<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [ ]
Filed by a party other than the registrant [X]
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
M-WAVE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
M-WAVE, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[LOGO]
M-WAVE, INC.
216 Evergreen Street
Bensenville, Illinois 60106
To Our Stockholders:
You are invited to attend the Annual Meeting of Stockholders of M-Wave,
Inc. to be held at the Union League Club, 65 West Jackson, Chicago,
Illinois, on Wednesday, December 9, 1998 at 10:00 a.m. local time. We are
pleased to enclose the notice of our annual stockholders meeting, together
with a Proxy Statement, a Proxy and an envelope for returning the Proxy.
Please carefully review the Proxy Statement and then complete, date and
sign your Proxy and return it promptly. If you plan to attend the meeting,
please so indicate by marking the box on the Proxy. If you attend the
meeting and decide to vote in person, you may withdraw your Proxy at the
meeting.
If you have any questions or need assistance in how to vote your shares,
please call Investor Relations at (630) 860-9542. Your time and attention
to this letter and the accompanying Proxy Statement and Proxy is
appreciated.
Sincerely,
Joseph A. Turek
Chairman and Chief Executive Officer
November 4, 1998
<PAGE> 3
[M-Wave Logo]
M-WAVE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of M-Wave, Inc., a Delaware
corporation (the "Company"), will be held on Wednesday, December 9, 1998 at
10:00 a.m. local time, at the Union League Club, 65 West Jackson, Chicago,
Illinois, for the following purposes:
1. To elect two Class III Directors for a term expiring in 2001;
2. To ratify the appointment of Grant Thornton LLP as auditors of
the Company for the 1998 calendar year; and
3. To transact such other business that is properly brought before
the meeting.
Only holders of Common Stock of record on the books of the Company at the
close of business on October 29, 1998, will be entitled to vote at the
Annual Meeting.
The Board of Directors' nominees for Director are set forth in the
accompanying Proxy Statement.
YOUR VOTE IS IMPORTANT. ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL
MEETING IN PERSON. HOWEVER, TO ASSURE YOUR REPRESENTATION AT THE ANNUAL
MEETING, PLEASE MARK, DATE AND SIGN YOUR PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE. If you plan to attend the Annual Meeting, please so
indicate by marking the box on the Proxy. Any stockholder attending the
Annual Meeting may vote in person even if the stockholder returned a Proxy.
By Order of the Board of Directors
Paul H. Schmitt
Secretary
Chicago, Illinois
November 4, 1998
THE ENCLOSED PROXY, WHICH IS BEING SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY,
CAN BE RETURNED IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 4
M-WAVE, INC.
216 Evergreen Street
Bensenville, Illinois 60106
PROXY STATEMENT
The Board of Directors of the Company solicits your proxy for use at the
Annual Meeting of Stockholders on Wednesday, December 9, 1998, or at any
adjournment thereof. The Proxy Statement and the form of Proxy are being
mailed to stockholders commencing on or about November 9, 1998.
INFORMATION CONCERNING SOLICITATION AND VOTING
REVOCABILITY OF PROXIES
Any stockholder who executes and returns a Proxy may revoke the same at
any time before it is exercised by filing with the Secretary of the Company
written notice of such revocation or a duly executed proxy bearing a later
date, or by attending the Annual Meeting and voting in person. Attendance
at the Annual Meeting will not in and of itself constitute revocation of a
Proxy.
RECORD DATE
Stockholders of record at the close of business on October 29, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting.
At the Record Date, 3,049,806 shares of Common Stock, $.01 par value of the
Company (the "Common Stock"), were issued and outstanding.
VOTING AND SOLICITATION
Holders of Common Stock of record as of the close of business on the
Record Date are entitled to one vote per share of Common Stock. The
Company's Certificate of Incorporation does not provide for cumulative
voting rights.
A plurality of the votes cast at the Annual Meeting is required to elect
directors. The affirmative vote of the holders of a majority of the shares
of Common Stock present (either in person or by proxy) and entitled to vote
at the Annual Meeting is required to ratify the selection of Grant Thorton
LLP as the Company's independent auditors for 1998. In accordance with
Delaware law and the Company's Certificate of Incorporation and Bylaws, (i)
for the election of directors, which requires a plurality of the votes
cast, only proxies and ballots indicating votes "FOR" or "WITHHELD" are
counted to determine the total number of votes cast, and broker non-votes
are not counted, and (ii) for the adoption of all other proposals, which
are decided by a majority of the shares of the stock of the Company present
in person or by proxy and entitled to vote, only proxies and ballots
indicating votes "FOR", "AGAINST", or "ABSTAIN" on the proposal or
providing the designated proxies with the right to vote in their judgment
and discretion on the proposal are counted to determine the number of
shares present and entitled to vote, and broker non-votes are not counted.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by
certain of the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone or telecopier.
