<PAGE>
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
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
EIP MICROWAVE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was 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:
------------------------------------------------------------------------
<PAGE>
EIP MICROWAVE, INC.
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 5, 1997
------------------------
To the Stockholders of EIP MICROWAVE, INC.
The Annual Meeting of Stockholders of EIP MICROWAVE, INC. (the "Company")
will be held at One Big Canyon Drive, Newport Beach, CA 92660, on February 5,
1997, at 10:00 a.m., Pacific Standard Time for the following purposes:
1. To elect two directors to Class I of the Company's Board of
Directors to serve until the 2000 Annual Meeting of Stockholders.
2. To approve the Company's Second Amended and Restated 1994 Stock
Option Plan authorizing the grant of options for an additional 100,000
shares (to a maximum of 200,000 shares) of the Company's stock to officers,
directors and non-employee consultants (excluding John F. Bishop).
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on December 20, 1996,
as the record date for the determination of the stockholders entitled to notice
of and to vote at the Annual Meeting of Stockholders and any adjournment
thereof.
By Order of the Board of Directors
J. F. Bishop
SECRETARY
Newport Beach, California
January 9, 1997
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN
AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE POSTAGE PREPAID RETURN ENVELOPE
PROVIDED FOR THAT PURPOSE. IF YOU RECEIVE MORE THAN ONE PROXY BECAUSE YOU OWN
SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE
COMPLETED AND RETURNED. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY
AND VOTE IN PERSON IF YOU WISH.
<PAGE>
EIP MICROWAVE, INC.
3 CIVIC PLAZA
SUITE 265
NEWPORT BEACH, CALIFORNIA 92660
------------------------
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 5, 1997
------------------------
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of EIP MICROWAVE, INC. (the "Company") to be
voted at its Annual Meeting of Stockholders to be held on February 5, 1997, and
at any adjournment thereof (the "Annual Meeting"). The Annual Meeting is to be
held at 10:00 a.m., Pacific Standard Time, at One Big Canyon Drive, Newport
Beach, California 92660. The approximate date on which this Proxy Statement and
the enclosed form of proxy are first being sent or given to stockholders is
January 9, 1997.
The Board of Directors of the Company (the "Board of Directors" or the
"Board") has fixed the close of business on December 20, 1996, as the record
date for the determination of stockholders entitled to receive notice of, and to
vote at, the Annual Meeting (the "Record Date"). The only outstanding class of
stock of the Company is its Common Stock, par value $.01 per share ("Common
Stock"), and, at the Record Date, 424,907 shares were issued and outstanding.
Each share of Common Stock entitles the record holder on the Record Date to one
vote on all matters.
As a Delaware corporation doing business in California, the Company is
subject to certain provisions of the California General Corporation Law (the
"California Law") if certain property, payroll, and sales factors are met and
more than 50% of the Common Stock is held of record by persons having addresses
in California (excluding shares held by broker-dealers, banks or other
nominees). The Company believes that it meets the statutory test for
applicability of certain provisions of California Law to the Company. One of
these provisions, Section 708 entitles a stockholder to cumulate his or her
votes at an election of directors. Accordingly, with respect to the election of
directors only (Proposal 1), if one or more stockholders give notice at the
Annual Meeting before the voting of their intention to cumulate their votes, all
stockholders entitled to vote shall have the right to so cumulate their votes
and to give one candidate, who has been nominated prior to the voting, a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which his or her shares are entitled, or to distribute such votes
among two or more such candidates on the same principle in such proportions as
each stockholder may determine. If such vote is not conducted by cumulative
voting, stockholders may vote in favor of all nominees, withhold their votes as
to all nominees, or vote in favor of specific nominees and withhold their votes
as to other nominees.
The Bylaws of the Company set forth certain procedures relating to the
nomination of directors (the "Nomination Bylaw") and no person shall be eligible
for election as a director unless nominated in accordance with the provisions of
the Nomination Bylaw.
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Nominations of persons for election to the Board of Directors may be made by
(i) the Board of Directors or a proxy committee appointed by the Board of
Directors or (ii) any stockholder entitled to vote in the election of directors
at the meeting and who complies with the notice procedures set forth in the
Nomination Bylaw.
Nominations by stockholders shall be made pursuant to timely notice in
proper written form to the Secretary of the Company. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not fewer than 90 days prior to the
meeting; provided, however, that in the event that less than 100 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received no
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
To be in proper written form, such stockholder's notice shall set forth (i) the
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated, (ii) a representation that the
stockholder is a holder of record of stock of the Company entitled to vote for
the election of directors on the date of such notice and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice, (iii) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder, (iv) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated or intended to be nominated, by the
Board of Directors, and (v) the consent of each nominee to serve as a director
of the Company if so elected. In the event that a person is validly designated
as a nominee in accordance with the Nomination Bylaw and shall thereafter become
unable or unwilling to stand for election to the Board of Directors, the Board
of Directors or the stockholder who proposed such nominee, as the case may be,
may designate a substitute nominee upon delivery, not fewer than 5 days prior to
the date of the meeting for the election of such nominee of a written notice to
the Secretary setting forth such information regarding such substitute nominee
as would have been required to be delivered to the Secretary pursuant to the
Nomination Bylaw had such substitute nominee been initially proposed as a
nominee. Such notice shall include a signed consent to serve as a director of
the Company, if elected, of each such substitute nominee. If the chairman of the
meeting for the election of directors determines that a nomination of any
candidate for election as a director at such meeting was not made in accordance
with the applicable provisions of the Nomination Bylaw, such nomination shall be
void.
A proxy may be revoked at any time prior to its exercise by filing with the
Secretary of the Company, J. F. Bishop, at the above address, a written
revocation of such proxy or a duly executed proxy bearing a later date or by the
stockholder attending the Annual Meeting and voting in person. Unless revoked,
the proxy will be voted as specified. If no instruction is specified on your
proxy with respect to any proposal to be acted upon, the shares represented by
your executed proxy will be voted "FOR" election of the Board of Directors'
nominees for directors to Class I of the Company's Board of Directors, and "FOR"
approval of the Company's Second Amended and Restated 1994 Stock Option Plan.
A majority of the outstanding shares of Common Stock entitled to vote must
be present in person or represented by proxy at the Annual Meeting in order to
constitute a quorum for the transaction of business. Abstentions and non-votes
will be counted for purposes of determining the existence of a
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<PAGE>
quorum at the Annual Meeting. The candidates for election as director will be
elected by the affirmative vote of a plurality of the shares of Common Stock
present in person or represented by proxy, entitled to vote and actually voting
at the Annual Meeting. The affirmative vote of a majority of the shares of
Common Stock present in person or represented by proxy, entitled to vote and
actually voting on each other proposal is required for the adoption or
ratification of such proposal. Abstentions will be counted as votes against any
of the proposals as to which a stockholder abstains, but non-votes will have no
effect on the voting with respect to any proposal as to which there is a
non-vote. A non-vote may occur when a nominee holding shares of Common Stock for
a beneficial owner does not vote on a proposal because such nominee does not
have discretionary voting power and has not received instructions from the
beneficial owner.
