SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant []
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 Rule 14a-11(c) or Rule 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 (set forth the amount on which the
filing fee is calculated and state how it is determined)
----------------------------------------------------------------------
(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:
May 20, 1999
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<PAGE>
[MICROLOG CORPORATION LOGO OMITTED]
May 12, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of Microlog Corporation (the "Company") to be held June 21, 1999, at 10:00 a.m.,
at the Gaithersburg Hilton, 620 Perry Parkway, Gaithersburg, Maryland, 20877, in
the Rockville-Potomac Suites.
The Annual Meeting has been called for the following purposes:
(1) to elect one director to serve a full term of three years;
(2) to consider and vote upon a proposed amendment (the "Employee Plan
Amendment") to the Company's 1995 Stock Option Plan (the "Employee
Plan"), which would increase from 1,000,000 to 1,600,000 the number of
shares of Common Stock reserved for issuance upon the exercise of
options granted under the Plan;
(3) to consider and vote upon a proposed amendment (the "Director Plan
Amendment") to the Company's 1989 Non-Employee Director Non-Qualified
Stock Option Plan (the "Director Plan") which would add an additional
annual stock option grant to each Non-Employee Director of 6,000
shares (or pro-rata portion thereof) so long as Non-Employee Directors
are serving on the Company's Board of Directors without monetary
compensation; and
(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.
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 form 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/ David B. Levi
David B. Levi
President and
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 JUNE 21, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of Microlog
Corporation (the "Company") will be held on June 21, 1999, at 10:00 a.m., local
time, at the Gaithersburg Hilton, 620 Perry Parkway, Gaithersburg, Maryland,
20877, for the following purposes:
(1) to elect one director to serve for a full term of three years;
(2) to consider and vote upon a proposed amendment (the "Employee Plan
Amendment") to the Company's 1995 Stock Option Plan (the "Employee
Plan"), which would increase from 1,000,000 to 1,600,000 the number of
shares of Common Stock reserved for issuance upon the exercise of
options granted under the Plan;
(3) to consider and vote upon a proposed amendment (the "Director Plan
Amendment") to the Company's 1989 Non-Employee Director Non-Qualified
Stock Option Plan (the "Director Plan") which would add an additional
annual stock option grant to each Non-Employee Director of 6,000
shares (or pro-rata portion thereof) so long as Non-Employee Directors
are serving on the Company's Board of Directors without monetary
compensation; and
(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 April
29, 1999 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.
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/ David B. Levi
David B. Levi
President and Chief Executive Officer
Germantown, Maryland
May 12, 1999
PLEASE FILL OUT, DATE, AND SIGN THE ENCLOSED PROXY FORM 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 AT THE
MEETING.
<PAGE>
MICROLOG CORPORATION
20270 GOLDENROD LANE
GERMANTOWN, MD 20876-4070
(301) 428-9100
----------------------------------
PROXY STATEMENT
----------------------------------
ANNUAL MEETING OF SHAREHOLDERS
JUNE 21, 1999
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 1999 Annual Meeting of Shareholders
to be held on June 21, 1999 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:
(1) to elect one director to serve for a full term of three years;
(2) to consider and vote upon a proposed amendment (the "Employee Plan
Amendment") to the Company's 1995 Stock Option Plan (the "Employee
Plan"), which would increase from 1,000,000 to 1,600,000 the number of
shares of Common Stock reserved for issuance upon the exercise of
options granted under the Plan;
(3) to consider and vote upon a proposed amendment (the "Director Plan
Amendment") to the Company's 1989 Non-Employee Director Non-Qualified
Stock Option Plan (the "Director Plan") which would add an additional
annual stock option grant to each Non-Employee Director of 6,000
shares (or pro-rata portion thereof) so long as Non-Employee Directors
are serving on the Company's Board of Directors without monetary
compensation; and
(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 April 29, 1999, the record date,
are entitled to notice of, and to vote at, the Annual Meeting. As of April 29,
1999, there were outstanding 4,294,285 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.
This Proxy Statement, and the accompanying notice of the Annual Meeting and
proxy form, will first be sent or given to shareholders on or about May 21,
1999. The Company's Annual Report to Shareholders for the fiscal year ended
October 31, 1998 accompanies this Proxy Statement.
<PAGE>
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' nominee for director;
(2) FOR the proposed Employee Plan Amendment;
(3) FOR the proposed Director Plan Amendment.
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' nominee for director will require
the affirmative vote of a plurality of the shares entitled to vote in the
election of directors. The Employee Plan Amendment requires the approval of the
holders of a majority of the votes present and entitled to vote thereon at the
Annual Meeting, at which a quorum representing a majority of all outstanding
voting stock is, either in person or by proxy, present and voting on the
amendment. The Director Plan Amendment requires 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, 1998 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.
2
<PAGE>
STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth information as of April 29, 1999 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>
Name and Address of Number of Shares Percentage of
Beneficial Owner (1) Beneficially Owned Ownership (2)
- -------------------- ------------------ -------------
<S> <C> <C>
Hathaway & Associates, Ltd 373,000 8.7%
119 Rowayton Avenue
Rowayton, Connecticut 06853
Joe J. Lynn 310,000 7.2%
20270 Goldenrod Lane
Germantown, MD 20876-4070
Richard A. Thompson 222,000 (3) 5.0%
20270 Goldenrod Lane
Germantown, MD 20876-4070
Steven R. Delmar 112,300 (4) 2.6%
20270 Goldenrod Lane
Germantown, MD 20876-4070
Deborah M. Grove 53,711 (5) 1.2%
20270 Goldenrod Lane
Germantown, MD 20876-4070
David M. Gische 48,000 (6) 1.1%
20270 Goldenrod Lane
Germantown, MD 20876-4070
John C. Mears 44,000 (7) 1.0%
20270 Goldenrod Lane
Germantown, MD 20876-4070
Robert E. Gray, Jr. 35,520 (8) *
20270 Goldenrod Lane
Germantown, MD 20876-4070
David B. Levi 12,000 (9) *
20270 Goldenrod Lane
Germantown, MD 20876-4070
All officers and directors as
a group (10 persons) 821,081 (10) 17.6%
</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 190,000 shares that may be acquired by Mr. Thompson within 60 days
of the record date upon the exercise of stock options and approximately
25,000 shares in a 401k Plan. The percentage of ownership has been rounded
up to 5.0%, but Mr. Thompson is not, as of the date hereof, the beneficial
owner of 5% or more of the Common Stock.
(4) Includes 59,000 shares that may be acquired by Mr. Delmar within 60 days of
the record date upon the exercise of stock options and approximately 24,300
shares in a 401k Plan. Does not include 6,000 shares that may be acquired
by Mr. Delmar more than 60 days after the record date upon the exercise of
stock options.
(5) Includes 21,000 shares that may be acquired by Ms. Grove within 60 days of
the record date upon the exercise of stock options. Does not include 24,000
shares that may be acquired by Ms. Grove more than 60 days after the record
date upon the exercise of stock options.
