<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 11, 1998
To the Stockholders of EIP MICROWAVE, INC.
The Annual Meeting of Stockholders of EIP MICROWAVE, INC. (the "Company")
will be held at PACIFIC CLUB, 4110 MACARTHUR BLVD., NEWPORT BEACH, CA, ON
FEBRUARY 11, 1998, AT 10:00 A.M., PACIFIC STANDARD Time for the following
purposes:
1. To elect two directors to Class III of the Company's Board of
Directors to serve until the 2001 Annual Meeting of Stockholders.
2. To adopt the 1998 Stock Plan and approve the reservation and
authorization of 1,500,000 shares of Common Stock reserved for issuance
under the terms of the plan.
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 23,
1997, 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 14, 1998
- --------------------------------------------------------------------------------
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.
4500 CAMPUS DRIVE
SUITE 219
NEWPORT BEACH, CALIFORNIA 92660
--------------------
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 11, 1998
--------------------
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 11,
1998, and at any adjournment thereof (the "Annual Meeting"). The Annual
Meeting is to be held at 10:00 a.m., Pacific Standard Time, at Pacific Club,
4110 MacArthur Blvd., Newport Beach, California. The approximate date on
which this Proxy Statement and the enclosed form of proxy are first being
sent or given to stockholders is JANUARY 16, 1998.
The Board of Directors of the Company (the "Board of Directors" or the
"Board") has fixed the close of business on DECEMBER 23, 1997, 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 director to Class III of the Company's Board of Directors.
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 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
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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 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.)
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<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (9) OF CLASS (9)
------------------- ------------------------ ------------
<S> <C> <C> <C>
CEDE & Company 186,600 Indirect (1) 43.92%
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) 16.66%
10,000 Direct (6)
J. Sidney Webb (2) 800 Indirect (5) 3.60%
15,000 Direct (6)
Robert D. Johnson (2) 200 Indirect (7) 3.46%
15,000 Direct (6)
Lewis B. Foster (2) 10,000 Direct (6) 2.30%
Michael E. Johnson (2) 6,666 Direct (6) 1.54%
Ivan Andres (2) 4,200 Direct (6) *
James N. Cutler, Jr. (2) 1,000 Direct *
All Executive Officers and 227,167 --- 51.30%
Directors as a Group
(7 persons) (8)
</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 Second 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.
(9) The Company has commenced a rights offering (the "Rights Offering"),
pursuant to which the Company is offering 5,948,698 shares of its Common
Stock to its stockholders of record on November 7, 1997 (the "Rights
Offering Record Date"). Each stockholder of record is entitled to purchase
fourteen shares of Common Stock for each share of Common Stock owned on the
Rights Offering Record Date (the "Basic Subscription Rights"). Each
stockholder of record also has the opportunity to subscribe for as many
additional shares as desired. However, if the shares offered in the Rights
Offering are oversubscribed, the shares will be allocated pro rata based on
the number of shares of Common Stock subscribed by each stockholder under
the Basic Subscription Rights. If all Basic Subscription Rights are
subscribed, there will be changes to the amount of securities owned by the
persons listed below, but there will be no material change in the
percentage ownership figures set forth below. However, if all Basic
Subscription Rights are not subscribed, the percentage ownership figures
set forth below could change dramatically, based on the actual number of
shares purchased by the persons listed below and the actual number of
shares purchased by other shareholders of record.
4
<PAGE>
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 one director included in Class III expires at
this Annual Meeting. The director whose term will expire at the Annual Meeting
is Robert D. Johnson.
Mr. Robert D. Johnson and Mr. James N. Cutler, Jr. have been nominated by
the Board of Directors for election as Class III Directors to hold office until
the Annual Meeting of Stockholders in 2001, until a successor is duly elected
and qualified or until either person's earlier resignation, removal from office
or death. The term of office for the directors in Class I will continue until
the Annual Meeting of Stockholders in 2000, and the term of office for the
directors in Class II will continue until the Annual Meeting of Stockholders in
1999.
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 III
director nominees listed below, who have indicated to the Company their
availability for election (Robert D. Johnson presently is a director). If for
any reason the nominees are unavailable as candidates 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 III DIRECTOR NOMINEES
The following table sets forth information regarding the nominees,
including age, present position with the Company, period served as a director,
if any, other business experience during the past five years, and any other
public company for which the nominee is a director.
ROBERT D. JOHNSON Former Vice Chairman and Director, Cushman
(2)(3)(4) Electronics, Inc., and former Director,
Age 74 EIP/Cushman, Inc.
Director since 1978
JAMES N. CUTLER, JR. President and Chief Executive Officer of
Age 46 The Cutler Corporation, holding company
Director Nominee for various private businesses. Director,
Hollywood Entertainment Corporation, owner and
operator of over 900 domestic video rental
superstores; former Director Arrow Transportation
Co., transporter of bulk liquid chemical products;
Trustee, University of Puget Sound, Tacoma,
Washington.
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 I -- TERM EXPIRING AT THE 2000 ANNUAL MEETING
J. BRADFORD BISHOP (1) Chairman of the Board and Chief Executive Officer
Age 46 of the Company. Managing Director of Fibre
Director since 1978 International (formerly Continental Paper
Recycling), a paper recycling company; Founder
and Director of Waste Connections, Inc., a solid
waste company; and former Chief Executive Officer
and current Secretary, Carson Energy Group, a power
plant development company.
JOHN F. BISHOP (1) Vice Chairman of the Board, Treasurer and
Age 74 Secretary of the Company; former Chairman of the
Director since 1961 Board, President, and Treasurer of Cushman
Electronics, Inc., a manufacturer of test
instruments for telephone communication systems.
CLASS II -- TERM EXPIRING AT THE 1999 ANNUAL MEETING
MICHAEL E. JOHNSON President, Bainbridge Group, a Law Corporation.
Age 37 Former counsel, Jones, Day, Reavis & Pogue, a law
Director since 1996 firm.
J. SIDNEY WEBB, JR. Chairman of the Board, The Titan Corporation,
(2)(3)(4) manufacturer of defense and industrial products
Age 78 and systems; Director, Plantronics, Inc.,
Director since 1981 supplier of communication headset products and
services to users and providers worldwide;
Director, Visigenics Software, Inc., a software
company; and Director, Micro Focus, a software
company.