-3-
<PAGE> 5
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of stockholders which are intended to be presented by such
stockholders at the Company's next annual meeting of stockholders to be
held in 1999 must be received by the Company no later than April 1, 1999 in
order that they may be included in the proxy statement and form of proxy
relating to that meeting.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of October 26, 1998
by (i) each person known to the Company to beneficially own 5% or more of
the Company's Common Stock, (ii) each of the Directors and executive
officers of the Company, and (iii) all executive officers and directors of
the Company as a group. The number of shares of Common Stock shown as owned
below assumes the exercise of all currently exercisable options held by the
applicable person or group, and the percentage shown assumes the exercise
of such options and assumes that no options held by others are exercised.
Unless otherwise indicated below, the persons named below have sole voting
and investment power with respect to the number of shares set forth
opposite their respective names. For purposes of the following table, each
person's "beneficial ownership" of the Company's Common Stock has been
determined in accordance with the rules of the Securities and Exchange
Commission ("SEC").
<TABLE>
<CAPTION>
Name of Beneficial Holder Number Percentage
of Shares of Shares
Beneficially Beneficially
Owned Owned
---------------------------------------------------------------------------
<S> <C> <C>
Joseph A. Turek1/ 822,000 26.8
---------------------------------------------------------------------------
First Chicago Entities2/ 781,964 25.5
---------------------------------------------------------------------------
Heartland Advisors, Inc.3/ 527,000 17.2
---------------------------------------------------------------------------
Eric C. Larson 4/ 87,500 2.9
---------------------------------------------------------------------------
Timothy A. Dugan 4/ 87,500 2.9
---------------------------------------------------------------------------
Paul Schmitt5/ 25,000 *
---------------------------------------------------------------------------
Lavern D. Kramer6/ 11,500 *
---------------------------------------------------------------------------
Rick Mathes 0 *
---------------------------------------------------------------------------
All Directors and executive officers 946,000 30.0
as a group (7 persons)7/
---------------------------------------------------------------------------
</TABLE>
---------------------------
* Less than 1%.
1/ Includes 75,000 shares of Common Stock which may be acquired upon the
exercise of immediately exercisable options.
2/ Based on a Schedule 13D and Schedule 13G filed with the SEC, the shares
listed as owned by the "First Chicago Entities" are held of record and
beneficially by the following entities in the following
-4-
<PAGE> 6
amounts: First Chicago Equity Corporation ("First Chicago") (694,464
shares); and Cross Creek Partners II ("Cross Creek") (87,500 shares).
First Chicago has the sole power to vote 781,964 shares of Common Stock
and to dispose of 694,464 shares of Common Stock. First Chicago is a
wholly-owned subsidiary of First Chicago NBD Corporation. Messrs.
Larson and Dugan are general partners of Cross Creek.
3/ Based on a Schedule 13G filed with the SEC with respect to 527,000
shares of Common Stock which Heartland Advisors, Inc., in its capacity
as investment advisor, may be deemed to beneficially own.
4/ Messrs. Larson and Dugan do not own any shares individually; however,
by reason of their positions as general partners of Cross Creek, each
may be deemed to beneficially own all of the shares owned by Cross
Creek, with shared voting and investment power over those shares. Each
of Messrs. Larson and Dugan disclaims beneficial ownership of all such
shares.
5/ Includes 25,000 shares of Common Stock which may be acquired upon the
exercise of immediately exercisable options.
6/ Includes 10,000 shares of Common Stock which may be acquired upon the
exercise of immediately exercisable options.
7/ Includes 100,000 shares which may be acquired by directors and
executive officers of the Company upon the exercise of immediately
exercisable options. See footnotes 1, 4, 5, and 6.