(6) Includes 35,000 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 16,000 shares that may be acquired by Mr. Mears within 60 days of
the record date upon the exercise of stock options and approximately 28,000
shares in a 401k Plan. Does not include 59,000 shares that may be acquired
by Mr. Mears more than 60 days after the record date upon the exercise of
stock options.
(8) Includes 25,000 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.
(9) Includes 12,000 shares that may be acquired by Mr. Levi within 60 days
after the record date upon the exercise of stock options. Does not include
6,000 shares that may be acquired by Mr. Levi more than 60 days after the
record date upon the exercise of stock options.
(10) Includes 368,550 shares that may be acquired within 60 days of the record
date upon the exercise of stock options. Does not include 173,100 shares
that may be acquired more than 60 days after the record date upon the
exercise of stock options.
4
<PAGE>
MATTERS TO BE ACTED UPON
ELECTION OF DIRECTORS
(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, one director will be elected to a three-year term.
The director nominee, Joe J. Lynn, currently is serving as a director and has
indicated his willingness to continue serving if elected.
The remaining directors are David M. Gische and David B. Levi who were
elected at the 1998 Annual Meeting of Shareholders to three-year terms expiring
in 2001, and Robert E. Gray, Jr., who was elected at the 1997 Annual Meeting of
Shareholders to a three-year term expiring in 2000. Richard A. Thompson, a
director of the Company since September 1992, resigned as President and Chief
Executive Officer of the Company earlier this year and will not stand for
reelection as director at this year's Annual Meeting. With the resulting
expiration of Mr. Thompson's current term as a director, there will be two
vacancies on the Board following the Annual Meeting, and the Board is presently
searching for suitable candidates to fill such vacancies.
The following table provides information as to the nominees for director
positions of the Company, and as to directors whose terms in office will
continue.
EXPIRATION
NAME AGE OF TERM
- ---- --- ----------
NOMINEES
- --------
Joe J. Lynn 67 2002
CONTINUING DIRECTORS
- --------------------
Robert E. Gray, Jr. 57 2000
David M. Gische 49 2001
David B. Levi 66 2001
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 15, 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 Executive Vice President of Prosperity Bank and Trust, in Springfield,
Virginia. Mr. Gray was appointed to Prosperity Bank and Trust's Board of
Directors in December 1997. 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.
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 & Bell
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 and
was appointed President and Chief Executive Officer of the Company on an interim
basis in March 1999. Since November, 1998, Mr. Levi also has served as a
consultant to the Company. 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.
During fiscal year 1998, there were seven 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 and a Compensation Committee, but does not
have a Nominating Committee. The Audit and Compensation committees each consist
of Messrs. Gische and Gray. Mr. Levi served on these committees until November
1998, when he became a consultant to the Company.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent accountants. The Audit Committee met two
times during fiscal year 1998. Each member of the Audit Committee attended this
meeting.
The function of the 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, and the granting of stock options
to officers and employees. The Compensation Committee met six times during
fiscal year 1998. Each member of the Compensation Committee attended these
meetings.
6
<PAGE>
MANAGEMENT
The executive officers of the Company, and their respective ages as of
April 29, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICES AND POSITIONS HELD
- ---- --- --------------------------
<S> <C> <C>
David B. Levi 66 President, Chief Executive Officer and
Director*
Steven R. Delmar 43 Executive Vice President and Chief
Financial Officer
John C. Mears 45 Senior Vice President Product
Development
Deborah M. Grove 46 President of subsidiary, Old Dominion
Systems Incorporated of Maryland
</TABLE>
- ----------
* Following the resignation of Richard A. Thompson as President and Chief
Executive Officer in March 1999, David B. Levi was appointed President and
Chief Executive Officer of the Company on an interim basis while the
Company searches for a successor to Mr. Thompson.
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.
John C. Mears has been the Senior Vice President Product Development for
Microlog since August 1996. Mr. Mears was with International Business Machines
(IBM) from 1990 to 1996 in key management positions associated with their IVR,
CTI, and Network product departments. From 1978 to 1990 he held various
technical, business development, and management positions in multiple divisions
of IBM. Mr. Mears holds both a bachelor's and master's degree in electrical
engineering from the University of Florida.
7
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending October 31, 1996,
1997, and 1998, 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 $100,000 in fiscal 1998 ("named executive
officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Securities
Restricted Underlying
Other Annual Stock Options/ LTIP All Other
Fiscal Salary Bonus Compensation Award(s) SARs Payouts Compensation
Name and Principal Position Year ($)(a) ($) ($)(b) ($) (#) ($) ($)(c)
- ----------------------------------- -------- ------------ --------- -------------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard A. Thompson* 1998 215,000 22,952 11,491
President and Chief 1997 181,664 23,952 12,035
Executive Officer 1996 164,994 31,500 16,341 150,000(d) 13,000
Steven R. Delmar 1998 165,006 6,855 11,443
Executive Vice President 1997 143,333 9,479 10,618
and Chief Financial Officer 1996 135,000 25,500 8,861 10,555
Deborah M. Grove 1998 135,013 23,674 10,525
President of subsidiary, 1997 123,334 10,000 18,332 9,732
Old Dominion Systems 1996 115,003 23,500 12,609 9,117
Incorporated of Maryland
Joe J. Lynn 1998 160,158 25,288 4,172
Retired Chairman of the Board 1997 191,671 16,489 11,424
and Chief Development Officer 1996 184,206 24,500 22,410 10,908
John Mears (e) 1998 135,013 7,000 10,281
Senior Vice President Product
Development
</TABLE>
(a) Includes deferred compensation and consulting fees.
For fiscal 1998, 1997, and 1996 Mr. Lynn's deferred compensation included
in his salary was $14,679, $15,188, and $14,200, respectively. Also
included in the 1998 compensation is deferred compensation that was earned
in his account of $20,509. Mr. Lynn retired in January 1998. The amounts
shown in the table include consulting fees from January 1998 through the
end of the fiscal year of $90,576.
(b) Other annual compensation consists primarily of reimbursements under the
Company's Executive Medical Reimbursement Plan, paid personal and vacation
leave, and personal use of automobiles.
(c) All other compensation consists of 401k matching contributions and pension
plan contributions. For fiscal 1998 Mr. Thompson's 401k matching and
pension contributions were $1,891, and $9,600 respectively. For fiscal 1998
Mr. Delmar's 401k matching and pension contributions were $1,843, and
$9,600 respectively. For fiscal 1998 Ms. Grove's 401k matching and pension
contributions were $1,801, and $8,724 respectively. For fiscal 1998 Mr.
Lynn's 401k matching and pension contributions were $646, and $3,526
respectively.
(d) Mr. Thompson also received options to purchase 100,000 additional shares
based upon achieving certain targets; such targets were not met and the
options expired.
(e) Mr. Mears became an executive officer following determination of the Board
in January 1999. His salary for 1999 had been set at $165,000, but Mr.
Mears agreed to a 5% reduction in such salary effective May 1, 1999, in
exchange for a grant of options to purchase 8,000 shares of common stock,
of which 4,000 shares would vest in 2001. Including this option to purchase
8,000 shares, Mr. Mears has received stock options in fiscal 1999 of 38,000
shares.
