MICROLOG CORP, DEF 14A, 1998-02-24

MICROLOG CORP
DEF 14A, 1998-02-24
TELEPHONE & TELEGRAPH APPARATUS

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

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 ss. 240.14a-11(c) or ss. 240.14a-12

Microlog Corporation
(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 0-11:1/

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously with preliminary proxy 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>

February 24, 1998

Dear Shareholder:

You are cordially invited to attend the 1998 Annual Meeting of
Shareholders of Microlog Corporation (the "Company") to be held March 31, 1998,
at 10:00 a.m., at the Gaithersburg Hilton, 620 Perry Parkway, Gaithersburg,
Maryland, 20877, in the Gaithersburg-Darnestown Suite.

The Annual Meeting has been called for the following purposes:

(1) to elect two directors to serve for a full term of
three years, and to ratify the Board of Directors'
appointment of one director to fill a vacant director
position with a term expiring in one year;

(2) to ratify the Board of Directors' appointment of the
firm of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending
October 31, 1998;

(3) to consider and vote upon proposed amendments to the
Company's 1989 Non-Employee Director Non-Qualified
Stock Option Plan, as Amended and Restated (the
"Plan"), which would (i) increase from 125,000 to
250,000 the number of shares of Common Stock reserved
for issuance upon the exercise of options granted
under the Plan, (ii) provide for annual grants of an
option to purchase 4,000 shares (rather than 3,000
shares) of Common Stock to each eligible non-employee
director of the Company, (iii) provide for initial
grants of options to purchase 10,000 shares (rather
than 5,000 shares) of Common Stock to each new
non-employee director of the Company, (iv) extend the
term of the Plan to April 30, 2006, (v) amend the
definition of individuals eligible to receive options
under the Plan to cover only those Board members who
are not, and have not for the past three years, been
an officer or salaried employee of the Company or any
subsidiary, and (vi) eliminate the requirement that
shareholders approve certain types of amendments to
the Plan;

(4) to transact such other business as may properly come
before the Annual Meeting or any adjournments or
postponements thereof.

The Board of Directors of Microlog Corporation unanimously
recommends that you vote "FOR" proposals (1), (2) and (3) to be considered at
the Annual Meeting.

<PAGE>

Your vote is important, regardless of the number of shares you
own. On behalf of the Board of Directors, I urge you to vote, sign, date, and
return the enclosed proxy card as soon as possible, even if you plan to attend
the Annual Meeting. Signing this proxy will not prevent you from voting in
person should you be able to attend the meeting. Signing the proxy will assure
that your vote is counted if, for any reason, you are unable to attend.

Sincerely yours,

/s/ Richard A. Thompson

Richard A. Thompson
Chief Executive Officer

<PAGE>

MICROLOG CORPORATION

20270 Goldenrod Lane
Germantown, MD 20876-4070
(301) 428-9100

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS;
TO BE HELD MARCH 31, 1998

NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of
Shareholders of Microlog Corporation (the "Company") will be held on March 31,
1998, at 10:00 a.m., local time, at the Gaithersburg Hilton, 620 Perry Parkway,
Gaithersburg, Maryland, 20877, for the following purposes:

(2) to ratify the Board of Directors' appointment of the
firm of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending
October 31, 1998;

(4) to transact such other business as may properly come
before the Annual Meeting or any adjournments or
postponements thereof.

Pursuant to the By-Laws of the Company, the Board of Directors
has fixed February 9, 1998 as the record date for the Annual Meeting with
respect to this solicitation. Only shareholders of record at the close of
business on that date will be entitled to notice of and to vote at the Annual
Meeting or any adjournments thereof.

<PAGE>

In the event there are not sufficient votes to approve one or
more of the foregoing proposals at the time of the Annual Meeting, the Annual
Meeting may be adjourned in order to permit further solicitation of proxies by
the Company.

By Order of the Board of Directors

/s/ Richard A. Thompson

Richard A. Thompson
Chief Executive Officer

Germantown, Maryland
February 24, 1998

PLEASE FILL OUT, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
YOU MAY, IF YOU WISH, WITHDRAW YOUR PROXY AND VOTE YOUR SHARES PERSONALLY.

<PAGE>

MICROLOG CORPORATION

20270 GOLDENROD LANE
GERMANTOWN, MD 20876-4070
(301) 428-9100

-------------------------
PROXY STATEMENT
-------------------------

ANNUAL MEETING OF SHAREHOLDERS
MARCH 31, 1998

SOLICITATION, VOTING AND REVOCABILITY OF PROXIES

This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Microlog Corporation, a
Virginia corporation (the "Company"), for use at the 1998 Annual Meeting of
Shareholders to be held on March 31, 1998 at 10:00 a.m., local time, at the
Gaithersburg Hilton, 620 Perry Parkway, Gaithersburg, Maryland, 20877, and at
any adjournments or postponements thereof (the "Annual Meeting").

The Annual Meeting is being called for the following purposes:

(2) to ratify the Board of Directors' appointment of the
firm of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending
October 31, 1998;

(3) to consider and vote upon proposed amendments (the
"Amendments") to the Company's 1989 Non-Employee
Director Non-Qualified Stock Option Plan, as Amended
and Restated (the "Plan"), which would (i) increase
from 125,000 to 250,000 the number of shares of
Common Stock reserved for issuance upon the exercise
of options granted under the Plan, (ii) provide for
annual grants of an option to purchase 4,000 shares
(rather than 3,000 shares) of Common Stock to each
eligible non-employee director of the Company, (iii)
provide for initial grants of options to purchase
10,000 shares (rather than 5,000 shares) of Common
Stock to each new non-employee director of the
Company, (iv) extend the term of the Plan to April
30, 2006, (v) amend the definition of individuals
eligible to receive options under the Plan to cover
only those Board members who are not, and have not
for the past three years, been an officer or salaried
employee of the Company or any subsidiary, and (vi)
eliminate the requirement that shareholders approve
certain types of amendments to the Plan;

(4) to transact such other business as may properly come
before the Annual Meeting or any adjournments or
postponements thereof.

Record holders of the Company's common stock, par value $.01
per share ("Common Stock"), at the close of business on February 9, 1998, the
record date, are entitled to notice of, and to vote at, the Annual Meeting. As
of January 16, 1998, there were outstanding 4,282,810 shares of Common Stock.
Each shareholder will be entitled to one vote for each share of Common Stock
held at the close of business on the record date. At the Annual Meeting, votes
will be counted by written ballot.

1
<PAGE>

This Proxy Statement, and the accompanying notice of the
Annual Meeting and proxy card, will first be sent or given to shareholders on or
about February 24, 1998. The Company's Annual Report to Shareholders for the
fiscal year ended October 31, 1997 accompanies this Proxy Statement.

The shares of Common Stock represented by valid proxies
received by the Company in time for the Annual Meeting will be voted as
specified in such proxies. Executed but unmarked proxies will be voted:

(1) FOR the election of the Board of Directors' nominees for
director and ratification of the appointment to the
vacant director position;

(2) FOR the ratification of the appointment of Price
Waterhouse LLP as independent accountants of the Company
for the fiscal year ending October 31, 1997; and

(3) FOR the proposed Amendments to the Plan.

If any other matters properly come before the Annual Meeting,
the persons named as proxies will, unless the shareholder otherwise specifies in
the proxy, vote upon such matters as determined by a majority of the Board of
Directors.

The election of the Board of Directors' nominees for director
will require the affirmative vote of a plurality of the shares entitled to vote
in the election of directors. Ratification of the appointment to the vacant
director position and of the independent accountants and approval of the
proposed amendments to the Plan will each require the affirmative vote of the
holders of a majority of the shares of Common Stock of the Company entitled to
vote thereon and who vote in person or by proxy at the Annual Meeting. In order
to approve the transaction of any other business as may properly come before the
Annual Meeting, or any adjournments or postponements thereof, the votes cast at
the Annual Meeting approving the action must exceed the votes cast opposing the
action. Abstentions and broker non-votes will not be counted as either approving
or opposing the action.

Any shareholder giving a proxy has the right to revoke it at
any time before it is exercised by attending the Annual Meeting and voting in
person or by delivering to the Secretary of the Company at 20270 Goldenrod Lane,
Germantown, MD 20876-4070, a written notice of revocation or duly executed proxy
bearing a later date.