The addresses of the persons shown in the table above who are beneficial
owners of more than 5% of the Company's Common Stock are: Mr. Turek, c/o
M-Wave, Inc., 216 Evergreen Street, Bensenville, Illinois 60106; First
Capital and Cross Creek, c/o First Chicago NBD Corporation, Three First
National Plaza, Chicago, Illinois 60670-0610; and Heartland Advisors, Inc.,
790 North Milwaukee Street, Milwaukee, Wisconsin 53202.
The First Chicago Entities and Joseph A. Turek are parties to a
Shareholders Agreement dated July 21, 1993 (the "Shareholders Agreement").
Pursuant to the Shareholders Agreement, Mr. Turek has agreed to vote his
shares of Common Stock in favor of the election to the Company's Board of
Directors of the greater of two, or one third of the total number of
Directors of the Company, designated by the First Chicago Entities. The
First Chicago Entities have also agreed to vote all of the shares of Common
Stock they purchased from Mr. Joel Dryer, former Chairman of the Company,
in favor of the election of Mr. Turek to the Board of Directors of the
Company. Messrs. Eric C. Larson and Timothy A. Dugan are directors of the
Company who have been designated by the First Chicago Entities pursuant to
the Shareholders Agreement.
In addition, subject to certain exceptions, Mr. Turek has agreed
in the Shareholders Agreement not to sell or otherwise transfer, in the
aggregate, in excess of that number of shares of Common Stock which is
achieved by multiplying 100,000 by the sum of one plus the number of full
years elapsed since July 21, 1993 (except for sales made in connection with
a registered offering in which the First Chicago Entities also
participate), unless the First Chicago Entities have previously disposed of
in excess of such amount, in which case Mr. Turek is entitled to dispose of
that number of shares of Common Stock as shall have been previously been
sold by the First Chicago Entities less that number of shares of Common
Stock previously sold by Mr. Turek in accordance with the Shareholders
Agreement. Pursuant to the Shareholders Agreement, Mr. Turek has the right
to participate in any registered sale of Common Stock effected by the First
Chicago Entities in accordance with the Registration Rights Agreement (as
defined below) or in any other sale effected by the First Chicago Entities,
subject to certain limitations. Each of Mr. Turek and the First Chicago
Entities are granted rights of first refusal under the Shareholders
Agreement with respect to shares of Common Stock proposed to be sold by the
other. The Shareholders Agreement terminates at such time as the First
Chicago Entities shall hold less than 25% of the Common Stock originally
acquired by them from Mr. Dryer on July 21, 1993.
-5-
<PAGE> 7
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") requires the Company's officers and directors, and persons
who own more than 10% of the Company's outstanding Common Stock, to file
reports of ownership and changes in ownership of such securities with the
SEC. Officers, directors and greater-than-10% beneficial owners are
required to furnish the Company with copies of all Section 16(a) forms they
file. Based solely upon a review of the copies of the forms furnished to
the Company, and/or written representations from certain reporting persons
that no other reports were required, the Company believes that all Section
16(a) filing requirements applicable to its officers, directors and 10%
during or with respect to the year ended December 31, 1997 were met.
1. ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, each of
whose members serve for a staggered three-year term. The Board is comprised
of two Class I Directors (Eric C. Larson and Timothy A. Dugan), one Class
II Director (Joseph A. Turek) and two Class III Directors (Lavern D. Kramer
and Rick Mathes). The current term of the Class III Directors ends upon the
election of directors at this Annual Meeting. The terms of the Class I
Directors and the Class II Director end upon the election of directors at
the annual meeting of stockholders in 1999 and 2000, respectively.
The Board of Directors has nominated Messrs. Lavern D. Kramer and
Rick Mathes to stand for reelection as Class III Directors for a three-year
term ending upon the election of directors at the 2001 annual meeting of
stockholders.
At the Annual Meeting, the shares of Common Stock represented by
Proxies in the form accompanying this Proxy Statement, unless otherwise
specified, will be voted to reelect Messrs. Kramer and Mathes as Class III
Directors. Messrs. Kramer and Mathes have agreed to serve if elected.
However, if either of the nominees becomes unable or unwilling to serve if
elected, the Proxies will be voted for the election of the person, if any,
recommended by the Board of Directors or, in the alternative, for holding a
vacancy to be filled by the Board of Directors. The Board of Directors has
no reason to believe that either Mr. Kramer or Mr. Mathes will be unable or
unwilling to serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT EACH STOCKHOLDER VOTE "FOR"
ITS NOMINEES.
