UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X 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, 1996
Commission File #0-6072
ELECTROMAGNETIC SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-1035424
(State of incorporation) (IRS Employer ID No.)
or organization)
660 Engineering Drive
Norcross, Georgia 30092
(Address of principal (Zip Code)
executive offices)
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 24, 1997, was
$155,524,000, based on a closing price of $18.875 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 24, 1997, the number of shares of the registrant's
common stock outstanding was 8,513,268 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Company's 1996 Annual Report
to Shareholders and definitive proxy statement for the 1997
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
Electromagnetic Sciences, Inc. (the "Company") was organized in
1968 by a group of scientists, engineers, and technicians led by
Dr. John E. Pippin, now chairman of the Company's Board of
Directors. The Company is organized under Georgia law, and its
headquarters and principal operating facilities are in Technology
Park, Norcross, Georgia.
The operations of the Company are conducted through its wholly-owned
subsidiaries, EMS Technologies, Inc.("EMS")and LXE Inc.
("LXE"), and a 74%-owned subsidiary, CAL Corporation ("CAL"), a
Canadian corporation acquired in 1993.
The Company designs and produces a wide range of advanced
communications and signal processing products with an emphasis on
wireless networks. Antennas, microwave systems, subsystems, and
components are used in space and satellite communications,
cellular telecommunications, radar, surveillance, search and
rescue systems, and military electronic countermeasure systems.
The Company also produces wireless logistics systems, which
provide real time, wireless data and transaction processing,
mainly for materials handling operations. Advanced
communications and signal processing products accounted for 53%,
52% and 46% of consolidated net sales in 1996, 1995 and 1994,
respectively, while wireless logistics systems accounted for 47%,
48% and 54% of consolidated sales in the same respective years.
ADVANCED COMMUNICATIONS AND SIGNAL PROCESSING PRODUCTS
The Company's advanced communications and signal processing
products require expertise in microwave and mechanical design,
analog and digital electronics, microelectronics, and materials
science. More than 50% of the revenues from this product area
are currently derived from space or satellite-related
applications. Following is a description of the Company's
principal advanced communications and signal processing products.
COMPONENTS
The Company manufactures a variety of microwave components,
including phase shifters, switches, circulators, and
isolators. Phase shifters control how a signal will combine
with others to form a wavefront. These devices can make
many thousands of phase changes per second, and used in such
applications as beam-steering in radar. Electronically
controlled switches change the direction of microwave
signals and connect various elements of a system. High-
speed microwave switches are used to control signal
paths in satellite communications and other systems.
Circulators are usually three-port devices that route
microwave signals along specific channels. One of the ports
may be terminated to an absorber of microwaves, and the
resulting two-port device becomes an isolator. Circulators
and isolators are used in a variety of ways in many
microwave systems.
MICROWAVE SUBSYSTEMS
Subsystems are complex collections of components (such as
phase shifters, switches, circulators and isolators) and
electronic circuits that are designed to perform a major
function within a microwave system, such as beam-forming
networks for satellite communications systems, which allow
antenna patterns to be electronically changed. Other
subsystems include phase shifter subsystems for beam
steering radar, complex switching assemblies for electronic
countermeasures systems, amplifier and power converter
assemblies for remote sensing satellites, and solid state
power amplifiers for satellite communications.
SPACE AND SATELLITE-BASED SYSTEMS
The Company pro vides a variety of specialized systems for
applications in space, including scientific instruments,
spacecraft an tennas, microgravity facilities, and satellite
power conditioning equipment. CAL is a leading provider of
the ground station component for satellite-based search and
rescue (SARSAT) systems, and its local user terminal (LUT)
determines the location of marine or aviation beacons that transmit
distress signals to a satellite. CAL also produces
aeronautical mobile terminals (AMT) that provide worldwide
voice/data communications capabilities to private aircraft
via a digital satellite link; a distinctive component of the
AMT system is an antenna that automatically remains
directed towards a geostationary communications satellite,
yet is small enough to be located under a low-profile radome
in the optimally effective position atop the aircraft's tail.
ANTENNA SYSTEMS
The Company provides entire antenna systems for certain
applications. These antennas include phased array and
multiple beam technologies, and encompass electronically and
mechanically steered applications.
PCS/CELLULAR BASE-STATION ANTENNAS
The Company's antennas for PCS/cellular telecommunications
base stations utilize microwave technology for a very
uniform coverage pattern as compared with conventional
antennas. The Company believes that this antenna design
minimizes interference of other cells, reduces dead spots
within a cell, and improves signal hand-off as a user moves
from one cell to another. Furthermore, the latest PCs/cellular
antennas offer increased mounting flexibility, for lower costs.
1996 DEVELOPMENTS
Space electronics and satellite communications (SATCOM) currently
represent over 50% of total revenue generated from advanced
communications and signal processing products. Milstar -- a
satellite communications project of the combined armed services --
continued to be a significant program for the Company in 1996.
The Company also delivered its first antenna system for space. In
low-earth-orbit programs, the Company provided more switching
gear for the Iridium global network and pursued a larger role in
other global networks under development, resulting in a recent $1
million contract award for hardware to be used in a European-developed
network.
The Company completed certification of its "CALQuest"
aeronautical SATCOM antennas and terminal systems for an
additional twenty models of aircraft. This expanded market
coverage enabled the Company to deliver hardware for more than
one hundred aircraft installations, which made an important
contribution to revenue growth in 1996.
Electronics systems for defense applications continued to provide
profitable opportunities for the Company in 1996, including an
ongoing program effort to produce airborne phased array antenna
systems. This phased-array technology may also be applied
ultimately to the development of "smart" antennas for future
wireless commercial networks providing high data-rate services to
land-based mobile customers. The Company expects that adaptation
of defense technology for commercial use will continue as
commercial markets demand higher data transmission rates for more
sophisticated communications by mobile users.
Sales of PCS/cellular base station antennas were an important
source of revenue growth in 1996. The Company's DualPol(TM)
antenna became the preferred antenna for several major service
providers under corporate buying agreements signed in 1996. The
Company's antennas have begun to be installed in most major U.S.
cities, with the rollout of antennas for the New York and
Philadelphia markets scheduled to begin in 1997.
WIRELESS LOGISTICS SYSTEMS
One of the Company's strategic moves to diversify its business
base has been the development, beginning in the early 1980's, of
wireless data communications systems for materials handling
operations. These systems, which are designed, manufactured,
sold and supported by LXE, permit both mobility and real-time
transaction processing. They have been installed at more than
3,500 sites worldwide, including the facilities of many Fortune
500 companies and some of the world's largest materials handling
installations.
LXE's wireless logistics systems, which generally incorporate
bar-code scanning capabilities, are compatible with commonly used
customer-owned computers and can be configured for a variety of
applications. A typical system consists of 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.
TERMINALS
The Company offers several types of terminals, all of which
utilize radio frequency technology. Hand-held terminals are
small, lightweight and intended to be carried by people.
Vehicle-mounted terminals are larger, heavy-duty terminals
for use on fork-lifts, cranes and other mobile materials
handling equipm ent. Other terminals include a table-top
model for fix ed positions where computer cabling is not
practical, and wireless modems which provide wireless
communication capabilities for other devices such as small
computers or process controllers. All terminals incorporate
built-in radios that operate either in a licensed, narrow frequency
band or in an unlicensed broader, "spread spectrum" frequency band.
RADIO BASE STATIONS AND CONTROLLERS
The wireless communications link between the terminal and
the computer is completed by a radio base station and
controller, which may be integrated into a single unit for
smaller systems. A base station converts the radio signals
from a 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.
OTHER PRODUCTS
In addition to the basic system hardware, the Company offers
various accessories, such as bar code scanners and battery chargers,
portable printers, software products for system
communications, integrated applications and terminal
emulation, and repair and maintenance services.
1996 DEVELOPMENTS
During 1996, LXE introduced an expanded product line featuring
terminals that support DOS and Windows applications, thus
enabling them to function as true industrial PC's. These new
terminals are fully compatible with both terminal-emulation and
client-server environments, and they will run on either the 900
MHZ frequency of most current spread spectrum systems, as well as
the next, faster generation of spread spectrum radios that
operate at 2.4 GHZ.
In 1996, revenues from wireless logistics networks were a record
$71 million. The largest portion of this revenue came from the
traditional customer base of warehousing and distribution. Demand
for the Company's products remains strong in Europe and other
export markets where wireless systems are not as prevalent as in
the United States. Sales to foreign customers were $30 million
in 1996 compared with $29 million in 1995.
In late 1996, the Company entered a new market for its wireless
logistics technology: healthcare information systems. LXE began
adding wireless expertise and complementary products to software
and systems provided by such industry leaders as HBO & Company,
resulting in several million dollars of new revenues in the
fourth quarter.
MARKETING
The marketing and sales efforts for advanced communications and
signal processing products are conducted by internal marketing
staffs and through independent marketing representatives.
Wireless logistics systems are marketed, sold and serviced
through an internal staff, 21 regional sales offices (20 in the
U.S. and one in Canada), five European sales subsidiaries, and
also through selected value-added retailers and international
distributors. The Company currently has 19 international
distributors in 40 countries. Several members of the Company's
senior management, engineering and administrative staffs are
significantly involved in sales activities.
The Company had one domestic customer in its advanced
communications and signal processing business segment that
accounted for 12% of consolidated net sales in 1995, but no
customers accounted for more than 10% of consolidated net sales
in 1996 or 1994. During 1996, approximately 70% of the Company's
consolidated net sales were from commercial and international
markets and 30% were for U.S. Government end-use. For further
information concerning sales by business segments and geographic
areas, see Note 9 of "Notes to Consolidated Financial Statements"
included in Item 8 of this Report.
BACKLOG
The consolidated orders backlog at December 31, 1996 was $62
million, compared with $96 million one year earlier. Half of
this decrease related to the de-booking of a contract for the
Company's Canadian subsidiary to provide a satellite-based
communications system to Peru; this contract has experienced
delays due to Peru's ongoing negotiations with world finance
agencies. In addition, the backlog reflects a change in the
nature of the Company's business -- it now relies less on a long-term
development contracts, which typically generate a high
backlog, and instead the Company is emphasizing new markets where
the time between order and delivery is often just a few months.
MATERIALS
Materials used in the Company's advanced communications and
signal-processing 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 LXE products are generally available from a variety of
sources. Bar code scanners are included in almost all of LXE's
orders, and a significant number of the scanners are purchased
from Symbol Technologies, Inc. (Symbol), which is also 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 LXE's other competitors
also rely on scanning equipment purchased from or licensed by
Symbol. In addition, Symbol and LXE have a license agreement
which allows the Company to utilize Symbol's patented integrated
scanning technology in certain future products.
Certain of LXE's newer DOS-based terminals are manufactured for
Lxe by single third parties under OEM supply agreements; Lxe is
exploring contractual arrangements with additional suppliers, and
is also internally developing alternative terminal products.
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 affect 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.
COMPETITION
The Company believes itself to be, in sales, a major independent
supplier of microwave subsystems and of wireless logistics
systems for materials handling operations. However, the
Company's markets are highly competitive. Some of the Company's
competitors have substantial resources and facilities that may
exceed those of the Company; the Company also competes against
smaller, specialized firms.
In microwave and antenna markets, the Company's EMS and CAL
subsidiaries compete with divisions of certain large U.S.
industrial concerns, such as Raytheon Company, M/A-Com, Inc. and
Rockwell, as well as non-U.S. companies such as Spar, COMDEV and
RACAL. There are larger companies which are potential
competitors of EMS or CAL for certain contracts but are 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.
Principal competitors in the Company's wireless logistics
business segment include Norand Corporation, Symbol Technologies,
Litton Industries, Teklogix Corp. and Telxon Corporation.
The Company believes that the key competitive factors within the
Company's advanced communications and signal processing markets
continue to be product performance, technical expertise and
support to customers, adherence to delivery schedules, and price.
Principal customers for wireless logistics systems are medium and
large businesses that use data communications systems in complex
applications where the performance and quality of products and
services are believed to be important purchase criteria, but
pricing is also an increasingly important competitive factor.
RESEARCH AND DEVELOPMENT
The Company conducts a major portion of its research and
development for advanced communications and signal processing 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. Nevertheless,
internally sponsored research and development in the microwave
and antenna area was $5.2 million in 1996, reflecting increased
efforts to enhance PCS/cellular antennas and aeronautical SATCOM
products, and to develop other mobile communications
technologies. Significant internally sponsored research and
development is conducted by LXE, which has delivered new product
designs and performance enhancements during the past three years,
including spread spectrum radios, expanded host computer
connectivity options, a new generation of RF infrastructure
components, and terminals that support DOS, Windows and
client/server networks. In 1996, 1995 and 1994, the Company
invested a consolidated total of $12.1 million, $10.4 million and
$8.1 million, respectively, in internally sponsored research and
development. The Company holds a number of patents and licenses
and several patents are pending for proprietary technologies
developed by the Company.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries
employed a total of approximately 1,200 persons. Over 75% of the
Company's employees are directly involved in engineering or
manufacturing activities.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the executive officers of the Company is
set forth below:
Thomas E. Sharon, age 51, became Chief Executive Officer in July
1994, and had previously served as President since 1987. He
joined the Company as an engineer in 1971 and later served as
Executive Vice President from 1985 to 1987. He became a Director
in 1984. He also serves as a Director of each of the Company's
operating subsidiaries, and is the Chief Executive Officer of LXE
Inc.
Don T. Scartz, age 54, has served as Senior Vice President and
Chief Financial Officer of the Company since 1995; he has also
served as Treasurer since 1981, and as Vice President-Finance of
the Company 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 51, became General Counsel and Secretary
of the Company in 1992, and Vice President in 1993. He also
serves as General Counsel and Secretary of EMS Technologies, Inc.
and LXE Inc. 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.
Neilson A. Mackay, age 56, has served since September 1992 as
President of CAL Corporation, a controlling interest in which was
acquired by the Company in January 1993. Prior to joining CAL,
he had served since 1988 as President of Innotech Aviation
Limited, a Montreal, Quebec-based privately held aerospace
company with approximately 650 employees. Innotech is active in
all post-manufacturing sectors of the corporate aviation market,
including aircraft sales, flight management, maintenance, and
interior and avionics modifications.
Jeffrey A. Leddy, age 41, has served since July 1994 as President
of EMS Technologies, Inc. He joined the Company as an engineer
in September 1980.
John J. Farrell, age 45, joined LXE as President and Chief
Operating Officer in May 1995. Prior to joining LXE, he had been
Senior Vice-President and Chief Operating Officer of Oki Telecom,
a world-wide supplier of cellular telephones and base stations,
since 1993. During the three years prior to 1993, he directed
Oki's marketing and sales efforts.
ITEM 2. Properties.
The Company's corporate headquarters and its Georgia operations,
EMS and LXE, are located in four buildings located in or near
Technology Park, Norcross, Georgia, a suburb of Atlanta. EMS is
principally located in a Company-owned 140,000 square foot
building on 13.5 acres. It also rents 16,000 square feet in
another building under a lease which expires in 2000. LXE is
located primarily in a 110,000 square foot building which it owns
on 7.6 acres.
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, dark rooms and painting
facilities.
CAL Corporation operates in approximately 52,700 square feet of
leased space in a single building located outside Ottawa, Canada.
The lease expires in August 1997.
ITEM 3. Legal Proceedings.
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders.
At a Special Meeting of the Company's shareholders held on
December 30, 1996, the shareholders voted on a proposal to issue
shares of the Company's common stock to acquire all outstanding
shares of LXE Inc. held by other shareholders, at a ratio of .75
Company shares for each LXE share, and to approve certain
amendments of the Company's 1992 Stock Incentive Plan required to
convert outstanding options for LXE shares into a proportionate
number of options for the Company's shares.
The proposal was approved by the favorable vote of 4,098,015
shares, with 205,015 shares opposed and 78,688 shares abstaining.
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The common stock of Electromagnetic Sciences, Inc. is traded in
the over-the-counter market (Nasdaq symbol ELMG). At March 24,
1997 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:
1996 Price Range 1995 Price Range
High Low High Low
First Quarter $13-11/16 10-1/2 12-1/8 10
Second Quarter 16- 3/8 10-3/4 15-3/8 10
Third Quarter 17- 1/4 10-1/4 17-5/8 10-3/8
Fourth Quarter 22 16-1/8 12-1/8 9-1/2
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 1996 Annual Report to Shareholders, and is included in
Exhibit 13.1.
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
1996 Annual Report to Shareholders, and is included in Exhibit
13.1.
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 1996
Annual Report to Shareholders, and is included in Exhibit 13.1.
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
1997 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 1997 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 1997 Annual Meeting
of Shareholders and is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
Information concerning the Company's consulting arrangement with
John E. Pippin, Chairman of the Board, and concerning the
interests of certain directors, officers and holders of more than
5% of the Company's outstanding shaes, in the LXE Inc. shares
acquired by the Company during 1996, is contained in the
Company's definitive Proxy Statement for its 1997 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 1996 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, 1996, 1995 and 1994.
