for so long as Employee shall remain an employee of the corporation that previously was such Parent or Subsidiary, or of any successor or subsequent Parent of such corporation, or of any Subsidiary of either such corporation or any such Parent or successor; or (ii) concurrent with such sale or other change of status, the Corporation shall redeem this Option at a price equal to the number of shares then subject hereto (whether or not then purchasable) multiplied by the excess (if any) of the then Fair Market Value of each such share over the purchase price per share specified in Section 3 (as adjusted pursuant to Section 7.)
9. Disabled Employee. In the event of a Termination because the Employee becomes disabled, the Employee (or his personal representative) may exercise this Option at any time within a period ending at the earlier of the Expiration Date or 5:00 p.m., Atlanta time, on the first anniversary of such Termination, to the extent of the number of shares that were purchasable hereunder at the date of Termination.
For the purposes of this Agreement, the Employee shall be considered "disabled" if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to last for a continuous period of not less than twelve months.
10. Death of Employee. In the event of the Employee's death while employed by the Corporation, any Parent or any of its Subsidiaries, or during a period in which the Employee may exercise this Option notwithstanding an earlier Termination, the persons described in Section 6 may exercise this Option at any time within a period ending at the earlier of (i) 5:00 p.m., Atlanta time, on the third anniversary of the Employee's death, or (ii) the Expiration Date, but in any event ending not earlier than 5:00 p.m., Atlanta time, on the first anniversary of the Employee's death. If the Employee was an employee of the Corporation, any Parent or one of its Subsidiaries at the time of the Employee's death, this Option may be so exercised to the extent of the full number of shares covered by the Option. If a Termination occurred prior to Employee's death, this Option may be so exercised only to the extent of the number of shares that were purchasable hereunder at the date of Termination.
11. Binding Agreement. This Agreement shall be binding upon the parties hereto and their representatives, successors and assigns.
IN WITNESS WHEREOF, the Compensation Committee of the Board of Directors of the Corporation has caused this Stock Option Agreement to be executed on behalf of the Corporation and the Corporation's seal to be affixed hereto and attested by the Secretary of the Corporation, and the Employee has executed this Agreement under his seal, all as of the day and year first above written.
LXE INC.
[CORPORATE SEAL]
ATTEST: | By: | /s/ | Thomas E. Sharon |
Chief Executive Officer | |||
/s/ | William Jacobs | ||
Secretary | |||
/s/ | John J. Farrell, Jr. | ||
Employee |
EXHIBIT A
LXE INC.
1989 STOCK INCENTIVE PLAN
NOTICE OF EXERCISE
OF STOCK OPTION
The undersigned hereby notifies LXE Inc. (the "Corporation") of his or her election to exercise an option to purchase ___________ shares of the Corporation's common stock, $.01 par value (the "Common Stock"), pursuant to that Stock Option Agreement (the "Agreement") between ____________ (the "Employee") and the Corporation dated _______. Accompanying this Notice is (1) a certified or a cashier's check (or other check acceptable to the Corporation) in the amount of $___________ payable to the Corporation and/or (2) (subject to such restrictions as may be determined to be necessary or appropriate to avoid earnings charges or other adverse consequences to the Corporation under applicable accounting or tax rules or regulations) ________ shares of the Common Stock presently owned by the undersigned and duly endorsed or accompanied by stock transfer powers, having an aggregate Fair Market Value (as defined in the LXE Inc. 1989 Stock Incentive Plan (the "Plan")) as of the date hereof of $________ , such amounts being equal, in the aggregate, to the purchase price per share set forth in Section 3 of the Agreement multiplied by the number of shares being hereby purchased (in each instance subject to appropriate adjustment pursuant to Section 7 of the Agreement).
Also accompanying this Notice is my check in the amount of $_________ , in payment of federal and state income withholding and employment taxes applicable to this exercise. The amount of such payment is based on advice received from appropriate officials of the Corporation responsible for the administration of its payroll and employment tax obligations. Alternatively, or in addition, and subject to such restrictions as may be determined to be necessary or appropriate to comply with Rule 16b-3 under the Securities Exchange Act of 1934, or to avoid earnings charges or other adverse consequences to the Corporation under applicable accounting or tax rules or regulations, in full or partial payment of such taxes:
(1) I deliver herewith an additional ________ shares of the Common Stock presently owned by me, having an aggregate Fair Market Value as of the date hereof of $ __________; and/or
(2) I hereby authorize the Corporation to withhold, from the shares of Common stock otherwise issuable to me pursuant to this exercise, ___________ such shares having an aggregate Fair Market Value at the date hereof of $____________.
The sum of (i) any such check plus (ii) the Fair Market Value at the date hereof of any shares of Common Stock specified in the foregoing clauses (1) and (2) is not less than the amount of federal and state withholding and employment taxes applicable to this exercise, and is not greater than the total of all federal and state income and employment taxes to be owed by me as a result of such exercise.
IN WITNESS WHEREOF, the undersigned has set his or her hand and seal, this ________day of _________, 19___ .
EMPLOYEE OR HIS OR HIS ADMINISTRATOR,
EXECUTOR, PERSONAL REPRESENTATIVE OR
QUALIFIED TRANSFEREE ____________________
Exhibit 10.27
Canadian Imperial Bank of Commerce KNOWLEDGE BASED BUSINESS (KBB) 222 Queen St., 2nd Floor Ottawa, Ontario K1P 5V9 |
December 12, 2000
EMS TECHNOLOGIES CANADA, LTD.
c/o EMS TECHNOLOGIES INC
660 ENGINEERING DRIVE
NORCROSS, GEORGIA
30092
USA
Attention: MR. GARY SHELL, DIRECTOR CORPORATE FINANCE
Dear Sir,
We, Canadian Imperial Bank of Commerce ("CIBC"), are pleased to establish the following Credits for you, our customer.
Overall Credit Limit
Overall Credit Limit: The total use of all Credits is not at any time to exceed CDN$ and US$ equivalent of $41,585,000.
Credit A: Operating Line
Credit Limit: The lesser at any time of:
(a) $20,000,000; and
(b) the total of
75% of the Receivable Value, plus
95% of the EDC insured value of accounts receivable, plus
85% of the North American government receivables under 90 days, plus
85% of the receivables under 90 days from corporations of Investment Grade rated BBB+ or better from a country rated satisfactory by CIBC's Economic Division, plus
25% of the Inventory and Unbilled Revenue which together cannot exceed $10,000,000, all of the above items without duplication, minus
all Priority Claims
Description and Rate: A revolving demand credit, for general business purposes, as follows:
(1)Canadian dollar loans and overdrafts under Centralized Cash Control, and Acceptances. This part of Credit A is available under CIBC's Centralized Cash Control (CCC) arrangement whereby debit or credit balances of each of the CCC participants are transferred at the end of each day to your CCC concentration account, subject to completion of CIBC's standard single-party Cash Management agreement.
The Interest Rate is as follows: Prime Rate plus 1% per year.
(2)U.S. dollar loans and overdrafts, and Acceptances. Loans and overdrafts under this part of Credit A may not at any time exceed the US dollar equivalent of CDN$20,000,000. The Interest Rate is as follows: US Base Rate plus 1% per year .
If we sign an Acceptance, the available Credit Limit will be reduced by the amount of the Acceptance.
Special Conditions/
Provisions: Operating line limit shall be net of US dollar balances in your accounts at CIBC
Credit B: Demand Instalment Loan
Loan Amount: $7,000,000
Purpose: To assist with capital expenditures.
Interest Rate/Fees: Prime Rate plus 1.5% per year.
Scheduled Payments: Unless we make demand, you will pay CIBC as follows:
20 regular quarterly payments of $350,000.00 each, plus interest.
The first/next regular quarterly payment is due on March 31, 2001. The last payment, plus any outstanding principal and interest together with any other amount due under this Agreement, is due on December 31, 2005.
Credit C: Letters of Credit/Guarantee
Credit Limit: $8,500,000
Purpose: To support advance payment guarantees on off-shore contracts, bid bonds, etc.
Fees: Fees are 1%, minimum $150, plus out of pocket expenses.
Documentation: Our standard L/C documentation.
Conditions: All Letters of Credit and/or Guarantee under this facility are to be supported by Export Development Corporation insurance for rightful or wrongful call.
Credit D: Foreign Exchange Contracts
Credit Limit: US$2,500,000
Description: You may, at our discretion, enter into one or more spot, forward or other foreign exchange rate transactions with us and/or CIBC World Markets. Your ability to make use of this Credit will depend upon your outstanding obligations under such transactions, as determined by us. This is a demand Credit.
Credit E: Corporate VISA
Credit Limit: $200,000
Documentation: Our standard VISA documentation.
Credit F: Cheque Credit
Credit Limit: $10,000
Description: You may negotiate cheques at our Carlingwood Branch(es) in a total face amount each day of up to the Credit Limit of this Credit.
Credit G: Letters of Credit/Guarantee
Amount: $2,000,000
Purpose: To assist with the issuance of Letters of Credit/Guarantee for normal business purposes. Letters of Credit/Guarantees may have an expiry of up to 36 months.
Interest Rate: Fees are 1.0% per year, minimum $150, plus out of pocket expenses.
Description: Our standard Letters of Credit/Guarantee documentation.
Security
Security: The following security is required:
Assignment of General assignment of accounts receivable.
Receivables:
Security Agreement All personal property of the business now owned (which
(GSA): includes among other things inventory, equipment and receivables), and all personal property acquired in the future.
Bank Act security: Security under section 427 of theBank Act.
Guarantee: Guarantee from EMS Holdings, Inc. in an amount that is unlimited.
Guarantee from Electromagnetic Sciences, Inc. (now EMS Technologies Inc.) in an amount that is limited to $5,000,000.
Special Conditions/Provisions: Electromagnetic Sciences, Inc. (now EMS Technologies Inc.) shall also agree with CIBC that it shall remain fully and solely responsible for payment of all amounts owing to Spar Aerospace Limited pursuant to the Asset Purchase Agreement, dated December 30, 1998, unless CIBC agrees in writing to the contrary.
NOTE: The above security was taken at the time of the original credit agreement with the bank in February of 1999 and has not been vetted or amended to reflect transactions completed by EMS Technologies Inc since that date. We will have the security vetted by counsel in January and updated to reflect the current status of EMS Technologies Inc. and its subsidiaries. This credit agreement does not propose any new or additional security to that already held by CIBC.
Assignment and Postponement of Claim: | Assignment and postponement of claim from Electromagnetic Sciences, Inc.(now EMS Technologies Inc.) in an amount that is limited to $12,000,000. |
Other security: A pledge of all issued and outstanding shares in the name of EMS Holdings Inc., together with delivery to CIBC of the original share certificates.
Floating hypothecation of U.S. balances.
Immoveable Hypothec to be registered against the property and plant in Ste. Anne, Quebec.
Moveable Hypothec to be registered in Quebec.
All other security, other documentation and agreements granted or to be granted in favour of CIBC from time to time.
All of the above security shall enjoy first priority to the assets secured thereunder.
Covenants
Covenants: You will ensure that:
Current Ratio: Your Current Ratio is not at any time less than 1.10:1. This will be measured quarterly.
Other: Fixed Charge Ratio: Your Fixed Charge Ratio shall not be less than 1.25:1. This will be measured quarterly. For clarity the Fixed Charge ratio is the ratio of EBITDA, less approved capital expenditures divided by the total of principal payments, unfunded capital expense and cash interest expense.
Effective Equity: Your Effective Equity shall not be less than $35,000,000 plus 50% of future net income. For clarity, Effective Equity shall include postponed loans but shall not include intangibles such as the Skybridge equity investment. This shall be measured quarterly.
Funded Debt to EBITDA: Your Funded Debt to EBITDA (where EBITDA is on a 4 quarter rolling basis) is not to exceed 3.5x as at Dec 31,2000; 3.0x as at June 30,2001; and 2.5x as at Dec 31, 2001 and thereafter.
Capital Expenditures: Your Capital Expenditures for fiscal 2001 will not exceed $7,000,000 without our prior written consent.
Repayment of shareholder loans or other amounts owing to Electromagnetic Sciences, Inc. as of the date hereof will not occur without the prior written consent of CIBC.
Where the previous four quarters do not reflect cumulative positive net income, there will not be more than two consecutive quarters of non profitability, as measured by net income, unless offset by a corresponding shareholder loan or equity injection.
There shall not be any changes in effective ownership or control without our prior written consent.
You provide an undertaking to conduct business substantially in accordance with the business plan provided to CIBC.
CIBC shall have the right to approve the Capital Expenditure Budget prior to the start of each fiscal year and shall receive an annual budget for the company no later than December 31 of each year, which budgets are subject to CIBC's approval for the purposes of these credit facilities.
Reporting Requirements
Reporting Requirements: You will provide:
(1) Within 30 days of each calendar month-end, a summary of Receivable Value and a summary of Inventory Value, together with an aged list of receivables and a Monthly Statement of Available Credit Limit, as of that month-end.
(2) Within 30 days of the end of each month, financial statements for that month.
(3) Within 90 days of each fiscal year-end, financial statements for that fiscal year on an audited basis.
(4) Within 90 days of each fiscal year-end, a business plan/forecast for the next fiscal year, including month-by-month projected balance sheets, income statements and cash flow projections.
Fees
Loan Administration: $500 per month on Canadian dollar loans and overdrafts.
Other: An Amendment Fee of $40,000 is payable upon acceptance of this offer.
For Credit A: Operating Line, a 0.33% standby fee per year of the undrawn portion will be payable monthly.
All legal costs are the responsibility of the customer.
Other Provisions
Calculations: When applicable, the calculations made under the "Covenants" and "Reporting Requirements" sections of this Agreement are to be done on a consolidated basis.
Interest Rate Applicable Currently 21% per year. If the Credit Limit of a Credit, or the
to Credit Limit Excesses: Credit Limit of part of a Credit, or the Overall Credit Limit, is exceeded at any time, the Interest Rate Applicable to Credit Limit Excesses is calculated on that excess amount.
In connection with any amounts in foreign currency, see "Foreign Currency Conversion" in the Attached Schedule.
Next Scheduled We will review the credit by March 30, 2001.
