EXHIBIT 99.2
MICROLOG CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Option Agreement") is made as of June
26, 1997 by and between Microlog Corporation, a Virginia corporation (the
"Company"), and The Parthenon Group, Inc. (the "Optionee").
WHEREAS, the Optionee is providing consulting services to the Company
which are the subject of a separate agreement between the parties dated on or
about the date hereof (the "Consulting Agreement"), and the terms of an
engagement letter between the Optionee and the Company call for the grant to the
Optionee of an option to purchase a certain number of shares of the Company's
common stock, $.01 par value ("Stock"), on specified terms and conditions; and
WHEREAS, the parties hereto wish to enter into this Option Agreement to
set forth the terms and conditions for the grant of such stock options;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto do hereby agree as follows:
1. Grant of Option; Price. The Company hereby grants to the Optionee
the right and option (the "Option") to purchase from the Company, on the terms
and subject to the conditions hereinafter set forth, 195,000 shares of Stock.
The purchase price (the "Option Price") for the shares of Stock subject to the
Option granted by this Option Agreement is $5.00 per share.
2. Exercise of Option. Except as otherwise provided herein, the Option
granted pursuant to this Option Agreement shall be subject to exercise as
follows:
2A. Time of Exercise of Option. The Option shall first become
exercisable ("vest"), subject to the limitations on exercise set forth in
Sections 2B, 2C and 2D below, in installments as follows:
(i) Upon the date on which the Optionee first commences the Project
(July 14, 1997, the "Commencement Date"), the Option shall vest in respect of
40,000 of the shares specified in Section 1 above;
(ii) Upon the date on which the Optionee completes Phase I of the
Project (as specified in the Consulting Agreement), the Option shall vest in
respect of an additional 40,000 of the shares specified in Section 1 above;
(iii) Upon the date on which the closing price of the Stock on the
Nasdaq National Market for the five (5) immediately preceding trading days first
equals or exceeds $8.00 per share, the Option shall vest in respect of an
additional 40,000 of the shares specified in Section 1 above;
(iv) Upon the date on which the closing price of the Stock on the
Nasdaq National Market for the five (5) immediately preceding trading days first
equals or exceeds $10.00 per share, the Option shall vest in respect of an
additional 40,000 of the shares specified in Section 1 above;
(v) Upon the date on which the closing price of the Stock on the
Nasdaq National Market for the five (5) immediately preceding trading days first
equals or exceeds $12.00 per share, the Option shall vest in respect of an
additional 20,000 of the shares specified in Section 1 above;
(vi) Upon the date on which the closing price of the Stock on the
Nasdaq National Market for the five (5) immediately preceding trading days first
equals or exceeds $16.00 per share, the Option shall vest in respect of an
additional 10,000 of the shares specified in Section 1 above; and
(vii) Upon the date on which the closing price of the Stock on the
Nasdaq National Market for the five (5) immediately preceding trading days first
equals or exceeds $20.00 per share, the Option shall vest in respect of an
additional 5,000 of the shares specified in Section 1 above.
The foregoing installments, after becoming vested, to the extent not
exercised shall accumulate and continue to be exercisable, in whole or in part,
at any time and from time to time until the fifth anniversary of the
Commencement Date, subject to earlier termination of the Option as provided in
Subsection 2D below. Once the criteria for an installment vesting under this
Section 2A have been met, the exercisability of such installment shall not be
affected by any subsequent changes in the closing price of the Stock,
notwithstanding any deferral of exercisability under Section 2B.
2B. Only One Installment May Vest Each Fiscal Quarter. Notwithstanding
the provisions of Section 2A, not more than one installment may vest during each
fiscal quarter of the Company. If pursuant to Section 2A (or because of deferral
pursuant to this Section 2B) more than one installment would have vested during
any such fiscal quarter (a "Criteria Satisfied Installment"), only the Criteria
Satisfied Installment with the lowest paragraph number in Section 2A shall vest
on the date determined pursuant to Section 2A for such Criteria Satisfied
Installment, and the vesting of each other Criteria Satisfied Installment shall
be deferred until the first day of the next following fiscal quarter (or, if
more than one Criteria Satisfied Installment is deferred, until the first days
of each of the next following fiscal quarters, for as many fiscal quarters as
necessary).
