-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UAxfIK7LVsTfG8tGOn3IjdCWgfha8yzikzqQlXi4UtzpYO4GJBPZ2qex4OYRNog0 xY9Y3UtfEISP3OTAoRoXrQ== 0000950137-01-501276.txt : 20010509 0000950137-01-501276.hdr.sgml : 20010509 ACCESSION NUMBER: 0000950137-01-501276 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: M WAVE INC CENTRAL INDEX KEY: 0000883842 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 363809819 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19944 FILM NUMBER: 1624982 BUSINESS ADDRESS: STREET 1: 216 EVERGREEN ST CITY: BENSENVILLE ILLINOIS STATE: IL ZIP: 60106 BUSINESS PHONE: 6308609542 MAIL ADDRESS: STREET 1: 216 EVERGREEN STREET CITY: BENSENVILLE STATE: IL ZIP: 60106 10-Q 1 c62178e10-q.txt QUARTERLY REPORT 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2001 Commission File No. 0-19944 - ------------------------------------ --------------------------- M~WAVE, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-3809819 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 216 Evergreen Street, Bensenville, Illinois 60106 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (630) 860-9542 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- The registrant has 4,572,184 shares of common stock outstanding at May 4, 2001. 1 2 PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS M~WAVE, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
DECEMBER 31 MARCH 31 2000 2001 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents ..................................................... $ 1,230,999 $ 3,583,763 Accounts receivable, net of allowance for doubtful accounts, 2000- $100,000: 2001- $100,000 ............................................... 12,378,766 10,430,487 Inventories ................................................................... 8,859,795 6,828,900 Deferred income taxes ......................................................... 1,118,242 960,712 Prepaid expenses and other .................................................... 47,688 112,392 ------------ ------------ Total current assets ...................................................... 23,635,490 21,916,254 PROPERTY, PLANT AND EQUIPMENT: Land, buildings and improvements .............................................. 6,488,057 7,095,538 Machinery and equipment ....................................................... 8,731,449 9,681,942 ------------ ------------ Total property, plant and equipment ....................................... 15,219,506 16,777,480 Less accumulated depreciation ................................................. 6,914,345 7,312,835 ------------ ------------ Property, plant and equipment-net ......................................... 8,305,161 9,464,645 NOTE RECEIVABLE ................................................................... 195,391 191,558 OTHER ASSETS ...................................................................... 54,915 54,730 ------------ ------------ TOTAL ............................................................................. $ 32,190,957 $ 31,627,187 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .............................................................. $ 6,516,541 $ 5,540,434 Accrued expenses .............................................................. 1,603,474 1,684,884 Accrued income taxes .......................................................... 146,287 1,285,949 Current credit line debt ...................................................... 5,500,000 2,705,682 Current portion of long-term debt ............................................. 3,229,580 3,153,880 ------------ ------------ Total current liabilities ................................................. 16,995,882 14,370,829 DEFERRED INCOME TAXES ............................................................. 522,593 522,593 LONG-TERM DEBT .................................................................... 166,506 151,814 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; authorized, 1,000,000 shares; no shares issued .................................................... 0 0 Common stock, $.01 par value; authorized, 10,000,000 shares 6,179,112 shares issued and 4,572,184 shares outstanding at December 31, 2000, 6,179,112 shares issued and 4,572,184 shares outstanding at March 31, 2001 ........................................ 30,895 30,895 Additional paid-in capital .................................................... 8,439,072 8,439,072 Retained earnings ............................................................. 7,715,283 9,791,258 Treasury stock: 1,606,928 shares, at cost .................................... (1,679,274) (1,679,274) ------------ ------------ Total stockholders' equity ................................................ 14,505,976 16,581,951 ------------ ------------ TOTAL ............................................................................. $ 32,190,957 $ 31,627,187 ============ ============
See notes to consolidated financial statements. 2 3 M~WAVE, Inc. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months ended March 31, ------------------------------ 2000 2001 ------------ ------------ Net sales .................................. $ 5,372,185 $ 22,526,120 Cost of goods sold ......................... 4,598,236 17,589,054 ------------ ------------ Gross profit ............................. 773,949 4,937,066 Operating expenses: General and administrative ............... 335,324 885,247 Selling and marketing .................... 181,359 471,029 ------------ ------------ Total operating expenses ............... 516,683 1,356,276 ------------ ------------ Operating income ......................... 257,266 3,580,790 Other income (expense): Interest income .......................... 19,839 19,335 Interest expense ......................... (51,068) (217,958) Rental income ............................ 51,000 51,000 ------------ ------------ Total other income (expense) ........... 19,771 (147,623) ------------ ------------ Income before income taxes ............ 277,037 3,433,167 Provision for income taxes ................. 109,518 1,357,192 ------------ ------------ Net income ................................. $ 167,519 $ 2,075,975 ============ ============ Weighted average shares outstanding ........ 4,545,988 4,572,184 Basic earnings per share ................... $ 0.04 $ 0.45 Diluted shares outstanding ................. 4,595,988 4,651,423 Diluted earnings per share ................. $ 0.04 $ 0.45 See notes to consolidated financial statements. 3 4 M~WAVE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three months ended March 31, ---------------------------- 2000 2001 ----------- ----------- OPERATING ACTIVITIES: Net income ........................................................... $ 167,519 $ 2,075,975 Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization .................................... $ 256,500 $ 398,490 Deferred income taxes ............................................ $ 101,400 $ 0 Changes in assets and liabilities: Accounts receivable-trade ........................................ $ (10,228) $ 1,948,279 Inventories ...................................................... $(1,240,323) $ 2,030,895 Income taxes ..................................................... $ 8,116 $ 1,297,192 Prepaid expenses and other assets ................................ $ (5,221) $ (60,686) Accounts payable ................................................. $ 941,353 $ (976,107) Accrued expenses ................................................. $ 52,206 $ 81,410 ----------- ----------- Net cash flows provided by operating activities................ $ 271,322 $ 6,795,448 ----------- ----------- INVESTING ACTIVITIES: Purchase of property, plant and equipment ............................ $ (31,563) $(1,557,974) ----------- ----------- Net cash flows used in investing activities ................... $ (31,563) $(1,557,974) FINANCING ACTIVITIES: Common stock issued upon exercise of stock options ................... $ 47,125 $ 0 Payments on short and long term debt ................................ $ (90,390) $(2,884,710) ----------- ----------- Net cash flows used in financing activities ................... $ (43,265) $(2,884,710) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS .............................. $ 196,494 $ 2,352,764 CASH AND CASH EQUIVALENTS - Beginning of period ........................ $ 2,586,885 $ 1,230,999 ----------- ----------- CASH AND CASH EQUIVALENTS - End of period .............................. $ 2,783,379 $ 3,583,763 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest ........................... $ (51,068) $ (217,958) Income tax payments ................................................ $ (60,000) $ 0
See notes to consolidated financial statements. 4 5 M~WAVE,INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation, consisting only of normal recurring adjustments, have been included. For further information, refer to the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2000 filed March 22, 2001. 2. BUSINESS M~Wave, Inc. through its wholly owned subsidiary Poly Circuits, Inc., is a value-added service provider of high performance printed circuit boards used in a variety of telecommunications applications for wireless and internet communications. M~Wave satisfies its customers needs for high performance printed circuit boards by using its 30,000 square foot manufacturing facility located in Bensenville, Illinois and by outsourcing and coordinating the manufacture of such boards by unaffiliated manufacturer located primarily in the Far East ("Virtual Manufacturing"). The Company began Virtual Manufacturing during 2000 by developing subcontracting relationships with Global manufacturers. The Company typically begins the Virtual Manufacturing process by manufacturing prototypes and pre-production printed circuits at its manufacturing facility. The Company often works closely with customer personnel during this stage to finalize fabrication details and guidelines for circuit boards. As customers' requirements for circuit boards develop into higher volumes, the Company subcontracts the manufacture of the circuit boards to Global manufacturers. The Company continues to monitor the production and quality control of the circuit boards and works with its customers and Global manufacturers throughout the Virtual Manufacturing process. The Company believes that Virtual Manufacturing allows the Company to satisfy a broader range of its customers' printed circuit board requirements without incurring substantial capital expenditures for plant, property and equipment. The Company is adding new levels of capacity and organizing its core manufacturing processes to accommodate the Virtual Manufacturing 5 6 process. The Company has purchased a 50,000 square foot facility in West Chicago to enable the Company to provide quick-turn, prototypes to customers and to manufacture pre-production printed circuit boards for specific customer applications. These process capabilities are an essential part of the Virtual Manufacturing process and the Company's ability to attract new customers. In addition, the Company produces customer specified bonded assemblies consisting of a printed circuit board bonded in some manner to a metal carrier or pallet. One bonding technique used by the Company is Flexlink (TM), a patented process granted to the Company in 1993. The Company developed an enhanced version called Flexlink II(TM) in 1996. The Company's printed circuit boards and bonded assemblies are used in wireless communication systems and other devices and equipment operating in the microwave frequency spectrum of 800 MHz and above. These devices and equipment include cellular power amplifiers, global positioning satellite systems and personal communication networks. Many of the Company's printed circuit boards are Teflon(TM) based and are advantageous for microwave systems because of their extremely low power losses, coupled with stable, predictable electrical characteristics. The production of Teflon(TM) based printed circuit boards and bonded assemblies is technologically demanding due to the precise requirements of their end-use applications and the miniaturization of the microwave frequency components. To meet these technological demands, the Company has developed manufacturing processes and designs, which reduce the cost and increase the manufacturability and reliability of customer systems. Additionally, the Company emphasizes quality engineering and design support for its customers. The Company is subject to stringent technical evaluation and ISO certification by many of its customers. The Company markets its products through Company personnel supported by approximately 18 independent sales organizations. The Company's base of approximately 100 customers represents a highly sophisticated group of purchasers. Segments within the commercial markets have experienced growth in recent years due to: (i) increased efficiency of microwave systems; (ii) a commercial market based upon increasing acceptance of microwave frequency products; (iii) a continuing need to upgrade systems based upon microwave technology; and (iv) crowding of the available frequency spectrum below 800 MHz. The Company's strategy is to increase sales of its commercial products to support the growth of its customers in these industry segments. 6 7 3. INVENTORIES Inventories are carried at the lower of first-in, first-out (FIFO) cost or market. Substantially all the Company's inventories are in work in process. 4. DEBT The Company has a mortgage loan of $1,586,000 for the facility at P C Dynamics Corporation in Frisco, Texas. Interest is at the prime rate (8.00% at March 31, 2001) plus 1/2%. The loan is payable in monthly installments of principal and interest and is due in October 2001. The Company has an installment loan of $211,000 collateralized by certain fixed assets of the Company. Interest on this loan is at the prime rate. The loan is payable in monthly installments of principal and interest and is due in October 2004. The Company has a Land Acquisition loan, for the purpose of financing the acquisition of certain property in West Chicago, Illinois, of $1,509,000 collateralized by certain assets of the Company. Interest on this loan is at the prime rate. Interest is due monthly. The loan is due on September 30, 2001. The Company has a $10,000,000 line of credit available based on 80% of the eligible accounts receivable and 50% of eligible inventory to fund the working capital needs of the Company. Interest is at the prime rate (8.00% at March 31, 2001) plus 1/2%. The agreement expires May 31, 2001 and is renewable annually at the mutual consent of the Company and the lender. The outstanding balance under the line of credit at March 31, 2001 was $2,706,000. 5. LITIGATION The Company is a party to various actions and proceedings related to its normal business operations. The Company believes that the outcome of this litigation will not have a material adverse effect on the financial position or results of operations of the Company. 