Review Date: At that time, we will review your financial statements and those of the guarantors, your forecast business and financial plans, and how well you have complied with the requirements of this Agreement. The terms of this Agreement will continue to apply until either a new Agreement or an Amendment to this one is settled.
Standard Credit Terms: The attached Schedule - Standard Credit Terms forms part of this Agreement.
Please indicate your acceptance of these terms by returning a signed copy of this Agreement. If we do not receive a signed copy by December 20, 2000, then this offer will expire.
Upon acceptance, this Agreement replaces the existing credit agreement dated February 24, 1999, between you and CIBC. Outstanding amounts (and security) under that Agreement will be covered by this Agreement.
Yours truly,
Canadian Imperial Bank of Commerce
by: __________________________________ | |
DAVID EDWARDS | |
Director |
Phone: Fax: E-mail: | (613) 564-8902 (613) 563-9600 dedwards@kbb.cibc.com |
Acknowledgment: The undersigned certifies that all information provided to CIBC is true, and acknowledges receipt of a copy of this Agreement (including any Schedules referred to above).
Accepted this day of ,.
EMS TECHNOLOGIES CANADA, LTD.
By: | ______________________________ | By: | _________________________ | |
Name: | ______________________________ | Name: | _________________________ | |
Title: | ______________________________ | Title: | _________________________ |
Schedule - Standard Credit Terms
Article 1 - General
1.1 Interest Rate. You will pay interest on each Credit at nominal rates per year equal to:
(a) for amounts above the Credit Limit of a Credit or a part of a Credit or the Overall Credit Limit, as described in section 1.4, or for amounts that are not paid when due, the Interest Rate Applicable to Credit Limit Excesses, and
(b) for any other amounts, the rate specified in this Agreement.
1.2 Variable interest. Each variable interest rate provided for under this Agreement will change automatically, without notice, whenever the Prime Rate or the U.S. Base Rate, as the case may be, changes.
1.3 Payment of interest. Interest is calculated on the daily balance of the Credit at the end of each day. Interest is due once a month, unless the Agreement states otherwise. Unless you have made other arrangements with us, we will automatically debit your Operating Account for interest amounts owing. If your Operating Account is in overdraft and you do not deposit to the account an amount equal to the monthly interest payment, the effect is that we will be charging interest on overdue interest (which is known as compounding). Unpaid interest continues to compound whether or not we have demanded payment from you or started a legal action, or get judgment, against you.
1.4 Interest Rate Applicable to Credit Limit Excesses. To determine whether the Interest Rate Applicable to Credit Limit Excesses is to be charged, the following rules apply:
(a) Interest Rate Applicable to Credit Limit Excesses will be charged on the amount that exceeds the Credit Limit of any particular Credit. This will happen even if the Overall Credit Limit has not been exceeded.
(b) If there are several parts of a Credit, Interest Rate Applicable to Credit Limit Excesses will be charged if the Credit Limit of a particular part is exceeded. For example, if Credit A's limit is $250,000, and the limit of one part is $100,000 and the limit of that part is exceeded by $25,000, the Interest Rate Applicable to Credit Limit Excesses will be charged on that $25,000 excess, even if the total amount outstanding under Credit A is less than $250,000.
(c) To determine if the Overall Credit Limit has been exceeded, the outstanding principal amount of each Credit is totalled, and any amounts in foreign currency are converted to Canadian dollars. If that total exceeds the Overall Credit Limit, the Interest Rate Applicable to Credit Limit Excesses will be charged on that excess amount. For example, if there are three Credits, each with a Credit Limit of $100,000 and an Overall Credit Limit of $250,000, if each of those Credits is at $90,000, they are each under their own Credit Limits, but the Overall Credit Limit has been exceeded by $20,000, and the Interest Rate Applicable to Credit Limit Excesses will be charged on that excess amount.
1.5 Fees. You will pay CIBC's fees for each Credit as out lined in the Letter. You will also reimburse us for all reasonable fees (including legal fees) and out-of-pocket expenses incurred in registering any security, and in enforcing our rights under this Agreement or any security. We will automatically debit your Operating Account for fee amounts owing.
1.6 Our rights re demand Credits. At CIBC, we believe that the banker-customer relationship is based on mutual trust and respect. It is important for us to know all the relevant information (whether good or bad) about your business. CIBC is itself a business. Managing risks and monitoring our customers' ability to repay is critical to us. We can only continue to lend when we feel that we are likely to be repaid. As a result, if you do something that jeopardizes that relationship, or if we no longer feel that you are likely to repay all amounts borrowed, we may have to act. We may decide to act, for example, because of something you have done, information we receive about your business, or changes to the economy that affect your business. Some of the actions that we may decide to take include requiring you to give us more financial information, negotiating a change in the interest rate or fees, or asking you to get further accounting assistance, put more cash into the business, provide more security, or produce a satisfactory business plan. It is important to us that your business succeeds. We may, however, at our discretion, demand immediate repayment of any outstanding amounts under any demand Credit. We may also, at any time and for any cause, cancel the unused portion of any demand Credit. Under normal circumstances, however, we will give you 30 days' notice of any of these actions.
1.7 Payments. If any payment is due on a day other than a Business Day, then the payment is due on the next Business Day.
1.8 Applying money received. If you have not made payments as required by this Agreement, or if you have failed to satisfy any term of this Agreement (or any other agreement you have that relates to this Agreement), or at any time before default but after we have given you appropriate notice, we may decide how to apply any money that we receive. This means that we may choose which Credit to apply the money against, or what mix of principal, interest, fees and overdue amounts within any Credit will be paid.
1.9 Information requirements. We may from time to time reasonably require you to provide further information about your business. We may require information from you to be in a form acceptable to us.
1.10 Insurance. You will keep all your business assets and property insured (to the full insurable value) against loss or damage by fire and all other risks usual for property such as yours (plus for any other risks we may reasonably require). If we request, these policies will include a loss payee clause (and if you are giving us mortgage security, a mortgagee clause). As further security, you assign all insurance proceeds to us. If we ask, you will give us either the policies themselves or adequate evidence of their existence. If your insurance coverage for any reason stops, we may (but do not have to) insure the property. We will automatically debit your Operating Account for these amounts. Finally, you will notify us immediately of any loss or damage to the property.
1.11 Environmental. You will carry on your business, and maintain your assets and property, in accordance with all applicable environmental laws and regulations. If (a) there is any release, deposit, discharge or disposal of pollutants of any sort (collectively, a "Discharge") in connection with either your business or your property, and we pay any fines or for any clean-up, or (b) we suffer any loss or damage as a result of any Discharge, you will reimburse CIBC, its directors, officers, employees and agents for any and all losses, damages, fines, costs and other amounts (including amounts spent preparing any necessary environmental assessment or other reports, or defending any lawsuits) that result. If we ask, you will defend any lawsuits, investigations or prosecutions brought against CIBC or any of its directors, officers, employees and agents in connection with any Discharge. Your obligation to us under this section continues even after all Credits have been repaid and this Agreement has terminated.
1.12 Consent to release information. We may from time to time give any credit or other information about you to, or receive such information from, (a) any financial institution, credit reporting agency, rating agency or credit bureau, (b) any person, firm or corporation with whom you may have or propose to have financial dealings, and (c) any person, firm or corporation in connection with any dealings you have or propose to have with us. You agree that we may use that information to establish and maintain your relationship with us and to offer any services as permitted by law, including services and products offered by our subsidiaries when it is considered that this may be suitable to you.
1.13 Our pricing policy. Fees, interest rates and other charges for your banking arrangements are dependent upon each other. If you decide to cancel any of these arrangements, you will have to pay us any increased or added fees, interest rates and charges we determine and notify you of. These increased or added amounts are effective from the date of the changes that you make.
1.14 Proof of debt. This Agreement provides the proof, between CIBC and you, of the credit made available to you. There may be times when the type of Credit you have requires you to sign additional documents. Throughout the time that we provide you credit under this Agreement, our loan accounting records will provide complete proof of all terms and conditions of your credit (such as principal loan balances, interest calculations, and payment dates).
1.15 Renewals of this Agreement. This Agreement will remain in effect for your Credits for as long as they remain unchanged. We have shown a Next Scheduled Review Date in the Letter. If there are no changes to the Credits this Agreement will continue to apply, and you will not need to sign anything further. If there are any changes, we will provide you with either an amending agreement, or a new replacement Letter, for you to sign.
1.16 Confidentiality: The terms of this Agreement are confidential between you and CIBC. You therefore agree not to disclose the contents of this Agreement to anyone except your professional advisors.
1.17 Pre-conditions. You may use the Credits granted to you under this Agreement only if:
(a) we have received properly signed copies of all documentation that we may require in connection with the operation of your accounts and your ability to borrow and give security;
(b) all the required security has been received and registered to our satisfaction;
(c) any special provisions or conditions set forth in the Letter have been complied with; and
(d) if applicable, you have given us the required number of days notice for a drawing under a Credit.
1.18Assignment. CIBC may assign, sell or participate (referred to as a "transfer") all or any part of its rights and obligations under this Agreement, or under any Credit granted in this Agreement, to any third party (a "Lender"), subject to your prior written consent. You will not unreasonably withhold your consent. For a Demand Credit, CIBC will not need your consent if we have made demand and you have failed to repay us in full. For a Committed Credit, we will not need your consent if there has been an Event of Default that is not capable of being remedied. You agree to sign any documents and take any actions that any Lender may reasonably require in connection with any such transfer. Upon completion of the transfer, the
Lender will have the same rights and obligations under this Agreement as if it were a party to it.
1.19 Notices. We may give you any notice in person or by telephone, or by letter that is sent either by fax or by mail.
1.20 Use of the Operating Line. You will use your Operating Line only for your business operating cash needs. You are responsible for all debits from the Operating Account that you have either initiated (such as cheques, loan payments, pre-authorized debits, etc.) or authorized us to make. Payments are made by making deposits to the Operating Account. You may not at any time exceed the Credit Limit. We may, without notice to you, return any debit from the Operating Account that, if paid, would result in the Credit Limit being exceeded, unless you have made prior arrangements with us. If we pay any of these debits, you must repay us immediately the amount by which the Credit Limit is exceeded.
1.21 Margin Requirements. If your Operating Line is margined against Inventory and/or Receivable Value, the available Credit Limit of that Credit is the lesser of the Credit Limit stated in the Letter and the amount calculated using the Monthly Statement of Available Credit Limit.
1.22 Foreign Currency Conversion. If this Agreement includes foreign currency Credits, then currency changes may affect whether either the Credit Limit of any Credit or the Overall Credit Limit has been exceeded.
(a) See section 1.4 for the general rules on how the Interest Rate Applicable to Credit Limit Excesses is calculated.
(b) To determine the Overall Credit Limit, all foreign currency amounts are converted to Canadian dollars, even if the Credit Limits of any particular Credits are quoted directly in a foreign currency (such as US dollars). No matter how the Credit Limit of a particular Credit is quoted, therefore, currency fluctuations can affect whether the Overall Credit Limit has been exceeded. For example, if Credits X and Y have Credit Limits of C$100,000 and US$50,000, respectively, with an Overall Credit Limit of C$175,000, if Credit X is at C$90,000 and Credit Y is at US$45,000, the Interest Rate Applicable to Credit Limit Excesses will be charged only if, after converting the US dollar amount, the Overall Credit Limit is exceeded.
(c) Whether the Credit Limit of a particular Credit has been exceeded will depend on how the Credit Limit is quoted, as described below.
(d) If the Credit Limit is quoted as, for example, the US dollar equivalent of a Canadian dollar amount, daily exchange rate fluctuations may affect whether that Credit Limit has been exceeded. If, on the other hand, the Credit Limit is quoted in a foreign currency (for example, directly in US dollars), whether that Credit Limit has been exceeded is determined by reference only to the closing balance of that Credit in that currency.
(e) For example, assume an outstanding balance of a Credit on a particular day of US$200,000. If the Credit Limit is stated as "the US dollar equivalent of C$275,000", then whether the Credit Limit of that Credit has been exceeded will depend on the value of the Canadian dollar on that day. If the conversion calculations determine that the outstanding balance is under the Credit Limit, a drop in the value of the Canadian dollar the next day (without any change in the balance) may have the effect of putting that Credit over its Credit Limit. If, on the other hand, the Credit Limit is stated as "US$200,000", the Credit Limit is not exceeded, and a drop in the value of the dollar the next day will not change that (although the Overall Credit Limit may be affected).
(f) Conversion calculations are done on the closing daily balance of the Credit. The conversion factor used is the mid-point between the buying and selling rate offered by CIBC for that currency on the conversion date.
1.23 Instalment Loans. The following terms apply to each Instalment Loan.
(a) Non-revolving loans. Unless otherwise stated in the Letter, any Instalment Loan is non-revolving. This means that any principal payment made permanently reduces the available Loan Amount. Any payment we receive is applied first to overdue interest, then to current interest owing, then to overdue principal, then to any fees and charges owing, and finally to current principal.
(b) Floating Rate Instalment Loans. Floating Rate Instalment Loans may have either (i) blended payments or (ii) payments of fixed principal amounts, plus interest, as described below.
(i) Blended payments. If you have a Floating Rate Loan that has blended payments, the amount of your monthly payment is fixed for the term of the loan, but the interest rate varies with changes in the Prime or US Base Rate (as the case may be). If the Prime or US Base Rate during any month is lower than what the rate was at the outset, you may end up paying off the loan before the scheduled end date. If, however, the Prime or US Base Rate is higher than what it was at the outset, the amount of principal that is paid off is reduced. As a result, you may end up still owing principal at the end of the term because of these changes in the Prime or US Base Rate.
(ii)Payments of principal plus interest. If you have a Floating Rate Loan that has regular principal payments, plus interest, the principal payment amount of your Loan is due on each payment date specified in the Letter. The interest payment is also due on the same date, but it is debited from your Operating Account one or two banking days later. Although the principal payment amount is fixed, your interest payment will usually be different each month, for at least one and possibly more reasons, namely: the reducing principal balance of your loan, the number of days in the month, and changes to the Prime Rate or US Base Rate (as the case may be).