- ----------
* Mr. Thompson resigned his offices in March 1999 and Mr. David B. Levi, a
director of the Company, was appointed President and Chief Executive
Officer on an interim basis.
8
<PAGE>
STOCK OPTIONS
The following table contains information with respect to grants of stock
options to each of the named executive officers during the fiscal year ended
October 31, 1998. All such grants were made under the Employee Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value at
Individual Grants Assumed Annual
------------------------------------------------------------- Rates of Stock Price
% of Total Appreciation for
Options Granted Option Term (a)
Number of to Employees Exercise Expiration --------------------
Options Granted in Fiscal Year Price ($/sh) Date 5% ($) 10% ($)
--------------- -------------- ------------ ---- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Thompson* (b) 0 0% $0.000 N/A $0 $0
Steven R. Delmar (b) 0 0% $0.000 N/A $0 $0
Deborah M. Grove (b) 10,000 0.9% $0.9375 2008 $7,925 $18,225
John Mears (b) 30,000 2.9% $0.9375 2008 $23,775 $54,675
</TABLE>
- ----------
(a) Share prices for Mr. Thompson, assuming a 5% and 10% annual appreciation at
the end of the term of his option, are $0 and $0, respectively; share
prices for Mr. Delmar, assuming a 5% and 10% annual appreciation at the end
of the term of his option, are $0 and $0 respectively; share prices for Ms.
Grove, assuming a 5% and 10% annual appreciation at the end of the term of
her option, are $1.73 and $2.76, respectively, and shares prices for Mr.
Mears, assuming a 5% and 10% annual appreciation at the end of the term of
his option, are $1.73 and $2.76, respectively.
(b) These options vest over a five year period with 20% vesting at the end of
each year.
- ----------
* Mr. Thompson resigned his offices in March 1999 and Mr. David B. Levi, a
director of the Company, was appointed President and Chief Executive
Officer on an interim basis.
The following table provides information concerning the exercise of stock
options by the named executive officers during fiscal 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-the Money Options at
Unexercised Options FY-End ($)
at FY End (#)
Shares Acquired Value Exercisable/ Exercisable/
NAME on Exercise (#) Realized ($) Unexercisable Unexercisable (a)
---- --------------- ------------ ------------- -----------------
<S> <C> <C> <C> <C>
Richard A. Thompson* 0 0 190,000 / 40,000 $0 / $0
Deborah M. Grove 0 0 19,000 / 16,000 $625 / $0
Steven R. Delmar 0 0 59,000 / 6,000 $0 / $0
John Mears 0 0 12,000 / 33,000 $0 / $0
</TABLE>
- ----------
(a) Calculations based on closing price of stock of $1.0625 on October 31,
1998.
- ----------
* Mr. Thompson resigned his offices in March 1999 and Mr. David B. Levi, a
director of the Company, was appointed President and Chief Executive
Officer on an interim basis.
9
<PAGE>
REPORT ON STOCK OPTION REPRICING
10-YEAR OPTION REPRICING TABLE (1)
<TABLE>
<CAPTION>
Original
Number of Exercise
Shares Per Share Price per
underlying Market Price Share at New Exercise Length of original
Date options at Time of Time of Price Per Option Term
Name Of repriced Repricing Repricing Share Remaining at date
And Position Repricing (#) ($) ($) ($) of Repricing (2)
- -------------------------- --------------- ------------- --------------- -------------- -------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Thompson,* August 14, 1998 100,000 $1.6250 $4.3750 $1.6250 84
President and CEO August 14, 1998 50,000 $1.6250 $5.5000 $1.6250 87
Steven R. Delmar, August 14, 1998 50,000 $1.6250 $1.7500 $1.6250 26
Exec. V.P. and CFO August 14, 1998 15,000 $1.6250 $4.3750 $1.6250 84
John C. Mears, August 14, 1998 25,000 $1.6250 $6.0000 $1.6250 95
Senior Vice President August 14, 1998 10,000 $1.6250 $6.0000 $1.6250 99
Product Development August 14, 1998 10,000 $1.6250 $6.0625 $1.6250 111
Deborah M. Grove, August 14, 1998 15,000 $1.6250 $4.3750 $1.6250 84
President, Old Dominion August 14, 1998 10,000 $1.6250 $6.0625 $1.6250 111
Systems Incorporated of
Maryland
</TABLE>
- ----------
(1) Under regulations adopted by the SEC, repriced options are defined as any
option for which the exercise price has been adjusted or amended through any
amendment, cancellation or replacement grants, or by any other means. Except
where otherwise noted, all options listed in this table were granted pursuant to
a repricing of options on August 14, 1998.
(2) In months, rounded to the nearest full month period. The vesting schedules
of all repriced options appearing in this table are the same as the vesting
schedules of the original options. Thus, the lengths of the original option
terms remaining at the time of repricing appearing in this column equal the
lengths of the terms remaining on each repriced option as of the date of
repricing.
- ----------
* Mr. Thompson resigned his offices in March 1999 and Mr. David B. Levi, a
director of the Company, was appointed President and Chief Executive
Officer on an interim basis.
COMPENSATION COMMITTEE REPORT ON STOCK OPTION REPRICING
On August 14, 1998, the Compensation Committee approved and effected, on
the terms described below, the repricing of certain outstanding stock options
granted pursuant to the Company's 1995 Stock Option Plan and held by the
executive officers of the Company listed in the table above. The overall purpose
of the Company's 1995 Stock Option Plan has been to attract and retain the
services of the Company's employees and to provide incentives to such persons to
exert exceptional efforts for the Company's success. Because of the decline in
the price of the Company's Common Stock, the intended incentives of the 1995
Stock Option Plan to existing employees of the Company had diminished
significantly. Even more importantly, the Company uses stock options as a
significant element of compensation, and believes that having an effective
option program is integral to its ability to retain employees and executives and
attract new ones to have an effective option program. The Compensation Committee
concluded that the decline in the market value of the Company's Common Stock had
diminished the value of the Company's stock option program as an element of the
Company's compensation arrangements, and that it was important to preserve this
element by maintaining the option value. To provide the intended incentive to,
and retain the services of, existing employees during a critical period for the
Company, the Compensation Committee determined to reprice certain outstanding
stock options, including those held by the executive officers listed in the
table above. Accordingly, the Compensation Committee approved the repricings
dated August 14, 1998 set forth in the table above. As shown above, the exercise
price of the repriced options is $1.625 per share, which was the market price of
the Company's Common Stock at the date of repricing. Except for the exercise
price, the terms and conditions of the repriced options are substantially the
same as the terms and conditions of the original options, including the repriced
options' respective grant dates and vesting schedules.
Compensation Committee Report on Stock Option Repricings
Submitted by the Members of the Compensation Committee:
David M. Gische , Robert E. Gray, Jr., David B. Levi*
- ----------
* Mr. Levi ceased to serve on the Compensation Committee effective November
1998, when he became a consultant to the Company, but he concurs with the report
of the Compensation Committee set forth above. Mr. Levi was appointed interim
President and Chief Executive Officer in March 1999.