7 8 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS FOR THE QUARTER ENDED MARCH 31, 2001 COMPARED TO THE QUARTER ENDED MARCH 31, 2000 NET SALES Net sales were $22,526,000 for the first quarter ended March 31, 2001, an increase of $17,154,000 or 319% above the first quarter of 2000. The increase in net sales is directly related to "Virtual manufacturing." Virtual Manufacturing accounted for approximately $21,150,000 of net sales in the first quarter of 2001 compared to $4,412,000 of net sales in the first quarter of 2000. Net sales to Lucent were $20,203,000 in the first quarter of 2001 compared to $4,412,000 in the first quarter of 2000. Lucent accounted for 90% of the Company's net sales for the first quarter ended March 31, 2001 compared to 82% in the first quarter of 2000. GROSS PROFIT AND COST OF GOODS SOLD The Company's gross profit for the first quarter of 2001 was $4,937,000 compared to $774,000 for the first quarter of 2000. Gross Margin increased to approximately 22% in the first quarter of 2001 from approximately 14% in the first quarter of 2000. The increase is a result of increased sales and improved efficiencies and the Company's decision to adopt Virtual Manufacturing. OPERATING EXPENSES General and administrative expenses were $885,000 or 3.9% of net sales in the first quarter of 2001 compared to $335,000 or 6.2% of net sales in the first quarter of 2000. General and administrative expenses consist primarily of salaries and benefits, professional services, depreciation of office equipment, computer systems and occupancy expenses. Payroll related expenses were up $368,000 due to additional employees. Professional services, which include legal and auditing fees, were up $107,000. Selling and marketing expenses were $471,000 or 2.1% of net sales in the first quarter of 2001 compared to $181,000 or 3.4% of net sales in the first quarter of 2000. Selling and marketing expenses include the cost of salaries, advertising and promoting the Company's products, and commissions paid to independent sales organizations. Commissions paid to independent sales organizations were up $221,000. 8 9 OPERATING INCOME Operating income was $3,581,000 or 15.9% in the first quarter of 2001 compared to an operating income of $257,000 or 4.8% of net sales in the first quarter of 2000, an increase of $3,324,000. The changes in operating income reflect primarily the changes in net sales, gross profit and cost of goods sold and operating expenses as discussed above. The change in operating income can be summarized as follows: Increase in net sales $2,471,000 Increase in gross margin 1,692,000 Increase in operating expenses (839,000) ---------- Increase in operating income $3,324,000 INTEREST INCOME Interest income from short-term investments was $19,000 in the first quarter of 2001 compared to $20,000 in the first quarter of 2000. Rental income from the P C Dynamics facility was $51,000 in the first quarter of 2001 and the first quarter of 2000. INTEREST EXPENSE Interest expense, primarily related to the Company's mortgage obligation on its P C Dynamics facility and short-term credit facility was $218,000 in the first quarter of 2001 compared to $51,000 in the first quarter of 2000. INCOME TAXES In the first quarter of 2001 and the first quarter of 2000 the Company had an effective tax credit rate of 39.5%. LIQUIDITY AND CAPITAL RESOURCES Net cash provided from operations was $6,795,000 for the first three months of 2001 compared to $271,000 for the first three months of 2000. Accounts receivables decreased $1,948,000. Inventories decreased $2,031,000. Accounts payable decreased ($976,000). Depreciation and amortization was $398,000. Capital expenditures mainly relating to the new West Chicago facility were $1,558,000 in the first three months of 2001. Capital expenditures to improve manufacturing processes were $32,000 in the first three months of 2000. 9 10 The Company has a mortgage loan of $1,586,000 for the facility at P C Dynamics Corporation in Frisco, Texas. Interest is at the prime rate (8.00% at march 31, 2001) plus 1/2%. The loan is payable in monthly installments of principal and interest and is due in October 2001. The Company has an installment loan of $211,000 collateralized by certain fixed assets of the Company. Interest on this loan is at the prime rate. The loan is payable in monthly installments of principal and interest and is due in October 2004. The Company has a Land Acquisition loan, for the purpose of financing the acquisition of certain property in West Chicago, Illinois, of $1,509,000 collateralized by certain assets of the Company. Interest on this loan is at the prime rate. Interest is due monthly. The loan is due on September 30, 2001. The Company has a $10,000,000 line of credit available based on 80% of the eligible accounts receivable and 50% of eligible inventory to fund the working capital needs of the Company. Interest is at the prime rate (8.00% at March 31, 2001) plus 1/2%. The agreement expires May 15, 2001 and is renewable annually at the mutual consent of the Company and the lender. The outstanding balance under the line of credit at March 31, 2001 was $2,706,000. As of March 31, 2001, the Company has $6,011,000 of debt and $3,584,000 of cash and cash equivalents. Management believes that funds generated from operations, coupled with the Company's cash and investment balances and its capacity for debt will be sufficient to fund current business operations. INFLATION Management believes inflation has not had a material effect on the Company's operation or on its financial position. FOREIGN CURRENCY TRANSACTIONS All of the Company's foreign transactions are negotiated, invoiced and paid in United States dollars. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS As a supplier to microwave manufacturers, the Company is dependent upon the success of its customers in developing and successfully marketing end-user microwave systems. The Company is currently working on several development programs for its customers. The development of commercial applications for microwave systems and the timing and size of production 10 11 schedules for these programs is uncertain and beyond the control of the Company. There can be no assurance that these development programs will have a favorable impact on the Company's operating results. Although management believes some of these products and programs may ultimately develop into successful commercial applications, such developments could result in periodic fluctuations in the Company's operating results. As a result of these considerations, the Company has historically found it difficult to project operating results. The Company expects that a small number of customers will continue to account for a substantial majority of its sales and that the relative dollar amount and mix of products sold to any of these customers can change significantly from year to year. There can be no assurance that the Company's major customers will continue to purchase products from the Company at current levels, or that the mix of products purchased will be in the same ratio. The loss of the Company's largest customer or a change in the mix of product sales would have a material adverse effect on the Company. In addition, future results may be impacted by a number of other factors, including the Company's dependence on suppliers and subcontractors for components; the Company's ability to respond to technical advances; successful award of contracts under bid; design and production delays; cancellation or reduction of contract orders; the Company's effective utilization of existing and new manufacturing resources and the "Virtual Manufacturing" process; and pricing pressures by key customers. The Company's future success is highly dependent upon its ability to manufacture products that incorporate new technology and are priced competitively. The market for the Company's products is characterized by rapid technology advances and industry-wide competition. This competitive environment has resulted in downward pressure on gross margins. In addition, the Company's business has evolved towards the production of relatively smaller quantities of more complex products, the Company expects that it will at times encounter difficulty in maintaining its past yield standards. There can be no assurance that the Company will be able to develop technologically advanced products or that future-pricing actions by the Company and its competitors will not have a material adverse effect on the Company's results of operations. The Company is dependent upon unaffiliated foreign companies for the manufacture of printed circuit boards as part of its Virtual Manufacturing process. The Company's arrangements with manufacturers are subject to the risks of doing business abroad, such as import duties, trade restrictions, production delays due to unavailability of parts or components, transportation delays, work stoppages, foreign currency fluctuations, political instability and 11 12 other factors which could have an adverse effect on the Company's business, financial condition and results of operations. The Company believes that the loss of any one or more of its suppliers would not have a long term material adverse effect on its business, financial condition and results of operations because other manufacturers would be able to increase production to fulfill its requirements. However, the loss of certain suppliers, could, in the short term adversely affect its business until alternative supply arrangements were secured. Although the Company has experienced substantial growth in revenue in the last year and intends to continue to grow rapidly, there can be no assurance that the growth experienced by the Company will continue or that the Company will be able to achieve the growth contemplated by its business strategy. The Company's ability to continue to grow may be affected by various factors, many of which are not within the Company's control, including competition in the telecommunications industry. This growth has placed, and is expected to continue to place, significant demands on all aspects of the Company's business. Including its administrative, technical and financial personnel and systems. The company's future operating results will substantially depend on the ability of its officers and key employees to manage such anticipated growth, to attract and retain additional highly qualified management, technical and financial personnel, and to implement and/or improve its technical, administrative, financial control and reporting systems. 12 13 PART II - OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS None ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.14 Employment agreement dated January 29, 2001 between the Company and Joseph A. Turek 10.15 Employment agreement dated January 29, 2001 between the Company and Paul H. Schmitt 10.16 Employment agreement dated January 29, 2001 between the Company and Mark Anderson 10.17 Employment agreement dated January 29, 2001 between the Company and Dan Gosselin 10.18 Employment agreement dated January 29, 2001 between the Company and Richard Golden 13 14 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. M~WAVE,INC. Date: May 4, 2001 /s/ PAUL H. SCHMITT ----------------------- Paul H. Schmitt Chief Financial Officer 14 15 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ------- ----------------------------------------------------------------- 10.14 Employment agreement dated January 29, 2001 between the Company and Joseph A. Turek 10.15 Employment agreement dated January 29, 2001 between the Company and Paul H. Schmitt 10.16 Employment agreement dated January 29, 2001 between the Company and Mark Anderson 10.17 Employment agreement dated January 29, 2001 between the Company and Dan Gosselin 10.18 Employment agreement dated January 29, 2001 between the Company and Richard Golden 15 EX-10.14 2 c62178ex10-14.txt EMPLOYMENT AGREEMENT/JOSEPH A. TUREK 1 EXHIBIT 10.14 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of the 29 day of January, 2001, is made by and between M-Wave, Inc., a Delaware corporation (the "Company"), and Joseph A. Turek (the "Employee"), a resident of the State of Illinois. WHEREAS, Company desires to employ the Employee upon the terms and conditions set forth herein; and WHEREAS, Employee desires to be employed by Company upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual undertakings of the parties hereto, it is agreed as follows: Article I EMPLOYMENT OF EMPLOYEE The Company employs the Employee to act as an executive in the title role for the Company, defined in Exhibit A, with such powers and duties as are customarily performed by persons holding the same positions in an operation of a size and nature similar to the Company. The Employee accepts such employment upon the terms of this Agreement, and hereby agrees to devote his energy and ability to the interests of the Company and to comply with directions of the Chief Executive Officer or the Board of Directors ("Board") of the Company. Subject to Article VI, during the term of this Agreement it shall not be a violation of this Agreement for the Employee to participate in other activities, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. Article II COMPENSATION 2.1 Salary. Commencing with the date hereof, the Company shall pay to the Employee in accordance with the normal payroll practices of the Company an annual salary at a rate described in Exhibit A. The Board may from time to time increase the Employee's annual salary, provided that, when such annual salary is increased, it shall not thereafter be reduced below such higher amount. 2.2 Signing Bonus. Within five business days after this Agreement is signed by the Company and Employee, the Company shall pay Employee a signing bonus in the amount described in Exhibit A. 2.3 Annual Bonus. The Employee shall be eligible for an annual bonus as set forth on Exhibit B. 16 2 Article III TERM OF AGREEMENT 3.1 Contract Term. Subject to the termination provisions hereinafter provided, the term of this Agreement shall be from the date hereof through two calendar years (730 days) ("Contract Term"), or, if later, such later date to which the term of the Agreement is extended pursuant to the following sentence. Six months prior to the expiration of the Contract Term (if neither party prior to such date has provided the other party with written notice that the Agreement will not be extended pursuant to this sentence) and thereafter, the Contract Term shall be automatically extended each day by one day to create a new six month term until, at any time on or after such date, the Company delivers written notice (an "Expiration Notice") to Employee or Employee delivers an Expiration Notice to the Company, in either case, to the effect that the Agreement shall expire on a date specified in the Expiration Notice (the "Expiration Date") that is not less than six months after the date the Expiration Notice is delivered to the Company or the Employee, respectively. Article IV TERMINATION BENEFITS 4.1 Discharge for Cause or Voluntary Termination. If, before the end of the Contract Term, the Company terminates the Employee's employment for Cause or the Employee incurs a Voluntary Termination (as such terms are defined in Sections 4.5(a) and (b)), the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay to the Employee any accrued but unpaid portion of his annual salary and any bonus payable in accordance with Exhibit A ("Accrued Obligations"). 4.2 Disability. If, before the end of the Contract Term, the Employee's employment terminates due to disability, as defined in the Company's disability insurance policy, the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay to the Employee any Accrued Obligations. 4.3 Death. If, before the end of the Contract Term, the Employee's employment terminates due to his death, the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay any Accrued Obligations to the Employee's beneficiary as specified in Section 7.4 in a lump sum in cash within 60 days after the date of such death. 