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows -
Years ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
(a)2. Financial Statement Schedules
Page
Independent Auditors' Report 14
I. Condensed Financial Information of
Registrant 15-17
II. Valuation and Qualifying Accounts -
Years ended December 31, 1996, 1995
and 1994 18
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
Electromagnetic Sciences, Inc.:
Under date of January 28, 1997, we reported on the consolidated
balance sheets of Electromagnetic Sciences, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31,
1996, as contained in the 1996 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 1996. In connection with our audits of the
aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedules as listed
in the accompanying index. These financial statement schedules
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Atlanta, Georgia
January 28, 1997
Schedule I
Electromagnetic Sciences, Inc. And Subsidiaries
Condensed Financial Information of Registrant
(In thousands)
Balance Sheets
December 31
1996 1995
ASSETS
Cash and cash equivalents $ 2,004 3,577
Prepaid taxes 446 494
------ ------
Total current assets 2,450 4,071
------ ------
Land 900 900
Building 8,208 8,208
Accumulated depreciation (1,813) (1,608)
------ ------
Net land and building 7,295 7,500
------ ------
Intercompany receivables 17,155 15,875
Investment in subsidiaries 63,623 39,848
Other assets 1,202 410
------ ------
Total assets $91,725 67,704
====== ======
LIABILITIES
Current liabilities $ 705 1,496
Long-term debt 3,770 3,770
Deferred income taxes - 2,229
------ ------
Total liabilities 4,475 7,495
------ ------
Stockholders' equity
Common stock 844 700
Additional paid-in capital 32,581 10,681
Foreign currency translation
adjustment (47) (17)
Retained earnings 53,872 48,845
------ ------
Total stockholders' equity 87,250 60,209
------ ------
Total liabilities and stockholders'
equity $91,725 67,704
====== ======
Schedule I (continued)
Electromagnetic Sciences, Inc. And Subsidiaries
Condensed Financial Information of Registrant
(In thousands)
Statements of Earnings
Years Ended December 31
1996 1995 1994
Equity in earnings of subsidiaries $ 2,581 1,973 3,896
Intercompany charges and other,
net 818 701 667
Interest expense (146) (157) (27)
------ ----- -----
Earnings before income
taxes $ 3,293 2,517 4,536
Income taxes (1,774) 207 273
------ ----- -----
Net earnings $ 5,027 2,310 4,263
====== ===== =====
Schedule I (continued)
Electromagnetic Sciences, Inc. And Subsidiaries
Condensed Financial Information of Registrant
(In thousands)
Statements of Cash Flows
Years Ended December 31
1996 1995 1994
Cash flows from operating activities:
Net earnings $ 5,027 2,310 4,263
Adjustment to reconcile net
earnings to cash
used in operating activities:
Equity in earnings of
subsidiaries (2,028) (1,973) (3,896)
Depreciation expense 205 198 191
Increase in intercompany
receivables (1,280) (2,672) (1,613)
Increase (decrease) in deferred
taxes and other (2,168) 435 (931)
------ ------ ------
Cash used in operating
activities (244) (1,702) (1,986)
------ ------ ------
Cash flows from investing activities:
Investment in building - (556) -
Investment in CAL - - (191)
Proceeds from marketable securities - 400 790
Purchase of LXE common stock from
minority shareholders (1,158) - -
Investment in privately-held company (800) - -
Cash provided by (used in) ------ ------ ------
Investing activities (1,958) (156) 599
------ ------ ------
Cash flows from financing activities:
Proceeds from exercise of
stock options 629 532 743
------ ------ ------
Net change in cash and cash
equivalents (1,573) (1,326) (644)
Beginning cash and cash
equivalents 3,577 4,903 5,547
------ ------ ------
Ending cash and cash equivalents $ 2,004 3,577 4,903
====== ====== ======
Schedule II
Electromagnetic Sciences, Inc.
Valuation and Qualifying Accounts
(In thousands)
Years ended December 31,1996, 1995 and 1994
Additions Additions
Balance at charged to charged to Balance
beginning costs and other at end
Classification of year expenses accounts Deductions(a) of year
Allowance for
Doubtful Accounts:
1994 $ 320 325 - - 645
1995 $ 645 390 - (315) 720
1996 $ 720 - - (450) 270
Reserve for Deferred
Tax Assets:
1994 $ 4,359 969 - - 5,328
1995 $ 5,328 833 - - 6,161
1996 $ 6,161 751 - - 6,912
(a) Deductions in 1996 and 1995 represented reductions of the level of reserves
determined to be necessary based upon the general aging of receivables and the
repayment of certain balances. In addition, deductions in 1996 included the
write-off of $183,000 of non-U.S. receivables.
(a)3. Exhibits
The following exhibits are filed as part of this report:
2.1 Agreement and Plan of Merger, dated December 31, 1996, among
Electromagnetic Sciences, Inc., LXE Inc. and LXE Merger Subsidiary,
Inc.
3.1 Amended and Restated Articles of Incorporation of Electromagnetic
Sciences, Inc., effective July 3, 1989 (incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
3.2 Bylaws of Electromagnetic Sciences, Inc., as amended through
March 20, 1995 (incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
4.1 Electromagnetic Sciences, Inc. Stockholder Rights Plan dated as of
July 3, 1989 (incorporated by reference to Exhibit 4.1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995).
4.2 Agreement with respect to long-term debt pursuant to Item
601(b)(4)(iii)(A) (incorporated by reference to Exhibit 4.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.1 Employment Agreement dated as of January 1, 1989, by and between the
Company and Thomas E. Sharon (incorporated by reference to
Exhibit 19.9 to the Company's Report on Form 10-Q for the quarter
ended June 30, 1992).
10.2 Amendment, dated July 29, 1992, of Employment Agreement
dated as of January 1, 1989, by and between the Company and Thomas
E. Sharon (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993).
10.3 Second Amendment, dated November 15, 1994, of Employment Agreement
dated as of January 1, 1989, by and between the Company and
Thomas E. Sharon (incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.4 Consulting Agreement, effective January 1, 1995, by and between the
Company and John E. Pippin (incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.5 1981 Incentive Stock Option Plan, as amended and restated
February 6, 1987, and further amended through March 23, 1989
(incorporated by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.6 Form of split-dollar life insurance agreement between the Company
and certain of its officers (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991).
10.7 Form of split-dollar life insurance agreement effective
January 1, 1993, between the Company and an executive officer
(incorporated by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993).
10.8 Electromagnetic Sciences, Inc. 1986 Directors' Stock Option Plan, as
amended through July 31, 1992 (incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.9 Electromagnetic Sciences, Inc. 1986 Non-Qualified Stock Option
Plan, as amended through July 31, 1992 (incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.10 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).
10.11 Electromagnetic Sciences, Inc. 1997 Stock Incentive Plan.
10.12 Form of Stock Option Agreement evidencing options granted in 1992,
1993 and 1995 to certain executive officers under the
Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan
(incorporated by reference to Exhibit 19.3 to the Company's Report
on Form 10-Q for the quarter ended June 30, 1992).
10.13 Form of Stock Option Agreement dated May 15, 1995, evidencing
option granted to John J. Farrell, Jr. under the 1992 Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.14 Form of Stock Option Agreement evidencing options granted
automatically under the 1992 Stock Incentive Plan to newly-elected
non-employee members of the Board of Directors (incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995).
10.15 Form of Stock Option Agreement evidencing option granted January 27,
1995 to John E. Pippin (incorporated by reference to Exhibit 10.16
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.16 Form of Stock Option Agreement evidencing options granted January 1,
1989 to certain executive officers under the LXE Inc. 1989 Stock
Incentive Plan, and thereafter converted into options for reduced
numbers of shares, at the same aggregate exercise prices, under the
Company's 1992 Stock Incentive Plan.
10.17 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.
10.18 Form of Stock Option Agreement evidencing option granted
September 26, 1990 to John B. Mowell 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.
10.19 Form of Stock Option Agreement evidencing options granted in 1992 to
certain executive officers under the LXE Inc. 1989 Stock Incentive
Plan, and thereafter converted into options for reduced numbers of
shares, at the same aggregate exercise prices, under the Company's
1992 Stock Incentive Plan (incorporated by reference to Exhibit 19.1
to the Report on Form 10-Q of LXE Inc. for the quarter ended June
30, 1992).
10.20 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 (incorporated by
reference to Exhibit 10.6 to the LXE Inc. Annual Report on Form 10-K
for the year ended December 31, 1995).
10.21 Electromagnetic Sciences, Inc. Executive Annual Incentive
Compensation Plan, adopted January 24, 1997.
10.22 Restricted Stock Award Restriction Agreement dated May 15, 1995,
between the Company and John J. Farrell, Jr. (incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995).
10.23 Form of Indemnification Agreement between the Company and its
directors (incorporated by reference to Exhibit 19.5 to the
Company's Report on Form 10-Q for the quarter ended June 30, 1992).
10.24 Form of Indemnification Agreement between the Company and its Vice
President and General Counsel (incorporated by reference to Exhibit
19.6 to the Company's Report on Form 10-Q for the quarter ended June
30, 1992).
10.25 Form of Indemnification Agreement between LXE Inc. and certain
of the Company's officers and directors in their capacity as
directors of LXE Inc. (incorporated by reference to Exhibit 19.2
to the Report on Form 10-Q of LXE Inc. for the quarter ended
June 30, 1992).
10.26 Form of Indemnification Agreement between LXE Inc. and certain
officers of the Company in their capacity as officers of LXE Inc.
(incorporated by reference to Exhibit 19.3 to the Report on
Form 10-Q of LXE Inc. for the quarter ended June 30, 1992).
10.27 Letters dated April 17, 1995 and April 19, 1995 between LXE Inc. and
John J. Farrell, Jr. concerning the terms of his employment as
President of LXE Inc. (incorporated by reference to Exhibit 10.1 to
Report on Form 10-Q of LXE Inc. for the quarter ended June 30,
1995).
11.1 Statement re: Computation of Per Share Earnings.
13.1 Those portions of the Company's 1996 Annual Report to Shareholders
incorporated by reference into this Annual Report on Form 10-K.
22.1 Subsidiaries of the registrant.
23.1 Independent Auditors' Consent to incorporation by reference in
Registration Statements Nos. 2-76455, 2-78442, 2-94049, 33-31216,
33-38829, 33-41041, 33-41042, 33-50528 and 333-20843, each on Form
S-8.
(b). Reports on Form 8-K.
On January 14, 1997, the Company filed its Report on Form 8-K dated December
31, 1996, reporting the acquisition of the outstanding minority shares of LXE
Inc., pursuant to Item 2 of such Report.
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.
ELECTROMAGNETIC SCIENCES, INC.
By: /s/ Thomas E. Sharon Date: 3/28/97
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.
By: /s/ Thomas E. Sharon Date: 3/28/97
President and Chief Executive
Officer and Director
(Principal Executive Officer)
By: /s/ John E. Pippin Date: 3/28/97
John E. Pippin, Chairman of the Board
By: /s/ Don T. Scartz Date: 3/28/97
Don T. Scartz, Senior Vice President
and Chief Financial Officer, Treasurer
and Director
(Principal Financial and Accounting
Officer)
By: /s/ Anthony J. Iorillo Date: 3/28/97
Anthony J. Iorillo, Director
By: /s/ Jerry H. Lassiter Date: 3/28/97
Jerry H. Lassiter, Director
By: /s/ John H. Levergood Date: 3/28/97
John H. Levergood, Director
By: /s/ John B. Mowell Date: 3/28/97
John B. Mowell, Director
Exhibit 11.1
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Statement re: Computation of Per Share Earnings
(In thousands, except net earnings per share)
Years Ended December 31
1996 1995 1994
Common equivalent shares:
Common stock - weighted average
shares outstanding 7,403 6,929 6,766
Dilutive effect of outstanding
common stock options (as determined
by the treasury stock method using
the average market price for the
period) 328 232 277
Total common and common equivalent
shares 7,731 7,161 7,043
For purposes of calculating primary
earnings per share, the Company's
proportionate share of the net earnings
of LXE Inc. Has been adjusted to reflect
the dilutive effect of LXE's outstand-
ing stock options. Following is a
summary of net earnings applicable to
earnings per common and common equiva-
lent share:
Net earnings excluding LXE Inc. $ 5,451 2,431 1,226
Adjusted proportionate share of
net earnings (loss) of LXE Inc. (424) (121) 2,841
Total net earnings applicable to
earnings per common and common
equivalent share $ 5,027 2,310 4,067
Net earnings per common and
common equivalent share $ .65 .32 .58
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT is entered into as of December 31, 1996 among
Electromagnetic Sciences, Inc., a Georgia corporation ("ELMG"), LXE
Inc., a Georgia corporation ("LXE"), and LXE Merger Subsidiary, Inc.,
a Georgia corporation wholly owned by ELMG ("Mergsub").
WHEREAS, the shareholders and the Board of Directors of ELMG,
and the Board of Directors of Mergsub, have approved the merger of
LXE with and into Mergsub (the "Merger") upon the terms and subject
to the conditions set forth herein and in accordance with the
provisions of the Georgia Business Corporation Code (the "GBCC"); and
WHEREAS, Mergsub owns at least 90% of the issued and outstanding
common stock, $.01 par value per share, of LXE (the "LXE Shares"),
and, therefore, the Merger can be effected pursuant to Section 14-2-1104
of the GBCC without the approval of the Board of Directors of
LXE or the shareholders of Mergsub or LXE.
THEREFORE, in consideration of the foregoing premises and the
mutual agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, LXE and Mergsub, intending to be legally bound, hereby
agree as follows:
ARTICLE I
MERGER
1.1 The Merger. At the Effective Time (as defined in Section
1.3). LXE shall be merged with and into Mergsub as provided herein.
Thereupon, the corporate existence of Mergsub, with all its purposes,
powers and objects, shall continue unaffected and unimpaired by the
Merger, and the corporate identity and existence, with all the
purposes, powers and objects, of LXE shall be merged into Mergsub,
and Mergsub, as the corporation surviving the Merger, shall be fully
vested therewith. The separate existence and corporate organization
of LXE shall cease upon the Merger becoming effective as herein
provided and thereupon Mergsub and LXE shall be a single corporation
(herein sometimes called the "Surviving Corporation").
1.2 Filing. The Surviving Corporation shall cause a
certificate of merger in substantially the form of Exhibit A attached
hereto (the "Certificate of Merger") to be filed with the office of
the Secretary of State of Georgia on the date mutually agreed by
ELMG, LXE and Mergsub.
1.3 Effective Time of the Merger. The Merger shall be
effective at the time that the filing of the Certificate of Merger
with the Secretary of State of Georgia is completed, which time is
sometimes referred to herein as the "Effective Time" and the date
thereof is referred to herein as the "Effective Date."
ARTICLE II
ARTICLES OF INCORPORATION; BYLAWS;
DIRECTORS AND OFFICERS
2.1 Article. The Articles of Incorporation of Mergsub as in
effect immediately before the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, except that the name of
the Surviving Corporation shall be LXE Inc.
2.2 Bylaws. The Bylaws of Mergsub as in effect immediately
before the Effective Time shall continue unchanged as the Bylaws of
the Surviving Corporation until they are altered, amended or repealed
in accordance with law, the Articles of Incorporation of the
Surviving Corporation or such Bylaws.
2.3 Directors and Officers.
(a) From and after the Effective Time, the members of the Board
of Directors of the Surviving Corporation shall consist of the
members of the Board of Directors of Mergsub immediately before the
Effective Date, each of such persons to serve until his or her
successor is elected and qualified or until his or her earlier death,
resignation or removal. If, on or after the Effective Time, a
vacancy exists in the Board of Directors of the Surviving
Corporation, such vacancy may thereafter be filled in the manner
provided by law and the Bylaws of the Surviving Corporation.
(b) From and after the Effective Time, each of the officers of
LXE shall be such officer of the Surviving Corporation until his or
her successor is elected and qualified or until his or her earlier
death, resignation or removal, and in such capacity shall be vested
with any and all authority and responsibility to which he or she was
theretofore vested in his or her capacity as an officer of LXE.
ARTICLE III
CONVERSION AND EXCHANGE OF SHARES;
FRACTIONAL SHARES; STOCK OPTIONS
3.1 Conversion. At the Effective Time, the issued LXE Shares
shall, by virtue of the Merger and without any action on the part of
the holders thereof, become and be converted or be cancelled as
follows: (A) Each outstanding share (excluding any shares held in
the treasury, or owned by Mergsub, LXE or any subsidiary of LXE)
shall be converted into and become the right to receive .75 shares of
common stock, $.10 par value per share, of ELMG ("ELMG Shares"); and
(B) each LXE Share held in the treasury, or owned by Mergsub, LXE or
any subsidiary of LXE shall be cancelled, retired and cease to exist,
and no payment shall be made in respect thereof.
3.2 Exchange of Shares; Fractional Shares.
(a) ELMG has selected a bank or trust company to act as
exchange agent (the "Exchange Agent") for the payment of the
consideration specified in Section 3.1(A), upon surrender of
certificates representing LXE Shares. Promptly after the Effective
Time, ELMG shall deposit or cause to be deposited with the Exchange
Agent the number of newly-issued ELMG Shares required to be exchanged
for LXE Shares pursuant to the Merger.
(b) Promptly after the Effective Time, the Exchange Agent shall
mail to each record holder (other than ELMG), as of the Effective
Date, of an outstanding certificate or certificates which immediately
before the Effective Time represented LXE Shares (each a
"Certificate" and collectively the "Certificates") a form letter of
transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to each Certificate shall pass, only upon
proper delivery of such Certificate to the Exchange Agent) and
instructions for use in effecting the surrender of the Certificates
in exchange for ELMG Shares. Upon surrender to the Exchange Agent of
a Certificate, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive
in exchange therefor the appropriate number of ELMG Shares and such
Certificate shall forthwith be cancelled.
(c) No holder of LXE Shares shall receive fractional ELMG
Shares in the Merger, and all such fractional share interests that
otherwise would be issued shall be aggregated and sold by the
Exchange Agent, which shall distribute the proceeds of such sale to
the former holders of LXE Shares pro rata based on the fractional
share interest each such holder would otherwise be entitled to
receive.