- -----------------
(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 and acted by written
consent three times during its fiscal year ended September 30, 1997 (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 Independent Committee of
the Board is comprised of Messrs. M. E. Johnson, R. D. Johnson and Webb and
met three times during the Fiscal Year. The Independent Committee is
responsible for reviewing and approving transactions between the Company and
Messrs. J. B. Bishop and J. F. Bishop and their affiliates. The Audit
Committee of the Board is comprised of Messrs.R. D Johnson and Webb and met
one time and acted by written consent one time 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 met 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
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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 Second Amended and Restated 1994 Stock Option Plan. The
Company's Board of Directors has no nominating committee.
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 46 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 74 Vice Chairman of the Board, Treasurer and Secretary. 1994 (Vice Chairman)
1990 (Secretary)
1985 (Treasurer)
Ivan N. Andres 49 General Manager and Chief Operating Officer. Vice 1997
President, Marketing and Sales of the Company from
1994 until 1997. Director of Marketing of On-Demand
Environmental Systems, an air pollution control
company from 1992-1994. 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 1998 STOCK PLAN
BACKGROUND
EXISTING STOCK OPTION PLAN. Under the EIP Microwave, Inc. Second Amended
and Restated 1994 Stock Option Plan (the "Existing Plan"), the Company is
authorized to grant options to purchase up to 200,000 shares of Common Stock to
directors, officers, other key employees and non-employee consultants of the
Company (excluding John F. Bishop). The 200,000 shares of Common Stock
authorized under the Existing Plan have been registered on a Form S-8
Registration Statement filed with the Securities and Exchange Commission. The
Company has granted options to purchase 147,000 shares of Common Stock pursuant
to the Existing Plan, of which 1,600 have subsequently been exercised and 43,000
have subsequently been canceled. The purpose of the Existing Plan is to provide
a means whereby 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.
RIGHTS OFFERING. The Company has commenced a rights offering (the
"Rights Offering"), pursuant to which the Company is offering 5,948,698
shares of its Common Stock to its stockholders of record on November 7, 1997
(the "Record Date"). Each stockholder of record is entitled to purchase
fourteen shares of Common Stock for each share of Common Stock owned on the
Record Date (the "Basic Subscription Rights"). Each stockholder of record
also has the opportunity to subscribe for as many additional shares as
desired. However, if the shares offered in the Rights Offering are
oversubscribed, the shares will be allocated pro rata based on the number of
shares of Common Stock subscribed by each stockholder under the Basic
Subscription Rights. The Rights Offering will expire on January 30, 1998 at
5:00 P.M., California time, unless extended by the Company. The net proceeds
to the Company upon successful completion of the Rights Offering will be used
to develop new products, fund working capital requirements and repay debt.
PROPOSED 1998 STOCK PLAN
The issuance of shares of Common Stock in the Rights Offering will be
dilutive to optionees under the Existing Plan and, consequently, will
significantly limit the Company's ability to attract, retain and motivate
directors, officers, other key employees and consultants of the Company.
Consequently, on January 9, 1998, the Board of Directors adopted the 1998
Stock Plan (the "1998 Stock Plan") with 1,500,000 shares of Common Stock
initially reserved for issuance thereunder, subject to (a) the issuance of at
least 4,400,000 shares of Common Stock by the
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<PAGE>
Company pursuant to the Rights Offering, as amended from time to time, and
(b) stockholder approval of the 1998 Stock Plan at the Annual Meeting.
Assuming the Proposal is approved, no further options will be granted under
the Existing Plan. Based on the average of the closing bid and asked prices
for the Common Stock on January 12, 1998, the market value of the shares of
Common Stock issuable under the 1998 Stock Plan is $1,453,125.
Stock options play a key role in the Company's ability to recruit, reward
and retain executives and key employees. Technology companies have historically
used stock options and stock grants as an important part of recruitment and
retention packages. The Company competes directly with these technology
companies for experienced directors, executives and engineers and must be able
to offer comparable packages to attract the caliber of individual that the
Company believes is necessary to provide the growth that stockholders desire.
The 1998 Stock Plan provides for the grant of options and stock purchase rights
to directors, officers, employees and consultants to provide additional
incentive to encourage their continued service to the Company. In addition to
the compensation-related aspect of the 1998 Stock Plan, it has a potentially
dilutive effect.
The Board intends to cause the shares of Common Stock authorized for
issuance under the 1998 Stock 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE 1998 STOCK 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.
SUMMARY OF THE 1998 STOCK PLAN
Set forth below is a summary of the 1998 Stock Plan.
GENERAL. The purpose of the 1998 Stock Plan is to attract and retain the
best available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the directors, officers, employees
and consultants of the Company and to promote the success of the Company's
business. Options and stock purchase rights may be granted under the 1998 Stock
Plan. Options granted under the 1998 Stock Plan may be either "incentive stock
options," as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonstatutory stock options.
ADMINISTRATION. The 1998 Stock Plan may generally be administered by the
Board or the Committee appointed by the Board. However, with respect to grants
of options to individuals who are also officers or directors of the Company
("Insiders"), the 1998 Stock Plan will be administered by: (i) the Board if the
Board may administer the 1998 Stock Plan in a manner complying with Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") or any successor rule thereto ("Rule 16b-3") with respect to a plan under
which discretionary grants and awards of equity securities are to be made to
Insiders; or (ii) a
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<PAGE>
committee designated by the Board to administer the 1998 Stock Plan, which
committee shall be constituted to comply with the rules under Rule 16b-3
governing a plan under which discretionary grants and awards of equity
securities are to be made to Insiders. The administrators of the 1998 Stock Plan
are referred to herein as the "Administrator".
ELIGIBILITY. Nonstatutory stock options and stock purchase rights may be
granted under the 1998 Stock Plan to directors, officers, employees and
consultants of the Company and any parent or subsidiary of the Company.
Incentive stock options may be granted only to employees. The Administrator, in
its discretion, selects the directors, officers, employees and consultants to
whom options and stock purchase rights may be granted, the time or times at
which such options and stock purchase rights shall be granted, and the number of
shares subject to each such grant. As of January 12, 1998, the Company has
approximately five directors (plus one director nominee), three officers,
thirty-five employees and five consultants.