The cost of soliciting proxies will be borne by the Company.
In addition to the use of the mails, proxies may be solicited personally or by
telephone, facsimile, or telegraph by officers, directors, and employees of the
Company who will not be specially compensated for such solicitation activities.
Arrangements will also be made with brokerage houses and other custodians,
nominees, and fiduciaries for forwarding solicitation materials to the
beneficial owners of such shares held of record by such persons, and the Company
will reimburse such persons for their reasonable expenses incurred in connection
therewith.

The Company is required to file an Annual Report on Form 10-K
for the fiscal year ended October 31, 1997 with the Securities and Exchange
Commission ("SEC"). Shareholders can obtain, free of charge, a copy of such
Annual Report by writing to Microlog Corporation, 20270 Goldenrod Lane,
Germantown, MD 20876-4070, Attention: Corporate Secretary.

<PAGE>

STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS

The following table sets forth information as of January 16,
1998 with respect to the ownership of shares of Common Stock by (i) owners of
more than 5% of the Company's outstanding Common Stock, (ii) each director and
nominee for director of the Company, (iii) each of the named executive officers
of the Company, and (iv) all directors and officers of the Company as a group.
The information is based on the most recent filings with the SEC by such persons
or upon information provided by such persons to the Company. Unless otherwise
indicated, the persons shown in the table are believed to have sole voting and
investment power with respect to the entire number of shares reported.
<TABLE>
<CAPTION>
<S> <C> <C>

Name and Address of Number of Shares Percentage of
Beneficial Owner (1) Beneficially Owned Ownership (2)
- -------------------- ------------------ -------------

Hathaway & Associates, Ltd 373,000 8.7%
119 Rowayton Avenue
Rowayton, Connecticut 06853

Joe J. Lynn 333,350 7.8%
20270 Goldenrod Lane
Germantown, MD 20876-4070

Richard A. Thompson 239,000 (3) 5.3%
20270 Goldenrod Lane
Germantown, MD 20876-4070

Steven R. Delmar 97,000 (4) 2.2%
20270 Goldenrod Lane
Germantown, MD 20876-4070

Deborah M. Grove 49,200 (5) 1.1%
20270 Goldenrod Lane
Germantown, MD 20876-4070

David M. Gische 39,000 (6) *
20270 Goldenrod Lane
Germantown, MD 20876-4070

Robert E. Gray, Jr. 31,520 (7) *
20270 Goldenrod Lane
Germantown, MD 20876-4070

David B. Levi 4,000 (8) *
20270 Goldenrod Lane
Germantown, MD 20876-4070

All officers and directors as
a group (10 persons) 792,770 (9) 17.1%

</TABLE>
- ----------
* Less than 1% of the shares outstanding.

3
<PAGE>

(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner of a security for purposes of
the Rule if he or she has or shares voting power or investment power with
respect to such security or has the right to acquire such ownership within
60 days. As used herein, "voting power" is the power to vote or direct the
voting of shares, and "investment power" is the power to dispose or direct
the disposition of shares.

(2) For the purpose of computing the percentage of ownership of each
beneficial owner, any securities which were not outstanding but which were
subject to options, warrants, rights, or conversion privileges held by
such beneficial owner exercisable within 60 days were deemed to be
outstanding in determining the percentage owned by such person but are not
deemed outstanding in determining the percentage owned by any other
person.

(3) Includes 12,000 shares held by the Company's Money Purchase Pension Plan,
of which Mr. Thompson is a trustee. Mr. Thompson disclaims beneficial
ownership of such shares. Also includes 220,000 shares that may be
acquired by Mr. Thompson within 60 days of the record date upon the
exercise of stock options. Does not include 110,000 shares that may be
acquired by Mr. Thompson more than 60 days after the record date upon the
exercise of stock options.

(4) Includes 12,000 shares held by the Company's Money Purchase Pension Plan,
of which Mr. Delmar is a trustee. Mr. Delmar disclaims beneficial
ownership of such shares. Also includes 56,000 shares that may be acquired
by Mr. Delmar within 60 days of the record date upon the exercise of stock
options. Does not include 9,000 shares that may be acquired by Mr. Delmar
more than 60 days after the record date upon the exercise of stock
options.

(5) Includes 16,000 shares that may be acquired by Ms. Grove within 60 days of
the record date upon the exercise of stock options. Does not include
19,000 shares that may be acquired by Ms. Grove more than 60 days after
the record date upon the exercise of stock options.

(6) Includes 31,000 shares that may be acquired within 60 days of the record
date upon the exercise of stock options. Includes 3,000 shares held by Mr.
Gische's spouse. Mr. Gische disclaims beneficial ownership of such shares.

(7) Includes 21,000 shares that may be acquired within 60 days of the record
date upon the exercise of stock options that have been granted. Includes
6,500 shares held by Mr. Gray's spouse. Mr. Gray disclaims beneficial
ownership of such shares.

(8) Includes 4,000 shares that may be acquired within 60 days after the record
date upon the exercise of stock options. Does not include 10,000 shares
that may be acquired more than 60 days after the record date upon the
exercise of stock options.

(9) Includes 358,700 shares that may be acquired within 60 days of the record
date upon the exercise of stock options. Does not include 214,100 shares
that may be acquired more than 60 days after the record date upon the
exercise of stock options. Includes 12,000 shares held by the Company's
Money Purchase Pension Plan, of which Messrs. Thompson and Delmar are
trustees. Messrs. Thompson and Delmar each disclaims beneficial ownership
of such shares.

<PAGE>

MATTERS TO BE ACTED UPON

ELECTION OF DIRECTORS AND RATIFICATION OF DIRECTOR APPOINTMENT
(PROPOSAL NO. 1)

The By-Laws of the Company currently provide that the
membership of the Board be divided into three classes. The Board of Directors
currently consists of six director positions with each class having two
directors. The term of only one class of directors expires each year, and their
successors are elected for a term of three years and until their successors are
duly elected and qualified. Any director appointed to fill any vacancy occurring
on the Board of Directors, including any vacancy created by an increase in the
number of directors, shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or in which the
vacancy occurred. There is currently one vacancy on the Board.

At the Annual Meeting, two directors will be elected to a full
three-year term, and shareholders will vote on a proposal to ratify one director
whom the Board has appointed to fill a vacancy on the Board with a term expiring
in 1999. The director nominees are David M. Gische and David B. Levi. Mr. Gische
was elected as a director at the 1996 Annual Meeting of Shareholders to a
three-year term expiring in 1999 but will, effective at the Annual Meeting,
resign his current position and stand for re-election to a full three-year term
expiring in 2001. Mr. Levi was recently appointed by the Board to fill a vacancy
on the Board created by the resignation in March 1997 of J. Graham Hartwell, who
was elected at the 1995 Annual Meeting of Shareholders to a three-year term
expiring in 1998. At the Annual Meeting, Mr. Levi will stand for election to a
full three-year term expiring in 2001.

Joe J. Lynn is currently serving on the Board with a term
expiring at the Annual Meeting, and the Board has appointed Mr. Lynn to fill the
vacancy which will be created by Mr. Gische's resignation, which position has a
term expiring in 1999. At the Annual Meeting, shareholders will vote on a
proposal to ratify the Board's appointment of Mr. Lynn.

The remaining directors are Robert E. Gray, Jr., who was
elected at the 1997 Annual Meeting of Shareholders to a three-year term expiring
in 2000, and Richard A. Thompson, who was elected at the 1996 Annual Meeting of
Shareholders to a three-year term expiring in 1999. There is one remaining
vacancy on the Board, and the Board is presently searching for a suitable
candidate to fill such vacancy.

The following table provides information as to the nominees
and appointee for director positions of the Company, and as to directors whose
terms in office will continue.

<TABLE>
<CAPTION>
<S> <C> <C>
EXPIRATION
NAME AGE OF TERM

NOMINEES

David M. Gische 48 2001
David B. Levi 64 2001

APPOINTEES

Joe J. Lynn 66 1999

CONTINUING DIRECTORS

Robert E. Gray, Jr. 56 2000
Richard A. Thompson 51 1999

</TABLE>

5
<PAGE>

DAVID M. GISCHE has been a director of the Company since April 1985. Mr.
Gische, an attorney, has been associated with the law firm of Ross, Dixon &
Masback in Washington, D.C. since November 1983. From September 1978 until
November 1983, Mr. Gische was associated with the Washington, D.C. law firm of
Hogan & Hartson LLP, counsel to the Company.