(d) All consideration paid upon the surrender of LXE Shares in
accordance with the terms hereof shall be deemed to have been paid,
in full satisfaction of all rights pertaining to such shares. After
the Effective Time, there shall be no registration of transfers on
the stock transfer books of LXE of LXE Shares which were outstanding
immediately before the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any
purpose, they shall be cancelled and exchanged for the consideration
provided in this Article III.
3.3 Stock Options. At the Effective Time, all outstanding
stock options that have been granted under LXE's 1989 Stock Incentive
Plan (the "LXE Plan") shall be converted into options to acquire a
proportionate number of ELMG Shares under ELMG's 1992 Stock Incentive
Plan (the "ELMG Plan"). To effect such conversion, each option to
acquire an LXE Share under the LXE Plan outstanding immediately
before the Effective Time shall be converted into an option to
acquire .75 ELMG Shares under the ELMG Plan, and the per-share
exercise price of each such converted option shall be increased by
one-third.
ARTICLE IV
CERTAIN EFFECTS OF THE MERGER
4.1 Effect of the Merger. On and after the Effective Time and
pursuant to the GBCC, the Surviving Corporation shall possess all the
rights, privileges, immunities, powers and purposes of each of LXE
and Mergsub; all of the property, real and personal, including
subscriptions to shares, causes of action and every other asset of
LXE and Mergsub shall vest in the Surviving Corporation without
further act or deed; and the Surviving Corporation shall assume and
be liable for all the liabilities, obligations and penalties of LXE
and Mergsub. No liability or obligation due or to become due and no
claim or demand for any cause existing against either LXE or Mergsub,
or any shareholder, officer or director thereof, shall be released or
impaired by the Merger, and no action or proceeding, whether civil or
criminal, then pending by or against LXE or Mergsub, or any
shareholder, officer or director thereof, shall abate or be
discontinued by the Merger, but may be enforced, prosecuted, settled
or compromised as if the Merger had not occurred, or the Surviving
Corporation may be substituted in any such action or special
proceeding in a place of LXE or Mergsub.
4.2 Further Assurances. If at any time after the Effective
Time, the Surviving Corporation determines that any further deeds,
assignments or assurances in law or any other things are necessary,
desirable or proper to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, the title to any property or
rights of LXE acquired or to be acquired by reason of, or as a result
of, the Merger, LXE and Mergsub agree that LXE, Mergsub and their
proper officers and directors shall and will execute and deliver all
such proper deeds, assignments and assurances in law and do all
things necessary, desirable or proper to vest, perfect or confirm
title to such property or rights in the Surviving Corporation and
otherwise to carry out the purpose of this Agreement, and that the
proper officers and directors of Mergsub and the proper officers and
directors of the Surviving Corporation are fully authorized in the
name of Mergsub or otherwise to take any and all such action.
ARTICLE V
MISCELLANEOUS
5.1 Closing. A closing (the "Closing" and the date and time
thereof being the "Closing Date") will be held as soon as practicable
at such place as the parties may agree. Immediately thereafter, the
Certificate of Merger will be filed.
5.2 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
5.3 Headings. The headings of articles and sections herein are
for convenience of reference, do not constitute a part of this
Agreement, and shall not be deemed to limit or affect any of its
provisions.
5.4 Variations and Amendment. This Agreement may be varied or
amended only by written action of ELMG, LXE and Mergsub.
5.5 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
Georgia, without regard to its conflict of laws rules.
5.6 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject
matter hereof.
5.7 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, all of which
shall remain in full force and effect.
(remainder of page intentionally left blank)
IN WITNESS WHEREOF, ELMG, LXE and Mergsub have executed this
Merger Agreement as of the date first above written.
ELECTROMAGNETIC SCIENCES, INC.
By: /s/ Thomas E. Sharon
Title: President and
Chief Executive Officer
Attest:
/s/ William S. Jacobs
William S. Jacobs, Secretary
LXE MERGER SUBSIDIARY, INC.
By: /s/ Thomas E. Sharon
Title: President
Attest:
/s/ William S. Jacobs
William S. Jacobs, Secretary
LXE INC.
By: /s/ Thomas E. Sharon
Title: Chief Executive Officer
Attest:
/s/ William S. Jacobs
William S. Jacobs, Secretary
EXHIBIT 10.11 As adopted
January 24, 1997
ELECTROMAGNETIC SCIENCES, INC.
1997 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
(a) "Award" 1
(b) "Board" 1
(c) "Code" 1
(d) "Committee" 1
(e) "Company" 1
(f) "Director" 2
(g) "Disinterested Person" 2
(h) "Employee" 2
(i) "Employer" 2
(j) "Fair Market Value" 3
(k) "Grantee" 3
(l) "ISO" 3
(m) "1934 Act" 3
(n) "Officer" 3
(o) "Option" 3
(p) "Option Agreement" 4
(q) "Optionee" 4
(r) "Option Price" 4
(s) "Parent" 4
(t) "Plan" 4
(u) "Purchasable" 4
(v) "Qualified Domestic Relations Order" 4
(w) "Reload Option" 4
(x) "Restricted Stock" 5
(y) "Restriction Agreement" 5
(z) "Stock" 5
(aa) "Subsidiary" 5
ARTICLE II THE PLAN 5
Section 2.1 Name 5
Section 2.2 Purpose 5
Section 2.3 Effective Date 5
Section 2.4 Termination Date 5
ARTICLE III ELIGIBILITY 6
ARTICLE IV ADMINISTRATION 6
Section 4.1 Duties and Powers of the Committee 6
Section 4.2 Interpretation; Rules 6
Section 4.3 No Liability 7
Section 4.4 Majority Rule 7
Section 4.5 Company Assistance 7
ARTICLE V SHARES OF STOCK SUBJECT TO PLAN 7
Section 5.1 Limitations 7
Section 5.2 Antidilution 8
ARTICLE VI OPTIONS 9
Section 6.1 Types of Options Granted 9
Section 6.2 Option Grant and Agreement 10
Section 6.3 Optionee Limitations 10
Section 6.4 $100,000 Limitation 11
Section 6.5 Option Price 11
Section 6.6 Exercise Period 11
Section 6.7 Option Exercise 12
Section 6.8 Nontransferability of Option 13
Section 6.9 Termination of Employment 14
Section 6.10 Employment Rights 14
Section 6.11 Certain Successor Options 14
Section 6.12 Conditions to Issuing Option Stock 15
Section 6.13 Automatic Option Grants to Certain
Directors 15
ARTICLE VII RESTRICTED STOCK 17
Section 7.1 Awards of Restricted Stock 17
Section 7.2 Non-Transferability 18
Section 7.3 Lapse of Restrictions 18
Section 7.4 Termination of Employment 18
Section 7.5 Treatment of Dividends 18
Section 7.6 Delivery of Shares 18
Section 7.7 Payment of Withholding Taxes 19
ARTICLE VIII TERMINATION, AMENDMENT AND MODIFICATION OF PLAN 20
ARTICLE IX MISCELLANEOUS 20
Section 9.1 Replacement or Amended Grants 20
Section 9.2 Forfeiture for Competition 20
Section 9.3 Plan Binding on Successors 21
Section 9.4 Headings Not a Part of Plan 21
ELECTROMAGNETIC SCIENCES, INC.
1997 STOCK INCENTIVE 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) "Award" shall mean a grant of Restricted Stock.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Code" shall mean the United States Internal
Revenue Code of 1986, as amended, including effective date
and transition rules (whether or not codified). Any
reference herein to a specific section or sections of the
Code shall be deemed to include a reference to any
corresponding provision of future law.
(d) "Committee" shall mean a committee of at least two
Directors appointed from time to time by the Board, having
the duties and authority set forth herein in addition to any
other authority granted by the Board; provided, however,
that with respect to any Options or Awards granted to an
individual who is also an Officer or Director, the Committee
shall consist of at least two Non-Employee Directors (who
need not be members of the Committee with respect to Options
or Awards granted to any other individuals), and all
authority and discretion shall be exercised by such Non-
Employee Directors, and references herein to the "Committee"
shall mean such Non-Employee Directors insofar as any
actions or determinations of the Committee shall relate to
or affect Options or Awards made to or held by any Officer
or Director.
(e) "Company" shall mean Electromagnetic Sciences,
Inc., a Georgia corporation.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any employee of the Company
or any Subsidiary of the Company.
(h) "Employer" shall mean the corporation that employs
a Grantee.
(i) "Fair Market Value" of the shares of Stock on any
date shall mean
(i) the closing sales price, regular way, or in
the absence thereof the mean of the last reported
bid and asked quotations, on such date on the
exchange having the greatest volume of trading in
the shares during the thirty-day period preceding
such date (or if such exchange was not open for
trading on such date, the next preceding date on
which it was open); or
(ii) if there is no price as specified in (i),
the final reported sales price, or if not reported
in the following manner, the mean of the closing
high bid and low asked prices, in the
over-the-counter market for the shares as reported
by the National Association of Securities Dealers
Automatic Quotation System or, if not so reported,
then as reported by the National Quotation Bureau
Incorporated, or if such organization is not in
existence, by an organization providing similar
services, on such date (or if such date is not a
date for which such system or organization
generally provides reports, then on the next
preceding date for which it does so); or
(iii) if there also is no price as specified in
(ii), the price determined by the Committee by
reference to bid-and-asked quotations for the
shares provided by members of an association of
brokers and dealers registered pursuant to
subsection 15(b) of the 1934 Act, which members
make a market in the shares, for such recent dates
as the Committee shall determine to be appropriate
for fairly determining current market value; or
(iv) if there also is no price as specified in
(iii), the amount determined in good faith by the
Committee based on such relevant facts, which may
include opinions of independent experts, as may be
available to the Committee.
(j) "Grantee" shall mean an Employee, former employee
or other person who is an Optionee or who has received an
Award of Restricted Stock.
(k) "ISO" shall mean an Option that complies with and
is subject to the terms, limitations and conditions of Code
section 422 and any regulations promulgated with respect
thereto.
(l) "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
(m) "Non-Employee Director" shall have the meaning set
forth for such term or corresponding concept in Rule 16b-3
under the 1934 Act, as the same may be in effect from time
to time, or in any successor rule thereto, and shall be
determined for all purposes under the Plan according to
interpretative or "no-action" positions with respect thereto
issued by the Securities and Exchange Commission or its
staff; provided, however, that to the extent it is
determined and intended that Options qualify as
"performance-based compensation" within the meaning of
section 162(m) of the Code, a person shall be a "Non-
Employee Director" only if he or she is also an "outside
director" within the meaning of such section 162(m).
(n) "Officer" shall mean a person who constitutes an
officer of the Company for the purposes of Section 16 of the
1934 Act, as determined by reference to such Section 16 and
to the rules, regulations, judicial decisions, and
interpretative or "no-action" positions with respect thereto
of the Securities and Exchange Commission or its staff, as
the same may be in effect or set forth from time to time.
(o) "Option" shall mean a contractual right to
purchase Stock granted pursuant to the provisions of
Article VI hereof.
(p) "Option Agreement" shall mean an agreement between
the Company and an Optionee setting forth the terms of an
Option.
(q) "Optionee" shall mean a person to whom an Option
has been granted hereunder.
(r) "Option Price" shall mean the price at which an
Optionee may purchase a share of Stock pursuant to an
Option.
(s) "Parent", when used with respect to any
subjectcorporation, shall mean any other corporation that
owns stock possessing 50% or more of the total combined
voting power of all classes of stock of the subject
corporation or that owns such stock of another corporation
in an unbroken chain of corporations having such ownership
of the stock of another corporation and ending with the
subject corporation.
(t) "Plan" shall mean the 1997 Stock Incentive Plan of
the Company.
(u) "Purchasable," when used to describe Stock, shall
refer to Stock that may be purchased by an Optionee under
the terms of this Plan on or after a certain date specified
in the applicable Option Agreement.
(v) "Qualified Domestic Relations Order" shall have
the meaning set forth in the Code or in the Employee
Retirement Income Security Act of 1974, as amended, or the
rules and regulations promulgated under the Code or such
Act.
(w) "Reload Option" shall mean an Option that is
granted, without further action of the Committee, (i) to an
Optionee who surrenders or authorizes the withholding of
shares of Stock in payment of amounts specified in
paragraphs 6.7(c) or 6.7(d) hereof, (ii) for the same number
of shares as is so paid, (iii) as of the date of such
payment and at an Option Price equal to the Fair Market
Value of the Stock on such date, and (iv) otherwise on the
same terms and conditions as the Option whose exercise has
occasioned such payment, subject to such contingencies,
conditions or other terms as the Committee shall specify at
the time such exercised Option is granted.
(x) "Restricted Stock" shall mean Stock issued,
subject to restrictions, to an Employee pursuant to Article
VII hereof.
(y) "Restriction Agreement" shall mean the agreement
setting forth the terms of an Award, and executed by a
Grantee as provided in Section 7.1 hereof.
(z) "Stock" shall mean the $.10 par value common stock
of the Company or, in the event that the outstanding shares
of such stock are hereafter changed into or exchanged for
shares of a different class of stock or securities of the
Company or some other corporation, such other stock or
securities.
(aa) "Subsidiary", when used with respect to any
subject corporation, shall mean any other corporation as to
which the subject corporation is a Parent.
ARTICLE II
THE PLAN
2.1 Name. This plan shall be known as the "Electromagnetic
Sciences, Inc. 1997 Stock Incentive Plan."
2.2 Purpose. The purpose of the Plan is to advance the
interests of the Company, its shareholders, and any Subsidiary of the
Company, by offering certain Employees and Directors an opportunity
to acquire or increase their proprietary interests in the Company.
Options and Awards will promote the growth and profitability of the
Company and any Subsidiary of the Company, because Grantees will be
provided with an additional incentive to achieve the Company's
objectives through participation in its success and growth.
2.3 Effective Date. The Plan shall become effective on January
24, 1997.
2.4 Termination Date. No further Options or Awards shall be
granted hereunder on or after January 24, 2007, but all Options or
Awards granted prior to that time shall remain in effect in
accordance with their terms.
ARTICLE III
ELIGIBILITY
The persons eligible to participate in this Plan shall consist
only of Directors and those Employees whose participation the
Committee determines is in the best interests of the Company.
However, no ISO's may be granted, and no Options or Awards may be
granted to any Director or Officer, prior to the approval of this
Plan by the Company's shareholders.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. 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 times 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. The Committee shall have the
power to act by unanimous written consent in lieu of a meeting, and
shall have the right to meet telephonically. In administering the
Plan, the Committee's actions and determinations shall be binding on
all interested parties. The Committee shall have the power to grant
Options or Awards in accordance with the provisions of the Plan.
Subject to the provisions of the Plan, the Committee shall have the
discretion and authority to determine those individuals to whom
Options or Awards will be granted and whether such Options shall be
accompanied by the right to receive Reload Options, the number of
shares of Stock subject to each Option or Award, such other matters
as are specified herein, and any other terms and conditions of an
Option Agreement or Restriction Agreement. To the extent not
inconsistent with the provisions of the Plan, the Committee shall
have the authority to amend or modify an outstanding Option Agreement
or Restriction Agreement, or to waive any provision thereof, provided
that the Grantee consents to such action.
4.2 Interpretation; Rules. Subject to the express provisions
of the Plan, the Committee also shall 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 any Options or Awards
granted hereunder as may be required to comply with or to conform to
any federal, state or local laws or regulations.
4.3 No Liability. Neither any member of the Board nor any
member of the Committee shall be liable to any person for any act or
determination made in good faith with respect to the Plan or any
Option or Award granted hereunder.
4.4 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.
4.5 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.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Shares subject to an Option or issued as an
Award may be either authorized and unissued shares or shares issued
and later acquired by the Company. Subject to any antidilution
adjustment pursuant to the provisions of Section 5.2 hereof, the
maximum number of shares of Stock that may be issued hereunder shall
be 400,000 (of which a maximum of 80,000 shares may be issued as
Restricted Stock). Shares (i) covered by any unexercised portion of
an Option that has terminated for any reason; (ii) covered by any
forfeited portion of an Award (except any portion as to which the
Grantee has received, and not forfeited, dividends or other benefits
of ownership other than voting rights); (iii) withheld in payment of
the Option Price or withholding taxes; or (iv) issued hereunder but
equal to the number of shares surrendered in payment of the Option
Price or withholding taxes or purchased by the Company for an
aggregate price not exceeding the aggregate cash received from
Grantees in payment of Option Prices or withholding taxes, may each
again be optioned or awarded under the Plan, and such shares shall
not be considered as having been optioned or issued in computing the
number of shares of Stock remaining available for option or award
hereunder.
5.2 Antidilution.
(a) 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 by reason of
merger, consolidation, reorganization, recapitalization,
reclassification, combination or exchange of shares, stock
split or stock dividend, or in the event that any spin-off,
spin-out or other distribution of assets materially affects
the price of the Company's stock:
(i) The aggregate number and kind of shares of
Stock for which Options or Awards may be granted
hereunder shall be adjusted proportionately by the
Committee; and
(ii) The rights of Optionees (concerning the
number of shares subject to Options and the Option
Price) under outstanding Options and the rights of the
holders of Awards (concerning the terms and conditions
of the lapse of any then-remaining restrictions), shall
be adjusted proportionately by the Committee.
(b) If the Company shall be a party to any
reorganization in which it does not survive, involving
merger, consolidation, or acquisition of the stock or
substantially all the assets of the Company, the Committee,
in its discretion, may:
(i) notwithstanding other provisions hereof,
declare that all Options granted under the Plan shall
become exercisable immediately notwithstanding the
provisions of the respective Option Agreements
regarding exercisability, that all such Options shall
terminate a specified period of time after the
Committee gives written notice of the immediate right
to exercise all such Options and of the decision to
terminate all Options not exercised within such period,
and that all then-remaining restrictions pertaining to
Awards under the Plan shall immediately lapse; or
(ii) notify all Grantees that all Options or
Awards granted under the Plan shall be assumed by the
successor corporation or substituted on an equitable
basis with options or restricted stock issued by such
successor corporation.