TERMS AND CONDITIONS OF OPTIONS. Each option is evidenced by a stock option
agreement between the Company and the participant, and is subject to the
following additional terms and conditions;
(a) EXERCISE PRICE. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an option
may not be less than 100% of the fair market value of the Common Stock on the
date such option is granted. The fair market value of the Common Stock is
generally determined with reference to the average of the closing bid and
asked prices for the Common Stock on the date the option is granted.
(b) EXERCISE OF OPTION; FORM OF CONSIDERATION. The Administrator
determines when options become exercisable, and may in its discretion,
accelerate the vesting of any outstanding option. The means of payment for
shares issued upon exercise of an option is specified in each option agreement.
The 1998 Stock Plan permits payment to be made by cash, check, promissory note,
other shares of Common Stock of the Company (with some restrictions), cashless
exercises, a reduction in the amount of any Company liability to the
participant, any other form of consideration permitted by applicable law, or any
combination thereof.
(c) TERM OF OPTION. The Administrator determines the term of each option,
provided that the term of an incentive stock option may be no more than ten (10)
years from the date of grant. No option may be exercised after the expiration of
its term.
(d) TERMINATION OF RELATIONSHIP. If a participant's directorship,
officer, employment or consulting relationship terminates for any reason
(other than death or disability), then all options held by the participant
under the 1998 Stock Plan expire on the earlier of (i) the date three months
after such termination or such other date set forth in his or her notice of
grant or (ii) the expiration date of such option. To the extent the option is
exercisable at the time of such termination, the participant may exercise all
or part of his or her option at any time before termination.
(e) DEATH OR DISABILITY. If a participant's directorship, officer,
employment or consulting relationship terminates as a result of death or
disability, then all options held by such participant under the 1998 Stock Plan
expire on the earlier of (i) 12 months from the date of such
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<PAGE>
termination or (ii) the expiration date of such option. The participant (or the
participant's estate or the person who acquires the right to exercise the option
by bequest or inheritance) may exercise all or part of the option at any time
before such expiration to the extent that the option was exercisable at the time
of such termination.
(f) NONTRANSFERABILITY OF OPTIONS. Options granted under the 1998 Stock
Plan are not transferable other than by will or the laws of descent and
distribution, and may be exercisable during the participant's lifetime only by
the participant.
(g) OTHER PROVISIONS. The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the 1998 Stock Plan as may be
determined by the Administrator.
STOCK PURCHASE RIGHTS. A stock purchase right gives the participant a
period of no longer than 90 days from the date of grant to purchase Common
Stock. A stock purchase right is accepted by the execution of a restricted
stock purchase agreement between the Company and the participant, accompanied
by the payment of the purchase price of the shares, if any, as determined by
the Administrator. Unless the Administrator determines otherwise, the
restricted stock purchase agreement shall give the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
participant's directorship, officer, employment or consulting relationship
with the Company for any reason (including death and disability). The
purchase price for any shares repurchased by the Company shall be the
original price paid by the participant. The repurchase option lapses at a
rate determined by the Administrator. A stock purchase right is
nontransferable other than by will or the laws of descent and distribution,
and may be exercisable during the participant's lifetime only by the
participant. The aggregate number of shares subject to grants of stock
purchase rights may not exceed 50% of the shares subject to the 1998 Stock
Plan.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of stock
subject to the 1998 Stock Plan, the number and class of shares of stock subject
to any option or stock purchase right outstanding under the 1998 Stock Plan, and
the exercise price of any such outstanding option or stock purchase right.
In the event of a liquidation or dissolution, any unexercised options or
stock purchase rights will terminate. The Administrator may, in its discretion
provide that each participant shall have the right to exercise all of the
participant's options and stock purchase rights, including those not otherwise
exercisable, until the date ten (10) days prior to the consummation of the
liquidation or dissolution.
In connection with any merger, consolidation, acquisition of assets or like
occurrence involving the Company, each outstanding option or stock purchase
right shall be assumed or an
11
<PAGE>
equivalent option or right substituted by the successor entity. If the successor
entity refuses to assume the options and stock purchase rights or to substitute
substantially equivalent options and stock purchase rights, the participant
shall have the right to exercise the option or stock purchase right as to all
the optioned stock, including shares not otherwise exercisable. In such event,
the Administrator shall notify the participant that the option or stock purchase
right is fully exercisable for fifteen (15) days from the date of such notice
and that the option or stock purchase right terminates upon expiration of such
period.
AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend, alter, suspend
or terminate the 1998 Stock Plan, or any part thereof, at any time and for any
reason. However, the Company shall obtain stockholder approval for any amendment
to the 1998 Stock Plan to the extent necessary and desirable to comply with Rule
16b-3, Section 162(m) and Section 422 of the Code, or any similar rule or
statute. No such action by the Board or stockholders may alter or impair any
option or stock purchase right previously granted under the 1998 Stock Plan
without the written consent of the participant. Unless terminated earlier, the
1998 Stock Plan shall terminate ten years from the date of its approval by the
stockholders or the Board of the Company, whichever is earlier.
FEDERAL INCOME TAX CONSEQUENCES
(a) INCENTIVE STOCK OPTIONS. A participant who is granted an incentive
stock option does not recognize taxable income at the time the option is granted
or upon its exercise, although the exercise may subject the participant to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the participant recognizes ordinary income at the time of
disposition generally measured as the difference between the exercise price and
the lower of (i) the fair market value of the shares at the date of the option
exercise or (ii) the amount realized on the sale of the shares. Any gain or loss
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income is treated as long-term or short-term capital gain or
loss, depending on the holding period. A different rule for measuring ordinary
income upon such a premature disposition may apply if the participant is also an
officer, director, or 10% stockholder of the Company. The Company is entitled to
a deduction in the same amount as the ordinary income recognized by the
participant.
(b) NONSTATUTORY STOCK OPTIONS. A participant does not recognize any
taxable income at the time he or she is granted a nonstatutory stock option.
Upon exercise, the participant recognizes taxable income generally measured by
the excess of the then fair market value of the shares over the exercise price.
Any taxable income recognized in connection with an option exercise by an
employee of the Company is subject to tax withholding by the Company. The
Company is entitled to a deduction in the same amount as the ordinary income
recognized by the participant. Upon a disposition of such shares by the
participant, any difference between the sale price and the participant's
exercise price, to the extent not recognized as taxable income as
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<PAGE>
provided above, is treated as long-term or short-term capital gain or loss,
depending on the holding period.
