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Via: EDGAR
March 31, 1998
Securities and Exchange Commission
Judiciary Plaza
455 K Street, N.W.
Washington D.C. 20549
Attn: Filing Desk
Re: Electromagnetic Sciences, Inc. (the "Company")
File No. 0-6072 -- Annual Report on Form 10-K
Ladies and Gentlemen:
Accompanying this letter is the Company's Annual Report on Form
10-K for the year ended December 31, 1997, including all filed
exhibits. These documents are submitted for filing under the
Securities Exchange Act of 1934.
The financial statements and Financial Data Schedules included in
the Annual Report do not reflect any changes from the prior year
in accounting principles or practices, or in the method of applying
same, except as a result from the adoption of SFAS No. 128, Earnings
per Share.
Please direct any inquiries concerning this filing to the
undersigned.
Very truly yours,
ELECTROMAGNETIC SCIENCES, INC.
By: /s/ William S. Jacobs
Vice President and General Counsel
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, 1997
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 20, 1998, was $188,399,000,
based on a closing price of $22.50 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 20, 1998, the number of shares of the registrant's common
stock outstanding was 8,632,322 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Company's 1997 Annual Report to
Shareholders and definitive proxy statement for the 1998 Annual
Meeting of Shareholders of the registrant is incorporated herein by
reference in Parts II, III and IV of this Annual Report on Form 10-K.
PART I
ITEM 1. Business.
GENERAL
SUMMARY
Electromagnetic Sciences, Inc. (the "Company") designs,
manufactures and markets products that are important to a wide
range of wireless communications applications, with a focus on
the needs of the mobile information user. The Company is
organized around two main business segments:
(1) Space and Technology
This segment serves several technologically advanced markets,
including the markets for communications systems in space, as
well as satellite communications terminals for mobile
platforms (such as high performance aircraft). This segment
also provides equipment for advanced electronic systems that
are used in defense communications, radar and sensor
applications.
Space and technology products have a relatively high content
of engineering and often require custom-developed designs and
technology. As a result, this segment is an important
resource for development of new technology that the Company
seeks to utilize in other products and applications.
Space and technology products accounted for 44%, 49% and 50%
of consolidated net sales in 1997, 1996 and 1995.
(2) Wireless Products
This segment supplies wireless data networks and system
integration services for logistics, transportation and
healthcare information management, as well as wireless
infrastructure products for public and private
communications.
Wireless products, like space and technology products,
incorporate advanced communications technologies developed by
the Company. Wireless products are generally based on
standardized designs that can be efficiently manufactured and
installed at higher volumes.
Wireless products accounted for 56%, 51% and 50% of
consolidated net sales in 1997, 1996 and 1995.
The discussion of the Company's business set forth in this Item 1
is qualified by the materials appearing below under the heading
RISK FACTORS AND FORWARD-LOOKING STATEMENTS.
BACKGROUND
In the space and technology segment, the Company has a long
history of applying high-frequency microwave technology,
beginning in the early 1970's in the Nimbus weather satellite
programs. In the mid-1970's, the Company pioneered the use of
electronic beam-forming networks ("BFN's"), which allow
satellites to electronically adjust their antenna patterns in
orbit. This technology was originally implemented to allow
defense communications satellites to combat interference from the
ground, but it has become important in a wide range of modern
communications satellites as they seek to accommodate changing
traffic patterns or provide "bandwidth on demand." The Company
also produced the first all-electronic switch matrix to provide
flexible interconnectivity between uplink and downlink channels
in a commercial communications satellite.
In wireless products, the Company has developed wireless local-
area computer networks that provide mobility and real-time data
communications for enhanced productivity of mobile workers and
improved accuracy of transaction processing operations. Principal
markets include material management functions in warehouses and
distribution centers (the "logistics" market), and automation of
patient care records in the healthcare environment (the
"healthcare" market). Through relationships with applications
software providers that specialize in specific markets, the
Company's hardware is typically offered as part of complete
system solutions.
The Company's fastest growing wireless product over the past
three years has been a line of cellular/PCS base station antennas
(marketed under the "DualPol" trademark name) that employ
polarization-diversity technology. These antennas allow cell-site
tower structures that are much simpler and less obtrusive than
conventional antenna towers; further, these antennas offer
superior coverage and resistance to signal-fading, as compared
with networks with conventional vertical polarization antennas.
The Company also offers a full line of lower-priced, conventional
antennas for both cellular and PCS networks, and is marketing
these products, along with a family of accessory products, to
service providers and to original equipment manufacturers
("OEM's") domestically and internationally.
MARKETS AND PRODUCTS
The Company has developed a broad portfolio of technologies and
products that are used to provide customer solutions,
particularly in the markets for satellite communications,
wireless communications infrastructure and wireless local area
data networks:
Space and Technology Markets
Historically, satellite technology was funded by the military for
defense applications, and was commercially cost-effective only
for specialized high-capacity applications within the
telecommunications and broadcast industries. However, because of
improvements in satellite technology resulting in increased
performance, size reductions and lower cost of equipment,
satellite-based wireless voice and data networks are increasingly
being used for a variety of lower-cost, high-volume commercial
applications, such as mobile telephony and data communications.
Satellites provide a number of advantages over terrestrial
facilities for many high-speed communications service
applications. First, satellites enable high-speed communications
service where there is no suitable terrestrial alternative
available, or where the terrestrial alternative is inadequate.
Second, unlike the cost of terrestrial networks, the cost to
provide services via satellite does not increase with the
distance between sending and receiving stations. Finally, in
contrast to the installation of fiber optic cable, satellite
networks can be rapidly and cost-effectively deployed.
Demand for commercial satellites will be determined by several
factors, including: (1) growth in demand for new satellite-based
applications, such as mobile telephone or data services; (2)
growth in business networking; (3) growth in direct-to-home
television and related voice, video and data systems; (4)
development of new satellite-based communications architectures
to provide basic telephone and television services in developing
regions of the world; (5) and replenishment of orbiting satellite
constellations nearing the end of their useful lives. Several
large-scale telecommunications projects are in various stages of
development and implementation, and are contributing to the
projected demand for commercial satellites. Launch cost and
capacity, which are directly related to satellite size and
weight, are significant factors in the viability of these
proposed systems. As a result, current commercial satellite
designs are being driven to incorporate lighter weight, smaller,
and more highly integrated subsystems and components.
In addition, some of the proposed low earth orbiting LEO systems
would employ hundreds of satellites, each with its own
complicated antenna system, to produce a cellular-like coverage
pattern on the earth.
The combination of many satellites and multiple beams for each
satellite allows the satellite system to effectively "re-use" the
frequency band, similar to a terrestrial cellular system.
Because of the high-frequency and small cells utilized by LEO
satellites, the ground terminals will be much more affordable
than their lower-frequency predecessors, and will require smaller
antennas with lower transmitter power. In proposed high data-
rate LEO systems, the ground terminals must track the satellites
as they move overhead, handing-off from one satellite to the next
as the constellation progresses. This requirement will provide a
significant opportunity to antenna manufacturers who can provide
low-cost scanning antennas.
Space and Technology Products.
The Company designs and manufactures innovative satellite
communications products, including satellite system and subsystem
and ground terminal products that address the need for high
speed, high data rate, high reliability communications systems.
The high-speed communications services that are expected from the
next generation of commercial satellites will involve
technologies, such as multiple spot-beam antennas and highly
integrated on-board switching, in which the Company has
significant experience. The Company's satellite system and
subsystem products are typically configured as subsystems, which
are complex collections of components that, together, perform a
major function or group of functions within a larger satellite
system. The subsystems developed by the Company for application
in space hardware products include:
- - Beam Forming Networks for Antenna Control.
Almost every next-generation Ka-Band satellite will use
sophisticated antenna systems to create a pattern of multiple
coverage areas on the earth's surface, similar to terrestrial
cellular systems. The Company has already developed and produced
such systems, including the transmit and receive beam-forming
networks for NASA's Advanced Communications Technology (ACTS)
satellite system and the Defense Department's MILSTAR EHF
satellite system, both systems with operational satellites in
orbit. Several of the key features of the new "multi-media"
satellites have been demonstrated by the ACTS system, including
switching of spot-beams for time-division multiple access("TDMA")
and on-board processing. For these two systems, the Company has
delivered over thirty electronic beam forming networks at both
20GHz (transmit) and 44 GHz (receive).
- - Switches and Switch Matrixes.
The Company also provides a variety of microwave components that
are integrated into the equipment of other satellite equipment
providers. These components typically perform complex switching
or control functions. For example, the Company has developed
solid state, high-speed switch matrices that route communications
signals along multi-channel networks, for interconnectivity of
channels and efficient network operation. Other products
include redundancy switches used to switch in back-up equipment
to replace a failed on-board component.
- - Satellite Bus Products.
