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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
MERCURY COMPUTER SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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MERCURY COMPUTER SYSTEMS, INC.
199 RIVERNECK ROAD
CHELMSFORD, MA 01824
(978) 256-1300
October 5, 2001
Dear Stockholder:
As you know, Mercury Computer Systems, Inc. achieved outstanding results in
fiscal 2001, reporting both record revenues and record net income. In fact, your
company has recorded ten consecutive years of profitability and has consistently
turned in outstanding financial performance. The stock performance chart
included in the Proxy Statement shows that Mercury's stock has outperformed, by
a wide margin, the Russell 2000 Index over the last three years ending June 30,
2001, providing an average compound annual total return of 89.7 percent. Your
management team is quite proud of what we have accomplished for our customers
and our stockholders.
In order to continue to deliver the outstanding results that you expect
from Mercury, we need your help to ensure that, in the future, the best and
brightest individuals will choose Mercury as their employer. Hiring, retaining,
and motivating high-quality people continues to be one of the biggest challenges
we face. To increase our potential market size, maintain our technology
leadership, and ensure the future success of the company, we must be able to
attract and retain the most highly talented and creative people. To do this,
Mercury has to compete by either substantially increasing the cash compensation
paid to associates or we must continue on our proven successful path of creating
associate stockholders through the granting of stock options. Unlike the
immediate effect on Earnings Per Share ("EPS") caused by increases in cash
compensation, grants of stock options have no effect on EPS until our stock
increases in value beyond the option exercise price. For income statement
purposes, there is no compensation expense for associate stock options that are
granted with an exercise price equal to the market value of the company's stock.
Mercury has consistently outperformed our peers, with forty-two consecutive
quarters of profitability. We made this happen with your support, and we are
working aggressively to continue to grow the company. But we can only be
successful in our endeavors if you, the stockholders, allow me to build and
motivate the Mercury team by continuing to grant them stock options.
What about the dilutive effect of these options on EPS? Well, diluted EPS
is calculated by dividing the company's net income by the number of shares
outstanding, including the effect of options. If there are more shares and
options outstanding, and if the earnings remain the same, then, obviously, EPS
is diluted. But, at Mercury, we have successfully used stock options to motivate
our associates to increase earnings. So any slight increase in the number of
shares outstanding due to stock options has, in the past, been more than
compensated for by an increase in earnings. With the current market uncertainty,
it is even more important that we continue to motivate our associates using
stock options to improve our overall operating effectiveness and to maximize our
earnings potential.
In the past, when Mercury needed additional options we went to the
stockholders and asked them to approve additional shares, and in the past you
have agreed. Your management has been most grateful for your continued support.
However, the process of contacting stockholders is both time-consuming and
expensive. In response to this increasing burden, this year we are proposing an
amendment (Proposal 3) to our 1997 Stock Option Plan. With this amendment,
effective July 1, 2002 and each July 1 thereafter during the term of the 1997
Stock Option Plan, the maximum number of shares of Common Stock available for
grants of stock
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options made after such July 1 under the 1997 Stock Option Plan shall be
increased automatically by an amount equal to 4.0% of the total number of issued
and outstanding shares of Common Stock (including shares held in treasury) as of
the close of business on June 30 of the preceding year, such additional amount
being subject to downward adjustment by the Board of Directors. By approving
this amendment, you will help the Company avoid the expensive and time-consuming
task of seeking stockholder approval for this routine matter. I am requesting
your support and vote in favor of this amendment (Proposal 3) that will provide
Mercury with the tools to attract and retain the best and the brightest
associates.
I am asking you to separately approve two additional proposals. Proposal 2
is an amendment to the Corporation's 1997 Stock Option Plan that authorizes the
Corporation to reserve an additional 1 million shares for issuance upon the
exercise of stock options under the 1997 Plan. You will note that Proposal 3
will not increase shares until July 2002. Proposal 4 is an amendment to the
Corporation's Articles of Organization that would increase the number of shares
of Common Stock that the Corporation has the authority to issue from 40,000,000
shares to 65,000,000 shares.
Please read the enclosed description of each of these proposals that have
been recommended, unanimously, for approval by the Board of Directors.
As a significant stockholder of Mercury, you can be sure that I am strongly
motivated to protect stockholders' interests. My goal is the same as
yours . . . to increase stockholder value. Please help to ensure our continued
success by voting YES on each of these important proposals either in person at
the upcoming stockholder meeting (10:00 am on November 15, 2001 in the
d'Arbeloff Suite, Museum of Science, Boston, Mass.) or by mailing in the
enclosed proxy card.
Thank you for your support and commitment to Mercury Computer Systems.
If you have any further questions concerning the Meeting or any of the
proposals, please feel free to contact the Corporation at (978) 256-1300.
Sincerely yours,
/s/ James R. Bertelli
JAMES R. BERTELLI
President and Chief Executive Officer
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MERCURY COMPUTER SYSTEMS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS IN LIEU OF THE
2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 15, 2001
To the Stockholders:
A Special Meeting of the Stockholders of MERCURY COMPUTER SYSTEMS, INC. in
lieu of the 2001 Annual Meeting of Stockholders will be held on Thursday,
November 15, 2001 at 10:00 a.m. at The Boston Museum of Science, Science Park,
Boston, Massachusetts, for the following purposes:
1. To elect Dr. Albert P. Belle Isle as a Director for a term of
three years, as more fully described in the accompanying Proxy
Statement.
2. To elect Mr. James A. Dwyer as a Director for a term of three
years, as more fully described in the accompanying Proxy
Statement.
3. To elect Mr. Melvin Sallen as a Director for a term of three
years, as more fully described in the accompanying Proxy
Statement.
4. To consider and act upon a proposal to amend the Corporation's
1997 Stock Option Plan to increase the number of shares of Common
Stock reserved for issuance thereunder by 1,000,000 shares, from
4,650,000 shares to 5,650,000 shares.
5. To consider and act upon a proposal to amend the Corporation's
1997 Stock Option Plan to increase automatically on an annual
basis the number of shares of Common Stock reserved for issuance
thereunder, as more fully described in the enclosed Proxy
Statement.
6. To consider and act upon a proposal to amend the Articles of
Organization of the Corporation to increase the number of shares
of Common Stock which the Corporation has the authority to issue
from 40,000,000 shares to 65,000,000 shares.
7. To consider and act upon any other business which may properly
come before the meeting.
The Board of Directors has fixed the close of business on September 28,
2001, as the record date for the meeting. All stockholders of record on that
date are entitled to notice of and to vote at the meeting.
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING IN PERSON.
By order of the Board of Directors
/s/ Anthony J. Medaglia, Jr.
ANTHONY J. MEDAGLIA, JR.
Chelmsford, Massachusetts
October 5, 2001
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MERCURY COMPUTER SYSTEMS, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Mercury Computer Systems, Inc. (the
"Corporation") for use at the Special Meeting of Stockholders in lieu of the
2001 Annual Meeting of Stockholders to be held on Thursday, November 15, 2001,
at the time and place set forth in the notice of the meeting, and at any
adjournments thereof (the "Meeting"). The approximate date on which this Proxy
Statement and form of proxy are first being sent to stockholders is October 5,
2001.
VOTING AND REVOCABILITY OF PROXIES
If the enclosed proxy is properly executed and is received prior to the
Meeting, it will be voted in the manner directed by the stockholder. If no
instructions are specified with respect to any particular matter to be acted
upon, proxies will be voted for the election of Directors as set forth in this
Proxy Statement and for the proposals set forth in the Notice of Meeting. Any
person giving the enclosed form of proxy has the power to revoke it by voting in
person at the Meeting, or by giving written notice of revocation to the Clerk of
the Corporation any time before the proxy is exercised.
The holders of a majority in interest of all Common Stock issued,
outstanding and entitled to vote are required to be present in person or to be
represented by proxy at the Meeting in order to constitute a quorum for the
transaction of business. The election of the nominees for Director will be
decided by plurality vote. The proposal to amend the Articles of Organization to
increase the number of authorized shares of Common Stock requires the
affirmative vote of a majority of the shares of Common Stock outstanding and
entitled to vote thereon. All other matters being submitted to stockholders
requires the affirmative vote of a majority of voting shares present in person
or represented by proxy at the Meeting (following the determination of a
quorum). Both abstentions and broker "non-votes" are counted as present for the
purposes of determining the existence of a quorum for the transaction of
business. However, for purposes of determining the number of shares voting on a
particular proposal, abstentions and broker "non-votes" are not counted as votes
cast or shares voting.
The Corporation's principal executive offices are located at 199 Riverneck
Road, Chelmsford, Massachusetts 01824, telephone number (978) 256-1300.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on September 28, 2001
are entitled to notice of and to vote at the Meeting. On that date the
Corporation had outstanding and entitled to vote 21,889,977 shares of Common
Stock, par value $.01 per share. Each outstanding share of the Corporation's
Common Stock entitles the record holder to one vote.
PROPOSAL TO ELECT CLASS I DIRECTORS
Pursuant to Massachusetts law, the Board of Directors is divided into three
classes, with each class as nearly equal in number as possible. Presently, the
Board of Directors consists of seven members, with Mr. James A. Dwyer, Dr.
Albert Belle Isle and Mr. Melvin Sallen serving as Class I Directors; Dr. Gordon
Baty and Mr. Sherman Mullin serving as Class II Directors; and Mr. James
Bertelli and Mr. Russell K. Johnsen serving as Class III Directors. The terms of
the Class I, Class II, and Class III Directors expire in 2001, 2002, and 2003,
respectively. Following expiration of its respective current term, each class is
then nominated for election for a subsequent three-year term.