(c) STOCK PURCHASE RIGHTS. Stock purchase rights will generally be taxed
in the same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the participant will
not recognize ordinary income at the time of purchase. Instead, the participant
will recognize ordinary income on the dates when the stock ceases to be subject
to a substantial risk of forfeiture. The stock will generally cease to be
subject to a substantial risk of forfeiture when it is no longer subject to the
Company's right to repurchase the stock upon the termination of the
participant's directorship, officer, employment or consulting relationship with
the Company. At such times, the participant will recognize ordinary income
measured as the difference between the purchase price and the fair market value
of the stock on the date the stock is no longer subject to a substantial risk of
forfeiture.
The participant may accelerate to the date of purchase his or her
recognition of ordinary income, if any, and the beginning of any capital gain
holding period by timely filing an election pursuant to Section 83(b) of the
Code. In such event, the ordinary income recognized, if any, is measured as the
difference between the purchase price and the fair market value of the stock on
the date of purchase, and the capital gain holding period commences on such
date. The ordinary income recognized by a participant who is an employee will be
subject to tax withholding by the Company. Different rules may apply if the
participant is also an officer, director, or 10% stockholder of the Company.
Subject to the limitation on deductibility set forth in Section 162(m) of
the Code, the Company is entitled to a tax deduction in the same amount as the
ordinary income recognized by a participant in connection with a purchase of
stock under a stock purchase right.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON
PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS
AND STOCK PURCHASE RIGHTS UNDER THE 1998 STOCK PLAN. IT DOES NOT PURPORT TO BE
COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF THE PARTICIPANT'S DEATH
OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE, OR FOREIGN
COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
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<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,
1997, 1996, and 1995, for the Company's Chief Executive Officer and certain of
its most highly compensated executive officers who were serving as such at the
end of the last completed fiscal year. The Company issued no restricted stock
awards and there were no long term incentive plan payouts.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------ ------------
(a) (b) (c) (d) (e) (f) (g)
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND SALARY BONUS ( $ ) OPTIONS ( $ )
PRINCIPAL POSITION YEAR ($) ( $ ) (1) ( # ) (5)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. Bradford Bishop 1997 $ 24,050 $ 0 $ 0 $ 0 $ 0
Chairman, Chief 1996 0 0 0 15,000 (6) 0
Executive Officer 1995 0 0 0 0 0
John F. Bishop 1997 43,550 0 17,085 (3) 0 331
Vice Chairman, 1996 58,500 0 11,853 (3) 0 328
Treasurer and Secretary 1995 75,000 0 25,677 (3) 0 362
Lewis R. Foster (4), 1997 100,732 0 5,337 (2) 40,000 (6) 561
President, and
Chief Operating Officer
Ivan Andres 1997 77,659 2,000 4,225 (7) 0 561
Vice President, 1996 73,819 19,000 6,559 (7) 2,500 (6) 554
Marketing and Sales 1995 73,755 28,000 * (8) 8,000 (6) 530
</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. Lewis R. Foster, the Company paid $4,200 in car allowances
and contributed $1,028 under the Retirement/Savings Plan in fiscal 1997.
(3) On behalf of Mr. J.F.Bishop, the Company paid $7,429 under the supplemental
reimbursement plan and $7,691 under the Legal Services Reimbursement Plan
in fiscal 1997, paid $7,522 under the supplemental medical
14
<PAGE>
reimbursement plan and paid $4,006 for private club dues in fiscal 1996,
and paid $12,776 under the legal services reimbursement plan in fiscal
1995. 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) Mr. Lewis R. Foster's employment terminated on December 16, 1997 and Mr.
Ivan Andres was appointed General Manager and Chief Operating Officer on
such date.
(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 Second Amended
and Restated 1994 Stock Option Plan.
(7) On behalf of Mr. Andres, the Company paid $4,200 in car allowances in
fiscal 1997, and $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 $50,000 or 10% of such
individual's salary and bonus.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on options granted under the
Company's Second Amended and Restated 1994 Stock Option Plan in fiscal 1997 to
the named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR (1) ($/SH) DATE
---- ------------- --------------- -------- ----------
<S> <C> <C> <C> <C>
J. Bradford Bishop --- --- --- ---
John F. Bishop --- --- --- ---
Ivan Andres --- --- --- ---
Lewis R. Foster 40,000 (2) 100% $4.75 11/20/06
</TABLE>
- -----------------
(1) Percentage based on grants to employees during the last fiscal year of
options to purchase 40,000 shares of Common Stock.
(2) The options granted to Mr. Foster became exercisable with respect to
one-fourth of such shares on October 16, 1997. As a result of Mr. Foster's
departure from the Company, no further options will become exercisable.
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<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table provides information regarding option exercises in
fiscal 1997 by the named executive officers and the value of such officers'
unexercised options at September 30, 1997:
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options
FY-End (#) at FY-End ($) (1)
------------------ -------------------
Shares
Acquired on Value Exercisable (E)/ Exercisable (E)/
Name Exercise (#) Realized ($) Unexercisable (U) Unexercisable (U)
- ------------------------ ------------ --------------- ------------------ -------------------
<S> <C> <C> <C> <C>
J. Bradford Bishop ---- ---- 5,000 (E) $0 (E)
---- ---- 10,000 (U) $0 (U)
John F. Bishop ---- ---- ---- ----
Ivan Andres ---- ---- 2,100 (E) $0 (E)
---- ---- 6,800 (U) $0 (U)
Lewis R. Foster (2) ---- ---- 40,000 (U) $0 (U)
</TABLE>
- ------------------
(1) The options at fiscal year end were not in-the-money based on a fair market
value per share of Common Stock of $2.72, 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, 1997.
(2) The options granted to Mr. Foster became exercisable with respect to
one-fourth of such shares on October 16, 1997. As a result of Mr. Foster's
departure from the Company, no further options will become exercisable
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, 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
16
<PAGE>
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 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.
17
<PAGE>
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 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"). The Bishops advanced
$600,000 to the Company under the Subordinated Loan Agreement. Interest
accrued thereon at 8% per annum, payable quarterly. In connection with the
Subordinated Loan Agreement, the Company issued warrants to the Bishops to
purchase 90,000 shares of Common Stock at $3.00 per share. The Subordinated
Loan Agreement terminated on October 15, 1997, and all principal thereunder
was repaid in full on such date with the proceeds from the Loan Facility with
the Bishop Family Trust (described below). As consideration for the early
repayment of such obligations, the warrants issued to the Bishops were
canceled on October 15, 1997.