The cost of solicitation of the Company's proxies is to be borne by the
Company. In addition to the solicitation of proxies by mail, solicitation may be
made by telephone, facsimile or personal contact on behalf of the Company by
directors, officers and other regular employees of the Company, without extra
compensation. Brokerage houses, nominees, fiduciaries and other custodians will
be requested to either (1) forward soliciting materials to the beneficial owners
of shares, in which case they will be reimbursed for their expenses, or (2)
provide the Company with an appropriate list of names, addresses and holdings of
the beneficial owners of shares and appropriate authorization, in which case the
Company will forward soliciting materials directly to the beneficial owners.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date, certain information as
to the Common Stock of the Company beneficially owned, directly or indirectly,
by each person who is known to the Company to beneficially own more than 5% of
the outstanding Common Stock, by each director, by each nominee for director, by
each executive officer named in the Summary Compensation Table, and by all
executive officers and directors of the Company as a group. The persons named
hold sole voting and investment power with respect to the shares shown opposite
their respective names, unless otherwise indicated. (Note -- "Direct" means
Common Stock held individually, or held in joint tenancy or as community
property with spouse. "Indirect" means Common Stock held by spouse as
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separate property, or held of record by the stockholder for the benefit of
another person, or held of record by the stockholder as trustee of a trust.)
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------------------------------------- ------------------------ -----------
<S> <C> <C> <C>
CEDE & Company..................................................... 186,267 Indirect(1) 43.84%
Depository Trust Company
7 Hanover Square
New York, New York 10004
John F. Bishop (2)................................................. 128,927 Indirect(3) 30.34%
J. Bradford Bishop (2)............................................. 62,473 Indirect(4) 15.69%
5,000 Direct(6)
J. Sidney Webb (2)................................................. 800 Indirect(5) 2.86%
11,667 Direct(6)
Robert D. Johnson (2).............................................. 200 Indirect(7) 2.72%
11,667 Direct(6)
Michael E. Johnson (2)............................................. 3,333 Direct(6) *
Ivan Andres (2).................................................... 2,100 Direct(6) *
John J. Ardizzone, Jr. (2)......................................... 0 -- *
All Executive Officers and Directors as a Group (7 persons) (8).... 226,165 -- 49.31%
</TABLE>
- ------------------------
* Less than 1% of the class
(1) CEDE & Company is a nominee of the Depository Trust Company, which is a
wholly owned subsidiary of the New York Stock Exchange, Inc. CEDE disclaims
any beneficial interest in shares of the Company's Common Stock held in its
name.
(2) The mailing address for such individual is in care of EIP Microwave, Inc.,
1745 McCandless Drive, Milpitas, CA 95035.
(3) Consists of (i) 118,260 shares held by J.F. Bishop and his spouse as
trustees of the Bishop Family Trust, and (ii) 10,667 shares held by J.F.
Bishop as trustee for the benefit of certain of his children.
(4) Consists of (i) 22,473 shares held by J.B. Bishop and his spouse as trustees
of a revocable trust, and (ii) 40,000 shares held by J.B. Bishop and his
spouse as trustees of the Bishop 1993 Children's Trust.
(5) Held by J.S. Webb as trustee of the Webb Family Trust.
(6) Consists of shares for which the named individual has the right to acquire
beneficial ownership within 60 days after the Record Date by exercise of
options granted under the Company's Amended and Restated 1994 Stock Option
Plan.
(7) Held by R.D. Johnson and his spouse as trustees of the Robert D. Johnson and
Dorothy A. Johnson Trust.
(8) Total includes the shares indirectly held by Messrs. J.F. Bishop, J.B.
Bishop, J.S. Webb and R.D. Johnson as trustees, as noted above.
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MATTERS TO BE ACTED UPON AT MEETING
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
The Company's Certificate of Incorporation in the State of Delaware provides
for a classified Board of Directors. The Board is divided into three classes
designated Class I, Class II, and Class III; each Class consists of two
directors. The term of office of each director included in Class I expires at
this Annual Meeting. The directors whose term will expire at the Annual Meeting
are Mr. John F. Bishop and Mr. J. Bradford Bishop.
Mr. John F. Bishop and Mr. J. Bradford Bishop have been nominated by the
Board of Directors for election as Class I Directors to hold office until the
Annual Meeting of Stockholders in 2000, until successors are duly elected and
qualified or until their earlier resignation, removal from office or death. The
term of office for the directors in Class II will continue until the Annual
Meeting of Stockholders in 1999, and the term of office for the director in
Class III will continue until the Annual Meeting of Stockholders in 1998.
Election of the nominees will require the affirmative vote of a plurality of
the shares of Common Stock present in person or represented by proxy and
entitled to vote on the election of directors. Unless otherwise indicated, the
proxies solicited by the Company will be voted for the election of the Class I
director nominees listed below, each of whom has indicated to the Company his
availability for election and presently is a director. If for any reason the
nominee is unavailable as a candidate for director, an event which is not
anticipated, the persons named in the accompanying proxy may vote for another
candidate nominated by the Board of Directors.
INFORMATION WITH RESPECT TO THE CLASS I DIRECTOR NOMINEES
The following table sets forth information regarding the nominees, including
age, present position with the Company, period served as a director, and other
business experience during the past five years, and any other public company for
which the nominee is a director.
<TABLE>
<S> <C>
J. BRADFORD BISHOP (1) Chairman of the Board and Chief Executive Officer of the
Age 45 Company. President of Continental Paper Recycling, and
Director since 1978 former Chief Executive Officer, Carson Energy Group, a
power plant development company.
JOHN F. BISHOP (1) Vice Chairman of the Board, Treasurer and Secretary of the
Age 73 Company; former Chairman of the Board, President, and
Director since 1961 Treasurer of Cushman Electronics, Inc., a manufacturer of
test instruments for telephone communication systems.
</TABLE>
5
<PAGE>
INFORMATION WITH RESPECT TO OTHER DIRECTORS
The following table sets forth similar information regarding the other
members of the Board of Directors.
CLASS II -- TERM EXPIRING AT THE 1999 ANNUAL MEETING
<TABLE>
<S> <C>
MICHAEL E. JOHNSON President, Bainbridge Group, a Law Corporation. Former
Age 36 counsel, Jones, Day, Reavis & Pogue, a law firm.
Director since 1996
J. SIDNEY WEBB, JR. (2)(3)(4) Chairman of the Board, The Titan Corporation, manufacturer
Age 77 of defense and industrial products and systems; Director,
Director since 1981 Amdahl Corporation, large mainframe computer and
communications equipment manufacturer; Director,
Plantronics, Inc., supplier of communication headset
products and services to users and providers worldwide.
</TABLE>
CLASS III -- TERM EXPIRING AT THE 1998 ANNUAL MEETING
<TABLE>
<S> <C>
ROBERT D. JOHNSON (2)(3)(4) Former Vice Chairman and Director, Cushman Electronics,
Age 73 Inc., and former Director, EIP/Cushman, Inc.