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It is proposed that the Class I nominees listed below, whose terms expire
at this meeting, be elected to serve a term of three years and until their
successors are duly elected and qualified or until they sooner die, resign or
are removed.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE CLASS I
NOMINEES LISTED BELOW. The persons named in the accompanying proxy will vote,
unless authority is withheld, for the election of the Class I nominees named
below. If such nominees should become unavailable for election, which is not
anticipated, the persons named in the accompanying proxy will vote for such
substitute as the Board of Directors may recommend. Messrs. Belle Isle, Dwyer
and Sallen are not related to any Executive Officer of the Corporation or its
subsidiaries.
YEAR FIRST
ELECTED A POSITION WITH THE CORPORATION OR PRINCIPAL
NAME OF NOMINEE AGE DIRECTOR OCCUPATION DURING PAST FIVE YEAR
--------------- --- ---------- ------------------------------------------
NOMINATED FOR A TERM ENDING IN 2004:
Dr. Albert P. Belle Isle............. 58 1986 Dr. Belle Isle is an independent investor
in technology-based companies, was
President of Custom Silicon, Inc., a
semiconductor company, and has also served
as a Vice President of Wang laboratories,
Inc. and in various technical and business
management positions during fifteen years
with the General Electric Company.
James A. Dwyer....................... 64 2000 Mr. Dwyer is currently President of
Wireless One Network, L.P., a former
cellular operator in Florida, Previously,
Mr. Dwyer was President of American
Cellular Telephone Corp., and Attorney and
Vice President, International Relations of
Western Union International. Mr. Dwyer
currently serves on the Board of Directors
of the Cellular Telecommunications
Industry Association, and was previously
Chairman of its Executive Committee and
Chairman of its Legislative and Regulatory
Committee.
Melvin Sallen........................ 73 1990 Mr. Sallen served as Senior Vice President
of Analog Devices, Inc. from 1966 through
1992. Since 1992, Mr. Sallen has served as
President of Komon International, Inc.,
an international consulting company. Mr.
Sallen is also a director of Copley
Controls Corporation.
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YEAR FIRST
ELECTED A POSITION WITH THE CORPORATION OR PRINCIPAL
NAME OF NOMINEE AGE DIRECTOR OCCUPATION DURING PAST FIVE YEAR
--------------- --- ---------- ------------------------------------------
SERVING A TERM ENDING IN 2002:
Dr. Gordon B. Baty................... 62 1983 Dr. Baty has been a partner of Zero Stage
Capital Co., Inc., a venture capital firm,
since 1986. Dr. Baty was the founder
and Chief Executive Officer of Icon
Corporation, Context Corporation, and
Wormser Engineering, Inc. Dr. Baty is also
a Director of nine private companies.
Sherman N. Mullin.................... 65 1994 Mr. Mullin served as President of Lockheed
Advanced Development Co., a defense
contractor, from 1990 through 1994. Mr.
Mullin currently serves as an ad-hoc
advisor to the U.S. Air Force Scientific
Advisory Board.
SERVING A TERM ENDING IN 2003:
James R. Bertelli.................... 61 1981 Mr. Bertelli co-founded the Corporation in
1981, and has served as the Corporation's
President, Chief Executive Officer, and a
Director since that time. Prior to
founding the Corporation, Mr. Bertelli
founded a manufacturer's representative
organization after a brief period at
Analogic Corporation in sales management
positions. Prior to that, Mr. Bertelli
served as a marketing manager for Digital
Equipment Corporation's telephone industry
products group. After a tour of duty in
the Army Signal Corps, Mr. Bertelli began
his high-tech career with RCA Corporation
as a computer systems analyst, and later
moved into computer sales with RCA and
Univac.
Russell K. Johnsen................... 47 2001 Mr. Johnsen is currently the Vice
President, Corporate Business Development
at Analog Devices. Mr. Johnsen has held
various positions at Analog Devices since
1993. Prior to his years at Analog
Devices, Mr. Johnsen held positions at
National Semiconductor Corporation.
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INFORMATION CONCERNING THE BOARD OF DIRECTORS
During fiscal year 2001, there were thirteen (13) meetings of the Board of
Directors of the Corporation, two (2) meetings of the Audit Committee (see
below) and thirteen (13) meetings of the Compensation Committee (see below). The
Nominating Committee was established in August 2001, and hence did not meet
during fiscal year 2001(see below). All of the Directors attended at least 75%
of the aggregate of (i) the total number of meetings of the Board of Directors
and (ii) the total number of meetings held by committees of the Board of
Directors on which they served, except that Directors Berman and Dwyer attended
69% and 50% of such meetings, respectively. Each Director receives cash
compensation in the amount of $10,000 for the fiscal year, paid quarterly, plus
an additional $2,500 for each meeting attended, as well as reimbursement for
reasonable expenses incurred in connection with attendance at Board and
committee meetings. In addition, committee members and the committee chairman
receive an annual retainer of $1,000 and $1,750, respectively, paid quarterly,
as well as an additional $300 for attending a meeting not held on the same day
as a meeting of the Board of Directors. The cash compensation paid to Directors
in their capacity as such during fiscal year 2001 was as follows:
DIRECTOR CASH COMPENSATION
-------- -----------------
Gordon B. Baty............................................. $29,850
Albert P. Belle Isle....................................... $29,100
R. Schorr Berman........................................... $14,800
James R. Bertelli.......................................... $ 0
James A. Dwyer............................................. $17,500
Russell K. Johnsen......................................... $11,300
Sherman N. Mullin.......................................... $28,800
Melvin Sallen.............................................. $29,550
Michael I. Schneider....................................... $13,800
In addition to cash compensation, Directors are also granted options
pursuant to the Mercury Computer Systems, Inc. 1997 Stock Option Plan
The Board of Directors has a standing Audit Committee, Compensation
Committee and Nominating Committee. The members of the Audit Committee are Dr.
Baty, Dr. Belle Isle and Mr. Johnsen. The Audit Committee reviews the scope of
the Corporation's engagement of its independent public accountant and their
reports. The Audit Committee also meets with the financial staff of the
Corporation to review accounting procedures and reports. The Compensation
Committee was comprised of Messrs. Mullin, Sallen and Schneider until September
2001. Mr. Schneider served as a member of the Compensation Committee until his
death on September 6, 2001. The Compensation Committee is authorized to review
and make recommendations to the Board of Directors regarding the salaries and
bonuses to be paid executive officers and to administer the Corporation's
various stock option and stock purchase plans. The Nominating Committee was
established in August 2001 to recommend nominees to the Board of Directors, and
has recommended the nominees for election at the Meeting. The members of the
Nominating Committee are Dr. Baty, Dr. Belle Isle and Mr. Bertelli. The
Nominating Committee will consider nominees recommended by stockholders, though
no formal procedures are in place for such process.
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PROPOSAL TO INCREASE THE SHARES RESERVED FOR ISSUANCE UNDER THE
MERCURY COMPUTER SYSTEMS, INC. 1997 STOCK OPTION PLAN TO 5,650,000 SHARES
There will be presented at the Meeting a proposal to approve an amendment
to the Corporation's 1997 Stock Option Plan (the "1997 Stock Option Plan") which
amendment was approved by the Board of Directors on August 21, 2001, whereby the
number of shares of Common Stock reserved for issuance under the 1997 Stock
Option Plan was increased from 4,650,000 shares to 5,650,000 shares. As of
August 31, 2001, options for the purchase of 2,741,950 shares of Common Stock
were outstanding under the 1997 Stock Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED INCREASE IN SHARES OF
COMMON STOCK RESERVED FOR ISSUANCE UNDER THE 1997 STOCK OPTION PLAN TO 5,650,000
SHARES.
PROPOSAL TO INCREASE AUTOMATICALLY ON AN ANNUAL BASIS THE SHARES RESERVED FOR
ISSUANCE UNDER THE MERCURY COMPUTER SYSTEMS, INC. 1997 STOCK OPTION PLAN
There will be presented at the Meeting a proposal to approve an amendment
to the 1997 Stock Option Plan, which amendment was approved by the Board of
Directors on August 21, 2001, whereby the number of shares of Common Stock
reserved for issuance under the 1997 Stock Option Plan would increase
automatically on an annual basis. Effective July 1, 2002 and each July 1
thereafter during the term of the 1997 Stock Option Plan, the maximum number of
shares of Common Stock available for grants of stock options made after such
July 1 under the 1997 Stock Option Plan shall be increased automatically by an
amount equal to 4.0% of the total number of issued and outstanding shares of
Common Stock (including shares held in treasury) as of the close of business on
June 30 of the preceding year, such additional amount being subject to downward
adjustment by the Board of Directors. Notwithstanding the foregoing, the maximum
cumulative number of shares of Common Stock available for grants of Incentive
Stock Options under the 1997 Stock Option Plan shall be 5,650,000 shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO INCREASE
AUTOMATICALLY ON AN ANNUAL BASIS THE NUMBER OF SHARES OF COMMON STOCK RESERVED
FOR ISSUANCE UNDER THE 1997 STOCK OPTION PLAN.
MERCURY COMPUTER SYSTEMS, INC. 1997 STOCK OPTION PLAN
The 1997 Stock Option Plan (the "Plan") provides for the granting of both
incentive stock options meeting the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and non-qualified options which
are not intended to meet the requirements of the Code.