2C. Termination under Consulting Agreement. Notwithstanding the
provisions of Section 2A or Section 2B, and subject to the provisions of Section
2D, in the event that the Company elects to terminate the provision of
consulting services by the Optionee under the Consulting Agreement, then the
Option shall be exercisable as provided in this paragraph. From and after the
effective date of such election by the Company, the Option shall be exercisable,
in whole or in part, to the extent not previously exercised, in respect of the
greater of the following: (i) the product of the number of shares specified in
Section 1 above multiplied by a fraction (which in no event shall be greater
than one), the numerator of which is the "Deemed Billing" (as defined below),
and the denominator of which is $546,000, and (ii) the number of shares with
respect to which the Option had vested prior to such effective date pursuant to
Sections 2A and 2B. For purposes of this paragraph, "Deemed Billing" shall mean
the total amount that the Optionee would have billed the Company for
professional services at the Optionee's standard rates for all work performed
under the Consulting Agreement (if the Optionee had been billing under the
Consulting Agreement at its standard rates in cash rather than being compensated
under this Agreement) prior to the effective date of the termination election by
the Company.
2D. Limitations on Exercise of Option. Notwithstanding any other
provision of this Option Agreement to the contrary, in no event may the Option
be exercised, in whole or in part, after the fifth anniversary of the
Commencement Date or after any event specified in this Agreement which results
in termination of the Option. No single exercise of the Option shall be for less
than 100 shares, unless the number of shares purchased is the total number at
the time available for purchase under this Option. In no event may the Option be
exercised for a fractional share.
3. Method of Exercise of Option. Subject to the terms and conditions of
this Option Agreement, the Option may be exercised by delivering written notice
of exercise to the Company, at its principal office, addressed to the attention
of the Secretary of the Company, which notice shall specify the number of shares
for which the Option is being exercised, and shall be accompanied by payment in
cash in the full amount of the Option Price for the shares for which the Option
is being exercised. If the Option is not being exercised in the name of the
Optionee, the exercising person or entity shall also deliver with the notice of
exercise appropriate proof of the right to exercise the Option. An attempt to
exercise the Option granted hereunder other than as set forth above shall be
invalid and of no force and effect. Promptly after exercise of the Option as
provided for above, the Company shall deliver to the person or entity exercising
the Option a certificate or certificates for the shares being purchased.
4. Rights as Shareholder; Option Not Granted Under Employee Plan.
Neither the Optionee nor any successor or assign shall be, or have any of the
rights or privileges of, a shareholder of the Company in respect of any shares
issuable hereunder unless and until such shares have been fully paid for
hereunder and certificates representing such shares have been endorsed,
transferred and
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delivered, and the name of the Optionee (or of such successor or assign) has
been entered as the shareholder of record on the books of the Company. This
Option is not granted under any of the Company's stock option plans and does not
constitute an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
5. Effect of Changes in Capitalization.
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5A. Changes in Stock. If the outstanding shares of Stock are increased
or decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend or other distribution payable in capital stock, or other increase
or decrease in such shares effected without receipt of consideration by the
Company occurring after the date the Option is granted, a proportionate and
appropriate adjustment shall be made by the Company in the number and kind of
shares subject to the Option, so that the proportionate interest of the Optionee
immediately following such event shall, to the extent practicable, be the same
as immediately prior to such event. Any such adjustment in the Option shall not
change the total Option Price with respect to shares subject to the unexercised
portion of the Option but shall include a corresponding proportionate adjustment
in the Option Price per share.
5B. Reorganization in Which the Company Is the Surviving Corporation.
Subject to Section 5C, if the Company shall be the surviving corporation in any
reorganization, merger or consolidation of the Company with one or more other
corporations, the Option shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to the Option would have been
entitled immediately following such reorganization, merger or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger or consolidation.
5C. Liquidation or Reorganization in Which the Company Is Not the
Surviving Corporation or Sale of Assets or Stock. Upon the dissolution or
liquidation of the Company, or upon a merger, consolidation or reorganization of
the Company with one or more other corporations in which the Company is not the
surviving corporation, or upon a sale of all or substantially all of the assets
of the Company to another corporation, or upon any transaction (including,
without limitation, a merger or reorganization in which the Company is the
surviving corporation) approved by the Board of Directors of the Company which
results in any person or entity owning eighty percent or more of the total
combined voting power of all classes of stock of the Company, the Option
hereunder shall terminate, except to the extent provision is made in connection
with such transaction for the continuation and/or the assumption of the Option,
or for the substitution for the Option of new options covering the stock of a
successor or acquiring corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kinds of shares and exercise
prices, in which event the Option shall continue in the manner and under the
terms so provided. In the event of any such termination of the Option, the
Optionee shall have the right (subject to the limitations on exercise set forth
in Section 2D above), for thirty (30) days immediately prior to the occurrence
of such termination, to exercise the Option in whole or in part, whether or not
the Optionee was otherwise entitled to exercise such Option at the time such
termination occurs. The Company shall send written notice of an event that will
result in such a termination to the Optionee not later than the time at which
the Company gives notice thereof to its shareholders.