Director since 1978
</TABLE>
- ------------------------
(1) J. Bradford Bishop is the son of John F. Bishop.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
(4) Member of Stock Option Committee.
MEETINGS OF THE BOARD AND ITS COMMITTEES
The Company's Board of Directors held four meetings during its fiscal year
ended September 30, 1996 (the "Fiscal Year"). Each incumbent Director attended
at least 75% of the aggregate of all meetings of the Board of Directors and of
the committees of which he was a member during the Fiscal Year. The Audit
Committee of the Board is comprised of Messrs. R. D Johnson and Webb and met two
times during the Fiscal Year. The Audit Committee is responsible for reviewing
plans and activities of outside auditors, reviewing financial reporting,
conducting internal financial reviews and evaluating the business ethics of the
Company and its officers and directors. The Compensation Committee of the Board
is comprised of Messrs. Webb and R. D. Johnson and acted by written consent one
time during the Fiscal Year. The Compensation Committee is responsible for
reviewing and approving the compensation and benefits paid to officers of the
Company. The Stock Option Committee of the Board is comprised of Messrs. Webb
and R. D. Johnson and met one time during the Fiscal Year. The Stock Option
Committee is responsible for administering the Company's Amended and Restated
1994 Stock Option Plan. The Company's Board of Directors has no nominating
committee.
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INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS
The following table sets forth information regarding the executive officers
of the Company, whose terms of office expire upon the election of a successor at
the organizational meeting of the Board of Directors following the Annual
Meeting.
<TABLE>
<CAPTION>
OFFICE AND PRIOR OFFICE OR YEAR APPOINTED TO
NAME AGE EMPLOYMENT DURING LAST FIVE YEARS PRESENT POSITION
- -------------------------- --- ---------------------------------------------------- --------------------------
<S> <C> <C> <C>
J. Bradford Bishop 45 Chairman of the Board and Chief Executive Officer. 1994
Mr. Bishop previously served as President of the
Company from 1990 to 1992.
John F. Bishop 73 Vice Chairman of the Board, Treasurer and Secretary. 1994 (Vice Chairman)
1990 (Secretary)
1985 (Treasurer)
Lewis R. Foster 58 President and Chief Operating Officer. From 1987 1996
until joining the Company in October 1996, Mr.
Foster served as co-founder and President of
Sailpower Systems, Inc., a manufacturer of
proprietary products for the international marine
market. From 1987 until 1994, Mr. Foster also served
as a Vice President of de Recat & Associates, Inc.,
a career management consulting firm. Prior to these
assignments, he served ten years as President of EIP
Microwave from 1976 until 1986. Mr. Foster continues
as President of Sailpower Systems, but with reduced
day-to-day involvement in that business.
Ivan N. Andres 48 Vice President, Marketing and Sales. From 1992 until 1994
joining the Company in August 1994, Mr. Andres
served as Director of Marketing of On-Demand
Environmental Systems, an air pollution control
company. From 1991 until 1992, Mr. Andres worked as
an independent consultant. Prior to 1991, Mr. Andres
served as Director of Marketing of Acurrel, a
microwave instrumentation company.
</TABLE>
7
<PAGE>
PROPOSAL 2
APPROVAL OF SECOND AMENDED AND RESTATED 1994 STOCK OPTION PLAN
BACKGROUND
The EIP Microwave, Inc. Amended and Restated 1994 Stock Option Plan (the
"First Amended Plan"), as currently in effect, authorizes the grant of options
to purchase 100,000 shares of Common Stock to directors, officers, other key
employees and non-employee consultants of the Company (excluding John F.
Bishop). The 100,000 shares of Common Stock authorized to be issued under the
First Amended Plan have been registered on a Form S-8 Registration Statement
filed with the Securities and Exchange Commission. As of the Record Date, under
the First Amended Plan, options to purchase 92,000 shares of Common Stock are
outstanding or have been exercised, and options to purchase 8,000 options are
available to be granted.
The Board of Directors believes that the Company's objective of attracting,
retaining and motivating directors, officers, other key employees and
consultants of the Company will be facilitated by increasing the number of
shares of Common Stock subject to the First Amended Plan to 200,000.
PROPOSED SECOND AMENDED AND RESTATED 1994 STOCK OPTION PLAN
In view of the foregoing, the Board of Directors has adopted, subject to
stockholder approval, a Second Amended and Restated 1994 Stock Option Plan (the
"Second Amended Plan") which authorizes the grant of options for an additional
100,000 shares (to a maximum of 200,000 shares) of Common Stock to officers,
directors and non-employee consultants (excluding John F. Bishop). The Board
intends to cause the additional 100,000 shares of Common Stock authorized for
issuance under the Second Amended Plan to be registered on a Form S-8
Registration Statement to be filed with the Securities and Exchange Commission
at the Company's expense.
Subject to stockholder approval of the Second Amended Plan, the Stock Option
Committee has granted to Lewis R. Foster, President and Chief Operating Officer
of the Company, options to purchase 40,000 shares of Common Stock. The exercise
price for such options is $4.75 per share. These options will become exercisable
with respect to 25% of such shares on October 16, of 1997, 1998, 1999 and 2000,
provided that Mr. Foster remains an employee of the Company.
Assuming the Second Amended Plan is approved by stockholders, as of the
Record Date, options to purchase 132,000 shares of Common Stock will be
outstanding or will have been exercised, and options to purchase 68,000 shares
of Common Stock will be available to be granted. Accordingly, in addition to the
compensation-related aspect of the Second Amended Plan, it has a potentially
dilutive effect.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE SECOND AMENDED PLAN. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE
SHARES OF COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY, ENTITLED TO
VOTE AND ACTUALLY VOTING FOR THE PROPOSAL IS REQUIRED FOR APPROVAL OF THIS
PROPOSAL.
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SUMMARY OF THE AMENDED PLAN
Set forth below is a summary of the Second Amended Plan.
SHARES SUBJECT TO THE AMENDED PLAN
Options may be granted covering a maximum of 200,000 shares of Common Stock.
Shares covered by options which terminate without exercise are available for
reissuance. The Second Amended Plan provides for appropriate adjustments in the
number of shares for which options may be granted and which are subject to
options previously granted in the event of a stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination, exchange of shares
or any similar change affecting the stock.
ELIGIBLE PERSONS
All members of the Board of Directors, officers, other key employees and
non-employee consultants of the Company or any of its subsidiaries (excluding
John F. Bishop) shall be eligible to receive nonstatutory stock options. All
officers (including officers who are members of the Board of Directors) and
other key employees of the Company or any of its subsidiaries (excluding John F.
Bishop) shall be eligible to receive incentive stock options. As of the Record
Date, approximately twelve directors, officers, key employees and non-employee
consultants of the Company were eligible to participate in the Second Amended
Plan.