The Company is involved with design and production of hardware
associated with the satellite "bus," which is the orbiting
platform that provides positioning and power to the payload
equipment. The bus acts as the host platform for the mission-
specific payload equipment, and is usually common to many
missions. For example, the Company utilizes its specialized
design and manufacturing processes to provide electronic power
conditioning ("EPC") equipment and attitude control equipment for
several types of satellites. EPC's must be very efficient in
converting voltages generated by the solar arrays into power
supplies that can feed regulated voltages to the on-board
equipment. Another example of bus hardware is the Company's
"CALTRAC (trademark)" star tracker that uses high-speed optical
technology to provide attitude control information for
stabilizing a satellite's orbit. The Company believes that the
"CALTRAC (trademark)" star tracker provides performance that is
superior to that of older generation units, and it is currently
under contract to supply its equipment to customers who are
developing next-generation LEO satellite buses.
- - Aeronautical Antennas.
The Company has utilized its antenna technology to develop an
industry-leading INMARSAT aeronautical antenna product, the AMT-
50, which is a mechanically-steered antenna that is connected to
an aircraft's navigational system and automatically remains
directed toward a geostationary communications satellite for
voice and low data-rate communications. This antenna is mounted
under a small, unobtrusive radome atop an aircraft's tail
stabilizer. The Company believes that this product has the
leading market share in the high-end corporate jet market. The
Company has also developed its "CalQuest (trademark)" product,
which is a complete satellite telephone system. This product is
used on a wide range of turbo-prop and jet aircraft for voice and
data communications, is functional over North and Central
America, and provides a more affordable solution for satellite
communications than can be provided within the worldwide INMARSAT
system.
The Company is also developing a steerable antenna system
designed to provide live television and other high data-rate
services to jet aircraft, including commercial airliners. The
system includes a low-profile mechanically steerable antenna
system, mechanical positioner, and a beam steering unit to keep
the antenna properly pointed at the satellite during the motion
associated with flight.
- - Ground Terminal Products.
The Company is a leading provider of the ground station
equipment associated with satellite-based "search and rescue"
systems, including the local-user terminals that process
information received from satellites. The local-user terminal
determines the location of the maritime or aviation beacons that
transmit distress signals to the satellite system, and typically
displays the results for intervention by emergency authorities.
This terminal technology can also be adapted for routine tracking
and management of aviation and maritime fleets.
Wireless Products and Markets.
The Company's wireless products are focused on two markets: (1)
wireless infrastructure, and (2) wireless local-area computer
networks for logistics and healthcare.
Wireless Infrastructure
Wireless infrastructure will need to expand to support the
growing worldwide demand for wireless communications, which is
being fueled by decreasing prices for wireless handsets, a more
favorable regulatory environment, greater competition among
service providers, and more availability of services and RF
spectrum. In addition, several developing countries are
installing wireless telephone networks as an alternative to
installing, expanding or upgrading traditional hard-wired
networks. Emerging bi-directional wireless data applications
have the potential to further expand the market for wireless
communications by allowing service providers to increase revenue-
generating traffic on their networks.
Specific technological trends are also affecting the wireless
industry. For example, the continuing growth of the wireless
communications market has strained the capacity of traditional
analog cellular systems that can carry only one call per channel
of radio spectrum. As a result, many service providers are
installing new digital equipment to increase per-channel capacity
by factors ranging from three to eight. In addition, service
providers have begun to construct PCS digital networks that
operate at twice the frequency level of cellular systems, which
provides the greater bandwidth necessary for an expanded range of
voice and data services. PCS technology requires smaller cells
than analog technology and, as a result, approximately four times
the number of base stations to complete its geographical build-
out.
Although existing systems have been almost exclusively devoted to
the mobile voice/paging market, several proposed systems would
offer high-speed wireless services to both businesses and
consumers as an alternative to wireline approaches. Initial
system applications appear to be in point-to-multipoint
communications, where several service providers have licensed
spectrum and will be conducting field tests in 1998. Base
station antennas in point-to-multipoint systems emulate the
multiple-beam antennas designed for space, and TDMA switching
technology could be implemented with hardware very similar to the
Company's satellite technologies described previously in this
document.
- - Dual Polarization Antenna Products.
The Company's "DualPol (trademark)" antenna utilizes
polarization diversity to combine the functionality of three
vertically-polarized antennas (two receive and one transmit)
into a single, compact device. With fewer antennas required,
"DualPol (trademark)" technology allows the supporting antenna
tower to be much smaller and less expensive than a traditional
cellular/PCS antenna site, which must support the weight and
wind-loading of a large mounting structure atop the tower.
Further, these antennas offer superior coverage and resistance to
signal-fading, as compared with networks with conventional
vertical polarization antennas. An increasingly important factor
in establishing the location of a cell site is the aesthetics of
the tower structure. Unlike traditional vertical polarization
cellular antennas, the Company's "DualPol (trademark)" antennas
can be mounted in a very compact cylindrical configuration which
can fit on top of existing utility poles, or be disguised, for
example, as a clock tower. The mounting flexibility not only
benefits the service provider in obtaining site approvals, but
also results in lower installation and structure costs. The
"DualPol (trademark)" technology has been rolled out in several
major US cities, including New York and San Francisco.
The Company's "AcCELLerator (trademark)" antenna combines
multiple "DualPol (trademark)" antennas pre-packaged in a compact
cylindrical enclosure that provides the same multi-sector
coverage as a large, nine-antenna, spatially-diverse base
station, yet with a much smaller, less visually-obtrusive
structure.
- - Vertical Polarization Antenna Products.
The Company's lower-cost vertical polarization antennas apply
"beam-shaping" techniques of amplitude and phase weighing to
achieve the most effective antenna performance for specific
applications. The Company's "OptiFill (trademark)" antennas are
designed for use in a typical crowded coverage area. These
antennas utilize null filling, upper sidelobe suppression and
electronic down tilt to lower co-channel interference, reduce the
number of dropped calls, and improve sound quality. The
Company's "OptiRange (trademark)" antennas are designed to
maximize "gain" and are useful in systems that have large cells,
such as rural areas or initial urban system roll-outs with a
small number of base stations.
In the fall of 1996, the Company built and equipped a new 40,000
square foot facility specifically designed to allow high-volume
production of its wireless infrastructure antenna product, as
well as quick response to customer orders.
Wireless Local Area Networks.
Significant technological advances and changes in the regulatory
environment have facilitated the development and proliferation of
wireless computer networking solutions which extend the reach of
existing wired networks. Advances in wireless data
communications have enabled the extension of enterprise networks
to notebook computers, pen-based notepads and handheld data
collection terminals in the local area environment. By providing
network connectivity for mobile users, these products increase
the accuracy, timeliness and convenience of data collection and
information access, thereby improving productivity and enhancing
customer service. Traditionally, these wireless LAN systems were
developed for operation using narrow band UHF radios at 450 MHz.
The current generation of wireless LAN systems typically operate
at 900 MHz with data rates in the range of 56-64 Kbps. The next
generation of wireless LAN systems operate at even higher speeds
of 1 Mbps operating at 2.4 GHz. With the advent of video
transmissions and conferencing, such systems will likely utilize
the 5.7 GHz frequency band where transmission rate of up to 25
Mbps are foreseen.
The recent development of these high performance, open system
products has enabled the emergence of a number of new high
bandwidth applications in established industrial data collection
markets and has fostered the creation of many promising
applications in new vertical markets, such as healthcare. In
healthcare, for example, wireless LANs now allow medical
professionals to access clinical data and input patient charting
information at the point-of-care anywhere in a hospital
environment. Data-intensive applications in markets such as
healthcare require robust and scalable wireless networks capable
of supporting an increasing number of applications and users over
time.
Healthcare systems are typically sold by software providers that
have the direct relationship with end-user customers. In order
to enhance its role with the software providers, the Company has
undertaken to provide hardware accessories needed for complete
wireless systems, including such peripherals as charging stations
designed in close consultation with the software provider. The
Company further believes that the electronic medical record
automation phase will eventually blend into a larger patient
record data base, including clinical data.
The Company entered into a strategic alliance with HBO & Company
("HBOC"), the nation's largest healthcare information management
system provider. Since that time, the Company has completed
wireless LAN installations in a significant number of hospitals
and healthcare facilities.
Wireless Local Area Network Products.
Utilizing its extensive radio frequency and antenna expertise,
the Company's wireless LANs provide mobility and real-time data
communications to enhance productivity. The Company's wireless
LANs have been installed at more than 4,000 sites world wide,
including the facilities of many Fortune 500 companies and some
of the world's largest materials handling installations, such as
distribution centers and seaports.
The Company'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
equipment. Other terminal products include a table-top model for
fixed 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. The
Company's latest generation of handheld terminals incorporates
Intel processors, which allow support for either terminal
emulation or the increasingly common client-server applications.
- - 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.
- - Healthcare Products and Services
The Company designs and implements wireless networks for
healthcare information applications, which involve integration of
its own products with specialized terminals and radios from other
manufacturers. The Company's healthcare hardware includes its
latest generation of Intel-powered handheld terminals for
materials management and the specially-designed "PenDock
(trademark)" docking station that provides constant battery
charging and secure access to keyboards in the healthcare
environment.