(c) Prepayment. Unless otherwise agreed, the following terms apply to prepayment of any Instalment Loan:
(i) Floating Rate Instalment Loans. You may prepay all or part of a Floating Rate Instalment Loan (whether it is a Demand or a Committed Loan) at any time without notice or penalty.
(ii) Fixed Rate Instalment Loans. You may prepay all (but not part) of a fixed Rate Instalment Loan, on the following condition. You must pay us, on the prepayment date, a prepayment fee equal to the greater of (A) three months' interest on the Loan, and (B) the interest rate differential for the remainder of the term of the Loan, determined in accordance with the standard formula used by CIBC in these situations.
(d) Demand of Fixed Rate Demand Instalment Loans. If you have a Fixed Rate Demand Instalment Loan and we make demand for payment, you will owe us (i) all outstanding principal, (ii) interest, (iii) any other amount due under this Agreement, and (iv) a prepayment fee. The prepayment fee is equal to the interest rate differential for the remainder of the term of the loan, in accordance with the standard formula used by CIBC in these situations.
Article 2 - Definitions
2.1 Definitions. In this Agreement, the following terms have the following meanings:
"Acceptances" means "L/C Acceptances" or "Avalized Documentary Collections" or both as the case may be.
"Avalized Documentary Collection" means a bill of exchange, drawn on you, avalized by CIBC at your request.
"Base Rate Loan" means a US dollar loan on which interest is calculated by reference to the US Base Rate.
"Business Day" means any day (other than a Saturday or a Sunday) that the CIBC Branch/Centre is open for business.
"CIBC Branch/Centre" means the CIBC branch or banking centre noted on the first page of this Agreement, as changed from time to time by agreement between the parties.
"Credit" means any credit referred to in the Letter, and if there are two or more parts to a Credit, "Credit" includes reference to each part.
"Credit Limit" of any Credit means the amount specified in the Letter as its Credit Limit, and if there are two or more parts to a Credit, "Credit Limit" includes reference to each such part.
"Current Assets" are cash, accounts receivable, inventory and other assets that are likely to be converted into cash, sold, exchanged or expended in the normal course of business within one year or less, excluding amounts due from related parties .
"Current Liabilities" means debts that are or will become payable within one year or one operating cycle, whichever is longer. They usually include accounts payable, accrued expenses, deferred revenue and the current portion of long-term debt.
"Current Ratio" means the ratio of Current Assets to Current Liabilities.
"Interest Rate Applicable to Credit Limit Excesses", unless otherwise defined in the Letter, means the Standard Overdraft Rate.
"Demand Instalment Loan" means an Instalment Loan that is payable upon demand. Such a Loan may be either at a fixed or a floating rate of interest.
"Fixed Rate Instalment Loan" means an Instalment Loan that is also a Fixed Rate Loan.
"Fixed Rate Loan" means any loan drawn down, converted or extended under a Credit at an interest rate which was fixed for a term, instead of referenced to a variable rate such as the Prime Rate or US Base Rate, at the time of such drawdown, conversion or extension. For purposes of certainty, a Fixed Rate Loan includes a LIBOR Loan.
"Floating Rate Instalment Loan" means either an Instalment Loan that is either a Prime Rate Loan or a Base Rate Loan.
"Instalment Loan" means a loan that is repayable either in fixed instalments of principal, plus interest, or in blended instalments of both principal and interest. A Demand Instalment Loan is repayable on demand. A Committed Instalment Loan is repayable only upon the occurrence of an Event of Default.
"Inventory Value" means the total value (based on the lower of cost or market) of your inventories (other than
(i) inventories supplied by trade creditors who at that time have not been fully paid and would have a right to repossess all or part of such inventories if you were then either bankrupt or in receivership,
(ii) work in process, and
(iii) those inventories we may from time to time designate.
"Letter" means the letter agreement between you and CIBC to which this Schedule and any other Schedules are attached.
"Letter of Credit" or"L/C" means a documentary or stand-by letter of credit, a letter of guarantee, or a similar instrument in form and substance satisfactory to us.
"L/C Acceptance" means a draft (as defined under theBills of Exchange Act (Canada)) payable to the beneficiary of a documentary L/C which the L/C applicant or beneficiary, as the case may be, has presented to us for acceptance under the terms of the L/C.
"Monthly Statement of Available Credit Limit" means the CIBC form by that name, as it may from time to time be changed.
"Operating Account" means the account that you normally use for the day-to-day cash needs of your business, and may be either or both of a Canadian dollar and a US dollar account.
"Prime Rate" means the variable reference rate of interest per year declared by CIBC from time to time to be its prime rate for Canadian dollar loans made by CIBC in Canada.
"Prime Rate Loan" means a Canadian dollar loan on which interest is calculated by reference to Prime Rate.
"Priority Claims" means any amount owing to a creditor that ranks, or may rank, equal to or in priority to our security. These may include unremitted source deductions and taxes; other amounts owing to governments and governmental bodies; and amounts owing to creditors who may claim priority under theBankruptcy and Insolvency Act or under a purchase money security interest in inventory or equipment.
"Receivable Value" means, at any time of determination, the total value of those of your trade accounts receivable, including accounts domiciled in the United States, that are subject to the security (other than those accounts:
(i) outstanding for 90 days or more,
(ii) owing by persons, firms or corporations affiliated to you, and
(iii) that we may from time to time designate).
"Standard Overdraft Rate" means the variable reference interest rate per year declared by CIBC from time to time to be its standard overdraft rate on overdrafts in Canadian or US dollar accounts maintained with CIBC in Canada.
"US Base Rate" means the variable reference interest rate per year as declared by CIBC from time to time to be its base rate for US dollar loans made by CIBC in Canada.
EXHIBIT 13.1
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except net earnings per share)
Years ended December 31 | ||||||||||
-------------------------------------------- | ||||||||||
2000 | 1999 | 1998 | ||||||||
-------- | -------- | -------- | ||||||||
Net sales (note 12) | $ | 273,143 | 242,414 | 177,163 | ||||||
Cost of sales | 181,937 | 167,118 | 115,127 | |||||||
Selling, general and administrative expenses | 50,635 | 45,211 | 38,666 | |||||||
Research and development expenses | 27,735 | 21,816 | 13,140 | |||||||
Write-down of NetSat 28 assets | 2,891 | - | - | |||||||
--------- | ---------- | ---------- | ||||||||
Operating income | 9,945 | 8,269 | 10,230 | |||||||
Non-operating income, net (note 2) | 175 | 1,310 | 1,602 | |||||||
Interest expense | (4,326 | ) | (2,827 | ) | (1,729 | ) | ||||
--------- | - | --------- | - | --------- | - | |||||
Earnings before income taxes | 5,794 | 6,752 | 10,103 | |||||||
Income tax expense (note 8) | (1,303 | ) | (1,912 | ) | (3,927 | ) | ||||
--------- | - | --------- | - | --------- | - | |||||
Net earnings | $ | 4,491 | 4,840 | 6,176 | ||||||
===== | = | ===== | = | ===== | = | |||||
Net earnings per share (note 7): | ||||||||||
Basic | $ | .51 | .56 | .71 | ||||||
Diluted | .50 | .55 | .70 | |||||||
Weighted average number of shares (note 7): | ||||||||||
Common | 8,766 | 8,703 | 8,675 | |||||||
Common and dilutive common equivalent | 8,912 | 8,775 | 8,871 | |||||||
See accompanying notes to consolidated financial statements.
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31 | ||||||
----------------------------------- | ||||||
2000 | 1999 | |||||
------- | ------ | |||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents (note 11) | $ | 5,593 | 4,832 | |||
Trade accounts receivable, net (notes 4 and 11) | 74,526 | 67,804 | ||||
Inventories (note 5) | 38,183 | 28,099 | ||||
Deferred income taxes (note 8) | 1,355 | 1,020 | ||||
--------- | --------- | |||||
Total current assets | 119,657 | 101,755 | ||||
--------- | --------- | |||||
Property, plant and equipment (note 6): | ||||||
Land | 3,572 | 3,667 | ||||
Buildings and leasehold improvements | 21,210 | 21,077 | ||||
Machinery and equipment | 67,844 | 59,102 | ||||
Furniture and fixtures | 5,648 | 7,553 | ||||
--------- | --------- | |||||
98,274 | 91,399 | |||||
Less accumulated depreciation and amortization | 48,672 | 42,345 | ||||
--------- | --------- | |||||
Net property, plant and equipment | 49,602 | 49,054 | ||||
--------- | --------- | |||||
Investment in limited partnership (note 3) | 17,909 | 13,000 | ||||
Deferred income taxes - non-current (note 8) | 1,689 | 2,409 | ||||
Accrued pension asset (note 9) | 3,108 | 3,084 | ||||
Other assets | 13,646 | 9,504 | ||||
Goodwill, net of accumulated amortization | ||||||
of $4,334 in 2000 and $3,814 in 1999 | 10,502 | 11,022 | ||||
--------- | --------- | |||||
$ | 216,113 | 189,828 | ||||
====== | ====== | |||||
See accompanying notes to consolidated financial statements.
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
(In thousands, except share data)
December 31 | ||||||
-------------------------------- | ||||||
2000 | 1999 | |||||
------ | ------ | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current liabilities: | ||||||
Current installments of long-term debt (notes 6 and 11) | $ | 22,048 | 16,613 | |||
Accounts payable (note 11) | 27,655 | 18,811 | ||||
Accrued compensation costs | 5,414 | 6,184 | ||||
Accrued retirement costs (note 9) | 1,160 | 594 | ||||
Accrued post-retirement benefits (note 10) | 2,420 | 2,309 | ||||
Deferred revenue | 4,153 | 3,471 | ||||
Other current liabilities | 2,217 | 2,324 | ||||
--------- | --------- | |||||
Total current liabilities | 65,067 | 50,306 | ||||
Long-term debt, excluding current installments (notes 6 and 11) | 39,617 | 33,707 | ||||
--------- | -------- | |||||
Total liabilities | 104,684 | 84,013 | ||||
--------- | --------- | |||||
Stockholders' equity (note 7): | ||||||
Preferred stock of 1.00 par value per share. | ||||||
Authorized 10,000,000 shares; none issued | ||||||
Common stock of $.10 par value per share. | ||||||
Authorized 75,000,000 shares, issued and outstanding | ||||||
8,809,000 in 2000 and 8,706,000 in 1999 | 881 | 871 | ||||
Additional paid-in capital | 35,373 | 34,503 | ||||
Accumulated other comprehensive loss - | ||||||
foreign currency translation adjustment | (1,595 | ) | (1,838 | ) | ||
Retained earnings | 76,770 | 72,279 | ||||
--------- | --------- | |||||
Total stockholders' equity | 111,429 | 105,815 | ||||
--------- | --------- | |||||
Commitments and contingencies (notes 3, 6, 9, 10, 13 and 15) | ||||||
$ | 216,113 | 189,828 | ||||
====== | ====== | |||||
See accompanying notes to consolidated financial statements.
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands)
Three years ended December 31, 2000 | |||||||||||||||||||||
---------------------------------------------------------------------------------------------------------------- | |||||||||||||||||||||
Accum- | |||||||||||||||||||||
ulated | |||||||||||||||||||||
Annual | other | Total | |||||||||||||||||||
Common Stock | Additional | compre- | compre- | stock- | |||||||||||||||||
------------------------- | Paid-in | hensive | hensive | Retained | holders' | ||||||||||||||||
Shares | Amount | Capital | income | loss | earnings | equity | |||||||||||||||
--------- | ---------- | ---------- | --------- | --------- | ----------- | ---------- | |||||||||||||||
Balance December 31, 1997 | 8,626 | $ | 863 | 34,487 | (1,393 | ) | 61,263 | 95,220 | |||||||||||||
Net earnings | - | - | - | 6,176 | - | 6,176 | 6,176 | ||||||||||||||
Income tax benefit from exercise of non- | |||||||||||||||||||||
qualified stock options (note 8) | - | - | 600 | - | - | - | 600 | ||||||||||||||
Exercise of common stock options | 141 | 14 | 839 | - | - | - | 853 | ||||||||||||||
Redemption of shares upon exercise of | |||||||||||||||||||||
common stock options | (46 | ) | (5 | ) | (878 | ) | - | - | - | (883 | ) | ||||||||||
Foreign currency translation adjustment loss | - | - | - | (870 | ) | (870 | ) | - | (870 | ) | |||||||||||
Repurchase and retirement of common stock | (32 | ) | (3 | ) | (433 | ) | - | - | - | (436 | ) | ||||||||||
------ | - | ---- | - | -------- | - | ------- | - | ------- | - | -------- | - | -------- | - | ||||||||
Comprehensive income for 1998 | 5,306 | ||||||||||||||||||||
===== | |||||||||||||||||||||
Balance December 31, 1998 | 8,689 | 869 | 34,615 | (2,263 | ) | 67,439 | 100,660 | ||||||||||||||
Net earnings | - | - | - | 4,840 | - | 4,840 | 4,840 | ||||||||||||||
Income tax benefit from exercise of non- | |||||||||||||||||||||
qualified stock options (note 8) | - | - | 108 | - | - | - | 108 | ||||||||||||||
Exercise of common stock options | 69 | 7 | 443 | - | - | - | 450 | ||||||||||||||
Redemption of shares upon exercise of | |||||||||||||||||||||
common stock options | (7 | ) | (1 | ) | (104 | ) | - | - | - | (105 | ) | ||||||||||
Foreign currency translation adjustment gain | - | - | - | 425 | 425 | - | 425 | ||||||||||||||
Repurchase and retirement of common stock | (45 | ) | (4 | ) | (559 | ) | - | - | - | (563 | ) | ||||||||||
------ | - | ---- | - | -------- | - | ------- | - | ------- | - | -------- | - | -------- | - | ||||||||
Comprehensive income for 1999 | 5,265 | ||||||||||||||||||||
===== | |||||||||||||||||||||
Balance December 31, 1999 | 8,706 | 871 | 34,503 | (1,838 | ) | 72,279 | 105,815 | ||||||||||||||
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES | |||||||||||||||||||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME, continued | |||||||||||||||||||||
(In thousands) | |||||||||||||||||||||
Three years ended December 31, 2000 | |||||||||||||||||||||
---------------------------------------------------------------------------------------------------------------- | |||||||||||||||||||||
Accum- | |||||||||||||||||||||
ulated | |||||||||||||||||||||
Annual | other | Total | |||||||||||||||||||
Common Stock | Additional | compre- | compre- | stock- | |||||||||||||||||
------------------------- | Paid-in | hensive | hensive | Retained | holders' | ||||||||||||||||
Shares | Amount | Capital | income | loss | earnings | equity | |||||||||||||||
---------- | ----------- | ----------- | --------- | ---------- | ----------- | ---------- | |||||||||||||||
Balance December 31, 1999 | 8,706 | 871 | 34,503 | (1,838 | ) | 72,279 | 105,815 | ||||||||||||||
Net earnings | - | - | - | 4,491 | - | 4,491 | 4,491 | ||||||||||||||
Income tax benefit from exercise of non- | |||||||||||||||||||||
qualified stock options (note 8) | - | - | 446 | - | - | - | 446 | ||||||||||||||
Exercise of common stock options | 134 | 13 | 981 | - | - | - | 994 | ||||||||||||||
Redemption of shares upon exercise of | |||||||||||||||||||||
common stock options | (31) | (3 | ) | (557 | ) | - | - | - | (560 | ) | |||||||||||
Foreign currency translation adjustment gain | - | - | - | 243 | 243 | - | 243 | ||||||||||||||
------ | - | ---- | - | -------- | - | ------- | - | ------- | - | -------- | - | -------- | - | ||||||||
Comprehensive income for 2000 | 4,734 | ||||||||||||||||||||
===== | |||||||||||||||||||||
Balance December 31, 2000 | 8,809 | $ | 881 | 35,373 | (1,595 | ) | 76,770 | 111,429 | |||||||||||||
==== | === | ===== | ==== | = | ===== | ====== | |||||||||||||||
See accompanying notes to consolidated financial statements.