OPTION PRICE
The price per share at which an incentive stock option may be exercised
shall be at least equal to the fair market value per share at the time the
incentive stock option is granted; provided, however, that an officer or key
employee who beneficially owns more than 10% of the Common Stock may only be
granted an incentive stock option if the option price is at least 110% of the
fair market value of the Common Stock at the date of grant. The price per share
at which a nonstatutory stock option may be exercised shall be at least equal to
85% of the fair market value per share at the time the nonstatutory option is
granted. For these purposes, fair market value shall mean (i) if the Common
Stock is traded on an exchange, the price at which a share traded at the close
of business on the date of valuation; (ii) if the Common Stock is traded
over-the-counter on the NASDAQ System, the mean between the bid and asked prices
of a share on that system at the close of business on the date of valuation or,
if the Common Stock is designated a National Market System security, the price
at which a share trades at the close of business on the date of valuation; and
(iii) if neither (i) or (ii) applies, the fair market value as determined by the
Stock Option Committee. On the Record Date, the fair market value of a share of
Common Stock was $3.00 per share.
CONSIDERATION FOR SHARES PURCHASED
Common Stock purchased upon the exercise of options shall be paid for by the
optionee (i) in cash or by check acceptable to the Company; (ii) at the
discretion of the Stock Option Committee, with previously acquired shares of
Common Stock having a fair market value equal to the option price; or (iii) by a
combination of such payments. The Stock Option Committee shall determine, in its
discretion, whether the requirement of payment in cash shall be deemed satisfied
if the optionee shall have
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made arrangements satisfactory to the Company with an NASD broker to implement a
cashless exercise and sale procedure.
TERM OF EXERCISE AND EXPIRATION OF OPTIONS
Options become exercisable at such times and in such installments as the
Stock Option Committee shall provide in the terms of the individual option
agreement.
Each option shall expire on the date established by the Stock Option
Committee which may not be later than the tenth anniversary of the date of
grant; provided, however, that no incentive stock option granted to an officer
or key employee who beneficially owns more than 10% of the Common Stock shall be
exercisable after the expiration of five years from the date granted. With
respect to options granted to employees, an option will expire on the earliest
of (i) the date on which the optionee ceases to be an employee of the Company
for any reason other than death or disability or in a manner described in (ii)
hereof; (ii) three months after the optionee ceases to be an employee by reason
of termination of employment for the "convenience of the Company," (iii) three
months after the date of a Qualified Domestic Relations Order; or (iv) one year
after the death or disability of the employee. With respect to options granted
to directors, an option will expire on the earliest of (i) three months after
the date on which the optionee ceases to be a director of the Company for any
reason other than death or disability; (ii) three months after the date of a
Qualified Domestic Relations Order; or (iii) one year after the death or
disability of the director. With respect to options granted to non-employee
consultants, the expiration date of the options will be determined by the Stock
Option Committee at its discretion.
NONTRANSFERABILITY OF OPTIONS
Options are not transferable by the optionee other than by will or the laws
of descent and distribution, or pursuant to a Qualified Domestic Relations
Order.
CERTAIN CORPORATE TRANSACTIONS
The Stock Option Committee may make or provide for such adjustments in the
option price and in the number or kind of shares of Common Stock or other
securities covered by outstanding options as the Stock Option Committee in its
sole discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of optionees that would otherwise
result from (i) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company; (ii)
any merger, consolidation, reorganization, separation, partial or complete
liquidation, issuance of rights or warrants to purchase stock; or (iii) any
other corporate transaction or event having an effect similar to any of the
foregoing. Notwithstanding anything to the contrary, in the event of a merger or
consolidation in which the Company is not the surviving corporation and the
agreement of merger or consolidation provides for the assumption of options
granted (and the Company's obligations) under the Second Amended Plan in lieu of
shares of Common Stock, subject to the aforementioned adjustments which the
Stock Option Committee may determine are equitably required, such substitution
of securities shall not require the consent of any person who is granted options
pursuant to the Second Amended Plan. The Stock Option Committee may also make or
provide for such adjustments in the number or kind of shares of the Common Stock
or other securities (including, but not limited to, shares of a successor
referenced above) which may be sold under the Second Amended Plan as the Stock
Option Committee in its sole discretion, exercised
10
<PAGE>
in good faith, may determine is appropriate to reflect any transaction or event
described in the two preceding sentences subject, however, in the case of
incentive stock options, to the provisions of the Internal Revenue Code of 1986,
as amended (the "Code").
ADMINISTRATION
The Second Amended Plan is administered by the Stock Option Committee of the
Board of Directors. The Stock Option Committee has full power to interpret the
Second Amended Plan and to establish and amend rules for its administration. The
Stock Option Committee is also authorized to determine who from the eligible
class of persons shall be granted options and the terms of the options. Action
by the Stock Option Committee is taken by vote or written consent.
The Board of Directors may at any time further amend the Second Amended
Plan, although no amendment may increase the number of shares that may be issued
and sold under the Second Amended Plan, change the class of employees eligible
to receive options or cause Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), to cease to be applicable to the
Second Amended Plan, without stockholder approval.
FEDERAL INCOME TAX ASPECTS
The following is a brief summary of certain of the Federal income tax
consequences of certain transactions under the Second Amended Plan based on
Federal income tax laws in effect on December 31, 1996. This summary is not
intended to be exhaustive and does not describe state or local tax consequences.
TAX CONSEQUENCES TO PARTICIPANTS
NONSTATUTORY STOCK OPTIONS. In general, (i) no income will be recognized by
an optionee at the time a nonstatutory stock option is granted; (ii) at
exercise, ordinary income will be recognized by the optionee in an amount equal
to the difference between the option price paid for the shares and the fair
market value of the shares, if unrestricted, on the date of exercise; and (iii)
at sale, appreciation (or depreciation) after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
INCENTIVE STOCK OPTIONS. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If shares of
Common Stock are issued to the optionee pursuant to the exercise of an incentive
stock option, and if no disqualifying disposition of such shares is made by such
optionee within two years after the date of grant or within one year after the
transfer of such shares to the optionee, then upon sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the exercise of an incentive stock
option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of such shares at the time of exercise (or, if less, the amount realized
on the disposition of such shares if a sale or exchange) over the option price
paid for such shares. Any further gain (or loss)
11
<PAGE>
realized by the participant generally will be taxed as short-term or long-term
capital gain (or loss) depending on the holding period.
SPECIFIC RULES APPLICABLE TO OFFICERS AND DIRECTORS. In limited
circumstances where the sale of stock received as a result of a grant or award
could subject an officer or director to suit under Section 16(b) of the Exchange
Act, the tax consequences to the officer or director may differ from the tax
consequences described above. In these circumstances, unless a special election
has been made, the principal difference usually will be to postpone valuation
and taxation of the stock received so long as the sale of the stock received
could subject the officer or director to suit under Section 16(b) of the
Exchange Act, but no longer than six months.