10
<PAGE>
EMPLOYMENT, DEFERRED COMPENSATION AND CONSULTING AGREEMENTS
Until Mr. Thompson's resignation as President and Chief Executive Officer
in March 1999, the Company was a party to an employment agreement with Mr.
Thompson. The agreement provided for employment of Mr. Thompson through December
31, 1999. Mr. Thompson's annual salary under his employment agreement was
subject to increase and discretionary bonuses each year as determined by the
Board of Directors. The employment contract entitled 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
benefits, were required to be paid in monthly installments for the remainder of
the term of the agreement or, in certain cases, for twelve months. The
employment agreement also entitled 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.
Following his resignation, the Company entered into a separation agreement
and general release with Mr. Thompson. This agreement entitles Mr. Thompson to
the severance specified in his employment agreement, continuation of his vested
stock options for their full term and the continued use of some Company business
materials and equipment. Mr. Thompson has provided the Company with a release
and agreed to provide consulting services to the Company, to the extent
requested by the Company, for the remainder of the term for which he receives
severance compensation.
The Company is a party to a consulting agreement with Mr. Lynn, which
provides for Mr. Lynn to serve as a consultant through December 31, 1999. The
consulting agreement provides for Mr. Lynn to perform consulting services
reasonably requested by the Company. Mr. Lynn is to receive annual compensation
of approximately $118,000 per year and certain benefits, generally those
available to the Company's executive officers, but not including participation
in the incentive stock option plan or executive bonus plan. Effective May 1,
1999, Mr. Lynn agreed to a 5% reduction to his annual compensation as part of
the Company's efforts to implement various cost-cutting measures.
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, 1998, the Company accrued $14,679 in interest for Mr. Lynn
under this contract.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 1998, the Management Compensation and Stock Option Committees were
combined and their respective functions were merged. In particular, the
combined, three-member committee, which is called the Compensation Committee,
has authority to administer all employee benefit plans, which are to be
administered by the Board of Directors or a committee thereof.
Decisions on compensation of the Company's executives generally are made by
the Compensation Committee of the Board. Each member of the Compensation
Committee is a Non-Employee Director. All decisions by the 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
Compensation Committee addressing the Company's compensation policies for fiscal
1998 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 falling 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 Compensation Committee). The 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.
11
<PAGE>
RELATIONSHIP OF PERFORMANCE TO EXECUTIVE COMPENSATION. Compensation paid to the
Company's executive officers in fiscal 1998, 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 Compensation Committee reviews executive base salaries on
a regular basis. In view of the Company's financial performance during fiscal
1998, base salaries for Messrs. Thompson and Delmar remained the same. Mr.
Mears' base salary was increased to $165,000 because of his role in the
development of the Company's new uniQue(TM) contact center products. In view of
the financial performance of Old Dominion Systems of Maryland ("ODSM") during
fiscal 1998, Ms. Grove's base salary was increased to $150,000, effective for
fiscal 1999. Because of the current financial condition of the Company, Mr.
Delmar, Mr. Mears, and Ms. Grove have agreed to a 5% reduction to their
respective fiscal 1999 base salaries, effective May 1, 1999. As consideration
for this reduction, the Company granted to each Mr. Delmar, Mr. Mears, and Ms.
Grove options to purchase 8,000 shares of the Company's Common Stock under the
Employee Plan. The right to purchase 4,000 of such shares vested immediately and
the right to purchase the remaining 4,000 shares, subject to each such option,
will vest in May 2001.
Cash Bonuses. The 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 Compensation Committee, has
adopted specific 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 1999. No bonuses were paid for fiscal
1998 under the Executive Bonus Plan in effect for fiscal 1998.
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 Compensation 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.
Mr. Mears was granted an option in December 1998 to purchase 30,000 shares
because of his role in the development of the Company's uniQue(TM) products. In
view of ODSM's financial performance in fiscal 1998, Ms. Grove was granted
options in December 1998 to purchase 10,000 shares. As consideration for the
agreed upon 5% reduction to their respective fiscal 1999 base salaries,
effective May 1, 1999, Mr. Delmar, Mr. Mears, and Ms. Grove, each were granted
options in May 1999 to purchase 8,000 shares under the Employee Plan. The right
to purchase 4,000 of such shares vested immediately and the right to purchase
the remaining 4,000 shares, subject to each such option, will vest in May 2001.
Executive Perquisites. In prior years, the Company has provided certain
perquisites for its executive officers, which the 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 1999, the Compensation Committee reviewed the
Company's fiscal 1998 financial performance in revenues, expenses, and pre-tax
net income. Based upon its review at the outset of fiscal 1999, the Committee
determined to maintain Mr. Thompson's salary for fiscal 1999.* (Mr. Thompson
received an increase in base salary the prior year based upon 1997 performance.)
The Committee believes 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
12
<PAGE>
believes a significant performance-based component of total compensation serves
the interests of shareholders by directly linking management compensation with
corporate performance.
Compensation Committee Report
Submitted by the Members of the Compensation Committee:
David M. Gische, Robert E. Gray, Jr., David B. Levi **
- ----------
* Mr. Thompson resigned as President and Chief Executive Officer of the Company
in March 1999.
** Mr. Levi ceased to serve on the Compensation Committee effective November
1998, when he became a consultant to the Company, but he concurs with the report
of the Compensation Committee set forth above. Mr. Levi was appointed interim
President and Chief Executive Officer in March 1999.
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., TALX, Periphonics
Corporation, and Syntellect, Inc.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
Among Microlog Corporation,
NASDAQ Market Index, and Peer Group Index
[PERFORMANCE GRAPH OMITTED]
1994 1995 1996 1997 1998
Microlog Corporation 100.00 17.59 125.93 162.96 214.81 31.48
Peer Group Index 100.00 94.08 122.09 142.09 153.61 146.41
Nasdaq Market Index 100.00 106.32 126.11 148.10 194.09 219.46
Assumes $100 Invested on Nov. 1, 1993
Assumes Dividends Reinvested
Fiscal Year Ending October 31, 1998
13
<PAGE>
COMPENSATION OF DIRECTORS
Compensation of Mr. Gische, Mr. Gray, and Mr. Levi through fiscal 1998,
consisted of $2,500 per quarter with a maximum of $10,000 per year for each such
director (no per meeting fees were paid). Effective January 1, 1999, the Board
of Directors suspended the payment of all monetary compensation to Non-Employee
Directors for their serving as directors due to the Company's financial
condition. Employee directors are not paid for attending meetings of the Board
of Directors.
The Company has a Non-Employee Director stock option plan (the "Director
Plan"), which was approved by the shareholders, pursuant to which 250,000 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
adopted the Director Plan Amendment, which adds an additional annual stock
option grant to each Non-Employee Director of 6,000 shares (or pro-rata portion
thereof) so long as Non-Employee Directors are serving on the Company's Board of
Directors without monetary compensation and certain other conditions are met.