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31 | ||||||||||
-------------------------------------------- | ||||||||||
2000 | 1999 | 1998 | ||||||||
-------- | -------- | ------- | ||||||||
Cash flows from operating activities: | ||||||||||
Net earnings | $ | 4,491 | 4,840 | 6,176 | ||||||
Adjustments to reconcile net earnings to | ||||||||||
net cash from operating activities: | ||||||||||
Depreciation and amortization | 8,625 | 7,008 | 6,734 | |||||||
Goodwill amortization | 520 | 520 | 714 | |||||||
Deferred income taxes | 385 | 718 | 403 | |||||||
Changes in operating assets and liabilities: | ||||||||||
Trade accounts receivable | (6,722 | ) | (4,810 | ) | 1,381 | |||||
Inventories | (10,084 | ) | (2,468 | ) | (2,497 | ) | ||||
Non-trade foreign government receivable | (1,136 | ) | (1,333 | ) | - | |||||
Accounts payable | 6,535 | 2,493 | (2,621 | ) | ||||||
Income taxes payable | (213 | ) | (1,880 | ) | (894 | ) | ||||
Accrued costs, deferred revenue, | ||||||||||
and other current liabilities | 2,791 | 1,450 | 1,746 | |||||||
Other | (2,001 | ) | (1,025 | ) | (1,097 | ) | ||||
-------- | --------- | --------- | ||||||||
Net cash provided by operating activities | 3,191 | 5,513 | 10,045 | |||||||
-------- | --------- | --------- | ||||||||
Cash flows from investing activities: | ||||||||||
Purchase of property, plant and equipment | (9,342 | ) | (11,656 | ) | (7,740 | ) | ||||
Payments for asset acquisitions | (4,372 | ) | (10,458 | ) | - | |||||
Investment in limited partnership | (4,909 | ) | (3,000 | ) | - | |||||
--------- | --------- | --------- | ||||||||
Net cash used in investing activities | (18,623 | ) | (25,114 | ) | (7,740 | ) | ||||
--------- | --------- | --------- | ||||||||
Cash flows from financing activities: | ||||||||||
Proceeds from long-term debt | 16,067 | 20,190 | 698 | |||||||
Repayment of long-term debt | (517 | ) | (266 | ) | (1,032 | ) | ||||
Repurchase and retirement of common stock | - | (563 | ) | (436 | ) | |||||
Proceeds from exercise of stock options, | ||||||||||
net of withholding taxes paid | 400 | 345 | (30 | ) | ||||||
--------- | --------- | --------- | ||||||||
Net cash provided by (used in) | ||||||||||
financing activities | 15,950 | 19,706 | (800 | ) | ||||||
--------- | --------- | --------- | ||||||||
Net change in cash and cash equivalents | 518 | 105 | 1,505 | |||||||
Effect of exchange rates on cash | 243 | 343 | (1,421 | ) | ||||||
Cash and cash equivalents at January 1 | 4,832 | 4,384 | 4,300 | |||||||
--------- | --------- | --------- | ||||||||
Cash and cash equivalents at December 31 | $ | 5,593 | 4,832 | 4,384 | ||||||
====== | ===== | ===== | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||
Cash paid for interest | $ | 3,824 | 2,827 | 1,729 | ||||||
Cash paid for income taxes | 755 | 1,615 | 3,866 | |||||||
Noncash Investing and Financing:
In January 1999, the Company acquired (through its subsidiary EMS Technologies Canada, Ltd.) the Space Systems and Products Division of Spar Aerospace Limited and Spar Holdings, Inc. (a wholly owned subsidiary of Spar Aerospace Limited) located near Montreal, Quebec. The transaction was accounted for as an asset purchase valued at $17.4 million. The Company made cash payments to the seller of $6.2 million of the purchase price at closing, and installments of $4.2 million in 1999 and $3.5 million in 2000 relating to the deferred portion of the purchase price, with funds provided under the Company's U.S. revolving credit agreement. The remaining $3.5 million of the purchase price was financed by the seller, due, with annual interest of 5.5%, on December 31, 2001. This installment is payable, at the Company's option, either in cash or equivalent value of the Company's common stock.
Following is a summary of the acquisition's financing (in thousands):
Fair value of assets acquired | $ | 26,733 | |
Fair value of liabilities assumed | (9,300 | ) | |
Less: Cash payments in 1999 | (10,458 | ) | |
Less: Cash payments in 2000 | (3,459 | ) | |
----------- | |||
Seller-financed debt at December 31, 2000 | $ | 3,516 | |
===== | |||
See accompanying notes to consolidated financial statements.
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 and 1998
The consolidated financial statements include the accounts of EMS Technologies, Inc. and its wholly owned subsidiaries, LXE Inc., EMS Holdings, Inc. and EMS Technologies Canada, Ltd. (collectively, "the Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Certain balance sheet amounts in 1999 were reclassified to conform with classifications adopted in 2000. Following is a summary of the Company's significant accounting policies:
- - Management's Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes, including revenue recognition under long-term contracts. Actual future results could differ from those estimates.
- - Revenue Recognition
Revenues are derived from sales of the Company's products to end-users and to other manufacturers or systems integrators. Revenues under certain long-term contracts, many of which provide for periodic payments, are recognized under the percentage-of-completion method using the ratio of cost incurred to total estimated cost as the measure of performance. Revenues under cost- reimbursement contracts are recorded as costs are incurred and include an estimate of fees earned. Revenues under all other contracts are recognized when units are delivered or services are performed. Provisions for estimated losses on uncompleted contracts are made in the period in which the probable amounts of such losses are determined. To properly match revenues with costs, certain contracts may have revenue recognized in excess of billings (unbilled revenues), and other contracts may have billings in excess of revenue recognized (deferred revenues). Revenues collected in advance under service contracts are recorded as a liability and recognized over the term of the contract.
- - Cash Equivalents
Cash equivalents as of December 31 included investments of $2,519,000 in 2000 and $2,726,000 in 1999 in money market instruments issued by corporations and the U.S. Government, and interest-bearing deposits with an initial term of less than three months. The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
- - Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market (net realizable value). Work in process consists of raw material and production costs, including indirect manufacturing costs.
- - Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided primarily using the straight-line method over the following estimated useful lives of the respective assets:
Buildings 20 to 40 years
Machinery and equipment 3 to 8 years
Furniture and fixtures 10 years
Leasehold improvements are amortized over the shorter of their estimated useful lives or the terms of the respective leases.
The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. If assets are to be disposed of, such assets are reported at the lower of carrying amount or fair value less costs to sell.
- - Capitalized Software Costs
The Company has capitalized certain costs to develop software that will be licensed to customers. The carrying value of each software product is the lower of total costs incurred or the net realizable value of the product. Capitalization of internally developed software begins upon the establishment of technological feasibility. Costs incurred prior to the establishment of technological feasibility are expensed as incurred. Capitalized software costs are evaluated for impairment at each balance sheet date by comparing the unamortized capitalized costs with net realizable value (i.e., future gross revenues less estimated future costs of completing and disposing of the product, including maintenance and customer support costs to satisfy the Company's responsibility at the time of sale); any excess of the cost over its net realizable value would be written off. Capitalized software costs are amortized on a product-by-product basis, beginning when the product is ready for sale. Annual amortization is based upon the greater of the ratio of current gross revenues for the product to the total of current and anticipated future gross revenues, or the straight-line method over four years. Unamortized software costs are included in other assets and totaled $724,000 and $1.6 million as of December 31, 2000 and 1999, respectively. Amortization of capitalized software costs was $919,000 in 2000, $890,000 in 1999 and $690,000 in 1998.
- - Income Taxes
The Company provides for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are classified as current or non-current based upon the nature of the underlying temporary differences. The effect on deferred taxes of a change in tax rates is recognized in earnings in the period that includes the enactment date.
- - Earnings Per Share
Basic earnings per share is the per share allocation of income available to common stockholders based only on the weighted average number of common shares actually outstanding during the period. Diluted earnings per share represents the per share allocation of income attributable to common stockholders based on the weighted average number of common shares actually outstanding plus all dilutive potential common shares outstanding during the period.
- - Goodwill
Goodwill represents the excess of purchase price over fair value of net assets acquired and is amortized on a straight-line basis over 25 years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation.
The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved.
- - Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense, over the vesting period, the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net earnings and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure required by SFAS No. 123.
- - Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at current exchange rates. Income and expenses of the foreign subsidiaries are translated into U.S. dollars at the approximate average exchange rates that prevailed during the years presented. The functional currency of all subsidiaries is considered to be the local currency; consequently, adjustments resulting from the translation of the subsidiaries' financial statements (including long-term financing from the parent) are reflected in accumulated other comprehensive income in stockholders' equity and not as a part of the results of operations. The Company accrues foreign currency exchange gains or losses on direct export activity and on the LXE European subsidiaries' short-term intercompany liabilities that arise from the purchase of the parent's products for resale.
- - Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income consists of net income and foreign currency translation adjustments and is presented in the consolidated statements of stockholders' equity and comprehensive income.
- - Effect of New Accounting Pronouncements
On December 3, 1999, the Securities and Exchange Commission released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." The Staff's expressed intent in this bulletin was not to change current guidance, but rather to clarify existing guidance summarizing certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition circumstances. SAB No. 101 reiterated four criteria for revenue recognition: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services are rendered, (3) the seller's price to purchase is fixed and determinable, and (4) collectibility is reasonably assured.
The Company implemented SAB No. 101, as required, in the fourth quarter of the fiscal year ended December 31, 2000. The revenue recognition criteria in SAB No. 101 were consistent with the Company's existing revenue recognition policies, and as a result, the implementation of SAB No. 101 did not have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities, " which is required to be adopted in years beginning after June 15, 2000. SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. SFAS No. 133 also establishes new accounting rules for hedging instruments which, depending on the nature of the hedge, require that changes in the fair value of derivatives either must be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or be recognized in other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of a derivative's change in fair value must be immediately recognized in earnings.
The Company will adopt the provisions of SFAS No. 133 on January 1, 2001. Based upon the Company's derivative positions at December 31, 2000, the Company expects that upon adoption of SFAS No. 133, the Company will record a $352,000 net loss from the cumulative effect of the accounting change and a reduction of $408,000 to accumulated other comprehensive income.
- - Derivative Financial Instruments
Derivative financial instruments are utilized by the Company to reduce foreign currency exchange risks of the anticipated future cash flows. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not enter into financial instruments for trading or speculative purposes. Gains and losses on the forward exchange contracts used to hedge the currency fluctuations on transactions denominated in foreign currencies and the offsetting losses and gains on hedged transactions are recorded in non-operating income in the statement of earnings.
(2) NON-OPERATING INCOME
For the years 2000, 1999 and 1998, the most significant recurring item within non-operating income was net gains and losses from foreign currency transactions and remeasurement. The Company reported consolidated net foreign currency losses of $234,000 in 2000 and $745,000 in 1999 and a net gain of $482,000 in 1998.
Other significant items in non-operating income included $526,000 of interest income from short-term investments during 2000. In 1999, the Company recognized a $1.8 million gain from an insurance settlement to compensate the Company for business interruption caused by a tornado that occurred in 1998. In 1998, the Company recognized a $472,000 tornado-related gain on involuntary conversion of insured assets, a $331,000 gain from collection on a note receivable that had previously been reserved, and a $245,000 gain on disposal of a minority investment.
(3) ACQUISITIONS
In November 2000, the Company acquired (through its subsidiary EMS Technologies Canada, Ltd.) Digital Space Systems, Inc. (DSSI), an Ottawa, Ontario software firm specializing in search-and-rescue applications. The transaction was accounted for as an asset purchase valued at a total of $1,340,000. The cash paid at closing totaled $913,000, with the remaining $427,000 due in cash eighteen months from the date of closing and contingent upon the DSSI principals remaining employed with the Company. Generally accepted accounting principles require that the contingent payment be accounted for as compensation expense and not as part of the asset purchase price.