NOMINEE FOR ELECTION AT THE ANNUAL MEETING
LAVERN D. KRAMER has been a director of the Company since April
1992. Mr. Kramer has been the President of Kester Solder, a division of
Litton Industries, since 1970. He is a member of the Board of Directors and
Executive Committee of the Lead Industries Association. Mr. Kramer received
a B.S.C. degree from International College.
RICK MATHES has been a director of the Company since June 1998.
Mr. Mathes has been President and CEO of Standard Car Truck Company since
1989. Mr. Mathes received his degree from Elmhurst College in 1986.
DIRECTORS CONTINUING IN OFFICE UNTIL 1999 ANNUAL MEETING
ERIC C. LARSON has been a director of the Company since November
1993. Mr. Larson has been employed by The First National Bank of Chicago
and its affiliates in various capacities since May 1984. Since January
1991, he has served as a Managing Director in First Chicago Equity Capital.
Prior thereto Mr. Larson served as an Investment Manager with First Chicago
Venture Capital. Mr. Larson is also a General Partner of Cross Creek
Partners, an investment partnership comprised of the managers of First
-6-
<PAGE> 8
Chicago Equity Capital. He is a director of Daka International, Inc. Mr.
Larson received a B.A. degree from Harvard College, an M.A. degree from the
University of Michigan and an M.B.A. degree from the University of Chicago.
TIMOTHY A. DUGAN has been a director of the Company since November
1993. Mr. Dugan has been employed by The First National Bank of Chicago in
various capacities since July 1987. Since July 1990, he has served as Vice
President of First Chicago Equity Capital. Mr. Dugan is also a General
Partner of Cross Creek Partners, an investment partnership comprised of the
managers of First Chicago Equity Capital. He is member of the Board of
Directors of Daka International, Inc., Dealers Monitoring Alliance
Corporation, Inc. and Pacer Propane, Inc. Mr. Dugan received B.S.E.E. and
B.A. degrees from Stanford University and an M.B.A. degree from the
University of Chicago.
DIRECTORS CONTINUING IN OFFICE UNTIL 2000 ANNUAL MEETING
JOSEPH A. TUREK is the founder of the Company and has served as
Chairman of the Board and Chief Executive Officer since June 1993 and as a
director of the Company since 1988. Mr. Turek served as President of the
Company from 1988 to February 1997. Mr. Turek served for more than five
years in various positions at West-Tronics, Inc., a manufacturer of low
frequency circuit boards and a contract assembler of electronic products,
with his last position as President in 1987 and 1988. West-Tronics entered
into an assignment for the benefit of creditors in December 1988 pursuant
to which the Company purchased the assets and assumed certain liabilities
of West-Tronics, Inc. He received a B.S.E.E. degree from the University of
Notre Dame and a M.B.A. degree from Northwestern University.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held seven meetings during
1997. The Board of Directors also has an Audit Committee and a Compensation
Committee. The Audit Committee held two meetings and the Compensation
Committee held one meeting during 1997. The Committees received their
authority and assignments from the Board of Directors and report to the
Board of Directors. Other than Mr. Irwin Katz, no Director attended fewer
than 75% of the aggregate number of meetings of the Board of Directors and
the Committees on which he served during the period for which he was a
member of the Board.
Messrs. Kramer and Larson are members of the Audit Committee. The
Audit Committee recommends the engagement of the Company's independent
auditors and is primarily responsible for approving the services performed
by the Company's independent auditors. The Committee also reviews and
evaluates the Company's accounting principles and its system of internal
accounting controls.
Messrs. Dugan and Kramer are the members of the Compensation
Committee. The Compensation Committee reviews and approves the Company's
executive compensation policy, makes recommendations concerning the
Company's employee benefit policies, and has authority to administer the
Plan.
COMPENSATION OF DIRECTORS
The Company does not pay any direct compensation to Directors. Mr.
Kramer, who is a non-employee director of the Company, received stock
options in April 1992 for 10,000 shares of Common Stock under the Plan.