(See Proposal 3 hereof.) The Company believes that options issued under the
Director Plan create an incentive for Non-Employee Directors to expend maximum
effort for the growth and success of the Company. Options for 4,000 shares of
Common Stock were granted during fiscal 1998 to each of Messrs. Gische, Gray,
and Levi under the Director Plan. The option price of all options granted under
the Director Plan equal the fair market value of the shares underlying the
option on the date of grant. Options granted under the Director Plan expire if
not exercised within ten years from the date of the grant of the option.
From November 1998 through March 1999 Mr. Levi was a non-employee member of
the new Microlog Office of the President. The Company compensated Mr. Levi in
the amount of $1,000 per week for assisting the Office of the President,
commencing on November 5, 1998. This arrangement continued until Mr. Levi's
appointment as the interim President and Chief Executive Officer, in March 1999,
at which time the Company began paying Mr. Levi $2,000 per week. The Company
also granted to Mr. Levi in April 1999 an option to purchase 45,000 shares of
the Company's common stock, in connection with his service as a member of the
Office of the President. Once the Company hires a new President and Chief
Executive Officer, Mr. Levi would again become eligible to receive stock options
as a Non-Employee Director (subject to shareholder approval of the Director Plan
Amendment.)
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 Richard A. Thompson and
Steven R. Delmar each filed one late report with the SEC of one transaction
involving changes in beneficial ownership. These inadvertent late filings were
due to the fact that the purchases were made through and by operation of the
Company's 401(k) plan, which did not generate sufficient data to complete the
reports until after the deadline.
14
<PAGE>
PROPOSED AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN
(PROPOSAL NO. 2)
The Board of Directors has adopted, subject to shareholder approval, an
amendment (the "Employee Plan Amendment") to the Company's 1995 Stock Option
Plan (the "Employee Plan ") in order to ensure that the Employee Plan remains a
viable means for attracting and retaining qualified individuals to serve as
full-time employees of the Company or any of its subsidiaries, including
employees who are officers of the Company and its subsidiaries. The Employee
Plan Amendment would increase from 1,000,000 to 1,600,000 the number of shares
of Common Stock reserved for issuance upon the exercise of options granted under
the Employee Plan. The amount of the increase is intended to make available
enough options for a new chief executive officer and certain other employees
that the new chief executive officer may seek to employ with the Company, as
well as for grants to existing employees to encourage them to remain with the
Company during a difficult transition period.
The purposes of the proposed Employee Plan Amendment are as follows. The
proposed increase in the number of shares reserved for issuance under the
Employee Plan is to ensure that there remains a sufficient number of shares
issuable under the Employee Plan to provide, as the Compensation Committee of
the Board of Directors may determine from time to time in accordance with the
Employee Plan, (i) for continuing grants to eligible executive officers and
employees and (ii) initial grants to new executive officers and employees,
including to a new chief executive officer and other employees that the new
chief executive officer may seek to bring into the Company. The proposed
increase in the number of shares authorized to be awarded pursuant to the
Employee Plan is to ensure that the Company can continue to attract and retain
qualified individuals to serve as executive officers and other full-time
employees of the Company and that existing executive officers and full-time
employees continue to expend maximum effort on the growth and success of the
Company.
The Board believes the proposed Employee Plan Amendment will enable the
Employee Plan to serve as a means of attracting and retaining qualified
individuals to serve as executive officers and other valuable employees of the
Company. The Company believes that, in the absence of the proposed Employee Plan
Amendment, the number of shares authorized to be issued upon exercise of options
granted under the Employee Plan would become insufficient to permit new option
grants within the 1999 fiscal year.
THE PRINCIPAL PROVISIONS OF THE EMPLOYEE PLAN ARE SUMMARIZED BELOW. SUCH
SUMMARY DOES NOT, HOWEVER, PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY THE TERMS OF THE EMPLOYEE PLAN.
DESCRIPTION OF THE EMPLOYEE PLAN
The Employee Plan was adopted by the Board of Directors in September 1995
and amended on December 20, 1995. Under the terms of the Employee Plan,
1,000,000 shares of Common Stock of the Company are reserved for issuance to
employees of the Company and its subsidiaries upon exercise of options granted
under the Employee Plan. Based upon the closing price of the Company's Common
Stock on April 29, 1999, the aggregate market value of the total number of
shares of Common Stock underlying the stock options available for grant pursuant
to the Employee Plan, including the shares reserved for issuance that are
subject to shareholder approval, is $1.3 million. The Compensation Committee,
presently consisting of two directors of the Company, Messrs. Gische and Gray,
neither of whom is an officer or salaried employee of the Company (Mr. Levi
ceased to serve on the Compensation Committee effective November 1998, when he
became a consultant to the Company), has authority to administer the Employee
Plan and grant options thereunder.
Incentive stock options may be granted under the Employee Plan from time to
time to any full-time employee of the Company or any of its subsidiaries,
including employees who are officers of the Company and its subsidiaries
(approximately 236 in number as of April 29, 1999). The maximum number of shares
of Common Stock subject to options that may be granted under the Employee Plan
to any executive officer or other employee is 500,000 shares. Non-Employee
Directors are not eligible to receive options under the Employee Plan. No option
may be granted under the Employee Plan after the tenth anniversary of the
effective date of the Employee Plan, September 28, 2005.
Under the Employee Plan, the option price of incentive stock options may
not be less than the fair market value of the shares underlying the option on
the date the option is granted (or less than 110% of the fair market value in
the case of a person who owns more than 10% of the Company's Common Stock). The
option price of non-qualified options may not be less than the par value of the
shares underlying the option. The aggregate fair market value of Common Stock
(determined at the time the option is granted) with respect to which incentive
stock options granted under the Employee Plan (and all other benefit plans of
the Company) are exercisable for the first time by any employee during any
calendar year, may not exceed $100,000. Payment for shares purchased under the
Employee Plan may be made either in cash or cash equivalents, in shares of
Common Stock with a fair market value
15
<PAGE>
equal to the option price, or a combination of cash and shares of Common Stock.
The Employee Plan also allows for "cashless exercise," in which a licensed
broker tenders to the Company cash equal to the exercise price (plus taxes
required to be withheld) at the time the Company issues the stock certificates.
Options granted under the Employee Plan generally are not transferable
during the lifetime of the employee and Common Stock acquired prior to six
months after the grant of any option may not be transferred prior to six months
after grant.
Options granted under the Employee Plan are expected to expire if not
exercised within ten years from the date of grant and will terminate
automatically upon an optionee's termination of employment or service with the
Company (or three months thereafter, in the case of normal retirement in
accordance with Company policy) unless otherwise provided in the option
agreement pertaining to such option. If any optionee dies while in the employ or
service of the Company or a subsidiary, his or her options, whether or not then
exercisable, may be exercised by his or her estate or by a person who acquires
the right to exercise such option by bequest or inheritance, within one year
after the date of such death (but not later than the date the option would
otherwise expire), unless otherwise provided in the option agreement. If an
optionee's service or employment with the Company or a subsidiary is terminated
by reason of permanent and total disability, his or her options, whether or not
then exercisable, may be exercised within one year after such termination of
service or employment (but not later than the date on which the option would
otherwise expire), unless otherwise provided in the option agreement. In the
event of a change in control of the Company (as defined in the Employee Plan),
all outstanding options generally would immediately become exercisable.