In January 1999, the Company acquired (through its subsidiary EMS Technologies Canada, Ltd.) the Space Systems and Products Division of Spar Aerospace Limited and Spar Holdings, Inc. (a wholly owned subsidiary of Spar Aerospace Limited) - collectively, the Space Division, located near Montreal, Quebec. The transaction was accounted for as an asset purchase under the purchase method of accounting; accordingly, the Company's 1999 consolidated statement of earnings includes only the results of operations of the former Spar Space Division subsequent to the acquisition date. The asset purchase was valued at $17.4 million, representing the $20.3 million price per the purchase agreement, as adjusted for approximately $400,000 of debt owed by the seller and assumed by the Company, which related to Canadian government support for Space Division research activities, and a $2.5 million adjustment for the amount by which the Space Division's actual working capital at the closing date was less than the working capital that had been projected in the purchase agreement. The Company made cash payments to the seller of $6.2 million of the purchase price at closing, and installments of $4.2 million in 1999 and $3.5 million in 2000 relating to the deferred portion of the purchase price, with funds provided under the Company's U.S. revolving credit agreement. The remaining $3.5 million of the purchase price was financed by the seller, due, with annual interest of 5.5%, on December 31, 2001. This installment is payable, at the Company's option, either in cash or equivalent value of the Company's common stock.
The sole asset of Spar Holdings, Inc. (renamed EMS Holdings, Inc.) was an equity investment of less than 5% in a limited partnership. The general partner of the venture is a large, international aerospace firm. The goal of the investment is to enable the Company to participate in the development and implementation of a satellite network that will provide high-data-rate wireless services. In subsequent negotiations with the general partner concerning the Company's future scope of work, the Company agreed to invest an additional $9 million, comprising a $3 million payment in late 1999, a $3 million payment in May 2000, and an in-kind contribution in the form of $3 million of specific technological development. After making these additional investments, the Company's equity stake in the limited partnership will remain below 5%. The Company does not expect to make any further cash or in-kind investments beyond the most recent agreement. The Company's equity investment is accounted for at historical cost and has a carrying value of $17.9 million at December 31, 2000, which includes an in-kind contribution to-date of $1.9 million.
The following schedule (in thousands, except per share data) presents unaudited pro forma consolidated financial data, as though the acquisition had occurred at the beginning of the period reported on:
Years ended December 31 | ||||||||||
---------------------------------- | ||||||||||
1999 | 1998 | |||||||||
------ | ------ | |||||||||
Pro Forma Consolidated Data: | ||||||||||
Revenue | $ | 245,791 | 222,723 | |||||||
Net income | 4,572 | 7,095 | ||||||||
Earnings per share: | ||||||||||
Basic | .53 | .82 | ||||||||
Diluted | .52 | .80 | ||||||||
(4) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable at December 31, 2000 and 1999 included the following (in thousands):
2000 | 1999 | |||||
------ | ------ | |||||
Amounts billed under contracts | $ | 49,174 | 42,769 | |||
Unbilled revenues (substantially all to be billed during | ||||||
the following 12 months) | 41,047 | 36,807 | ||||
Deferred revenue | (14,778 | ) | (11,479 | ) | ||
Allowance for doubtful accounts | (917 | ) | (293 | ) | ||
-------- | --------- | |||||
Trade account receivable, net | $ | 74,526 | 67,804 | |||
===== | ===== |
(5) INVENTORIES
Inventories at December 31, 2000 and 1999 included the following (in thousands):
2000 | 1999 | |||||
------ | ------ | |||||
Parts and materials | $ | 27,730 | 21,946 | |||
Work in process | 6,419 | 4,251 | ||||
Finished goods | 5,406 | 2,860 | ||||
Valuation allowance | (1,372 | ) | (958 | ) | ||
-------- | --------- | |||||
Inventories, net | $ | 38,183 | 28,099 | |||
===== | ===== |
(6) LONG-TERM DEBT
The following is a summary of long-term debt at December 31, 2000 and 1999 (in thousands):
2000 | 1999 | |||||
------ | ------ | |||||
Revolving credit loan with a bank, $10 million secured by U.S. | ||||||
land and building and the remainder unsecured, maturing in | ||||||
November 2003, interest payable quarterly at a variable rate | ||||||
(9.05% at the end of 2000 and 7.65% at the end of 1999) | $ | 30,543 | 19,751 | |||
Revolving credit loan with bank, secured by the assets of | ||||||
EMS Technologies Canada, Ltd. maturing in February 2001, | ||||||
interest payable at a variable rate (7.95% at the end of 2000 | ||||||
and 7.0% at the end of 1999) | 16,895 | 11,620 | ||||
Term loan with an insurance company, secured by a U.S. | ||||||
building, maturing in January 2014, principal and interest | ||||||
payable in equal monthly installments with a fixed interest | ||||||
rate of 7.1% | 6,924 | 7,234 | ||||
Financing agreement with seller of Canadian operations, due in | ||||||
annual installments through December 2001 and payable, at | ||||||
the Company's option, with EMS common stock, interest | ||||||
payable at 5.5% | 3,516 | 6,975 | ||||
Repayable funding from the Government of Canada to support | ||||||
research, due in annual installments based on royalties of | ||||||
.675% of future space-related revenues as of 2000 and .38% to | ||||||
.675% as of 1999, no interest to accrue | 2,928 | 3,135 | ||||
Capital lease agreements, secured by computer hardware, | ||||||
software and peripherals, with various terms through 2002, | ||||||
due in quarterly installments with an implicit interest | ||||||
rate of 9.0% | 859 | 1,605 | ||||
-------- | -------- | |||||
Total long-term debt | 61,665 | 50,320 | ||||
Less current installments of long-term debt | 22,048 | 16,613 | ||||
-------- | -------- | |||||
Long-term debt, excluding current installments | $ | 39,617 | 33,707 | |||
===== | ===== |
During 2000, the Company amended and restated its U.S. revolving credit agreement with a U.S. bank to increase available credit to $40 million. The first $30 million borrowed under this agreement is due November 2003, with no principal payments required until maturity, and borrowings in excess of $30 million are due on demand. The first $10 million of this debt is secured by U.S. land and building with a book value at December 31, 2000 of approximately $6.5 million.
Interest under the U.S. revolving credit agreement is, at the Company's option, a function of either the bank's prime rate or LIBOR. A commitment fee equal to .20% per annum of the daily average unused credit available is payable quarterly in arrears.
The U.S. revolving credit agreement includes a covenant that annually establishes a minimum required consolidated net worth. The minimum consolidated net worth required at December 31, 2000 was approximately $107 million, as compared with the reported consolidated net worth of approximately $113 million. Other covenants limit the amount of debt as compared with total capitalization, or set a minimum ratio by which earnings before interest and income taxes must exceed interest expense. At December 31, 2000 the Company was in compliance with these covenants.
In December 2000, the Company agreed to amend its credit facility with a bank in Canada to fund Canadian operations. As a result, the total Canadian credit facility was increased in January 2001 to $27 million, with $13 million available under a revolving credit agreement payable on demand, $4.7 million under a term installment loan payable in 20 quarterly payments, and the remainder of the facility for letters of credit. The revolving credit agreement is secured by a general pledge of the assets of EMS Technologies Canada, Ltd. The revolving credit agreement and the facility for the letters of credit expire in March 2001, while the term loan expires in 2005.
Interest under the Canadian revolving credit agreement and term loan is a function of the bank's prime rate. A commitment fee equal to .33% per annum of the daily average unused credit available is payable monthly in arrears.
The Canadian revolving credit agreement includes a covenant that annually establishes a minimum required net worth for EMS Technologies Canada, Ltd. The minimum net worth required at December 31, 2000 was approximately $26 million, as compared with the reported net worth of approximately $28 million. Other covenants limit the amount of debt as compared with total capitalization, set a minimum ratio by which earnings before interest and income taxes must exceed interest expense, and set a minimum ratio of current assets as compared with current liabilities. At December 31, 2000, the Company was in compliance with these covenants.
In January 1999, the Company purchased the Space Systems and Products Division of Spar Aerospace Limited for approximately $17.4 million. One-third of the purchase price was financed under the Company's U.S. revolving credit agreement, and the remainder financed by the seller at 5.5% in four installments due over a three-year period. As of December 31, 2000, one installment remained, due on December 31, 2001. This installment is payable, at the Company's option, either in cash or equivalent value of the Company's common stock. This installment is also convertible, at the seller's option, into the Company's common stock at $24 per share. Upon receipt of the seller's notice of conversion, the Company may choose to pay the installment in cash, plus a limited premium based upon the excess of the common stock's market price over the conversion price, as of the date of the notice of conversion.
The combined principal maturities of all long-term debt are $22.0 million in 2001, $1.1 million in 2002, $30.8 million in 2003, $800,000 in 2004, $800,000 in 2005 and $6.2 million thereafter. Included in these totals are principal payments to be made under the Company's capital lease agreements. Following is a summary of annual payment totals under capital lease agreements (in thousands):
2001 | $ | 792 | |
2002 | 99 | ||
----- | |||
Total capital lease payments | 891 | ||
Less: Interest payments | (32 | ) | |
----- | |||
Capitalized lease obligation | $ | 859 | |
=== |
At December 31, 2000, the Company had $4.7 million available for borrowing under the U.S. revolving credit agreement. No additional funds were available for borrowing under the Canadian credit until it was amended in January 2001, making an additional $1.6 million available for borrowing.
(7) STOCK PLANS
The Company has granted incentive and non-qualified stock options to key employees and directors under several stock option plans. All outstanding options have been granted at 100% of fair market value on each option's grant date. All outstanding options become exercisable from one to three years after the date of grant and expire from six to ten years after the date of grant. Under all plans at December 31, 2000, options for a total of 687,000 shares of stock were exercisable, and there were 580,000 shares available for future grants.
Following is a summary of activity in all of the Company's stock option plans for the years ended December 31, 2000, 1999 and 1998 (shares in thousands):
Weighted Average | ||||||||||
Exercise Price | ||||||||||
Shares | Per Share | |||||||||
---------- | ----------------- | |||||||||
Options outstanding at December 31, 1997 | 892 | $ | 12.59 | |||||||
Granted | 291 | 20.42 | ||||||||
Canceled or expired | (45 | ) | 20.12 | |||||||
Exercised | (141 | ) | 6.02 | |||||||
------ | ||||||||||
Options outstanding at December 31, 1998 | 997 | 15.47 | ||||||||
Granted | 311 | 13.41 | ||||||||
Canceled or expired | (41 | ) | 17.63 | |||||||
Exercised | (69 | ) | 6.50 | |||||||
------ | ||||||||||
Options outstanding at December 31, 1999 | 1,198 | 15.38 | ||||||||
Granted | 729 | 15.04 | ||||||||
Canceled or expired | (104 | ) | 18.89 | |||||||
Exercised | (134 | ) | 7.45 | |||||||
------ | ||||||||||
Options outstanding at December 31, 2000 | 1,689 | $ | 15.64 | |||||||
==== | ||||||||||
The weighted average fair value of options granted in 2000, 1999 and 1998 was $8.73, $8.39 and $12.52, respectively. These fair values were based on the Black-Scholes option pricing model and a weighted average risk-free rate of return of 5.1% in 2000, 6.7% in 1999 and 4.8% in 1998, terms from six to ten years, expected volatility of 65% in 2000, 58% in 1999 and 60% in 1998, and no expected dividend yield.
Following is a summary of options outstanding at December 31, 2000 (shares in thousands):
Outstanding | Exercisable | ||||||||||||||||||||||||
---------------------------------- | -------------------------------- | ||||||||||||||||||||||||
Weighted | Weighted Average | Weighted | |||||||||||||||||||||||
Range of | Average Price | Remaining Years In | Average Price | ||||||||||||||||||||||
Exercise Prices | Shares | Per Share | Contractual Life | Shares | Per Share | ||||||||||||||||||||
------------------------- | ----------- | ----------------- | ------------------------ | ---------- | ---------------- | ||||||||||||||||||||
$ | 5.25 | - | 8.50 | 112 | $ | 6.71 | 4.0 | 112 | $ | 6.71 | |||||||||||||||
11.13 | - | 14.00 | 589 | 12.56 | 4.2 | 330 | 11.91 | ||||||||||||||||||
15.13 | - | 17.89 | 541 | 16.18 | 5.5 | 2 | 17.13 | ||||||||||||||||||
18.25 | - | 18.63 | 202 | 18.57 | 3.9 | 79 | 18.48 | ||||||||||||||||||
20.00 | - | 23.50 | 140 | 23.07 | 3.7 | 140 | 23.07 | ||||||||||||||||||
23.75 | - | 27.63 | 105 | 24.09 | 4.2 | 24 | 25.22 | ||||||||||||||||||
------ | ----- | ||||||||||||||||||||||||
$ | 5.25 | - | 27.63 | 1,689 | $ | 15.64 | 4.5 | 687 | $ | 14.68 | |||||||||||||||
==== | === | ||||||||||||||||||||||||
In the Company's capital structure, stock options are the only securities that are potentially dilutive in the future to basic earnings per share for the years ended December 31, 2000, 1999 and 1998, summarized as follows (shares in thousands):
2000 | 1999 | 1998 | ||||||||
------ | ------ | ------ | ||||||||
Dilutive stock options, included in earnings | ||||||||||
per share calculations: | ||||||||||
Shares | 483 | 144 | 438 | |||||||
Average price per share | $ | 11.93 | 7.08 | 8.33 | ||||||
Anti-dilutive stock options, excluded from | ||||||||||
earnings per share calculations: | ||||||||||
Shares | 1,206 | 1,054 | 559 | |||||||
Average price per share | $ | 17.12 | 16.51 | 21.06 |
Following is a reconciliation of the denominator for basic and diluted earnings per share calculations for the years ended December 31, 2000, 1999 and 1998 (shares in thousands):
2000 | 1999 | 1998 | ||||||||
------ | ------ | ------ | ||||||||
Basic earnings per share denominator | 8,766 | 8,703 | 8,675 | |||||||
Common equivalent shares from dilutive stock options | 146 | 72 | 196 | |||||||
-------- | ------- | ------- | ||||||||
Diluted earnings per share denominator | 8,912 | 8,775 | 8,871 | |||||||
===== | ==== | ==== |
Under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company is permitted to continue accounting for the issuance of stock options in accordance with Accounting Principles Board ("APB") Opinion No. 25, which does not require recognition of compensation expense for option grants unless the exercise price is less than the market price on the date of grant. As a result, the Company has not recognized any compensation cost for stock options. If the Company had recognized compensation cost for the "fair value" of option grants under the provisions of SFAS No. 123, the pro forma financial results for 2000, 1999 and 1998 would have differed from the actual results as follows (net earnings in thousands):
2000 | 1999 | 1998 | ||||||||
------ | ------ | ------ | ||||||||
Net earnings: | ||||||||||
As reported | $ | 4,491 | 4,840 | 6,176 | ||||||
Pro forma | 1,903 | 3,088 | 4,788 | |||||||
Basic net earnings per share: | ||||||||||
As reported | .51 | .56 | .71 | |||||||
Pro forma | .22 | .36 | .55 | |||||||
Diluted net earnings per share: | ||||||||||
As reported | .50 | .55 | .70 | |||||||
Pro forma | .22 | .36 | .55 |
Under SFAS No. 123, the fair value of stock options issued in any given year is expensed as compensation over the vesting period, which for substantially all of the Company's options is three years; therefore, the pro forma net earnings and net earnings per share do not reflect the total compensation cost for options granted in the respective years. Furthermore, the pro forma results only include the effect of options granted since 1995; options granted prior to 1995 were not considered.