- 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.
SALES AND MARKETING
The Company's sales and marketing strategy is focused on direct
sales of space and satellite communications and wireless
infrastructure products. Due to the technical nature of the
Company's products, these direct sales efforts are conducted
primarily by internal personnel with a strong engineering
background and many of whom have other engineering or management
responsibilities within the Company. The Company also utilizes a
small number of employees located outside Georgia, as well as
independent marketing representatives, both in the U.S. and
internationally. These individuals are selected for their
knowledge of the local market and their ability to provide
technical support and ongoing, direct contact with the Company's
current and potential customers.
In space and technology, the development of major business
opportunities often involves significant bid and proposal effort,
including complex engineering work to determine the technical
feasibility and cost effectiveness of various design approaches.
Most of the Company's bid and proposal costs are reported in cost
of sales, although a portion of these costs is classified as
selling, general and administrative expenses. Total bid and
proposal costs were $1.3 million in 1997, compared with $770,000
in 1996, reflecting an increased number of major business
opportunities, especially in space communications.
The markets for space and satellite communications and for
wireless infrastructure markets comprise a relatively small
number of customers, which are typically well-known large
corporations and wireless service providers. The Company's direct
marketing efforts rely on ongoing communications with this base
of potential customers, both to determine the customer's future
needs and to inform the customer of the Company's capabilities.
Because the Company can often receive multiple orders from many
of these customers, technical support and service after the sale
are also crucial to maintaining a strong supply relationship.
The Company's sales and marketing strategy for wireless local-
area networks involves two distribution channels: (1) direct
sales, and (2) strategic partners, value-added retailers and 19
international distributors in 40 countries who often combine
their application software with the Company's products. Direct
sales of logistics systems are performed by an internal sales
support staff, 21 regional sales persons in North America, and
five European sales subsidiaries. Potential customers for
logistics applications are large and medium-sized companies with
substantial inventories or distribution networks; these customers
are identified by knowledge of the industry and by response to
print advertising and trade shows. For healthcare, the Company
relies solely on its strategic partners for their sales efforts,
and works closely with them to identify and meet customer needs
and to provide necessary customer support.
BACKLOG
The backlog of consolidated orders at December 31, 1997 was $54
million, compared with $62 million one year earlier. The decrease
was primarily in the space and technology segment, where expected
orders associated with planned new space programs were delayed.
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 logistics products are generally available from a
variety of sources. Bar code scanners are included in almost all
orders, and a significant number of the scanners are purchased
from Symbol Technologies, Inc. ("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 its
logistics competitors also rely on scanning equipment purchased
from or licensed by Symbol. In addition, Symbol and the Company
have a license agreement which allows the Company to utilize
Symbol's patented integrated scanning technology in certain
future products.
Certain of the Company's newer DOS-based terminals are
manufactured by single third parties under OEM supply agreements;
the Company 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 (1) microwave subsystems for satellite
communications and other specialized uses, (2) base station
antennas and other wireless infrastructure products for cellular
and PCS mobile networks, and (3) wireless local-area computer
network products, mainly for logistics systems. However, the
Company's markets are highly competitive. Some of the Company's
competitors have substantial resources and facilities that exceed
those of the Company, and the Company also competes against
smaller, specialized firms.
In the space and technology segment, the Company competes with
divisions of certain large U.S. industrial concerns, such as
Raytheon, Hughes, Loral, M/A-Com, Inc., and Rockwell, as well as
non-U.S. companies such as Spar, COMDEV and RACAL. Some of these
companies, as well as others, are potential competitors of the
Company for certain contracts and potential customers on other
contracts. Certain major customers could also elect to internally
develop and manufacture the products that they presently purchase
from the Company.
In the wireless products segment, the Company competes with
divisions of certain large U.S. and international companies,
including Allen Telecom and Ericcson in the wireless
infrastructure market, and Western Atlas Corporation, Symbol
Technologies, Teklogix Corp. and Telxon Corporation in the
logistics market.
The Company believes that the key competitive factors in both the
space and technology segment and the wireless products segment
continue to be product performance, technical expertise and
support to customers, adherence to delivery schedules, and price.
RESEARCH AND DEVELOPMENT
The Company conducts most of its research and development in the
space and technology segment in direct response to the unique
technical requirements of a customer's order, and most of these
costs are included with the overall manufacturing costs for
specific orders. Nevertheless, during 1997 internally sponsored
research and development was directed to enhance antenna products
and to develop other mobile communications technologies.
The wireless products segment has significant internally
sponsored research and development. New product designs and
performance enhancements during the past three years include
"DualPol (trademark)" antennas for PCS/cellular
telecommunications, spread spectrum radios, expanded host/server
computer connectivity, a new generation of RF Infrastructure
components, and terminals that support DOS, Windows and
client/server options, networks.
In 1997, 1996 and 1995, the Company invested a consolidated total
of $9.1 million, $12.1 million and $10.4 million, respectively,
in internally sponsored research and development.
EMPLOYEES
As of December 31, 1997, 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.
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
The discussion of the Company's business set forth in this Item 1
contains various statements that are or may be deemed to be
forward-looking. Such statements include, but are not limited
to, statements expressed in terms of belief or expectation,
statements with respect to technological developments and/or
trends in markets served or being pursued by the Company, any
statements that may imply that the Company's technology or
products are particularly suited for addressing developing
markets, and anticipated plans for, or emphasis on, product
developments or market initiatives.
All such statements by their nature involve a variety of risks
and uncertainties that may cause actual future events or results
to differ materially from those set forth in the forward-looking
statements. Important factors that could cause such material
differences, or that may affect the profitability (including the
achievement of sales and earnings levels anticipated from time to
time by financial analysts) of the Company's efforts to develop
and market its technology and products, include, without
limitation: technological developments that cause the Company's
products to be less competitive or that modify the approaches
that potential customers use to meet the needs for which the
Company's products are designed; availability of funding for
governmental or private investment in major new defense or
communications infrastructure programs; technical difficulties
creating delays and additional costs for the Company's product
development efforts, or in performing on fixed-price customer
contracts; the availability and retention of skilled technical
and program-management employees; the effects of general economic
conditions (including interest rates and growth in corporate
profits) that affect the timing and magnitude of business
investment in products of the type sold by the Company;
international economic conditions and exchange rate movements
affecting foreign markets and local-currency costs for the
Company's products (particularly its wireless local-area network
and PCS/cellular infrastructure products); activities of the
Company's various competitors, including their technological
advances and their pricing and marketing policies; the strength
and timing of end-user acceptance of new communications services,
such as high-data rate mobile systems, that provide current or
potential markets for the Company's products; the Company's
ability to identify and structure effective relationships with
third parties that provide complementary goods or services,
particularly in such new markets as healthcare and mobile
satellite communications, in which the Company does not have
established distribution channels; and the Company's ability to
introduce new products on schedule and without incurring
unexpected sales declines or costs increases during product
transitions.
In addition, the quarterly earnings contributions of certain
of the Company's product areas are heavily dependent on customer
orders or product shipments in the final weeks or days of the
quarter; this factor can create volatility in quarterly results,
and hinders the Company's ability to determine in advance whether
its quarterly earnings will meet prevailing analyst expectations.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the executive officers of the Company is
set forth below:
Thomas E. Sharon, age 52, 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 and officer of each of the
Company's operating subsidiaries.
Don T. Scartz, age 55, 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.
John J. Farrell, age 46, is Senior Vice President of the Company
and President of its Wireless Products Group. He joined in May
1995 the Company as President and Chief Operating Officer of the
LXE subsidiary (which conducts the logistics and healthcare
business). Previously, 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.
William S. Jacobs, age 52, became General Counsel and Secretary
of the Company in 1992, and Vice President in 1993. He is also
responsible for the legal affairs of the operating subsidiaries.
Previously, he was engaged in the private practice of law, and in
such capacity had served as the Company's principal corporate
legal counsel since 1982.
Jeffrey A. Leddy, age 42, became Vice President in 1997.
Previously, he served since July 1994 as President of the EMS
Technologies, Inc. subsidiary, which conducts much of the space
and technology business. He joined the Company as an engineer
in September 1980.
Neilson A. Mackay, age 57, became Vice President in 1997,
responsible for satellite communications products and markets.
He joined the Company in September 1992 as President of CAL
Corporation, an Ottawa, Ontario based subsidiary engaged in the
Company's space and technology business.
ITEM 2. Properties.
The Company's corporate headquarters and its Georgia operations
are located in two buildings owned by the Company (comprising
250,000 square feet of floor space on 21 acres), as well as in
82,000 square feet of leased office space (leases to expire prior
to 2003) in two other buildings, all located in or near
Technology Park, Norcross, Georgia, a suburb of Atlanta. The
combined Georgia facilities comprise clean rooms, a
microelectronics laboratory, materials storage and control areas,
assembly and test area, offices, engineering laboratories, a
ferrites laboratory, drafting and design facilities, a machine
shop, a metals finishing facility, dark rooms and painting
facilities. The Company leases approximately 63,000 square feet
of office and manufacturing space for its Canadian operations,
located in Ottawa, Ontario; the lease on this facility expires in
2007.
