SETTLEMENT AGREEMENT
This
Settlement Agreement (“Agreement”) is made as of the 19th day of August, 2005
(hereinafter referred to as the “Effective Date”) by and between M-Wave, Inc.
(“M-Wave”), Xxxxxxxx & Xxxxxx LLP (“F & P”), Xxx Xxxxx (“Xxxxx”), Xxx
Xxxxx (“Xxx Xxxxx”), Xxxx Xxxxx (“Xxxxx”), Xxx Xxxxxxx (“Xxxxxxx”), Xxxx
Xxxxxxxx (“Xxxxxxxx”), and Xxxx Xxxxx (“Xxxx Xxxxx”). M-Wave, F & P, Xxxxx,
Xxx Xxxxx, Xxxxx, Skelton, Castagna, and Xxxx Xxxxx are sometimes referred
to
hereinafter collectively as the “Parties.” Xxxxx, Xxx Xxxxx, Xxxxx, Skelton,
Castagna, and Xxxx Xxxxx are sometimes referred to hereinafter collectively
as
the “Individual Parties.” Xxxxx and Xxx Xxxxx are sometimes referred to
hereinafter collectively as the “Executive Directors.” Klein, Skelton, Xxxxxxxx
and Xxxx Xxxxx are sometimes referred to hereinafter collectively as the
“Non-Executive Directors.”
RECITALS
A.
M-Wave
is
a Delaware corporation with headquarters in West Chicago, Illinois, whose common
stock (the “Common Stock”) is traded on the Nasdaq SmallCap Market.
B.
F
&
P
is an Illinois limited liability partnership in the business of providing legal
services and advice to its clients.
X.
Xxxxx
is
an individual, and is serving as M-Wave’s President and Chief Operating Officer
and a member of M-Wave’s Board of Directors (hereinafter “the
Board”).
D.
Xxx
Xxxxx
is an individual, and is serving as M-Wave’s Chief Executive Officer and a
member of the Board.
X.
Xxxxx
is
an individual, and is serving as Chairman of the Board, and as Chairman of
M-Wave’s Nominating and Corporate Governance Committee. Xxxxx was employed by F
& P from May 2002 through July 1, 2005.
X.
Xxxxxxx
is an individual, and is serving as a member of the Board, as a member of
M-Wave’s Compensation Committee and as a member of M-Wave’s Nominating and
Corporate Governance Committee.
X.
Xxxxxxxx
is an individual, and is serving as a member of the Board, as Chairman of
M-Wave’s Audit Committee, as a member of M-Wave’s Compensation Committee, and as
a member of M-Wave’s Nominating and Corporate Governance Committee.
H.
Xxxx
Xxxxx is an individual, and is serving as a member of the Board, as a member
of
M-Wave’s Audit Committee, and as Chairman of M-Wave’s Compensation
Committee.
I.
The
Non-Executive Directors have asserted that Xxx Xxxxx has not performed his
duties as chief executive officer of M-Wave in a satisfactory manner and desire
to reassign Xxx Xxxxx as set forth herein. The Executive Directors deny such
assertions.
J.
The
Executive Directors have threatened to xxx the Non-Executive Directors and
F
& P (and M-Wave as a nominal defendant), alleging, among other things,
conflicts of interest and breaches of fiduciary duties. The Non-Executive
Directors and F & P deny such allegations.
K.
The
Parties now desire to resolve the relationships among the parties prior to
the
Effective Date (the “Relationship”) and release each other from claims in the
manner set forth in this Agreement.
NOW
THEREFORE, in consideration of the premises and mutual covenants and
undertakings herein, the Parties agree as follows:
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1.
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No
Litigation.
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The
Executive Directors agree that they will not file a lawsuit against any of
the
other Parties (or any other potential defendant named in their threatened
lawsuit) seeking a remedy for any allegations related to the Relationship,
including but not limited to allegations of conflicts of interest and breaches
of fiduciary duty, based on conduct or events predating the Effective Date.
To
the same effect neither shall F & P nor the Non-Executive Directors file a
lawsuit seeking a remedy for any allegations related to the Relationship,
including but not limited to allegations of misfeasance or nonfeasance by Xxx
Xxxxx or Turek based on conduct or events predating the Effective
Date.