The Company adopted a Shareholder Rights Plan effective April 6, 1999, to replace a similar plan adopted in 1989 that expired on April 6, 1999. Under the new plan, the Company declared a dividend distribution of one right for each outstanding share of the Company's common stock to stockholders of record at the close of business on April 16, 1999. Future transfers of common stock certificates will also transfer the associated rights. The rights become exercisable for one share of common stock at a specific purchase price (initially $45) upon the acquisition of at least 20% beneficial ownership in the Company without the consent of a majority of the Company's Board of Directors not having an interest in the acquirer. The rights will become exercisable for shares of common stock having a value equal to two times the purchase price, upon the following events: (i) the acquisition of at least a 20% beneficial ownership in the Company without the consent of a majority of the members of the Company's Board of Directors not having an interest in the acquirer, (ii) the acquisition of 2% of the outstanding common stock without such consent, following acquisition of 20% with consent, or (iii) certain merger, consolidation or asset sale transactions, in each case without the consent of a majority of the members of the Company's Board of Directors not having an interest in the acquirer. If the Company is purchased or merged into another company, the rights may become exercisable for comparable securities of the surviving entity. The rights expire on August 6, 2009. At any time before their expiration, the outstanding rights may be redeemed by vote of the Board of Directors at a price of $.01 per right.
(8) INCOME TAXES
Total income tax expense (benefit) provided for in the Company's consolidated financial statements consists of the following for the years ended December 31, 2000, 1999 and 1998 (in thousands):
2000 | 1999 | 1998 | ||||||||
------ | ------ | ------ | ||||||||
Consolidated income tax expense | $ | 1,303 | 1,912 | 3,927 | ||||||
Income tax benefit resulting from exercise of stock | ||||||||||
options credited to stockholders' equity | (446 | ) | (108 | ) | (600 | ) | ||||
Income tax benefit resulting from initial recognition | ||||||||||
of acquired tax benefits credited to goodwill | - | - | (4,458 | ) | ||||||
-------- | ------- | ------- | ||||||||
Total | $ | 857 | 1,804 | (1,131 | ) | |||||
===== | ===== | ===== |
The components of income tax expense (benefit) for the years ended December 31, 2000, 1999 and 1998 were (in thousands):
2000 | 1999 | 1998 | ||||||||
------ | ------ | ------ | ||||||||
Current: | ||||||||||
Federal | $ | 533 | (675 | ) | 3,239 | |||||
State | (4 | ) | (21 | ) | 606 | |||||
Foreign | 389 | 2,771 | (663 | ) | ||||||
-------- | ------- | ------ | ||||||||
Total current expense | 918 | 2,075 | 3,182 | |||||||
-------- | ------- | ------- | ||||||||
Deferred: | ||||||||||
Federal | 37 | 366 | 496 | |||||||
State | 27 | 34 | 23 | |||||||
Foreign | 321 | (563 | ) | 226 | ||||||
-------- | ------- | ------- | ||||||||
Total deferred (benefit) expense | 385 | (163 | ) | 745 | ||||||
-------- | ------- | ------- | ||||||||
Total income tax expense | $ | 1,303 | 1,912 | 3,927 | ||||||
===== | ===== | ===== |
Income tax expense differed as follows from the amounts computed by applying the U.S. federal income tax rate of 34% to earnings before income taxes for the years December 31, 2000, 1999 and 1998 (in thousands):
2000 | 1999 | 1998 | ||||||||
------ | ------ | ------ | ||||||||
Computed "expected" income tax expense | $ | 1,970 | 2,296 | 3,435 | ||||||
Tax credits from research activities | (215 | ) | (116 | ) | (284 | ) | ||||
State income taxes, net of federal income tax benefit | 15 | 7 | 423 | |||||||
Difference in effective foreign tax rates | (621 | ) | (408 | ) | 13 | |||||
Change in deferred tax asset valuation allowance | - | - | (206 | ) | ||||||
Amortization of goodwill | 177 | 177 | 243 | |||||||
Benefit from foreign sales corporation | (216 | ) | (212 | ) | (254 | ) | ||||
Other | 193 | 168 | 557 | |||||||
------- | ------- | ------- | ||||||||
Income tax expense | $ | 1,303 | 1,912 | 3,927 | ||||||
===== | ==== | ==== |
Income tax expense includes benefits recognized from foreign net operating loss carryforwards of $570,000 and $314,000 in 1999 and 1998, respectively.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2000 and 1999 are presented below (in thousands):
2000 | 1999 | |||||
------ | ------ | |||||
Deferred tax assets: | ||||||
Accounts receivable | $ | 296 | 108 | |||
Inventories | 495 | 376 | ||||
Accrued compensation costs | 564 | 536 | ||||
Capital loss carryforward | 473 | 473 | ||||
Foreign research expense and tax credit carryforward | 9,639 | 7,437 | ||||
Foreign net operating loss carryforward | 1,332 | 1,653 | ||||
Foreign note receivable | 72 | 145 | ||||
Gain on sales to foreign subsidiaries | 308 | 575 | ||||
Other | 372 | 95 | ||||
---------- | -------- | |||||
Total gross deferred tax assets | 13,551 | 11,398 | ||||
Valuation allowance | (5,434 | ) | (2,999 | ) | ||
---------- | -------- | |||||
Net deferred tax assets | 8,117 | 8,399 | ||||
---------- | -------- | |||||
Deferred tax liabilities: | ||||||
Property, plant and equipment | 3,713 | 3,738 | ||||
Net gain from foreign transactions and remeasurement | 283 | 283 | ||||
Pension asset | 1,077 | 949 | ||||
--------- | -------- | |||||
Total gross deferred tax liabilities | 5,073 | 4,970 | ||||
--------- | -------- | |||||
Net deferred tax assets | $ | 3,044 | 3,429 | |||
====== | ===== |
The U.S. operations are consolidated for federal income tax purposes. These U.S. operations had combined earnings before income taxes of $1,874,000 in 2000, a loss before income taxes of $942,000 in 1999, and earnings before income taxes of $10,912,000 in 1998. The combined foreign operations reported earnings before income taxes of $3,920,000 and $7,694,000 in 2000 and 1999, respectively, and a loss before income taxes of $809,000 in 1998. The Company's net deferred tax assets at December 31, 2000 include $1,332,000 related to a cumulative $4,090,000 net operating loss incurred by certain European operations, $710,000 of which may be carried forward through 2004, with the remainder allowed to be carried forward indefinitely. Management believes that the expected performance of these operations and the utilization of tax planning strategies will generate adequate earnings to fully realize the deferred tax asset, net of valuation allowance, relating to foreign net operating losses.
(9) RETIREMENT PLANS
The Company established a qualified defined contribution plan in 1993. All U.S.-based employees that meet a minimum service requirement (approximately 700) are eligible to participate in the plan. Company contributions are allocated to each participant based upon an age-weighted formula that discounts an equivalent benefit at age 65 to each employee's current age. Accumulated contributions are invested at each participant's discretion from among a diverse range of investment options offered by an independent investment firm selected by the Company.
The Company's contribution to this plan is determined each year by the Board of Directors. There is no required minimum annual contribution, but the target contribution has been approximately 5% of base payroll. The Company accrued an expense for the defined contribution plan of $2.1 million for 2000, $1.7 million for 1999 and $2.0 million for 1998.
The Company sponsors qualified retirement savings plans in the U.S. and Canada, in which the Company matches a portion of each eligible employee's contributions. The Company's matching contributions to these plans were $604,000 in 2000, $600,000 in 1999 and $599,000 in 1998.
As part of the Company's 1999 acquisition of the Montreal-based Space Systems and Products Division of Spar Aerospace Limited, the Company assumed the assets and liabilities of four defined benefit pension plans, both contributory and non-contributory, that collectively cover substantially all employees (approximately 600) at these operations. Benefit provisions in three of the plans are subject to collective bargaining. Benefits are based upon an employee's years of service and average compensation. The combined pension benefit under all plans for the years ended December 31, 2000 and 1999 included the following components (in thousands):
2000 | 1999 | |||||
------ | ------ | |||||
Expected return on plan assets | $ | 1,831 | 1,959 | |||
Service cost for benefits earned | (379 | ) | (465 | ) | ||
Interest cost on projected benefit obligation | (1,321 | ) | (1,344 | ) | ||
-------- | -------- | |||||
Pension benefit | $ | 131 | 150 | |||
===== | ===== |
The funding policy is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws. Changes in the combined projected benefit obligation for the pension plans were as follows for the years ended December 31, 2000 and 1999 (in thousands):
2000 | 1999 | |||||
------ | ------ | |||||
Projected benefit obligation at January 1 | $ | 20,021 | 22,733 | |||
Service cost for benefits earned during the period | 379 | 465 | ||||
Interest cost on benefit obligation | 1,321 | 1,344 | ||||
Participant contributions | 7 | 30 | ||||
Actuarial gain | (1,181 | ) | (2,908 | ) | ||
Benefits paid | (1,589 | ) | (1,643 | ) | ||
-------- | -------- | |||||
Projected benefit obligation at December 31 | $ | 18,958 | 20,021 | |||
===== | ===== |
Changes in the fair value of assets for pension plans were as follows for the years ended December 31, 2000 and 1999 (in thousands):
2000 | 1999 | |||||
------ | ------ | |||||
Fair value of assets at January 1 | $ | 26,182 | 26,911 | |||
Actual return on plan assets | 3,584 | 840 | ||||
Employer contributions | 25 | 44 | ||||
Participant contributions | 7 | 30 | ||||
Benefits paid | (1,589 | ) | (1,643 | ) | ||
-------- | -------- | |||||
Fair value of assets at December 31 | $ | 28,209 | 26,182 | |||
===== | ===== |
Plan assets are held in a master trust arrangement managed by an independent advisor. Assets of the plans are invested primarily in publicly traded equity and fixed income securities through a master trust arrangement.
The Company recorded pension assets and liabilities as of December 31, 2000 and 1999 as follows (in thousands):
2000 | 1999 | ||||||
----------------- | --------------- | ||||||
Fair value of plan assets | $ | 28,209 | 26,182 | ||||
Projected benefit obligation | (18,958 | ) | (20,021 | ) | |||
Unrecognized actuarial net gain | (4,854 | ) | (1,788 | ) | |||
Purchase price allocation of negative goodwill | (1,289 | ) | (1,289 | ) | |||
-------- | --------- | ||||||
Accrued pension asset | $ | 3,108 | 3,084 | ||||
===== | ===== | ||||||
The actuarial assumptions that were used to determine costs and benefit obligations for pension plans were as follows:
2000 | 1999 | |||
----------- | ----------- | |||
Discount rate | 6.75 | % | 6.0 | % |
Compensation increases | 3.5 | 3.5 | ||
Long-term return on assets | 7.5 | 7.5 | ||
(10) POST-RETIREMENT BENEFITS OTHER THAN PENSION
The Company sponsors four unfunded plans to provide selected health and dental care and life insurance benefits for employees retired from the Montreal operations and their dependents. Employees of the Company's Montreal operations may become eligible for those benefits if they retire while working for the Company. Benefit provisions in three of the plans are subject to collective bargaining. The estimated cost for these benefits is accrued over periods of employee service on an actuarially determined basis. Combined post-retirement benefit cost of all plans for the years ended December 31, 2000 and 1999 included the following components (in thousands):
2000 | 1999 | |||||
------ | ------ | |||||
Service cost for benefits earned | $ | 67 | 45 | |||
Interest cost on accumulated benefit obligation | 204 | 134 | ||||
Amortization of experience loss | 23 | - | ||||
-------- | -------- | |||||
Post-retirement benefit cost | $ | 294 | 179 | |||
===== | ===== |
Changes in the combined accumulated benefit obligation for post-retirement benefits were as follows for the years ended December 31, 2000 and 1999 (in thousands):
2000 | 1999 | |||||
------ | ------ | |||||
Accumulated benefit obligation at January 1 | $ | 2,991 | 2,241 | |||
Service cost for benefits earned during the period | 67 | 45 | ||||
Interest cost n accumulated benefit obligation | 204 | 134 | ||||
Actuarial loss | 307 | 682 | ||||
Benefits paid | (117 | ) | (111 | ) | ||
-------- | -------- | |||||
Accumulated benefit obligation at December 31 | $ | 3,452 | 2,991 | |||
===== | ===== |
The Company recorded a liability for post-retirement benefits at December 31, 2000 and 1999, as follows (in thousands):
2000 | 1999 | |||||
------ | ------ | |||||
Accumulated benefit obligation | $ | 3,452 | 2,991 | |||
Unrecognized actuarial net loss | (1,032 | ) | (682 | ) | ||
-------- | -------- | |||||
Accrued post-retirement benefit liability | $ | 2,420 | 2,309 | |||
===== | ===== | |||||
The actuarial assumptions that were used to determine costs and benefit obligations for post-retirement benefits were as follows:
2000 | 1999 | |||
---------- | ---------- | |||
Discount rate | 6.75 | % | 7.00 | % |
Healthcare cost trend - current | 6.35 | 6.85 | ||
Healthcare cost trend - ultimate | 4.45 | 4.45 | ||
Dental care cost trend - ultimate | 4.50 | 4.50 | ||
Increasing the assumed healthcare and dental care cost trend rates by one percentage point would increase the aggregate service and interest cost components of net post-retirement benefit expense for 2000 by $26,000 and the accumulated post-retirement benefit obligation at December 31, 2000 by $320,000. A decrease of one percentage point would reduce service and interest costs by $23,000 and decrease the December 31, 2000 obligation by $262,000.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes certain information regarding the fair value of the Company's financial instruments at December 31, 2000 and 1999:
Cash and cash equivalents, trade accounts receivable and accounts payable -- The carrying amount approximates fair value because of the short maturity of these instruments.