TAX CONSEQUENCES TO PARTICIPANTS' EMPLOYER
To the extent that a participant recognizes ordinary income in the
circumstances described above, the participant's employer will be entitled to a
corresponding deduction, provided, among other things, that (i) the deduction
meets the test of reasonableness, is an ordinary and necessary business expense,
is not subject to the $1 million annual compensation limitation set forth in
Section 162(m) of the Code, and is not an "excess parachute payment" and (ii)
any applicable withholding obligations are satisfied.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
AND TRANSACTIONS WITH MANAGEMENT AND OTHERS
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation for services in all
capacities accrued by the Company during the fiscal years ended September 30,
1996, 1995, and 1994, for the Company's Chief Executive Officer and certain of
its most highly compensated executive officers. The Company issued no restricted
stock awards and there were no long term incentive plan payouts.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------
------------------------------------
(E) (F) (G)
OTHER ANNUAL SECURITIES ALL OTHER
(C) (D) COMPENSATION UNDERLYING COMPENSATION
(A) (B) SALARY BONUS ($) OPTIONS/SARS ($)
NAME AND PRINCIPAL POSITION YEAR ($) ($) (1) (#) (5)
- ----------------------------- --------- --------- --------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
J. Bradford Bishop 1996 $ 0 $ 0 $ 0 15,000(6) $ 0
Chairman, Chief Executive 1995 0 0 0 0 0
Officer 1994 0 0 2,160(2) 0 0
John F. Bishop 1996 58,500 11,853(3) 0 328
Vice Chairman, President, 1995 75,000 0 25,677(3) 0 362
Treasurer and Secretary 1994 75,000 0 14,449(3) 283
John J. Ardizzone, Jr. 1996 84,614 0 12,973(4) 3,000(6) 588
Vice President Operations 1995 78,750 14,000 11,461(4) 10,000(6) 554
and Chief Financial Officer 1994 71,542 0 8,713(4) 0 460
Ivan Andres 1996 73,819 19,000 6,559(7) 2,500(6) 554
Vice President, Marketing 1995 73,755 28,000 *(8) 8,000(6) 530
and Sales 1994 9,232 0 *(8) 0 0
</TABLE>
- ------------------------------
(1) Amounts in this column include compensation to officers from (a) the
Company's supplemental medical reimbursement plan in which all officers are
eligible to participate, (b) the Company's tax and financial counseling
reimbursement plan in which all officers are eligible to participate, (c)
the Company's legal services reimbursement plan in which the Vice Chairman
is eligible to participate, (d) the payment of car allowances to certain
officers in lieu of providing a company car, (e) the payment of private
club dues for certain officers and (f) contributions by the Company on
behalf of certain officers pursuant to its Retirement/Savings Plan which
qualifies as a thrift plan under Section 401(k) of the Internal Revenue
Code. The type and amount of each perquisite or other personal benefit
which exceeds 25% of the total perquisites and other personal benefits
reported for such officer are identified in a footnote.
(2) On behalf of Mr. J.B. Bishop, the Company paid $2,160 under the
supplemental medical reimbursement plan in fiscal 1994.
(3) On behalf of Mr. J.F. Bishop, the Company paid $7,522 under the
supplemental medical reimbursement plan and paid $4,006 for private club
dues in fiscal 1996, paid $12,776 under the legal services reimbursement
plan in fiscal 1995, and paid $4,267 for private club dues in fiscal 1994.
Amounts do not include non-cash compensation to Mr. J.F. Bishop in the form
of expenses related to personal use of a Company-supplied automobile, which
amount did not exceed 10% of the cash compensation of Mr. J.F. Bishop.
(4) On behalf of Mr. Ardizzone, the Company paid $3,924 under the supplemental
medical reimbursement plan, paid $4,200 in car allowances and contributed
$2,699 under the Retirement/Savings Plan in fiscal 1996, paid $4,200 in car
allowances and contributed $2,956 under the Retirement/Savings Plan in
fiscal 1995, and paid $4,200 in car allowances in fiscal 1994.
(5) Amounts in this column consist of payments by the Company of premiums for
term life insurance.
(6) Options to purchase common stock awarded under the Company's Amended and
Restated 1994 Stock Option Plan.
(7) On behalf of Mr. Andres, the Company paid $4,200 in car allowances and
contributed $2,305 under the Retirement/ Savings Plan in fiscal 1996.
(8) Perquisites and personal benefits provided to the named executive officer
under various Company programs did not exceed $50,000 or 10% of such
individual's salary and bonus.
13
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on options granted under the
Company's Amended and Restated 1994 Stock Option Plan in fiscal 1996 to the
named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED OR BASE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE
- ------------------------------------------------- ------------- --------------- --------- ----------
<S> <C> <C> <C> <C>
J. Bradford Bishop............................... 15,000(2) 54.5% $ 4.2625 2/13/01
John F. Bishop................................... -- -- -- --
John J. Ardizzone, Jr.(4)........................ 3,000(3) 10.9% $3.875 2/13/06
Ivan Andres...................................... 2,500(3) 9.1% $3.875 2/13/06
</TABLE>
- ------------------------
(1) Percentage based on grants to employees during the last fiscal year of
options to purchase 27,500 shares of Common Stock.
(2) The options granted to the named individual become exercisable with respect
to one-third of such shares on February 13, 1997 and will become exercisable
with respect to an additional one third on February 13 of each of the
following two years.
(3) The options granted to the named individuals become exercisable with respect
to 20% of such shares on February 13, 1997 and will become exercisable with
respect to an additional 20% on February 13 of each of the following four
years.
(4) The options granted to Mr. Ardizzone were cancelled in connection with his
resignation in October 1996.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table provides information regarding option and SAR exercises
in fiscal 1996 by the named executive officers and the value of such officers'
unexercised options at September 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/ IN- THE-MONEY OPTIONS/
SARS AT FY-END(#) SARS AT FY-END($) (1)
SHARES --------------------- ----------------------
ACQUIRED ON VALUE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(U) UNEXERCISABLE(U)
- ---------------------------------------- ------------- ----------- --------------------- ----------------------
<S> <C> <C> <C> <C>
J. Bradford Bishop...................... -- -- 15,000 options(U) $22,313/options(U)
John F. Bishop.......................... -- -- -- --
John J. Ardizzone, Jr.(2)............... 2,000(3) $ 6,000 6,750 options(E) $6,750/options(E)
11,000 options(U) $32,625/options(U)
4,000 SARs(U) $12,000/SARs(U)
Ivan Andres............................. 1,600(4) $ 5,800 8,900 options(U) $26,288/options(U)
</TABLE>
- ------------------------
(1) The options and SARs at fiscal year end were in-the-money based on a fair
market value per share of Common Stock of $5.75, which represents the mean
between the bid and asked prices of a share on the NASDAQ System at the
close of business on September 30, 1996.
14
<PAGE>
(2) All unexercised options and SARs of Mr. Ardizzone were cancelled in
connection with his resignation in October 1996.
(3) Represents SARs exercised by the named individual.
(4) Represents shares acquired by exercise of options by the named individual.
EMPLOYMENT AGREEMENT
On October 1, 1995, the Company entered into an Employment Agreement with
John F. Bishop, Vice-Chairman of the Board, Treasurer and Secretary of the
Company, whereby Mr. Bishop will provide his services for a monthly salary of
$6,500 for an initial term of two years. On the first day of each month, the
initial term is automatically extended for an additional month, unless either
party notifies the other in writing of his or its desire not to extend the term.