(c) If the Company is to be liquidated or dissolved in
connection with a reorganization described in paragraph
5.2(b), the provisions of such paragraph shall apply.
In all other instances, the adoption of a plan of
dissolution or liquidation of the Company shall,
notwithstanding other provisions hereof, cause all
then-remaining restrictions pertaining to Awards under
the Plan to lapse, and shall cause every Option
outstanding under the Plan to terminate to the extent
not exercised prior to the adoption of the plan of
dissolution or liquidation by the shareholders,
provided that, notwithstanding other provisions hereof,
the Committee may declare all Options granted under the
Plan to be exercisable at any time on or before the
fifth business day following such adoption
notwithstanding the provisions of the respective Option
Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a)
through (c) of this Section 5.2, and the manner of
their application, shall be determined solely by the
Committee, and any such adjustment may provide for the
elimination of fractional share interests. The
adjustments required under this Article V shall apply
to any successors of the Company and shall be made
regardless of the number or type of successive events
requiring such adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. Within the limitations provided
herein, Options may be granted to one Employee at one or several
times or to different Employees at the same time or at different
times, in either case under different terms and conditions, as long
as the terms and conditions of each Option are consistent with the
provisions of the Plan. Without limitation of the foregoing, Options
may be granted subject to conditions based on the financial
performance of the Company or any other factor the Committee deems
relevant.
6.2 Option Grant and Agreement. Each Option granted or
modified hereunder shall be evidenced (a) by either minutes of a
meeting or a written consent of the Committee, and (b) by a written
Option Agreement executed by the Company and the Optionee. The terms
of the Option, including the Option's duration, time or times of
exercise, exercise price, whether the Option is intended to be an
ISO, whether the Option is transferable under paragraph 6.8(b), and
whether the Option is to be accompanied by the right to receive a
Reload Option, shall be stated in the Option Agreement. Separate
Option Agreements shall be used for Options intended to be ISO's and
those not so intended, but any failure to use such separate
Agreements shall not invalidate, or otherwise adversely affect the
Optionee's rights under and interest in, the Options evidenced
thereby.
6.3 Optionee Limitations. The Committee shall not grant an ISO
to any person who, at the time the ISO would be granted:
(a) is not an Employee; or
(b) owns or is considered to own stock possessing more
than 10% of the total combined voting power of all classes
of stock of the Employer, or any Parent or Subsidiary of the
Employer; provided, however, that this limitation shall not
apply if at the time an ISO is granted the Option Price is
at least 110% of the Fair Market Value of the Stock subject
to such Option and such Option by its terms would not be
exercisable after the expiration of five years from the date
on which the Option is granted. For the purpose of this
paragraph (b), a person shall be considered to own (i) 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, (ii) the stock owned,
directly or indirectly, by or for a corporation,
partnership, estate, or trust in proportion to such person's
stock interest, partnership interest or beneficial interest
therein, and (iii) the stock which such person may purchase
under any outstanding options of the Employer or of any
Parent or Subsidiary of the Employer.
6.4 Certain Limitations
(a) Limitation on Number of Shares. No Optionee shall
be granted, during any calendar year, Options to purchase in
excess of 50,000 shares of stock.
(b) $100,000 Limitation on ISO's. Except as provided
below, the Committee shall not grant an ISO to, or modify
the exercise provisions of outstanding ISO's held by, any
person who, at the time the ISO is granted (or modified),
would thereby receive or hold any incentive stock options
(as described in Code section 422) of the Employer and any
Parent or Subsidiary of the Employer, such that the
aggregate Fair Market Value (determined as of the respective
dates of grant or modification of each option) of the stock
with respect to which such incentive stock options are
exercisable for the first time during any calendar year is
in excess of $100,000; provided, that the foregoing
restriction on modification of outstanding ISO's shall not
preclude the Committee from modifying an outstanding ISO if,
as a result of such modification and with the consent of the
Optionee, such Option no longer constitutes an ISO; and
provided that, if the $100,000 limitation described in this
Section 6.4 is exceeded, an Option that otherwise qualifies
as an ISO shall be treated as an ISO up to the limitation
and the excess shall be treated as an Option not qualifying
as an ISO. The preceding sentence shall be applied by
taking options intended to be ISO's into account in the
order in which they were granted.
6.5 Option Price. The Option Price under each Option shall be
determined by the Committee. However, the Option Price shall not be
less than the Fair Market Value of the Stock on the date that the
Option is granted (or, in the case of an ISO that is subsequently
modified, on the date of such modification).
6.6 Exercise Period. The period for the exercise of each
Option granted hereunder shall be determined by the Committee, but
the Option Agreement with respect to each Option intended to be an
ISO shall provide that such Option shall not be exercisable after a
date not more than ten years from the date of grant (or modification)
of the Option. In addition, no Option granted to an Employee who is
also an Officer or Director shall be exercisable prior to the
expiration of six months from the date such Option is granted, other
than in the case of the death or disability of such Employee.
6.7 Option Exercise.
(a) Unless otherwise provided in the Option Agreement,
an Option may be exercised at any time or from time to time
during the term of the Option as to any or all whole
shares that have become Purchasable under the provisions of
the Option, but not at any time as to less than 100 shares
unless the remaining shares that have become so Purchasable
are less than 100 shares. The Committee shall have the
authority to prescribe in any Option Agreement that the
Option may be exercised only in accordance with a vesting
schedule during the term of the Option.
(b) An Option shall be exercised by (i) delivery to
the Treasurer of the Company at its principal office of
written notice of exercise with respect to a specified
number of shares of Stock, and (ii) payment to the Company
at that office of the full amount of the Option Price for
such number of shares.
(c) The Option Price shall be paid in full upon the
exercise of the Option. The Committee may provide in an
Option Agreement that, in lieu of cash, all or any portion
of the Option Price may be paid by (i) tendering to the
Company shares of Stock duly endorsed for transfer and
owned by the Optionee, or (ii) delivering to the Company an
attestation of the Optionee's then-current ownership of a
number of shares equal to the number thereby authorized to
be withheld by the Company from the shares otherwise
deliverable upon exercise of the Option, in each case to be
credited against the Option Price at the Fair Market Value
of such shares on the date of exercise (however, no
fractional shares may be so transferred, and the Company
shall not be obligated to make any cash payments in
consideration of any excess of the aggregate Fair Market
Value of shares transferred over the aggregate Option
Price).
(d) 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, state and local income,
employment or other taxes required to be withheld from the
income of such Optionee as a result of such exercise.
However, in the discretion of the Committee any 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 (i) tendering to the Company
whole shares of Stock duly endorsed for transfer and owned
by the Optionee, (ii) delivering to the Company an
attestation of the Optionee's then-current ownership of a
number of shares equal to the number thereby authorized to
be withheld by the Company from the shares otherwise
deliverable upon exercise of the Option, or (iii)
authorizing 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 on
the date of exercise equal to the amount of such taxes
thereby being paid, in all cases subject to such
restrictions as the Committee may from time to time
determine, including any such restrictions as may be
necessary or appropriate to satisfy the conditions of the
exemption set forth in Rule 16b-3 under the 1934 Act.
(e) The holder of an Option shall not have any of the
rights of a shareholder with respect to the shares of Stock
subject to the Option until such shares have been issued
upon exercise of the Option.
6.8 Nontransferability of Option.
(a) Except as provided in paragraph 6.8(b), no Option
or any rights therein shall be transferable by an Optionee
other than by will or the laws of descent and distribution,
or (except for an ISO) pursuant to a Qualified Domestic
Relations Order. During the lifetime of an Optionee, an
Option granted to that Optionee shall be exercisable only by
such Optionee, by such Optionee's guardian or other legal
representative, should one be appointed, or by such
Optionee's transferee permitted under paragraph 6.8(b).
(b) The Committee may, in its discretion, provide that
all or a portion of an Option (other than an ISO) may be
transferred by the Optionee to (i) the spouse, children or
grandchildren of the Optionee ("Immediate Family Members"),
(ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or (iii) a partnership in which
the Optionee and or such Immediate Family Members are the
only partners. Following transfer, any such Option shall
continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, including
those terms and conditions governing transfer and the effect
on such Option of the termination of employment of the
Optionee. The Company shall have no obligation to any
transferee to provide notice of any termination of an Option
as a result of termination of the Optionee's employment.
The Committee may specify as a condition of any such
transfer the manner in which the Optionee shall remain
responsible for the payment of taxes required to be withheld
as a result of the exercise of such transferred Option.
6.9 Termination of Employment. The Committee shall have the
power to specify, with respect to the Options granted to any
particular Optionee, the effect upon such Optionee's right to
exercise an Option of the termination of such Optionee's employment
under various circumstances, which effect may include (but is not
limited to) immediate or deferred termination of such Optionee's
rights under an Option, or acceleration of the date at which an
Option may be exercised in full. With respect to an ISO, such
effects shall be consistent with applicable requirements for
treatment as an ISO.
6.10 Employment Rights. Options granted under the Plan shall
not be affected by any change of employment so long as the Optionee
continues to be an Employee. Nothing in the Plan or in any Option
Agreement shall confer on any person any right to continue in the
employ of the Company or any Subsidiary of the Company, or shall
interfere in any way with the right of the Company or any such
Subsidiary to terminate such person's employment at any time.
6.11 Certain Successor Options. To the extent not inconsistent
with the terms, limitations and conditions of Code section 422, and
any regulations promulgated with respect thereto, an Option issued in
respect of an option held by an employee to acquire stock of any
entity acquired, by merger or otherwise, by the Company (or by any
Subsidiary of 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 Code
section 424(a).
6.12 Conditions to Issuing Option Stock. The Company shall not
be required to issue or deliver any Stock upon the full or partial
exercise of any Option 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 that the Company shall
determine to be necessary or advisable under any federal or
state law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental
regulatory body, or the Company's determination that an
exemption is available from such registration or
qualification;
(c) The obtaining of any approval or other clearance
from any federal or state governmental agency that the
Company shall determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time
following exercise as shall be appropriate for reasons of
administrative convenience.
Unless the shares of Stock covered by the Plan shall be the
subject of an effective registration statement under the Securities
Act of 1933, as amended, stock certificates issued and delivered to
Optionees shall bear such restrictive legends as the Company shall
deem necessary or advisable pursuant to applicable federal and state
securities laws.
6.13 Automatic Option Grants to Certain Directors.
(a) Options for New Directors. Each person who is not
an Employee, or an employee of any Parent of the Company,
shall automatically, and without any action of the Board or
the Committee, be granted, on the first day on which such
person serves as a Director, an Option for the purchase of
10,000 shares of Stock (subject to automatic proportionate
adjustment for stock splits or stock dividends, and
otherwise to proportionate adjustment by the Committee as
provided in Section 5.2). Each such Option shall become
exercisable as to 2,000 shares on the date that is six
months after the date of grant, and as to an additional
2,000 shares on each of the first, second, third and fourth
anniversaries of such six-month date.
(b) Additional Options for Continuing Service. Each
person who is not at that time an Employee, or an employee
of any Parent of the Company, shall automatically and
without any action of the Board or the Committee, be
granted, on the date on which such person is elected to a
new one-year term of service beginning after such person has
completed five one-year terms of service (or its equivalent)
following the grant (whether under this Plan or otherwise)to
such person of options for 10,000 shares that become
exercisable based on continued service as a Director, and on
each subsequent date on which such person is elected to a
further term of service as a Director, an Option for the
purchase of 2,500 shares of Stock (subject to automatic
proportionate adjustment for stock splits or stock
dividends, and otherwise to proportionate adjustment by the
Committee as provided in Section 5.2). Each such Option
shall become exercisable on the date that is six months
after the date of grant.
(c) Other Terms of Automatic Options. Each Option
automatically granted under this Section 6.13 shall not be
an ISO, shall not include the right to receive a Reload
Option, and shall have an Option Price equal to the Fair
Market Value of the Stock on the date of grant. Each such
Option shall become immediately exercisable in the event a
party other than the Company or any Parent or Subsidiary of
the Company purchases or otherwise acquires shares of Stock
pursuant to a tender offer or exchange offer for such
shares, or any person or group becomes the beneficial owner
(for the purposes of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) of 50% or more of the
outstanding shares of the Stock. To the extent such an
Option shall have become exercisable, it shall be non-
forfeitable and shall remain exercisable until the tenth
anniversary of its date of grant, but if the Grantee ceases
to be a Director for any reason, any portion of such Option
that is not at that time exercisable shall immediately
terminate and shall not thereafter become exercisable. The
Option Price for each such Option may be paid in cash or in
the manners specified in the second sentence of paragraph
6.7(c) hereof. In addition, any taxes related to the
exercise of each such Option may be paid in the manner
contemplated in the second sentence of paragraph 6.7(d)
hereof.
ARTICLE VII
RESTRICTED STOCK
7.1 Awards of Restricted Stock. The Committee may grant Awards
of Restricted Stock upon determination by the Committee, acting
pursuant to the delegation hereby of the Board's authority to make
such determinations, that the value or other benefit to the Company
of the services of a Grantee theretofore performed or to be performed
as a condition of the lapse of restrictions applicable to such
Restricted Stock, or the benefit to the Company of the incentives
created by the issuance thereof, is adequate consideration for the
issuance of such shares. Each such Award shall be governed by a
Restriction Agreement between the Company and the Grantee. Each
Restriction Agreement shall contain such restrictions, terms and
conditions as the Committee shall, in its discretion, determine, and
may require that an appropriate legend be placed on the certificates
evidencing the subject Restricted Stock.
Shares of Restricted Stock granted pursuant to an Award
hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted, provided that the
Grantee has executed the Restriction Agreement governing the Award,
the appropriate blank stock powers and, in the discretion of the
Committee, an escrow agreement and any other documents which the
Committee may require as a condition to the issuance of such shares.
If a Grantee shall fail to execute the foregoing documents, within
any time period prescribed by the Committee, the Award shall be null
and void. At the discretion of the Committee, shares of Restricted
Stock issued in connection with an Award shall be held by the Company
or deposited together with the stock powers with an escrow agent
designated by the Committee. Unless the Committee determines
otherwise and as set forth in the Restriction Agreement, upon
issuance of such shares, the Grantee shall have all of the rights of
a shareholder with respect to such shares, including the right to
vote the shares and to receive all dividends or other distributions
paid or made with respect to them.
7.2 Non-Transferability. Until any restrictions upon
Restricted Stock awarded to a Grantee shall have lapsed in a manner
set forth in Section 7.3, such shares of Restricted Stock shall not
be transferable other than by will or the laws of descent and
distribution, or pursuant to a Qualified Domestic Relations Order,
nor shall they be delivered to the Grantee.
7.3 Lapse of Restrictions. Restrictions upon Restricted Stock
awarded hereunder shall lapse at such time or times (but, with
respect to any award to an Employee who is also a Director or
Officer, not less than six months after the date of the Award) and on
such terms and conditions as the Committee shall, in its discretion,
determine at the time the Award is granted or thereafter.
7.4 Termination of Employment. The Committee shall have the
power to specify, with respect to each Award granted to any
particular Employee, the effect upon such Grantee's rights with
respect to such Restricted Stock of the termination of such Grantee's
employment under various circumstances, which effect may include (but
is not limited to) immediate or deferred forfeiture of such
Restricted Stock or acceleration of the date at which any then-remaining
restrictions shall lapse.
7.5 Treatment of Dividends. At the time an Award of Restricted
Stock is made the Committee may, in its discretion, determine that
the payment to the Grantee of any dividends, or a specified portion
thereof, declared or paid on such Restricted Stock shall be (i)
deferred until the lapsing of the relevant restrictions, and (ii)
held by the Company for the account of the Grantee until such time.
In the event of such deferral, there shall be credited at the end of
each year (or portion thereof) interest on the amount of the account
at the beginning of the year at a rate per annum determined by the
Committee. Payment of deferred dividends, together with interest
thereon, shall be made upon the lapsing of restrictions imposed on
such Restricted Stock, and any dividends deferred (together with any
interest thereon) in respect of Restricted Stock shall be forfeited
upon any forfeiture of such Restricted Stock.
7.6 Delivery of Shares. Within a reasonable period of time
following the lapse of the restrictions on shares of Restricted
Stock, the Committee shall cause a stock certificate or certificates
to be delivered to the Grantee with respect to such shares. Such
shares shall be free of all restrictions hereunder, except that if
the shares of stock covered by the Plan shall not be the subject of
an effective registration statement under the Securities Act of 1933,
as amended, such stock certificates shall bear such restrictive
legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws.
7.7 Payment of Withholding Taxes.
(a) The Restriction Agreement may authorize the
Company to withhold from compensation otherwise due to the
Grantee the full amount of any federal, state and local
income, employment or other taxes required to be withheld
from the income of such Grantee as a result of the lapse of
the restrictions on shares of Restricted Stock, or otherwise
as a result of the recognition of taxable income with
respect to an Award. At the time of and as a condition to
the delivery of a stock certificate or certificates pursuant
to Section 7.6, the Grantee shall pay to the Company in cash
any balance owed with respect to such withholding
requirements.
(b) In the discretion of the Committee, any
Restriction Agreement may provide that all or any portion of
the tax obligations otherwise payable in the manner set
forth in paragraph 7.7(a), together with additional taxes
not exceeding the actual additional taxes to be owed by the
Grantee with respect to the Award, may, upon the irrevocable
election of the Grantee, be paid by tendering to the Company
whole shares of Stock duly endorsed for transfer and owned
by the Grantee, or by authorizing the Company to withhold
and cancel shares of Stock otherwise deliverable pursuant to
Section 7.6, in either case in that number of shares having
a Fair Market Value on the date that taxable income is
recognized equal to the amount of such taxes thereby being
paid, in all cases subject to such restrictions as the
Committee may from time to time determine.