If the outstanding shares of Common 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, reverse split, combination of shares, exchange of shares, stock
dividend or other distribution payable in Common Stock, or other increase or
decrease in the outstanding shares of Common Stock effected without receipt of
consideration by the Company, occurring after the effective date of the Employee
Plan, the number and kinds of shares for the purchase of which options may be
granted under the Employee Plan will be adjusted proportionately and accordingly
by the Company. In addition, the number and kind of shares for which options are
outstanding will be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the option immediately following such
event will, to the extent practicable, be the same as immediately prior to such
event. Any such adjustment in outstanding options will not change the aggregate
option price payable with respect to shares subject to the unexercised portion
of the option outstanding but will include a corresponding proportionate
adjustment in the option price per share.
Upon dissolution or liquidation of the Company, or upon a reorganization,
merger or consolidation or other business combination of the Company with one or
more other entities in which the Company is not the surviving entity, or upon
the sale of all or substantially all of the assets of the Company to another
entity, 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 (or persons or entities acting
as a group or otherwise in concert) owning 80 percent or more of the combined
voting power of all classes of stock of the Company, the Employee Plan and all
options outstanding thereunder will terminate, except to the extent a provision
is made in connection with such transaction for the continuation of the Employee
Plan and/or the assumption of the options or for the substitution for such
options of new options covering the stock of a successor employer corporation,
or parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and the per option exercise prices, in which event the
Employee Plan and options theretofore granted will continue in the manner and
under the terms so provided. In the event of such termination, all outstanding
options will be exercisable in full during such period immediately prior to the
occurrence of such termination as the Board of Directors in its sole discretion
may determine and designate, whether or not such options are exercisable during
such period.
Subject to the foregoing, if the Company is the surviving corporation in
any reorganization, merger, or consolidation of the Company with one or more
corporations, any option granted pursuant to the Employee Plan will pertain to
and apply to the securities to which a holder of the number of shares of Common
Stock subject to such option would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding proportionate
adjustment of the per share option exercise price so that the aggregate option
exercise price thereafter will be the same as the aggregate option exercise
price of the shares remaining subject to the option immediately prior to such
reorganization, merger, or consolidation.
The Board of Directors of the Company may, at any time and from time to
time, amend, suspend or terminate the Employee Plan as to shares of Common Stock
as to which options have not been granted. However, the Board of Directors may
not amend the Employee Plan, except subject to the approval of the Company's
shareholders, if such amendment would: (1) materially increase the benefits
accruing to eligible individuals under the
16
<PAGE>
Employee Plan; (2) change the requirements as to eligibility to receive options
under the Employee Plan; or (3) increase the maximum number of shares that may
be sold pursuant to options granted under the Employee Plan, other than
adjustments upon changes in capitalization.
Unless previously terminated, the Employee Plan will terminate
automatically on September 28, 2005, the tenth anniversary of the effective date
of the Employee Plan. No termination, suspension or amendment of the Employee
Plan may adversely affect the rights of the holder of an option without such
holder's consent.
FEDERAL INCOME TAX CONSEQUENCES
The grant of an incentive stock option will not be a taxable event for the
optionee or the Company. Generally, the grant of a non-qualified option should
not be a taxable event for the optionee or the Company provided that, if the
per-share exercise price of the option is less than the market value of a share
of the Company Common Stock on the date of grant, there is a substantial risk,
on the basis of all the facts and circumstances, that the value of the Company
stock could be less than the option price during the term of the option.
With respect to "incentive stock options," an optionee will not recognize
taxable income upon the exercise of the option, and any gain realized upon a
disposition of shares acquired pursuant to exercise of an incentive option will
be taxed as capital gain, if the optionee holds the shares for at least two
years after the date the incentive option was granted and for at least one year
after the date the option was exercised. However, the excess of the fair market
value of the Common Stock subject to an incentive option on the date of exercise
(or, in some cases, on the date of expiration of restrictions as to the
disposition of the shares, unless the optionee files a special tax election
within 30 days after exercise) over the option exercise price will be includable
in alternative minimum taxable income in the year of exercise (or the year in
which such restrictions expire) for purposes of the alternative minimum tax.
This excess increases the optionee's basis in the stock for purposes of the
alternative minimum tax but not for purposes of the regular income tax. An
optionee may be entitled to a credit against regular tax liability in future
years for minimum taxes paid with respect to the exercise of incentive options.
The Company and its subsidiaries will not be entitled to any business expense
deduction with respect to the grant or exercise of an incentive option, except
as discussed below.
For the exercise of an incentive option to qualify for favorable tax
treatment, the optionee generally must be an employee of the Company or a
subsidiary from the date the option is granted through a date within three
months before the date of exercise. In the case of an optionee who is disabled,
within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended, (the "Code")(or the corresponding provision of any subsequently enacted
tax statute), the three-month period for exercise following termination of
employment is extended to one year. In the case of an employee who dies, the
time for exercising incentive options after termination of employment and the
holding period for stock received pursuant to the exercise of the option are
waived. The Employee Plan generally requires, however, that incentive options be
exercised within one year following the date of death of an employee, but not
later than the time the option would expire by its terms.
If all of the requirements for incentive option treatment are met except
for the special holding period rules set forth above, the optionee will
recognize ordinary income upon the disposition of the stock, generally in an
amount equal to the excess of the fair market value of the stock at the time the
incentive option was exercised over the option exercise price. The balance of
the realized gain, if any, will be capital gain, and the rate of tax will depend
upon how long the optionee held the stock. If the optionee sells the stock
before satisfaction of the special holding period rules, but at a price below
the fair market value of the stock at the time the incentive option was
exercised, the amount of ordinary income will be limited to the excess of the
amount realized on the sale over the option exercise price. If the optionee
sells the stock before satisfaction of the holding period rules, the Company
will be allowed a business expense deduction to the extent it complies with
applicable reporting requirements and the optionee recognizes ordinary income.
The Employee Plan provides that optionees may exercise an incentive option
by tendering shares of Common Stock with a fair market value equal to part or
all of the option exercise price. An exchange of common shares for common shares
of the same corporation is ordinarily a nontaxable exchange, and the tax basis
of the shares exchanged is treated as the substituted basis for the shares
received. These rules would apply to use of shares of Common Stock to exercise
an incentive option unless the optionee acquired the shares used to effect the
exchange pursuant to exercise of an incentive option or another statutory option
and did not satisfy the special holding period rules discussed above, in which
case the tender of such shares would be a taxable transaction and the rules
summarized above would apply.
Upon exercise of a non-qualified option, however, the optionee will
recognize ordinary income in an amount equal to the difference between the
option exercise price and the fair market value of the Common Stock on the date
of exercise (or, if the optionee is subject to certain restrictions, upon the
lapse of those restrictions, unless
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the optionee makes a special tax election within 30 days after exercise). If the
Company complies with the applicable reporting requirements, it will be entitled
to a business expense deduction in the same amount and at the same time as the
optionee recognizes ordinary income. Upon a subsequent sale or exchange of
shares acquired pursuant to the exercise of a non-qualified option, the optionee
will have taxable capital gain or loss, measured by the difference between the
amount realized on the disposition and the tax basis of the shares (generally,
the amount paid for the shares plus the amount treated as ordinary income at the
time the option was exercised).