The Plan is intended to encourage ownership of the stock of the Corporation
by employees of, and other key individuals engaged to provide services to, the
Corporation and its subsidiaries, including directors, to induce qualified
personnel to enter and remain in the employ of, or otherwise provide services
to, the Corporation or its subsidiaries and to provide additional incentive for
optionees to promote the success of its business. The Plan is administered by a
Committee (the "Committee"), consisting of two or more members of the
Corporation's Board of Directors, each of whom is a disinterested person as
defined in Rule 16b-3, promulgated under the Securities Exchange Act of 1934
(the "1934 Act"). The members of the Committee are appointed by the Board of
Directors and the Board may from time to time appoint a member or members of the
Committee in substitution for or in addition to the member or members then in
office, and may fill vacancies on the Committee, however caused. The present
members of the Committee are Melvin J. Sallen,
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Chairman, and Sherman N. Mullin, c/o Mercury Computer Systems, Inc., 199
Riverneck Road, Chelmsford, Massachusetts, 01824.
The amendment increased the number of shares of Common Stock reserved for
issuance under the Plan from 4,650,000 shares to 5,650,000 shares. The maximum
number of shares of the Corporation's Common Stock for which options may be
granted under the Plan is subject to adjustments for capital changes. Shares
issued under the Plan may be authorized but unissued shares of Common Stock or
shares of Common Stock held in the treasury. As of August 31, 2001, options for
the purchase of 2,741,950 shares of Common Stock were outstanding under the Plan
and 1,091,847 shares were available for new grants under the Plan.
Set forth below is a summary of other principal provisions of the Plan, a
copy of which may be obtained from the Clerk of the Corporation upon request.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENT
TO THE PLAN INCREASING THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE THEREUNDER TO 5,650,000 SHARES, AND FOR THE AMENDMENT TO THE PLAN
PERMITTING AUTOMATIC INCREASES ON AN ANNUAL BASIS IN THE NUMBER OF SHARES OF
COMMON STOCK ISSUABLE UNDER THE PLAN. The affirmative vote of the holders of at
least a majority of the shares of Common Stock voting in person or by proxy at
the Meeting will be required for approval of the amendment to the 1997 Stock
Option Plan.
Options. The Plan provides that options designated as incentive stock
options may be granted only to employees (including officers and directors who
are also employees) of the Corporation or any subsidiary. Options designated as
non-qualified options may be granted to officers, directors, employees,
consultants and advisors of the Corporation or any of its subsidiaries.
In determining the eligibility of an individual to be granted an option, as
well as in determining the number of options to be granted to any individual,
the Committee takes into account the position and responsibilities of the
individual being considered, the nature and value to the Corporation or its
subsidiaries of the individual's service and accomplishments, his or her present
and potential contribution to the success of the Corporation or its subsidiaries
and such other factors as the Committee deems relevant.
The maximum number of shares with respect to which an option or options may
be granted to any employee in any one taxable year of the Corporation shall not
exceed 100,000, taking into account shares granted during such taxable period
under options that have terminated.
Terms and Provisions of Options. Options granted under the Plan are
exercisable at such times and during such period as is set forth in the option
agreement, but no option granted under the Plan can have a term in excess of 10
years from the date of grant. The option agreement may contain such provisions
and conditions as may be determined by the Committee. The option exercise price
for options designated as non-qualified stock options granted under the Plan is
determined by the Committee, but in no event shall be less than 50% of the fair
market value of the underlying Common Stock at the time such option is granted.
The option exercise price for incentive stock options granted under the Plan
shall be no less than fair market value of the Common Stock of the Corporation
at the time the option is granted. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or shares of Common
Stock of the Corporation owned by the optionee having a fair market value equal
in amount to the exercise price of the options being exercised, or any
combination thereof; provided, however, that the payment of the exercise price
by delivery of shares of Common Stock of the Corporation owned by the optionee
may be made only if the payment does not result in a charge to earnings for
financial accounting purposes, as determined by the Committee.
The right of any optionee to exercise an option granted under the Plan is
not assignable or transferable by such optionee otherwise than by will or the
laws of descent and distribution, and any such option shall be exercisable
during the lifetime of such optionee only by him or her; provided, however, that
in the case of a
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non-qualified stock option, the Committee may permit transferability of such
options on such terms and conditions as determined by the Committee and set
forth in an option agreement.
An option granted to any employee or consultant optionee who ceases to be
an employee or consultant of the Corporation or one or its subsidiaries shall
terminate ten (10) days after the date such optionee ceases to be an employee or
consultant of the Corporation or one of its subsidiaries. If such termination of
employment or consultancy is because of dismissal for cause or because the
employee or consultant is in breach of any employment or consultant agreement,
such an option will terminate immediately on the date the optionee ceases to be
an employee or consultant of the Corporation or one of its subsidiaries. If such
termination of employment or consultancy is because the optionee has become
permanently disabled, the option shall terminate on the last day of the twelfth
month from the date such optionee ceases to be an employee or consultant. In the
event of the death of the optionee, the option shall terminate on the last day
of the twelfth month from the date of death. In no event shall an option be
exercisable after the date upon which it expires by its terms. The Committee has
the authority to extend the expiration date of any outstanding option in
circumstances in which it deems such action to be appropriate.
An option granted to an employee optionee who ceases to be an employee of
the Corporation or one of its subsidiaries shall be exercisable only to the
extent that the right to purchase shares under such option has accrued and is in
effect on the date such optionee ceases to be an employee of the Corporation or
one of its subsidiaries. In the event of the death of any optionee, the option
granted to such optionee may be exercised by the estate of such optionee, or by
any person or persons who acquired the right to exercise such option by bequest
or inheritance or by reason of the death of such optionee.
Recapitalization; Reorganization; Change of Control. The Plan provides
that the number and kind of shares as to which options may be granted thereunder
and as to which outstanding options then unexercised shall be exercisable shall
be adjusted to prevent dilution in the event of any reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares or dividends payable in capital stock. In addition, unless otherwise
determined by the Committee in its sole discretion, in the case of any sale or
conveyance to another entity of all or substantially all of the property and
assets of the Corporation or a Change of Control as defined in the Plan, the
purchaser of the Corporation's assets or stock may deliver to the optionee the
same kind of consideration that is delivered to the stockholders of the
Corporation as a result of the sale, conveyance or Change of Control or the
Committee may cancel all outstanding options in exchange for consideration in
cash or in kind, which consideration shall be equal in value to the value of
those shares of stock or other securities the optionee would have received had
the option been exercised (to the extent then exercisable) and no disposition of
the shares acquired upon such exercise has been made prior to such sale,
conveyance or Change of Control, less the option price therefor.
The Committee shall also have the power to accelerate the exercisability of
any options, notwithstanding any limitations in the Plan or in the option
agreement, upon such a sale, conveyance or Change of Control. Change of Control
is defined in the Plan as having occurred if any of the following conditions
have occurred: (1) the merger or consolidation of the Corporation with another
entity where the Corporation is not the surviving entity and where after the
merger or consolidation (i) its stockholders prior to the merger or
consolidation hold less than 50% of the voting stock of the surviving entity and
(ii) its Directors prior to the merger or consolidation are less than a majority
of the Board of the surviving entity; (2) the sale of all or substantially all
of the Corporation's assets to a third party and subsequent to the transaction
(i) its stockholders hold less than 50% of the stock of said third party and
(ii) its Directors are less than a majority of the Board of said third party;
(3) a transaction or series of related transactions, including a merger of the
Corporation with another entity where the Corporation is the surviving entity,
whereby 50% or more of the voting stock of the Corporation is transferred to
parties who are not prior thereto stockholders or affiliates of the Corporation;
or (4) the Continuing Directors shall not constitute a majority of the Board of
Directors of
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the Corporation. The term "Continuing Directors" shall mean a member of the
Board of Directors of the Corporation who either was a member of the Board of
Directors of the Corporation on the date the Plan was adopted by the Board of
Directors or who subsequently became a director of the Corporation and whose
initial appointment, initial election or initial nomination for election by the
Corporation's shareholders subsequent to such date was approved by a vote of a
majority of the Continuing Directors then on the Board of Directors of the
Corporation.
Upon dissolution or liquidation of the Corporation, all options granted
under the Plan shall terminate, but each optionee shall have the right,
immediately prior to such dissolution or liquidation, to exercise his or her
option to the extent then exercisable. The Committee shall have the right to
accelerate the vesting of any award or take such other action with respect
thereto as the Committee shall in its sole discretion determine in the event of
any contemplated dissolution or liquidation of the Corporation.
Termination and Amendment. Unless sooner terminated, the Plan shall
terminate ten (10) years from June 5, 1997, the date upon which it was adopted
by the Board of Directors. The Board of Directors may at any time terminate the
Plan or make such modification or amendment as it deems advisable; provided,
however, that the Board of Directors may not, without stockholder approval,
increase the maximum number of shares for which options may be granted or change
the designation of the class of persons eligible to receive options under the
Plan or make any other change in the Plan which requires stockholder approval
under applicable law or regulations, including any approval requirement which is
a prerequisite for exemptive relief under Section 16 of the 1934 Act. The
Committee may terminate, amend or modify any outstanding option without the
consent of the optionholder; provided, however, that without the consent of the
optionee, the Committee shall not change the number of shares subject to an
option nor the exercise price thereof, nor extend the term of such option.
TAX EFFECTS OF PLAN PARTICIPATION
Options granted under the Plan are intended to be either incentive stock
options, as defined in Section 422 of the Code, or non-qualified stock options.
Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. If the optionee holds the shares
received pursuant to the exercise of the option for at least one year after the
date of exercise and for at least two years after the option is granted, the
optionee will recognize long-term capital gain or loss upon the disposition of
the stock measured by the difference between the option exercise price (the
stock's basis) and the amount received for such shares upon disposition.
In the event that the optionee disposes of the stock prior to the
expiration of the required holding periods (a "disqualifying disposition"), the
optionee generally will realize ordinary income equal to the difference between
the exercise price and the lower of the fair market value of the stock at the
date of the option exercise or the sale price of the stock. The basis in the
stock acquired upon exercise of the option will equal the amount of income
recognized by the optionee plus the option exercise price. Upon eventual
disposition of the stock, if the optionee holds the stock as a capital asset,
the optionee will recognize long-term or short-term capital gain or loss,
depending on the holding period of the stock and the difference between the
amount realized by the optionee upon disposition of the stock and the optionee's
basis in the stock.