In the event the Company elects not to extend the term or there is a change in
control of the Company (the date of such event is referred to as the "Transition
Date"), Mr. Bishop will continue to perform services for the Company for a three
month transition period and the Company will maintain his compensation and other
benefits for the three month transition period and an additional twenty-one
months. Should Mr. Bishop become permanently disabled, the Company shall pay to
him fifty percent (50%) of the agreed salary for the remainder of the term.
Effective January 1, 1997, Mr. Bishop agreed to reduce his monthly salary to
$3,250 until the Transition Date. In addition to the foregoing compensation, the
Company will provide Mr. Bishop with a private office at 3 Civic Center Plaza,
Suite 265, Newport Beach, California (or a comparable location in the City of
Newport Beach), secretarial and administrative assistance, office equipment and
supplies and other facilities and services suitable to his position. Mr. Bishop
is also entitled to all employee benefits provided to senior management
personnel of the Company and to participate in the Company's medical
reimbursement plan which is supplemental to the medical plan covering all
employees, the tax and financial counseling reimbursement plan and the legal
reimbursement plan provided by the Company as well as Company paid life
insurance.
In addition to his monthly compensation, Mr. Bishop is entitled under the
Employment Agreement to the full and unrestricted use of the currently provided
1989 Mercedes Benz Model 560 automobile or its successor automobile if replaced
at any time prior to the end of his employment term. The Company provides all
gasoline, maintenance, repair and insurance with respect to the automobile
during the term of the Agreement. In consideration for Mr. Bishop's prior
agreement to reduce his monthly salary to $1 per month for the period from
February 1992 through July 1992 and the deduction of $217 per month from his
monthly salary for the period from August 1992 through October 1995, the Company
granted to Mr. Bishop the right to acquire the automobile with full credit for
the foregone salary totaling $56,846. Mr. Bishop has the right to acquire the
automobile at any time during the two months immediately preceding the end of
his employment term. If the automobile's Kelly Blue Book value is in excess of
$56,846, Mr. Bishop shall pay to the Company the difference at the time Mr.
Bishop acquires the automobile. If the value of the automobile is less than
$56,846, the Company shall pay the difference to Mr. Bishop at the time he
acquires the automobile. In the event that Mr. Bishop's employment is terminated
prior to the end of his employment term, he shall have the right to acquire the
automobile at that time. In the event of Mr. Bishop's death, the right to
acquire the automobile shall be exercisable by Mr. Bishop's widow or the
executor of his estate.
The Company may terminate the Employment Agreement only if Mr. Bishop were
to be convicted of a felony, if he willfully fails to fulfill his duties, if he
commits gross negligence in the performance of
15
<PAGE>
his duties, if he intentionally misappropriates significant funds of the Company
or if he dies. Mr. Bishop may terminate the agreement at any time on thirty days
notice to the Company.
Under the Employment Agreement, Mr. Bishop may not disclose confidential
information of the Company at any time. This provision survives termination of
the Employment Agreement. Mr. Bishop is further prohibited from soliciting
employees or customers of the Company for at least one (1) year following
termination of the Employment Agreement.
COMPENSATION OF DIRECTORS
Non-management Directors are paid a monthly retainer of $600, and receive
$600 per day for attendance at Board Meetings. They also receive $200 per day
for committee meetings held on the same day as Board meetings and $400 per day
if held on a separate day. Committee chairmen receive $100 per day in addition
to the above. Directors who are officers of the Company receive no compensation
for service on the Board of Directors or committees thereof.
Accrued and unpaid retainers and fees for non-management Directors as of
February 13, 1996 (the "Accrued Directors Fees") were owed to Messrs. Robert D.
Johnson, James J. Shelton and J. Sidney Webb in amounts equal to approximately
$30,600, $29,100 and $30,900, respectively. As of February 13, 1996, each of
Messrs. Johnson and Webb agreed to waive all Accrued Directors Fees owing to him
in exchange for the grant by the Company of an option to purchase 5,000 shares
of Common Stock of the Company under the terms of the Company's Amended and
Restated 1994 Stock Option Plan, with the exception that such options would be
immediately vested and exercisable and would not terminate upon ceasing to be a
Director or upon death or disability. On February 7, 1996, Mr. Shelton's term of
office as Director expired and, as of February 13, 1996, he agreed to waive all
Accrued Directors Fees owing to him, in exchange for amending his Nonqualified
Stock Option Agreement with the Company to eliminate the requirement that his
options terminate three months after he ceases to be a Director and the
requirement that he continuously serve as a Director of the Company as a
condition to him becoming vested in the options to purchase the remaining 6,667
shares of Common Stock under the Nonqualified Stock Option Agreement.
CERTAIN TRANSACTIONS
SUBORDINATED LOAN
The Company has entered into a Subordinated Loan Agreement dated as of
December 16, 1996 with J. Bradford Bishop, Chairman and Chief Executive Officer
of the Company, and John F. Bishop, Vice Chairman, Treasurer and Secretary of
the Company (together, the "Bishops"). Subject to the conditions of the
Subordinated Loan Agreement, the Bishops have committed to advance up to
$600,000 to the Company until February 1, 1998. The principal amount of the
advances must be repaid by February 1, 2000, and interest thereon accrues at 8%
per annum, payable quarterly. The advances under the Subordinated Loan Agreement
will be secured by the assets of the Company, and will be subordinated to the
Company's bank line of credit. In connection with the Subordinated Loan
Agreement, the Company will issue warrants to purchase 90,000 shares of Common
Stock at $3.00 per share. Upon the advance of each $100,000 by the Bishops under
the Subordinated Loan Agreement, warrants to purchase 15,000 shares will become
exercisable. The warrants will expire December 16, 2001.
16
<PAGE>
In the opinion of management and the disinterested members of the Board of
Directors, the terms of the Subordinated Loan Agreement, including the warrants
to be issued thereunder, are fair and reasonable and as favorable to the Company
as those which could be obtained from unrelated third parties.
BANK LINE OF CREDIT
The Company is in the process of renewing its bank line of credit through
January 1998. In the event the line of credit negotiations are not successful or
the Company is unable to maintain compliance with financial covenants, the
Bishops have agreed to finance up to $500,000 of working capital (in addition to
funds provided under the Subordinated Loan Agreement (described above)) on terms
acceptable to the Bishops and the Company, to replace the line of credit.
LEGAL COUNSEL
Bainbridge Group, a Law Corporation ("Bainbridge Group") provides ongoing
legal services for the Company. Michael E. Johnson, a director of the Company,
is President of Bainbridge Group. In the opinion of management and the
disinterested members of the Board of Directors, the terms of the relationship
between the Company and Bainbridge Group are fair and reasonable and as
favorable to the Company as those which could be obtained from unrelated third
parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors, and persons who beneficially own more than ten percent
(10%) of the Company's Common Stock, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Executive officers, directors and greater than ten percent (10%)
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors during or with respect to the Company's most recent fiscal year, the
Company believes that its executive officers, directors and greater than 10%
beneficial owners have complied with all Section 16(a) filing requirements.