DAVID B. LEVI has been a director of the Company since December 1997. Mr.
Levi served as President of Natural MicroSystems Corporation, a provider of
hardware and software for developers of high-value telecommunications solutions
from June 1991 to April 1995. In November 1995, Mr. Levi became President of
Voice Processing Corp. (VPC). and Mr. Levi served as Chief Operating Officer of
VCS until his retirement in October 1997. Prior to 1991, Mr. Levi held Chief
Executive Officer and Chief Operating Officer positions at Raytheon Data Systems
(a division of Raytheon Corp.), Centronics Data Computer Corp., and Raster
Technologies, Inc., and consulted to Regional Bell Operating Companies.

JOE J. LYNN presently serves as a part-time consultant to the Company,
having retired from his position as Chief Development Officer of the Company, in
which he served from January 1, 1997 through January 12, 1998. Previously, Mr.
Lynn was Chief Executive Officer of the Company from May 1, 1991 through January
1, 1997 and President of the Company from October 1989 to June 1992, and prior
thereto he served as Executive Vice President of the Company and as President of
the Company's subsidiary, Microlog Corporation of Maryland. He has been a
director of the Company since its formation in 1969. From 1966 until 1970, Mr.
Lynn was employed as a manager with DBA Systems, Inc. From 1961 to 1966, he
served as a manager at the Kennedy Space Flight Center for RCA, which is
presently a subsidiary of General Electric Company.

ROBERT E. GRAY, JR. has been a director of the Company since 1977. He is
currently Senior Vice President of Prosperity Bank and Trust, in Springfield,
Virginia. He was employed by Hallmark Bank & Trust Co. from 1985 to 1992 - as
Director and Executive Vice President from 1989 to 1992, and prior thereto as
Senior Vice President and Chief Lending Officer. From 1992 to 1993, he served as
Senior Vice President of Suburban Bank of Virginia, NA in McLean, Virginia.

RICHARD A. THOMPSON has been President and Chief Executive Officer of the
Company since January 1, 1997. He was President and Chief Operating Officer of
the Company from June 1992 through January 1, 1997. Mr. Thompson was elected a
director of the Company in September 1992. Prior to joining Microlog
Corporation, Mr. Thompson was President and a director of General Kinetics,
Inc., a diversified manufacturing company from October 1989 to December 1991.
Other positions he has held have been as President of Thompson Associates, a
management consulting firm from 1988 to 1989 and as Marketing Manager with
General Electric Company from 1985 to 1988. Mr. Thompson is also a Captain in
the U. S. Naval Reserve.

During fiscal year 1997, there were 7 meetings including regularly
scheduled and special meetings of the Board of Directors. All directors attended
more than 75% of such meetings.

The Board has an Audit Committee, a Management Compensation Committee, and
a Stock Option Committee, but does not have a Nominating Committee. The Audit,
Management Compensation, and Stock Option Committees each consists of Messrs.
Gische and Gray.

The Audit Committee is primarily responsible for approving the services
performed by the Company's independent accountants. The Audit Committee met one
time during fiscal year 1997. Each member of the Audit Committee attended this
meeting.

The function of the Management Compensation Committee is to make
recommendations to the Board of Directors with respect to the compensation of
certain officers and employees, including the executive officers. The Management
Compensation Committee met one time during fiscal year 1997. Each member of the
Management Compensation Committee attended this meeting.

<PAGE>

The function of the Stock Option Committee is to make recommendations to
the Board of Directors with respect to the grant of stock options to officers
and employees. The Stock Option Committee met six times during fiscal year 1997.
Each member of the Stock Option Committee attended these meetings.

MANAGEMENT

The executive officers of the Company, and their respective ages as of
January 16, 1998, are as follows:

<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE OFFICES AND POSITIONS HELD
- ---- --- --------------------------

Richard A. Thompson 51 President, Chief Executive
Officer and Director

Steven R. Delmar 41 Executive Vice President
and Chief Financial Officer

Deborah M. Grove 45 President of subsidiary,
Old Dominion Systems
Incorporated of Maryland

Joe J. Lynn* 66 Director (Formerly Chief
Development Officer)
</TABLE>
- ----------

* Effective as of January 15, 1998, Mr. Lynn, who had been Chief Development
Officer since January 1, 1997 and Chief Executive Officer for approximately six
years before that, resigned as Chief Development Officer but agreed to remain
employed by the Company for an additional two years as a consultant.

Steven R. Delmar has been Executive Vice President of the Company since
October 1989 and was President of Microlog Corporation of Maryland, a
wholly-owned subsidiary of the Company, from May 1991 to July 1992. Mr. Delmar
was Microlog's Chief Financial Officer from January 1987 to May 1991. He served
as Chief Operating Officer of Microlog (rather than Chief Financial Officer)
from May 1991 until July 1992, and following the hiring of Mr. Thompson as
President and Chief Operating Officer, Mr. Delmar resumed his position as Chief
Financial Officer. He was Vice President of the Company from January 1987 to
October 1989. Since 1979, Mr. Delmar has held various offices with the Company
and its subsidiaries, including Assistant Comptroller, Comptroller, General
Manager and Vice President. A certified public accountant, Mr. Delmar held
accounting positions with Bechtel Power Corporation, a commercial construction
firm, and the Veterans Administration prior to his employment with Microlog.

Deborah M. Grove became President of Old Dominion Systems Incorporated of
Maryland, a wholly-owned subsidiary of the Company, in May 1991. From 1983 until
May 1991, Ms. Grove was Vice President of Old Dominion Systems Incorporated of
Maryland and from 1985 until May 1991, Vice President of Old Dominion Services,
Inc. Ms. Grove holds a Master of Science degree in Business and Finance and a
Bachelor of Science degree in Business Administration.

<PAGE>

EXECUTIVE COMPENSATION AND OTHER INFORMATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table shows, for the fiscal years ending October
31, 1995, 1996, and 1997, the salary, bonus, and certain other forms of
compensation paid or accrued for those years by the Company and its subsidiaries
to the Chief Executive Officer and each of the three other executive officers
whose salary and bonus compensation exceeded $100,000 in fiscal 1997 ("named
executive officers").

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

Annual Compensation Long Term Compensation
Awards Payouts

Other
Annual Restricted Options/ LTIP All Other
Name and Principal Position Fiscal Salary Bonus Compensation Stock SARs Payouts Compensation
Year ($)(a) ($) ($)(b) Award(s) (#) ($) ($)(c)
- ----------------------------- ---------- ------------ --------- ------------ ----------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>

Joe J. Lynn 1997 191,671 16,489 11,424
Chief Development Officer 1996 184,206 24,500 22,410 10,908
1995 169,919 50,000 7,715 10,851

Richard A. Thompson 1997 181,664 23,952 12,035
President and Chief 1996 164,994 31,500 16,341 150,000 13,000
Executive Officer 1995 160,000 90,000 4,622 100,000 12,125

Steven R. Delmar 1997 143,333 9,479 10,618
Executive Vice President 1996 135,000 25,500 8,861 10,555
and Chief Financial Officer 1995 130,000 40,000 3,980 15,000 10,255

Deborah M. Grove 1997 123,334 10,000 18,332 9,732
President of subsidiary, 1996 115,003 23,500 12,609 9,117
Old Dominion Systems 1995 110,000 40,000 10,039 15,000 8,784
Incorporated of Maryland

</TABLE>

(a) Includes deferred compensation
For fiscal 1997, 1996 and 1995, Mr. Lynn's deferred compensation included
in his salary was $15,188, $14,200, and $4,919, respectively.
(b) Other annual compensation consists primarily of reimbursements under the
Company's Executive Medical Reimbursement Plan, paid personal leave, and
personal use of automobiles.
(c) All other compensation consists of 401k matching contributions and pension
plan contributions. For fiscal 1997 Mr. Lynn's 401k matching and pension
contributions were $1,824, and $9,600 respectively. For fiscal 1997 Mr.
Thompson's 401k matching and pension contributions were $2,435, and $9,600
respectively. For fiscal 1997 Mr. Delmar's 401k matching and pension
contributions were $1,831, and $8,787 respectively. For fiscal 1997 Ms.
Grove's 401k matching and pension contributions were $1,798, and $7,934
respectively.

8
<PAGE>

STOCK OPTIONS

There were no grants of stock options to the named executive
officers during the fiscal year ended October 31, 1997.