For alternative minimum tax purposes, the excess of the fair market value
of stock on the date of the exercise of the incentive stock option over the
exercise price of the option is included in alternative minimum taxable income
for alternative minimum tax purposes. If the alternative minimum tax applies to
the optionee, an alternative minimum tax credit may reduce the regular tax upon
eventual disposition of the stock.
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The Corporation will not be allowed an income tax deduction upon the grant
or exercise of an incentive stock option. However, upon a disqualifying
disposition by the optionee of shares acquired upon exercise of the incentive
stock option, the Corporation will be allowed a deduction in an amount equal to
the ordinary income recognized by the optionee.
The Internal Revenue Service will treat the exercise of an option with
previously acquired stock of the Corporation will be treated as, in effect, two
separate transactions. Pursuant to Section 1036 of the Code, the first
transaction will be a tax-free exchange of the previously acquired shares for
the same number of new shares. The new shares will retain the basis and the
holding periods of the previously acquired shares. The second transaction will
be the issuance of additional new shares having a value equal to the difference
between the aggregate fair market value of all of the new shares being acquired
and the aggregate option exercise price for those shares. Because the exercise
of an incentive stock option does not result in the recognition by the optionee
of income, this issuance will also be tax-free (unless the alternative minimum
tax applies, as described above). The optionee's basis in these additional new
shares will be zero and the optionee's holding period for these shares will
commence on the date on which the shares are transferred. For purposes of the
one and two-year holding period requirements which must be met for favorable
incentive stock option tax treatment to apply, the holding periods of previously
acquired shares are disregarded.
Non-qualified Stock Options. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a non-qualified stock
option. On the exercise by an optionee of a non-qualified option, generally the
excess of the fair market value of the stock when the option is exercised over
its cost to the optionee will be (a) taxable to the optionee as ordinary income
and (b) deductible for income tax purposes by the Corporation. The optionee's
tax basis in his stock will equal his cost for the stock plus the amount of
ordinary income the optionee had to recognize with respect to the non-qualified
stock option.
The Internal Revenue Service will treat the exercise of a non-qualified
stock option with already owned stock of the Corporation as two transactions.
First, there will be a tax-free exchange of the old shares for a like number of
shares under Section 1036 of the Code, with such exchanged shares retaining the
basis and holding period of the old shares. Second, there will be an issuance of
additional new shares having a value equal to the difference between the fair
market value of all new shares being acquired (including the exchanged shares
and the additional new shares) and the aggregate option price for those shares.
The employee will recognize ordinary income under Section 83 of the Code, in an
amount equal to the fair market value of the additional new shares (i.e., the
spread on the option). The additional new shares will have a basis equal to the
fair market value of the additional new shares and the optionees holding period
for the additional new shares will commence on the date on which the shares are
transferred.
If the optionee holds the stock as a capital asset, upon a subsequent
disposition of stock acquired upon the exercise of a non-qualified stock option,
the optionee will recognize short-term or long-term capital gain or loss,
depending upon the holding period of the stock equal to the difference between
the amount realized upon disposition of the stock by the optionee and the
optionee's basis in the stock.
For all options, different tax rules may apply if the optionee is subject
to Section 16 of the Securities Exchange Act of 1934.
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NEW PLAN BENEFITS
It is not possible to state the persons who will receive options or awards
under the Plan in the future, nor the amount of options or awards which will be
granted thereunder. The following table provides information with respect to
options granted since the beginning of fiscal 2001 under the Plan. See "Mercury
Computer Systems, Inc. 1997 Stock Option Plan" for a description of the options
which are provided for under the Plan.
1997 PLAN
NAME AND POSITION DOLLAR VALUE STOCK OPTIONS
----------------- ------------- -------------
James R. Bertelli, President and CEO........................ $ 832,282(1) 42,381
G. Mead Wyman, Senior Vice President, Treasurer and CFO..... 302,503(1) 14,000
Vincent A. Mancuso, Vice President and General Manager,
Government Electronics Group.............................. 151,252(1) 7,000
Steven M. Chasen, Vice President, Special Projects.......... 432,148(1) 20,000
Douglas F. Flood, Vice President, Corporate Development..... 226,878(1) 10,500
All Executive Officers as a Group........................... 1,945,063(1) 93,881
All Non-Executive Officer Directors......................... -- --
Employees as a Group (excluding Executive Officers)......... 20,841,475(1) 834,200
---------------
(1) The dollar value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model utilizing the following
weighted-average assumptions: (1) expected risk-free interest rate of 4.97%
in 2001, (2) expected option life of 6 years; (3) expected stock volatility
of 80% for June 30, 2001, and (4) expected dividend yield of 0.0.%.
PROPOSED AMENDMENT TO THE CORPORATION'S ARTICLES OF ORGANIZATION
INCREASING THE NUMBER OF SHARES OF COMMON STOCK WHICH THE CORPORATION
HAS AUTHORITY TO ISSUE FROM 40,000,000 SHARES TO 65,000,000 SHARES
On August 23, 2001, the Board of Directors adopted the following resolution
regarding the proposed amendment to the Articles of Organization (the
"Amendment"):
RESOLVED: THAT THIS CORPORATION'S ARTICLES OF ORGANIZATION BE AMENDED
TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED
FOR ISSUANCE FROM 40,000,000 SHARES TO 65,000,000 SHARES, AND
THAT THE PROPOSAL BE BROUGHT BEFORE THE STOCKHOLDERS FOR
ADOPTION.
The affirmative vote of at least a majority of shares of Common Stock entitled
to vote at the Meeting is required to approve the Amendment.
Increase in Number of Shares of Common Stock. If approved by the
stockholders, the Amendment will authorize the Corporation to issue an
additional 25,000,000 shares of the Corporation's Common Stock, par value $.01
per share. As of August 31, 2001, there were 40,000,000 shares of Common Stock
authorized, of which 21,889,977 shares were outstanding, 1,091,847 shares
remained reserved for issuance pursuant to the Corporation's 1997 Employee Stock
Purchase Plan, and 1,154,411 shares remained available for issuance pursuant to
all the Corporation's stock option plans. The Board of Directors is empowered
under the Articles of Organization of the Corporation to issue shares of
authorized stock without further stockholder approval. The holders of the
Corporation's Common Stock do not have preemptive rights.
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Appraisal Rights in Respect of the Proposed Amendment. Under the
applicable provisions of the Massachusetts Business Corporation Law, the
Corporation's stockholders have no appraisal rights with respect to the
Amendment.
Recommendations of the Board of Directors. As of August 31, 2001 there
were 13,577,115 shares available for issuance and not otherwise reserved of the
Corporation's Common Stock. Accordingly, the Board of Directors believes that
the number of authorized shares of Common Stock should be increased by
25,000,000 to provide sufficient shares for use for such corporate purposes as
may be determined advisable by the Board of Directors, without further action or
authorization by the stockholders. Such corporate purposes might include the
acquisition of capital funds through the sale of stock, the acquisition of other
corporations or properties, or the declaration of stock dividends in the nature
of a stock split. There are no current plans, agreements, arrangements, or
understandings with respect to the issuance of any of the shares of Common Stock
which would be authorized by the Amendment; however, the Board of Directors
believes that the availability of shares would afford the Corporation
flexibility in considering and implementing any of the corporate transactions
enumerated above.
Possible Effects of the Amendment. If the stockholders approve the
Amendment, the Corporation will have additional authorized but unissued shares
of Common Stock that may be issued without further action or authorization of
the stockholders (except as required by law or the rules of the Nasdaq Stock
Market or other stock exchange on which the Corporation's securities may then be
listed). The issuance of additional shares of Common Stock may have a dilutive
effect on earnings per share. In addition, the issuance of additional shares of
Common Stock could have a dilutive effect on the voting power of the current
stockholders because they do not have preemptive rights. Finally, the Amendment
could, under certain circumstances, have an anti-takeover effect, because it
would enable the Board of Directors to issue shares of Common Stock to persons
who are opposed to a takeover bid. This could deter transactions that may result
in a change of control of the Corporation, including transactions in which
stockholders may receive a premium for their shares over the current market
prices. The Board of Directors, however, has presented the Amendment for the
purposes described above and not with the intent that it be utilized as a type
of anti-takeover device.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO
THE CORPORATION'S ARTICLES OF ORGANIZATION INCREASING THE NUMBER
OF SHARES OF COMMON STOCK WHICH THE CORPORATION HAS AUTHORITY
TO ISSUE FROM 40,000,000 SHARES TO 65,000,000 SHARES.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 2001, Messrs. Mullin, Sallen and Schneider served on the
Compensation Committee of the Corporation's Board of Directors for the entire
year. The Corporation had no outstanding loans to the Directors during fiscal
year 2001.
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PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table shows, as of August 31, 2001, any person who is known
by the Corporation to be the beneficial owner of more than five percent of any
class of voting securities of the Corporation. For purposes of this Proxy
Statement, beneficial ownership is defined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934 and means generally the power to vote or
dispose of the securities, regardless of any economic interest therein.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------- -------------------- ----------
Scudder Kemper Investments, Inc.(1)...................... 1,731,700 7.9%
Capital Research and Management Company(2)............... 1,482,180 6.8%
SMALLCAP World Fund, Inc.(3)............................. 1,300,000 5.9%
---------------
(1) The address of Scudder Kemper Investments, Inc. is 345 Park Avenue, New
York, NY 10154.