If an optionee surrenders shares of Common Stock in payment of part or all
of the exercise price of a non-qualified option, no gain or loss will be
recognized with respect to the shares surrendered, and the optionee will be
treated as receiving an equivalent number of shares pursuant to the exercise of
the option in a nontaxable exchange. The basis of the shares surrendered will be
treated as the substituted tax basis for an equivalent number of option shares
received. However, the fair market value of any shares received in excess of the
number of shares surrendered (i.e., the difference between the aggregate option
exercise price and the aggregate fair market value of the shares received
pursuant to exercise of the option) will be taxed as ordinary income. The
optionee's basis of such additional shares is equal to the amount included in
the optionee's income.
RECOMMENDATION OF THE BOARD OF DIRECTORS
APPROVAL OF THE EMPLOYEE PLAN AMENDMENT REQUIRES THE AFFIRMATIVE VOTE OF THE
HOLDERS OF A MAJORITY OF THE VOTES PRESENT AND ENTITLED TO VOTE THEREON AT THE
ANNUAL MEETING, AT WHICH A QUORUM REPRESENTING A MAJORITY OF ALL OUTSTANDING
VOTING STOCK IS, EITHER IN PERSON OR BY PROXY, PRESENT AND VOTING ON THE
AMENDMENT. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL
OF THE EMPLOYEE PLAN AMENDMENT.
PROPOSED DIRECTOR PLAN AMENDMENT TO THE COMPANY'S 1989 NON-EMPLOYEE
DIRECTOR NON-QUALIFIED STOCK OPTION PLAN
(AS AMENDED AND RESTATED)
(PROPOSAL NO. 3)
The Board of Directors has amended (the "Director Plan Amendment"), subject
to shareholder approval, the Non-Employee Director Non-Qualified Stock Option
Plan to provide a mechanism for compensating Non-Employee Directors who have
agreed not to accept monetary compensation due to the Company's financial
condition. As more fully described below, the Director Plan Amendment would
provide for annual grants of options to purchase up to 6,000 additional shares
of Common Stock to each Non-Employee Director so long as Non-Employee Directors
are serving on the Company's Board of Directors without monetary compensation.
Each Non-Employee Director is entitled to receive an annual grant of an
option to purchase 4,000 shares of Common Stock and monetary compensation of
$10,000 per year for serving as a director. Effective January 1, 1999, the Board
of Directors unanimously agreed to suspend monetary compensation to the Board
during the 1999 calendar year because of the Company's current financial
condition, determining to compensate directors in some other manner. The Board
has now adopted (subject to approval by the Company's shareholders) the Director
Plan Amendment, which provides that so long as the Board of Directors'
suspension of monetary compensation to the Non-Employee Directors continues,
each Non-Employee Director will be granted an additional annual option to
purchase up to 6,000 shares of Common Stock, provided, however, that such
Non-Employee Director will not receive such options for periods (as specified in
the Director Plan Amendment, below) during which such Non-Employee Director
served as an employee of, or otherwise received compensation for consulting
services rendered to, the Company. To enable Non-Employee Directors who agree to
serve the Company as employees on an interim basis to regain their eligibility
as Non-Employee Directors after they have served on such interim basis, the
Board has (subject to shareholder approval of this Amendment) modified the
definition of "Non-Employee Director" under the Director Plan as part of this
Director Plan Amendment. The proposed Director Plan Amendment would replace the
existing first sentence of Section 1 (Purpose) with the following sentence:
"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, other than such an officer or other salaried
employee who serves on an interim basis only (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 proposed Director Plan Amendment would also add six additional
sentences to the end of subsection (b) (Annual Grants) of Section 3 (Grant of
Options) of the Director Plan, which would read as follows:
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"In addition, each Non-Employee Director serving on the Board of Directors
on June 23, 1999, shall be granted an Option to purchase 6,000 shares of Stock
at the price and upon the other terms and conditions of this Plan. The right to
purchase the first 1,500 of such shares shall vest immediately with respect to
each Non-Employee Director who had served as a Non-Employee Director during the
three months ended March 31, 1999 and who otherwise did not serve as an employee
of, or receive compensation for services rendered as a consultant to, the
Corporation during that period. The right to purchase the remaining 4,500 shares
subject to such Option shall vest, if at all, as follows: the right to purchase
1,500 shares shall vest at the expiration of each three-month period (the first
such period being the three-month period ending June 30, 1999) during the 1999
calendar year with respect to which the payment of monetary compensation to
Non-Employee Directors remains suspended by the Board and during which period
such Non-Employee Director remains a Non-Employee Director and does not serve as
an employee of, or receive compensation for services rendered as a consultant
to, the Corporation.
Beginning on January 1, 2000, each Non-Employee Director serving on the
Board of Directors on January 1 of each calendar year shall be granted an Option
(on January 1 of each such year) to purchase shares of Stock at the price and
upon the other terms and conditions of this Plan, provided that the Board of
Directors has suspended (or continued the suspension of), by action taken at its
December meeting immediately preceding such January 1, the payment of monetary
compensation to Non-Employee Directors during a portion or all of that calendar
year. The total number of shares of Stock subject to each such Option shall
equal 1,500 shares for each three-month period (the first such period ending on
March 31 of each such calendar year) that the Board of Directors has suspended
the payment of monetary compensation to the Non-Employee Directors during that
calendar year, up to a maximum of 6,000 shares for the calendar year. The right
to purchase the shares subject to such Option shall vest, if at all, as follows:
1,500 of the shares subject to such Option shall vest at the expiration of each
three-month period (beginning on the first three-month period of each such
calendar year for which the Board of Directors has suspended the payment of
monetary compensation to Non-Employee Directors) during the then-present
calendar year with respect to which the payment of monetary compensation to
Non-Employee Directors remains suspended by the Board and during which period
such Non-Employee Director remains a Non-Employee Director and does not serve as
an employee of, or receive compensation for services rendered as a consultant
to, the Corporation."
If the Director Plan Amendment is approved, each Non-Employee Director
serving on the Board on June 23, 1999, would receive an option to purchase 6,000
shares of Common Stock on that date. Of such shares, 1,500 would vest
immediately with respect to each Non-Employee Director who was a Non-Employee
Director during the three-months ended March 31, 1999 and who did not serve as
an employee of, or receive compensation for services rendered as a consultant
to, the Company during that period, and an additional 1,500 shares would vest
for each three-month period during which the payment of monetary compensation to
Non-Employee Directors remains suspended by the Board and such Non-Employee
Director remains a Non-Employee Director and does not serve as an employee of,
or receive compensation for services rendered as a consultant to the Company.