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2.
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M-Wave
Corporate Restructuring.
Effective upon the execution of this Agreement by all
Parties:
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(a)
Xxx
Xxxxx
hereby resigns his position as a member of the Board. Xxx Xxxxx agrees to a
reassignment from his current position as Chief Executive Officer to the
position of Vice President and Chief Business Development Officer, with all
terms and conditions of his Employment Agreement with M-Wave remaining in
effect, except as otherwise provided in this Section 2(a). In an effort to
help
reduce M-Wave’s expenses, Xxx Xxxxx has voluntarily agreed to reduce his annual
salary to $203,150. In the position of Vice President and Chief Business
Development Officer, Xxx Xxxxx shall perform services consistent with his
position as requested by the Board or by Xxxxx as M-Wave CEO, but Xxx Xxxxx
will
not involve himself in M-Wave’s financing activities (except as specifically
contemplated by Section 3(c) below) or investor relations or securities law
compliance matters, except to the extent specifically asked to do so by the
Board. Xxx Xxxxx has voluntarily agreed to return to M-Wave all of his 400,000
options to purchase M-Wave common stock at $1.16 per share, and such options
shall be canceled. M-Wave will issue to Xxx Xxxxx options pursuant to the
M-Wave, Inc. 2003 Stock Incentive Plan to purchase 150,000 shares of M-Wave
common stock at the closing price on the Effective Date, which options shall
be
fully vested on the Effective Date and have a term of five years. The Board
will
take such action to amend or rescind previous actions as necessary to accomplish
the terms of this Section 2(a).
(b)
Xxxxxxx
hereby resigns his position as a member of the Board.
(c)
Xxxxx
agrees to a reassignment from his current position as President and Chief
Operating Officer to the position of President and Chief Executive Officer,
subject to review of his title by the Board on December 31, 2005, with any
change in title to be effective January 1, 2006, with all terms and conditions
of his Employment Agreement with M-Wave remaining in effect, except as otherwise
provided in this Section 2(c). In an effort to help reduce M-Wave’s expenses,
Xxxxx has voluntarily agreed to reduce his annual salary to $182,750 and to
return the proceeds of the bonus paid to Xxxxx in June 2005. The Board will
take
such action to amend or rescind previous actions as necessary to accomplish
the
terms of this Section 2(c).
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(d)
Upon
Xxxxx’x resignation from the Board as contemplated by Section 7(b) below, Xxxxx
shall be appointed as Chairman.
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3.
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M-Wave
Corporate Procedure and Reporting.
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(a)
The
reconstituted Board will convene at least once a month through year-end 2005.
While reasonable attempts shall be made to meet in person, a conference call
will be considered an acceptable alternative to an in-person meeting. At each
monthly meeting, Xxxxx, as CEO, will provide a summary report focusing on
M-Wave’s business performance. This report shall inform the Board of issues
relating to the performance of the business, including strategic initiatives
and
efforts for developing the business, as well as monthly financial results
focusing on recurring items such as sales and gross margin, liquidity and cash
availability, and a discussion of the actual results as compared to the
plan.
(b)
If
Xxxxx
deems it appropriate based on business conditions, in his reasonable and sole
discretion, Xxxxx may, from time to time, elect to take a reduction in his
pay,
and Xxx Xxxxx will accept a reduction in his pay proportionate to that elected
by Turek.
(c)
Xxxxx
and
Xxx Xxxxx will use their best efforts to meet with Xxxxx Fargo Business Credit
and Mercator concurrently with the public disclosure of this Agreement pursuant
to Section 5 of this Agreement.
(d)
At
any
time that any remaining Executive Director or Non-Executive Director continues
to be a director, that Party agrees that M-Wave will attempt to find and
nominate individuals to fill the two vacated Board positions referred to in
Section 2 promptly and such directors will follow their fiduciary duties to
consider and vote on such nominations.
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4.
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M-Wave
Common Stock.
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(a)
On
June
24, 2005, Xxx Xxxxx was paid a discretionary bonus, subject to certain
conditions (which have not as yet been satisfied) in the amount of $83,000
(“the
Bonus”). Xxx Xxxxx agrees that on the Effective Date he will repay M-Wave the
$3,000 excess amount received over the bonus actually authorized and he will
also, within seven calendar days after the Effective Date, use all of the
after-tax proceeds of the Bonus to exercise options for Common Stock that he
currently holds, at an exercise price of $0.67 per share, in satisfaction of
the
original condition to the payment of the Bonus.