4.4 Termination Other Than For Cause or Voluntary Termination. If the Employee's employment is terminated before the end of the Contract Term other than (i) in a Voluntary Termination by the Employee, (ii) for Cause by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company, (iii) by reason of death, or (iv) by reason of disability, as defined in the Company's disability insurance policy, the Agreement shall terminate without further obligations to the Employee, except that (A) the Employee shall be entitled to the health and medical benefits referenced in Section 5.4 for the six month period following such termination, (B) the Company shall pay the Employee any Accrued Obligations, (C) the Employee shall become fully vested in his Company stock options granted under this Agreement or otherwise, and (D) the Company shall pay to the -2- 3 Employee the annual salary in effect as of such termination in accordance with normal payroll practices of the Company for six months; provided, however, that if such termination of the Employee occurs on or after a sale of all of the stock of the Company or a sale of all or substantially all of the Company's assets, the Employee shall receive on the date of such termination a lump sum payment equal to two times the Employee's annual salary in effect as of such termination instead of the six months of salary referenced in subparagraph (D) of this Section. 4.5 Definitions. (a) "Cause" means termination of the employment of the Employee by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company because of (1) conviction by the Employee of any felony or other crime involving dishonesty, fraud or moral turpitude, or (2) the Employee's habitual neglect of his duties. Cause shall not mean a discharge because of: (1) bad judgment or negligence other than habitual neglect of duty; or (2) any act or omission believed by the Employee in good faith to have been in or not opposed to the interest of the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company (without intent of the Employee to gain therefrom, directly or indirectly, a profit to which he was not legally entitled); or (3) any act or omission in respect of which a determination could properly have been made by the Board or, if employed by any parent or subsidiary of the Company, such parent or subsidiary or, if employed by any successor to the Company or any parent or subsidiary of the Company, such successor, that the Employee met the applicable standard of conduct for indemnification or reimbursement under the bylaws of such company or the laws and regulations under which such company is governed, in each case in effect at the time of such act or omission; or (4) any act or omission with respect to which notice of termination of employment of the Employee is given more than twelve (12) months after the earliest date on which the Chief Executive Officer of the Company or any member of the Board or, if employed by a parent or subsidiary of the Company, such parent or subsidiary or, if employed by a successor to the Company or any parent or subsidiary of the Company, such successor, who is not a party to the act or omission, knew or should have known of such act or omission. (b) "Voluntary Termination" means the voluntary resignation of the Employee from employment by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company, except that a Voluntary Termination shall not include a resignation by the Employee following (1) a material reduction or adverse alteration in the nature of the Employee's position, responsibilities or authorities under this Agreement, (2) the Employee becoming the holder -3- 4 of a lesser office or title than that held pursuant to the terms of the Agreement, (3) any reduction of the Employee's compensation or benefits under the terms of the Agreement, (4) the relocation of the Employee's job outside of the Chicago metropolitan area, (5) any other material adverse change to the terms and conditions of the Employee's employment under this Agreement, or (6) a sale of all of the stock of the Company or a sale of all or substantially all of the Company's assets, provided such resignation is during the sixty day period beginning on the date which is four months after such sale, provided that any such event in (1) through (5) hereof shall not be cured by Employer within 30 days of written notice by Employee and provided further that, if the Employee shall consent in writing to any event described in subsection (1) through (5) in this Section 4.5(b), the Employee's subsequent resignation shall be treated as a Voluntary Termination, unless a subsequent event described in such subsections to which Employee did not consent occurs. Article V OTHER BENEFITS 5.1 Initial Option Grant. As of the end of the day of the date this Agreement is signed by the Company and Employee, the Company shall grant Employee an option to purchase the number of shares described in Exhibit A of common stock of the Company under the Company's 1992 Stock Option Plan, as amended, having an exercise price per share equal to the fair market value (as defined in the Stock Option Plan) of a share of common stock of the Company. Except as otherwise provided in the Stock Option Plan, the option shall become exercisable as described in Exhibit A. 5.2 Additional Option Grants. The Employee shall be eligible to receive additional stock options as determined in the discretion of the Compensation Committee of the Board based upon such factors as it determines in its discretion. Any such additional options shall become exercisable as to 25% of the number of shares subject to the option on the first anniversary of the date of grant and on each anniversary thereafter. 5.3 Vacation. After completing six months of employment, the Employee shall be eligible for vacation as described in Exhibit A and six personal days per year. 5.4 Additional Benefits. The Employee shall be entitled to participate in any pension, insurance, or other employee benefit plan, subject to the eligibility requirements of such plans, and other perquisites which are available to employees of the Company or which hereafter are made available to the employees of the Company by the Board. Article VI RESTRICTIVE COVENANTS 6.1 Non-Competition. The Employee agrees that during the Non-Competition Period, as defined hereinafter, he shall not enter into or engage in or be connected with or engage to work for any individual, firm or corporation which is engaged in or connected with any business which is in competition with the Company in the continental United States or any other country in which the Company is doing business or is reasonably expected to do business, unless he obtains the express written approval of the Board in its sole discretion after full disclosure of the nature -4- 5 of the intended arrangement. The "Non-Competition Period" means the period of the Employee's employment during the Contract Term and a period of one year following the Employee's termination of employment for any reason. 6.2 Non-Solicitation. The Employee agrees that during the Non-Competition Period, he shall not (a) encourage any employee of the Company or any of its subsidiaries to leave his employment with the Company or subsidiary or (b) solicit any customers of the Company or any of its subsidiaries. 6.3 Non-Disclosure. The Employee agrees not to disclose either during the period of his employment or at any time thereafter to any person, firm, or corporation any information that the Company desires to protect and keep secret and confidential concerning the business or affairs of the Company which he may have acquired in the course of, or as incident to, his employment hereunder for his own benefit or to the detriment or intended detriment of the Company. 6.4 Injunction. The Employee acknowledges that the Company relies on the provisions of this Article VI and that monetary damages will not be an adequate remedy to a breach of this Article, and that it would be impossible for the Company to measure damages in the event of such a breach. Therefore, the Employee agrees that, in addition to other rights that the Company may have, the Company is entitled to an injunction preventing the Employee from doing any act that would be in breach of this Article VI. Article VII MISCELLANEOUS 7.1 Expenses. (a) Subject to the provisions of Section 7.1(c), if the Employee incurs legal or other fees and expenses in a good faith effort to establish entitlement to benefits under this Agreement, regardless of whether the Employee ultimately prevails, the Company shall reimburse him for such fees and expenses. (b) Reimbursement of fees and expenses described in Section 7.1(a) shall be made monthly during the course of any action upon the written submission of a request for reimbursement together with proof that the fees and expenses were incurred. (c) If the Employee's employment is terminated by the Company for Cause, no reimbursement for fees and expenses shall be due to Employee unless a court of competent jurisdiction determines that Cause does not exists. 7.2 Certain Reduction of Payments by Company. If an accounting firm selected by the Employee determines that any payments payable to the Employee under this Agreement or otherwise are subject to tax under Code Section 4999, the cash payments hereunder shall be reduced (but not below zero) as determined by such accounting firm if and to the extent necessary to provide the Employee with a greater net after-tax benefit, taking into account all taxes imposed on the Employee under Sections 1 and 4999 of the Code, determined by applying -5- 6 the highest marginal rate under Section 1 of the Code which the accountant determines should apply to the Employee's taxable income for the taxable year. The fees and expenses of the accounting firm for making the foregoing determination shall be paid by the Company. 7.3 Assignment, Successors. The Company may freely assign its respective rights and obligations under this Agreement to a successor of the Company's business, without the prior written consent of the Employee. This Agreement shall be binding upon and inure to the benefit of the Employee and his estate and the Company and any assignee of or successor to the Company. 7.4 Beneficiary. If the Employee dies prior to receiving all of the amounts to which he is entitled hereunder, the aggregate of such amounts shall be paid in a single lump sum payment to the beneficiary designated in writing by the Employee and if no such beneficiary is designated, to the Employee's estate. 7.5 Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, prior to actually being received by the Employee, and any such attempt to dispose of any right to benefits payable hereunder shall be void. 7.6 Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. 7.7 Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by the Company and the Employee. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other terms, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. 7.8 Notices. All notices required by this Agreement shall be in writing and delivered by hand or by first class registered or certified mail, postage prepaid, and addressed as follows: If to the Company: M-Wave, Inc. 216 Evergreen Street Bensenville, Illinois 60106 If to the Employee: Joseph A. Turek 216 Evergreen Street Bensenville, Illinois 60106 -6- 7 Either party may from time to time designate a new address by notice given in accordance with this paragraph. 7.9 No Mitigation. In no event shall Employee be obligated to seek other employment or take any other action to mitigate the amounts payable to Employee under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned as a result of Employee's employment by another employer. 7.10 Complete Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supercedes all previous oral and written agreements and all contemporaneous oral negotiations, commitments, writings and understandings. 7.11 Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Illinois, without regard to its choice of law principles. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. M-WAVE, INC. By: ------------------------ Its: ----------------------- EMPLOYEE: ------------------------------ -7- 8 EXHIBIT A To employment agreement dated as of January 29, 2001 by and between M-Wave, Inc. and Joseph A. Turek ("Agreement"). (All capitalized terms used in this Exhibit are defined as set forth in the Agreement) TITLE: Chief Executive Officer as defined in the Company organization chart. ANNUAL SALARY: $160,000. ANNUAL BONUS: For each calendar year during the Contract Term, the Employee shall be eligible to receive an annual bonus for such year based on a set of objectives as determined in the discretion of the Compensation Committee of the Board within the first sixty days of the year ("Executive Bonus Plan"). The annual bonus payable to the Employee (if any) shall be based on the Company's or Employee's achieving minimum objectives ("Threshold Amount"). If the Employee's or Company's performance for a year does not exceed the Threshold Amount for a year, the Employee shall not receive any bonus for such year. If the Threshold Amount is satisfied for a year, the Employee shall receive an annual bonus in the amount determined under the Executive Bonus Plan, which amount shall not exceed 60% of the base salary paid by the Company to the Employee for the year. Any annual bonus payable for a year shall be paid to the Employee as soon as practicable after the end of the year in respect of which the bonus is payable. ACCRUED OBLIGATIONS: If, before the end of the Contract Term, the Employee's employment terminates for any reason other than for Cause or a Voluntary Termination, the Company shall pay an annual bonus to the Employee, if any, for the year of such termination as soon as practicable after the termination equal to the product of the following: (1) a fraction, the numerator of which is the number of months (including as a whole month any partial month) that have elapsed since the beginning of the year until the date of such termination and the denominator of which is twelve; and (2) the annual bonus, if any, that the Employee would be entitled to receive assuming that the rate at which the performance goals have been achieved as of the date of such -8- 9 termination and the Employee's base salary as in effect at such termination would continue until the end of the year. VACATION: Three (3) weeks. -9- 10 EXHIBIT B Executive Bonus Plan 1. Sales volume must hit a threshold of at least $60 million in annual M-Wave sales or the percent payout is zero. 2. After achieving the threshold described in Section 1, the following schedule based on pre-tax profit margins for M-Wave applies: a. Under 8% payout = 0% b. 8% up to 9% = 20% of annual salary c. 9% up to 10% = 35% of annual salary d. 10% up to 11% = 50% of annual salary e. 11% or greater = 60% of annual salary 3. After achieving the threshold described in Section 1, and achieving at least an 8% pre-tax profit margin for M-Wave, a distribution of 2% to 3% of the total outstanding shares of M-Wave per the discretion of the Compensation Committee will be distributed in options per the following schedule: a. 2/3 of the distribution to Executives, dispersed on an individual basis per the discretion of the M-Wave Compensation Committee. b. 1/3 of the distribution to the salaried employees, dispersed on an individual basis per the discretion of Management. -10- EX-10.15 3 c62178ex10-15.txt EMPLOYMENT AGREEMENT/PAUL H. SCHMITT 1 EXHIBIT 10.15 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of the 29 day of January, 2001, is made by and between M-Wave, Inc., a Delaware corporation (the "Company"), and Paul H. Schmitt (the "Employee"), a resident of the State of Illinois. WHEREAS, Company desires to employ the Employee upon the terms and conditions set forth herein; and WHEREAS, Employee desires to be employed by Company upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual undertakings of the parties hereto, it is agreed as follows: ARTICLE I EMPLOYMENT OF EMPLOYEE The Company employs the Employee to act as an executive in the title role for the Company, defined in Exhibit A, with such powers and duties as are customarily performed by persons holding the same positions in an operation of a size and nature similar to the Company. The Employee accepts such employment upon the terms of this Agreement, and hereby agrees to devote his energy and ability to the interests of the Company and to comply with directions of the Chief Executive Officer or the Board of Directors ("Board") of the Company. Subject to Article VI, during the term of this Agreement it shall not be a violation of this Agreement for the Employee to participate in other activities, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. ARTICLE II COMPENSATION 2.1 Salary. Commencing with the date hereof, the Company shall pay to the Employee in accordance with the normal payroll practices of the Company an annual salary at a rate described in Exhibit A. The Board may from time to time increase the Employee's annual salary, provided that, when such annual salary is increased, it shall not thereafter be reduced below such higher amount. 