INFORMATION RELATING TO INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has served as independent accountants for the Company
since its inception, including the fiscal year ended September 30, 1996, and has
no financial interest of any kind in the Company or its subsidiaries.
Representatives of Price Waterhouse LLP are expected to be present at the Annual
Meeting and will have the opportunity to address the meeting, if they so desire,
and respond to appropriate questions.
The Company annually reviews the selection of its independent accountants,
however, no selection has yet been made for the current fiscal year.
17
<PAGE>
OTHER MATTERS
Management is unaware of any other matters to be presented to the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the proxy to vote the proxy in accordance with
their own judgment on such matters.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the Company's proxy statement and
form of proxy relating to the Company's Annual Meeting to be held in 1998,
proposals by stockholders intended to be presented at such Annual Meeting must
be received by the Company no later than September 8, 1997.
FINANCIAL STATEMENTS
The Company's 1996 Annual Report to Stockholders, which is being mailed to
stockholders with this Proxy Statement, contains audited consolidated financial
statements of the Company. Such Annual Report does not constitute a part of the
proxy material. If any stockholder of record did not receive such Annual Report,
we will immediately mail one upon receipt of a request from such stockholder.
ANNUAL REPORT ON FORM 10-KSB
THIS COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1996, INCLUDING THE FINANCIAL STATEMENTS, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE TO BENEFICIAL OWNERS OF THE
COMPANY'S COMMON STOCK WITHOUT CHARGE UPON WRITTEN REQUEST AT THE FOLLOWING
ADDRESS: EIP MICROWAVE, INC., 1745 MCCANDLESS DRIVE, MILPITAS, CA 95035, ATTN.:
MR. LEWIS R. FOSTER, PRESIDENT AND CHIEF OPERATING OFFICER. COPIES OF EXHIBITS
TO THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB ARE AVAILABLE, BUT A REASONABLE
FEE WILL BE CHARGED TO A STOCKHOLDER REQUESTING EXHIBITS.
By Order of the Board of Directors
J. F. Bishop
SECRETARY
Newport Beach, California
January 9, 1997
18
<PAGE>
EIP MICROWAVE, INC.
EIP MICROWAVE, INC.
SECOND AMENDED AND RESTATED
1994 STOCK OPTION PLAN
(as amended and restated on November 20, 1996)
1. PURPOSE. The purpose of the EIP Microwave, Inc. Second Amended and
Restated 1994 Stock Option Plan is to provide a means whereby EIP Microwave,
Inc. (the "Company") may attract and retain persons of ability as directors,
employees and consultants and motivate such persons to exert their best efforts
on behalf of the Company and any of its subsidiaries.
2. BENEFITS AVAILABLE UNDER PLAN. The total number of shares which may
be issued and sold under options granted pursuant to this Stock Option Plan
shall not exceed 200,000 shares of the common stock, $.01 par value per share
(the "Common Stock"), of the Company except to the extent of adjustments
authorized by the last sentence of Paragraph 6 of this Stock Option Plan. Such
shares may be treasury shares or shares of original issue or a combination of
the foregoing. If any option terminates, expires or is cancelled with respect
to any shares of Common Stock, new options may thereafter be granted covering
such shares of Common Stock.
3. ADMINISTRATION. This Stock Option Plan shall be administered by a
committee (the "Committee") of two or more members of the Board of Directors,
appointed by and holding office at the pleasure of the Board. The members of
the Committee shall be "non-employee directors" within the meaning of that term
in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended,
or any successor rule to the same effect ("Rule 16b-3").
The Committee may, from time to time and upon such terms and
conditions as it may determine, authorize the granting to members of the Board
of Directors, to officers, to other key employees and to non-employee
consultants of the Company or any of its subsidiaries (excluding John F. Bishop)
of options to buy from the Company shares of Common Stock and to fix the number
of shares to be covered by each such option. Successive options may be granted
to the same person whether or not the option or options first granted to such
person remain unexercised.
Subject to the express provisions of this Stock Option Plan, the
Committee shall have the authority to construe and interpret this Stock Option
Plan and, to the extent not otherwise defined herein, to define the terms used
in this Stock Option Plan; to prescribe, amend and rescind rules and regulations
relating to the administration of this Stock Option Plan; and to make all other
determinations necessary or advisable for the administration of this Stock
Option Plan. The determinations of the Committee on all matters referred to in
this Paragraph 3 shall be conclusive.
The Committee shall hold meetings at such times and places as it may
determine in accordance with the Bylaws of the Company. A majority of the
members of the committee shall constitute a quorum at any such meeting. All
determinations of the Committee shall be
SECOND AMENDED AND RESTATED
1994 STOCK OPTION PLAN
1
<PAGE>
made by a majority of its members at a meeting or by the unanimous written
consent of all members of the Committee. In the event action by the Committee
is taken by unanimous written consent, the action of the Committee shall be
deemed to be at the date the last Committee member signs the consent.
4. ELIGIBILITY.
(a) All members of the Board of Directors, officers, other key
employees and non-employee consultants of the Company or any of its subsidiaries
(excluding John F. Bishop) shall be eligible to receive Nonstatutory Options (as
defined in Paragraph 5(a) below), and all officers (including officers who are
members of the Board of Directors) and other key employees of the Company or any
of its subsidiaries (excluding John F. Bishop) shall be eligible to receive
Incentive Options (as defined in Paragraph 5(a) below).
(b) Any officer or key employee who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
the Company or any of its subsidiaries shall not be eligible to receive any
Incentive Option (as defined in Section 5(a) hereof) unless (i) the exercise
price of the shares subject to such option is at least one hundred ten percent
(110%) of the Fair Market Value of such shares on the date of grant and
(ii) such option by its terms is not exercisable after the expiration of five
years from the date of grant.
5. NATURE, TERMS AND CONDITIONS OF OPTIONS.
(a) Options granted under this Stock Option Plan may be
(i) options which are intended to qualify under particular provisions of the
Internal Revenue Code (the "Code"), as in effect from time to time ("Incentive
Options"), (ii) options which are not intended to so qualify under the Code
("Nonstatutory Options"), or (iii) combinations of the foregoing.
(b) No option shall run for more than ten years from the date
granted; provided, however, no Incentive Option granted to an optionee described
in Paragraph 4(b) hereof shall be exercisable after the expiration of five years
from the date granted.
(c) No option shall be transferrable by the optionee otherwise
than (i) by will or the laws of descent and distribution or (ii) pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act or the rules thereunder.
(d) Options shall be exercisable during the optionee's lifetime
only by him or, in the event of his legal incapacity to do so, by his guardian
or legal representative acting in a fiduciary capacity under state law on behalf
of the optionee and under court supervision.