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5.
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Public
Disclosure of This Agreement and Other Matters.
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(a)
Subject
to Section 5(b) below, the Company will file, as promptly as practicable, a
Current Report on Form 8-K with the U.S. Securities and Exchange Commission
(“SEC”) relating to the matters contemplated by this Agreement and, as promptly
as practicable, file a Form SB-2A covering the resale of certain shares of
its
common stock by MAG Capital and its related investment funds which are investors
in M-Wave.
(b)
The
documents filed with the SEC pursuant to Section 5(a) shall be subject to the
approval of the Board, whose approval shall not be unreasonably
withheld.
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6.
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M-Wave
Financial Advising.
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Promptly
following the Effective Date, XXX Financial Services, LLC (“JASFSLLC”) will be
retained as a financial advisor through December 31, 2005 (without any
extensions, unless approved by a majority of the Board, which majority must
include Xxxxx) to the Board and the Company, on terms and conditions to be
contained in a financial advisory agreement to be reviewed and negotiated with
Xxxxxxx by counsel to M-Wave and subject to approval by the Board, but in any
event on terms no worse to M-Wave than those terms and conditions circulated
prior to the signing of this Agreement. If requested by the CEO or by the
potential investor, JASFSLLC shall participate in the contact contemplated
by
Section 3 (c) above. Xxxxxxx is a principal of JASFSLLC.
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7.
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Retention
of Legal Counsel.
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(a)
Subject
to F & P’s continued agreement, which may be withdrawn at any time, F &
P will continue as counsel for M-Wave so long as either Xxxx Xxxxx or Xxxxxxxx
remain as members of the Board, unless the retention of additional counsel
or
replacement counsel is approved by a majority of the Board, which majority
must
include Turek.
(b)
Xxxxx
shall resign from the Board promptly after the occurrence of both the Effective
Date and the filing of all the documents contemplated by Section 5 above. At
such time as Xxxxx resigns from the Board, M-Wave will retain Xxxxx as counsel
to M-Wave’s independent directors in order to advise on Board matters, subject
to Xxxxx’x continued agreement, which may be withdrawn at any time. M-Wave shall
continue to retain Xxxxx to provide such legal services until the first to
occur
of: 1) the resignations of both Xxxx Xxxxx and Xxxxxxxx from the Board; or
2)
December 31, 2005. During this period, Xxxxx will be compensated at a rate
of
$10,000 per month for legal services rendered, plus reimbursement of reasonable,
out-of-pocket expenses.
(c)
Until
Xxxxx resigns from the Board, Xxxxx will be permitted, at his own expense,
to
bring counsel of his own choosing (but only one such person at any meeting)
to
all meetings of the Board.
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8.
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Legal
Costs and Insurance.
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(a)
M-Wave
will promptly pay all remaining reasonable legal fees of the Parties incurred
as
a direct result of the dispute that arose with respect to the Relationship,
subject to cash availability; provided, however, that in no event will M-Wave
make, after the Effective Date, (i) any reimbursement of such legal fees
incurred by the Executive Directors that are in excess of $75,000, or (ii)
any
reimbursement of such legal fees incurred by the Non-Executive Directors that
are in excess of $35,000.
(b)
Subject
to cash availability, M-Wave will obtain a 2-year “tail” on its Directors’ and
Officers’ liability insurance policy for the purpose of providing insurance
coverage to any of the Parties that leaves the Board pursuant to the terms
of
this Agreement.
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9.
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Mutual
Releases.
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(a)
For
and
in consideration of the execution, delivery and performance of this Agreement,
the Executive Directors and M-Wave hereby release and discharge all other
Parties to this Agreement and all other potential defendants named in their
threatened lawsuit from all claims, demands, causes of action, lawsuits, duties,
obligations, actions, judgments and liens in law or equity or both law and
equity which they ever had, now have or hereafter can, shall or may have against
any such other Party arising out of or in any way related to the Relationship.