ARTICLE VIII
TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
The Board may at any time, (i) cause the Committee to cease
granting Options and Awards, (ii) terminate the Plan, or (iii) in any
respect amend or modify the Plan. However, the Board (unless its
actions are approved or ratified by the shareholders of the Company
within twelve months of the date the Board amends the Plan) may not
amend the Plan to materially increase the number of shares of Stock
available under the Plan to Directors or Officers,or as otherwise may
be legally required.
No termination, amendment or modification of the Plan shall
affect adversely a Grantee's rights under an Option Agreement or
Restriction Agreement without the consent of the Grantee or his or
her legal representative.
From and after the first date on which an Option is
automatically granted pursuant to Section 6.13, the provisions of
such Section 6.13 may not be amended in any manner more frequently
than once every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations promulgated under the Code or
such Act.
ARTICLE IX
MISCELLANEOUS
9.1 Replacement or Amended Grants. At the sole discretion of
the Committee, and subject to the terms of the Plan, the Committee
may modify outstanding Options or Awards or accept the surrender of
outstanding Options or Awards on terms specified by the Committee,
which terms may include the grant of new Options or Awards in
substitution for them. However no modification of an Option or Award
shall adversely affect a Grantee's rights under an Option Agreement
or Restriction Agreement without the consent of the Grantee or his or
her legal representative.
9.2 Forfeiture for Competition. If a Grantee provides services
to a competitor of the Company 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 Grantee while a Director or an Employee, then that
Grantee's rights under any Options outstanding hereunder shall be
forfeited and terminated, and any shares of Restricted Stock held by
such Grantee subject to remaining restrictions shall be forfeited,
subject in each case to a determination to the contrary by the
Committee.
9.3 Plan Binding on Successors. The Plan shall be binding upon
the successors of the Company.
9.4 Headings Not a Part of Plan. Headings of Articles and
Sections hereof are inserted for convenience and reference, and do
not constitute a part of the Plan.
Exhibit 10.16
LXE INC.
1989 NON-QUALIFIED STOCK
OPTION PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, entered into as of the 1st day
of January, 1989 (the "Date of Grant"), by and between LXE Inc.,
a Georgia corporation (hereinafter referred to as the
"Corporation"), and (hereinafter referred to
as the "Employee").
WITNESSETH
WHEREAS, the Board of Directors of the Corporation adopted
on January 1, 1989, a stock option plan for officers and key
employees of the Corporation or its subsidiary corporations,
known as the "LXE Inc. 1989 Non-Qualified Stock Option Plan"
(hereinafter referred to as the "Plan");
WHEREAS, the Employee serves and has served the Corporation
as a key employee to whom its success is closely tied;
WHEREAS, the Board of Directors has granted the Employee a stock
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 and definitions of the Plan
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 Employee.
2. Grant of Option. Subject to the terms, restrictions,
limitations and conditions stated herein, the Corporation hereby
evidences is grant to the Employee, not in lieu of salary or other
compensation, of the right and option (hereinafter referred to as the
"Option") to purchase all or any part of an aggregate of
( ) shares
of the Corporation's $.01 par value common stock (the "Common
Stock") beginning on January 1, 1996. This Option shall expire
and is not exercisable after 5:00 p.m., Atlanta time, on January
1, 1999 (the "Expiration Date"), or such earlier date as
determined pursuant to Section 8 or 9 hereof.
Notwithstanding the beginning date or dates for exercise set
forth in the preceding paragraph of this Section, but subject to
the provisions of such preceding paragraph with respect to
expiration of this Option, this Option may be exercised
beginning on the following dates as to all or any portion of the
following percentages of the full number of shares subject
thereto if the Corporation becomes subject to the registration
requirements of the Securities Exchange Act of 1934, as amended
(the "Act"): (a) 25% of the full number of shares subject to
this Option on the date that is the earlier of (i) the day
preceding the expiration of three months from the date the
Corporation became subject to such registration requirements or
(ii) the date fixed by the Board of Directors of the Corporation
for such percentage of the full number of shares subject to this
Option to become exercisable, and (b) an additional 25% of the
full number of shares subject to this Option on each of the
first, second and third anniversary of the date specified in (a)
above; provided, however, that this Option may be exercised as
to all or any portion of the full number of shares subject
thereto beginning on January 1, 1996.
Notwithstanding the beginning date or dates for exercise set
forth in the preceding two paragraphs of this Section, but
subject to the provisions of the first paragraph of this Section
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 subject to the
registration requirements of the Acts 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 or Electromagnetic
Sciences, Inc. ("EMS"), 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), other than EMS, 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
30-day period commencing on the date of expiration of the tender
offer or exchange offer; 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' 5 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.
Notwithstanding the beginning date or dates for exercise set
forth in the first paragraph of this Section, but subject to the
provisions of the first paragraph of this Section 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 EMS becomes the holder of less than 50% of the number of
outstanding shares of the Common Stock, other than in a
transaction by which the Corporation becomes subject to the
registration requirements of the Act. If the event specified in
this paragraph has occurred, this Option shall be fully
exercisable during the 30-day period commencing on the date such
event occurred.
3. Purchase Price. The price per share to be paid by
the Employee for the shares subject to this Option shall be
4. Exercise Terms. Beginning on the date or dates
specified above, and prior to the expiration of this Option as
provided in Section 2 hereof, 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 25 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
Employee otherwise than by will or under the laws of descent and
distribution, and during the Employee's lifetime this Option is
exercisable only by him (or by his guardian or legal
representative, should one be appointed). 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 administrators, executors
or personal representatives, by a written notice (in
substantially the form of the "Notice of Exercise" attached
hereto as Exhibit A) signed by the Employee, or by said
administrators, executors or personal representatives, and
delivered or mailed 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 Employee or his administrators,
executors or personal representatives, as the case may be, then
elects to purchase hereunder, and (b) be accompanied by (i) a
certified or cashier' 5 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 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 his administrators, executors or personal
representatives, 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, 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. If the Employee ceases to
be employed as a key employee of either the Corporation, EMS or
one of their Subsidiaries (such event being hereinafter referred
to as a `Termination"), before the date or dates for exercise of
this Option set forth in Section 2 hereof, other than
Termination that is due to (a) death or disability, or (b)
retirement in accordance with normal retirement policies as in
effect from time to time, then this Option shall forthwith
terminate on the date of Termination and shall not thereafter be
or become exercisable.
In the event of Termination, due to death or disability,
before the date or dates for exercise of this Option set forth
in Section 2 hereof, this Option shall remain in effect in
accordance with its terms; provided, however, that this Option
shall remain in effect only to the extent of the following
percentage of the full number of shares set forth in the first
paragraph of Section 2 hereof, and shall terminate on the date
of Termination and shall not thereafter be or become exercisable
with respect to the remainder of such shares:
Percentage of
Termination due shares for which
to death or Option shall remain
disability after in effect
---------------- -------------------
January 1, 1991 20%
January 1, 1992 40%
January 1, 1993 60%
January 1, 1994 80%
January 1, 1995 100%
In the event of Termination, due to retirement in accordance
with normal retirement policies as in effect from time to time,
before the date or dates for exercise of this Option set forth
in Section 2 hereof, this Option shall remain in effect in
accordance with its terms.
In the event of Termination after the date or dates for
exercise of this Option set forth in Section 2 hereof, other
than Termination that is (a) for cause, (b) voluntary on the
part of the Employee and without the written consent of the
Corporation, or (c) due to death or disability, or to retirement
in accordance with normal retirement policies as in effect from
time to time, 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 day preceding the expiration of
three months from the date of Termination, to the extent of the
number of shares which were purchasable hereunder at the date of
Termination. As to shares of Common Stock that were not
purchasable on such date, this Option shall terminate on such
date of Termination and shall not thereafter be or become
exercisable.
In the event of Termination after the date or dates for
exercise of this Option set forth in Section 2 hereof, that is
either (a) for cause or (b) voluntary on the part of the
Employee and without the written consent of the Corporation,
this Option, to the extent not theretofore exercised, shall
forthwith terminate on such date of Termination and shall not
thereafter be or become exercisable.
In the event of Termination after the date or dates for
exercise of this Option set forth in Section 2 hereof, due to
(a) death or disability, or (b) retirement in accordance with
normal retirement policies as in effect from time to time, this
Option shall remain exercisable until, and shall not in any case
expire prior to, the Expiration Date.
This Option does not confer upon the Employee any right with
respect to continuance of employment by the Corporation, EMS or
by any of their Subsidiaries. This Option shall not be affected
by any change of employment so long as the Employee continues to
be a key employee of the Corporation, EMS or one of their
Subsidiaries.
9. Extension of Exercise Period upon Death of Certain
Previously-Terminated Employees. In the event of the Employee's
death within three months after Termination that is subject to
the fourth paragraph of Section 8, above, the persons described
in Section 6 hereof 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 the Employee's
death, but only to the extent of the number of shares covered by
this Option which were purchasable hereunder at the date of such
Termination.
10. Investment Intention. Employee is acquiring this
Option for his own account and not with any present intention to
resell or distribute this Option or any interests herein.
Solely for the purpose of enabling the Corporation to comply
with the Securities Act of 1933 and applicable state securities
laws (the "Acts"), it is agreed that at any time of exercise of
this Option, in whole or in part, the person exercising this
Option shall deliver to the Corporation an appropriate
investment letter prepared by counsel for the Corporation
stating that he is purchasing the shares to be issued upon the
exercise of this Option for investment purposes for his own
account and not with any present intention to resell or
distribute such shares. Such letter shall also set forth such
person' 5 agreement not to resell or otherwise transfer such
shares except in transactions registered under the Acts or
established to the Corporation' 5 satisfaction to be exempt from
such registration, and it is further agreed that the
certificates for such shares to be delivered to him may bear
restrictive legends to this effect. However, if the shares
underlying this Option shall at any time be registered under the
Acts, or if it is established to the Corporation's satisfaction
that such shares maybe sold without registration under the
Acts, the Corporation shall release the person exercising this
Option from this investment representation, and shall not
require the foregoing investment letter and restrictive legend,
or shall remove such restrictive legend, as appropriate.
11. 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' 5 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:
Chief Executive Officer
Asst.-Secretary EMPLOYEE
(SEAL)
EXHIBIT A
LXE INC.
1989 NON-QUALIFIED STOCK OPTION PLAN
NOTICE OF EXERCISE
OF STOCK OPTION
The undersigned hereby notifies LXE Inc. (the "Corporation")
of his election to exercise his option to purchase
shares of the Corporation's common stock, $.Ol par value (the
"Common Stock"), pursuant to that Stock Option Agreement (the
"Agreement") between the undersigned and the Corporation dated
,19 . 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 are determined to be necessary or appropriate to
avoid earnings charge: or other adverse consequence: to the
Corporation under applicable accounting or tax rules or regulations)
share: 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
Non-Qualified Stock Option 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 such letter as shall be
required pursuant to Section 10 of the Agreement, together with 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 have been adopted 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 hand and seal,
this day of , 19 .
EMPLOYEE OR HIS ADMINISTRATOR, EXECUTOR
OR PERSONAL REPRESENTATIVE
Exhibit 10.17
9/26/90-- General
LXE INC.
1989 NON-QUALIFIED STOCK
OPTION PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, entered into as of the 26th day of
September, 1990 (the "Date of Grant"), by and between LXE Inc., a
Georgia corporation (hereinafter referred to as the "Corporation"),
and (hereinafter referred to as the "Employee").
W I T N E S S E T H
WHEREAS, the Board of Directors of the Corporation has adopted a
stock option plan for officers and key employees of the Corporation
or its subsidiary corporations, known as the
"LXE Inc. 1989 Non-Qualified Stock Option Plan" (hereinafter referred
to as the "Plan");
WHEREAS, the Employee serves and has served the Corporation as a
key employee to whom its success is closely tied;
WHEREAS, the Board of Directors has granted the Employee a stock
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 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 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") to purchase all or any part of an aggregate of
( ) shares of the Corporation's $.01 par value common
stock (the "Common Stock") beginning on
September 26, 2000. This Option shall expire and is not exercisable
after 5:00 p.m., Atlanta time, on September 26, 2002 (the "Expiration
Date"), or such earlier date as determined
pursuant to Section 8 or 9 hereof. 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 or Electromagnetic Sciences, Inc.
("EMS"), provided that the corporation, person or other entity making
such offer purchases or otherwise acquires shares of Common Stock
pursuant to such offer, or (1)) any person or group (as such terms
are defined in Section 13(d)(3) of the Act), other than EMS, 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 (1)) 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.
Notwithstanding the beginning date or dates for exercise set
forth in the first 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 EMS becomes the holder
of less than 50% of the number of outstanding
shares of the Common Stock, other than in a transaction by which the
Corporation becomes subject to the registration requirements of the
Act. If the event specified in this paragraph has
occurred, this Option shall be fully exercisable during the 30~day
period commencing on the date such event occurred.
3. Purchase Price. The price per share to be paid by the
Employee for the shares subject to this Option shall be Nine Dollars
($9.00).
4. Exercise Terms. Beginning on the date or dates specified
above, and prior to the expiration of this Option as provided in
Section 2 hereof, 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 25 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 Employee
otherwise than by will or under the laws of descent and distribution,
and during the Employee's lifetime this Option is exercisable only by
him (or by his guardian or legal representative, should one be
appointed). 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 administrators, executors or
personal representatives, by a written notice (in substantially the
form of the "Notice of Exercise" attached hereto as Exhibit A) signed
by the Employee, or by said administrators, executors or personal
representatives, 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 Employee or
his administrators, executors or personal representatives, 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 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 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 Employee
or to his administrators, executors or personal
representatives, 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, after 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, 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. If the Employee ceases to be
employed as an employee of either the Corporation, EMS or one of
their Subsidiaries (such event being hereinafter referred to as a
"Termination"), before the date or dates for exercise of this Option
set forth in Section 2 hereof, then this Option shall forthwith
terminate on the date of Termination and shall not thereafter be or
become exercisable.
In the event of Termination after the date or dates for
exercise of this Option set forth in Section 2 hereof, other than
Termination that is (a) for cause, (1)) voluntary on the part of
the Employee and without the written consent of the Corporation, or
(c) due to death or disability, or to retirement in accordance with
normal retirement policies as in effect from time to time, 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 day preceding the expiration of three months from the date of
Termination, to the extent of the number of shares which were
purchasable hereunder at the date of Termination. As to shares of
Common Stock that were not purchasable on such date, this Option
shall Terminate on such date of Termination and shall not thereafter
be or become exercisable.
In the event of Termination after the date or dates for
exercise of this Option set forth in Section 2 hereof, that is either
(a) for cause or (1)) voluntary on the part of the Employee and
without the written consent of the Corporation, this Option, to the
extent not theretofore exercised, shall forthwith terminate on such
date of Termination and shall not thereafter be or become
exercisable.
In the event of Termination after the date or dates for
exercise of this Option set forth in Section 2 hereof, due to (a)
death or disability, or (1)) retirement in accordance with normal
retirement policies as in effect from time to time, this Option shall
remain exercisable until, and shall not in any case expire prior to,
the Expiration Date.
This Option does not confer upon the Employee any right
with respect to continuance of employment by the Corporation, EMS or
any of their 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, EMS or one of their Subsidiaries.
9. Extension of Exercise Period upon Death of Certain
Previously-Terminated. In the event of the Employee's death within
three months after a Termination that is subject to the second
paragraph of Section 8, above, the persons described in Section 6
hereof 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 the Employee's death,
but only to the extent of the number of shares covered by this Option
that were purchasable hereunder at the date of such Termination.
10. Investment Intention. Employee is acquiring this Option
for his own account and not with any present intention to resell or
distribute this Option or any interests herein. Solely
for the purpose of enabling the Corporation to comply with the
Securities Act of 1933 and applicable state securities laws (the
"Acts"), it is agreed that at any time of exercise of this
Option, in whole or in part, the person exercising this Option shall
deliver to the Corporation an appropriate investment letter prepared
by counsel for the Corporation stating that he is
purchasing the shares to be issued upon the exercise of this Option
for investment purposes for his own account and not with any present
intention to resell or distribute such shares.
Such letter shall also set forth such person's agreement not to
resell or otherwise transfer such shares except in transactions
registered under the Acts or established to the Corporation's
satisfaction to be exempt from such registration, and it is further
agreed that the certificates for such shares to be delivered to him
may bear restrictive legends to this effect. However, if the shares
underlying this Option shall at any time be registered under the
Acts, or if it is established to the Corporation's satisfaction that
such shares may be sold without registration under the Acts, the
Corporation shall release the person exercising this Option from this
investment representation, and shall not require the foregoing
investment letter and restrictive legend, or shall remove such
restrictive legend, as appropriate.
11. 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 Employee has executed this Agreement
under his seal, all as of the day and year first above written.
LXE INC.
[CORPORATE SEAL]
ATTEST: By:
Chief Executive Officer
Assistant Secretary EMPLOYEE:
(SEAL)
EXHIBIT A
LXE INC.
1989 NON-QUALIFIED STOCK OPTION PLAN
NOTICE OF EXERCISE
OF STOCK OPTION
The undersigned hereby notifies LXE Inc. (the "Corporation")
of his election to exercise his 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 undersigned and the Corporation dated
19 . 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 are 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 Non-Qualified Stock Option 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 such letter as shall be
required pursuant to Section 10 of the Agreement, together with 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 have been adopted 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 hand and seal,
this day of 19
EMPLOYEE OR HIS ADMINISTRATOR,
EXECUTOR OR
PERSONAL REPRESENTATIVE
Exhibit 10.18
9/26/90-- JBM
LXE INC.