ITEM 3. Legal Proceedings.
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The common stock of Electromagnetic Sciences, Inc. is traded in
the over-the-counter market (Nasdaq symbol ELMG). At March 20,
1998 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:
1997 Price Range 1996 Price Range
High Low High Low
---- --- ---- ---
First Quarter $25 1/4 17 1/4 13-11/16 10-1/2
Second Quarter 22 3/4 14 1/2 16- 3/8 10-3/4
Third Quarter 29 17 1/4 17- 1/4 10-1/4
Fourth Quarter 28 3/4 16 22 16-1/8
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 1997 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
1997 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 1997
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
1998 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 AExecutive
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 1998 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 1998 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, is contained in the
Company's definitive Proxy Statement for its 1998 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 1997 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, 1997, 1996 and 1995.
Consolidated Balance Sheets - December 31, 1997 and 1996.
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows -
Years ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
(a)2. Financial Statement Schedules
Page
Independent Auditors' Report
I. Condensed Financial Information of
Registrant
II. Valuation and Qualifying Accounts -
Years ended December 31, 1997, 1996
and 1995
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 February 6, 1998, we reported on the consolidated
balance sheets of Electromagnetic Sciences, Inc. and subsidiaries
as of December 31, 1997 and 1996, 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,
1997, as contained in the 1997 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 1997. 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
February 6, 1998
Schedule I
Electromagnetic Sciences, Inc. And Subsidiaries
Condensed Financial Information of Registrant
(In thousands)
Balance Sheets
December 31
1997 1996
---- ----
ASSETS
Cash and cash equivalents $ 574 2,004
Prepaid taxes 446 446
------- ------
Total current assets 1,020 2,450
------- ------
Land 900 900
Building 8,278 8,208
Accumulated depreciation (2,019) (1,813)
------- ------
Net land and building 7,159 7,295
------- ------
Intercompany receivables 26,797 17,155
Investment in subsidiaries 71,712 63,623
Other assets 1,248 1,202
------- ------
Total assets $107,936 91,725
======= ======
LIABILITIES
Current liabilities $ 866 705
Long-term debt 11,850 3,770
------- ------
Total liabilities 12,716 4,475
------- ------
Stockholders' equity
Common stock 863 844
Additional paid-in capital 34,487 32,581
Foreign currency translation
adjustment (1,393) (47)
Retained earnings 61,263 53,872
------- ------
Total stockholders' equity 95,220 87,250
------- ------
Total liabilities and stockholders'
equity $107,936 91,725
======= ======
Schedule I (continued)
Electromagnetic Sciences, Inc. And Subsidiaries
Condensed Financial Information of Registrant
(In thousands)
Statements of Earnings
Years Ended December 31
1997 1996 1995
---- ---- ----
Equity in earnings of subsidiaries $ 7,338 2,181 1,973
Intercompany charges and other,
net 909 818 701
Interest expense (824) (146) (157)
------ ----- -----
Earnings before income
taxes $ 7,423 2,853 2,517
Income taxes (32) (2,174) 207
------ ----- -----
Net earnings $ 7,391 5,027 2,310
====== ===== =====
Schedule I (continued)
Electromagnetic Sciences, Inc. And Subsidiaries
Condensed Financial Information of Registrant
(In thousands)
Statements of Cash Flows
Years Ended December 31
1997 1996 1995
Cash flows from operating activities:
Net earnings $ 7,391 5,027 2,310
Adjustment to reconcile net
earnings to cash
used in operating activities:
Equity in earnings of
subsidiaries (7,338) (2,028) (1,973)
Depreciation expense 206 205 198
Increase in intercompany
receivables (9,642) (1,280) (2,672)
Increase (decrease) in deferred
taxes and other (68) (2,168) 435
------ ------ ------
Cash used in operating
activities (9,451) (244) (1,702)
------ ------ ------
Cash flows from investing activities:
Investment in building (70) - (556)
Proceeds from marketable securities - - 400
Purchase of subsidiary common stock
from minority shareholders (772) (1,158) -
Investment in privately-held company - (800) -
Cash used in investing ------ ------ ------
activities (842) (1,958) (156)
------ ------ ------
Cash flows from financing activities:
Net increase in long-term debt 8,080 - -
Proceeds from exercise of
stock options 783 629 532
------ ------ ------
Cash provided by financing activities 8,863 629 532
Net change in cash and cash
equivalents (1,430) (1,573) (1,326)
Beginning cash and cash
equivalents 2,004 3,577 4,903
------ ------ ------
Ending cash and cash equivalents $ 574 2,004 3,577
====== ====== ======
Schedule II
Electromagnetic Sciences, Inc.
Valuation and Qualifying Accounts
(In thousands)
Years ended December 31,1997, 1996 and 1995
-----------------------------------------------------
Additions
Balance at charged to Balance
beginning costs and at end
Classification of year expenses Deductions(a) Other of year
- -------------- ---------- ---------- ---------- ----- -------
Allowance for
Doubtful Accounts:
1995 $ 645 390 (315) - 720
1996 $ 720 - (450) - 270
1997 $ 270 - - - 270
Reserve for Deferred
Tax Assets:
1995 $ 5,328 833 - - 6,161
1996 $ 6,161 751 - - 6,912
1997 $ 6,912 751 (920) - 5,992
(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 certain non-U.S. receivables. Deductions in 1997 primarily
represented revisions of estimated foreign research expense and tax credit
carry forwards.
(a)3. Exhibits
The following exhibits are filed as part of this report:
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.
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 Letter, dated December 27, 1997, extending the Consulting Agreement,
effective January 1, 1995, by and between the Company and John E.
Pippin.
10.6 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).
10.7 Form of split-dollar life insurance agreement between the Company
and certain of its officers.
10.8 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).
10.9 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 Amendments adopted May 2, 1997, to the Electromagnetic Sciences,
Inc. 1992 Stock Incentive Plan.
10.12 Electromagnetic Sciences, Inc. 1997 Stock Incentive Plan, as adopted
January 24, 1997, and amended effective August 29, 1997
(incorporated by reference to Exhibit 10.1 to the Company's Report
on Form 10-Q for the quarter ended September 30, 1997).
10.13 Form of Stock Option Agreement evidencing options granted to
executive officers under the Electromagnetic Sciences, Inc. 1997
Stock Incentive Plan.
10.14 Form of Stock Option Agreement evidencing options granted
automatically to non-employee members of the Board of Directors,
following five years of service, under the Electromagnetic Sciences,
Inc. 1997 Stock Incentive Plan.
10.15 Form of Stock Option Agreement evidencing options granted to
executive officers under the Electromagnetic Sciences, Inc. 1992
Stock Incentive Plan.
10.16 Form of Stock Option Agreement dated May 15, 1995, evidencing
option granted to John J. Farrell, Jr. under the 1992 Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.17 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).
10.18 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).
10.19 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 (incorporated by reference to
Exhibit 10.16 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.20 Form of Stock Option Agreement evidencing option granted
September 26, 1990 to an executive officer under the LXE Inc. 1989
Stock Incentive Plan, and thereafter converted into an option for a
reduced number of shares, at the same aggregate exercise price,
under the Company's 1992 Stock Incentive Plan (incorporated by
reference Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10.21 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 (incorporated by
reference to Exhibit 10.18 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
10.22 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).
10.23 Electromagnetic Sciences, Inc. Executive Annual Incentive
Compensation Plan, adopted January 24, 1997 (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
10.24 Form of Indemnification Agreement between the Company and its
directors.
10.25 Form of Indemnification Agreement between the Company and its Vice
President and General Counsel.
10.26 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).
13.1 Those portions of the Company's 1997 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, 33-41042, 33-50528, 333-20843 and 333-32425, each on Form
S-8.
27.1 Financial Data Schedule - Interim periods and 12 months ended December
31, 1997, as restated for adoption of SFAS 128.
27.2 Financial Data Schedule - Interim periods and 12 months ended December
31, 1996, as restated for adoption of SFAS 128.
27.3 Financial Data Schedule - 12 months ended December 31, 1997, as
restated for adoption of SFAS 128.
(b). Reports on Form 8-K.
No Reports on Form 10-K were filed by the Company during the quarter ended
December 31, 1997.