Also for and in consideration of the execution, delivery and performance of
this
Agreement, the Non-Executive Directors and M-Wave hereby release and discharge
all other Parties to this Agreement (except that Xxxxx does not release or
discharge F & P) from all claims, demands, causes of action,
lawsuits, duties, obligations, actions, judgments and liens in law or equity
or
both law and equity which they ever had, now have or hereafter can, shall or
may
have against any such other Party arising out of or in any way related to the
Relationship. Also for and in consideration of the execution, delivery and
performance of this Agreement, F & P hereby releases and discharges all
other Parties to this Agreement (other than Xxxxx, who F & P does not
release or discharge) from all claims, demands, causes of action, lawsuits,
duties, obligations, actions, judgments and liens in law or equity or both
law
and equity which it ever had, now has or hereafter can, shall or may have
against any such other Party (other than Xxxxx) arising out of or in any way
related to the Relationship.
(b)
For
and
in consideration of the execution, delivery and performance of this Agreement,
M-Wave hereby releases and discharges F & P and its current and former
partners, agents and employees from all claims, demands, causes of action,
lawsuits, duties, obligations, actions, judgments and liens in law or equity
or
both law and equity which it ever had, now has or hereafter can, shall or may
have against F & P arising out of or in any way related to the
Relationship.
(c)
The
foregoing notwithstanding, these mutual releases shall not apply to claims
arising out of future events. They also shall not apply to claims of
compensation for services provided, nor shall this Section 9 affect or release
any Party under the employment agreement between Xxx Xxxxx and M-Wave, the
employment agreement between Xxxxx and M-Wave, provisions for compensation
to
Directors for service as such, as reflected in Board minutes or past practices,
and the option agreements issued by M-Wave to each of the Individual Parties;
provided that such employment agreements shall each be amended as needed to
incorporate the change of titles and responsibilities (and, if elected by Xxxxx,
the reductions in pay provided above) as provided in this Agreement, the option
agreement for Xxx Xxxxx’x 400,000 shares of M-Wave common stock shall be
canceled, and the option agreements of Xxxxx and Xxxxxxx shall be amended to
comply with prior Board action so that they do not expire or otherwise terminate
as a result of their resignations in accordance with this Agreement. They also
shall not apply to M-Wave’s right to object to F & P’s bills for periods
ending on or prior to June 30, 2005.
(d)
Notwithstanding
the provisions of Section 9(a) and 9(b) of this Agreement, nothing therein
shall
be construed to release or discharge any Party from the performance of such
Party’s duties and obligations under this Agreement.
(e)
F
&
P
and Xxxxx acknowledge that they do not have a dispute with each other relating
to the matters contemplated by this Agreement. The release of F & P by
Xxxxx, and the release of Xxxxx by F & P, will be handled as part of a
separate agreement between F & P and Xxxxx.
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10.
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Representations
and Warranties.
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(a)
M-Wave
represents and warrants to the other Parties the following: (a) M-Wave is duly
incorporated, validly existing and in good standing under the laws of its state
of incorporation or organization, has the power to execute, deliver and fully
perform this Agreement and has taken all necessary actions to do so; (b) it
has
not taken any actions (including without limitation the assignment of any right
or remedy) or failed to take any action(s) that would preclude or adversely
affect the full performance of this Agreement by it; and (c) it has the capacity
and the authority to enter into this Agreement and agrees to be responsible
for
its performance hereunder.
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(b)
F
&
P
represents and warrants to the other Parties the following: (a) F & P is a
validly existing Illinois limited liability partnership; (b) it has not taken
any actions (including without limitation the assignment of any right or remedy)
or failed to take any action(s) that would preclude or adversely affect the
full
performance of this Agreement by it; and (c) it has the capacity and the
authority to enter into this Agreement and agrees to be responsible for its
performance hereunder.
(c)
Each
of
the Individual Parties represents and warrants to the other Parties the
following: (a) he has not taken any actions (including without limitation the
assignment of any right(s), remedy or remedies) or failed to take any action(s)
that would preclude or adversely affect the full performance of this Agreement
by him; and (b) he has the capacity and the authority to enter into this
Agreement and agrees to be responsible for the performance
hereunder.
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11.
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Governing
Law; Jurisdiction.