-7-
<PAGE> 9
EXECUTIVE OFFICERS' COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation paid by the Company to
the Company's Chief Executive Officer and its most highly compensated
officers during 1997. No other executive officer of the Company had a total
annual salary and bonus for 1997 which exceeded $100,000. The executive
officers of the Company do not currently have employment agreements with
the Company, are appointed annually by the Board of Directors and serve
until their successors have been duly elected and qualified.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
- -------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- -------------------------------------------------------------------------------------------------------------------
NAME AND YEAR SALARY BONUS OTHER ANNUAL RESTRICTED SECURITIES LTIP
PRINCIPAL ($) ($) COMPENSATION STOCK UNDER-LYING PAYOUTS
POSITION ($)(1) AWARD(S) OPTIONS/ ($)
($) SARS (#)
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
Joseph A. Turek 1997 $ 126,511 none none none none none
(Chairman and CEO) 1996 $ 120,000 none none none none none
1995 $ 120,000 none none none 75,000 none
- -------------------------------------------------------------------------------------------------------------------
Michael Bayles 1997 $ 160,769(2) 50,000 none none 210,000 none
(President and Chief
Operating Officer)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
(1) Other annual compensation did not exceed the lesser of $50,000 or
10% of the total salary and bonus.
(2) Mr. Bayles joined the Company on February 3, 1997 and is currently
a consultant to the Company.
The following table sets forth certain information concerning
options granted to the named executive officers during the fiscal year
ended December 31, 1997.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS EXERCISE ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO OR BASE STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN PRICE EXPIRATION OPTION TERM
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Turek -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Michael Bayles 50,000 100% 2.75 2/3/07 75,808 186,718
70,000 7.50 2/3/07 287,447 712,923
90,000 10.00 2/3/07 496,195 1,022,153
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------------
-8-
<PAGE> 10
(1) Of the 50,000 shares subject to option, 20,000 became exercisable on
February 3, 1998 and 17,500 and 12,500 become exercisable on February 3,
1999 and 2000, respectively. Of the 70,000 shares subject to option,
28,000 became exercisable on February 3, 1998 and 24,500 and 17,500
become exercisable on February 3, 1999 and 2000, respectively. Of the
90,000 shares subject to option, 36,000 became exercisable on February
3, 1998 and 31,500 and 22,500 become exercisable on February 3, 1999 and
2000, respectively.
The following table sets forth certain information with respect to the
unexercised options to purchase the Company's Common Stock held by the named
executive officers at December 31, 1997. None of the named executive officers
exercised any stock options during the fiscal year ended December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FY-END (#) IN-THE-MONEY OPTIONS/SARS AT
-------------------------- FY-END ($)(1)
- --------------------------------------------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph A. Turek 75,000 -- 0 --
- --------------------------------------------------------------------------------------------------------------------
Michael Bayles 84,000 126,000 15,000 22,500
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the fair market value of the Common Stock on December 31, 1997
($3.50 per share) less the option exercise price.
BONUS PLAN
Although there is no formal written plan, it is the Company's practice
to grant discretionary cash bonuses to the Team Leaders other than the Chief
Executive Officer on an annual basis. The Compensation Committee has the
discretion to award performance bonuses. No bonuses were awarded to the
Company's employees in 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee during 1997 was comprised of non-employee
Directors of the Company, Messers. Dugan and Kramer. For a description of
transactions between the Company and entities affiliated with such members, see
"Certain Relationships and Related Transactions."
No executive officer of the Company served on the Compensation Committee
of another entity or on any other Committee of the Board of Directors of another
entity performing similar functions during 1997.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
Executive Compensation Policies.
The Compensation Committee bases its review and recommendations
regarding the Company's executive compensation with the goal of attaining the
following objectives: (1) to attract, motivate and retain the highest quality
executives, (2) to align both the short-term and the long-term interest of
executives with those of the
-9-
<PAGE> 11
Company's stockholders, and (3) to encourage executives to achieve their
assigned tactical and strategic business objectives as well as overall corporate
financial results. During 1997, the executive compensation program was generally
comprised of base salary and, with respect to executives other than the Chief
Executive Officer, variable bonus awards based on current corporate and
individual performance.
The Committee believes that this compensation program best serves the
interests of stockholders by ensuring that the executives are compensated in a
manner which provides incentives based upon both the short-term and long-term
performance of the Company. The compensation for the executives involves a
significant proportion of pay which is at risk: the variable annual bonus and
stock options (which directly relate a portion of their long-term remuneration
to stock price appreciation realized by the Company's stockholders).
The discussion below regarding Mr. Turek pertains to his compensation
during 1997.
Base Salary.