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: 3/31/98
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: 3/31/98
President and Chief Executive
Officer and Director
(Principal Executive Officer)
By: /s/ John E. Pippin Date: 3/31/98
John E. Pippin, Chairman of the Board
By: /s/ Don T. Scartz Date: 3/31/98
Don T. Scartz, Senior Vice President
and Chief Financial Officer, Treasurer
and Director
(Principal Financial and Accounting
Officer)
By: /s/ Anthony J. Iorillo Date: 3/25/98
Anthony J. Iorillo, Director
By: /s/ Jerry H. Lassiter Date: 3/27/98
Jerry H. Lassiter, Director
By: /s/ John H. Levergood Date: 3/30/98
John H. Levergood, Director
By: /s/ John B. Mowell Date: 3/27/98
John B. Mowell, Director
EMPLOYMENT AGREEMENT Exhibit 10.1
This Agreement ("Agreement") is made effective as of the 1st
day of January, 1989, between THOMAS E. SHARON ("Employee") and
ELECTROMAGNETIC SCIENCES, INC., a Georgia corporation
("Employer").
RECITALS
The Board of Directors (the "Board") of Employer has offered
Employee continued employment in consideration for the
compensation and other benefits hereinafter set forth, and
Employee is willing to accept employment on the terms
memorialized below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises
hereinafter contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged,
Employer and Employee agree as follows:
1. Certain Defined Terms. For the purposes of this
Agreement:
(a) "Base Date" shall mean December 31, 1993, or such
later date as may be agreed to in writing by the Employer, by act
of the Board, and the Employee; provided, however, that no such
later date may be more than five years from the date of any such
agreement with respect thereto.
(b) "Change of Control" shall mean (i) the acquisition
by any individual, corporation, partnership or other entity, or
by two or more thereof acting together, of 50% or more of
Employer's outstanding voting stock, other than pursuant to a
transaction that shall have been approved prior to the completion
thereof by the Board, or (ii) the election of members of the
Board such that a majority of such members following any such
election shall not have been nominated or recommended for
election by a majority of the members of the Board who were
serving immediately prior to such election.
Section 3.
(c) "Employment Term" shall have the meaning set forth in
(d) "Good Cause" means any act of dishonesty or
material breach of duty by Employee against the best interests of
the Company.
(e) "Scheduled Expiration Date" shall mean the later
of (i) the Base Date, and (ii) the third anniversary of the date
on which a Change of Control occurs, if such Change of Control
occurs during the Employment Term.
(f) "Total Disability" means the inability of Employee
to perform his normal required services hereunder by reason of
mental or physical illness or incapacity, which illness or
incapacity is expected to be permanent and continuous for a
period of not less than one year, as determined by a licensed
physician selected by Employee and reasonably satisfactory to the
Board.
2. Emp1oyment Duties. During the Employment Term,
Employee shall provide services as an executive officer of
Employer and shall have such duties as are specified in the
Employer's bylaws, as amended from time to time, or as the Board
or the Chief Executive Officer shall direct from time to time,
provided that the nature of Employee's powers and duties shall be
those of a person serving as an executive officer in a similar
capacity in a corporation conducting a business comparable to
that of Employer. During the Employment Term, Employee shall
devote his best efforts to the furtherance of the interests of
Employer and the performance of his duties hereunder. Employee's
location of employment shall be at Employer's principal executive
offices in Norcross, Georgia, and Employer may not transfer
Employee to any other location without Employee's prior written
consent, unless such transfer result. from the relocation of
Employer's principal executive offices.
3. Employment Term. For purposes of this Agreement, the
phrase "Employment Term" shall mean the period beginning on
January 1, 1989, and expiring upon the first to occur of the
following events:
(a) the effective date of Employee's resignation;
(b) the death or Total Disability of Employee;
(c) Employer's termination of Employee's employment,
by act of the Board, upon written notice to Employee, (i)
for Good Cause, or (ii) based on the breach by Employee of
any provision of Sections 6 or 7 or of any agreement
specified in Section 6;
(d) Employer's termination of Employee's employment,
based on any other reasons or considerations; or Date.
(e) the close of Employer's business on the Scheduled
Expiration
Notwithstanding any expiration of the Employment Term,
the term of this Agreement shall commence as of January 1, 1989,
and shall continue in effect until the full and complete
performance of all obligations, whether affirmative or negative,
imposed by this Agreement, shall have occurred.
4. Compensation and Benefits.
4.1 Base Salary. During the Employment Term Employer
shall pay, by cash or check, to Employee an amount equal to not
less than $150,000.00 per calendar year, which amount is payable
in equal installments (not less frequently than monthly) in
accordance with the payroll practices from time to time adopted
by Employer.
4.2 Bonuses or Salary Increases. Employer may pay to
Employee such additional amounts of compensation, either as
bonuses or as an increase in regular salary, as the Board, in its
discretion, shall determine is appropriate.
4.3 Payments Following Termination.
(a) Disability. If the Employment Term shall expire
prior to the Scheduled Expiration Date because of Employee's
Total Disability, Employer shall continue to pay the amounts
specified in Section 4.1 to Employee or his duly appointed
guardian or legal representative, if any, through the earlier to
occur of the Scheduled Expiration Date or any other event
specified in paragraphs (b) and (c) of Section 3 (provided,
however, that any such payments shall be reduced, dollar-for-
dollar, by the amount of any payments made to or for the benefit
of Employee pursuant to any Employer-sponsored disability plan,
program or arrangement), and, in the case of death prior to the
Scheduled Expiration Date, shall thereafter make such payments as
would have been made under paragraph 4.3(b) had the Employment
Term expired as a result of such death.
(b) Death. If the Employment Term shall expire prior
to the Scheduled Expiration Date because of Employee's death,
Employer shall thereafter through the Scheduled Expiration Date
make payments equal to 50% of the amount specified in Section
4.1. The payments described in this paragraph 4.3(b) shall be
made to Employee's spouse if the Employee is married at the time
of his death, but if Employee is not married at that time, or if
Employee is so married but such spouse dies after this paragraph
4.3(b) becomes applicable and before the Scheduled Expiration
Date, the remaining payments shall be made to Employee's estate.
(c) Resignation. Except as provided in paragraph
4.3(f), if the Employment Term shall expire prior to the Base
Date for the reason specified in paragraph 3(a), Employer shall
promptly pay to Employee the salary and benefits accrued and
unpaid through the last day of the Employment Term, which payment
shall release Employer from any further obligations under this
Agreement.
(d) Termination by Employer for Cause. If the
Employment Term shall expire prior to the Scheduled Expiration
Date pursuant to paragraph 3(c), Employer shall promptly pay to
Employee the salary and benefits accrued and unpaid through the
last day of the Employment Term, which payment shall release
Employer from any further obligations under this Agreement.
(e) Termination by Employer Without Cause. Except as
provided in paragraph 4.3(f), if the Employment Term shall expire
prior to the Base Date pursuant to paragraph 3(d), Employer shall
pay to Employee (or his estate or personal representative) the
amounts specified in Section 4.1, at the time or times they would
have become payable if the Employment Term had not so expired,
such amounts to be paid through the Base Date.
(f) Certain Terminations Following Change of Control.
If, following a Change of Control, the Employment Term shall
expire prior to the Scheduled Expiration Date pursuant to
paragraphs 3(a) or 3(d), Employer shall, within thirty days
following such expiration of the Employment Term, pay to Employee
in one lump sum an amount equal to three times the greater of (i)
Employee's aggregate taxable compensation reportable on
Employee's Form W-2 for the calendar year preceding the calendar
year in which the Employment Term so expires, and (ii) Employee's
annualized salary for the calendar year in which the Employment
Term so expires plus the greater of the aggregate bonuses paid to
Employee during either such calendar year or the prior calendar
year; provided, however, that the amount so paid to Employee
shall not exceed the maximum amount that Employer may deduct as a
compensation expense for federal income tax purposes as
determined by reference to the restrictions set forth in Section
280G of the Internal Revenue Code of 1986, or successor sections
thereto, as the same is in effect an the effective date of this
Agreement.
4.4 Other Benefits. Except as otherwise provided in
this Agreement, during the Employment Term, and thereafter for so
long as Employee shall receive payments pursuant to paragraph
4.3(a) or 4.3(e), Employer shall provide Employee with the
benefits and privileges provided to Employer's other executive
officers.
5. Out-of-Pocket Expenses. Employer shall reimburse
Employee for all reasonable out-of-pocket expenses incurred by
Employee in connection with the performance of his duties
hereunder, upon presentation of appropriate documentation.
6. Intellectual Property. Employee shall execute and be
bound by all such forms of Invention, Non-Disclosure and Non-
Solicitation Agreement, or similar agreements governing rights to
and protection of intellectual property and non-solicitation of
Employer'. customers and employees, as Employer shall from time
to time require to be executed by other executive officers. For
the purposes of this Agreement, a breach by Employee of any
provision of any such agreement shall be deemed to be a breach by
Employee of his obligations under this Agreement
7. Noncompetition
(a) During Employment and While Receiving Certain
Payments. During the Employment Term, and thereafter for so long
as Employee shall receive payments pursuant to paragraph 4.3(a)
or 4.3(e), Employee shall not, directly or indirectly, design,
manufacture or sell, or manage or advise others in designing,
manufacturing or selling, microwave components or subsystems of
the type designed and marketed by the Company prior to the
expiration of the Employment Term.