1989 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, entered into as of the 26th day of
September, 1990 (the "Date of Grant"), by and between LXE Inc., a
Georgia corporation (hereinafter referred to as the "Corporation"),
and John B. Mowell (hereinafter referred to as the "Director").
WITNESSETH
WHEREAS, the Board of Directors 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 "LXE Inc. 1989 Stock
Incentive Plan" (hereinafter referred to as the "Plan");
WHEREAS, the Director serves and has served the Corporation as a
member of its Board of Directors, to whom its success is closely
tied;
WHEREAS, on the Date of Grant the Board of Directors granted the
Director 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, which
agreement reflects the effects of (i) amendments to
the Plan permitting options to be granted to members of the Board of
Directors; (ii) action of the Board of Directors pursuant to which
the option held by Director shall be deemed to be
issued and outstanding under the Plan; and (iii) the effects of a 59%
stock dividend declared by the Board of Directors on March 1, 1991.
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 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 fifteen thousand nine hundred (15,900) shares of
the Corporation's $.01 par value common stock (the
"Common Stock") beginning on September 26, 1997. This Option shall
expire and is not exercisable after 5:00 p.m., Atlanta time, on
September 26, 2000 (the "Expiration Date"), or
such earlier date as determined pursuant to Section 8 or 9 hereof.
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 preceding paragraph with respect to expiration of
this Option, this Option may be exercised beginning on the following
dates as to all or any portion of the following percentages of the
full number of shares subject thereto if the Corporation registers
under, or becomes subject to the registration requirements of, the
Securities Exchange Act of 1934, as amended (the "Act"): (a) 50% of
the full number
of shares subject to this Option on the date that is the later of (i)
the day preceding the expiration of three months from the first date
the Corporation so registered or became subject
to such registration requirements or (ii) September 1, 1991, and (1))
an additional 50% of the full number of shares subject to this Option
on the first anniversary of the date determined
pursuant to clause (a) above; provided, however, that this Option may
in any event be exercised as to all or any portion of the full number
of shares subject thereto beginning on September 26, 1997.
Notwithstanding the beginning date or dates for exercise set
forth in the preceding two paragraphs of this Section, but subject to
the provisions of the first paragraph of this Section
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 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 or
Electromagnetic Sciences, Inc. ("EMS"), provided
that the corporation, person or other entity making such offer
purchases or otherwise acquires shares of Common Stock pursuant to
such offer, or (1)) any person or group (as such terms are
defined in Section 13(d)(3) of the Act), other than EMS, 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 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 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.
Notwithstanding the beginning date or dates for exercise set
forth in the first paragraph of this Section, but subject to the
provisions of the first paragraph of this Section 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 EMS
becomes the holder of less than 50% of the number
of outstanding shares of the Common Stock, other than in a
transaction by which the Corporation becomes subject to the
registration requirements of the Act. If the event specified
in this paragraph has occurred, this Option shall be fully
exercisable during the 30-day period commencing on the date such
event occurred.
3. Purchase Price. The price per share to be paid by Director
for the shares subject to this Option shall be Five and 66/100
Dollars ($5.66).
4. Exercise Terms. Beginning on the date or 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 25 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, and
during the Director's lifetime this Option is exercisable only by him
(or by his guardian or legal representative, should one be
appointed). 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 administrators, executors or personal
representatives, by a written notice (in substantially
the form of the "Notice of Exercise" attached hereto as Exhibit A)
signed by the Director, or by said administrators, executors or
personal representatives, 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
his administrators, executors or personal representatives, 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 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 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 administrators, executors or
personal representatives, 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, after March 1, 1991, and 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 ceases to be a
member of the Board of Directors of the Corporation (such event being
hereinafter referred to as a "Termination"), before the date or dates
for exercise of this Option set forth in Section 2 hereof, then this
Option shall forthwith terminate on the date of Termination and shall
not thereafter be or become exercisable.
In the event of Termination after the date or dates for exercise
of this Option set forth in Section 2 hereof, other than Termination
that is (a) for cause, (b) voluntary on the part of
the Director and without the written consent of the Corporation, or
(c) due to death or disability, the Director 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 day preceding the expiration
of three months from the date of Termination, to the extent of the
number of shares which were purchasable hereunder at the date of
Termination. As to shares of Common Stock that were not purchasable
on such date, this Option shall Terminate on such date of Termination
and shall not thereafter be or become exercisable.
In the event of Termination after the date or dates for exercise
of this Option set forth in Section 2 hereof, that is either (a) for
cause or (b) voluntary on the part of the Director and without the
written consent of the Corporation, this Option, to the extent not
theretofore exercised, shall forthwith terminate on such date of
Termination and shall not thereafter be or become exercisable.
In the event of Termination after the date or dates for exercise
of this Option set forth in Section 2 hereof, due to death or
disability, this Option shall remain exercisable until, and shall not
in any case expire prior to, the Expiration Date.
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. Extension of Exercise Period upon Death of Certain
Previously-Terminated Directors. In the event of the Director's death
within three months after a Termination that is
subject to the second paragraph of Section 8, above, the persons
described in Section 6 hereof 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 the
Director's death, but only to the extent of the number of shares
covered by this Option which were purchasable hereunder
at the date of such Termination.
10. Investment Intention. Director is acquiring this Option for
his own account and not with any present intention to resell or
distribute this Option or any interests herein. Solely
for the purpose of enabling the Corporation to comply with the
Securities Act of 1933 and applicable state securities laws (the
"Acts"), it is agreed that at any time of exercise of this
Option, in whole or in part, the person exercising this Option shall
deliver to the Corporation an appropriate investment letter prepared
by counsel for the Corporation stating that he is
purchasing the shares to be issued upon the exercise of this Option
for investment purposes for his own account and not with any present
intention to resell or distribute such shares.
Such letter shall also set forth such person's agreement not to
resell or otherwise transfer such shares except in transactions
registered under the Acts or established to the Corporation's
satisfaction to be exempt from such registration, and it is further
agreed that the certificates for such shares to be delivered to him
may bear restrictive legends to this effect. However, if the shares
underlying this Option shall at any time be registered under the
Acts, or if it is established to the Corporation1s satisfaction that
such shares may be sold without registration under the Acts, the
Corporation shall release the person exercising this Option from this
investment representation, and shall not require the foregoing
investment letter and restrictive legend, or shall remove such
restrictive legend, as appropriate.
11. 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.
LXE INC.
[CORPORATE SEAL]
ATTEST: By:
Chief Executive Officer
Assistant Secretary DIRECTOR:
(SEAL)
John B. Mowell
EXHIBIT A
LXE INC.
1989 STOCK INCENTIVE PLAN
NOTICE OF EXERCISE
OF STOCK OPTION
The undersigned hereby notifies IXE Inc. (the "Corporation") of
his election to exercise his 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
undersigned and the Corporation
dated September 26, 1990. 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 are 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) 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 such letter as shall be
required pursuant to Section 10 of the Agreement, together with 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 have been adopted 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) 1 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 hand and seal,
this day of , 19 .
DIRECTOR OR HIS ADMINISTRATOR,
EXECUTOR OR
PERSONAL REPRESENTATIVE
Exhibit 10.21
January 24, 1997
ELECTROMAGNETIC SCIENCES, INC.
Executive Annual Incentive Compensation Plan
1. PURPOSE
The purpose of this Plan is to attract and retain in the employ
of the Company and its principal subsidiaries executives of
outstanding experience and ability, and to incentivize them to
superior performance. Under this Plan, annual incentive compensation
(or "bonuses") will be based upon performance against financial and
non-financial objectives that are consistent with the objectives of
the Company and its shareholders. Thus, the Plan provides a means of
rewarding those who contribute through their individual performance
to the objectives of the Company.
2. DEFINITIONS
Unless the context otherwise requires, the words which follow
shall have the following meaning:
(a) Plan - This Annual Incentive Compensation Plan for
executives.
(b) Business Unit - A principal subsidiary, business
division or group of the Company as identified for the
purposes of the Plan by the Committee.
(c) Board - The Board of Directors of the Company.
(d) Company - Electromagnetic Sciences, Inc.
(e) Committee - The Compensation Committee of the Board,
which has the exclusive authority to interpret and make
awards under the Plan.
(f) Plan Year - A fiscal year of the Company.
(g) Base Compensation - A Participant's annual salary
compensation, before reduction for Cafeteria Plan,
Savings Incentive Plan, Stock Purchase Plan or other
elective reductions or deductions, and before deduction
of any taxes.
(h) Participant - A person selected in accordance with
Section 4 to be eligible to receive a bonus in
accordance with this Plan.
(i) Target - The bonus, expressed as a percentage of a
Participant's base compensation, payable under the Plan
in the event 100% of financial and non-financial
objectives are met.
3. ADMINISTRATION AND INTERPRETATION OF THE PLAN
The Committee shall have the power to (i) approve eligible
Participants, (ii) approve payments under the Plan, (iii) interpret
the Plan, (iv) adopt, amend and rescind rules and regulations
relating to the Plan, and (v) make all other determinations and take
all other actions necessary or desirable for the Plan's
administration.
The decision of the Committee on any question concerning the
interpretation and administration of the Plan shall be final and
conclusive. The Committee's determinations may differ in the
Committee's sole discretion between different Participants,
irrespective of whether they are similarly situated. Subject to
Section 7, nothing in the Plan shall give any employee or his or her
legal representative or assigns any right to a bonus or otherwise to
participate in the Plan except as the Committee may determine.
4. ELIGIBLE PARTICIPANTS
Participants will be those executives who are designated by the
Chief Executive Officer as being in a position to have a significant
impact on profits and Company performance and are approved by the
Committee to receive a bonus under the Plan. However, if a Change in
Control (as defined in Section 7) occurs prior to the time
Participants are determined for the Plan Year in which the Change in
Control occurs, all persons who were Participants in the prior Plan
Year and who are active employees of the Company or a subsidiary as
of the date of the Change in Control shall be Participants for such
Plan Year.
Except as the Committee may otherwise determine, each
Participant for any Plan Year must serve as an executive of the
Company and, except as the Committee may otherwise determine or as
provided in Section 7, Participants for any Plan Year must be active
employees of the Company or a subsidiary when the Committee approves
bonuses after the end of the Plan Year.
The Committee may decide to award a pro-rated bonus to a
Participant who is newly promoted or hired during a Plan Year.
Pro-rated bonuses may also be awarded to Participants who retire with the
Company's approval during a Plan Year and to the estates of
Participants who die during a Plan Year.
5. DETERMINATION OF INCENTIVE COMPENSATION AWARDS
Incentive compensation awards, expressed as a percentage of Base
Compensation, shall be determined as set forth in this Section 5.
(a) Determination of Targets. During the first calendar
quarter of each Plan Year, the Target for each
Participant shall be determined by the Committee, based
on its evaluation of the individual Participant's level
of responsibility and potential to affect Company
profits and performance. The Committee shall also
specify the portions of each individual's Target that are
dependent on achievement of financial and non-financial
objectives.
(b) Determination of Financial Objectives. During the
first calendar quarter of each Plan Year, the Committee
shall set for each Participant financial objectives for
the Company's and/or relevant Business Unit's financial
performance during the Plan Year. Such objectives may
vary among Participants, and may be given such relative
weightings as the Committee may deem appropriate with
respect to the particular Participant.
(c) Determination of Non-Financial Objectives. During the
first calendar quarter of each Plan Year, non-financial
objectives shall be determined with respect to
individual achievement objectives for each Participant.
Such objectives shall be established by agreement of
each Participant and his or her superior, must be
specific and in writing, and must be approved by the
Chief Executive Officer and provided to the Committee.
Modifications may be made during a Plan Year, based on
revised circumstances and Company objectives, but must
be developed and approved as set forth in the preceding
sentence.
(d) Determination of Award Based on Financial Objectives.
Following the close of each Plan Year, the Chief
Financial Officer shall prepare a report setting forth
the extent to which the Company and or relevant
Business Unit achieved the various financial objectives
in effect for each Participant during the Plan Year.
If actual Company and or Business Unit performance is
exactly 100% of each relevant financial objective, the
Participant shall be entitled to 100% of the portion of
his or her Target that was designated to be dependent
on financial objectives. If actual performance is more
or less than any objective, adjustments, up or down,
shall be made based on floors, weightings, multipliers
and limits specified by the Committee at the time the
financial objectives were set.
(e) Determination of Award Based on Non-Financial
Objectives.
At the end of the Plan Year, Participants and their
superiors shall assess the Participant's performance
against his or her non-financial performance
objectives. These assessments will be reviewed and used
by the Chief Executive Officer in recommending to the
Committee the extent to which the Participant will be
awarded the portion of his or her of Target that is
dependent on individual performance against non-
financial objectives.In making such recommendation, the
Chief Executive Officer shall use such floors,
weightings, multipliers and limits as shall have been
specified by the Chief Executive Officer or Committee
at the time the non-financial objectives were
determined.
(f) Final Approval. All awards shall be subject to final
approval by the Committee, which shall have the
authority in its judgment to adjust awards based on
non-financial objectives, as well as, in unusual
circumstances as determined by the Committee, to adjust
the awards based on financial objectives.
6. PAYMENT OF INCENTIVE COMPENSATION AWARDS
Except as provided in Section 7, bonuses awarded under this
Plan will be fully paid in cash and/or shares of the
Company's common stock (which may be subject to restrictions
specified by the Committee), as determined by the Committee,
within 90 days after the end of the Plan Year.
Any amounts paid under this Plan shall be considered as
compensation to the Participant for the purpose of
disability and life insurance programs, unless and to the
extent such compensation is expressly excluded by the
provisions of such programs, but such amounts shall not be
considered as compensation for purposes of any other
incentive plan or other benefit unless such other plan or
benefit expressly includes compensation paid under this
Plan.
7. CHANGE IN CONTROL OF THE COMPANY
(a) Contrary Provisions. The provisions of this Section 7
shall govern and supersede any inconsistent terms or
provisions of the Plan.
(b) Change in Control. For purposes of the Plan, "Change
in Control" shall mean any of the following events:
(1) The acquisition in one or more transactions by any
person or group (as such terms are defined in
Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "1934 Act")), of "Beneficial
Ownership" (within the meaning of Rule 13d-3 under
1934 Act) of 50% or more of the combined voting
power of the Company's then-outstanding voting
securities; or
(2) The individuals who are members of the Incumbent
Board (as defined below), cease for any reason to
constitute at least two-thirds of the Board. The
"Incumbent Board" consists of the individuals who
as of January 23, 1997, are members of he Board
and any individual becoming a director subsequent
to January 23, 1997, whose election, or nomination
for election by the Company's shareholders, was
approved by a vote of at least two-thirds of the
directors then composing the Incumbent Board;
provided, however, that any individual who is not
a member of the Incumbent Board at the time he or
she becomes a member of the Board shall become a
member of the Incumbent Board upon the completion
of two full years as a member of the Board, except
that no individual shall be considered a member of
the Incumbent Board if such individual initially
assumed office (i) as a result of either an actual
or threatened "election contest" (within the
meaning of Rule 14a-11 under the 1934 Act) or
other actual or threatened solicitation of proxies
or consents by or on behalf of a person other than
the Board (a "Proxy Contest"), or (ii) with the
approval of the other Board members, but by reason
of any agreement intended to avoid or settle a
Proxy Contest; or
(3) Approval by shareholders of the Company of (i) a
merger or consolidation involving the Company if
such shareholders do not, immediately following
such merger or consolidation, own, directly or
indirectly, more than 50% of the combined voting
power of the outstanding voting securities of the
corporation resulting from such merger or
consolidation in substantially the same proportion
as their ownership of the Company's voting
securities immediately before such merger or
consolidation, or (ii) a complete liquidation or
dissolution of the Company or an agreement for the
sale or other disposition of all or substantially
all of the assets of the Company.
If a Participant's employment is terminated prior
to a Change in Control and the Participant
reasonably demonstrates that such termination (i)
was at the request of a third party who has
indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who
thereafter effects a Change in Control, or (ii)
otherwise occurred in connection with or in
anticipation of a Change in Control which actually
occurs, then for all purposes of this Plan the
date of a Change in Control in respect of such
Participant shall mean the date immediately prior
to the date of termination of such Participant's
employment.
(c) Payment Upon a Change in Control. Upon a Change in
Control, the bonus for a Plan Year ending prior to the
date of the Change in Control for which payment has not
previously been made shall be unconditionally payable
to each Participant. The portion based on financial
objectives shall be determined as specified in
paragraph 5(c), and the portion based on non-financial
objectives shall be at not less than the Target level
related to such objectives. If a Change in Control
occurs with prior approval of the Board, bonuses for
the Plan Year during which the Change in Control occurs
shall be unconditionally payable to each Participant,
such bonuses to be at the Target level or at such
higher percentage of Base Compensation as may be
approved by the Committee.
If a Change in Control occurs without prior approval of
the Board, bonuses for the Plan Year during which the
Change in Control occurs shall be unconditionally
payable to each Participant, such bonuses to be equal
to the Target level. If such a Change in Control
occurs before Targets shall have been established for a
Plan Year, the Targets for such Plan Year shall be no
less favorable to each of the Participants than the
Targets for the prior Plan Year.
Bonuses payable in accordance with this paragraph 7(c)
shall be paid in cash on or before the fifth day
following the date of the Change of Control.
(d) Amendment or Termination.
(i) This Section 7 shall not be amended or terminated
as to any Participant who has not given his or her
written consent.