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, were fair and reasonable and as favorable
to the Company as those which could be obtained from unrelated third parties.
BRIDGE LOANS
The Company received several bridge loans from the Bishops payable on
demand (the "Bridge Loans"), which amounted to $400,000, plus interest, on
October 15, 1997. Interest accrued thereon at 10% per annum. All principal
of the
18
<PAGE>
Bridge Loans was repaid in full on such date with the proceeds from the Loan
Facility with the Bishop Family Trust (described below).
In the opinion of management and the disinterested members of the Board of
Directors, the terms of the Bridge Loans were fair and reasonable and as
favorable to the Company as those which could be obtained from unrelated third
parties.
BISHOP FAMILY TRUST LOAN FACILITY
On October 15, 1997, the Company entered into a loan and security agreement
(the "Loan Facility") with John F. Bishop and Ann R. Bishop, trustees of the
Bishop Family Trust (the "Bishop Family Trust"). At December 12, 1997, the
Company had outstanding borrowings in the aggregate principal amount of
$1,350,000 under the Loan Facility. The Loan Facility provides for a term loan
of $1,000,000 and revolving advances of up to $450,000. Interest is charged at
the prime rate plus 5% per annum and is payable monthly. The Loan Facility
expires on October 15, 1998. The Loan Facility contains various restrictive
covenants requiring, among other matters, the achievement of profitability on a
rolling 3-month basis commencing in August 1998, and the maintenance of minimum
revenues from its OEM relationship with Hewlett-Packard Company commencing in
January 1998. The Loan Facility also precludes or limits the Company's ability
to take certain actions, such as paying dividends, making loans, making
acquisitions or incurring indebtedness, without the Bishop Family Trust's prior
written consent. The Loan Facility is secured by substantially all of the
Company's assets. The Bishop Family Trust has subordinated the Loan Facility to
the Bank Line. At December 12, 1997, the Company was in compliance with the
restrictive covenants of the Loan Facility.
Under the terms of the Loan Facility, the Company will be obligated to pay
facility fees of up to $282,000 to the Bishop Family Trust in the manner
described below.
A. A facility fee of $70,500 was fully earned on October 22, 1997 and
will be payable by the Company on January 22, 1998.
B. If the principal amount of the obligations outstanding under the Loan
Facility on January 22, 1998 exceeds $1,000,000, then an additional facility fee
of $70,500 will be fully earned on such date and will be payable by the Company
on January 22, 1998.
C. If the principal amount of the obligations outstanding under the Loan
Facility on April 22, 1998 exceeds $1,000,000, then an additional facility fee
of $141,000 will be fully earned on such date and will be payable by the Company
on April 22, 1998.
The Company will have the right to pay the facility fee in cash or by
issuance of Common Stock. The number of shares of Common Stock issuable as
payment for a facility fee will equal (a) the applicable facility fee divided by
(b) the Fair Market Value (as defined in the Loan Facility) per share of Common
Stock on the date such facility fee is payable to the Bishop Family Trust.
In the opinion of management and the disinterested members of the Board
of Directors, the terms of the Loan Facility are fair and reasonable and as
favorable to the Company as those which could be obtained from unrelated
third parties.
19
<PAGE>
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
The Company engaged Meredith, Cardozo, Lanz & Chiu LLP as its new
independent accountants as of October 9, 1997 to conduct the audit for fiscal
1997.
On October 9, 1997, the Company dismissed Price Waterhouse LLP as its
independent accountants. The reports of Price Waterhouse LLP on the
financial statements for the years ended September 30, 1995 and 1996
contained no adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principle, except
that their reissued report on the financial statements for the year ended
September 30, 1996, which was dual dated December 23, 1996 and October 23,
1997 includes an explanatory paragraph to express substantial doubt regarding
the Company's ability to continue as a going concern. The Company's Audit
Committee
20
<PAGE>
participated in and approved the decision to change independent accountants. In
connection with its audits for the two most recent fiscal years and through
October 9, 1997, there have been no disagreements with Price Waterhouse LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Price Waterhouse LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
Price Waterhouse LLP furnished the Company with a letter addressed to the
Securities and Exchange Commission stating that it agrees with the statements in
this paragraph.
Representatives of Meredith, Cardozo, Lanz & Chiu 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.
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 1999,
proposals by stockholders intended to be presented at such Annual Meeting must
be received by the Company no later than September 18, 1998.
21
<PAGE>
FINANCIAL STATEMENTS
The Company's 1997 Form 10-KSB 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, 1997, 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.: PRESIDENT. 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 14, 1998
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EIP MICROWAVE, INC.
1998 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Plan are to attract and retain
the best available personnel for positions of substantial responsibility,
to provide additional incentive to Directors, Officers, Employees and
Consultants, and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the
Plan.
(b) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under U. S. state corporate
laws, U.S. federal and state securities laws, the Code and the
applicable laws of any foreign country or jurisdiction where
Options or Stock Purchase Rights will be or are being granted
under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means EIP Microwave, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who
is compensated for such services.
(i) "CONTINUOUS STATUS" means that the Participant's relationship as
Director, Officer, Employee or Consultant with the Company, any
Parent, or Subsidiary, is not interrupted or terminated.
Continuous Status shall not be considered interrupted in the case
of (i) any leave of absence approved by the Company or (ii)
transfers between locations of the Company or between the
Company, its Parent, any
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Subsidiary, or any successor. A leave of absence approved by the
Company shall include sick leave, military leave, or any other
personal leave approved by an authorized representative of the
Company. For purposes of Incentive Stock Options, no such leave
may exceed ninety days, unless reemployment upon expiration of
such leave is guaranteed by statute or contract. If reemployment
upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive
Stock Option held by the Participant shall cease to be treated as
an Incentive Stock Option and shall be treated for tax purposes
as a Nonstatutory Stock Option.
(j) "DIRECTOR" means a member of the Board.