5D. Change in Control. In the event of the occurrence of a Change in
Control (as defined below) or in the event that the Board of Directors of the
Company, in its sole and absolute discretion, determines that there exists a
threat of a Change in Control, the Option shall immediately become exercisable
in full as of the date of such occurrence or such determination, whether or not
the Option was otherwise exercisable immediately before such occurrence or such
determination. For purposes of this Option Agreement, a "change in control"
shall be deemed to occur if, at any time, any person (including, without
limitation, any individual, sole proprietorship, partnership, trust corporation,
association, joint venture, pool, syndicate or other entity, whether or not
incorporated), or any two or more persons acting as a syndicate or group and
thereby deemed collectively to be a "person" within the meaning of Section 13
(d)(3) of the Securities Exchange Act of 1934, as amended, shall acquire shares
of stock of the Company, which acquisition results in such person or persons
owning in the aggregate shares
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of stock of the Company possessing 20 percent (%) or more of the total combined
voting power of all classes of stock of the Company, unless prior to such
acquisition the full Board of Directors of the company shall by at least a
two-thirds vote have specifically approved such acquisition and determined that
such acquisition shall not constitute a Change in Control for purposes of this
Option Agreement. Whether there exists a threat of a Change in Control for
purposes of this Option Agreement shall be determined by the board of Directors
of the Company, which determination shall be final and conclusive.
5E. Adjustments. Adjustments specified in this Section relating to
stock or securities of the Company shall be made by the Board of Directors of
the Company, whose determination in that respect shall be final, binding and
conclusive. No fractional shares of Stock or units of other securities shall be
issued pursuant to any such adjustment, and any fractions resulting from any
such adjustment shall be eliminated in each case by rounding downward to the
nearest whole share or unit.
5F. Provisions Substantially Equivalent to Stock Option Plan. The
Company represents and warrants that the provisions of this Section 5 are
substantially equivalent to those relating to the same subject matter and
presently set forth in the Company's 1995 Stock Option Plan, differing only to
reflect that the Optionee is a corporation and a consultant to the Company and
not a person employed by the Company. In the event that the provisions of the
Company's 1995 Stock Option Plan comparable to the provisions of this Section 5
are amended, the Company shall offer to amend this Section 5 so that the
provisions of this Section 5 as amended are substantially equivalent to those
relating to the same subject matter and set forth in the Company's 1995 Stock
Option Plan as amended.
6. General Restrictions. The Company shall not be required to sell or
issue any shares of Stock under the Option if the sale or issuance of such
shares would constitute a violation by the person or entity exercising the
Option or by the Company of any provision of any law or regulation of any
governmental authority, including without limitation any federal or state
securities laws or regulations. If at any time the Company shall determine, in
its discretion, that the listing, registration or qualification of any shares
subject to the Option upon any securities exchange or under any state or federal
law, or the consent or approval of any government regulatory body, is necessary
or desirable as a condition of, or in connection with, the issuance or purchase
of shares hereunder, the Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company, and
any delay caused thereby shall in no way affect the date of termination of the
Option. Specifically in connection with the Securities Act of 1933 (as now in
effect or as hereafter amended), unless a registration statement under such Act
is in effect with respect to the shares of Stock covered by the Option, the
Company shall not be required to sell or issue such shares unless the Company
has received evidence satisfactory to it that the holder of the Option may
acquire such shares pursuant to an exemption from registration under such Act.