(b) Resignation and Termination for Cause. In the
event the Employment Terms expires pursuant to paragraphs 3(a) or
3(c), Employee shall not, for a period ending on the earlier of
the Base Date or two years after the expiration of the Employment
Term, within the United States, directly or indirectly, design,
manufacture or sell, or manage or advise others in designing,
manufacturing or selling, or manage or advise others in
designing, manufacturing or selling microwave components or
subsystems of the type designed and marketed by the Company on or
prior to the date of execution of this Agreement. Employee
agrees that the restrictions under this Section 7 on his
activities following his termination as an employee are
reasonable and appropriate in view of the responsibilities
entrusted to Employee by Employer, of the benefits provided to
Employee during the term of these restrictions, and of the unique
circumstances of the current relationship of and dealings
between Employer and Employee.
(c) Termination Without Cause Following a Change of
Control. In the event the Employment Term expires pursuant to
paragraph 3(d) following a Change of Control, Employee shall be
entitled to the payment specified in paragraph 4.3(f) and shall
not be subject following such expiration to any restrictions on
his activities pursuant to this Section 7.
8. Enforcement. Employee acknowledges that damages at
law alone would be an insufficient remedy to Employer if Employee
breaches any provision of Sections 6 or 7, and that Employer
would suffer irreparable damage as a result of any such breach.
Accordingly, in the event of such a breach or threatened breach,
Employer shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief to enforce
the provisions of Sections 6 and 7. Employer shall also be
entitled to recover its reasonable attorneys' fees incurred in
enforcing any provision of this Agreement, whether at law or in
equity. Injunctive relief shall be in addition to any other
rights or remedies available to Employer, including damages at
law.
9. Compliance with Other Agreements. Employee represents
and warrants that the execution of this Agreement by him and the
performance of his obligations hereunder will not conflict with,
result in the breach of any provision of, cause the termination
of, or constitute a default under any agreement to which Employee
is a party or by which Employee is or may be bound.
10. Waiver of Breach. The waiver by Employer of a breach
of any of the provisions of this Agreement by Employee shall not
be construed as a waiver of any subsequent breach by Employee.
11. Binding Effect; Assignment. The rights and
obligations of Employer under this Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns
of Employer. This Agreement is a personal employment contract
and Employee's rights may not be sold, assigned, transferred,
pledged as collateral, or otherwise encumbered or alienated by
Employee, except as provided herein with respect to payments to
Employee's spouse or estate.
12. Invalid Provisions. In the event any paragraph,
provision or clause of this Agreement or any combination thereof
is found to be unenforceable for any reason, such finding shall
not in any way affect the other paragraphs, provisions or clauses
in this Agreement, which shall continue in full force and effect,
and the unenforceable provision shall be interpreted in a manner
that imposes the maximum restriction or obligation permitted by
applicable law.
13. Governing Law. This Agreement shall be construed and
enforced in accordance with the law. of the State of Georgia.
14. Entire Agreement. This Agreement contains the entire
agreement of the parties and supersedes all prior agreements and
understandings, oral or written, with respect to the subject
matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge is sought.
15. Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
16. Notices. Any notice required or permitted to be given
under this Agreement to Employer shall be sufficient if in
writing and if personally delivered, or sent by certified or
registered mail, first class, return receipt requested, to the
principal executive offices of Employer. Any notice required or
permitted to be given under this Agreement to Employee shall be
sufficient if in writing and if personally delivered, or sent by
certified or registered mail, first class, return receipt
requested to Employee at his last known address as shown on
Employer's personnel records. Notices so given shall be deemed
effective upon actual receipt if personally delivered and on the
fourth business day after mailing, if so mailed. Employee shall
be solely responsible for notifying Employer of any changes of
address.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 6th day of July, 1992, effective as of January 1, 1989.
EMPLOYER:
ELECTROMAGNETIC SCIENCES, INC.
By: /s/ John E. Pippin
-------------------------------
John E. Pippin, Chairman of the
Board & Chief Executive Officer
EMPLOYEE:
THOMAS E. SHARON
/s/ Thomas E. Sharon
----------------------------(SEAL)
To: Dr. John E. Pippin Exhibit 10.5
From: Thomas E. Sharon
Date: 12/27/1997
Subject: Extension of Consulting Contract
Per our discussions on December 19, 1997, I would like
to extend the duration of your existing consulting contract
through April 30, 1998. The terms of the contract will be
unchanged. During this period I would like you to continue your
discussions with Paul Cox, Terry Woods, and Glen Egan about their
new management roles within ELMG, with particular emphasis on the
aspects of financial and business management. I would like to
continue our discussions of the strategic directions for ELMG in
1998, with emphasis on the SATCOM business unit.
The additional time will give us both time to work out
a mutually agreeable role for your continued support beyond the
current period. Because of your role as Chairman of
Electromagnetic Sciences, Inc. the extension of your consulting
contract must be ratified by the Compensation Committee. I have
contacted Jerry Lassiter, as committee chairman, and notified him
of our discussions and asked him to coordinate (with Bill Jacobs'
assistance) the appropriate approval for this extension.
John, thank you for your support throughout the year,
and your willingness to help the Company whenever we call upon
you. I believe your counseling with the new management team
members has been enlightening as well as enjoyable for them.
Sincerely,
/s/ Thomas E. Sharon
------------------------
cc: Jerry Lassiter, Bill Jacobs
EXHIBIT 10.7
SPLIT DOLLAR INSURANCE PLAN
THIS PLAN is adopted by agreement between the Company and
the Owner:
DEFINITIONS:
A. "Company": Electromagnetic Sciences, Inc., a Corporation.
----------------------------------------------
B. "Insured":
------------------------------------------
C. "Insurer":
------------------------------------------
D. "Owner":
------------------------------------------
E. "Policy": The policy or policies of insurance on the
life of the Insured issued by the Insurer and listed on
Exhibit "A" annexed hereto together with any supplementary
contracts issued by the Insurer in conjunction therewith.
F. "Policy Interest": The Company's Policy Interest shall
be the amount shown on Exhibit "B" annexed hereto for the
last year with respect to which premiums were paid on the
Policy. The existence of the Company's Policy Interest
shall be evidenced by filing with the Insurer an
assignment in substantially the form annexed hereto as
Exhibit "C";
RECITALS:
A. The Owner is owner of the Policy, and
the Owner or the Insured is a valuable employee of the
Company. The Company wishes to continue this employment
relationship and, as an inducement thereto, is willing to
assist the Owner in the payment of premiums on the
Policy.
B. In exchange for such premium assistance, the Owner is
willing to grant to the Company an interest in the Policy
as provided herein.
THEREFORE, for value received it is agreed:
1. Premium Payments
(a) Each annual premium on the Policy shall be
split between the and the Company as follows:
(1) The Owner shall pay the amount shown in Exhibit "B".
(b) The Company shall pay the difference between the
premium due and the payment made by the Owner.
(c) Dividends on the Policy shall be used to
purchase paid-up additions.
2. Policy Ownership
(a) Except as provided in subsection (b) the
Owner shall be sole and exclusive owner of the Policy.
This includes all the rights of "owner" under the terms
of the Policy, including but not limited to the right to
designate beneficiaries, select settlement-options;
borrow on the security of the Policy and to surrender the
Policy.
(b) In exchange for the Company's payment of
its premium contribution under Section 1, the Owner
hereby assigns to the Company the following limited
ownership rights in the Policy:
(1) The right to obtain one or more
loans or advances on the Policy to the extent of its
Policy Interest, and to pledge or assign the Policy
for such loans or advances. If such loans are for
the purpose of paying premiums or otherwise to
purchase or carry the Policy, the Company agrees to
adhere to the requirements of Internal Revenue Code
264 50 that interest on such loans remain deductible
for Federal income tax purposes.
(2) The right to realize against the
cash value of the Policy, to the extent of its Policy
Interest in the event of termination of this
Agreement as provided in Section 4.
(3) The right to realize against
proceeds of the Policy, to the extent of its Policy
Interest, in the event of the Insured 'S death.
(c) It is agreed that benefits may be paid under tile Policy
by the Insurer either by separate checks to the parties
entitled thereto, or by a joint check. In the latter
instance, the Owner and the Company agree that the
benefits shall be divided as provided herein.
3. The Owner - The Owner shall have the right to assign any part
or all of the Owner's retained interest in the Policy and this
Plan to any person, entity or trust by execution of a written
assignment delivered to the Company and to the Insurer.
4. Termination of Plan
(a) This Plan shall terminate on the first to
occur of the following:
(1) Failure of the Owner to make a
premium contribution as required by Section 1.
(2) Surrender of the Policy (or any of
them, if more than one) by the Owner, who shall have
the sole and exclusive right of surrender without the
Company's consent.
(3) Termination of employment with the
Company of the Owner or Insured, as the case may be,
for any reason other than death.
(4) The written election, upon 36 days
notice, of either party.
(5) The seventh anniversary of the date
of this plan.