(k) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company, any Parent or Subsidiary. Neither
service as a Director nor payment of a director's fee by the
Company shall be sufficient to constitute "employment" by the
Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq
SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported)
as quoted on such exchange or system for the day of
determination, as reported in The Wall Street Journal
or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but clause (i) above is not
applicable, the Fair Market Value of a Share of Common
Stock shall be the mean between the closing bid and
asked prices for the Common Stock on the day of
determination, as reported in The Wall Street Journal
or such other source as the Administrator deems
reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in
good faith by the Administrator.
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(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of
the Code and the regulations promulgated thereunder.
(p) "INSIDER" means an individual subject to Section 16 of the
Exchange Act.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "NOTICE OF GRANT" means a written notice evidencing certain terms
and conditions of an individual Option or Stock Purchase Right.
The Notice of Grant is part of the Option Agreement or the
Restricted Stock Purchase Agreement, as applicable.
(s) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(t) "OPTION" means a stock option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and a Participant evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the
terms and conditions of the Plan.
(v) "OPTIONED STOCK" means the Common Stock subject to an Option or
Stock Purchase Right.
(w) "PARTICIPANT" means a Director, Officer, Employee or Consultant
who holds an outstanding Option or Stock Purchase Right, or
Restricted Stock subject to a repurchase option in favor of the
Company.
(x) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "PLAN" means this 1998 Stock Plan.
(z) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 9 below.
(aa) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement
between the Company and the Participant evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase
Right. The Restricted Stock Purchase Agreement is subject to the
terms and conditions of the Plan and the Notice of
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Grant.
(bb) "RIGHTS OFFERING" means the offering of shares of Common Stock by
the Company to its stockholders of record on November 7, 1997, as
such offering may be amended from time to time.
(cc) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the Plan.
(dd) "SECTION 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(ee) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(ff) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 9 of the Plan, as evidenced by a Notice of
Grant.
(gg) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,500,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock. If an Option or Stock Purchase Right
expires or becomes unexercisable without having been exercised in full, the
unpurchased Shares which were subject thereto shall become available for
future grant or sale under the Plan (unless the Plan has terminated);
provided, however, that Shares that have actually been issued under the
Plan, whether upon exercise of an Option or Stock Purchase Right, shall not
be returned to the Plan and shall not become available for future
distribution under the Plan, except that if Shares of Restricted Stock are
repurchased by the Company at their original purchase price, and the
original purchaser of such Shares did not receive any benefits of ownership
of such Shares, such Shares shall become available for future grant under
the Plan. For purposes of the preceding sentence, voting rights shall not
be considered a benefit of Share ownership.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may
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be administered by different bodies with respect to
Directors, Officers who are not Directors, and
Employees or Consultants who are neither Directors nor
Officers.
(ii) ADMINISTRATION--GENERALLY. The Plan shall be
administered by (A) the Board or (B) a Committee
designated by the Board, which Committee shall be
constituted to satisfy Applicable Laws. Once
appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the
Board. From time to time, the Board may increase the
size of the Committee and appoint additional members,
remove members (with or without cause) and substitute
new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter
directly administer the Plan, all to the extent
permitted by Applicable Laws.
(iii) ADMINISTRATION WITH RESPECT TO INSIDERS. With respect
to an Option or a Stock Purchase Right granted to an
Insider, the Plan shall be administered by (A) the
Board, if the Board may administer the Plan in a manner
complying with the rules under Rule 16b-3 relating to
the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary
grants and awards of equity securities are to be made,
or (B) a committee designated by the Board to
administer the Plan, which committee shall be
constituted to comply with the rules under Rule 16b-3
relating to the disinterested administration of
employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities
are to be made. From time to time the Board may
increase the size of the Committee and appoint
additional members, remove members (with or without
cause) and substitute new members, fill vacancies
(however caused), and remove all members of the
Committee and thereafter directly administer the Plan,
all to the extent permitted by the rules under Rule
16b-3 relating to the disinterested administration of
employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities
are to be made.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific
duties delegated by the Board to such Committee, the
Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(n) of the Plan;
(ii) to select the Directors, Officers, Employees and
Consultants to whom
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Options and Stock Purchase Rights may be granted
hereunder;
(iii) to determine whether and to what extent Options and
Stock Purchase Rights or any combination thereof, are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted
hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine, consistent with the terms of the Plan,
the terms and conditions of any Option or Stock
Purchase Right granted hereunder, including, but are
not limited to, the exercise price, the time or times
when an Option or a Stock Purchase Right may be
exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture
restrictions, any restriction or limitation, or any
other term or condition regarding a Option or a Stock
Purchase Right or the Shares relating thereto, based in
each case on such factors as the Administrator, in its
sole discretion, shall determine;
(vii) to construe and interpret the terms of the Plan and
Options and Stock Purchase Rights granted pursuant to
the Plan;
(viii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations
relating to sub-plans established for the purpose of
qualifying for preferred tax treatment under foreign
tax laws;
(ix) to modify or amend any Option, Stock Purchase Right or
Restricted Stock (subject to Section 13(c) of the
Plan), including the discretionary authority to extend
the post-termination exercisability period of Options
longer than is otherwise provided for in the Plan;
(x) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of
an Option or Stock Purchase Right previously granted by
the Administrator;
(xi) to determine the terms and restrictions applicable to
Options, Stock Purchase Rights and any Restricted
Stock; and
(xii) to make all other determinations deemed necessary or
advisable for administering the Plan.
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(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and
binding on all Participants and any other holders of Options or
Stock Purchase Rights, or Restricted Stock.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Directors, Officers, Employees and Consultants. Incentive Stock
Options may be granted only to Employees. If otherwise eligible, a
Director, Officer, Employee or Consultant who has been granted an Option or
Stock Purchase Right may be granted additional Options or Stock Purchase
Rights.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by the
Participant during any calendar year (under all plans of the
Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon a Participant any right with respect to the
continuation of the Participant's directorship, officer,
employment or consulting relationship with the Company, nor shall
they interfere in any way with the Participant's right or the
Company's right to terminate such directorship, officer,
employment or consulting relationship at any time, with or
without cause.
7. TERM OF PLAN. Subject to Section 17 of the Plan, the Plan shall become
effective upon the earlier to occur of its adoption by the Board or its
approval by the stockholders of the Company as described in Section 17 of
the Plan. The Plan shall continue in effect for a term of ten (10) years
unless terminated earlier under Section 13 of the Plan.