(2) The address of Capital Research and Management Company is 333 South Hope
Street, 55th Floor, Los Angeles, CA 90071. Capital Research and Management
Company, a registered investment advisor, is deemed to be the beneficial
owner of the listed shares as a result of acting as investment advisor to
various registered investment companies, including SMALLCAP World Fund, Inc.
(3) The address of SMALLCAP World Fund, Inc. is 333 South Hope Street, 55th
Floor, Los Angeles, CA 90071. SMALLCAP World Fund, Inc. is a registered
investment company which is advised by Capital Research and Management
Company.
SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following information is furnished as of August 31, 2001, with respect
to Common Stock of the Corporation beneficially owned within the meaning of Rule
13d-3 by (i) all Directors of the Corporation and nominees (the "Directors");
(ii) the Chief Executive Officer of the Corporation and the four most highly
compensated executive officers of the Corporation other than the Chief Executive
Officer (collectively, the "Named Executive Officers"); and (iii) all Directors
and Named Executive Officers as a group. Unless otherwise indicated, the
individuals named below held sole voting and investment power over the shares
listed below.
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NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- ---------
James R. Bertelli(1)........................................ 969,020 4.4%
Vincent A. Mancuso(2)....................................... 36,302 *
G. Mead Wyman(3)............................................ 76,155 *
Gordon B. Baty(4)........................................... 110,835 *
Albert P. Belle Isle(4)..................................... 109,356 *
Sherman N. Mullin(5)........................................ 37,036 *
James A. Dwyer.............................................. 4,000 *
Russell Johnsen............................................. 0 *
Melvin Sallen(6)............................................ 64,998 *
Michael I. Schneider........................................ 7,000 *
Douglas Flood(7)............................................ 14,691 *
Steven Chasen(8)............................................ 41,360 *
All Directors and Named Executive Officers As a Group (12X
persons)(10).............................................. 1,470,753 6.7%
---------------
* Less than 1.0%.
(1) Includes 2,400 shares owned by Mr. Bertelli's spouse, and options to
purchase 125,400 shares exercisable within sixty days of August 31, 2001.
(2) Includes options to purchase 27,050 shares exercisable within sixty days of
August 31, 2001.
(3) Includes options to purchase 16,000 shares exercisable within sixty days of
August 31, 2001.
(4) Includes options to purchase 27,356 shares exercisable within sixty days of
August 31, 2001.
(5) Includes options to purchase 20,306 shares exercisable within sixty days of
August 31, 2001.
(6) Includes 800 shares owned by Mr. Sallen's wife, 4,000 shares owned by the
Lois S. Sallen Trust, of which Mr. Sallen is a co-trustee and beneficiary,
and options to purchase 23,698 shares exercisable within sixty days of
August 31, 2001.
(7) Includes options to purchase 14,219 shares exercisable within sixty days of
August 31, 2001.
(8) Includes options to purchase 21,118 shares exercisable within sixty days of
August 31, 2001.
(9) Includes 303,533 shares which certain Directors and Executive Officers have
the right to acquire upon the exercise of outstanding options, exercisable
presently or within sixty days of August 31, 2001.
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
Report of the Compensation Committee, Report of the Audit Committee and the
Performance Graph on page 17 shall not be incorporated by reference into any
such filing.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors has
furnished the following report on executive compensation.
The Committee administers the Corporation's stock option plans, makes
annual recommendations to the full Board of Directors regarding the chief
executive officer's salary, bonus, and equity-based compensation,
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and oversees the executive compensation program for the Corporation's other
employees, including its executive officers. The Committee is composed of three
independent directors who are not employees of the Corporation.
COMPENSATION PHILOSOPHY
The Corporation's compensation policies for executive officers are based on
the belief that the interests of executives should be closely aligned with those
of the Corporation's shareholders. The compensation policies are designed to
achieve the following objectives:
- Offer compensation opportunities that attract highly qualified
executives, reward exceptional initiative and achievement, and retain the
leadership and skills necessary to build long-term stockholder value.
- Maintain a significant portion of executives' total compensation at risk,
tied to both the annual and long-term financial performance of the
Corporation and the creation of stockholder value.
- Further the Corporation's short and long-term strategic goals and values
by aligning compensation with business objectives and individual
performance.
EXECUTIVE COMPENSATION
Compensation of executive officers other than the chief executive officer
is determined by the chief executive officer and is subject to review by the
Committee. The Committee historically has obtained outside survey data regarding
executive and senior level compensation and provided this data to the chief
executive officer to assist him in making compensation decisions. Compensation
for executive officers is comprised of base salary, annual cash bonuses and
periodic stock option grants.
Base salary. Annual determinations of base salaries are made based in part
on the competitive pay practices of companies in the same industry of similar
size and market capitalization, the skills, performance level, and contribution
to the business of the individual executives, and the needs of the Corporation.
Annual cash incentive awards. The Corporation's executive officers are
eligible to receive annual cash bonus awards designed to motivate executives to
attain short-term and longer-term corporate and individual management goals.
Award levels vary depending upon the achievement of performance criteria
established by the chief executive officer. The bonus criteria for each
executive officer are tailored to the achievement of financial and operational
goals specifically developed for that officer's area or responsibility, as well
as overall corporate performance and the attainment of other individual
objectives. Consequently, there is a direct link between the compensation of the
executive officers and the Corporation's performance.
Industry benchmark bonus: When Mercury's results exceed the performance of
the 50th percentile of the high-tech universe of the Russell 2000, an add-on
will be applied to the executive officers compensation. In calculating this
bonus, Mercury's performance is based on revenue growth, earnings growth and
profit before tax percentage of sales.
Long-term incentives: The Committee believes that stock options are an
excellent vehicle for compensating its officers and employees. The Corporation
provides long-term incentives through its stock option plans, a purpose of which
is to create a direct link between executive compensation and increases in
stockholder value. Stock options are granted at fair market value and vest in
installments, generally over four years. When determining option awards for an
executive officer, the Committee considers the executive's current contribution
to Corporation performance, the anticipated contribution to meeting the
Corporation's long-term strategic performance goals, and industry practices and
norms. Long-term incentives granted in prior years and existing levels of stock
ownership are also taken into consideration. Because the receipt of value by an
executive officer under a stock option is dependent upon an increase in the
price of the
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Corporation's Common Stock, this portion of the executive's compensation is
directly aligned with an increase in stockholder value.
Deferred Compensation Plan. An executive deferred compensation plan
("Deferred Compensation Plan") was established during fiscal 2001. In accordance
with the Deferred Compensation Plan, executives of the Company may elect to
contribute up to 35% of their total compensation in a deferral account.
CHIEF EXECUTIVE COMPENSATION
The chief executive officer's compensation is comprised of base salary,
annual cash incentive awards and stock option grants.
In determining the base salary paid to Mr. Bertelli for the year ended June
30, 2001, the Committee considered his level of responsibility, salary increases
awarded to him in the past, his experience, his potential, and compensation
programs of other companies of similar size and characteristics.
Annual cash bonuses and stock option grants to Mr. Bertelli are based on
the attainment of individual and corporate performance targets established at
the beginning of the fiscal year. The annual cash bonus and option grants to Mr.
Bertelli for the fiscal year ended June 30, 2001 reflect the achievement of
predetermined targets based on the Corporation's revenue, pre-tax income, and
certain non-financial goals.
Mr. Bertelli's base compensation increased 6%, from $332,750 during the
fiscal year ended June 30, 2000 to $352,715 during the fiscal year ended June
30, 2001. Mr. Bertelli's cash bonus of $209,066 and grant of options to purchase
19,738 shares of common stock in respect of the fiscal year ended June 30, 2001,
were based upon achievement of a significant portion of the pre-determined
targets described above. Mr. Bertelli's cash bonus and stock option grant
reflect increases in the Corporation's revenues and pre-tax profits of 28% and
24%, respectively, from fiscal year 2000 to fiscal year 2001.
In 1993, the Internal Revenue Code was amended to limit the deduction a
public Corporation is permitted for compensation paid in 1994 and thereafter to
the chief executive officer and to the four most highly compensated executive
officers, other than the chief executive officer. Generally, amounts paid in
excess of $1,000,000 to a covered executive, other than performance-based
compensation, cannot be deducted. In order to qualify as performance-based
compensation under the new tax law, certain requirements must be met, including
approval of the performance measures by the stockholders. The Committee intends
to consider ways to maximize deductibility of executive compensation, while
retaining the discretion the Committee considers appropriate to compensate
executive officers at levels commensurate with their responsibilities and
achievements.
By the Compensation Committee of the
Board of Directors of Mercury
Computer Systems, Inc.
Melvin J. Sallen, Chairman
Sherman N. Mullin
Michael I. Schneider
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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Corporation's Board of Directors is currently
composed of three members and acts under a written charter first adopted and
approved in 2000. The Audit Committee charter is attached to this Proxy
Statement as Appendix A. The members of the Audit Committee are independent
directors, as defined by its charter and in accordance with the listing
standards of the National Association of Securities Dealers, and possess the
financial sophistication required by such charter and rules. The Audit Committee
held two meetings during the fiscal year 2001.
Management is responsible for the Corporation's internal controls and the
financial reporting process. The Corporation's independent accountants are
responsible for performing an independent audit of the Corporation's financial
statements in accordance with generally accepted accounting principles and issue
a report on those financial statements. The Audit Committee is responsible for
monitoring and overseeing these processes. As appropriate, the Audit Committee
reviews and evaluates, and discusses with the Corporation's management,
financial and accounting personnel and the independent auditors, the following:
- the plan for, and the independent auditors' report on, each audit of the
Corporation's financial statements;
- the Corporation's financial disclosure documents, including all financial
statements and reports filed with the Securities and Exchange Commission
or sent to shareholders;
- changes in the Corporation's accounting practices, principles, controls
or methodologies;
- significant developments or changes in accounting rules applicable to the
Corporation; and
- the adequacy of the Corporation's internal controls, and financial and
accounting personnel.