Any determination in this connection by the Company shall be final, binding, and
conclusive. The Company may, but except as specifically provided in Section 7
shall in no event be obligated to, register any securities covered hereby
pursuant to the Securities Act of 1933 (as now in effect or as hereafter
amended). The Company shall not be obligated to take any affirmative action in
order to cause the exercise of the Option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental authority. As
to any jurisdiction that expressly imposes the requirement that the Option shall
not be exercisable unless and until the shares of Stock covered by the Option
are registered or are subject to an available exemption from registration, the
exercise of the Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption. The Company represents
and warrants that the provisions of this Section 6 are substantially equivalent
to those relating to the same subject matter and presently set forth in the
Company's 1995 Stock Option Plan, differing only to reflect that the Optionee is
a corporation and a consultant to the Company and not a person employed by the
Company. In the event that the provisions of the Company's 1995 Stock Option
Plan comparable to the provisions of this Section 6 are amended, the Company
shall offer to amend this Section 6 so that the provisions of this Section 6 as
amended are substantially equivalent to those relating to the same subject
matter and set forth in the Company's 1995 Stock Option Plan as amended.
7. Registration. Upon written request by the Optionee, the Company
shall, as promptly as practicable, register the Stock issuable pursuant to this
Agreement under to the Securities Act of 1933 (as now in effect or as hereafter
amended) on a registration statement on Form S-3 (the
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"Registration Statement"). The Company shall use its best efforts to keep the
Registration Statement effective for one year and shall pay all costs and
expenses associated with the filing and effectiveness of such Registration
Statement. The Optionee shall not request such registration during the period
commencing on the date of this Agreement and ending on the first anniversary of
the Commencement Date. Thereafter, the Optionee may request such registration at
any time prior to the fifth anniversary of the Commencement Date.
8. Withholding of Taxes. The parties hereto recognize that the Company
may be obligated to withhold federal, state, local or international income or
other taxes in connection with the exercise of the Option or in connection with
a disposition of any shares of Stock acquired by exercise of the Option. The
Optionee agrees that the Company may withhold amounts needed to cover such taxes
from payments otherwise due and owing to the Optionee, and also agrees that upon
demand the Optionee will promptly pay to the Company having such obligation any
additional amounts as may be necessary to satisfy such withholding tax
obligation. Such payment shall be made in cash or by certified check payable to
the order of the Company.
9. Disclaimer of Rights. No provision in this Option Agreement shall be
construed to confer upon the Optionee the right to be employed by or have any
consulting or other contractual arrangement with the Company, or to interfere in
any way with any right of the Company to terminate any consulting or other
relationship between the Optionee and the Company.
10. Interpretation of this Option Agreement. All decisions and
interpretations made by the Board of Directors of the Company with regard to any
question arising under this Option Agreement shall be binding and conclusive on
the Company and the Optionee and any other person or entity entitled to exercise
the Option as provided for herein
11. Governing Law. This Option Agreement is executed pursuant to and
shall be governed by the laws of the Commonwealth of Virginia (but not including
the choice of law rules thereof).
12. Limitations on Transfer; Notification of Disposition. The Option is
not transferable by the Optionee, other than to a limited partnership of which
the Optionee is the general partner. The Optionee agrees to notify the Company
in writing of any disposition of the Option or shares of Stock acquired by the
Optionee pursuant to the exercise of this Option within 30 days of such
disposition.
13. Binding Effect. Subject to all restrictions provided for in this
Option Agreement and by applicable law relating to assignment and transfer of
this Option Agreement and the option rights provided for herein, this Option
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
14. Notice. Any notice hereunder by the Optionee to the Company shall
be in writing and shall be deemed duly given if mailed or delivered to the
Company at its principal office, addressed to the attention of the Secretary of
the Company, or if so mailed or delivered to such other address as the Company
may hereafter designate by notice to the Optionee. Any notice hereunder by the
Company to the Optionee shall be in writing and shall be deemed duly given if
mailed or delivered to the Optionee at the address specified below by the
Optionee for such purpose, or if so mailed or delivered to such other address as
the Optionee may hereafter designate by written notice given to the Company.
15. Entire Agreement. This Option Agreement constitutes the entire
agreement and supersedes all prior understandings and agreements, written or
oral, of the parties hereto with respect to the subject matter hereof. Neither
this Option Agreement nor any term hereof may be amended, waived, discharged or
terminated except by a written instrument signed by the Company and the
Optionee; provided, however, that the Company unilaterally may waive any
provision hereof in writing to the extent that such waiver does not adversely
affect the interests of the Optionee hereunder, but no such waiver shall operate
as or be construed to be a subsequent waiver of the same provision or a waiver
of any other provision hereof.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Option
Agreement, or caused this Option Agreement to be duly executed on their behalf,
as of the day and year first above written.
MICROLOG CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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President and CEO
THE PARTHENON GROUP, INC.
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Managing Director
ADDRESS FOR NOTICE TO OPTIONEE:
The Parthenon Group
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14th Floor
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