8. OPTIONS
(a) TERM OF OPTION. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an
Incentive Stock Option, the term shall be ten (10) years from the
date of grant or such shorter term as may be provided in the
Notice of Grant.
(b) EXERCISE PRICE. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be no less than
100% of the Fair Market Value per Share on the date of grant.
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(c) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the
Option may be exercised and shall determine any conditions which
must be satisfied before the Option may be exercised. In so
doing, the Administrator may specify that an Option may not be
exercised until either the completion of a service period or the
achievement of performance criteria with respect to the Company
or the Participant.
(d) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option,
including the method of payment. In the case of an Incentive
Stock Option, the Administrator shall determine the acceptable
form of consideration at the time of grant. Such consideration
may consist entirely of: (i) cash; (ii) check; (iii) promissory
note; (iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Participant
for more than six months on the date of surrender, and (B) have a
Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be
exercised; (v) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of
the Option and delivery to the Company of the sale or loan
proceeds required to pay the exercise price; (vi) a reduction in
the amount of any Company liability to the Participant, including
any liability attributable to the Participant's participation in
any Company-sponsored deferred compensation program or
arrangement; (vii) any combination of the foregoing methods of
payment; or (viii) such other consideration and method of payment
for the issuance of Shares to the extent permitted by Applicable
Laws.
(e) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of
the Plan and at such times and under such conditions as
determined by the Administrator and set forth in the Option
Agreement. An Option may not be exercised for a fraction of a
Share. An Option shall be deemed exercised when the Company
receives: (i) written notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the
Option, and (ii) full payment for the Shares with respect to
which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan.
Shares issued upon exercise of an Option shall be issued in the
name of the Participant or, if requested by the Participant, in
the name of the Participant and his or her spouse. Until the
stock certificate evidencing such Shares is issued (as evidenced
by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or
receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company
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shall issue (or cause to be issued) such stock certificate
promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is
prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan. Exercising an Option in any
manner shall decrease the number of Shares thereafter available,
both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
(f) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR, OFFICER, EMPLOYEE
OR CONSULTANT. Upon termination of a Participant's Continuous
Status, other than upon the Participant's death or Disability,
the Participant may exercise his or her Option within such period
of time as is specified in the Notice of Grant to the extent that
he or she is entitled to exercise it on the date of termination
(but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). In the absence of a
specified time in the Notice of Grant, the Option shall remain
exercisable for three (3) months following the Participant's
termination. If, on the date of termination, the Participant is
not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert
to the Plan. If, after termination, the Participant does not
exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered
by such Option shall revert to the Plan. Notwithstanding the
above, in the event the Company is involved in a merger as a
result of which Participants are precluded from selling shares of
the acquiring or successor company until the publication of
financial results covering post- merger combined operations
("Pooling Restrictions"), Options held by Participants subject to
such Pooling Restrictions (including Options that are assumed or
substituted pursuant to Section 11(c)) shall remain exercisable
until five (5) business days after the expiration of such Pooling
Restrictions (but not beyond the original term of the Option)
notwithstanding an earlier termination of such Participant's
Continuous Status.
(g) CHANGE IN CONTINUOUS STATUS. Notwithstanding the above, in the
event of a Participant's change in status from one relationship
with the Company, any Parent or Subsidiary to another
relationship as Director, Officer, Employee or Consultant (E.G.,
Employee to Director, Consultant to Employee, etc.), the
Participant's Continuous Status shall not automatically terminate
solely as a result of such change in status. In the event a
Participant ceases to be an Employee but retains Continuous
Status, an Incentive Stock Option held by that Participant shall
cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option three
months and one day following such termination of employment.
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(h) DISABILITY OF PARTICIPANT. Upon termination of a Participant's
Continuous Status as a result of the Participant's Disability,
the Participant may exercise his or her Option at any time within
twelve (12) months (or such other period of time as is determined
by the Administrator) from the date of termination, but only to
the extent that the Participant is entitled to exercise it on the
date of termination (and in no event later than the expiration of
the term of the Option as set forth in the Notice of Grant). If,
on the date of termination, the Participant is not entitled to
exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Participant does not exercise his or
her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to
the Plan.
(i) DEATH OF PARTICIPANT. In the event of the death of a
Participant, the Option may be exercised at any time within
twelve (12) months (or such other period of time as is determined
by the Administrator) following the date of death (but in no
event later than the expiration of the term of such Option as set
forth in the Notice of Grant), by the Participant's estate or by
a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Participant was
entitled to exercise the Option at the date of death. If, at the
time of death, the Participant was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If,
after death, the Participant's estate or a person who acquired
the right to exercise the Option by bequest or inheritance does
not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(j) OTHER PROVISIONS. The Option Agreement shall contain such other
terms, provisions and conditions not inconsistent with the Plan
as may be determined by the Administrator in its sole discretion.
In addition, the provisions of Option Agreements need not be the
same with respect to each Participant.
(k) RULE 16b-3. Options granted to Insiders must comply with the
applicable provisions of Rule 16b-3 and shall contain such
additional conditions or restrictions determined by the
Administrator as may be required thereunder to qualify for
exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
9. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with Options granted under
the Plan and/or cash or other awards made outside of the Plan.
After the Administrator determines that it will offer
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Stock Purchase Rights under the Plan, it shall advise the
Participant in writing, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer,
including the number of Shares that the Participant shall be
entitled to purchase, the purchase price (if any) to be paid, and
the time within which the Participant must accept such offer,
which shall in no event exceed ninety (90) days from the date
upon which the Administrator made the determination to grant the
Stock Purchase Right. The offer shall be accepted by execution
of a Restricted Stock Purchase Agreement in the form determined
by the Administrator. The aggregate number of Shares subject to
grants of Stock Purchase Rights shall not exceed fifty percent
(50%) of the Shares subject to the Plan pursuant to Section 3.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant
the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the Participant's Continuing Status
for any reason (including death or Disability). The purchase
price for Shares repurchased pursuant to the Restricted Stock
Purchase Agreement shall be the original price paid by the
Participant and may be paid by cancellation of any indebtedness
of the Participant to the Company. The repurchase option shall
lapse at a rate determined by the Administrator.