Since Mr. Levi served as the Company's interim President and Chief Executive
Officer and as a paid consultant to the Company in 1999, he is ineligible to
receive the June 23, 1999 option. If the Director Plan Amendment is approved, he
would again become eligible to receive options under the Director Plan (subject
to the conditions thereof) after he completes his service as interim President
and Chief Executive Officer of the Company. Should Mr. Lynn be elected to the
Board (See Proposal 1 hereof) he will not be considered a "Non-Employee
Director" because he has been an employee of the Company within the past three
years. Accordingly, he would not be eligible to receive options under the
Director Plan at this time.
Without the adoption of the Director Plan Amendment, the Company may have
to resume paying Non-Employee Directors monetary compensation to be able to
retain qualified individuals. During this difficult financial time, the Director
Plan Amendment would allow the Company to offer a cost-effective alternative to
monetary compensation to the Non-Employee Directors which also would have the
benefit of providing an added incentive to Non-Employee Directors to serve the
Company faithfully and diligently. The Board of Directors believes that the
proposed Director Plan Amendment would serve the interests of the Company and
its stockholders by permitting the Company to obtain services from its
Non-Employee Directors in return for option grants rather than for the Company's
monetary resources, which then could be applied to other productive uses.
THE PRINCIPAL PROVISIONS OF THE DIRECTOR PLAN ARE SUMMARIZED BELOW. SUCH SUMMARY
DOES NOT, HOWEVER, PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
THE TERMS OF THE DIRECTOR PLAN.
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DESCRIPTION OF THE DIRECTOR PLAN
Under the terms of the Director Plan prior to adoption of the amendment, up
to 125,000 shares of Common Stock were reserved for issuance under the Director
Plan. The stock options granted under the Director Plan are non-qualified
options. Based upon the closing price of the Company's Common Stock on April 29,
1999, the aggregate market value of the total number of shares of Common Stock
underlying the stock options available for grant, including the shares that were
added to the plan, subject to shareholder approval, is $241,000.
Under the terms of the Director Plan, each Non-Employee Director serving on
the Board of Directors on the effective date of the Director Plan (June 10,
1989) was granted an option to purchase 5,000 shares of Common Stock. Each
Non-Employee Director subsequently elected to the Board of Directors became or
will become entitled to receive an option to purchase 5,000 shares of Common
Stock (until December 1997) or 10,000 shares (thereafter). In addition, each
continuing Non-Employee Director received an automatic grant of a non-qualified
stock option to purchase 1,000 shares of Common Stock in March of each year from
1990 through 1995, 3,000 shares of Common Stock in each of December 1996 and
1997, and 4,000 shares in December 1998. A special one-time grant of options to
purchase 10,000 shares was granted to each continuing Non-Employee Director in
December 1992. Each Non-Employee Director is also entitled to receive an
automatic grant of a non-qualified stock option to purchase 4,000 shares of
Common Stock in December of each year until the Director Plan expires. There are
currently three Non-Employee Directors entitled to receive annual grants
pursuant to the Director Plan, Messrs. Gische, Gray and Levi.
The option exercise price under the Director Plan is equal to 100% of the
fair market value of Common Stock on the date the option is granted. Options
granted under the Director Plan expire if not exercised within 10 years from the
date of grant.
Payment for shares purchased under the Director Plan, as amended, may be
made either in cash or cash equivalents, in shares of Common Stock with a fair
market value equal to the option price, or a combination of cash and shares of
Common Stock. The Director Plan, as amended, also allows for "cashless
exercise," in which a licensed broker tenders to the Company cash equal to the
exercise price (plus taxes required to be withheld) at the time the Company
issues the stock certificates.
Options granted under the Director Plan continue to be in effect for the
remainder of their respective terms notwithstanding termination of any
optionee's service with the Company or a subsidiary.
The Director Plan contains provisions with respect to the adjustment or
termination of options in connection with a change in capitalization or other
corporate transactions that are substantially identical to the Employee Plan
provisions described above (see "Proposal 2--Description of the Employee Plan").
The Board of Directors may, at any time and from time to time, amend,
suspend or terminate the Director Plan as to any shares of Common Stock as to
which options have not been granted. However, the Company's shareholders must
approve any amendment that would (1) materially change the requirements as to
eligibility to receive options under the Director Plan; (2) increase the maximum
number of shares that may be sold pursuant to options granted under the Director
Plan, other than adjustments upon changes in capitalization; (3) change the
minimum option price, other than adjustments upon changes in capitalization; (4)
increase the maximum period during which options may be exercised; (5) extend
the term of the Director Plan; or (6) materially increase the benefits accruing
to eligible individuals under the Director Plan.
The Director Plan, which also allows for "cashless exercise," in which a
licensed broker tenders to the Company cash equal to the exercise price (plus
taxes required to be withheld) at the time the Company issues the stock
certificates, will terminate automatically on April 30, 2001, unless previously
terminated. No termination, suspension or amendment of the Director Plan may,
without the consent of the optionee to whom an option has been granted,
adversely affect the rights of the holder of the option.
FEDERAL INCOME TAX CONSEQUENCES
No gain or loss is recognized by the optionee at the time such an option is
granted. Upon exercise of an option, the federal income tax consequences will be
substantially the same as described above with respect to non-qualified options
granted under the Employee Plan.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
APPROVAL OF THE DIRECTOR PLAN AMENDMENT REQUIRES 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. THE BOARD
OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE DIRECTOR PLAN
AMENDMENT.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
Proposals of shareholders intended to be presented at the Company's 2000
Annual Meeting of Shareholders must be received at the Company's principal
executive offices not later than October 23, 1999 in order for such proposals to
be included in the Company's proxy statement and proxy relating to the 2000
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
2000 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.
Although the Company customarily requests its shareholders to ratify the
Board of Directors' appointment of the Company's independent accountants for the
fiscal year ending following the Annual Meeting, the Company has not included
such a proposal in these proxy materials this year. The Company is in the
process of conducting a review to determine whether its current accounting firm
is the most suitable independent accounting firm given the Company's evolving
operations and current financial condition. Once this search is concluded, the
Company will make a decision as to its independent accountants and whether to
request its shareholders to ratify its selection at next year's Annual Meeting.
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/ David B. Levi
David B. Levi
President and Chief Executive Officer
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REVOCABLE PROXY
MICROLOG CORPORATION
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned shareholder hereby appoints David B. Levi 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 June 21, 1999, 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 one director for a three year term ending in 2001:
Joe J. Lynn: [ ] FOR the nominee listed above. [ ] WITHHOLD AUTHORITY to
vote for the nominee listed above.
2. Proposed Employee Plan Amendment: [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposed Director Plan Amendment: [ ] 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 nominee in proposal 1, FOR the proposed Employee Plan Amendment in
proposal 2 and FOR the proposed Director Plan Amendment in proposal 3.
The undersigned hereby acknowledges prior receipt of a copy of the Notice
of Annual Meeting of Shareholders and Proxy Statement dated May 12, 1999, and
the 1998 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 form, please sign and return all cards
in the accompanying envelope.
[ ] I PLAN TO ATTEND THE JUNE 21, 1999
ANNUAL SHAREHOLDERS MEETING Date: _________________________, 1999.
-----------------------------------------
-----------------------------------------
Signature of Shareholder(s) or Authorized
Representative(s)
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.