2.2 Signing Bonus. Within five business days after this Agreement is signed by the Company and Employee, the Company shall pay Employee a signing bonus in the amount described in Exhibit A. 2.3 Annual Bonus. The Employee shall be eligible for an annual bonus as set forth on Exhibit B. 2 ARTICLE III TERM OF AGREEMENT 3.1 Contract Term. Subject to the termination provisions hereinafter provided, the term of this Agreement shall be from the date hereof through two calendar years (730 days) ("Contract Term"), or, if later, such later date to which the term of the Agreement is extended pursuant to the following sentence. Six months prior to the expiration of the Contract Term (if neither party prior to such date has provided the other party with written notice that the Agreement will not be extended pursuant to this sentence) and thereafter, the Contract Term shall be automatically extended each day by one day to create a new six month term until, at any time on or after such date, the Company delivers written notice (an "Expiration Notice") to Employee or Employee delivers an Expiration Notice to the Company, in either case, to the effect that the Agreement shall expire on a date specified in the Expiration Notice (the "Expiration Date") that is not less than six months after the date the Expiration Notice is delivered to the Company or the Employee, respectively. ARTICLE IV TERMINATION BENEFITS 4.1 Discharge for Cause or Voluntary Termination. If, before the end of the Contract Term, the Company terminates the Employee's employment for Cause or the Employee incurs a Voluntary Termination (as such terms are defined in Sections 4.5(a) and (b)), the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay to the Employee any accrued but unpaid portion of his annual salary and any bonus payable in accordance with Exhibit A ("Accrued Obligations"). 4.2 Disability. If, before the end of the Contract Term, the Employee's employment terminates due to disability, as defined in the Company's disability insurance policy, the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay to the Employee any Accrued Obligations. 4.3 Death. If, before the end of the Contract Term, the Employee's employment terminates due to his death, the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay any Accrued Obligations to the Employee's beneficiary as specified in Section 7.4 in a lump sum in cash within 60 days after the date of such death. 4.4 Termination Other Than For Cause or Voluntary Termination. If the Employee's employment is terminated before the end of the Contract Term other than (i) in a Voluntary Termination by the Employee, (ii) for Cause by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company, (iii) by reason of death, or (iv) by reason of disability, as defined in the Company's disability insurance policy, the Agreement shall terminate without further obligations to the Employee, except that (A) the Employee shall be entitled to the health and medical benefits referenced in Section 5.4 for the six month period following such termination, (B) the Company shall pay the Employee any Accrued Obligations, (C) the Employee shall become fully vested in his Company stock options granted under this Agreement or otherwise, and (D) the Company shall pay to the -2- 3 Employee the annual salary in effect as of such termination in accordance with normal payroll practices of the Company for six months; provided, however, that if such termination of the Employee occurs on or after a sale of all of the stock of the Company or a sale of all or substantially all of the Company's assets, the Employee shall receive on the date of such termination a lump sum payment equal to two times the Employee's annual salary in effect as of such termination instead of the six months of salary referenced in subparagraph (D) of this Section. 4.5 Definitions. (a) "Cause" means termination of the employment of the Employee by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company because of (1) conviction by the Employee of any felony or other crime involving dishonesty, fraud or moral turpitude, or (2) the Employee's habitual neglect of his duties. Cause shall not mean a discharge because of: (1) bad judgment or negligence other than habitual neglect of duty; or (2) any act or omission believed by the Employee in good faith to have been in or not opposed to the interest of the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company (without intent of the Employee to gain therefrom, directly or indirectly, a profit to which he was not legally entitled); or (3) any act or omission in respect of which a determination could properly have been made by the Board or, if employed by any parent or subsidiary of the Company, such parent or subsidiary or, if employed by any successor to the Company or any parent or subsidiary of the Company, such successor, that the Employee met the applicable standard of conduct for indemnification or reimbursement under the bylaws of such company or the laws and regulations under which such company is governed, in each case in effect at the time of such act or omission; or (4) any act or omission with respect to which notice of termination of employment of the Employee is given more than twelve (12) months after the earliest date on which the Chief Executive Officer of the Company or any member of the Board or, if employed by a parent or subsidiary of the Company, such parent or subsidiary or, if employed by a successor to the Company or any parent or subsidiary of the Company, such successor, who is not a party to the act or omission, knew or should have known of such act or omission. (b) "Voluntary Termination" means the voluntary resignation of the Employee from employment by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company, except that a Voluntary Termination shall not include a resignation by the Employee following (1) a material reduction or adverse alteration in the nature of the Employee's position, responsibilities or authorities under this Agreement, (2) the Employee becoming the holder -3- 4 of a lesser office or title than that held pursuant to the terms of the Agreement, (3) any reduction of the Employee's compensation or benefits under the terms of the Agreement, (4) the relocation of the Employee's job outside of the Chicago metropolitan area, (5) any other material adverse change to the terms and conditions of the Employee's employment under this Agreement, or (6) a sale of all of the stock of the Company or a sale of all or substantially all of the Company's assets, provided such resignation is during the sixty day period beginning on the date which is four months after such sale, provided that any such event in (1) through (5) hereof shall not be cured by Employer within 30 days of written notice by Employee and provided further that, if the Employee shall consent in writing to any event described in subsection (1) through (5) in this Section 4.5(b), the Employee's subsequent resignation shall be treated as a Voluntary Termination, unless a subsequent event described in such subsections to which Employee did not consent occurs. ARTICLE V OTHER BENEFITS 5.1 Initial Option Grant. As of the end of the day of the date this Agreement is signed by the Company and Employee, the Company shall grant Employee an option to purchase the number of shares described in Exhibit A of common stock of the Company under the Company's 1992 Stock Option Plan, as amended, having an exercise price per share equal to the fair market value (as defined in the Stock Option Plan) of a share of common stock of the Company. Except as otherwise provided in the Stock Option Plan, the option shall become exercisable as described in Exhibit A. 5.2 Additional Option Grants. The Employee shall be eligible to receive additional stock options as determined in the discretion of the Compensation Committee of the Board based upon such factors as it determines in its discretion. Any such additional options shall become exercisable as to 25% of the number of shares subject to the option on the first anniversary of the date of grant and on each anniversary thereafter. 5.3 Vacation. After completing six months of employment, the Employee shall be eligible for vacation as described in Exhibit A and six personal days per year. 5.4 Additional Benefits. The Employee shall be entitled to participate in any pension, insurance, or other employee benefit plan, subject to the eligibility requirements of such plans, and other perquisites which are available to employees of the Company or which hereafter are made available to the employees of the Company by the Board. ARTICLE VI RESTRICTIVE COVENANTS 6.1 Non-Competition. The Employee agrees that during the Non-Competition Period, as defined hereinafter, he shall not enter into or engage in or be connected with or engage to work for any individual, firm or corporation which is engaged in or connected with any business which is in competition with the Company in the continental United States or any other country in which the Company is doing business or is reasonably expected to do business, unless he obtains the express written approval of the Board in its sole discretion after full disclosure of the nature -4- 5 of the intended arrangement. The "Non-Competition Period" means the period of the Employee's employment during the Contract Term and a period of one year following the Employee's termination of employment for any reason. 6.2 Non-Solicitation. The Employee agrees that during the Non-Competition Period, he shall not (a) encourage any employee of the Company or any of its subsidiaries to leave his employment with the Company or subsidiary or (b) solicit any customers of the Company or any of its subsidiaries. 6.3 Non-Disclosure. The Employee agrees not to disclose either during the period of his employment or at any time thereafter to any person, firm, or corporation any information that the Company desires to protect and keep secret and confidential concerning the business or affairs of the Company which he may have acquired in the course of, or as incident to, his employment hereunder for his own benefit or to the detriment or intended detriment of the Company. 6.4 Injunction. The Employee acknowledges that the Company relies on the provisions of this Article VI and that monetary damages will not be an adequate remedy to a breach of this Article, and that it would be impossible for the Company to measure damages in the event of such a breach. Therefore, the Employee agrees that, in addition to other rights that the Company may have, the Company is entitled to an injunction preventing the Employee from doing any act that would be in breach of this Article VI. ARTICLE VII MISCELLANEOUS 7.1 Expenses. (a) Subject to the provisions of Section 7.1(c), if the Employee incurs legal or other fees and expenses in a good faith effort to establish entitlement to benefits under this Agreement, regardless of whether the Employee ultimately prevails, the Company shall reimburse him for such fees and expenses. (b) Reimbursement of fees and expenses described in Section 7.1(a) shall be made monthly during the course of any action upon the written submission of a request for reimbursement together with proof that the fees and expenses were incurred. (c) If the Employee's employment is terminated by the Company for Cause, no reimbursement for fees and expenses shall be due to Employee unless a court of competent jurisdiction determines that Cause does not exists. 7.2 Certain Reduction of Payments by Company. If an accounting firm selected by the Employee determines that any payments payable to the Employee under this Agreement or otherwise are subject to tax under Code Section 4999, the cash payments hereunder shall be reduced (but not below zero) as determined by such accounting firm if and to the extent necessary to provide the Employee with a greater net after-tax benefit, taking into account all taxes imposed on the Employee under Sections 1 and 4999 of the Code, determined by applying -6- 6 the highest marginal rate under Section 1 of the Code which the accountant determines should apply to the Employee's taxable income for the taxable year. The fees and expenses of the accounting firm for making the foregoing determination shall be paid by the Company. 7.3 Assignment, Successors. The Company may freely assign its respective rights and obligations under this Agreement to a successor of the Company's business, without the prior written consent of the Employee. This Agreement shall be binding upon and inure to the benefit of the Employee and his estate and the Company and any assignee of or successor to the Company. 7.4 Beneficiary. If the Employee dies prior to receiving all of the amounts to which he is entitled hereunder, the aggregate of such amounts shall be paid in a single lump sum payment to the beneficiary designated in writing by the Employee and if no such beneficiary is designated, to the Employee's estate. 7.5 Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, prior to actually being received by the Employee, and any such attempt to dispose of any right to benefits payable hereunder shall be void. 7.6 Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. 7.7 Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by the Company and the Employee. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other terms, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. 7.8 Notices. All notices required by this Agreement shall be in writing and delivered by hand or by first class registered or certified mail, postage prepaid, and addressed as follows: If to the Company: M-Wave, Inc. 216 Evergreen Street Bensenville, Illinois 60106 If to the Employee: Paul Schmitt 216 Evergreen Street Bensenville, Illinois 60106 -6- 7 Either party may from time to time designate a new address by notice given in accordance with this paragraph. 7.9 No Mitigation. In no event shall Employee be obligated to seek other employment or take any other action to mitigate the amounts payable to Employee under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned as a result of Employee's employment by another employer. 7.10 Complete Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supercedes all previous oral and written agreements and all contemporaneous oral negotiations, commitments, writings and understandings. 7.11 Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Illinois, without regard to its choice of law principles. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. M-WAVE, INC. By: ---------------------- Its: ---------------------- EMPLOYEE: -------------------------- -7- 8 EXHIBIT A To employment agreement dated as of January 29, 2001 by and between M-Wave, Inc. and Paul H. Schmitt ("Agreement"). (All capitalized terms used in this Exhibit are defined as set forth in the Agreement) TITLE: Chief Financial Officer as defined in the Company organization chart. ANNUAL SALARY: $135,000. ANNUAL BONUS: For each calendar year during the Contract Term, the Employee shall be eligible to receive an annual bonus for such year based on a set of objectives as determined in the discretion of the Compensation Committee of the Board within the first sixty days of the year ("Executive Bonus Plan"). The annual bonus payable to the Employee (if any) shall be based on the Company's or Employee's achieving minimum objectives ("Threshold Amount"). If the Employee's or Company's performance for a year does not exceed the Threshold Amount for a year, the Employee shall not receive any bonus for such year. If the Threshold Amount is satisfied for a year, the Employee shall receive an annual bonus in the amount determined under the Executive Bonus Plan, which amount shall not exceed 60% of the base salary paid by the Company to the Employee for the year. Any annual bonus payable for a year shall be paid to the Employee as soon as practicable after the end of the year in respect of which the bonus is payable. ACCRUED OBLIGATIONS: If, before the end of the Contract Term, the Employee's employment terminates for any reason other than for Cause or a Voluntary Termination, the Company shall pay an annual bonus to the Employee, if any, for the year of such termination as soon as practicable after the termination equal to the product of the following: (1) a fraction, the numerator of which is the number of months (including as a whole month any partial month) that have elapsed since the beginning of the year until the date of such termination and the denominator of which is twelve; and (2) the annual bonus, if any, that the Employee would be entitled to receive assuming that the rate at which the performance goals have been achieved as of the date of such -8- 9 termination and the Employee's base salary as in effect at such termination would continue until the end of the year. INITIAL OPTION GRANT: 40,000 shares. INITIAL OPTION GRANT EXERCISE SCHEDULE: Except as otherwise provided in the Stock Option Plan and subject to Section 4.4 of the Agreement, the option shall become exercisable as to 40% of the number of shares subject to the option on the second anniversary of the date of grant and an additional 20% of the number of shares subject to the option on each anniversary thereafter. VACATION: Three (3) weeks. -9- 10 EXHIBIT B Executive Bonus Plan 1. Sales volume must hit a threshold of at least $60 million in annual M-Wave sales or the percent payout is zero. 2. After achieving the threshold described in Section 1, the following schedule based on pre-tax profit margins for M-Wave applies: a. Under 8% payout = 0% b. 8% up to 9% = 20% of annual salary c. 9% up to 10% = 35% of annual salary d. 10% up to 11% = 50% of annual salary e. 11% or greater = 60% of annual salary 3. After achieving the threshold described in Section 1, and achieving at least an 8% pre-tax profit margin for M-Wave, a distribution of 2% to 3% of the total outstanding shares of M-Wave per the discretion of the Compensation Committee will be distributed in options per the following schedule: a. 2/3 of the distribution to Executives, dispersed on an individual basis per the discretion of the M-Wave Compensation Committee. b. 1/3 of the distribution to the salaried employees, dispersed on an individual basis per the discretion of Management. -10- EX-10.16 4 c62178ex10-16.txt EMPLOYMENT AGREEMENT/MARK ANDERSON 1 EXHIBIT 10.16 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of the 29 day of January, 2001, is made by and between M-Wave, Inc., a Delaware corporation (the "Company"), and Mark Anderson (the "Employee"), a resident of the State of Illinois. WHEREAS, Company desires to employ the Employee upon the terms and conditions set forth herein; and WHEREAS, Employee desires to be employed by Company upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual undertakings of the parties hereto, it is agreed as follows: Article I EMPLOYMENT OF EMPLOYEE The Company employs the Employee to act as an executive in the title role for the Company, defined in Exhibit A, with such powers and duties as are customarily performed by persons holding the same positions in an operation of a size and nature similar to the Company. The Employee accepts such employment upon the terms of this Agreement, and hereby agrees to devote his energy and ability to the interests of the Company and to comply with directions of the Chief Executive Officer or the Board of Directors ("Board") of the Company. Subject to Article VI, during the term of this Agreement it shall not be a violation of this Agreement for the Employee to participate in other activities, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. Article II COMPENSATION 2.1 Salary. Commencing with the date hereof, the Company shall pay to the Employee in accordance with the normal payroll practices of the Company an annual salary at a rate described in Exhibit A. The Board may from time to time increase the Employee's annual salary, provided that, when such annual salary is increased, it shall not thereafter be reduced below such higher amount. 2.2 Signing Bonus. Within five business days after this Agreement is signed by the Company and Employee, the Company shall pay Employee a signing bonus in the amount described in Exhibit A. 2.3 Annual Bonus. The Employee shall be eligible for an annual bonus as set forth on Exhibit B. 2 Article III TERM OF AGREEMENT 3.1 Contract Term. Subject to the termination provisions hereinafter provided, the term of this Agreement shall be from the date hereof through two calendar years (730 days) ("Contract Term"), or, if later, such later date to which the term of the Agreement is extended pursuant to the following sentence. Six months prior to the expiration of the Contract Term (if neither party prior to such date has provided the other party with written notice that the Agreement will not be extended pursuant to this sentence) and thereafter, the Contract Term shall be automatically extended each day by one day to create a new six month term until, at any time on or after such date, the Company delivers written notice (an "Expiration Notice") to Employee or Employee delivers an Expiration Notice to the Company, in either case, to the effect that the Agreement shall expire on a date specified in the Expiration Notice (the "Expiration Date") that is not less than six months after the date the Expiration Notice is delivered to the Company or the Employee, respectively. Article IV TERMINATION BENEFITS 4.1 Discharge for Cause or Voluntary Termination. If, before the end of the Contract Term, the Company terminates the Employee's employment for Cause or the Employee incurs a Voluntary Termination (as such terms are defined in Sections 4.5(a) and (b)), the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay to the Employee any accrued but unpaid portion of his annual salary and any bonus payable in accordance with Exhibit A ("Accrued Obligations"). 4.2 Disability. If, before the end of the Contract Term, the Employee's employment terminates due to disability, as defined in the Company's disability insurance policy, the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay to the Employee any Accrued Obligations. 4.3 Death. If, before the end of the Contract Term, the Employee's employment terminates due to his death, the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay any Accrued Obligations to the Employee's beneficiary as specified in Section 7.4 in a lump sum in cash within 60 days after the date of such death. 4.4 Termination Other Than For Cause or Voluntary Termination. If the Employee's employment is terminated before the end of the Contract Term other than (i) in a Voluntary Termination by the Employee, (ii) for Cause by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company, (iii) by reason of death, or (iv) by reason of disability, as defined in the Company's disability insurance policy, the Agreement shall terminate without further obligations to the Employee, except that (A) the Employee shall be entitled to the health and medical benefits referenced in Section 5.4 for the six month period following such termination, (B) the Company shall pay the Employee any Accrued Obligations, (C) the Employee shall become fully vested in his Company stock options granted under this Agreement or otherwise, and (D) the Company shall pay to the -2- 3 Employee the annual salary in effect as of such termination in accordance with normal payroll practices of the Company for six months; provided, however, that if such termination of the Employee occurs on or after a sale of all of the stock of the Company or a sale of all or substantially all of the Company's assets, the Employee shall receive on the date of such termination a lump sum payment equal to two times the Employee's annual salary in effect as of such termination instead of the six months of salary referenced in subparagraph (D) of this Section. 4.5 Definitions. (a) "Cause" means termination of the employment of the Employee by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company because of (1) conviction by the Employee of any felony or other crime involving dishonesty, fraud or moral turpitude, or (2) the Employee's habitual neglect of his duties. Cause shall not mean a discharge because of: (1) bad judgment or negligence other than habitual neglect of duty; or (2) any act or omission believed by the Employee in good faith to have been in or not opposed to the interest of the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company (without intent of the Employee to gain therefrom, directly or indirectly, a profit to which he was not legally entitled); or (3) any act or omission in respect of which a determination could properly have been made by the Board or, if employed by any parent or subsidiary of the Company, such parent or subsidiary or, if employed by any successor to the Company or any parent or subsidiary of the Company, such successor, that the Employee met the applicable standard of conduct for indemnification or reimbursement under the bylaws of such company or the laws and regulations under which such company is governed, in each case in effect at the time of such act or omission; or (4) any act or omission with respect to which notice of termination of employment of the Employee is given more than twelve (12) months after the earliest date on which the Chief Executive Officer of the Company or any member of the Board or, if employed by a parent or subsidiary of the Company, such parent or subsidiary or, if employed by a successor to the Company or any parent or subsidiary of the Company, such successor, who is not a party to the act or omission, knew or should have known of such act or omission. (b) "Voluntary Termination" means the voluntary resignation of the Employee from employment by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company, except that a Voluntary Termination shall not include a resignation by the Employee following (1) a material reduction or adverse alteration in the nature of the Employee's position, responsibilities or authorities under this Agreement, (2) the Employee becoming the holder -3- 4 of a lesser office or title than that held pursuant to the terms of the Agreement, (3) any reduction of the Employee's compensation or benefits under the terms of the Agreement, (4) the relocation of the Employee's job outside of the Chicago metropolitan area, (5) any other material adverse change to the terms and conditions of the Employee's employment under this Agreement, or (6) a sale of all of the stock of the Company or a sale of all or substantially all of the Company's assets, provided such resignation is during the sixty day period beginning on the date which is four months after such sale, provided that any such event in (1) through (5) hereof shall not be cured by Employer within 30 days of written notice by Employee and provided further that, if the Employee shall consent in writing to any event described in subsection (1) through (5) in this Section 4.5(b), the Employee's subsequent resignation shall be treated as a Voluntary Termination, unless a subsequent event described in such subsections to which Employee did not consent occurs. Article V OTHER BENEFITS 5.1 Initial Option Grant. As of the end of the day of the date this Agreement is signed by the Company and Employee, the Company shall grant Employee an option to purchase the number of shares described in Exhibit A of common stock of the Company under the Company's 1992 Stock Option Plan, as amended, having an exercise price per share equal to the fair market value (as defined in the Stock Option Plan) of a share of common stock of the Company. Except as otherwise provided in the Stock Option Plan, the option shall become exercisable as described in Exhibit A. 5.2 Additional Option Grants. The Employee shall be eligible to receive additional stock options as determined in the discretion of the Compensation Committee of the Board based upon such factors as it determines in its discretion. Any such additional options shall become exercisable as to 25% of the number of shares subject to the option on the first anniversary of the date of grant and on each anniversary thereafter. 5.3 Vacation. After completing six months of employment, the Employee shall be eligible for vacation as described in Exhibit A and six personal days per year. 5.4 Additional Benefits. The Employee shall be entitled to participate in any pension, insurance, or other employee benefit plan, subject to the eligibility requirements of such plans, and other perquisites which are available to employees of the Company or which hereafter are made available to the employees of the Company by the Board. Article VI RESTRICTIVE COVENANTS 6.1 Non-Competition. The Employee agrees that during the Non-Competition Period, as defined hereinafter, he shall not enter into or engage in or be connected with or engage to work for any individual, firm or corporation which is engaged in or connected with any business which is in competition with the Company in the continental United States or any other country in which the Company is doing business or is reasonably expected to do business, unless he obtains the express written approval of the Board in its sole discretion after full disclosure of the nature -4- 5 of the intended arrangement. The "Non-Competition Period" means the period of the Employee's employment during the Contract Term and a period of one year following the Employee's termination of employment for any reason. 6.2 Non-Solicitation. The Employee agrees that during the Non-Competition Period, he shall not (a) encourage any employee of the Company or any of its subsidiaries to leave his employment with the Company or subsidiary or (b) solicit any customers of the Company or any of its subsidiaries. 6.3 Non-Disclosure. The Employee agrees not to disclose either during the period of his employment or at any time thereafter to any person, firm, or corporation any information that the Company desires to protect and keep secret and confidential concerning the business or affairs of the Company which he may have acquired in the course of, or as incident to, his employment hereunder for his own benefit or to the detriment or intended detriment of the Company. 6.4 Injunction. The Employee acknowledges that the Company relies on the provisions of this Article VI and that monetary damages will not be an adequate remedy to a breach of this Article, and that it would be impossible for the Company to measure damages in the event of such a breach. Therefore, the Employee agrees that, in addition to other rights that the Company may have, the Company is entitled to an injunction preventing the Employee from doing any act that would be in breach of this Article VI. Article VII MISCELLANEOUS 7.1 Expenses. (a) Subject to the provisions of Section 7.1(c), if the Employee incurs legal or other fees and expenses in a good faith effort to establish entitlement to benefits under this Agreement, regardless of whether the Employee ultimately prevails, the Company shall reimburse him for such fees and expenses. (b) Reimbursement of fees and expenses described in Section 7.1(a) shall be made monthly during the course of any action upon the written submission of a request for reimbursement together with proof that the fees and expenses were incurred. (c) If the Employee's employment is terminated by the Company for Cause, no reimbursement for fees and expenses shall be due to Employee unless a court of competent jurisdiction determines that Cause does not exists. 