Mr. Turek's base salary of $126,551 as Chief Executive Officer for 1997
was based on his prior employment agreement with the Company. The salary of the
other executive officers of the Company during 1997, was based upon subjective
factors such as the level of experience and competence and complexity of the
duties performed by such executive officer.
Bonus.
The Compensation Committee also reviews and approves bonus compensation
for Team Leaders, other than the Chief Executive Officer, on an annual basis as
described above. During 1997, no bonuses were paid to any executive officers or
Team Leaders due to the Company's financial performance.
Stock Options.
The Company's long-term incentives are in the form of stock option
awards. The objective of these awards is to advance the longer-term interests of
the Company and its stockholders and complement incentives tied to annual
performance. These awards provide rewards to executives upon the creation of
incremental stockholder value and the attainment of long term earnings goals.
Stock options only produce value to executives if the price of the Company's
stock appreciates, thereby directly linking the interest of executives with
those of stockholders. During 1997, except for the options granted to Mr. Bayles
when he joined the Company, no options were granted to any executive officers
due to the Company's financial performance.
Compliance With Internal Revenue Code Section 162(m).
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1 million
paid to the corporation's Chief Executive Officer or four other most-highly
compensated executive officers named in the proxy statement. The Compensation
Committee has reviewed the possible effect on the Company of Section 162(m), and
it does not believe that such section will be applicable to the Company in the
foreseeable future, but will review compensation practices as circumstances
warrant. To this effect, the Plan makes it possible for the Company to satisfy
the conditions for an exemption from Section 162(m)'s deduction limit. However,
other characteristics of a grant effect whether or not compensation received
from a stock option is counted in determining whether an executive officer has
received compensation in excess of $1 million.
COMPENSATION COMMITTEE
Timothy A. Dugan
Lavern D. Kramer
-10-
<PAGE> 12
PERFORMANCE INFORMATION
The following graph compares the performance of the Company with the
performance of the NASDAQ Composite Index and the average performance of a group
consisting of the Company's peer corporations which are industry competitors for
the period from January 1, 1993, the day when the Company's Common Stock began
publicly trading on the NASDAQ National Market, to December 31, 1997. The
corporations making up the new peer companies group are Circuit Systems Inc.,
Hadco Corp., Merix Corp., Sheldahl Inc. and Parlex Corp. The corporations making
up the old peer group are Electronic Fab Technology Corp., Merix Corp., Norris
Communications Inc., Palomar Mod Technologies Inc. and Parlex Corp. The new peer
group better represents the Company's peers. The graph assumes that the value of
the investment in the Company's Common Stock and each index was $100 at January
1, 1993 and that all dividends, if any, were reinvested.
[ADD TABLE]
CERTAIN TRANSACTIONS
The Company and the First Chicago Entities are parties to a Registration
Rights Agreement dated July 21, 1993 (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company granted to the First
Chicago Entities certain registration rights with respect to the shares of
Common Stock acquired by the First Chicago Entities in July, 1993. The
Registration Rights Agreement provides the First Chicago Entities with the right
to require the Company, subject to certain limitations, to effect two
registrations (or three in the event of a proration in connection with the
second registration) of such shares under applicable securities laws upon demand
by the First Chicago Entities; provided that the First Chicago Entities are only
entitled to one such registration prior to July 21, 1996. The First Chicago
Entities are also entitled to request that such shares be included in any
registration of shares of Common Stock initiated by the Company. In connection
with the Registration Rights Agreement, the Company and the First Chicago
Entities have agreed to indemnify each other against certain liabilities under
the Securities Act of 1933 or other applicable securities laws.
2. INDEPENDENT AUDITORS
The Board of Directors recommends that stockholders ratify the
appointment of Grant Thornton LLP by voting "FOR" ratification of Grant Thornton
LLP as the Company's auditors for 1998. In the event such selection is not
ratified, the Board of Directors will reconsider its selection.
Grant Thornton LLP has audited the Company's financial statements since
1997. Representatives of Grant Thornton LLP are expected to be present at the
meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
3. OTHER MATTERS
The Board of Directors of the Company is not aware that any matter other
than those listed in the Notice of Meeting is to be presented for action at the
Annual Meeting. If any of the Board's nominees is unavailable for election as a
Director or any other matter should properly come before the meeting, it is
intended that votes will be cast pursuant to the Proxy in respect thereto in
accordance with the best judgment of the person or persons acting as proxies.
November 4, 1998
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