Long-term debt -- Most of the Company's long-term debt bears interest at variable rates that management believes are commensurate with rates currently available on similar debt. Accordingly, the carrying value of variable-rate long-term debt approximates fair value.
The Company's largest fixed-rate, long-term debt is a mortgage with a 7.1% current rate; the carrying amount at December 31, 2000 was $6.9 million, which approximates fair value, based on current market rates at which the Company could borrow funds with similar remaining maturities.
The Company also has a financing agreement with the seller of the Montreal operations, with an interest rate of 5.5% and a carrying value of $3.5 million. The remaining installment in 2001 is convertible at the seller's option into the Company's common stock at the strike price of $24 per share. Upon receipt of the seller's notice of conversion, the Company may choose to pay an installment in cash, plus a limited premium based upon the excess of the market price over the conversion price. It is impracticable to obtain independent market information concerning the value of this specific conversion/premium feature. However, the Company believes that the estimated fair value of this financing agreement is not materially different from its carrying value, when all the terms (including the conversion/premium feature) are considered.
(12) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company is organized into two reportable segments: Space and Technology, and Wireless Products. Each segment is separately managed and comprises a range of products and services that share distinct operating characteristics. The Company evaluates each segment primarily upon operating profit.
The Space and Technology segment manufactures custom-designed, highly engineered hardware for use in space and satellite communications, radar, surveillance and military counter-measures. Orders typically involve development and production schedules that can extend a year or more, and most revenues are recognized under percentage-of-completion long-term contract accounting. Hardware is sold to prime contractors or systems integrators rather than end-users.
The Wireless Products segment manufactures standardized antennas, terminals, and other wireless network products for use in logistics, PCS/cellular communications, and aeronautical satellite communications. The manufacturing cycle for each order is generally just a few days, and revenues are recognized upon shipment of hardware. Hardware is marketed to end-users and to third-parties who incorporate their products and services with the Company's hardware for delivery to an end- user.
Accounting policies for segments are the same as those described in the summary of significant accounting policies, except that deferred income tax assets and liabilities are provided for only at the consolidated level.
(In thousands)
Years ended December 31 | ||||||||||
--------------------------------------- | ||||||||||
2000 | 1999 | 1998 | ||||||||
------ | ------ | ------ | ||||||||
Net sales: | ||||||||||
Space and technology | $ | 118,179 | 123,194 | 57,840 | ||||||
Wireless products | 159,277 | 122,559 | 119,323 | |||||||
Inter-segment activity | (4,313 | ) | (3,339 | ) | - | |||||
---------- | --------- | --------- | ||||||||
Total | $ | 273,143 | 242,414 | 177,163 | ||||||
====== | ====== | ====== | ||||||||
Operating income (loss): | ||||||||||
Space and technology | $ | (4,902 | ) | 2,167 | (1,913 | ) | ||||
Wireless products | 14,847 | 6,102 | 12,143 | |||||||
--------- | --------- | --------- | ||||||||
Total | $ | 9,945 | 8,269 | 10,230 | ||||||
====== | ====== | ====== | ||||||||
Non-operating income (expense), net: | ||||||||||
Space and technology | $ | 2 | 563 | 395 | ||||||
Wireless products | (34 | ) | 747 | 934 | ||||||
Corporate | 207 | - | 273 | |||||||
-------- | --------- | --------- | ||||||||
Total | $ | 175 | 1,310 | 1,602 | ||||||
===== | ====== | ====== | ||||||||
Interest expense: | ||||||||||
Space and technology | $ | (2,565 | ) | (1,310 | ) | (967 | ) | |||
Wireless products | (1,392 | ) | (1,132 | ) | (1,366 | ) | ||||
Corporate | (369 | ) | (385 | ) | 604 | |||||
--------- | --------- | --------- | ||||||||
Total | $ | (4,326 | ) | (2,827 | ) | (1,729 | ) | |||
====== | ====== | ====== |
Years ended December 31 | ||||||||||
--------------------------------------- | ||||||||||
2000 | 1999 | 1998 | ||||||||
Income tax benefit (expense): | ------ | ------ | ------ | |||||||
Space and technology | $ | 3,034 | 139 | 810 | ||||||
Wireless products | (4,620 | ) | (2,197 | ) | (4,503 | ) | ||||
Corporate | 283 | 146 | (234 | ) | ||||||
--------- | --------- | --------- | ||||||||
Total | $ | (1,303 | ) | (1,912 | ) | (3,927 | ) | |||
====== | ====== | ====== | ||||||||
Net earnings (loss): | ||||||||||
Space and technology | $ | (4,431 | ) | 1,559 | (1,675 | ) | ||||
Wireless products | 8,801 | 3,520 | 7,208 | |||||||
Corporate | 121 | (239 | ) | 643 | ||||||
--------- | --------- | --------- | ||||||||
Total | $ | 4,491 | 4,840 | 6,176 | ||||||
====== | ====== | ====== | ||||||||
Capital expenditures: | ||||||||||
Space and technology | $ | 6,037 | 9,111 | 5,083 | ||||||
Wireless products | 3,305 | 2,545 | 2,657 | |||||||
-------- | --------- | --------- | ||||||||
Total | $ | 9,342 | 11,656 | 7,740 | ||||||
===== | ====== | ====== | ||||||||
Depreciation and amortization: | ||||||||||
Space and technology | $ | 5,068 | 2,918 | 3,006 | ||||||
Wireless products | 4,077 | 4,610 | 4,442 | |||||||
-------- | --------- | --------- | ||||||||
Total | $ | 9,145 | 7,528 | 7,448 | ||||||
===== | ====== | ====== | ||||||||
As of December 31 | ||||||||||
-------------------------------------- | ||||||||||
2000 | 1999 | 1998 | ||||||||
------ | ------ | ------ | ||||||||
Assets: | ||||||||||
Space and technology | $ | 116,113 | 108,613 | 58,046 | ||||||
Wireless products | 91,506 | 76,964 | 81,538 | |||||||
Corporate | 8,494 | 4,251 | 7,802 | |||||||
---------- | ---------- | ---------- | ||||||||
Total | $ | 216,113 | 189,828 | 147,386 | ||||||
====== | ====== | ====== | ||||||||
Following is a summary of enterprise-wide information (in thousands): | ||||||||||
Years ended December 31 | ||||||||||
--------------------------------------- | ||||||||||
2000 | 1999 | 1998 | ||||||||
------ | ------ | ------ | ||||||||
Revenues from the following products and services: | ||||||||||
Space and technology | $ | 118,179 | 123,194 | 57,840 | ||||||
Wireless products: | ||||||||||
Network products and systems integration | 82,862 | 83,547 | 85,303 | |||||||
Wireless infrastructure | 61,191 | 25,696 | 23,219 | |||||||
Aeronautical satellite communications | 15,224 | 13,316 | 10,801 | |||||||
Inter-segment activity | (4,313 | ) | (3,339 | ) | - | |||||
--------- | --------- | --------- | ||||||||
Total | $ | 273,143 | 242,414 | 177,163 | ||||||
====== | ====== | ====== | ||||||||
Net sales to customers in the following countries: | ||||||||||
United States | $ | 160,958 | 117,471 | 127,590 | ||||||
Canada | 53,124 | 60,723 | 6,550 | |||||||
United Kingdom | 10,236 | 4,766 | 669 | |||||||
France | 9,092 | 12,028 | 13,657 | |||||||
Other foreign countries | 39,733 | 47,426 | 28,697 | |||||||
--------- | --------- | --------- | ||||||||
Total | $ | 273,143 | 242,414 | 177,163 | ||||||
====== | ====== | ====== | ||||||||
As of December 31 | ||||||||||
-------------------------------------- | ||||||||||
2000 | 1999 | 1998 | ||||||||
------ | ------ | ------ | ||||||||
Long-lived assets located in the following countries: | ||||||||||
United States | $ | 63,507 | 60,400 | 49,471 | ||||||
Canada | 30,242 | 24,424 | 3,927 | |||||||
Other foreign countries | 1,018 | 840 | 708 | |||||||
--------- | --------- | --------- | ||||||||
Total | $ | 94,767 | 85,664 | 54,106 | ||||||
====== | ====== | ====== | ||||||||
No customers accounted for more than 10% of consolidated net sales in 2000, 1999 or 1998.
(13) FOREIGN EXCHANGE CONTRACTS
Forward foreign exchange contracts are used to hedge currency fluctuations in future cash flows denominated in foreign currencies, thereby limiting the Company's risk that would otherwise result from changes in exchange rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not enter into financial instruments for trading or speculative purposes. Gains and losses on the forward exchange contracts used to hedge the currency fluctuations on transactions denominated in foreign currencies and the offsetting losses and gains on hedged transactions are recorded in non-operating income in the statement of earnings. The periods of the forward foreign exchange contracts correspond to the periods of the hedged transactions.
The table below summarizes, by major currency, the notional amounts of foreign currency forward contracts in U.S. dollars at December 31, 2000. The "buy" amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the "sell" amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies. All of the Company's foreign currency forward contracts will mature during 2001.
(In thousands) | 2000 | |||
--------------------- | ||||
Buy | Sell | |||
-------- | -------- | |||
U.S. dollar | $ 4,500 | 6,592 | ||
Canadian dollar | 13,892 | - | ||
Euro | - | 9,544 | ||
--------- | --------- | |||
Total | $ 18,392 | 16,136 | ||
===== | ===== | |||
The fair market value of these foreign exchange contracts was a net liability of $382,000 at December 31, 2000.
(14) WRITEDOWN OF NETSAT 28 ASSETS
In September 1999, the Company negotiated an agreement to acquire control of NetSat 28 Company, L.L.C. (NetSat), which proposes to offer broadband communications services via a high-capacity geostationary Ka-band satellite over the United States. This acquisition was subject to approval by the Federal Communications Commission (FCC) to transfer control of NetSat's license to launch and operate its services. In the first half of 2000, the Company recorded $2.9 million of receivables and inventory related to NetSat's activities. In mid-2000, the FCC unexpectedly revoked NetSat's license, based upon NetSat's failure to begin satellite construction prior to a milestone date of May 1998. The Company was unable to determine, prior to the issuance of its financial statements for the year 2000, the probable outcome and timing of: (i) the FCC's response to NetSat's application to reinstate its license, or (ii) negotiations with potential investors in the NetSat venture. As a result of these uncertainties, the Company wrote down the full $2.9 million value of its NetSat-related receivables and inventories as of December 31, 2000.
(15) COMMITMENTS AND CONTINGENCIES
The Company is committed under several non-cancelable operating leases for office space, computer and office equipment and automobiles. Minimum annual lease payments under such leases are $3,816,000 in 2001, $2,868,000 in 2002, $2,321,000 in 2003, $1,132,000 in 2004, $1,019,000 in 2005 and $1,697,000 thereafter.
The Company also has short-term leases for regional sales offices, equipment and automobiles. Total rent expense under all operating leases was approximately $4,868,000, $5,156,000 and $3,624,000 in 2000, 1999 and 1998, respectively.
The Company's Canadian operations have received cost-sharing assistance from the Government of Canada under several programs that support the development of new commercial technologies and products for space. This funding is repayable in the form of royalties, the level of which will depend upon several factors, including future revenue and profit levels to be derived from the potential new technologies and products. To the extent that the royalties may exceed the repayable amounts already recorded in long-term debt, the Company will incur royalties expense; however, these royalties accrue at rates generally less than one percent of related sales, and royalties will be incurred only if additional revenues and profits are also recognized from new technologies and products. As a result, although the Company cannot accurately estimate the level of future possible royalties, the Company does not believe that such royalties will have a material adverse effect on future results of operations.