The Audit Committee reviewed the Corporation's audited financial statements
for the fiscal year ended June 30, 2001, and discussed these financial
statements with the Corporation's management. Management represented to the
Audit Committee that the Corporation's financial statements had been prepared in
accordance with generally accepted accounting principles. The Audit Committee
also reviewed and discussed the audited financial statements and the matters
required by Statement on Auditing Standards 61 (Codification of Statements on
Auditing Standard, AU 380), with the Corporation's independent auditors. SAS 61
requires the Corporation's independent auditors to discuss with the
Corporation's Audit Committee, among other things, the following:
- methods to account for significant unusual transactions;
- the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or
consensus;
- the process used by management in formulating particularly sensitive
accounting estimates and the basis for the auditors' conclusions
regarding the reasonableness of those estimates; and
- disagreements with management over the application of accounting
principles, the basis for management's accounting estimates and the
disclosures in the financial statements.
The Corporation's independent auditors also provided the Audit Committee
with the written disclosures and the letter required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees).
Independence Standards Board Standard No. 1 requires auditors annually to
disclose in writing all relationships that in the auditor's professional opinion
may reasonably be thought to bear on independence, confirm their perceived
independence and engage in a discussion of independence. In addition, the Audit
Committee discussed with the independent auditors their independence from the
Corporation.
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Based on its discussions with management and the independent auditors, and
its review of the representations and information provided by management and the
independent auditors, the Audit Committee recommended to the Corporation's Board
of Directors that the audited financial statements be included in the
Corporation's Annual Report on Form 10-K for the year ended June 30, 2001.
Management has advised us that for the year ended June 30, 2001, the
Corporation was billed by its independent auditors, PricewaterhouseCoopers LLP
("PwC") for services in the following categories:
AUDIT FEES: PwC billed the Corporation an aggregate of $198,000 in fees
for professional services rendered in connection with the audit of the
Corporation's financial statements for the most recent fiscal year and the
reviews of the financial statements included in each of the Corporation's
Quarterly Reports on Form 10-Q during the last fiscal year.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES: PwC did
not bill the Corporation for any professional services rendered for the most
recent fiscal year in connection with financial information systems design or
implementation, the operation of the Corporation's information system or the
management of its local area network.
ALL OTHER FEES: PwC billed the Corporation an aggregate of $500,000 for
all other services rendered for the most recent fiscal year. All Other Fees
includes fees for the following routine audit and tax services:
Tax advice and tax return assistance..................... $358,000
Due diligence, accounting and tax advice in support of
acquisitions and related offering statements........... $142,000
We have considered and determined that the provision of the non-audit
services noted in the foregoing table is compatible with maintaining PwC's
independence.
BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF MERCURY COMPUTER SYSTEMS,
INC.
Audit Committee for 2001
Gordon B. Baty, Chairman
Albert P. Belle Isle
Russell K. Johnsen
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PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return of the Corporation's Common Stock against the cumulative total return of
the MG Group 810 Diversified Computer Systems Index (consisting of 12 companies)
and the Russell 2000 Index for the period 1/31/98 through 6/30/01. The graph and
table assume that $100 was invested on 1/31/98 in each of the Corporation's
Common Stock, the MG Group 810 Diversified Computer Systems Index, and the
Russell 2000 Index and that all dividends were reinvested. This data was
furnished by Media General Financial Services, Richmond, Virginia.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG MERCURY COMPUTER SYSTEMS, INC.,
PERFORMANCE GRAPH RUSSELL 2000 INDEX AND MG GROUP INDEX
MERCURY COMPUTER
SYSTEMS, INC. MG GROUP INDEX RUSSELL 2000 INDEX
---------------- -------------- ------------------
1/31/98 100.00 100.00 100.00
6/30/98 138.10 108.24 106.61
6/30/99 307.14 230.49 107.19
6/30/00 615.48 274.74 120.96
6/30/01 840.00 184.10 119.89
ASSUMES $100 INVESTED ON JAN. 31, 1998
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JUNE 30, 2001
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EXECUTIVE OFFICERS
NAME AGE POSITION
---- --- --------
James R. Bertelli........................ 61 President, Chief Executive Officer, Director and
Co-founder
G. Mead Wyman............................ 61 Senior Vice President, Chief Financial Officer and
Treasurer
Vincent A. Mancuso....................... 54 Vice President and Director of Government Electronics
Group
Douglas Flood............................ 44 Vice President, Corporate Development
MR. BERTELLI co-founded the Corporation in 1981, and has served as the
Corporation's President, Chief Executive Officer and a Director since that time.
For further information, see "Election of Directors."
MR. WYMAN has been Senior Vice President, Chief Financial Officer and
Treasurer of the Corporation since September 1998. From November 1996 until
September 1998, he served as Vice President, Chief Financial Officer and
Treasurer. Prior to joining Mercury, Mr. Wyman was Chief Financial Officer at
Dataware Technologies, Inc., a software design firm, from 1992 to 1996.
Previously, he was a general partner at Hambrecht and Quist Venture Partners,
and was the first Chief Financial Officer at Lotus Development Corporation. Mr.
Wyman also has held senior financial management positions at Prime Computer Inc.
and Millipore Corporation.
MR. MANCUSO joined the Corporation in January 1997 as Vice President and
Director of Government Electronics Group. Before joining Mercury, Mr. Mancuso
was Director of Federal Sales at Siemens Pyramid Information Systems, Inc. from
1995 to 1996. From 1993 to 1995, he was Vice President of consulting at Federal
Sources, Inc., an information services company. From 1991 to 1992, he was Vice
President and General Manager at Government Technology Services, Inc., Advanced
Systems Division. Mr. Mancuso served nineteen years at Hewlett Packard in
various sales and marketing management positions.
MR. FLOOD has served as Vice President, Corporate Development since 1998.
Prior to joining the Corporation, Mr. Flood was Senior Vice President for
Business Development and Planning at FTP Software, Inc. from 1993 to 1998. Mr.
Flood has also held positions at the law firm of Fish & Richardson, Dun &
Bradstreet Corp., and Raytheon Company.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Corporation's Chief Executive Officer and each of the Corporation's
four other most highly compensated executive officers (the "Named Executive
Officers") for the Corporation's three most recent fiscal years ended June 30:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------ UNDERLYING
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION SARS(#) COMPENSATION
--------------------------- ---- --------- -------- ------------ ---------- ------------
James R. Bertelli,........................... 2001 $352,715 $209,066(1) $18,169(2) 42,381 $21,771(3)
President and CEO 2000 $332,750 $241,620 $ 8,451(2) 30,104 $25,437(4)
1999 $302,500 $136,730 $ 6,000(2) 15,052 $23,537(5)
G. Mead Wyman,............................... 2001 $214,000 $137,435 $14,890(2) 14,000 $16,075(6)
Senior Vice President, 2000 $200,000 $ 92,086 $ 2,398(2) 26,000 $16,795(7)
Treasurer and CFO 1999 $185,000 $ 41,847 -- 5,000 $14,895(8)
Vincent A. Mancuso,.......................... 2001 $178,500 --(1) $16,387(2) 7,000 $17,347(9)
Vice President and 2000 $170,000 $117,975 $ 2,596(2) 18,000 $12,042(10)
Director of Government Electronics Group 1999 $170,000 $125,000 -- 2,000 $ 4,220(11)
Douglas Flood,............................... 2001 $187,250 $104,446 $14,890(2) 10,500 $24,420(12)
Vice President, 2000 $175,000 $ 72,025 $ 2,398(2) 18,000 $ 5,100(13)
Corporate Development 1999 $111,346 $ 45,500 -- 80,000 $ 1,500(14)
Steven Chasen,............................... 2001 $169,964 $120,224 $14,890(2) 20,000 $11,764(15)
Vice President, Special Projects 2000 $175,000 $ 83,376 $ 2,398(2) 18,000 $13,033(16)
1999 $145,000 $ 41,847 -- 2,000 $11,133(17)
---------------
(1) Bonus for fiscal year ended June 30, 2001 has not yet been determined.
(2) Represents automobile allowance and compensation related to automobile
leases provided by the Corporation.
(3) Represents $5,100 matching contribution by the Corporation into Mr.
Bertelli's 401(k) plan for the benefit of Mr. Bertelli, and a premium of
$16,671 paid by the Corporation for a split dollar life insurance policy
for the benefit of Mr. Bertelli.
(4) Represents $5,100 matching contribution by the Corporation into Mr.
Bertelli's 401(k) plan for the benefit of Mr. Bertelli, and a premium of
$20,337 paid by the Corporation for a split dollar life insurance policy
for the benefit of Mr. Bertelli.
(5) Represents $3,200 matching contribution by the Corporation into Mr.
Bertelli's 401(k) plan for the benefit of Mr. Bertelli, and a premium of
$20,337 paid by the Corporation for a split dollar life insurance policy
for the benefit of Mr. Bertelli.
(6) Represents $5,100 matching contribution by the Corporation into Mr. Wyman's
401(k) plan for the benefit of Mr. Wyman, and a premium of $10,975 paid by
the Corporation for a split dollar life insurance policy for the benefit of
Mr. Wyman.
(7) Represents $5,100 matching contribution by the Corporation into Mr. Wyman's
401(k) plan for the benefit of Mr. Wyman, and a premium of $11,695 paid by
the Corporation for a split dollar life insurance policy for the benefit of
Mr. Wyman.