(e) The option price shall be determined by the Committee at or
prior to the time the option is granted; provided, however, that in the case of
an Incentive Option, the option price shall be at least equal to the Fair Market
Value per share at the time the Incentive Option is granted, and in the case of
a Nonstatutory Option, the option price shall be at least
SECOND AMENDED AND RESTATED
1994 STOCK OPTION PLAN
2
<PAGE>
equal to eight five percent (85% ) of the Fair Market Value per share at the
time the Nonstatutory Option is granted. "Fair Market Value" shall mean: (a) if
the Common Stock is traded on an exchange, the closing price at which a share of
Common Stock traded on the date of valuation; (b) if the Common Stock is traded
over-the-counter on the NASDAQ System, the mean between the bid and asked
closing prices of a share of Common Stock on said System at the close of
business on the date of valuation or, if the Common Stock is designated a
National Market System security, the closing price at which a share of Common
Stock traded on the date of valuation; and (c) if neither (a) nor (b) applies,
the fair market value as determined by the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
(f) In order to exercise options, the person or persons entitled to
exercise them shall give written notice to the Company specifying the number of
shares to be purchased pursuant to the exercise of options. This notice shall
be accompanied by payment for the shares as provided in Paragraph 5(g). Options
may be exercised at such time or times as may be determined by the Committee at
the time of grant.
(g) The option price shall be payable (i) in cash or by check
acceptable to the Company, (ii) at the discretion of the Committee, by the
transfer to the Company by the optionee of shares of Common Stock having a Fair
Market Value at the time of exercise equal to the total option price or (iii) by
a combination of such methods of payment. The Committee shall determine, in its
discretion, whether the requirement of payment in cash shall be deemed satisfied
if the optionee shall have made arrangements satisfactory to the Company with a
broker who is a member of the National Association of Securities Dealers, Inc.
to sell a sufficient number of shares being purchased so that the net proceeds
of the sale transaction will at least equal the option exercise price and
pursuant to which the broker undertakes to promptly deliver the full option
exercise price to the Company.
6. ADJUSTMENTS IN EVENT OF CHANGE IN STOCK. The Committee may make or
provide for such adjustments in the option price and in the number or kind of
shares of the Company's Common Stock or other securities covered by outstanding
options as such Committee in its sole discretion, exercised in good faith, may
determine is equitably required to prevent dilution or enlargement of the rights
of optionees that would otherwise result from (a) any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Company, or (b) any merger, consolidation, reorganization,
separation, partial or complete liquidation, issuance of rights or warrants to
purchase stock, or (c) any other corporate transaction or event having an
effect similar to any of the foregoing. Notwithstanding anything to the
contrary, in the event of a merger or consolidation in which the Company is not
the surviving corporation and the agreement of merger or consolidation provides
for the assumption of options granted (and the Company's obligations) under this
Plan, the shares of common stock or securities of the successor corporation may
be issued under this Plan in lieu of shares of Common Stock, subject to the
aforementioned adjustments which the Committee may determine are equitably
required, and such substitution of securities shall not require the consent of
any person who is granted options pursuant to this Plan. The Committee may also
make or provide for such adjustments in the number or kind of shares of the
Common Stock or other securities (including, but not limited to, shares of a
successor referenced above) which may be sold under this Stock Option Plan as
such Committee in its sole discretion, exercised in good faith, may
SECOND AMENDED AND RESTATED
1994 STOCK OPTION PLAN
3
<PAGE>
determine is appropriate to reflect any transaction or event described in the
two preceding sentences (subject, however, in the case of Incentive Options, to
the provisions of the Code).
7. STOCK OPTION AGREEMENT. The form of each Stock Option Agreement shall
be prescribed, and any Stock Option Agreement evidencing an outstanding option
may with the concurrence of the affected optionee be amended, by the Committee,
provided that the terms and conditions of each such Stock Option Agreement and
amendment are not inconsistent with this Stock Option Plan.
8. CANCELLATION OF OPTION. The Committee may, with the concurrence of
the affected optionee, cancel any option granted under this Stock Option Plan.
In the event of any such cancellation, the Committee may authorize the granting
of new options (which may or may not cover the same number of shares which had
been the subject of any prior option) in such manner, at such option price and
subject to the same terms, conditions and discretions as, under this Stock
Option Plan, would have been applicable had the cancelled options not been
granted.
9. AMENDMENT. This Stock Option Plan may be amended from time to time by
the Board of Directors, but without further approval by the shareholders of the
Company no such amendment shall (a) increase the aggregate number of shares of
Common Stock that may be issued and sold under this Stock Option Plan (except
that adjustments authorized by the last sentence of Paragraph 6 shall not be
limited by this provision) or (b) change the designation in Paragraph 4 of the
class of persons eligible to receive options or (c) cause Rule 16b-3 to cease
to be applicable to this Stock Option Plan.
SECOND AMENDED AND RESTATED
1994 STOCK OPTION PLAN
4
<PAGE>
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EIP MICROWAVE, INC.
3 Civic Plaza, Suite 265
Newport Beach, California 92660
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AND MAY BE REVOKED PRIOR TO ITS EXERCISE
The undersigned hereby appoints J. Bradford Bishop and John F. Bishop the
true and lawful proxy of the undersigned, each having full power of
substitution, and hereby authorizes either or both of them to represent the
undersigned and to vote, as designated below, all of the shares of Common Stock,
par value $.01, of EIP Microwave, Inc., (the "Company") held of record by the
undersigned on December 20, 1996, at the 1997 Annual Meeting of Stockholders of
the Company to be held at One Big Canyon Drive, Newport Beach, California 92660,
on Wednesday, February 5, 1997, at 10:00 a.m., local time, and any postponement
or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE, VOTED
FOR APPROVAL OF THE SECOND AMENDED AND RESTATED 1994 STOCK OPTION PLAN, AND
VOTED IN ACCORDANCE WITH THE PROXIES' DISCRETION ON SUCH MATTERS THAT MAY
PROPERLY COME BEFORE THE MEETING.
CONTINUED AND TO BE VOTED, SIGNED AND DATED ON THE REVERSE SIDE.
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- FOLD AND DETACH HERE -
<PAGE>
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Please mark your votes as indicated in this example /X/
1. ELECTION OF DIRECTORS
NOMINEES: CLASS I - JOHN F. BISHOP AND J. BRADFORD BISHOP
FOR the nominees listed below (except as indicated to the contrary below) / /
WITHHOLD AUTHORITY to vote for the nominees listed below / /
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW)
- --------------------------------------------------------------------------------
2. Proposal to approve Second Amended and Restated 1994 Stock Option Plan
authorizing the grant of options for an additional 100,000 shares (to a
maximum of 200,000 shares) of the Company's stock to officers, directors
and non-employee consultants (excluding John F. Bishop).
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any postponement or
adjournment thereof.
All other proxies heretofore given by the undersigned to vote shares of stock of
the Company which the undersigned would be entitled to vote if personally
present at the Annual Meeting or any postponement or adjournment thereof are
hereby expressly revoked.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE. IF YOUR ADDRESS IS INCORRECTLY SHOWN, PLEASE PRINT CHANGES.
Signature(s)_________________________________________ Dated_____________, 1996
NOTE: Please date this proxy and sign it exactly as your name or names appear
hereon. When shares are held by joint tenants, both must sign. When signing as
an attorney, executor, administrator, trustee or guardian, please give your full
title as such. If there is more than one trustee, all should sign. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by an authorized
person.
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- FOLD AND DETACH HERE -