The following table provides information concerning the
exercise of stock options by the named executive officers during fiscal 1997.

AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>

Number of Securities Value of Unexercised
Underlying In-the Money Options at
Unexercised Options FY-End ($)
at FY End (#)

Shares Acquired Value Exercisable/ Exercisable/
NAME on Exercise (#) Realized ($)(b) Unexercisable Unexercisable

<S> <C> <C> <C> <C>
Richard A. Thompson 10,000 $22,875 170,000/160,000 922,500/347,500

Deborah M. Grove 15,000 12,667/12,333 58,919/46,706

Steven R. Delmar 10,000 $41,400 56,000/9,000 292,250/25,875

</TABLE>
- ----------

(a) Calculations based on closing price of stock of $7.25 on October 31, 1997

(b) Calculations based on 5,000 shares for Mr. Thompson and 7,000 shares for
Mr. Delmar.

EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENTS

The Company is a party to an employment agreement with Mr.
Lynn, who is one of the Company's founders and has been employed by the Company
since 1969. The agreement provides for employment of Mr. Lynn, on a full-time,
part-time or consulting status, through December 31, 1999. Mr. Lynn's annual
salary under his employment agreement for full-time employment equaled (a) the
sum of $80,000 for 1997, $84,000 for 1998 and $88,200 for 1999 (the "Base
Amount"), plus (b) the sum of $93,779.70 per annum for 1997, 1998, and 1999 (the
"Additional Amount"). The employment agreement permits Mr. Lynn to move to a
part time status, with a pro rata decrease in the Base Amount, or to become a
consultant and perform only consulting services reasonably requested by the
Company, in which event Mr. Lynn would not receive the Base Amount but would
receive the Additional Amount increased by $2,000 per month, plus applicable
benefits. Mr. Lynn exercised his right to become a consultant effective January
15, 1998. The employment agreement entitles Mr. Lynn to certain employee
benefits, generally those available to the Company's employees or executive
officers, but not including participation in the incentive stock option plan or
executive bonus plan.

The Company is a party to an employment agreement with Mr.
Thompson. The agreement provides for employment of Mr. Thompson through December
31, 1998. Mr. Thompson's annual salary under his employment agreement is subject
to increase and discretionary bonuses each year as determined by the Board of
Directors. On December 15, 1997, the Board of Directors set a salary to become
effective as of November 1, 1997 under this agreement for Mr. Thompson of
$215,000, which represents a 16.2% increase from the prior year. The employment
contract entitles Mr. Thompson to certain fringe benefits, including insurance
coverage and various executive perquisites. Upon termination of employment
without cause, the existing base salary, plus all

9
<PAGE>

benefits, will be paid in monthly installments for twelve months. The employment
agreement also entitles Mr. Thompson to continue to serve as a director of the
Company for so long as he continues to be an officer of the Company.

The Company is a party to a noncontributory deferred
compensation agreement with Mr. Lynn under which the Company is obligated to
make payments to Mr. Lynn (or his beneficiaries) over the ten-year period
subsequent to his retirement (on or after age 65), permanent disability, or
death. The aggregate amount owed to Mr. Lynn under this agreement is payable
either in equal monthly installments over the ten-year period or in an
appropriately discounted single sum payment (at the election of Mr. Lynn). This
amount is determined by multiplying $2,500 by the number of months of employment
during the period April 1, 1988 to January 1, 1995 and adding an initial
contribution of $10,000. During the fiscal year ended October 31, 1997, the
Company accrued $15,188 in interest for Mr. Lynn under this contract.

MANAGEMENT COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Decisions on compensation of the Company's executives
generally are made by the Management Compensation Committee of the Board. Each
member of the Management Compensation Committee is a non-employee director. All
decisions by the Management Compensation Committee relating to the compensation
of the Company's executive officers are reviewed by the full Board. Set forth
below is a report submitted by the Management Compensation Committee addressing
the Company's compensation policies for fiscal 1997 as they affected the
Company's executive officers, including the Chief Executive Officer and the
named executive officers.

COMPENSATION POLICIES FOR EXECUTIVE OFFICERS. The Company's executive
compensation policies are designed to provide competitive levels of
compensation, assist the Company in attracting and retaining qualified
executives, reward superior corporate performance, and recognize individual
initiative and achievement. Measurement of corporate performance is primarily
based upon Company goals and industry performance levels. The Company considers
compensation paid to its executive officers to be deductible for purposes of
Section 162(m) of the Internal Revenue Code. Target levels of the executive
officers' overall compensation are intended to be consistent with other
executives in the Company's industry, including members of its peer group,
taking into account the size and financial results of these respective
companies. In the past few years, this policy has resulted in certain executive
officers' overall compensation between the lower end and the middle of executive
compensation in the Company's industry and peer group (based upon compensation
surveys available to the Management Compensation Committee). The Management
Compensation Committee believes that stock ownership by management and
stock-based performance compensation arrangements are beneficial in aligning
management's and shareholders' interests in the enhancement of shareholder
value.

RELATIONSHIP OF PERFORMANCE TO EXECUTIVE COMPENSATION. Compensation paid to the
Company's executive officers in fiscal 1997, which related to the performance of
the Company, consisted of the following components: base salary, cash bonuses,
grants of stock options under stock option plans, and executive perquisites.

Base Salary. The Management Compensation Committee reviews
executive base salaries on a regular basis. In view of the Company's financial
performance during fiscal 1997, base salaries for Messrs. Thompson, Delmar and
Ms. Grove were increased effective November 1, 1997 to approximately $215,000,
$165,000, and $135,000, respectively.

Cash Bonuses. The Management Compensation Committee also
determines, generally on an annual basis, whether to award bonuses to executive
officers based upon their individual performance or on the performance of the
Company as a whole. In prior years, the Board, at the recommendation of the
Management Compensation Committee, has adopted specific

10
<PAGE>

incentive compensation arrangements for executive officers which consist of cash
bonuses payable if the Company achieved certain pre-tax (and pre-bonus) profit
and sales goals. The Company utilizes an executive bonus plan under which a pool
of funds, determined by formula, is set aside for selected executives. The
amount of funds set aside for the bonus pool is based on the Company's sales and
pre-tax income. A new Executive Bonus Plan with new performance goals was
adopted for fiscal 1998. No bonuses were paid for fiscal 1997 under the
Executive Bonus Plan in effect for fiscal 1997, but a bonus was paid to one
executive based upon individual performance.

Stock Options. The Company provides a long-term incentive
through a stock option plan (the "Stock Option Plan") which was adopted in 1995.
The Stock Option Plan is intended to foster management team cohesion and align
management and shareholder interests. Key employees, including executive
officers, are eligible for grants under the Stock Option Plan. The Stock Option
Plan is administered by the Stock Option Committee, which consists exclusively
of non-employee directors. Awards are intended to provide incentives for
executive officers to enhance long-term corporate performance, as reflected in
stock price, thereby increasing shareholder value, and to provide non-cash
compensation to such officers as part of their overall compensation package. The
Company believes that the Stock Option Plan encourages superior performance that
can result in significantly enhanced shareholder value. The option price of
shares granted under the Stock Option Plan may be less than the fair market
value of the shares underlying the option on the date of grant, but such options
generally have been granted at fair market value. Options granted under the
Stock Option Plan generally terminate automatically upon termination of
employment or service with the Company, except in cases of disability or death.

As part of his three year employment contract, based upon the
Board's view that Mr. Thompson's continued performance as President and Chief
Executive Officer is very important to the Company, the Board recommended, and
the Stock Option Committee of the Board granted, on December 20, 1995 additional
options for Mr. Thompson to purchase 150,000 shares of Common Stock, vesting in
ten years ending in December 2005. The additional options contain an accelerated
vesting provision based upon the trading price of the Company's Common Stock in
June of each of 1996 ($3.50), 1997 ($5.00), and 1998 ($10.00). The Company's
Common Stock was trading at a price of less than $3.00 when these price targets
were initially agreed upon, and had traded at significantly lower levels in the
prior year.

Executive Perquisites. In prior years, the Company has
provided certain perquisites for its executive officers which the Management
Compensation Committee has determined are customary for similar companies.

Other Compensation. In addition to the compensation paid to
executive officers as described above, executive officers and other key
employees receive benefits under the Company's Medical Reimbursement Plan (along
with supplemental health benefits of up to $7,500 per executive), and executive
officers receive, along with and on the same terms as other employees,
contributions by the Company pursuant to the Company's Pension Plan and matching
contributions under the Company's Pre-Tax Savings Plan (401k).