(c) RULE 16b-3. Stock Purchase Rights granted to Insiders, and
Shares purchased by Insiders in connection with Stock Purchase
Rights, shall be subject to any restrictions applicable thereto
in compliance with Rule 16b-3, and shall contain such additional
conditions or restrictions determined by the Administrator as may
be required thereunder to qualify for exemption from Section 16
of the Exchange Act with respect to Plan transactions. An
Insider may only purchase Shares pursuant to the grant of a Stock
Purchase Right, and may only sell Shares purchased pursuant to
the grant of a Stock Purchase Right, during such time or times as
are permitted by Rule 16b-3.
(d) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the
Administrator in its sole discretion. In addition, the
provisions of Restricted Stock Purchase Agreements need not be
the same with respect to each Participant.
(e) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is
exercised, the Participant shall have the rights equivalent to
those of a stockholder, subject to any repurchase option in favor
of the Company and shall be a stockholder when his or her
purchase is entered upon the records of the duly authorized
transfer agent of the Company. No adjustment will be made for a
dividend or other right
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for which the record date is prior to the date the Stock Purchase
Right is exercised, except as provided in Section 11 of the Plan.
(f) ISSUANCE OF SHARES. As soon as possible after full payment of
the purchase price (if any), the Shares purchased shall be duly
issued; provided, however, that the Administrator may require
that the Participant make adequate provision for any Federal and
State withholding obligations of the Company as a condition to
such purchase.
(g) SHARES AVAILABLE UNDER THE PLAN. Exercise of a Stock Purchase
Right in any manner shall result in a decrease in the number of
Shares that thereafter shall be available for reissuance under
the Plan.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Neither an
Option or a Stock Purchase Right, nor any Restricted Stock subject to a
repurchase right in favor of the Company, may be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will
or by the laws of descent or distribution, and an Option or a Stock
Purchase Right may be exercised, during the lifetime of the Participant,
only by the Participant.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET
SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option and Stock Purchase Right, and
the number of shares of Common Stock which have been authorized
for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned
to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right,
shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the
Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an Option or
Stock Purchase Right.
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(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator
shall notify each Participant as soon as practicable prior to the
effective date of such proposed transaction. The Administrator in
its discretion may provide for a Participant to have the right to
exercise his or her Option or Stock Purchase Right until ten (10)
days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option would
not otherwise be exercisable. In addition, the Administrator may
provide that any Company repurchase option applicable to any
Shares purchased upon exercise of a Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or
liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised,
an Option or Stock Purchase Right will terminate immediately
prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another entity, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock
Purchase Right shall be assumed or an equivalent option or right
substituted by the successor entity or a Parent or Subsidiary of
the successor entity, or in the event that the successor entity
refuses to assume or substitute for the Option or Stock Purchase
Right, the Participant shall have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be
exercisable. If an Option or Stock Purchase Right is exercisable
in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Participant
that the Option or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of
such notice, and the Option or Stock Purchase Right shall
terminate upon the expiration of such period. For the purposes
of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets,
the option or right confers the right to purchase or receive, for
each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the merger or sale of assets,
the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of
a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets was
not solely common stock of the successor entity or its Parent,
the Administrator may, with the consent of the successor entity,
provide for the consideration to be received upon the exercise of
the Option or Stock Purchase Right, for each Share of Optioned
Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor entity or its Parent equal in fair
market value to the per share
13
<PAGE>
consideration received by holders of Common Stock in the merger
or sale of assets.
12. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other
later date as is determined by the Administrator. Notice of the
determination shall be provided to each Participant within a reasonable
time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) STOCKHOLDER APPROVAL. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and
desirable to comply with Rule 16b-3 or with Sections 162(m) or
422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of
any exchange or quotation system on which the Common Stock is
listed or quoted). Such stockholder approval, if required, shall
be obtained in such a manner and to such a degree as is required
by the applicable law, rule or regulation.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of
any Participant, unless mutually agreed otherwise between the
Participant and the Administrator, which agreement must be in
writing and signed by the Participant and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise
of such Option or Stock Purchase Right and the issuance and
delivery of such Shares shall comply with all relevant provisions
of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, Applicable Laws, and the requirements of
any stock exchange or quotation system upon which the Shares may
then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such
compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the
person exercising such Option or Stock Purchase Right to
represent and warrant at the time of any such exercise
14
<PAGE>
that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a
representation is required.
15. LIABILITY OF COMPANY.
(a) INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained.
(b) GRANTS EXCEEDING ALLOTTED SHARES. If the Optioned Stock covered
by an Option or Stock Purchase Right exceeds, as of the date of
grant, the number of Shares which may be issued under the Plan
without additional stockholder approval, such Option or Stock
Purchase Right shall be void with respect to such excess Optioned
Stock, unless stockholder approval of an amendment sufficiently
increasing the number of Shares subject to the Plan is timely
obtained in accordance with Section 13(b) of the Plan.
16. RESERVATION OF SHARES. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to (a) the
issuance of at least 4,400,000 shares of Common Stock by the Company
pursuant to the Rights Offering, as amended from time to time, and (b)
approval by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted. Such stockholder approval
shall be obtained in the manner and to the degree required under applicable
federal and state law.
15
<PAGE>
EIP MICROWAVE, INC.
4500 Campus Drive, Suite 219
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 23, 1997, at the 1998 Annual Meeting of
Stockholders of the Company to be held at Pacific Club, 4110 MacArthur
Blvd., Newport Beach, California, on Wednesday, February 11, 1998, 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 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.
- --------------------------------------------------------------------------------
TRIANGLE FOLD AND DETACH HERE TRIANGLE
<PAGE>
Please mark your votes as indicated in this example /X/
<TABLE>
<CAPTION>
<S> <C> <C>
1. ELECTION OF DIRECTORS FOR the nominee listed WITHHOLD AUTHORITY
NOMINEES:CLASS III - ROBERT D. (except as indicated to vote for the nominee
JOHNSON AND JAMES N. to the contrary below) listed below
CUTLER, JR. / / / /
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW)
- --------------------------------------------------------------------------------
2. Proposal to adopt the 1998 Stock Plan and approve the reservation and
authorization of 1,500,000 shares of Common Stock reserved for issuance
under the terms of the plan.
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: , 1998
-------------------------------------------- ----------
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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TRIANGLE FOLD AND DETACH HERE TRIANGLE