7.2 Certain Reduction of Payments by Company. If an accounting firm selected by the Employee determines that any payments payable to the Employee under this Agreement or otherwise are subject to tax under Code Section 4999, the cash payments hereunder shall be reduced (but not below zero) as determined by such accounting firm if and to the extent necessary to provide the Employee with a greater net after-tax benefit, taking into account all taxes imposed on the Employee under Sections 1 and 4999 of the Code, determined by applying -5- 6 the highest marginal rate under Section 1 of the Code which the accountant determines should apply to the Employee's taxable income for the taxable year. The fees and expenses of the accounting firm for making the foregoing determination shall be paid by the Company. 7.3 Assignment, Successors. The Company may freely assign its respective rights and obligations under this Agreement to a successor of the Company's business, without the prior written consent of the Employee. This Agreement shall be binding upon and inure to the benefit of the Employee and his estate and the Company and any assignee of or successor to the Company. 7.4 Beneficiary. If the Employee dies prior to receiving all of the amounts to which he is entitled hereunder, the aggregate of such amounts shall be paid in a single lump sum payment to the beneficiary designated in writing by the Employee and if no such beneficiary is designated, to the Employee's estate. 7.5 Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, prior to actually being received by the Employee, and any such attempt to dispose of any right to benefits payable hereunder shall be void. 7.6 Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. 7.7 Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by the Company and the Employee. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other terms, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. 7.8 Notices. All notices required by this Agreement shall be in writing and delivered by hand or by first class registered or certified mail, postage prepaid, and addressed as follows: If to the Company: M-Wave, Inc. 216 Evergreen Street Bensenville, Illinois 60106 If to the Employee: Mark Anderson 216 Evergreen Street Bensenville, Illinois 60106 -6- 7 Either party may from time to time designate a new address by notice given in accordance with this paragraph. 7.9 No Mitigation. In no event shall Employee be obligated to seek other employment or take any other action to mitigate the amounts payable to Employee under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned as a result of Employee's employment by another employer. 7.10 Complete Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supercedes all previous oral and written agreements and all contemporaneous oral negotiations, commitments, writings and understandings. 7.11 Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Illinois, without regard to its choice of law principles. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. M-WAVE, INC. By: ----------------------- Its: ----------------------- EMPLOYEE: ----------------------------- -7- 8 EXHIBIT A To employment agreement dated as of January 29, 2001 by and between M-Wave, Inc. and Mark Anderson ("Agreement"). (All capitalized terms used in this Exhibit are defined as set forth in the Agreement) TITLE: Vice President of Virtual Manufacturing as defined in the Company organization chart. ANNUAL SALARY: $135,000. SIGNING BONUS: $65,000. ANNUAL BONUS: For each calendar year during the Contract Term, the Employee shall be eligible to receive an annual bonus for such year based on a set of objectives as determined in the discretion of the Compensation Committee of the Board within the first sixty days of the year ("Executive Bonus Plan"). The annual bonus payable to the Employee (if any) shall be based on the Company's or Employee's achieving minimum objectives ("Threshold Amount"). If the Employee's or Company's performance for a year does not exceed the Threshold Amount for a year, the Employee shall not receive any bonus for such year. If the Threshold Amount is satisfied for a year, the Employee shall receive an annual bonus in the amount determined under the Executive Bonus Plan, which amount shall not exceed 60% of the base salary paid by the Company to the Employee for the year. Any annual bonus payable for a year shall be paid to the Employee as soon as practicable after the end of the year in respect of which the bonus is payable. ACCRUED OBLIGATIONS: If, before the end of the Contract Term, the Employee's employment terminates for any reason other than for Cause or a Voluntary Termination, the Company shall pay an annual bonus to the Employee, if any, for the year of such termination as soon as practicable after the termination equal to the product of the following: (1) a fraction, the numerator of which is the number of months (including as a whole month any partial month) that have elapsed since the beginning of the year until the date of such termination and the denominator of which is twelve; and (2) the annual bonus, if any, that the Employee would be entitled to receive assuming that the rate at which the -8- 9 performance goals have been achieved as of the date of such termination and the Employee's base salary as in effect at such termination would continue until the end of the year. INITIAL OPTION GRANT: 65,000 shares. INITIAL OPTION GRANT EXERCISE SCHEDULE: Except as otherwise provided in the Stock Option Plan and subject to Section 4.4 of the Agreement, the option shall become exercisable as to 40% of the number of shares subject to the option on the second anniversary of the date of grant and an additional 20% of the number of shares subject to the option on each anniversary thereafter. VACATION: Three (3) weeks. -9- 10 EXHIBIT B Executive Bonus Plan 1. Sales volume must hit a threshold of at least $60 million in annual M-Wave sales or the percent payout is zero. 2. After achieving the threshold described in Section 1, the following schedule based on pre-tax profit margins for M-Wave applies: a. Under 8% payout = 0% b. 8% up to 9% = 20% of annual salary c. 9% up to 10% = 35% of annual salary d. 10% up to 11% = 50% of annual salary e. 11% or greater = 60% of annual salary 3. After achieving the threshold described in Section 1, and achieving at least an 8% pre-tax profit margin for M-Wave, a distribution of 2% to 3% of the total outstanding shares of M-Wave per the discretion of the Compensation Committee will be distributed in options per the following schedule: a. 2/3 of the distribution to Executives, dispersed on an individual basis per the discretion of the M-Wave Compensation Committee. b. 1/3 of the distribution to the salaried employees, dispersed on an individual basis per the discretion of Management. -10- EX-10.17 5 c62178ex10-17.txt EMPLOYMENT AGREEMENT 1 EXHIBIT 10.17 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of the 29 day of January, 2001, is made by and between M-Wave, Inc., a Delaware corporation (the "Company"), and Dan Gosselin (the "Employee"), a resident of the State of Illinois. WHEREAS, Company desires to employ the Employee upon the terms and conditions set forth herein; and WHEREAS, Employee desires to be employed by Company upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual undertakings of the parties hereto, it is agreed as follows: ARTICLE I EMPLOYMENT OF EMPLOYEE The Company employs the Employee to act as an executive in the title role for the Company, defined in Exhibit A, with such powers and duties as are customarily performed by persons holding the same positions in an operation of a size and nature similar to the Company. The Employee accepts such employment upon the terms of this Agreement, and hereby agrees to devote his energy and ability to the interests of the Company and to comply with directions of the Chief Executive Officer or the Board of Directors ("Board") of the Company. Subject to Article VI, during the term of this Agreement it shall not be a violation of this Agreement for the Employee to participate in other activities, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. ARTICLE II COMPENSATION 2.1 Salary. Commencing with the date hereof, the Company shall pay to the Employee in accordance with the normal payroll practices of the Company an annual salary at a rate described in Exhibit A. The Board may from time to time increase the Employee's annual salary, provided that, when such annual salary is increased, it shall not thereafter be reduced below such higher amount. 2.2 Signing Bonus. Within five business days after this Agreement is signed by the Company and Employee, the Company shall pay Employee a signing bonus in the amount described in Exhibit A. 2.3 Annual Bonus. The Employee shall be eligible for an annual bonus as set forth on Exhibit B. 2 ARTICLE III TERM OF AGREEMENT 3.1 Contract Term. Subject to the termination provisions hereinafter provided, the term of this Agreement shall be from the date hereof through two calendar years (730 days) ("Contract Term"), or, if later, such later date to which the term of the Agreement is extended pursuant to the following sentence. Six months prior to the expiration of the Contract Term (if neither party prior to such date has provided the other party with written notice that the Agreement will not be extended pursuant to this sentence) and thereafter, the Contract Term shall be automatically extended each day by one day to create a new six month term until, at any time on or after such date, the Company delivers written notice (an "Expiration Notice") to Employee or Employee delivers an Expiration Notice to the Company, in either case, to the effect that the Agreement shall expire on a date specified in the Expiration Notice (the "Expiration Date") that is not less than six months after the date the Expiration Notice is delivered to the Company or the Employee, respectively. ARTICLE IV TERMINATION BENEFITS 4.1 Discharge for Cause or Voluntary Termination. If, before the end of the Contract Term, the Company terminates the Employee's employment for Cause or the Employee incurs a Voluntary Termination (as such terms are defined in Sections 4.5(a) and (b)), the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay to the Employee any accrued but unpaid portion of his annual salary and any bonus payable in accordance with Exhibit A ("Accrued Obligations"). 4.2 Disability. If, before the end of the Contract Term, the Employee's employment terminates due to disability, as defined in the Company's disability insurance policy, the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay to the Employee any Accrued Obligations. 4.3 Death. If, before the end of the Contract Term, the Employee's employment terminates due to his death, the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay any Accrued Obligations to the Employee's beneficiary as specified in Section 7.4 in a lump sum in cash within 60 days after the date of such death. 4.4 Termination Other Than For Cause or Voluntary Termination. If the Employee's employment is terminated before the end of the Contract Term other than (i) in a Voluntary Termination by the Employee, (ii) for Cause by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company, (iii) by reason of death, or (iv) by reason of disability, as defined in the Company's disability insurance policy, the Agreement shall terminate without further obligations to the Employee, except that (A) the Employee shall be entitled to the health and medical benefits referenced in Section 5.4 for the six month period following such termination, (B) the Company shall pay the Employee any Accrued Obligations, (C) the Employee shall become fully vested in his Company stock options granted under this Agreement or otherwise, and (D) the Company shall pay to the -2- 3 Employee the annual salary in effect as of such termination in accordance with normal payroll practices of the Company for six months; provided, however, that if such termination of the Employee occurs on or after a sale of all of the stock of the Company or a sale of all or substantially all of the Company's assets, the Employee shall receive on the date of such termination a lump sum payment equal to two times the Employee's annual salary in effect as of such termination instead of the six months of salary referenced in subparagraph (D) of this Section. 4.5 Definitions. (a) "Cause" means termination of the employment of the Employee by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company because of (1) conviction by the Employee of any felony or other crime involving dishonesty, fraud or moral turpitude, or (2) the Employee's habitual neglect of his duties. Cause shall not mean a discharge because of: (1) bad judgment or negligence other than habitual neglect of duty; or (2) any act or omission believed by the Employee in good faith to have been in or not opposed to the interest of the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company (without intent of the Employee to gain therefrom, directly or indirectly, a profit to which he was not legally entitled); or (3) any act or omission in respect of which a determination could properly have been made by the Board or, if employed by any parent or subsidiary of the Company, such parent or subsidiary or, if employed by any successor to the Company or any parent or subsidiary of the Company, such successor, that the Employee met the applicable standard of conduct for indemnification or reimbursement under the bylaws of such company or the laws and regulations under which such company is governed, in each case in effect at the time of such act or omission; or (4) any act or omission with respect to which notice of termination of employment of the Employee is given more than twelve (12) months after the earliest date on which the Chief Executive Officer of the Company or any member of the Board or, if employed by a parent or subsidiary of the Company, such parent or subsidiary or, if employed by a successor to the Company or any parent or subsidiary of the Company, such successor, who is not a party to the act or omission, knew or should have known of such act or omission. (b) "Voluntary Termination" means the voluntary resignation of the Employee from employment by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company, except that a Voluntary Termination shall not include a resignation by the Employee following (1) a material reduction or adverse alteration in the nature of the Employee's position, responsibilities or authorities under this Agreement, (2) the Employee becoming the holder -3- 4 of a lesser office or title than that held pursuant to the terms of the Agreement, (3) any reduction of the Employee's compensation or benefits under the terms of the Agreement, (4) the relocation of the Employee's job outside of the Chicago metropolitan area, (5) any other material adverse change to the terms and conditions of the Employee's employment under this Agreement, or (6) a sale of all of the stock of the Company or a sale of all or substantially all of the Company's assets, provided such resignation is during the sixty day period beginning on the date which is four months after such sale, provided that any such event in (1) through (5) hereof shall not be cured by Employer within 30 days of written notice by Employee and provided further that, if the Employee shall consent in writing to any event described in subsection (1) through (5) in this Section 4.5(b), the Employee's subsequent resignation shall be treated as a Voluntary Termination, unless a subsequent event described in such subsections to which Employee did not consent occurs. ARTICLE V OTHER BENEFITS 5.1 Initial Option Grant. As of the end of the day of the date this Agreement is signed by the Company and Employee, the Company shall grant Employee an option to purchase the number of shares described in Exhibit A of common stock of the Company under the Company's 1992 Stock Option Plan, as amended, having an exercise price per share equal to the fair market value (as defined in the Stock Option Plan) of a share of common stock of the Company. Except as otherwise provided in the Stock Option Plan, the option shall become exercisable as described in Exhibit A. 5.2 Additional Option Grants. The Employee shall be eligible to receive additional stock options as determined in the discretion of the Compensation Committee of the Board based upon such factors as it determines in its discretion. Any such additional options shall become exercisable as to 25% of the number of shares subject to the option on the first anniversary of the date of grant and on each anniversary thereafter. 