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(a)
This
Agreement shall be governed by and interpreted under the laws of the State
of
Illinois.
(b)
The
Parties agree that any and all disputes arising out of or relating in any way
to
this Agreement shall be litigated only in state court or federal court situated
in Chicago, Illinois, and waive all objections based on personal jurisdiction
or
forum
non-conveniens.
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12.
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Construction.
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(a)
The
headings appearing in this Agreement are for convenience only and shall not
be
deemed to define, limit or construe the contents hereof. The Recitals shall
be
deemed to be part of this Agreement. This Agreement shall be deemed to be the
agreement of each Party, and no rule of construction shall be applied against
either Party.
(b)
This
Agreement: (i) constitutes the entire understanding of the Parties with respect
to the subject matter hereof and each Party agrees that no promise, inducement
or agreement not herein expressed has been made to it; (ii) supersedes all
agreements, representations or statements, either oral or written, regarding
the
subject matter hereof; and (iii) except as otherwise provided herein, may be
amended or modified only by a written supplement, duly executed by each of
the
Parties.
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13.
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No
Admission of Liability.
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Nothing
contained in the Agreement shall be construed as an admission by either party
of
any wrongdoing or liability of any kind.
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14.
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Validity
and Severability.
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6
The
Parties acknowledge that they are entering into this Agreement
voluntarily and with the advice of counsel, and they waive all rights to
challenge the validity
or enforceability of this Agreement. All Parties have consulted with, or have
been advised to and afforded the opportunity to consult with counsel of their
own choosing (which, in the case of the Individual Parties, has not been F
&
P), and the Individual Parties have not relied on the advice of F & P
regarding this Agreement. If any part, term or provision of this Agreement
is
hereafter declared invalid, void or unenforceable,
then all remaining parts, terms, and provisions shall remain in full force
and
effect and shall not be invalidated, impaired or affected thereby.
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15.
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Counterparts.
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This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original for all purposes.
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16.
|
Enforcement.
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(a)
The
respective rights and remedies of each Party are cumulative, and no exercise
or
enforcement by any Party of any right or remedy hereunder shall preclude the
exercise or enforcement by such Party of any other right or remedy hereunder
or
which such Party is otherwise entitled by law to enforce.
(b)
Each
Party may waive any obligation of or restriction upon any other Party under
this
Agreement; provided that any such waiver may only be made in writing signed
by
the Party making the waiver. No failure, refusal, neglect, delay, waiver,
forbearance or omission of any Party to exercise any right under this Agreement
or to insist upon full compliance by any other Party with its obligations
hereunder, shall constitute a waiver of any provision(s) of this
Agreement.
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17.
|
Specific
Performance.
|
The
parties hereto acknowledge that irreparable damage would result if this
Agreement were not specifically enforced, and they therefore consent that the
rights and obligations of the parties hereto under this Agreement may be
enforced by a decree of specific performance issued by a court of competent
jurisdiction. Such remedy shall, however, not be exclusive and shall be in
addition to any other remedies which any party hereto may have under this
Agreement or otherwise.
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IN
WITNESS WHEREOF, each Party, intending this Agreement to be effective as of
the
Effective Date, has executed this Agreement on his own behalf or has caused
this
Agreement to be executed by its duly authorized representative.
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M-Wave,
Inc.
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Xxxxxxxx
& Xxxxxx LLP
|
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By:
/s/
Xxxxxx X. Xxxxx
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By:
/s/
Xxxxxxx X. Xxxxx
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Date:
August 19, 2005
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Date:
August 19, 2005
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/s/
Xxxxxx X. Xxxxx
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/s/
Xxxx X. Xxxxx
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Xxx
Xxxxx
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Xxxx
Xxxxx
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Date:
August 19, 2005
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Date:
August 19, 2005
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/s/
Xxx Xxxxx
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/s/
Xxxxxxx X. Xxxxx
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Xxx
Xxxxx
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Xxxx
Xxxxx
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Date:
August 19, 2005
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Date:
August 19, 2005
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/s/
Xxxx X. Xxxxxxxx
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Xxxxx
X. Xxxxxxx
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Xxxx
Xxxxxxxx
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Xxx
Xxxxxxx
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Date:
August 19, 2005
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Date:
August 19, 2005
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