CEO Compensation. In setting the Chief Executive Officer's
salary and incentive compensation for fiscal 1998, the Management Compensation
Committee reviewed the Company's fiscal 1997 financial performance in revenues,
expenses, and pre-tax net income. Based upon its review at the outset of fiscal
1998, the Committee approved an increase in Mr. Thompson's salary for fiscal
1998 of 16.2% to $215,000. The Committee believes that any significant increase
in Mr. Thompson's compensation for 1998 will come from the executive bonus plan,
which is based on achieving the Company's revenue and net income targets, and
that Mr. Thompson has substantial motivation to increase the value of the
Company's Common Stock due to the large number of stock options that he holds.
The Committee believes a significant performance-based component of total
compensation serves the interests of shareholders by directly linking management
compensation with corporate performance.

11
<PAGE>

Management Compensation Committee Report
Submitted by the Members of the Management Compensation Committee:

David M. Gische
Robert E. Gray, Jr.
David B. Levi

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None.

COMPARATIVE COMPANY PERFORMANCE

The following line graph compares cumulative total shareholder
return for the Company with a performance indicator of the NASDAQ Stock Market,
and a peer group index over the last five fiscal years. The peer group consists
of Active Voice Corporation, Boston Technology, Inc., Brite Voice Systems, Inc.,
Centigram Communications Inc., Cognitronics Corporation, Comverse Technology,
Inc., Davox Corporation, Digital Sound Corporation, Intervoice Inc., Octel
Communications, CP., Periphonics Corporation, and Syntellect, Inc.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
Among Microlog Corporation,
NASDAQ Market Index, and Peer Group Index

[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Microlg Corporation 100 337.5 59.38 425 550 725
Peer Group Index 100 156.36 175.78 196.68 232.8 399.6
Nasdaq Market Index 100 131.23 139.52 165.5 194.35 254.71
</TABLE>

Assumes $100 Invested on Nov. 1, 1992
Assumes Dividends Reinvested
Fiscal Year Ending October 31, 1997

<PAGE>

COMPENSATION OF DIRECTORS

Compensation of Mr. Gische and Mr. Gray, through fiscal 1997,
consisted of $1,000 per meeting with a maximum of $10,000 per year for each such
director. Employee directors are not paid for attending meetings of the Board of
Directors, and Mr. Levi was not appointed to the Board until after the end of
fiscal 1997. Commencing with fiscal 1998, non-employee directors (including Mr.
Levi) will receive $2,500 per quarter to serve as a director (but no per-meeting
amount).

The Company has a non-employee director stock option plan (the
"Plan"), which was approved by the shareholders, pursuant to which 125,000
shares of Common Stock are presently reserved for issuance to non-employee
directors of the Company upon exercise of options granted under the Plan. The
Board has proposed several amendments to the Plan, including an increase in the
number of shares reserved from 125,000 to 250,000, which amendments are subject
to shareholder approval. (See Proposal 3 hereof.) The Company believes that
options issued under the Plan create an incentive for non-employee directors to
expend maximum effort for the growth and success of the Company. Options for
3,000 shares of Common Stock were granted during fiscal 1997 to each of Messrs.
Gische and Gray under the Plan. The option price of all options granted under
the Plan equal the fair market value of the shares underlying the option on the
date of grant. Options granted under the Plan expire if not exercised within ten
years from the date of the grant of the option.

SECTION 16(A) DISCLOSURE

Each director and officer of the Company, and each person who
beneficially owns more than 10% of the Company's Common Stock, is required by
Section 16(a) of the Securities Exchange Act of 1934 to file reports with the
Securities and Exchange Commission ("SEC") of beneficial ownership of the
Company's equity securities and certain changes to such ownership. Based on its
review of the reports and written representations furnished by the persons
required to file reports under Section 16(a), the Company believes that Mr.
Richard A. Thompson, the Company's President, Chief Executive Officer and a
Director, filed three late reports with the SEC of five transactions involving
changes in beneficial ownership.

RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(PROPOSAL NO. 2)

The Board of Directors has appointed the firm of Price
Waterhouse LLP as independent accountants of the Company for the fiscal year
ending October 31, 1997, subject to ratification of such appointment by the
shareholders. The appointment of this firm was recommended to the Board of
Directors by its Audit Committee. Price Waterhouse LLP has been acting as
independent accountants of the Company since 1979.

The submission of this matter to shareholders at the Annual
Meeting is not required by law or by the By-Laws of the Company. Nevertheless,
the Board of Directors of the Company is submitting it to the shareholders to
ascertain their views. If this appointment is not ratified by the holders of at
least a majority of the shares of Common Stock of the Company at the Annual
Meeting, the Board of Directors intends to reconsider its appointment of Price
Waterhouse LLP as independent accountants of the Company.

Representatives of Price Waterhouse LLP will be present at the
Annual Meeting and will be available to respond to questions or make a
statement, if they so desire.

<PAGE>

* Language within brackets shows deletions from previous plan.
** Language within brackets shows insertions to previous plan.

PROPOSED AMENDMENTS TO THE COMPANY'S 1989 NON-EMPLOYEE DIRECTOR
NON-QUALIFIED STOCK OPTION PLAN
(PROPOSAL NO. 3)

The Board of Directors has proposed the adoption of certain
amendments (the "Amendments") to the Company's 1989 Non-Employee Director
Non-Qualified Stock Option Plan (the "Plan") in order to update the Plan and
ensure that it remains a viable means for attracting and retaining qualified
individuals to serve on the Company's Board of Directors. The Amendments would
(i) increase from 125,000 to 250,000 the number of shares of Common Stock
reserved for issuance upon the exercise of options granted under the Plan, (ii)
provide for annual grants of an option to purchase 4,000 shares (rather than
3,000 shares) of Common Stock to each eligible non-employee director of the
Company, (iii) provide for initial grants of options to purchase 10,000 shares
(rather than 5,000 shares) of Common Stock to each new non-employee director of
the Company, vesting over three years at the rate of 4,000, 3,000 and 3,000
shares after the end of the first, second and third years, respectively, (iv)
extend the term of the Plan to April 30, 2006, (v) amend the definition of
individuals eligible to receive options under the Plan to cover only those Board
members who are not, and have not for the past three years, been an officer or
salaried employee of the Company or any subsidiary, and (vi) eliminate the
requirement that shareholders approve certain types of amendments to the Plan.
The plan, as amended to incorporate the proposed Amendments, is attached as
Appendix A hereto.

The purposes of the proposed Amendments are as follows. The proposed
increase in the number of shares reserved for issuance under the Plan is to
ensure that there remains a sufficient number of shares issuable under the Plan
to provide for continuing annual grants to eligible directors and initial grants
to new directors. The proposed modest increase in the number of shares awarded
pursuant to annual and initial grants is to ensure that the Company can continue
to attract and retain qualified individuals to serve on the Board of Directors
and that existing directors continue to expend maximum effort on the growth and
success of the Company. The proposed extension of the term of the Plan to April
30, 2006 will ensure that the Plan remains in effect for an additional five
years beyond its current April 30, 2001 expiration date. [* Finally, the] THE
proposed amendment of the definition of eligible directors under the Plan is to
clarify that directors who are, or recently were, officers or salaried employees
of the Company, and therefore eligible to receive grants of options pursuant to
the Company's Stock Option Plan pertaining to such persons, are not also
eligible to receive options under the Plan.[** FINALLY, THE PROPOSED ELIMINATION
OF THE REQUIREMENT THAT SHAREHOLDERS APPROVE CERTAIN TYPES OF AMENDMENTS TO THE
PLAN (NAMELY, AMENDMENTS TO OPTION EXERCISE PRICES AND THE MAXIMUM PERIOD DURING
WHICH OPTIONS MAY BE EXERCISED) IS DESIGNED TO ALLOW THE BOARD GREATER
FLEXIBILITY IN AMENDING THE PLAN TO CONFORM TO THE COMPANY'S EVOLVING
REQUIREMENTS. AS A RESULT OF RECENT CHANGES IN FEDERAL SECURITIES LAWS AND
REGULATIONS, SHAREHOLDER APPROVAL OF SUCH AMENDMENTS TO OPTION PLANS SUCH AS THE
PLAN IS NO LONGER REQUIRED. SHAREHOLDERS WILL STILL BE REQUIRED TO APPROVE
PROPOSED AMENDMENTS WHICH INCREASE THE TOTAL NUMBER OF SHARES AVAILABLE FOR
ISSUANCE UNDER THE PLAN, EXTEND THE TERM OF THE PLAN, OR MATERIALLY CHANGE THE
ELIGIBILITY REQUIREMENTS FOR PARTICIPATION IN THE PLAN OR THE BENEFITS THAT MAY
ACCRUE TO ELIGIBLE PARTICIPANTS IN THE PLAN.]