5.3 Vacation. After completing six months of employment, the Employee shall be eligible for vacation as described in Exhibit A and six personal days per year. 5.4 Additional Benefits. The Employee shall be entitled to participate in any pension, insurance, or other employee benefit plan, subject to the eligibility requirements of such plans, and other perquisites which are available to employees of the Company or which hereafter are made available to the employees of the Company by the Board. ARTICLE VI RESTRICTIVE COVENANTS 6.1 Non-Competition. The Employee agrees that during the Non-Competition Period, as defined hereinafter, he shall not enter into or engage in or be connected with or engage to work for any individual, firm or corporation which is engaged in or connected with any business which is in competition with the Company in the continental United States or any other country in which the Company is doing business or is reasonably expected to do business, unless he obtains the express written approval of the Board in its sole discretion after full disclosure of the nature -4- 5 of the intended arrangement. The "Non-Competition Period" means the period of the Employee's employment during the Contract Term and a period of one year following the Employee's termination of employment for any reason. 6.2 Non-Solicitation. The Employee agrees that during the Non-Competition Period, he shall not (a) encourage any employee of the Company or any of its subsidiaries to leave his employment with the Company or subsidiary or (b) solicit any customers of the Company or any of its subsidiaries. 6.3 Non-Disclosure. The Employee agrees not to disclose either during the period of his employment or at any time thereafter to any person, firm, or corporation any information that the Company desires to protect and keep secret and confidential concerning the business or affairs of the Company which he may have acquired in the course of, or as incident to, his employment hereunder for his own benefit or to the detriment or intended detriment of the Company. 6.4 Injunction. The Employee acknowledges that the Company relies on the provisions of this Article VI and that monetary damages will not be an adequate remedy to a breach of this Article, and that it would be impossible for the Company to measure damages in the event of such a breach. Therefore, the Employee agrees that, in addition to other rights that the Company may have, the Company is entitled to an injunction preventing the Employee from doing any act that would be in breach of this Article VI. ARTICLE VII MISCELLANEOUS 7.1 Expenses. (a) Subject to the provisions of Section 7.1(c), if the Employee incurs legal or other fees and expenses in a good faith effort to establish entitlement to benefits under this Agreement, regardless of whether the Employee ultimately prevails, the Company shall reimburse him for such fees and expenses. (b) Reimbursement of fees and expenses described in Section 7.1(a) shall be made monthly during the course of any action upon the written submission of a request for reimbursement together with proof that the fees and expenses were incurred. (c) If the Employee's employment is terminated by the Company for Cause, no reimbursement for fees and expenses shall be due to Employee unless a court of competent jurisdiction determines that Cause does not exists. 7.2 Certain Redu ction of Payments by Company. If an accounting firm selected by the Employee determines that any payments payable to the Employee under this Agreement or otherwise are subject to tax under Code Section 4999, the cash payments hereunder shall be reduced (but not below zero) as determined by such accounting firm if and to the extent necessary to provide the Employee with a greater net after-tax benefit, taking into account all taxes imposed on the Employee under Sections 1 and 4999 of the Code, determined by applying -5- 6 the highest marginal rate under Section 1 of the Code which the accountant determines should apply to the Employee's taxable income for the taxable year. The fees and expenses of the accounting firm for making the foregoing determination shall be paid by the Company. 7.3 Assignment, Successors. The Company may freely assign its respective rights and obligations under this Agreement to a successor of the Company's business, without the prior written consent of the Employee. This Agreement shall be binding upon and inure to the benefit of the Employee and his estate and the Company and any assignee of or successor to the Company. 7.4 Beneficiary. If the Employee dies prior to receiving all of the amounts to which he is entitled hereunder, the aggregate of such amounts shall be paid in a single lump sum payment to the beneficiary designated in writing by the Employee and if no such beneficiary is designated, to the Employee's estate. 7.5 Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, prior to actually being received by the Employee, and any such attempt to dispose of any right to benefits payable hereunder shall be void. 7.6 Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. 7.7 Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by the Company and the Employee. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other terms, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. 7.8 Notices. All notices required by this Agreement shall be in writing and delivered by hand or by first class registered or certified mail, postage prepaid, and addressed as follows: If to the Company: M-Wave, Inc. 216 Evergreen Street Bensenville, Illinois 60106 If to the Employee: Dan Gosselin 216 Evergreen Street Bensenville, Illinois 60106 -6- 7 Either party may from time to time designate a new address by notice given in accordance with this paragraph. 7.9 No Mitigation. In no event shall Employee be obligated to seek other employment or take any other action to mitigate the amounts payable to Employee under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned as a result of Employee's employment by another employer. 7.10 Complete Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supercedes all previous oral and written agreements and all contemporaneous oral negotiations, commitments, writings and understandings. 7.11 Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Illinois, without regard to its choice of law principles. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. M-WAVE, INC. By: ------------------------- Its: ------------------------ EMPLOYEE: ---------------------------- -7- 8 EXHIBIT A To employment agreement dated as of January 29, 2001 by and between M-Wave, Inc. and Dan Gosselin ("Agreement"). (All capitalized terms used in this Exhibit are defined as set forth in the Agreement) TITLE: Vice President of Real Manufacturing as defined in the Company organization chart. ANNUAL SALARY: $135,000. ANNUAL BONUS: For each calendar year during the Contract Term, the Employee shall be eligible to receive an annual bonus for such year based on a set of objectives as determined in the discretion of the Compensation Committee of the Board within the first sixty days of the year ("Executive Bonus Plan"). The annual bonus payable to the Employee (if any) shall be based on the Company's or Employee's achieving minimum objectives ("Threshold Amount"). If the Employee's or Company's performance for a year does not exceed the Threshold Amount for a year, the Employee shall not receive any bonus for such year. If the Threshold Amount is satisfied for a year, the Employee shall receive an annual bonus in the amount determined under the Executive Bonus Plan, which amount shall not exceed 60% of the base salary paid by the Company to the Employee for the year. Any annual bonus payable for a year shall be paid to the Employee as soon as practicable after the end of the year in respect of which the bonus is payable. ACCRUED OBLIGATIONS: If, before the end of the Contract Term, the Employee's employment terminates for any reason other than for Cause or a Voluntary Termination, the Company shall pay an annual bonus to the Employee, if any, for the year of such termination as soon as practicable after the termination equal to the product of the following: (1) a fraction, the numerator of which is the number of months (including as a whole month any partial month) that have elapsed since the beginning of the year until the date of such termination and the denominator of which is twelve; and (2) the annual bonus, if any, that the Employee would be entitled to receive assuming that the rate at which the performance goals have been achieved as of the date of such termination and the Employee's base salary as in effect at such termination would continue until the end of the year. -8- 9 INITIAL OPTION GRANT: 60,000 shares. INITIAL OPTION GRANT EXERCISE SCHEDULE: Except as otherwise provided in the Stock Option Plan and subject to Section 4.4 of the Agreement, the option shall become exercisable as to 40% of the number of shares subject to the option on the second anniversary of the date of grant and an additional 20% of the number of shares subject to the option on each anniversary thereafter. VACATION: Three (3) weeks. -9- 10 EXHIBIT B Executive Bonus Plan 1. Sales volume must hit a threshold of at least $60 million in annual M-Wave sales or the percent payout is zero. 2. After achieving the threshold described in Section 1, the following schedule based on pre-tax profit margins for M-Wave applies: a. Under 8% payout = 0% b. 8% up to 9% = 20% of annual salary c. 9% up to 10% = 35% of annual salary d. 10% up to 11% = 50% of annual salary e. 11% or greater = 60% of annual salary 3. After achieving the threshold described in Section 1, and achieving at least an 8% pre-tax profit margin for M-Wave, a distribution of 2% to 3% of the total outstanding shares of M-Wave per the discretion of the Compensation Committee will be distributed in options per the following schedule: a. 2/3 of the distribution to Executives, dispersed on an individual basis per the discretion of the M-Wave Compensation Committee. b. 1/3 of the distribution to the salaried employees, dispersed on an individual basis per the discretion of Management. -10- EX-10.18 6 c62178ex10-18.txt EMPLOYMENT AGREEMENT/RICHARD GOLDEN 1 EXHIBIT 10.18 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of the 29 day of January, 2001, is made by and between M-Wave, Inc., a Delaware corporation (the "Company"), and Dick Golden (the "Employee"), a resident of the State of Illinois. WHEREAS, Company desires to employ the Employee upon the terms and conditions set forth herein; and WHEREAS, Employee desires to be employed by Company upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual undertakings of the parties hereto, it is agreed as follows: ARTICLE I EMPLOYMENT OF EMPLOYEE The Company employs the Employee to act as an executive in the title role for the Company, defined in Exhibit A, with such powers and duties as are customarily performed by persons holding the same positions in an operation of a size and nature similar to the Company. The Employee accepts such employment upon the terms of this Agreement, and hereby agrees to devote his energy and ability to the interests of the Company and to comply with directions of the Chief Executive Officer or the Board of Directors ("Board") of the Company. Subject to Article VI, during the term of this Agreement it shall not be a violation of this Agreement for the Employee to participate in other activities, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. ARTICLE II COMPENSATION 2.1 Salary. Commencing with the date hereof, the Company shall pay to the Employee in accordance with the normal payroll practices of the Company an annual salary at a rate described in Exhibit A. The Board may from time to time increase the Employee's annual salary, provided that, when such annual salary is increased, it shall not thereafter be reduced below such higher amount. 2.2 Signing Bonus. Within five business days after this Agreement is signed by the Company and Employee, the Company shall pay Employee a signing bonus in the amount described in Exhibit A. 2.3 Annual Bonus. The Employee shall be eligible for an annual bonus as set forth on Exhibit B. 2 ARTICLE III TERM OF AGREEMENT 3.1 Contract Term. Subject to the termination provisions hereinafter provided, the term of this Agreement shall be from the date hereof through two calendar years (730 days) ("Contract Term"), or, if later, such later date to which the term of the Agreement is extended pursuant to the following sentence. Six months prior to the expiration of the Contract Term (if neither party prior to such date has provided the other party with written notice that the Agreement will not be extended pursuant to this sentence) and thereafter, the Contract Term shall be automatically extended each day by one day to create a new six month term until, at any time on or after such date, the Company delivers written notice (an "Expiration Notice") to Employee or Employee delivers an Expiration Notice to the Company, in either case, to the effect that the Agreement shall expire on a date specified in the Expiration Notice (the "Expiration Date") that is not less than six months after the date the Expiration Notice is delivered to the Company or the Employee, respectively. ARTICLE IV TERMINATION BENEFITS 4.1 Discharge for Cause or Voluntary Termination. If, before the end of the Contract Term, the Company terminates the Employee's employment for Cause or the Employee incurs a Voluntary Termination (as such terms are defined in Sections 4.5(a) and (b)), the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay to the Employee any accrued but unpaid portion of his annual salary and any bonus payable in accordance with Exhibit A ("Accrued Obligations"). 4.2 Disability. If, before the end of the Contract Term, the Employee's employment terminates due to disability, as defined in the Company's disability insurance policy, the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay to the Employee any Accrued Obligations. 4.3 Death. If, before the end of the Contract Term, the Employee's employment terminates due to his death, the Agreement shall terminate without further obligations to the Employee, except that the Company shall pay any Accrued Obligations to the Employee's beneficiary as specified in Section 7.4 in a lump sum in cash within 60 days after the date of such death. 