(ii) Any amendment or termination of the Plan prior to
a Change in Control which (1) was at the request of a
third party who has indicated an intention or taken
steps reasonably calculated to effect a Change in
Control, or (2) otherwise arose in connection with or
in anticipation of a Change in Control, shall be null
and void as to any Participant who has not given his or
her written consent.
(e) Trust Arrangement. All benefits under the Plan shall
be paid by the Company. The Plan shall be unfunded and
the benefits hereunder shall be paid only from the
general assets of the Company. However, in the
discretion of the Committee the Company may establish a
trust or other arrangement for the purpose of funding
the benefits payable under the Plan.
8. NON-ASSIGNABILITY
No bonus or other right or benefit under this Plan shall be
subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge the same shall be void and shall
not be recognized or given effect by the Company.
9. NO RIGHT TO EMPLOYMENT
Nothing in this Plan or in any notice of award pursuant hereto
shall confer any right to continue in the employment of the Company
or any of its subsidiaries nor affect the Company's or any
subsidiary's right to terminate the employment of any Participant.
10. AMENDMENT OR TERMINATION
The Board may amend or terminate the Plan, without the consent
of any Participant, at any time prior to the end of the first
calendar quarter of the Plan Year for which such amendment or
termination becomes effective.
ELECTROMAGNETIC SCIENCES, INC. AND SUBSIDIARIES EXHIBIT 13.1
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except net earnings per share)
Years ended
December 31
1996 1995 1994
---- ---- ----
Net sales (note 9) $149,758 128,950 117,993
Cost of sales 97,258 83,865 73,375
Selling, general and administrative expenses 31,070 30,836 27,589
Research and development expenses 12,121 10,392 8,127
Write-down of acquired software 1,645 - -
------- ------- -------
Operating income 7,664 3,857 8,902
Interest income and other non-operating (304) 675 640
Interest expense (1,113) (864) (482)
------- ------- -------
Earnings before income taxes
and LXE minority interest 6,247 3,668 9,060
Income tax expense (note 6) (1,484) (1,402) (3,712)
Minority interest in LXE net (earnings) loss 264 44 (1,085)
------- ------- -------
Net earnings $ 5,027 2,310 4,263
======= ======= =======
Net earnings per common and
common equivalent share (note 5) $ .65 .32 .58
=== === ===
Weighted average number of common
and common equivalent shares (note 5) 7,731 7,266 7,043
======= ======= =======
See accompanying notes to consolidated financial statements.
ELECTROMAGNETIC SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31
1996 1995
------- -------
ASSETS
Current assets:
Cash and cash equivalents 4,321 5,766
Trade accounts receivable, net (note 3) 45,452 40,118
Inventories:
Work in process 5,688 5,701
Parts and materials 14,548 10,128
------- -------
Total inventories 20,236 15,829
------- -------
Deferred income taxes (note 6) 2,098 1,363
------- -------
Total current assets 72,107 63,076
======= =======
Property, plant and equipment (note 4):
Land 1,150 1,150
Building and leasehold improvements 14,829 14,690
Machinery and equipment 59,137 53,037
Furniture and fixtures 4,426 4,182
------- -------
79,542 73,059
Less accumulated depreciation
and amortization 49,107 43,794
------- -------
Net property, plant and equipment 30,435 29,265
------- -------
Other assets 7,304 7,487
Goodwill, net of accumulated amortization
of $1,695 in 1996 and $1,225 in 1995 (note 2) 17,231 5,126
------- -------
$127,077 104,954
======= =======
See accompanying notes to consolidated financial statements.
ELECTROMAGNETIC SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
(In thousands)
December 31
1996 1995
------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt (note 4) $ 4,497 3,546
Accounts payable 14,798 10,369
Accrued compensation costs 3,404 3,402
Accrued retirement costs (note 7) 327 589
Deferred revenue 1,340 1,296
Other current liabilities 1,104 872
------- -------
Total current liabilities 25,470 20,074
------- -------
Long-term debt, excluding current
installments (note 4) 12,230 10,989
Deferred income taxes (note 6) 2,127 4,408
------- -------
Total liabilities 39,827 35,471
------- -------
Minority interest in LXE (note 2) - 9,274
Stockholders' equity (note 5):
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 8,445,000 in
1996 and 7,004,000 in 1995 844 700
Additional paid-in capital 32,581 10,681
Foreign currency translation adjustment (47) (17)
Retained earnings 53,872 48,845
------- -------
Total stockholders' equity 87,250 60,209
------- -------
Commitments and contingencies (note 10) $127,077 104,954
======= =======
See accompanying notes to consolidated financial statements.
ELECTROMAGNETIC SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Three years ended December 31, 1996
----------------------------------------------------
Foreign
currency
Addi- trans- Total
Common Stock tional lation stock-
-------------- paid-in adjust- Retained holders'
Shares Amount capital ment earnings equity
------ ------ ------- -------- -------- --------
Balance, December 31,
1993 6,715 $671 8,582 23 42,272 51,548
Net earnings - - - - 4,263 4,263
Income tax benefit from
exercise of non-
qualified stock options
(note 6) - - 124 - - 124
Exercise of common stock
options 106 11 623 - - 634
Foreign currency
translation adjustment - - - (138) - (138)
----- ----- ----- ----- ------ ------
Balance, December 31,
1994 6,821 682 9,329 (115) 46,535 56,431
Net earnings - - - - 2,310 2,310
Income tax benefit from
exercise of non-
qualified stock options
(note 6) - - 695 - - 695
Exercise of common stock
options 248 25 1,594 - - 1,619
Redemption of shares upon
exercise of common stock
options (65) (7) (937) - - (944)
Foreign currency
translation adjustment - - - 98 - 98
----- ---- ------ ----- ------ ------
Balance, December 31,
1995 7,004 700 10,681 (17) 48,845 60,209
Net earnings - - - - 5,027 5,027
Income tax benefit from
exercise of non-
qualified stock options
(note 6) - - 1,000 - - 1,000
Exercise of common stock
options 279 28 1,832 - - 1,860
Redemption of shares upon
exercise of common
stock options (69) (7) (1,165) - - (1,172)
Foreign currency
translation adjustment - - - (30) - (30)
Acquisition of LXE minority
shares (note 2) 1,231 123 20,233 - - 20,356
----- --- ------ ---- ------ ------
Balance, December 31,
1996 8,445 $844 32,581 (47) 53,872 87,250
===== === ====== ==== ====== ======
See accompanying notes to consolidated financial statements.
ELECTROMAGNETIC SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31
1996 1995 1994
------ ------ ------
Cash flows from operating activities:
Net earnings $ 5,027 2,310 4,263
Adjustments to reconcile net earnings to net
cash from operating activities:
LXE minority interest (264) (44) 1,085
Depreciation and amortization 5,909 5,587 5,526
Goodwill amortization 470 420 420
Write-down of acquired software 1,645 - -
Deferred income taxes (3,097) 93 (438)
Changes in operating assets
and liabilities:
Trade accounts receivable (5,334) (3,763) (7,118)
Inventories (4,407) (4,115) 765
Accounts payable 4,279 (393) 2,015
Income taxes 2,026 (501) 1,582
Accrued costs, deferred revenue,
and other current liabilities (33) (954) 243
Other (312) (864) (87)
------- ------ ------
Net cash provided by (used in)
operating activities 5,909 (2,224) 8,256
Cash flows from investing activities:
Purchase of property, plant and equipment (7,329) (8,459) (5,573)
Capitalized product software costs, licensing
costs and other market related investments (1,688) (3,667) -
Purchase of LXE common stock from
minority shareholders (1,158) - -
Proceeds from maturities of marketable
securities - 400 1,590
------- ------- ------
Net cash used in
investing activities (10,175) (11,726) (3,983)
------- ------- ------
Cash flows from financing activities:
Proceeds from long-term debt 3,075 6,850 -
Repayment of long-term debt (883) (737) (356)
Proceeds from exercise of stock options 629 532 743
------- ------- ------
Net cash provided by
financing activities 2,821 6,645 387
------- ------- ------
Net change in cash and
cash equivalents (1,445) (7,305) 4,660
Cash and cash equivalents at January 1 5,766 13,071 8,411
------- ------- ------
Cash and cash equivalents at December 31 $ 4,321 5,766 13,071
======= ======= ======
Supplemental disclosure of cash
flow information:
Cash paid in interest $ 1,113 864 482
------- ------- ------
Cash paid in income taxes $ 2,918 2,265 2,991
------- ------- ------
See accompanying notes to consolidated financial statements.
Electromagnetic Sciences, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of
Electromagnetic Sciences, Inc., its wholly-owned subsidiaries, EMS
Technologies, Inc. and LXE Inc., and its majority-owned subsidiary, CAL
Corporation (collectively, "the Company"). All significant intercompany
balances and transactions have been eliminated in consolidation. Following
is a summary of the Company's significant accounting policies:
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the amounts of assets and liabilities and revenues
and expenses reported 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 system 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. Revenues
collected in advance under service contracts are recognized over the term
of the contract. To properly match revenues with costs, certain contracts
may have revenue recognized in excess of billings, and other contracts may
have billings in excess of revenue recognized.
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.
Cash Equivalents
Cash equivalents of $3,070,000 and $4,205,000 at December 31, 1996 and
1995, respectively, consist of overnight repurchase agreements and
interest-bearing deposits with an initial term of less than three months.
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or
less to be cash equivalents.
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 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 has adopted Statement of Financial Accounting Standards No. 121
(SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which was issued in March 1995. The
adoption of SFAS 121 did not result in any adjustments to the carrying
value of property, plant and equipment or other long-lived assets.
Capitalized Software Costs
As of December 31, 1996 and 1995, the Company has capitalized a total of
$3.6 million and $1.2 million, respectively, of certain costs to develop
software which will be licensed to customers, including $2 million for the
unrestricted us of certain wireless logistics software, which was obtained
in 1996 in exchange for LXE's minority interest in a software development
company. Capitalized software costs, which are included in other assets,
will be amortized using 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 three years.
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.
Earnings Per Share
Earnings per common and common equivalent share are based on the weighted
average number of shares outstanding and equivalent shares derived from
dilutive stock options. For purposes of calculating primary earnings per
share, the Company's proportionate share of the net earnings of LXE has
been adjusted to reflect the dilutive effect of LXE's outstanding stock
options. Fully diluted earnings per share are not significantly different
from the primary earnings per share presented.
Goodwill
Goodwill represents the excess of purchase price over fair value of net
assets acquired and is amortized on a straight-line basis over fifteen to
twenty-five 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 Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
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 provisions of 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 which prevailed during the year presented. CAL
Corporation conducts a material portion of the Company's overall business
operations, and the effects of translating CAL's Canadian currency
financial statements are accumulated and reported as a separate component
of stockholder's equity. LXE's wholly owned European subsidiaries are
sales and marketing organizations with no other material business
operations, and the effects of remeasuring the foreign currency financial
statements of these subsidiaries are recognized in the consolidated
statement of earnings. Foreign currency transactions and remeasurement
resulted in a net loss of $126,000 in 1996 and net gains of $550,000 in
1995, and $237,000 in 1994.
(2) ACQUISITION OF LXE MINORITY SHARES
On October 3, 1996, the Company announced its offer to exchange .75 shares
of its common stock (ELMG stock) for each of the 1.0 million outstanding
shares of the common stock of LXE Inc. The exchange offer expired on
December 30, 1996, at which time approximately 800,000 shares had been
tendered; upon acceptance of those shares, the Company held 96% of the
outstanding LXE shares. On December 31, 1996, the Company exercised its
right as the holder of at least 90% of the LXE shares to cause a merger in
which all remaining LXE shares not held by the Company were each converted
into .75 ELMG shares. As a result of the exchange offer and merger, the
Company issued approximately 774,000 additional shares valued for financial
reporting purposes at $17 per share.
Also as part of the merger, the Company converted all outstanding LXE
stock options into ELMG stock options at the rate of .75 ELMG shares for
each LXE share subject to option. The per-share price was increased by
one-third, so that the aggregate exercise price of each new ELMG option was
the same as for the previous LXE option. All other terms and conditions of
the new ELMG options, including vesting dates and expiration dates, were
unchanged from the previous LXE options. As a result, the Company issued
options to purchase a total of 275,000 ELMG shares at prices ranging from
$5.03 to $24.33 per share. The total value of these ELMG options, as
determined under the Black-Scholes option pricing model, was approximately
$2.5 million.
In February 1996, the Company completed a private purchase of 548,000
shares of LXE stock, paid for with $500,000 of cash and 457,000 shares of
ELMG stock valued at $10.30 per share as of the date of the transaction.
The acquisition of LXE shares was accounted for as a purchase transaction,
resulting in additional goodwill of approximately $12.5 million that will
be amortized on the straight-line method over twenty-five years.
(3) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable include the following (in thousands):
December 31
1996 1995
------ ------
Amounts billed under contracts $ 29,450 27,774
Unbilled revenues (substantially all to
be billed during the following twelve
months) 17,303 13,873
Deferred revenue (1,031) (1,009)
Allowance for doubtful accounts (270) (520)
------ ------
Trade accounts receivable, net $ 45,452 40,118
====== ======
(4) LONG-TERM DEBT
The following is a summary of long-term debt (in thousands):
December 31
1996 1995
------ -----
Reducing revolving credit loan secured by land
and building, maturing in December 2000,
interest payable quarterly at a variable rate
(8.25% at the end of 1996 and 8.0% at the end
of 1995) 3,770 3,770
Revolving credit loan of LXE Inc., unsecured,
maturing in December 1998, interest payable
quarterly at a variable rate (8.25% at the end
of 1996 and 7.67% at the end of 1995) 8,000 6,850
Line of credit secured by the assets
of CAL Corporation, interest payable at a
prime rate plus 1.0% (5.75% at the end of
1996 and 8.5% at the end of 1995) 3,333 3,068
Financing agreement for the purchase of
integrated application software, due in monthly
installments through February 1999, interest
payable at 8.85%. 1,265 -
Other debt, due in installments through
April 1997 359 847
------ ------
Total long-term debt 16,727 14,535
Less current installments of long-term debt 4,497 3,546
------ ------
Long-term debt, excluding current
installments $12,230 10,989
====== ======
In December 1995, the Company amended and restated its reducing revolving
credit agreement with a bank to increase available credit from $5,400,000
to $10,000,0000, and extend the loan maturity from January 1, 1997 to
December 29, 2000. Reductions in credit available under the agreement
occur annually on a fixed schedule over the loan term until credit
available reduces to $8,000,000 during the final year of the loan
agreement. Based on the level of borrowing at December 31, 1996, no
principal payments are required until maturity.
Also in December 1995, LXE entered into a $10,000,000 revolving credit
agreement with a bank. Under the credit agreement, which extends through
December 1998, LXE must maintain certain ratios related to interest
coverage and leverage, and must maintain net worth of at least $25,000,000,
among other restrictions.
Interest under both of the revolving credit agreements 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 under both loans.
CAL's line of credit was renewed in December, 1996 and extends to October,
1997.
The approximate principal maturities of long-term debt for each of the next
five years are $4,497,000 in 1997, $8,360,000 in 1998, $100,000 in 1999,
$3,770,000 in 2000 and $0 in 2001. At December 31, 1996, the Company has
available four immediate sources of credit: $6.2 million remaining under
the reducing revolving credit agreement,$2.0 million available under the
LXE revolving credit loan, $1.8 million available under a CAL credit line,
and a separate $5 million unused line of credit with a bank.
(5) STOCK PLANS
The Company has granted incentive and nonqualified 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. Some nonqualified options are contingent upon continued
employment or noncompetition after retirement. Under all plans at December
31, 1996, options for a total of 576,000 shares of stock were exercisable,
and options for 96,000 shares were available for future grants.
Prior to becoming a wholly-owned subsidiary of the Company at the end of
1996, LXE maintained a separate stock incentive plan for grants of
restricted shares or options to directors and employees. Immediately prior
to the merger on December 31, 1996, options for 367,000 shares of LXE stock
were outstanding at prices per share ranging from $3.77 to $18.25.
Following is a summary of activity in all of the Company's stock option
plans for the three years ended December 31, 1996, 1995 and 1994 (shares in
thousands):
Weighted Average
Exercise Price
Shares Per Share
------ ---------
Options outstanding at December 31, 1993 1,015 $ 6.59
Granted 108 8.27
Canceled or expired (15) 11.87
Exercised (106) 5.42
------ -----
Options outstanding at December 31, 1994 1,002 6.82
Granted 69 12.72
Canceled or expired (16) 7.31
Exercised (248) 6.53
------ -----
Options outstanding at December 31, 1995 807 7.40
Granted 95 11.96
Canceled or expired (22) 7.92
Exercised (279) 6.67
Issued to replace LXE options pursuant to merger 275 9.11
------ -----
Options outstanding at December 31, 1996 876 $ 8.66
====== =====
The weighted average fair value of options granted in 1996 and 1995,
excluding options issued pursuant to the LXE merger, was $7.12 and $7.45,
respectively. These fair values were based on a weighted average risk-free
rate of return of 6.3% in 1996 and 7.0% in 1995, a six-year term, expected
volatility of 49% in 1996 and 44% in 1995, and no expected dividend yield.
The weighted average fair value of options issued pursuant to the LXE
merger as replacement for LXE options was $11.31. This fair value was
based on a weighted average risk-free return of 6.0%, a 2.7-year term,
expected volatility of 49%, and no expected dividend yield.