The Board believes the proposed Amendments will enable the
Plan to serve as a means of attracting and retaining qualified individuals to
serve on the Board of Directors. In the absence of the proposed Amendments, the
Plan would not be available for the full three-year term of the directors
currently being nominated for election to the Board, including Mr. Levi, a new
director.

SHAREHOLDER PROPOSALS AND OTHER MATTERS

Proposals of shareholders intended to be presented at the
Company's 1999 Annual Meeting of Shareholders must be received at the Company's
principal executive offices not later

<PAGE>

than October 28, 1998 in order for such proposals to be included in the
Company's proxy statement and proxy relating to the 1999 Annual Meeting of
Shareholders. Nothing in this paragraph shall be deemed to require the Company
to include in the proxy statement and proxy relating to the 1999 Annual Meeting
of Shareholders any shareholder proposal that does not meet all of the
requirements for such inclusion in effect at that time.

The Board of Directors does not intend to present, and has not
been informed that any other person intends to present, any matters for action
at the Annual Meeting other than those specifically referred to herein. If,
however, any other matters should properly come before the Annual Meeting, it is
the intention of the person named in the enclosed proxy to vote the shares
represented thereby in accordance with the determination of a majority of the
Board of Directors.

The Board of Directors of the Company urges each shareholder,
whether or not he or she intends to be present at the Annual Meeting, to
complete, sign, and return the enclosed proxy as promptly as possible.

By Order of the Board of Directors

/s/ Richard A. Thompson

Richard A. Thompson
Chief Executive Officer

15
<PAGE>

* Language within brackets shows deletions from previous plan.
** Language within brackets shows insertions to previous plan.

APPENDIX A

MICROLOG CORPORATION
1989 NON-EMPLOYEE DIRECTOR NON-QUALIFIED
STOCK OPTION PLAN

(AS AMENDED AND RESTATED)

Microlog Corporation (the "Company") sets forth herein the
terms of this Non-Employee Director Stock Option Plan (the "Plan") as follows:

1. PURPOSE

The Plan is intended to advance the interests of the
Company by providing each member serving on the Board of Directors of the
Company who is not,[** AND HAS NOT WITHIN THE PAST THREE YEARS BEEN,] an officer
or other salaried employee of the Company or any subsidiary (a "Non-Employee
Director") with an opportunity to acquire or increase a proprietary interest in
the Company, which thereby will create a stronger incentive to expend maximum
effort for the growth and success of the Company and its subsidiaries, and will
encourage such Non-Employee Directors to remain in the service of the Company or
that of one or more of its subsidiaries. The stock options granted under the
Plan (an "Option") are not intended to be "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986 (or the
corresponding provision of any subsequently enacted tax statute).

2. STOCK

The stock that may be issued pursuant to Options
granted under the Plan shall be shares of Common Stock, par value $.01 per
share, of the Company (the "Stock"), which shares may be treasury shares or
authorized but unissued shares. The number of shares of Stock that may be issued
pursuant to Options granted under the Plan shall not exceed in the aggregate
[*125,000][** 200,000] shares, which number of shares is subject to adjustment
as hereinafter provided in Section 14 below. If any Option expires, terminates,
or is terminated for any reason prior to exercise in full, the shares of Stock
that were subject to the unexercised portion of such Option shall be available
for future Options granted under the Plan.

3. GRANT OF OPTIONS

(a) Grant on Effective Date. On the effective date of
this Plan as provided in Section 5 below, each Non-Employee Director then
serving on the Board of Directors of the Company shall be granted an Option to
purchase 5,000 shares of Stock at the price and upon the other terms and
conditions specified in the Plan. Thereafter, subject to Section 3(c) and to the
availability of shares issued under Section 2 of the Plan, an Option to purchase
[*5,000][**10,000]shares of Stock, at the price and upon the other terms and
conditions specified in the Plan, shall be granted under the Plan to each
Non-Employee Director of the Company upon the initial election of such
Non-Employee Director to the Board.

(b) Annual Grants. Subject to Section 3(c) and to the
availability of shares issued under Section 2 of the Plan,[*on the third
Wednesday in March of ech year, commencing on March 21, 1990, each of the
Non-Employee Directors the serving on][** IN ACCORDANCE WITH SHAREHOLDER
APPROVAL IN MARCH 1996 OF AN AMENDMENT TO THIS PLAN ADOPTED BY] the Board of
Directors of the Company [**ON DECEMBER 20, 1995, ON THE THIRD WEDNESDAY IN
DECEMBER OF EACH YEAR, COMMENCING ON DECEMBER 20, 1995, EACH OF THE NON-EMPLOYEE
DIRECTORS THEN SERVING ON THE BOARD OF DIRECTORS OF THE COMPANY] shall be
granted an Option to purchase 3,000 shares of Stock at the price and upon the
other terms

<PAGE>
*Language within brackets shows deletions from previous plan.
** Language within brackets shows insertions to previous plan.

and conditions specified in this Plan, except that, subject to approval not
later than December[* 19, 1996] [**14, 1998,] by the affirmative vote of
shareholders who hold at least a majority of the outstanding shares of stock of
the Company entitled to vote thereon and who vote in person or by proxy at a
duly constituted shareholders' meeting, of an amendment to the Plan adopted by
the Board of Directors of the Company on December[*20, 1995 ] [**15, 1997,
commencing on December[*20, 1995][** 15, 1997,] each such Option shall be
[*granted on the third Wednesday in December of each year commencing on December
20, 1995, and shall be for 3,000][** FOR 4,000] shares of Stock, subject to
adjustment under Section 14 hereof.

(c) Excluded Persons. Notwithstanding anything to the
contrary contained in Section 3 of the Plan, no Non-Employee Director designated
by Whale Securities Corp. pursuant to the terms of the Underwriting Agreement
dated as of May 14, 1986 between Whale Securities Corp. and the Company shall be
granted any Options pursuant to this Plan.

(d) Special Grant. An option to purchase 10,000
shares of Stock, at the price and upon the other terms and conditions specified
in the Plan, is hereby granted under the Plan effective December 22, 1992 to
each Non-Employee Director then serving on the Board of Directors of the Company
at the price and upon the other terms and conditions specified in the Plan,
subject to Section 3(c) and to the availability of shares to be issued under
Section 2 of the Plan, and subject to approval of this Section 3(d) on or before
April 30, 1993 by an affirmative vote of shareholders who hold at least a
majority of the outstanding shares of stock of the Company entitled to vote
thereon, in person or by proxy, at a duly called meeting of the shareholders;
provided, however, that upon approval of this Section 3(d) by the shareholders
of the Company as set forth above, all Options granted under this Section 3(d)
shall be fully effective as if the shareholders of the Company had approved this
Section 3(d) on December 22, 1992.

4. OPTION PRICE

The purchase price of each share of Stock subject to
an Option (the "Option Price") shall be the greater of par value or one hundred
percent (100%) of the fair market value of a share of Stock on the date the
Option is granted. In the event that the Stock is listed on an established
national or regional stock exchange, is admitted to quotation on the National
Association of Securities Dealers Automated Quotation system, or is publicly
traded in an established securities market, the fair market value shall be
deemed to the closing price of the Stock on such exchange or system or in such
market (the highest such closing price if there is more than one such exchange
or market) on the trading date immediately before the Option is granted (or, if
there is no such closing price, the mean between the highest bid and lowest
asked prices or between the high and low prices on such date), or, if no sale of
the Stock has been made on such day, on the immediately preceding day on which
any such sale shall have been made.