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(8) Represents $3,200 matching contribution by the Corporation into Mr. Wyman's
401(k) plan for the benefit of Mr. Wyman, and a premium of $11,695 paid by
the Corporation for a split dollar life insurance policy for the benefit of
Mr. Wyman.
(9) Represents $5,100 matching contribution by the Corporation into Mr.
Mancuso's 401(k) plan for the benefit of Mr. Mancuso , and a premium of
$12,247 paid by the Corporation for a split dollar life insurance policy
for the benefit of Mr. Mancuso.
(10) Represents $5,100 matching contribution by the Corporation into Mr.
Mancuso's 401(k) plan for the benefit of Mr. Mancuso , and a premium of
$6,942 paid by the Corporation for a split dollar life insurance policy for
the benefit of Mr. Mancuso.
(11) Represents $3,200 matching contribution by the Corporation into Mr.
Mancuso's 401(k) plan for the benefit of Mr. Mancuso, and a premium of
$1,020 paid by the Corporation for a split dollar life insurance policy for
the benefit of Mr. Mancuso.
(12) Represents $5,100 matching contribution by the Corporation into Mr. Flood's
401(k) plan for the benefit of Mr. Flood, and a premium of $19,320 paid by
the Corporation for a split dollar life insurance policy for the benefit of
Mr. Mancuso.
(13) Represents $5,100 matching contribution by the Corporation into Mr. Flood's
401(k) plan for the benefit of Mr. Flood.
(14) Represents $1,500 matching contribution by the Corporation into Mr. Flood's
401(k) plan for the benefit of Mr. Flood.
(15) Represents $4,333 matching contribution by the Corporation into Mr.
Chasen's 401(k) plan for the benefit of Mr. Chasen, and a premium of $7,431
paid by the Corporation for a split dollar life insurance policy for the
benefit of Mr. Chasen.
(16) Represents $5,100 matching contribution by the Corporation into Mr.
Chasen's 401(k) plan for the benefit of Mr. Chasen, and a premium of $7,933
paid by the Corporation for a split dollar life insurance policy for the
benefit of Mr. Chasen.
(17) Represents $3,200 matching contribution by the Corporation into Mr.
Chasen's 401(k) plan for the benefit of Mr. Chasen, and a premium of $7,933
paid by the Corporation for a split dollar life insurance policy for the
benefit of Mr. Chasen.
STOCK OPTION AND STOCK PURCHASE PLANS
The Corporation had in effect its 1998 Stock Option Plan for Non-Employee
Directors (the "1998 Plan"), which was terminated in August 2001, no options
having been granted under such Plan in 2001; however, certain persons continue
to hold options to purchase shares of common stock granted under the 1998 Plan.
Additionally, the Corporation has in effect its 1997 Employee Stock Purchase
Plan, 1997 Stock Option Plan, 1993 Stock Option Plan for Non-Employee Directors,
1991 Stock Option Plan, and 1982 Stock Option Plan (together with the 1998 Plan,
collectively the "Stock Option and Purchase Plans"). The Corporation is no
longer permitted to grant options under its 1982 Stock Option Plan, its 1993
Stock Option Plan for Non-Employee Directors, or its 1998 Stock Option Plan for
Non-Employee Directors; however, certain persons continue to hold options to
purchase shares of common stock granted under such plans. The Compensation
Committee of the Board of Directors is responsible for the administration and
interpretation of the Stock Option and Purchase Plans. Copies of the Stock
Option and Purchase Plans are available from the Clerk of the Corporation upon
request.
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OPTION GRANTS, EXERCISES AND HOLDINGS
Option Grants. The following table sets forth certain information
regarding options granted to the Named Executive Officers during the year ended
June 30, 2001. The Corporation did not issue any stock appreciation rights
("SARs") during the three most recent fiscal years ended June 30, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTION PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTION EMPLOYEES IN PRICE ----------------------
NAME GRANTED(#) FISCAL YEAR (%) ($/SHARE) DATE 5% ($) 10% ($)
---- ----------- ---------------- --------- -------- -------- ----------
James R. Bertelli (2)..... 32,381 3.7% $27.500 9/18/00 $560,017 $1,419,192
James R. Bertelli (3)..... 10,000 1.1% $26.750 9/20/00 168,229 426,326
G. Mead Wyman (4)......... 14,000 1.6% $30.063 10/10/00 264,690 670,778
Vincent A. Mancuso (5).... 7,000 0.8% $30.063 10/10/00 132,345 335,389
Douglas Flood (6)......... 10,500 1.2% $30.063 10/10/00 198,518 503,083
Steven Chasen (7)......... 20,000 2.3% $30.063 10/10/00 378,129 958,254
---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the gains or "option spreads" that would exist for
the respective options granted. These gains are based on the assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
option was granted over the full option term. These assumed annual compound
rates of stock price appreciation are mandated by the rules of the
Commission and do not represent the Corporation's estimate or projection of
future Common Stock prices.
(2) Options vest in increments of 8,095 shares on September 18 in each of 2001,
2002, 2003 and 2004 so long as Mr. Bertelli's employment with the
Corporation has not been terminated.
(3) At June 30, 2001, 10,000 shares were exercisable.
(4) No shares were exercisable at June 30, 2001. Options vest as to 14,000
shares in increments of 3,500 shares on October 10 in each of 2001, 2002,
2003 and 2004 so long as Mr. Wyman's employment with the Corporation has not
been terminated.
(5) No shares were exercisable at June 30, 2001. Options vest as to 7,000 shares
in increments of 1,750 shares on October 10 in each of 2001, 2002, 2003 and
2004 so long as Mr. Mancuso's employment with the Corporation has not been
terminated.
(6) No shares were exercisable at June 30, 2001. Options vest as to 10,500
shares in increments of 2,625 shares on October 10 in each of 2001, 2002,
2003 and 2004 so long as Mr. Flood's employment with the Corporation has not
been terminated.
(7) No shares were exercisable at June 30, 2001. Options vest as to 20,000
shares in increments of 5,000 shares on October 10 in each of 2001, 2002,
2003 and 2004 so long as Mr. Chasen's employment with the Corporation has
not been terminated.
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AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND 6/30/01 OPTION VALUES
The following table provides information on option exercises and on the
value of the Named Executive Officers' unexercised options at June 30, 2001.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END ($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- --------------- ----------- ------------- ----------- -------------
James R. Bertelli...... 0 $ 0 84,478 80,259 $3,555,500 $2,659,362
G. Mead Wyman.......... 0 0 52,500 85,500 2,331,903 3,216,577
Vincent A. Mancuso..... 0 0 25,300 32,900 1,100,779 1,063,396
Douglas Flood.......... 12,500 479,350 0 80,000 0 2,844,925
Steven Chasen.......... 14,902 377,318 2,498 48,640 65,103 1,427,977
---------------
(1) Value of unexercised in-the-money stock options represents the difference
between the exercise prices of the stock options and the closing price of
the Corporation's Common Stock on The Nasdaq National Market on June 30,
2001.
(2) Value realized on exercise represents the difference between the exercise
prices of stock options exercised and the trading price of the Corporation's
Common Stock on The Nasdaq National Market on the date of such exercise.
OTHER MATTERS
Independent Public Accountants. The Board of Directors has appointed
PricewaterhouseCoopers LLP as independent auditors to examine the consolidated
financial statements of the Corporation and its subsidiaries for the fiscal year
ended June 30, 2002. A representative of PricewaterhouseCoopers LLP is expected
to be present at the Meeting and will have the opportunity to make a statement
if he or she so desires and to respond to appropriate questions. The engagement
of PricewaterhouseCoopers LLP was approved by the Board of Directors at the
recommendation of the Audit Committee of the Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 requires the Corporation's officers and
Directors and persons beneficially owning more than 10% of the outstanding
Common Stock of the Corporation to file reports of beneficial ownership and
changes in beneficial ownership with the Securities and Exchange Commission
("SEC"). Officers, Directors, and greater than 10% beneficial owners of Common
Stock are required by SEC regulation to furnish the Corporation with copies of
all Section 16(a) forms they file.
Based solely on copies of such forms furnished as provided above, or
written representations that no Forms 5 were required, the Corporation believes
that during the fiscal year ended June 30, 2000, all Section 16(a) filing
requirements applicable to its officers, Directors, and beneficial owners of
greater than 10% of its Common Stock were complied with, except that (i) through
inadvertence, two reports relating in the aggregate to five transactions by
Gordon Baty were not timely filed; (ii) through inadvertence, two reports
relating in the aggregate to five transactions by Steve Chasen were not timely
filed; (ii) through inadvertence, a Form 3 by James Dwyer was not timely filed;
(iv) through inadvertence, a Form 3 by Russell Johnsen was not timely filed; (v)
through inadvertence, six reports relating in the aggregate to ten transactions
by Vincent Mancuso were not timely filed; (vi) through inadvertence, six reports
relating in the aggregate to seven transactions by Sherman Mullin were not
timely filed; (vii) through inadvertence, a Form 3 by Michael Schneider was not
timely filed; and (viii) through inadvertence, nine reports relating in the
aggregate to eighteen transactions by G. Mead Wyman were not timely filed.
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Deadlines for Submission of Stockholder Proposals. Under regulations
adopted by the Securities and Exchange Commission, any proposal submitted for
inclusion in the Corporation's Proxy Statement relating to the Annual Meeting of
Stockholders to be held in 2002 must be received at the Corporation's principal
executive offices in Chelmsford, Massachusetts on or before June 25, 2002.