(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of interim financial information for the years ended December 31, 2000 and 1999 (in thousands, except per share data):
2000 Quarters ended | ||||||||||||||||||
-------------------------------------------------------------------------------- | ||||||||||||||||||
March 31 | June 30 | September 29 | December 31 | |||||||||||||||
----------- | ----------- | ----------- | ----------- | |||||||||||||||
Net sales | $ | 62,434 | 76,883 | 69,866 | 63,960 | |||||||||||||
Operating income | 1,720 | 3,358 | 3,812 | 1,055 | ||||||||||||||
Net earnings | 784 | 1,612 | 1,815 | 280 | ||||||||||||||
Net earnings per share: | ||||||||||||||||||
Basic | .09 | .18 | .21 | .03 | ||||||||||||||
Diluted | .09 | .18 | .20 | .03 | ||||||||||||||
1999 Quarters ended | ||||||||||||||||||
-------------------------------------------------------------------------------- | ||||||||||||||||||
April 2 | July 2 | October 1 | December 31 | |||||||||||||||
----------- | ----------- | ----------- | ----------- | |||||||||||||||
Net sales | $ | 55,193 | 67,455 | 54,274 | 65,492 | |||||||||||||
Operating income (loss) | 3,520 | 3,837 | 1,611 | (699 | ) | |||||||||||||
Net earnings | 1,962 | 2,090 | 526 | 262 | ||||||||||||||
Net earnings per share: | ||||||||||||||||||
Basic | .23 | .24 | .06 | .03 | ||||||||||||||
Diluted | .22 | .24 | .06 | .03 | ||||||||||||||
Operating income in the fourth quarter of 2000 included a $2.9 million write-down for receivables and inventory related to the operations of NetSat28 Company, L.L.C.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EMS Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of EMS Technologies, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated financial statements of EMS Technologies Canada, Ltd., a wholly-owned subsidiary, which statements reflect total assets constituting 36% and 35% and total revenues constituting 31% and 42% in 2000 and 1999, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for EMS Technologies Canada, Ltd., is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EMS Technologies, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
KPMG LLP
Atlanta, Georgia
February 8, 2001
Selected Financial Data
(In thousands, except earnings per share)
Years ended December 31 | ||||||||||||||||
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2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||
------ | ------ | ------ | ------ | ------ | ||||||||||||
Net sales | $ | 273,143 | 242,414 | 177,163 | 171,230 | 149,758 | ||||||||||
Cost of sales | 181,937 | 167,118 | 115,127 | 111,925 | 97,258 | |||||||||||
Selling, general and | ||||||||||||||||
administrative expenses | 50,635 | 45,211 | 38,666 | 35,758 | 31,070 | |||||||||||
Research and development expenses | 27,735 | 21,816 | 13,140 | 9,134 | 12,121 | |||||||||||
Writedown of NetSat 28 assets | 2,891 | - | - | - | - | |||||||||||
Loss on investment in software | - | - | - | - | 1,645 | |||||||||||
--------- | ---------- | ---------- | ---------- | ---------- | ||||||||||||
Operating income | 9,945 | 8,269 | 10,230 | 14,413 | 7,664 | |||||||||||
Non-operating (expense) income, net | 175 | 1,310 | 1,602 | (249 | ) | (304 | ) | |||||||||
Interest expense | (4,326 | ) | (2,827 | ) | (1,729 | ) | (1,849 | ) | (1,113 | ) | ||||||
--------- | ---------- | ---------- | ---------- | ---------- | ||||||||||||
Earnings before income | ||||||||||||||||
taxes and minority interest | 5,794 | 6,752 | 10,103 | 12,315 | 6,247 | |||||||||||
Income tax expense | (1,303 | ) | (1,912 | ) | (3,927 | ) | (4,924 | ) | (1,484 | ) | ||||||
Minority interest in LXE net loss | - | - | - | - | 264 | |||||||||||
--------- | ---------- | ---------- | ---------- | ---------- | ||||||||||||
Net earnings | $ | 4,491 | 4,840 | 6,176 | 7,391 | 5,027 | ||||||||||
====== | ====== | ====== | ====== | ====== | ||||||||||||
Net earnings per share: | ||||||||||||||||
Basic | $ | .51 | .56 | .71 | .87 | .68 | ||||||||||
Diluted | .50 | .55 | .70 | .84 | .66 | |||||||||||
Weighted average number of shares: | ||||||||||||||||
Common | 8,766 | 8,703 | 8,675 | 8,544 | 7,403 | |||||||||||
Common and dilutive | ||||||||||||||||
common equivalent | 8,912 | 8,775 | 8,871 | 8,820 | 7,631 | |||||||||||
As of December 31 | ||||||||||||||||
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2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||
------ | ------ | ------ | ------ | ------ | ||||||||||||
Working capital | $ | 54,590 | 51,449 | 62,533 | 56,830 | 45,352 | ||||||||||
Total assets | 216,113 | 189,828 | 147,386 | 143,654 | 127,077 | |||||||||||
Long-term debt (excluding | ||||||||||||||||
current installments) | 39,617 | 33,707 | 19,150 | 17,160 | 12,230 | |||||||||||
Stockholders' equity | 111,429 | 105,815 | 100,660 | 95,220 | 87,250 | |||||||||||
No cash dividends have been declared or paid during any of the periods presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations -
Consolidated net sales increased to $273 million in 2000 from $242 million in 1999 and $177 million in 1998. The growth in 2000 resulted from higher sales in the Wireless Products segment, and the growth in 1999 related to higher Space and Technology segment revenues following the acquisition in January 1999 of the Space Systems and Products Division of Spar Aerospace Limited located near Montreal, Quebec. Most revenues were derived from commercial and international markets (90 % in 2000, 86% in 1999 and 79% in 1998), as compared with sales for U.S. government end-use. More revenues were derived from sales to systems integrators, third-party manufacturers and distributors than from sales directly to end-user customers.
Management places strong emphasis on analyzing its business by its two major segments. Revenues from the Wireless Products segment increased to $159 million in 2000 from $123 million in 1999 and $119 million in 1998. This growth related to the expansion of wireless (PCS/Cellular) telecommunications infrastructure, particularly in North America, and increasing sales into this market of the Company's base station antennas. Revenues from the Space and Technology segment decreased slightly to $118 million in 2000 from $123 million in 1999, as a result of slower production to accommodate customers' schedule changes. The 1999 revenues for this segment increased to $123 million from $58 million in 1998 after the Company acquired its Montreal operations during 1999.
Cost of sales, as a percentage of consolidated net sales, was 67% in 2000, 69% in 1999 and 65% in 1998. The 2000 decrease in the cost-of-sales percentage related to strong growth in the Wireless Product segment, which has a significantly lower cost-of-sales percentage than the Space and Technology segment. In 1999, the increase in the cost-of-sales percentage related to the acquisition of the Montreal space operations.
Selling, general and administrative expenses (SG&A) were 19% of consolidated net sales in 2000, compared with 19% in 1999 and 22% in 1998. The lower SG&A percentage in 1999 was the result of growth in the Space and Technology segment, which generally has a lower SG&A percentage than other parts of the Company.
Research and development expenses represent the cost of the Company's internally funded efforts. Significant research and development efforts also occur under specific customer orders in the Space and Technology segment and, accordingly, are reflected in cost of sales. Internally funded research and development expenses were 10% of consolidated net sales in 2000, compared with 9% in 1999 and 7% in 1998. The increases over this three-year period related to new wireless applications being developed for space, satellite communications and private local area networks.
In September 1999, the Company negotiated an agreement to acquire control of NetSat28 Company, L.L.C. (NetSat), which proposes to offer broadband communications services via a high-capacity geostationary Ka-band satellite over the United States. This acquisition was subject to approval by the Federal Communications Commission (FCC) to transfer control of NetSat's license to launch and operate its services. In the first half of 2000, the Company recorded $2.9 million of receivables and inventory related to NetSat's activities. In mid-2000, the FCC unexpectedly revoked NetSat's license, based upon NetSat's failure to begin satellite construction prior to a milestone date of May 1998. The Company was unable to determine, prior to the issuance of its financial statements for the year 2000, the probable outcome and timing of: (i) the FCC's response to NetSat's application to reinstate its license, or (ii) negotiations with potential investors in the NetSat venture. As a result of these uncertainties, the Company wrote down the full $2.9 million value of its NetSat-related receivables and inventories as of December 31, 2000.
The most significant recurring item within non-operating income was net gains or losses resulting from foreign currency transactions and from translation of the European subsidiaries' short-term intercompany liabilities that arise from the purchase of the parent's products for resale in Europe. The Company recognized a foreign currency loss of $234,000 in 2000, a loss of $745,000 in 1999 and a gain of $482,000 in 1998. At the end of 2000, the consolidated foreign currency translation adjustment (representing all of the accumulated other comprehensive loss) was a $1.6 million loss.
In addition to the foreign currency loss in 2000, the Company recorded interest income of $526,000 that resulted from balances in interest bearing accounts. The remaining non-operating income in 1999 included a $1.8 million gain from an insurance settlement to compensate the Company for its tornado-caused business interruption in 1998. Non-operating income in 1998 included a $472,000 tornado-related gain on involuntary conversion of insured assets, a $331,000 gain from collection on a note receivable that had previously been reserved, and a $245,000 gain on disposal of a minority investment.
Interest expense increased to $4.3 million in 2000 compared with $2.8 million in 1999 and $1.7 million in 1998 reflecting increased levels of debt and higher interest rates.
The effective income tax rate was 22% for 2000, compared with 28% in 1999 and 39% in 1998. These decreases related to a comparatively higher proportion of pre-tax profits being derived from the Company's Canadian operations, which benefit from research-related income tax incentives. The Company expects that the effective income tax rate in 2001 will be approximately 28%, based upon the management's expectation that 2001 pre-tax profits derived in the U.S. will be higher as a proportion of consolidated pre-tax profits than in 2000.
Liquidity and Capital Resources -
Cash provided by operating activities was $3.2 million in 2000 compared to $5.5 million in 1999 and $10 million in 1998. The decrease in operating cash flow for 2000 is due to higher receivables and inventory as of the end of 2000. The Company purchased $9.3 million in fixed assets during 2000, invested an additional $4.9 million in a limited partnership, and borrowed $16.1 million under its credit facilities.
The borrowings under long-term debt in 2000 and 1999 were mainly to purchase fixed assets and make long-term investments. The long-term debt specifically increased in 1999 from 1998 due to financing of the assets purchased in Montreal. One-third of the purchase price was financed at closing through the Company's U.S. revolving credit agreement. The remainder of the purchase price was financed by the seller in four equal installments, with the second installment being adjusted for actual versus projected working capital determined as of the closing date. In 1999 and 2000, the Company paid the first three installments in cash, with funds drawn from the Company's U.S. revolving credit agreement. The remaining installment is due, with annual interest of 5.5%, on December 31, 2001. This installment is payable, at the Company's option, either in cash or equivalent value of the Company's common stock.
During 2000, the Company amended its existing U.S. revolving credit agreement to increase the available credit to a total of $40 million. The first $30 million borrowed under this agreement is due November 2003, with no principal payments required until maturity, and borrowings in excess of $30 million are due on demand.
The Company's recent growth has utilized a significant portion of its credit facilities, and significant additional sources of liquidity will be needed over the next few years if the Company and its markets continue to grow. At December 31, 2000 the Company has $4.7 million available for borrowing under the U.S. revolving credit agreement. No additional funds were available for borrowing under the Company's Canadian credit facility until it was amended in January 2001, making an additional $1.6 million available for borrowing. The Company was pursuing several alternatives at the end of 2000 to gain access to additional credit. In January 2001, the Company negotiated a $2.4 million sale-and-leaseback of certain asset purchases, and it secured a $6 million credit line for future leasing of certain assets. The Company also believes that it could obtain additional funds in a relatively short time by securing a mortgage on certain U.S. property. In addition, the Company is considering such longer-term financing measures as a placement of common stock or convertible securities.
Risk Factors and Forward-Looking Statements -
Forward looking statements with respect to cash flows and tax rates are included in management's discussion and analysis of financial condition and results of operations. Actual results could differ materially from those suggested in any forward-looking statements as a result of a variety of factors. Such factors include, but are not limited to:
Effect of New Accounting Pronouncements -
On December 3, 1999, the Securities and Exchange Commission released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." The Staff's expressed intent in this bulletin was not to change current guidance, but rather to clarify existing guidance summarizing certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition circumstances. SAB No. 101 reiterated four criteria for revenue recognition: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services are rendered, (3) the seller's price to purchase is fixed and determinable, and (4) collectibility is reasonably assured.
The Company implemented SAB No. 101, as required, in the fourth quarter of the fiscal year ended December 31, 2000. The revenue recognition criteria in SAB No. 101 were consistent with the Company's existing revenue recognition policies, and as a result, the implementation of SAB No. 101 did not have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities, " which is required to be adopted in years beginning after June 15, 2000. SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. SFAS No. 133 also establishes new accounting rules for hedging instruments which, depending on the nature of the hedge, require that changes in the fair value of derivatives either must be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or be recognized in other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of a derivative's change in fair value must be immediately recognized in earnings.
The Company will adopt the provisions of SFAS No. 133 on January 1, 2001. Based upon the Company's derivative positions at December 31, 2000, the Company expects that upon adoption of SFAS No. 133, the Company will record a $352,000 loss from the cumulative effect of the accounting change and a reduction of $408,000 in accumulated other comprehensive income.
Exhibit 23.1
The Board of Directors
EMS Technologies, Inc.
We consent to incorporation by reference in the registration statements on Forms S-8 (Nos. 2-76455, 2-78442, 2-94049, 33-31216, 33-41042, 33-50528, 333-20843, 333-32425, 333-35842 and 333-86973) and S-3 (No. 333-76797) of EMS Technologies, Inc. of our reports dated February 8, 2001, relating to the consolidated balance sheets of EMS Technologies, Inc. and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000, and the related schedule, which reports appear or are incorporated by reference in the December 31, 2000 annual report on Form 10-K of EMS Technologies, Inc.
In our reports specified above, we state that we did not audit the financial statements of EMS Technologies Canada, Ltd., a wholly-owned subsidiary, which statements were audited by other auditors whose report has been furnished to us. Our opinion, insofar as it relates to EMS Technologies Canada, Ltd., is based solely on the report of the other auditors.
KPMG LLP
Atlanta, Georgia
April 16, 2001
xhibit 23.2
Consent of Independent Chartered Accountants
To the Stockholder of
EMS Technologies Canada, Ltd.
We consent to the incorporation in this Annual Report (Form 10-K) of EMS Technologies, Inc. for its fiscal year ended December 31, 2000, of our report dated January 30, 2001 with respect to the consolidated balance sheet of EMS Technologies Canada, Ltd. as at December 31, 2000 and the consolidated statements of operations, stockholder's equity and cash flows for the year then ended.
We also consent to incorporation by reference in the registration statements on Form S-8 (Nos. 2-76455, 2-78442, 2-94049, 33-31216, 33-41042, 33-50528, 333-20843, 333-32425, 333-35842 and 333-86973) of EMS Technologies, Inc of our report dated January 30, 2001 with respect to the consolidated balance sheet of EMS Technologies Canada, Ltd. as at December 31, 2000, the consolidated statements of operations, stockholder's equity and cash flows for the each of the years in the three-year period ended December 31, 2000.
Ernst & Young LLP
Chartered Accountants
Ottawa, Canada
April 16, 2001
Exhibit 99.1
INDEPENDENT
AUDITORS' REPORT
To the Directors of
EMS Technologies Canada, Ltd.
We have audited the consolidated balance sheets ofEMS Technologies Canada, Ltd. as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholder's equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EMS Technologies Canada, Ltd. as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Ernst & Young LLP
Chartered Accountants
Ottawa, Canada,
January 30, 2001