4.4 Termination Other Than For Cause or Voluntary Termination. If the Employee's employment is terminated before the end of the Contract Term other than (i) in a Voluntary Termination by the Employee, (ii) for Cause by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company, (iii) by reason of death, or (iv) by reason of disability, as defined in the Company's disability insurance policy, the Agreement shall terminate without further obligations to the Employee, except that (A) the Employee shall be entitled to the health and medical benefits referenced in Section 5.4 for the six month period following such termination, (B) the Company shall pay the Employee any Accrued Obligations, (C) the Employee shall become fully vested in his Company stock options granted under this Agreement or otherwise, and (D) the Company shall pay to the -2- 3 Employee the annual salary in effect as of such termination in accordance with normal payroll practices of the Company for six months; provided, however, that if such termination of the Employee occurs on or after a sale of all of the stock of the Company or a sale of all or substantially all of the Company's assets, the Employee shall receive on the date of such termination a lump sum payment equal to two times the Employee's annual salary in effect as of such termination instead of the six months of salary referenced in subparagraph (D) of this Section. 4.5 Definitions. (a) "Cause" means termination of the employment of the Employee by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company because of (1) conviction by the Employee of any felony or other crime involving dishonesty, fraud or moral turpitude, or (2) the Employee's habitual neglect of his duties. Cause shall not mean a discharge because of: (1) bad judgment or negligence other than habitual neglect of duty; or (2) any act or omission believed by the Employee in good faith to have been in or not opposed to the interest of the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company (without intent of the Employee to gain therefrom, directly or indirectly, a profit to which he was not legally entitled); or (3) any act or omission in respect of which a determination could properly have been made by the Board or, if employed by any parent or subsidiary of the Company, such parent or subsidiary or, if employed by any successor to the Company or any parent or subsidiary of the Company, such successor, that the Employee met the applicable standard of conduct for indemnification or reimbursement under the bylaws of such company or the laws and regulations under which such company is governed, in each case in effect at the time of such act or omission; or (4) any act or omission with respect to which notice of termination of employment of the Employee is given more than twelve (12) months after the earliest date on which the Chief Executive Officer of the Company or any member of the Board or, if employed by a parent or subsidiary of the Company, such parent or subsidiary or, if employed by a successor to the Company or any parent or subsidiary of the Company, such successor, who is not a party to the act or omission, knew or should have known of such act or omission. (b) "Voluntary Termination" means the voluntary resignation of the Employee from employment by the Company, any parent or subsidiary of the Company or any successor to the Company or any parent or subsidiary of the Company, except that a Voluntary Termination shall not include a resignation by the Employee following (1) a material reduction or adverse alteration in the nature of the Employee's position, responsibilities or authorities under this Agreement, (2) the Employee becoming the holder -3- 4 of a lesser office or title than that held pursuant to the terms of the Agreement, (3) any reduction of the Employee's compensation or benefits under the terms of the Agreement, (4) the relocation of the Employee's job outside of the Chicago metropolitan area, (5) any other material adverse change to the terms and conditions of the Employee's employment under this Agreement, or (6) a sale of all of the stock of the Company or a sale of all or substantially all of the Company's assets, provided such resignation is during the sixty day period beginning on the date which is four months after such sale, provided that any such event in (1) through (5) hereof shall not be cured by Employer within 30 days of written notice by Employee and provided further that, if the Employee shall consent in writing to any event described in subsection (1) through (5) in this Section 4.5(b), the Employee's subsequent resignation shall be treated as a Voluntary Termination, unless a subsequent event described in such subsections to which Employee did not consent occurs. ARTICLE V OTHER BENEFITS 5.1 Initial Option Grant. As of the end of the day of the date this Agreement is signed by the Company and Employee, the Company shall grant Employee an option to purchase the number of shares described in Exhibit A of common stock of the Company under the Company's 1992 Stock Option Plan, as amended, having an exercise price per share equal to the fair market value (as defined in the Stock Option Plan) of a share of common stock of the Company. Except as otherwise provided in the Stock Option Plan, the option shall become exercisable as described in Exhibit A. 5.2 Additional Option Grants. The Employee shall be eligible to receive additional stock options as determined in the discretion of the Compensation Committee of the Board based upon such factors as it determines in its discretion. Any such additional options shall become exercisable as to 25% of the number of shares subject to the option on the first anniversary of the date of grant and on each anniversary thereafter. 5.3 Vacation. After completing six months of employment, the Employee shall be eligible for vacation as described in Exhibit A and six personal days per year. 5.4 Additional Benefits. The Employee shall be entitled to participate in any pension, insurance, or other employee benefit plan, subject to the eligibility requirements of such plans, and other perquisites which are available to employees of the Company or which hereafter are made available to the employees of the Company by the Board. ARTICLE VI RESTRICTIVE COVENANTS 6.1 Non-Competition. The Employee agrees that during the Non-Competition Period, as defined hereinafter, he shall not enter into or engage in or be connected with or engage to work for any individual, firm or corporation which is engaged in or connected with any business which is in competition with the Company in the continental United States or any other country in which the Company is doing business or is reasonably expected to do business, unless he obtains the express written approval of the Board in its sole discretion after full disclosure of the nature -4- 5 of the intended arrangement. The "Non-Competition Period" means the period of the Employee's employment during the Contract Term and a period of one year following the Employee's termination of employment for any reason. 6.2 Non-Solicitation. The Employee agrees that during the Non-Competition Period, he shall not (a) encourage any employee of the Company or any of its subsidiaries to leave his employment with the Company or subsidiary or (b) solicit any customers of the Company or any of its subsidiaries. 6.3 Non-Disclosure. The Employee agrees not to disclose either during the period of his employment or at any time thereafter to any person, firm, or corporation any information that the Company desires to protect and keep secret and confidential concerning the business or affairs of the Company which he may have acquired in the course of, or as incident to, his employment hereunder for his own benefit or to the detriment or intended detriment of the Company. 6.4 Injunction. The Employee acknowledges that the Company relies on the provisions of this Article VI and that monetary damages will not be an adequate remedy to a breach of this Article, and that it would be impossible for the Company to measure damages in the event of such a breach. Therefore, the Employee agrees that, in addition to other rights that the Company may have, the Company is entitled to an injunction preventing the Employee from doing any act that would be in breach of this Article VI. ARTICLE VII MISCELLANEOUS 7.1 Expenses. (a) Subject to the provisions of Section 7.1(c), if the Employee incurs legal or other fees and expenses in a good faith effort to establish entitlement to benefits under this Agreement, regardless of whether the Employee ultimately prevails, the Company shall reimburse him for such fees and expenses. (b) Reimbursement of fees and expenses described in Section 7.1(a) shall be made monthly during the course of any action upon the written submission of a request for reimbursement together with proof that the fees and expenses were incurred. (c) If the Employee's employment is terminated by the Company for Cause, no reimbursement for fees and expenses shall be due to Employee unless a court of competent jurisdiction determines that Cause does not exists. 7.2 Certain Reduction of Payments by Company. If an accounting firm selected by the Employee determines that any payments payable to the Employee under this Agreement or otherwise are subject to tax under Code Section 4999, the cash payments hereunder shall be reduced (but not below zero) as determined by such accounting firm if and to the extent necessary to provide the Employee with a greater net after-tax benefit, taking into account all taxes imposed on the Employee under Sections 1 and 4999 of the Code, determined by applying -5- 6 the highest marginal rate under Section 1 of the Code which the accountant determines should apply to the Employee's taxable income for the taxable year. The fees and expenses of the accounting firm for making the foregoing determination shall be paid by the Company. 7.3 Assignment, Successors. The Company may freely assign its respective rights and obligations under this Agreement to a successor of the Company's business, without the prior written consent of the Employee. This Agreement shall be binding upon and inure to the benefit of the Employee and his estate and the Company and any assignee of or successor to the Company. 7.4 Beneficiary. If the Employee dies prior to receiving all of the amounts to which he is entitled hereunder, the aggregate of such amounts shall be paid in a single lump sum payment to the beneficiary designated in writing by the Employee and if no such beneficiary is designated, to the Employee's estate. 7.5 Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, prior to actually being received by the Employee, and any such attempt to dispose of any right to benefits payable hereunder shall be void. 7.6 Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. 7.7 Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by the Company and the Employee. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other terms, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. 7.8 Notices. All notices required by this Agreement shall be in writing and delivered by hand or by first class registered or certified mail, postage prepaid, and addressed as follows: If to the Company: M-Wave, Inc. 216 Evergreen Street Bensenville, Illinois 60106 If to the Employee: Richard Golden 216 Evergreen Street Bensenville, Illinois 60106 -6- 7 Either party may from time to time designate a new address by notice given in accordance with this paragraph. 7.9 No Mitigation. In no event shall Employee be obligated to seek other employment or take any other action to mitigate the amounts payable to Employee under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned as a result of Employee's employment by another employer. 7.10 Complete Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supercedes all previous oral and written agreements and all contemporaneous oral negotiations, commitments, writings and understandings. 7.11 Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Illinois, without regard to its choice of law principles. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. M-WAVE, INC. By: _____________________ Its: _____________________ EMPLOYEE: -------------------------- -7- 8 EXHIBIT A To employment agreement dated as of January 29, 2001 by and between M-Wave, Inc. and Richard Golden ("Agreement"). (All capitalized terms used in this Exhibit are defined as set forth in the Agreement) TITLE: Director of Operations as defined in the Company organization chart. ANNUAL SALARY: $125,000. SIGNING BONUS: $10,000. ANNUAL BONUS: For each calendar year during the Contract Term, the Employee shall be eligible to receive an annual bonus for such year based on a set of objectives as determined in the discretion of the Compensation Committee of the Board within the first sixty days of the year ("Executive Bonus Plan"). The annual bonus payable to the Employee (if any) shall be based on the Company's or Employee's achieving minimum objectives ("Threshold Amount"). If the Employee's or Company's performance for a year does not exceed the Threshold Amount for a year, the Employee shall not receive any bonus for such year. If the Threshold Amount is satisfied for a year, the Employee shall receive an annual bonus in the amount determined under the Executive Bonus Plan, which amount shall not exceed 60% of the base salary paid by the Company to the Employee for the year. Any annual bonus payable for a year shall be paid to the Employee as soon as practicable after the end of the year in respect of which the bonus is payable. ACCRUED OBLIGATIONS: If, before the end of the Contract Term, the Employee's employment terminates for any reason other than for Cause or a Voluntary Termination, the Company shall pay an annual bonus to the Employee, if any, for the year of such termination as soon as practicable after the termination equal to the product of the following: (1) a fraction, the numerator of which is the number of months (including as a whole month any partial month) that have elapsed since the beginning of the year until the date of such termination and the denominator of which is twelve; and (2) the annual bonus, if any, that the Employee would be entitled to receive assuming that the rate at which the -8- 9 performance goals have been achieved as of the date of such termination and the Employee's base salary as in effect at such termination would continue until the end of the year. INITIAL OPTION GRANT: 10,000 shares. INITIAL OPTION GRANT EXERCISE SCHEDULE: Except as otherwise provided in the Stock Option Plan and subject to Section 4.4 of the Agreement, the option shall become exercisable as to 25% of the number of shares subject to the option on the first anniversary of the date of grant and an additional 25% of the number of shares subject to the option on each anniversary thereafter. VACATION: Three (3) weeks. -9- 10 EXHIBIT B Executive Bonus Plan 1. Sales volume must hit a threshold of at least $60 million in annual M-Wave sales or the percent payout is zero. 2. After achieving the threshold described in Section 1, the following schedule based on pre-tax profit margins for M-Wave applies: a. Under 8% payout = 0% b. 8% up to 9% = 20% of annual salary c. 9% up to 10% = 35% of annual salary d. 10% up to 11% = 50% of annual salary e. 11% or greater = 60% of annual salary 3. After achieving the threshold described in Section 1, and achieving at least an 8% pre-tax profit margin for M-Wave, a distribution of 2% to 3% of the total outstanding shares of M-Wave per the discretion of the Compensation Committee will be distributed in options per the following schedule: a. 2/3 of the distribution to Executives, dispersed on an individual basis per the discretion of the M-Wave Compensation Committee. b. 1/3 of the distribution to the salaried employees, dispersed on an individual basis per the discretion of Management. -----END PRIVACY-ENHANCED MESSAGE-----