Receipt by the Corporation of any such proposal from a qualified stockholder in
a timely manner will not ensure its inclusion in the proxy material because
there are other requirements in the proxy rules for such inclusion. Stockholders
interested in submitting such a proposal are advised to contact knowledgeable
counsel with regards to the detailed requirements of such securities rules. In
accordance with the provisions of Rule 14a-4(c) promulgated under the Securities
Exchange Act of 1934, if the Corporation does not receive notice of a
stockholder proposal to be raised at its 2002 Annual Meeting of Stockholders on
or before June 25, 2002, then in such event, the proxies shall be allowed to use
their discretionary voting authority when the proposal is raised at the 2002
Annual Meeting of Stockholders.
In addition to the Securities and Exchange Commission requirements
regarding stockholder proposals, the Corporation's By-Laws contain provisions
regarding matters to be brought before stockholder meetings. If stockholder
proposals, including proposals regarding the election of Director, are to be
considered at the 2002 Annual Meeting of Stockholders, notice of them whether or
not they are included in the Corporation's proxy statement and form of proxy,
must be given by personal delivery or by United States mail, postage prepaid, to
the Clerk of the Corporation on or before August 6, 2002.
Other Matters. Management knows of no matters which may properly be and
are likely to be brought before the meeting other than the matters discussed
herein. However, if any other matters properly come before the meeting, the
persons named in the enclosed proxy will vote in accordance with their best
judgment.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation, and
in addition to soliciting stockholders by mail through its regular employees,
the Corporation may request banks, brokers, and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Corporation
registered in the names of a nominee, and, if so, will reimburse such banks,
brokers and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket costs. Solicitation by officers and employees of the Corporation
may also be made of some stockholders in person or by mail, telephone or
telegraph following the original solicitation. The Corporation may retain a
proxy solicitation firm to aid in soliciting proxies from its stockholders. The
fees of such firm are not expected to exceed $10,000 plus reimbursement for
out-of-pocket expenses.
10-K REPORT
THE CORPORATION WILL PROVIDE EACH BENEFICIAL OWNER OF ITS SECURITIES WITH A COPY
OF AN ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE CORPORATION'S MOST RECENT FISCAL YEAR, WITHOUT CHARGE, UPON
RECEIPT OF A WRITTEN REQUEST FROM SUCH PERSON. SUCH REQUEST SHOULD BE SENT TO
MR. G. MEAD WYMAN, CHIEF FINANCIAL OFFICER, MERCURY COMPUTER SYSTEMS, INC., 199
RIVERNECK ROAD, CHELMSFORD, MASSACHUSETTS 01824.
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VOTING PROXIES
The Board of Directors recommends an affirmative vote on all proposals
specified. Proxies will be voted as specified. If signed proxies are returned
without specifying an affirmative or negative vote on any proposal, the shares
represented by such proxies will be voted in favor of the Board of Directors'
recommendations.
By order of the Board of Directors
/s/ Anthony J. Medaglia, Jr.
ANTHONY J. MEDAGLIA, JR., Clerk
Chelmsford, Massachusetts
October 5, 2001
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APPENDIX A
AUDIT COMMITTEE CHARTER
MERCURY COMPUTERS SYSTEMS, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The primary purpose of the Audit Committee (the "Committee") is to assist
the Board of Directors (the "Board") in fulfilling its responsibility to oversee
management's conduct of the Company's financial reporting process, including by
overviewing the financial reports and other financial information provided by
the Company's systems of internal accounting and financial controls, and the
annual independent audit of the Company's financial statements.
In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company and the power to retain outside
counsel, auditors or other experts for this purpose. The Board and the Committee
are in place to represent the Company's shareholders; accordingly, the outside
auditor is ultimately accountable to the Board and the Committee.
The Committee shall review the adequacy of this Charter on an annual basis.
MEMBERSHIP
The Committee shall be comprised of not less than three members of the
Board, and the Committee's composition will meet the requirements of the Audit
Committee Policy of the NASD.
Accordingly, all of the members will be directors:
1. Who have no relationship to the Company that may interfere with
the exercise of their independence from management and the Company; and
2. Who are financially literate or who become financially literate
within a reasonable period of time after appointment to the Committee. In
addition, at least one member of the Committee will have accounting or
related financial management expertise.
KEY RESPONSIBILITIES
The Committee's job is one of oversight and it recognizes that the
Company's management is responsible for preparing the Company's financial
statements and that the outside auditors are responsible for auditing those
financial statements. Additionally, the Committee recognizes that financial
management, as well as the outside auditors, have more time, knowledge and more
detailed information on the Company than do Committee members; consequently, in
carrying out its oversight responsibilities, the Committee is not providing any
expert or special assurance as to the Company's financial statements or any
professional certification as to the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide with the understanding that the Committee may diverge from this guide
as appropriate given the circumstances.
- The Committee shall review with management and the outside auditors the
audited financial statements to be included in the Company's Annual
Report on Form 10-K (or the Annual Report to Shareholders if distributed
prior to the filing of Form 10-K) and review and consider with the
outside
A-1
31
auditors the matters required to be discussed by Statement of Auditing
Standards ("SAS") No. 61, to assist the Committee in fulfilling its
oversight responsibilities.
- As a whole, or through the Committee chair, the Committee shall review
with the outside auditors the matters (if any) required to be discussed
by SAS No. 61 in connection with the interim financial reviews conducted
by the outside auditors to assist the Committee in fulfilling its
oversight responsibilities; this review will occur prior to the Company's
filing of the Form 10-Q.
- The Committee shall discuss with management and the outside auditors the
quality and adequacy of the Company's internal controls, accounting
policies and estimates.
- The Committee shall:
- request from the outside auditors annually, a formal written statement
delineating all relationships between the auditor and the Company
consistent with Independence Standards Board Standard Number 1;
- discuss with the outside auditors any such disclosed relationships and
their impact on the outside auditor's independence; and
- recommend that the Board take appropriate action to oversee the
independence of the outside auditor.
- The Committee, subject to any action that may be taken by the full Board,
shall have the ultimate authority and responsibility to select (or
nominate for shareholder approval), evaluate and, where appropriate,
replace the outside auditor.
- The Committee will prepare the report required by the rules of the
Securities and Exchange Commission to be included in the Company's annual
proxy statement, commencing with the proxy statement for the 2001 Annual
Meeting.
- Based on the criteria set forth in Item 306(a) of Regulation S-K and, if
so determined by the Committee, recommend to the Board of Directors that
the audited financial statements for each fiscal year be included in the
Company's Annual Report on Form 10-K in respect of such year.
- The Committee will perform such other functions as may be required by
law, the Company's Certificate of Incorporation or its By-Laws.
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32
MERCURY COMPUTER SYSTEMS, INC.
SPECIAL MEETING IN LIEU OF
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 15, 2001
The undersigned hereby appoints James R. Bertelli and Anthony J. Medaglia, Jr.,
and each of them, with full power of substitution, proxies to represent the
undersigned at the Special Meeting in Lieu of the 2001 Annual Meeting of
Stockholders of Mercury Computer Systems, Inc. to be held on November 15, 2001
at 10:00 a.m. at the Boston Museum of Science, Science Park, Boston,
Massachusetts, and at any adjournment or adjournments thereof, to vote in the
name and place of the undersigned, with all powers which the undersigned would
possess if personally present, upon such business as may properly come before
the meeting including the proposals as set forth on the reverse side of this
Proxy Card.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE BOARD
RECOMMENDS AN AFFIRMATIVE VOTE ON ALL PROPOSALS SPECIFIED. SHARES WILL BE VOTED
AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED WILL BE VOTED
IN FAVOR OF THE PROPOSALS.
PLEASE VOTE, DATE, AND SIGN THIS PROXY IN THE SPACE PROVIDED AND RETURN IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON.
Please sign exactly as your name(s) appear(s) on the Proxy. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
33
{Top half of Proxy Card}
(X) PLEASE MARK VOTES AS IN THIS EXAMPLE.
MERCURY COMPUTER SYSTEMS, INC.
Mark box at right if you plan to attend the Meeting. ( )
Mark box at right if an address change or comment has ( )
been noted on the reverse side of this card.
RECORD DATE SHARES: _____________
1. Election of Directors:
FOR WITHHELD
Dr. Albert P. Belle Isle ( ) ( )
FOR WITHHELD
Mr. James A. Dwyer ( ) ( )
FOR WITHHELD
Mr. Melvin Sallen ( ) ( )
2. Authorization to amend the Mercury Computer Systems, Inc. 1997 Stock Option
Plan to increase the number of shares of Common Stock reserved for issuance
thereunder by 1,000,000 shares, from 4,650,000 shares to 5,650,000 shares.
FOR AGAINST ABSTAIN
( ) ( ) ( )
3. Authorization to amend the Mercury Computer Systems, Inc. 1997 Stock Option
Plan to increase automatically on an annual basis the number of shares of
Common Stock reserved for issuance thereunder,as more fully described in
the Proxy Statement.
FOR AGAINST ABSTAIN
( ) ( ) ( )
4. Approval of the amendment to the Mercury Computer Systems, Inc. Articles of
Organization increasing the number of authorized shares of Common Stock
from 40,000,000 shares to 65,000,000 shares.
FOR AGAINST ABSTAIN
( ) ( ) ( )
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE BE SURE TO DATE AND SIGN THIS PROXY.
DATE: __________________________________
SHAREHOLDER SIGN HERE: __________________________________
CO-OWNER SIGN HERE: __________________________________
DETACH CARD DETACH CARD DETACH CARD
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{Bottom half of Proxy Card}
MERCURY COMPUTER SYSTEMS, INC.
Dear Stockholder:
Please take note of the important information enclosed with this Proxy Card.
There are a number of issues related to the management of your company that
require your immediate attention and approval. These are discussed in detail in
the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this Proxy Card to indicate how your shares will be
voted. Then sign the card, detach it, and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Special Meeting of Stockholders on
November 15, 2001.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Mercury Computer Systems, Inc.
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