5. EFFECTIVE DATE AND TERM OF THE PLAN

(a) Effective Date. This Plan shall be effective as
of the date this Plan is adopted by the Board of Directors of the Company,
subject to approval of the Plan before or within one year after such effective
date by an affirmative vote of shareholders who hold at least a majority of the
outstanding shares of stock of the Company entitled to vote thereon, in person
or by proxy, at a duly called meeting of the shareholders; provided, however,
that upon approval of the Plan by the shareholders of the Company as set forth
above, all Options granted under the Plan on or after the effective date shall
be fully effective as if the shareholders of the Company had approved the Plan
on the effective date. If the shareholders fail to approve the Plan before or
within one year of such effective date, any options granted hereunder shall be
null and void and of no effect.

(b) Term. This Plan shall terminate on April 30,
[*2001] [**2006.]

A-2

<PAGE>
* Language within brackets shows deletions from previous plan.
** Language within brackets shows insertions to previous plan.

6. OPTION AGREEMENTS

All Options granted pursuant to the Plan shall be
evidenced by written agreements ("Option Agreements"), to be executed by the
Company and by the Optionee, substantially in the form attached as Exhibit A to
this Plan, with such changes as the officer or officers executing such Option
Agreements may determine to be necessary or advisable (such determination to be
conclusively evidenced by the execution thereof by such officer or officers).

7. TERM AND EXERCISE OF OPTIONS

(a) Term. Each Option granted under the Plan shall
terminate and all rights to purchase shares thereunder shall cease upon the
expiration of ten (10) years from the date such Option is granted.

(b) Option Period and Limitations on Exercise. Each
Option granted under the Plan shall be exercisable, in whole or in part, at any
time and from time to time, over a period commencing on or after the date of
grant and ending upon the expiration of the Option, except that Options granted
on or after December[*20, 1995][** 15, 1997] shall be exercisable to the extent
of[*1,000][** 3,000] shares only until such time as the amendment to the Plan
adopted by the Board of Directors of the Company on December [* 20, 1995][** 15,
1997] has been approved by shareholders in accordance with Section 13 hereof. If
an Option is exercised prior to the date that is six months from the later of
(i) the date of grant of the Option or (ii) the date of shareholder approval of
the amendment to the Plan adopted on December[* 20, 1995] [** 15, 1997] (to the
extent such Option was granted subject to such approval) and the individual
exercising the Option is a reporting person under Section 16(a) of the Exchange
Act, then such certificate or certificates shall bear a legend restricting the
transfer of the Stock covered thereby until the expiration of six months from
the date specified in clause (i) above or the date specified in clause (ii)
above, whichever is applicable to such shares of Stock.

(c) Method of Exercise. An Option that is exercisable
hereunder may be exercised by delivery to the Company on any business day, at
its principal office, addressed to the attention of the Secretary of the
Company, of written notice of exercise, which notice shall specify the number of
shares with respect to which the Option is being exercised, and except as
provided below, shall be accompanied by payment in full of the Option Price of
the shares for which the Option is being exercised in cash. The minimum number
of shares of Stock with respect to which an Option may be exercised, in whole or
in part, at any time shall be the lesser of 100 shares or the maximum number of
shares available for purchase under the Option at the time of exercise. Except
as provided below, payment in full of the Option Price of the shares for which
the Option is being exercised shall accompany the written notice of exercise of
the Option and shall be made (i) in cash or in cash equivalents; (ii) subject to
approval not later than December 19, 1996, by the affirmative vote of
shareholders who hold at least a majority of the outstanding shares of stock of
the Company entitled to vote thereon and who vote in person or by proxy at a
duly constituted shareholders' meeting, of the amendment to the Plan adopted by
the Board of Directors of the Company on December 20, 1995, through the tender
to the Company of shares of Stock, which shares shall be valued, for purposes of
determining the extent to which the Option Price has been paid thereby, at their
fair market value (determined in the manner described in Section 4 above) on the
date of exercise; or (iii) subject to such approval, by a combination of the
methods described in (i) and (ii); provided, however, that the Board may in its
discretion impose and set forth in the Option Agreement such limitations or
prohibitions on the use of shares of Stock to exercise Options as it determines
to be necessary or appropriate under applicable securities or other laws. If
shares of Stock that are acquired by the Optionee through exercise of an Option
or an option issued under another stock option plan maintained by the Company
are surrendered in payment of the Option

A-3

<PAGE>

Price, the Stock surrendered in payment must have been (i) held by the Optionee
for more than six months at the time of surrender, or (ii) acquired under an
Option granted not less than six months prior to the time of surrender. Subject
to approval not later than December 19, 1996, by the affirmative vote of
shareholders who hold at least a majority of the outstanding shares of stock of
the Company entitled to vote thereon and who vote in person or by proxy at a
duly constituted shareholders' meeting, of the amendment to the Plan adopted by
the Board of Directors of the Company on December 20, 1995, payment in full of
the Option Price need not accompany the written notice of exercise provided the
notice of exercise directs that the Stock certificate or certificates for the
shares for which the Option is exercised be delivered to a licensed broker
acceptable to the Company as the agent for the individual exercising the Option
and, at the time such Stock certificate or certificates are delivered, the
broker tenders to the Company cash (or cash equivalents acceptable to the
Company) equal to the Option Price for the shares of Stock purchased pursuant to
the exercise of the Option plus the amount (if any) of federal and other taxes
which the Company may, in its judgment, be required to withhold with respect to
the exercise of the Option. An attempt to exercise any Option granted hereunder
other than as set forth above shall be invalid and of no force and effect.
Promptly after the exercise of an Option and the payment in full of the Option
Price of the shares of Stock covered thereby, the individual exercising the
Option shall be entitled to the issuance of a Stock certificate or certificates
evidencing his ownership of such shares. An individual holding or exercising an
Option shall have none of the rights of a shareholder until the shares of Stock
covered thereby are fully paid and issued to him and, except as provided in
Section 14 below, no adjustment shall be made for dividends or other rights for
which the record date is prior to the date of such issuance.

8. TRANSFERABILITY OF OPTIONS

During the lifetime of an Optionee to whom an Option
is granted, only such Optionee (or, in the event of legal incapacity or
incompetency, the Optionee's guardian or legal representative) may exercise the
Option. No Option shall be assignable or transferable by the Optionee to whom it
is granted, other than by will or the laws of descent and distribution.

9. TERMINATION OF SERVICE

Subject to the provisions of Section 10 of the Plan,
upon the termination of the service of an optionee with the Company or a
subsidiary, Options granted to such optionee pursuant to this Plan shall
continue in effect for the remainder of their respective terms, and shall not
terminate.

10. RIGHTS IN THE EVENT OF DEATH

If an Optionee dies, the executors or administrators
or legatees or distributees of such Optionee's estate shall have the right, at
any time prior to termination of the Option as provided in Section 7(a) above,
to exercise any Option held by such Optionee at the date of such Optionee's
death.

11. USE OF PROCEEDS

The proceeds received by the Company from the sale of
Stock pursuant to Options granted under the Plan shall constitute general funds
of the Company.

12. REQUIREMENTS OF LAW

The Company shall not be required to sell or issue
any shares of Stock under any Option if the sale or issuance of such shares
would constitute a violation by the individual

A-4

<PAGE>

* Language within brackets shows deletions from previous plan.
** Language within brackets shows insertions to previous plan.

exercising the Option or the Company of any provisions of any law or regulation
of any governmental authority, including without limitation any federal or state
securities laws or regulations. Specifically in connection with the Securities
Act of 1933 (as now in effect or as hereafter amended), upon exercise of any
Option, unless a registration statement under such Act is in effect with respect
to the shares of Stock covered by such Option, the Company shall not be required
to sell or issue such shares unless the holder of such Option may acquire such
shares pursuant to an exemption from registration under such Act. The Company
may, but shall in no event be obligated to, register any securities covered
hereby pursuant to the Securities Act of 1933 (as now in effect or as hereafter
amended). The Company shall not be obligated to take any affirmative action in
order to cause the exercise of an Option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental authority. As
to any jurisdiction that expressly imposes the requirement that an Option shall
not be exercisable unless and until the shares of Stock covered by such Option
are registered or are subject to an available exemption from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption. The Plan is intended to
comply with Rule 16b-3 of the Securities Exchange Commission under the
Securities Exchange Act of 1934. Any provision of the Plan inconsistent with
Rule 16b-3 will be inoperative but will not affect the validity of the Plan.