Following is a summary of options outstanding at December 31, 1996
(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
- --------------- ------ ------------- ------------------ ------ -------------
$ 3.63 - 5.25 289 $ 4.73 2.3 289 $ 4.73
5.88 - 8.50 292 7.39 3.7 157 7.06
11.13 - 15.00 234 12.00 4.4 87 11.72
17.13 - 24.33 61 20.64 2.1 43 21.07
------------- --- ----- --- --- -----
$ 3.63 - 24.33 876 $ 8.66 3.3 576 $ 7.65
============= === ===== === === =====
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 1996 and 1995 would have differed from the actual results as
follows (net earnings in thousands):
1996 1995
------ ------
Net earnings:
As reported $5,027 2,310
Pro forma 4,876 2,243
Net earnings per share:
As reported .65 .32
Pro forma .63 .31
Under SFAS 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 in 1996 and 1995;
options granted prior to 1995 were not considered. Also excluded from pro
forma consideration were options issued pursuant to the LXE merger. These
options were issued to replace LXE options and differed from the previous
LXE options only in that the number of shares subject to option was
adjusted according to the exchange offer rate of .75 ELMG shares for each
LXE share. All other terms and conditions of each option, including total
exercise price, vesting date and expiration date, were unchanged, and
therefore no compensation cost would have been incurred under SFAS 123.
In 1989, the Company adopted a Shareholder Rights Plan, under which each
outstanding share of common stock carries a contingent right to purchase
additional common stock. These rights are triggered by any of the
following: (i) the acquisition of at least a 20% beneficial ownership in
the Company, (ii) the acquisition of an additional 2% beneficial interest
by an existing 20% holder, 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
acquiror. Upon being triggered, each right entitles its holder (other than
the acquiror and certain related parties) to buy for $30 shares having at
that time a market value of $60. The rights expire on April 6, 1999, are
subject to redemption by vote of the disinterested directors at a price of
$.01 per right, and do not have voting power. Prior to becoming
exercisable, they are not separately tradeable and do not have a dilutive
effect on earnings per share. The Board of Directors may also issue up to
10,000,000 shares of preferred stock, with such preferences, limitations
and relative rights as may be determined by the Board.
(6) INCOME TAXES
Total income tax expense (benefit) provided for in the Company's
consolidated financial statements consists of the following (in thousands):
1996 1995 1994
------ ------ ------
Consolidated income tax expense $ 1,484 1,402 3,712
Income tax benefit resulting from
exercise of stock options credited
to stockholders' equity and
minority interest (1,042) (1,316) (479)
------ ------ ------
Total $ 442 86 3,233
====== ====== ======
The components of income tax expense were (in thousands):
1996 1995 1994
------ ------ ------
Current:
Federal $ 2,975 979 3,312
State 535 98 626
Foreign 548 232 212
------ ------ ------
Total current expense 4,058 1,309 4,150
------ ------ ------
Deferred:
Federal (1,862) (153) (335)
State (378) (1) (70)
Foreign (334) 247 (33)
------ ------ ------
Total deferred (benefit) expense (2,574) 93 (438)
------ ------ ------
Total income tax expense $ 1,484 1,402 3,712
====== ====== ======
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 and LXE minority interest (in thousands):
1996 1995 1994
------ ------ ------
Computed "expected" income
tax expense $ 2,123 1,247 3,080
Tax credits from
research activities (175) (141) (150)
State income taxes, net of
federal income tax benefit 342 64 330
Higher foreign tax rates 158 208 28
Change in deferred tax asset
valuation allowance 751 (47) 69
Write-off of deferred tax liability
related to gain on issuance of
LXE stock (2,229) - -
Amortization of goodwill 150 143 143
Other 364 (72) 212
----- ----- -----
Income tax expense $ 1,484 1,402 3,712
===== ===== =====
Income tax expense includes benefits recognized from foreign net operating
loss carryforwards of $288,000, $206,000 and $33,000 in 1996, 1995 and
1994, 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, 1996 and 1995 are presented below (in thousands):
1996 1995
---- ----
Deferred tax assets:
Accounts receivable $ 223 269
Inventories 217 209
Accrued compensation costs 517 417
Capital loss carryforward 566 -
Foreign research expense and
tax credit carryforward 6,034 5,838
Foreign net operating loss
carryforward 527 239
Foreign note receivable 326 327
Gain on sales to foreign subsidiaries 340 -
Other 260 225
----- -----
Total gross deferred tax assets 9,010 7,524
Valuation allowance (6,912) (6,161)
----- -----
Net deferred tax assets 2,098 1,363
----- -----
Deferred tax liabilities:
Property, plant and equipment 1,844 1,866
Gain from issuance of LXE stock - 2,229
Net gain from foreign transactions and
remeasurement 283 313
----- -----
Total gross deferred tax liabilities 2,127 4,408
----- -----
Net deferred tax liability $ 29 3,045
===== =====
A total of $6,346,000 of the valuation allowance for deferred tax assets at
December 31, 1996, relates to tax benefits from the operations of CAL
Corporation, which will be first allocated to goodwill when recognized.
Earnings before income taxes for U.S. operations were $6,842,000 in 1996,
$2,460,000 in 1995, and $8,817,000 in 1994. Foreign operations reported a
loss before income taxes of $595,000 in 1996, and earnings before income
taxes of $1,208,000 in 1995 and $243,000 in 1994. The Company's net
deferred tax assets at December 31, 1996, include $527,000 for a cumulative
$1,624,000 net operating loss incurred by certain foreign operations, which
may be carried forward through 2001; management believes that these
operations will generate adequate earnings within the next three years to
fully realize this deferred tax asset.
(7) RETIREMENT PLANS
The Company established a qualified defined contribution plan in 1993. All
U.S.-based employees that meet a minimum service requirement 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 $1,650,000
for 1996, $1,564,000 for 1995, and 1,250,000 for 1994.
The Company also 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 $417,000 in 1996, $403,000 in 1995 and $300,000 in 1994.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes certain information regarding the fair value of
the Company's financial instruments at December 31, 1996 and 1995:
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 -- Substantially all of the Company's long-term debt
bears interest at variable rates which management believes are
commensurate with rates currently available on similar debt.
Accordingly, the carrying value of long-term debt approximates fair
value.
(9) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company designs and produces advanced communications and signal-
processing products with an emphasis on wireless networks; applications
include space and satellite communications; cellular telecommunications,
radar, surveillance, and military counter-measures. The Company also
designs and produces wireless logistics systems mainly for commercial
materials handling operations. Following is a summary of business segment
information (in thousands):
1996 1995 1994
----- ----- -----
Net sales:
Advanced communications and
signal-processing products $ 78,816 66,659 54,851
Wireless logistics systems 70,942 62,291 63,142
------- ------- -------
Total $ 149,758 128,950 117,993
------- ------- -------
Operating income:
Advanced communications and
signal-processing products $ 6,856 4,468 2,490
Wireless logistics systems 808 (611) 6,412
------- ------- -------
Total $ 7,664 3,857 8,902
------- ------- -------
Identifiable assets:
Advanced communications and
signal-processing products $ 72,999 55,673 51,010
Wireless logistics systems 54,078 49,281 45,741
------- ------- -------
Total $ 127,077 104,954 96,751
------- ------- -------
Capital expenditures:
Advanced communications and
signal-processing products $ 4,225 4,200 2,845
Wireless logistics systems 3,104 4,259 2,728
------- ------- -------
Total $ 7,329 8,459 5,573
------- ------- -------
Depreciation and amortization:
Advanced communications and
signal-processing products $ 3,388 3,260 3,478
Wireless logistics systems 2,991 2,747 2,468
------- ------- -------
Total $ 6,379 6,007 5,946
======= ======= =======
Following is a summary of geographic area information, as measured by the
locale of revenue-producing operations, for the years ended December 31,
1996, 1995 and 1994 (in thousands):
1996 1995 1994
---- ---- ----
Net sales:
United States $ 115,113 99,088 96,124
Canada 18,390 17,306 15,059
Europe 16,255 12,556 6,810
------- ------- -------
Total $ 149,758 128,950 117,993
------- ------- -------
Operating income (loss):
United States $ 7,672 2,763 8,639
Canada (107) 816 (19)
Europe 99 278 282
------- ------- -------
Total $ 7,664 3,857 8,902
------- ------- -------
Identifiable assets:
United States $ 101,359 81,003 76,234
Canada 16,412 17,174 16,037
Europe 9,306 6,777 4,480
------- ------- -------
Total $ 127,077 104,954 96,751
======= ======= =======
Export sales from the U.S. to unaffiliated customers were approximately
$13.2 million, $16.0 million and $18.1 million in 1996, 1995 and 1994,
respectively. Exports to the U.S. by the Company's Canadian subsidiary to
non-affiliated U.S. customers were approximately $5.2 million in 1996, $1.3
million in 1995, and $1.1 million in 1994.
The Company had one domestic customer that accounted for 12% of 1995
consolidated net sales. No customers accounted for more than 10% of
consolidated net sales in 1996 or 1994.
(10) COMMITMENTS
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 $1,873,000 in 1997, $1,040,000
in 1998, $797,000 in 1999, $725,000 in 2000 and $405,000 in 2001. The
Company also has short-term leases for regional sales offices, equipment
and automobiles. Total rent expense under all operating leases was
approximately $3,193,000, $2,425,000, and $1,889,000 in 1996, 1995 and
1994, respectively.
(11) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of interim financial information for the years ended
December 31, 1996 and 1995 (in thousands, except per share data):
1996 Quarters ended
March 31 June 30 September 30 December 31
----------------------------------------------
Net sales $ 33,189 35,674 37,908 42,987
Operating income 840 2,105 2,543 2,176
Net earnings 711 984 1,221 2,111
Net earnings per share .10 .13 .16 .26
1995 Quarters ended
March 31 June 30 September 30 December 31
----------------------------------------------
Net sales $ 32,757 33,006 28,135 35,052
Operating income (loss) 2,161 2,325 (2,210) 1,581
Net earnings (loss) 1,077 1,294 (937) 876
Net earnings (loss)
per share .15 .18 (.13) .12
The fourth quarter of 1996 included a net benefit from several non-recurring
charges and credits. The most significant benefit was associated
with the Company's acquisition of the minority interest in LXE Inc. and the
resulting write-off of a $2.2 million deferred tax liability; the Company
had originally accrued these taxes for the gain upon LXE's initial public
offering of stock in 1991. The most significant charge was a $1.6 million
writedown of various purchased software; most of this charge related to
software that was acquired in exchange for LXE's minority interest in a
software development company.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Electromagnetic Sciences, Inc.:
We have audited the accompanying consolidated balance sheets of
Electromagnetic Sciences, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. 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 conducted our audits in accordance with generally accepted auditing
standards. 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
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
Electromagnetic Sciences, Inc. and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
January 28, 1997
Selected Financial Data
(In thousands, except earnings per share)
Years ended December 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Net sales $149,758 128,950 117,993 99,044 71,822
Cost of sales 97,258 83,865 73,375 61,771 44,407
Selling, general and
administrative expenses 31,070 30,836 27,589 26,522 17,786
Research and development
expenses 12,121 10,392 8,127 8,153 7,518
Write-down of acquired
software 1,645 - - - -
------- ------- ------- ------- -------
Operating income 7,664 3,857 8,902 2,598 2,111
Interest income and other
non-operating (304) 675 640 210 776
Interest expense (1,113) (864) (482) (434) (81)
------- ------- ------- ------- -------
Earnings before
income taxes and
minority interest 6,247 3,668 9,060 2,374 2,806
Income tax expense (1,484) (1,402) (3,712) (896) (1,038)
Minority interest in LXE
net (earnings) loss 264 44 (1,085) (87) (844)
------- ------- ------- ------- -------
Net earnings $ 5,027 2,310 4,263 1,391 924
======= ======= ======= ======= =======
Net earnings per common and
common equivalent share .65 .32 .58 .20 .10
------- ------- ------- ------- -------
Weighted average number of
common and common equivalent
share 7,731 7,266 7,043 6,856 7,331
======= ======= ======= ======= =======
As of December 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Working capital $ 46,637 43,002 39,366 33,104 32,890
Total assets 127,077 104,954 96,751 87,861 72,970
Long-term debt (excluding
current installments) 12,230 10,989 4,592 5,060 927
Stockholders' equity 87,250 60,209 56,431 51,548 50,079
No cash dividends have been declared or paid during any of the periods
presented.
MANAGEMENTS'S DISCUSSION AND ANALYSIS
Results of Operations
Consolidated net sales increased to $150 million in 1996 from $129 million
in 1995 and $118 million in 1994, mainly reflecting growth in the segment
for advanced communications and signal processing products. Space and
satellite programs, advanced communications systems and cellular/PCS
antennas contributed to this segment's sales, which increased to $79
million in 1996 from $67 million in 1995 and $55 million in 1994.
In the segment for wireless logistics systems, revenues were $71 million in
1996, compared with $62 million in 1995 and $63 million in 1994. This
segment's revenues increased in 1996 in the North American and
international markets for materials handling applications; revenues also
increased in the second half of 1996 with the Company's entry into the
market for wireless healthcare information management. The 1995 change
resulted from a third quarter revenue shortfall associated with beginning
the transition to an expanded LXE product line.
Cost of sales was 65% of consolidated net sales in 1996 and 1995, compared
with 62% in 1994. The Company's wireless logistics segment has experienced
an increasing cost of sales percentage over the past three years (58% in
1996, compared with 56% in 1995 and 50% in 1994) due to more distribution
through indirect channels that typically carry lower gross profit margins,
as well as a more competitive pricing environment. These increases in the
cost of sales percentage have been at least partially offset by the effects
of a more profitable mix of development contracts in advanced communication
and signal processing and the introduction of new antenna products.
Selling, general and administrative expenses were 21% of consolidated net
sales in 1996, compared with 24% in 1995 and 23% in 1994. The net decrease
in the selling, general and administrative expense percentage in 1996
compared with 1995 related to lower headcount and marketing costs at the
wireless logistics segment; the net increase in 1995 compared with 1994 was
the result of expanded European sales and marketing for wireless logistics
products, and greater marketing support for the Company's new antenna
products.
Research and development expenses represent the cost of the Company's
internally funded efforts. Significant research and development costs are
also incurred with many specific customer orders for advanced
communications and signal processing equipment and, accordingly, are
included in cost of sales. The increases in research and development
expenses over the past three years are due to efforts to expand the
wireless logistics product line, to complete development of the new
CALQuest(tm) aeronautical terminal for commercial satellite-based
communications, and to develop other new technologies for commercial
wireless network infrastructure markets.
During 1996, the Company recognized a $1.6 million operating charge in 1996
to write down certain acquired software, approximately $1.4 million of
which related to software acquired in the fourth quarter of 1996 in
exchange for LXE's minority interest in a privately held software
development company.
Interest income and other non-operating was a net expense in 1996, because
of lower interest earnings from lower levels of cash available for
investment were more than offset by net losses (compared with net gains in
1995 and 1994) from foreign currency transactions and remeasurement
associated with European sales subsidiaries of LXE. Also included in other
non-operating in 1996 were non-recurring charges totaling $295,000 for a
loss on disposal of a business unit within CAL Corporation and for certain
expenses related to the acquisition of LXE minority shares. Interest
expense increased in 1996 compared with 1995 and 1994 due to increased
borrowing during the year at LXE.
The effective income tax rate was 24% in 1996, 38% in 1995, and 41% in
1994. The effective rate in 1996 included a non-recurring $2.2 million
benefit for the write-off of a deferred income tax liability that had been
accrued on the Company's gain upon the initial public issuance of LXE's
stock in 1991. The decreases in 1996 and 1995 also reflect the effect of
tax credits for research and development. No tax benefit was recognized in
1996 for the capital loss carryforward associated with the writedown of
software acquired in exchange for LXE's minority interest in a privately-
held software company; this writedown represented substantially all of the
$1.6 million operating charge in 1996 to write down certain software
acquired in exchange for LXE's minority interest in a privately-held
software company. The Company expects that the effective income tax rate
in 1997 will be approximately 38%.
Liquidity and Capital Resources
Cash and cash equivalents decreased because net cash provided by operations
was utilized to finance the purchase of capital assets.
During 1995, the Company amended its existing revolving credit mortgage
agreement with a bank to extend the term five years to December 2000, and
to increase available borrowing under the agreement from $5.4 million to
$10 million. In addition, the LXE subsidiary entered into a $10 million,
three-year revolving credit agreement with a bank in December 1995 which
replaced an existing $5 million short-term line of credit.
At December 31, 1996, the Company had available four immediate sources of
credit: $6.2 million remaining under the reducing revolving credit
agreement, $2.0 million remaining under the LXE revolving credit agreement,
$1.8 million available under a CAL line of credit and a separate $5 million
unused line of credit with a bank. Management believes that the Company's
present liquidity, together with cash from operations and sources of
external financing, will support its current business activities and
capital investment plans.
EXHIBIT 22.1
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Subsidiairies of the Registrant
EMS Technologies, Inc.
660 Engineering Drive
P. O. Box 7700
Norcross, GA 30091-7700
LXE Inc.
125 Technology Parkway
P. O. Box 926000
Norcross, GA 30092-9600
CAL Corporation
1050 Morrison Drive
Ottawa, Ontario K2H 8K7
CANADA
Exhibit 23.1
The Board of Directors
Electromagnetic Sciences, Inc.
We consent to incorporation by reference in the registration statements
(Nos. 2-76455, 2-78442, 2-94049, 33-31216, 33-38829, 33-41041, 33-41042,
33-50528 and 333-20843) on Form S-8 of Electromagnetic Sciences, Inc. of
our reports dated January 28, 1997, relating to the consolidated balance
sheets of Electromagnetic Sciences, Inc. as of December 31, 1996 and 1995
and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the years in the three-year period ended
December 31, 1996, and all related schedules, which reports appear in the
December 31, 1996 annual report on Form 10-K of Electromagnetic Sciences,
Inc.
KPMG Peat Marwick LLP
Atlanta, Georgia
March 31, 1997