(b) On any termination of this Plan, the Owner
shall either:
(1) Surrender the Policy, in which case
the Owner shall pay to the Company an amount equal to
the excess, if any, of the Company's Policy Interest
over the amount realized by the Company against the
cash value of the Policy; or
(2) Pay to the Company an amount equal
to its Policy Interest, in which event the Company
shall release its interest in the Policy.
5. The Insurer - The Insurer shall be bound only by the
provisions of and endorsements on the Policy, and any payments
made or actions taken by it in accordance therewith shall
fully discharge it from all claims, suits and demands of all
persons whatsoever. It shall in no way be bound by or be
deemed to have notice of the provisions of this Plan.
6. Special Provisions - The following provisions are part of
this Plan, which is an individually negotiated arrangement
with a highly compensated management employee of the Company
and thus not considered to be subject to the Employee
Retirement Income Security Act of 1974.
These provisions are included as a matter of caution,
and in order to make specific provision for the matters they
concern:
(a) The named fiduciary: The Company.
(b) The funding policy under this plan is
that the Company and the Owner remit all premiums on the
Policy when due.
(c) Direct payment by the Insurer is the
basis of payment of benefits under this Plan, with those
benefits in turn being based on the payment of premiums
by the Company and the Owner.
(d) For claims procedure purposes, the
"Claims Manager" shall be:
(1) If for any reason a claim for
benefits under this Plan is denied, the Claims
Manager shall deliver to the claimant a written ex-
planation setting forth the specific reasons for the
denial, pertinent references to the Plan section on
which the denial is based, such other data as may be
pertinent and information on the procedures to be
followed by the claimant in obtaining a review of his
claim, all written in a manner calculated to be
understood by the claimant. For this purpose:
(A) The claimant's claim shall be deemed
filed when presented orally or in writing to the
Claims Manager.
(B) The Claims Manager's explanation shall
be in writing delivered to the claimant within 90
days of the date the claim is filed.
(2) The claimant shall have 60 days following his
receipt of the denial of the claim to file with
the Claims Manager a written request for review
of the denial. For such review, the claimant or
his representative may submit pertinent
documents and written issues and comments.
(3) The Claims Manager shall decide the issue on
review and furnish the claimant with a copy
within 60 days of receipt of the claimant's
request for review of his claim. The decision
on review-shall be in writing and shall include
specific reasons for the decision, written in a
manner calculated to be understood by the
claimant, as well as specific references to the
pertinent Plan provisions on which the decision
is based. If a copy of the decision is not so
furnished to the claimant within such 60 days,
the claim shall be deemed denied on review.
7. Amendment - This Plan may be amended at any time by the
Company by delivery of written notice thereof to the
Owner; provided that no amendment shall reduce the
benefits and rights of the Owner to less than those that
the Owner would have in the event of termination of the
Plan under Section 4.
IN WITNESS WHEREOF the parties have signed this Plan
this[ ] day of [ ],
19[ ].
COMPANY
ELECTROMAGNETIC SCIENCES,INC.
By
-----------------------
Title
OWNER
Exhibit 10.11
ELECTROMAGNETIC SCIENCES, INC.
Amendment of the 1992 Stock Incentive Plan
May 2, 1997
RESOLVED, that the Electromagnetic Sciences, Inc. 1992 Stock
Incentive Plan be, and it hereby is, amended as follows:
a) By amending paragraph 6.7(c) thereof to provide in its
entirety as follows:
(c) The Option Price shall be paid in full upon the
exercise of the Option. The Committee may
provide in an Option Agreement, or otherwise
authorize, 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 of Stock 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).
b) By amending paragraph 6.7(d) thereof to provide in its
entirety as follows:
(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, the Committee may provide in an Option
Agreement, or otherwise authorize, 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 of Stock 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 otherwise issuable upon
exercise of the Option, in each 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.
(c) By deleting the last two sentences of Section 6.13
thereof (pertaining to payment of the exercise
prices and withholding taxes upon exercise of
options automatically granted to certain
directors), and inserting in lieu thereof the
following:
The Option Price for each such Option may be paid
in cash or in the manner s specified in the
second sentence of paragraph 6.7(c) hereof. In
addition, any taxes related to the exercise of
such Option may be paid in the manner
contemplated in the second sentence of paragraph
6.7(d) hereof.
Exhibit 10.13
Officers/Non-ISO
7/25/97
ELECTROMAGNETIC SCIENCES, INC.
1997 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, entered into as of the [ ]th
day of[ ], 1997 (the "Date of Grant"), by and between
ELECTROMAGNETIC SCIENCES, INC., a Georgia corporation
(hereinafter referred to as the "Corporation"), and
[ ] hereinafter referred to as the "Employee").
W I T N E S E T H
WHEREAS, the Board of Directors (the "Board") of the
Corporation has adopted a stock incentive plan for the
Corporation's and its subsidiary corporations' officers and
employees, known as the "Electromagnetic Sciences, Inc. 1997
Stock Incentive Plan" (hereinafter referred to as the "Plan");
WHEREAS, the Plan and the Board have authorized the
Compensation Committee of the Board (hereinafter referred to as
the "Committee") to grant to persons who are Officers (as defined
in the Plan) stock options enabling them to purchase the number
of shares of the Corporation's common stock allocated to them by
the Committee;
WHEREAS, the Committee has determined that the Employee is
eligible to participate in the Plan, and that it is in the best
interests of the Corporation that the Employee, through such
participation, be provided with additional incentive to achieve
the Company's objectives; and
WHEREAS, the Committee has accordingly granted the Employee
an option to purchase the number of shares of the Corporation's
common stock as hereinafter set forth, and the Corporation and
the Employee desire to enter into a written agreement with
respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage
stock ownership and in consideration of the mutual covenants
contained herein, the parties hereto agree as follows:
1. Incorporation of Plan. This option is granted pursuant
to the provisions of the Plan, and the terms of and definitions
set forth in the Plan are incorporated by reference into this
Stock Option Agreement and made a part hereof. A copy of the
Plan has been delivered to, and receipt is hereby acknowledged
by, the Employee.
2. Grant of Option. Subject to the terms, restrictions,
limitations and conditions stated herein, the Corporation hereby
evidences its grant to the Employee, not in lieu of salary or
other compensation, of the right and option (hereinafter referred
to as the "Option"), which is not an ISO, to purchase all or any
part of an aggregate of [ ( )]shares of
the Corporation's $.10 par value common stock (the "Common
Stock"), beginning on [ ]
The Option shall expire and is not exercisable after 5:00
p.m., Atlanta time, on [ ]the "Expiration Date"),
or such other date as determined pursuant to Section 8, 9 or 10.
Notwithstanding the beginning date or dates for exercise set
forth in the second preceding paragraph, but subject to the
provisions of the preceding paragraph with respect to expiration
of this Option, this Option may be exercised as to all or any
portion of the full number of shares subject thereto if: (a) a
tender offer or exchange offer has been made for shares of the
Common Stock, other than one made by the Corporation, provided
that the corporation, person or other entity making such offer
purchases or otherwise acquires shares of Common Stock pursuant
to such offer; or (b) any person or group (as such terms are
defined in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "Act")), becomes the holder of 50% or more
of the outstanding shares of Common Stock. If either of the
events specified in this paragraph has occurred, the Option shall
be fully exercisable: (x) in the event of (a) above, during the
period commencing on the date the tender offer or exchange offer
is commenced and ending on the date such offer expires and is not
extended; or (y) in the event of (b) above, during the 30-day
period commencing on the date upon which the Corporation is
provided a copy of a Schedule 13D or amendment thereto, filed
pursuant to Section 13(d) of the Act and the rules and
regulations promulgated thereunder, indicating that any person or
group has become the holder of 50% or more of the outstanding
shares of Common Stock. In the case of (a) above, if the
corporation, person or other entity making the offer does not
purchase or otherwise acquire shares of Common Stock pursuant to
such offer, then the Employee's right under this paragraph to
exercise this Option shall terminate, the Employee and the
Corporation shall rescind any exercise of this Option pursuant to
this paragraph, and this Option shall be reinstated as if such
exercise had not occurred.
3. Purchase Price. The price per share to be paid by the
Employee for the shares subject to this Option shall be [
] and [ ] dollars ($ ).
4. Exercise Terms. Beginning on the date or dates
specified in, and prior to the expiration of this Option as
provided in, Section 2, the Employee may exercise this Option as
to all such number of shares, or as to any part thereof, at any
time and from time to time during the remaining term of this
Option; provided that the Employee must exercise this Option for
at least the lesser of 100 shares or the unexercised portion of
the Option. In the event this Option is not exercised with
respect to all or any part of the shares subject to this Option
prior to its expiration, the shares with respect to which this
Option was not exercised shall no longer be subject to this
Option.
5. Option Non-Transferable. This Option and all rights
hereunder are neither assignable nor transferable by the Employee
otherwise than by will or under the laws of descent and
distribution, or pursuant to a Qualified Domestic Relations
Order, and during the Employee's lifetime this Option is
exercisable only by him or her (or by his or her guardian or
legal representative, should one be appointed, or qualified
transferee). More particularly (but without limiting the
generality of the foregoing), this Option may not be assigned,
transferred (except as aforesaid), pledged or hypothecated in any
way (whether by operation of law or otherwise), and shall not be
subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other
disposition of this Option contrary to the provisions hereof
shall be null and void and without legal effect.
6. Notice of Exercise of Option. This Option may be
exercised by the Employee, or by his or her administrator,
executor, personal representative or qualified transferee, by a
written notice (in substantially the form of the "Notice of
Exercise" attached hereto as Annex A) signed by the Employee, or
by such administrator, executor, personal representative or
qualified transferee, and delivered or mailed to the Corporation
at its principal office in Norcross, Georgia, to the attention of
the President, Treasurer or such other officer as the Corporation
may designate. Any such notice shall (a) specify the number of
shares of Common Stock which the Employee or such administrator,
executor, personal representative or qualified transferee, as the
case may be, then elects to purchase hereunder, and (b) be
accompanied by (i) a certified or cashier's check payable to the
Corporation, or personal check acceptable to the Corporation, in
payment of the total price applicable to such shares as provided
herein, or (ii) (subject to any restrictions referred to in Annex
A) shares of Common Stock, owned by him or her and duly endorsed
or accompanied by stock transfer powers, or in lieu thereof, the
form of Attestation of Share Ownership attached as Annex B
executed with respect to the number of such shares, having a Fair
Market Value equal to the total purchase price applicable to the
shares purchased hereunder, or (iii) such a check, and the number
of such shares (or attestation with respect thereto) whose Fair
Market Value when added to the amount of the check equals the
total purchase price applicable to such shares purchased
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 (by use of Annex B or otherwise) the withholding of
shares of Common Stock otherwise issuable under this Option in
payment of such taxes, all as set forth on Annex A and subject to
any restrictions referred to therein. Upon receipt of any such
notice and accompanying payment, and subject to the terms hereof,
the Corporation agrees to cause to be issued to the Employee or
to such administrator, executor, personal representative or
qualified transferee, as the case may be, stock certificates for
the number of shares specified in such notice registered in the
name of the person exercising this Option.
7. Adjustment in Option. If, between the Date of Grant of
this Option and prior to the complete exercise thereof, there
shall be a change in the outstanding Common Stock by reason of
one or more stock splits, stock dividends, combinations or
exchanges of shares, recapitalizations or similar capital
adjustments, then the number, kind and option price of the shares
remaining subject to this Option shall be equitably adjusted in
accordance with the terms of the Plan, so that the proportionate
interest in the Corporation represented by the shares then
subject to the Option shall be the same as before the occurrence
of such event.
8. Termination of Employment. Except as set forth in
Section 10, if the Employee ceases to be employed as an employee
of the Corporation or any of its Subsidiaries (such event being
hereinafter referred to as a "Termination" and such corporation
that employs the Employee from time to time as the "Employer"),
before the date for exercise of this Option set forth in Section
2, then this Option shall forthwith terminate on the date of
Termination and shall not thereafter be or become exercisable.
In the event of a Termination after the date for exercise
set forth in Section 2, which Termination is either (i) voluntary
on the part of the Employee and with the written consent of the
Employer, (ii) involuntary and without cause, or (iii) the result
of retirement at the normal retirement date, as prescribed from
time to time by the Employer, or at an earlier date expressly
approved by the Employer as an early retirement date for the
Employee, the Employee may exercise this Option at any time
within a period ending at the earlier of the Expiration Date or
5:00 p.m., Atlanta time, on the third anniversary of such
Termination, to the extent of the number of shares that were
purchasable hereunder at the date of Termination.
In the event of a Termination that is either (i) for cause
or (ii) voluntary on the part of the Employee and not described
in the two preceding paragraphs, this Option, to the extent not
theretofore exercised, shall forthwith terminate and shall not
thereafter be or become exercisable.
This Option does not confer upon the Employee any right with
respect to continuance of employment by the Corporation or any of
its Subsidiaries. This Option shall not be affected by any
change of employment, so long as the Employee continues to be an
employee of the Corporation or any such Subsidiary. In the event
the Employer is not the Corporation, and such Employer ceases to
be the Corporation's Subsidiary, as a result of a sale of stock
or assets or other change of corporate status, then in the
discretion of the Committee (but subject to Section 5.2 of the
Plan regarding certain transactions affecting the Corporation)
either: (i) this Option shall remain in effect as if such sale
or other change of status had not occurred, for so long as
Employee shall remain an employee of the corporation that
previously was such Subsidiary, or of any successor or subsequent
Parent of such corporation, or of any Subsidiary of either such
corporation or any such Parent or successor: or (ii) concurrent
with such sale or change of status, the Corporation shall redeem
this Option at a price equal to the number of shares then subject
hereto (whether or not then purchasable) multiplied by the excess
(if any) of the then Fair Market Value of each such share over
the purchase price per share specified in Section 3 (as adjusted
pursuant to Section 7).
9. Disabled Employee. In the event of a Termination
because the Employee becomes disabled, the Employee (or his or
her personal representative) may exercise this Option at any time
within a period ending at the earlier of the Expiration Date or
5:00 p.m., Atlanta time, on the first anniversary of such
Termination, to the extent of the number of shares that were
purchasable hereunder at the date of Termination.
For the purposes of this Agreement, the Employee shall be
considered "disabled" if he or she is unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected
to last for a continuous period of not less than twelve months.
10. Death of Employee. In the event of the Employee's
death while employed by the Corporation or any of its
Subsidiaries, or during a period in which the Employee may
exercise this Option notwithstanding an earlier Termination, the
persons described in Section 6 may exercise this Option at any
time within a period ending at the earlier of (i) 5:00 p.m.,
Atlanta time, on the third anniversary of the Employee's death,
or (ii) the Expiration Date, but in any event ending not earlier
than 5:00 p.m., Atlanta time, on the first anniversary of the
Employee's death. If the Employee was an employee of the
Corporation or one of its Subsidiaries at the time of the
Employee's death, this Option may be so exercised to the extent
of the full number of shares covered by the Option. If a
Termination occurred prior to Employee's death, this Option may
be so exercised only to the extent of the number of shares that
were purchasable hereunder at the date of Termination.
11. Competitive Activities. This Option is subject to
Section 9.2 of the Plan, which provides that if the Employee
provides services to a competitor of the Corporation or any of
its Subsidiaries, whether as an employee, officer, director,
independent contractor, consultant, agent or otherwise, such
services being of a nature that can reasonably be expected to
involve the skills and experience used or developed by the
Employee while an employee of the Corporation or any such
Subsidiary, then the Employee's rights under this Option shall
thereupon be forfeited and terminated, subject to a determination
to the contrary by the Committee.
12. Binding Agreement. This Agreement shall be binding
upon the parties hereto and their representatives, successors and
assigns.
IN WITNESS WHEREOF, the Compensation Committee of the Board
of Directors of the Corporation has caused this Stock Option
Agreement to be executed on behalf of the Corporation and the
Corporation's seal to be affixed hereto and attested by the
Secretary of the Corporation, and the Employee has executed this
Agreement under his seal, all as of the day and year first above
written.
ELECTROMAGNETIC SCIENCES, INC.
[CORPORATE SEAL]
ATTEST: By:
Chief Executive Officer
Secretary
Employee
ANNEX A
ELECTROMAGNETIC SCIENCES, INC.
1997 STOCK INCENTIVE PLAN
Notice of Exercise
of Stock Option
The undersigned hereby notifies Electromagnetic Sciences, Inc. (the
"Corporation") of his or her election to exercise an option to purchase
[ ]shares of the Corporation's common stock, $.10 par value (the
"Common Stock"), pursuant to that Stock Option Agreement (the "Agreement")
between [ ]the "Employee") and the Corporation dated [
]199 [ ]. Accompanying this Notice is (1) a certified or a
cashier's check (or other check acceptable to the Corporation) in the
amount of $[ ] payable to the Corporation and/or (2) (subject to
such restrictions as may be determined to be necessary or appropriate to
avoid earnings charges or other adverse consequences to the Corporation
under applicable accounting or tax rules or regulations)
shares of the Common Stock presently owned by the undersigned and duly
endorsed or accompanied by stock transfer powers, or in lieu thereof, the
form of Attestation of Share Ownership attached as Annex B to the
Agreement, executed with respect to the number of such shares, having an
aggregate Fair Market Value (as defined in the Electromagnetic Sciences,
Inc. 1997 Stock Incentive Plan (the "Plan")) as of the date hereof of
$[ ], such amounts being equal, in the aggregate, to the purchase
price per share set forth in Section 3 of the Agreement multiplied by the
number of shares being hereby purchased (in each instance subject to
appropriate adjustment pursuant to Section 7 of the Agreement).
Also accompanying this Notice is my check in the amount of $[ ],
in payment of federal and state income withholding and employment taxes
applicable to this exercise. The amount of such payment is based on advice