13. AMENDMENT AND TERMINATION OF THE PLAN

The Board may, at any time and from time to time,
amend, suspend or terminate the Plan as to any shares of Stock as to which
Options have not been granted; provided, however, that no amendment by the Board
shall, without approval by the affirmative vote of shareholders who hold at
least a majority of outstanding shares of stock of the Company entitled to vote
thereon and who vote in person or by proxy at a duly constituted shareholders'
meeting, (a)[*materially change the requirements as to eligibility to receive
Options;(b)] increase the maximum number of shares of Stock in the aggregate
that may be sold pursuant to Options granted under the Plan (except as permitted
under Section 14 hereof);[*;(c) change the Option Price set forth in Section 4
hereof (except as permitted under Section 14 hereof); (d) increase the maximum
period during which Options may be exercised; (c).] [**(b)] extend the term of
the Plan ; [**or (c) MATERIALLY CHANGE THE ELIGIBILITY REQUIREMENTS FOR
PARTICIPATION IN THE PLAN OR THE BENEFITS THAT MAY ACCRUE TO ELIGIBLE
PARTICIPANTS IN] the Plan. Except as permitted under Section 14 hereof, no
amendment, suspension or termination of the Plan shall, without the consent of
the holder of the Option, alter or impair rights or obligations under any Option
theretofore granted under the Plan.

14. EFFECT OF CHANGES IN CAPITALIZATION

(a) Changes in Stock. If the outstanding shares of
Stock are increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Company, occurring after the effective date of the Plan,
the number and kinds of shares for the purchase of which Options may be granted
under the Plan shall be adjusted proportionately and accordingly by the Company.
In addition, the number and kind of shares for which Options are outstanding
shall be adjusted proportionately and accordingly so that the proportionate
interest of the holder of the Option immediately following such event shall, to
the extent practicable, be the same as immediately prior to such event. Any such
adjustment in outstanding Options shall not change the aggregate Option Price
payable with respect to shares subject to the unexercised portion of the Option
outstanding but shall include a corresponding proportionate adjustment in the
Option Price per share.

A-5

<PAGE>

(b) Reorganization in Which the Company Is the
Surviving Corporation. Subject to Subsection (c) hereof, if the Company shall be
the surviving corporation in any reorganization, merger, or consolidation of the
Company with one or more other corporations, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger, or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger, or consolidation.

(c) Reorganization in Which the Company Is Not the
Surviving Corporation or Sale of Assets or Stock. Upon the dissolution or
liquidation of the Company, or upon a merger, consolidation or reorganization of
the Company with one or more other corporations in which the Company is not the
surviving corporation, or upon a sale of all or substantially all of the assets
of the Company to another corporation, or upon any transaction (including,
without limitation, a merger or reorganization in which the Company is the
surviving corporation) approved by the Board which results in any person or
entity owning eighty percent (80%) or more of the combined voting power of all
classes of stock of the Company, the Plan and all Options outstanding hereunder
shall terminate, except to the extent provision is made in writing in connection
with such transaction for the continuation of the Plan and/or the assumption of
the Options theretofore granted, or for the substitution for such Options of new
options covering the stock of a successor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares and
exercise prices, in which event the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided. The Board shall send
written notice of an event that will result in such a termination to all
individuals who hold Options not later than the time at which the Company gives
notice thereof to its shareholders (provided, however, that the options shall
terminate only the consummation or occurrence of such event).

(d) Fractional Shares. No fractional shares of Stock
or units of other securities shall be issued pursuant to any such adjustment,
and any fractions resulting from any such adjustment shall be eliminated in each
case by rounding downward to the nearest whole share or unit.

(e) No Limitations on Company. The grant of an Option
pursuant to the Plan shall not affect or limit in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes
of its capital or business structure or to merge, consolidate, dissolve or
liquidate, or to sell or transfer all or any part of its business or assets.

15. DISCLAIMER OF RIGHTS

No provision in the Plan or in any Option granted or
Option Agreement entered into pursuant to the Plan shall be construed to confer
upon any individual the right to remain in the service of the Company or any
subsidiary, or to interfere in any way with the right and authority of the
Company or any subsidiary either to increase or decrease the compensation of any
individual at any time, or to terminate any relationship between any individual
and the Company or any subsidiary.

16. NONEXCLUSIVITY OF THE PLAN

Neither the adoption of the Plan nor the submission
of the Plan to the shareholders of the Company for approval shall be construed
as creating any limitations upon the right and authority of the Board to adopt
such other incentive compensation arrangements (which

A-6

<PAGE>
* Language within brackets shows deletions from previous plan.
** Language within brackets shows insertions to previous plan.

arrangements may be applicable either generally to a class or classes of
individuals or specifically to a particular individual or individuals) as the
Board in its discretion determines desirable, including, without limitation, the
granting of stock options otherwise than under the Plan.

* * *

This Plan was duly adopted and approved by the Board
of Directors of the Company by resolution at a meeting held on June 10, 1989,
subject to shareholder approval. This Plan was duly amended by the Board of
Directors, subject to shareholder approval, by resolutions at meetings held on
December 22, 1992, January 22, 1993, [*and] December 20, 1995, [** DECEMBER 15,
1997, AND JANUARY 28, 1998.]

-----------------

This Plan was duly approved by the shareholders of
the Company at a meeting of the shareholders held on the 24th day of February,
1990. Amendments to the Plan were duly approved by the shareholders of the
Company on March 13, 1993, [**MARCH 26, 1996 AND (MARCH 31, 1998).]

* * *

A-7

<PAGE>

REVOCABLE PROXY

MICROLOG CORPORATION

THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

The undersigned shareholder hereby appoints Richard A.
Thompson or Steven R. Delmar, or either of them, attorneys and proxies of the
undersigned, with full power of substitution and with authority in each of them
to act in the absence of the other, to vote and act for the undersigned at the
Annual Meeting of Shareholders of the Company to be held at the Gaithersburg
Hilton, 620 Perry Parkway, Gaithersburg, Maryland, 20877, on March 31, 1998, at
10:00 a.m., local time, and at any adjournments or postponements thereof, in
respect of all shares of the Common Stock of the Company which the undersigned
may be entitled to vote, on the following matters:

1. Election of two directors for a three year term ending in 2001:

David M. Gische:

[_] FOR the nominee listed above.

[_] WITHHOLD AUTHORITY to vote for the nominee listed above.

David B. Levi:

[_] FOR the nominee listed above.

[_] WITHHOLD AUTHORITY to vote for the nominee listed above.

Proposal to ratify the appointment of Joe J. Lynn to fill the
vacant director position and serve the remainder of a term
expiring in 1999:

[_] FOR [_] AGAINST [_] ABSTAIN

2. Proposal to ratify the appointment of Price Waterhouse LLP as
the independent accountants of the Company for the fiscal year
ending October 31, 1998:

[_] FOR [_] AGAINST [_] ABSTAIN

3. Proposed Amendments to the Plan:

[_] FOR [_] AGAINST [_] ABSTAIN

4. In their discretion, on any other matters that may properly
come before the meeting, or any adjournments or postponements
thereof, in accordance with the recommendations of a majority
of the Board of Directors.

(Continued and to be dated and signed on reverse side.)

<PAGE>

(continued from other side)

This proxy, when properly executed, will be voted as directed
herein by the undersigned shareholder. However, if no direction is given, this
proxy will be voted FOR the nominees in proposal 1, FOR ratification of the
appointment of the accountants in proposal 2, and FOR the proposed Amendments to
the Plan in proposal 3.

The undersigned hereby acknowledges prior receipt of a copy of
the Notice of Annual Meeting of Shareholders and Proxy Statement dated February
24, 1998, and the 1997 Annual Report to Shareholders, and hereby revokes any
proxy or proxies heretofore given. This Proxy may be revoked at any time before
it is voted by delivering to the Secretary of the Company either a written
revocation of proxy, or a duly executed proxy bearing a later date, or by
appearing at the Annual Meeting and voting in person.

If you receive more than one proxy card, please sign and
return all cards in the accompanying envelope.

[_] I PLAN TO ATTEND THE MARCH 31, 1998 ANNUAL SHAREHOLDERS MEETING

Date:------------------, 1998.

--------------------------------------
Signature of Shareholder or Authorized
Representative

Please date and sign exactly as name
appears hereon. Each executor,
administrator, trustee, guardian,
attorney-in-fact, and other fiduciary
should sign and indicate his or her
full title. In the case of stock
ownership in the name of two or more
persons, both persons should sign.

PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO ENSURE A QUORUM
AT THE MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY IN
RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE.