SCHEDULE 14A INFORMATION
                                
          Proxy Statement Pursuant to Section 14(a) of
    the Securities Exchange Act of 1934 (Amendment No.     )
                                
                                
Filed by the Registrant     / //x/
Filed by a party other than the Registrant  /  /


Check the appropriate box:
/ /    Preliminary Proxy Statement
/ /    Confidential, for Use of the Commission Only (as
       permitted by Rule 14a-6(e)(2))
/x/    Definitive Proxy Statement
/ /    Definitive Additional Materials
/ /    Soliciting Material Pursuant to Section 240.14a-11(c) or
       Section 240.14a-12

WPI Group, Inc.
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        (Name of Registrant as Specified In Its Charter)
 
- --------------------------------------------------------------------------------
                                
                                
                                
  (Name of Person(s) Filing Proxy Statement, if other than the
                           Registrant)
                                
Payment of Filing Fee (Check the appropriate box):

/x/      No fee requiredFee Required

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          6(i) (1) and 0-11

         (1)  Title of each class of securities to which
              transaction applies:



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         (3)   Per unit price or other underlying value of
               transaction computed pursuant to Exchange Act
               Rule 0-11 (set forth the amount on which the
               filing fee is calculated and state
               how it was determined):



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/  /     Fee paid previously with preliminary materials.

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                         WPI Group, Inc.
                                
   Annual Meeting of Shareholders to be held February 9, 1999
                                
   THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF
                            DIRECTORS
                                
The undersigned hereby appoints Michael Foster and Dennis Deegan,
and each of them, with power of substitution, as proxies, to vote
the Common Stock of the undersigned at the Annual Meeting of
Shareholders of the Company to be held on February 9, 1999, and
at any adjournment thereof. The matters listed on the back of
this card are described in the proxy statement.

The proxies will vote: (1) as you specify on the reverse side,
(2) as the Board of Directors recommends if you do not specify a
choice on the matters listed on the reverse side, and (3)
according to their best judgment upon any other business which
may properly come before the meeting or any adjournment thereof.

    PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN
    ENCLOSED ENVELOPE

Please sign this proxy exactly as your name appears on the books
of the Company.  Joint owners should sign personally.  Trustee
and
other fiduciaries should indicate the capacity in which they
sign, and where more than one name appears, a majority must sign.
If a
corporation, this signature should be that of an authorized
officer who should state his or her title.




HAS YOUR ADDRESS CHANGED?               DO YOU HAVE ANY COMMENTS?

- - -----------------------------           ---------------------------
- - -----------------------------           ---------------------------
- - -----------------------------           ---------------------------



   X      PLEASE MARK VOTES
          AS IN THIS EXAMPLE


                                                               
                                                               With -    For All
     WPI GROUP, INC.                                  For      hold      Except

     1.  Election of Directors.                       [ ]      [ ]       [ ]
         Michael Foster, Dennis Deegan,
         John Allard, Stephen Carlotti,
         Paul Giovacchini, Irving Gutin,
         Steven Shulman and Bernard
         Tenenbaum.
                              
    If you do not wish your shares
    voted "For" a particular nominee, mark the
    "For All Except" box and strike a
    line through that nominees name.
    Your shares will be voted for the
    remaining nominee(s).
                              
                                                      For      Against  Abstain
                              
    2.  The approval of adoption of an                [ ]      [ ]      [  ]
        an amendment to the Company's
        Bylaws, increasing the maximum
        number of directors that may
        serve on the Company's board.
                                                     For      Against   Abstain
                              
    3.  In their discretion, the                     [ ]      [ ]       [ ]
        proxies are authorized to vote
        upon any other business which
        may properly come before the meeting.
                              

                              


Please be sure to sign and date this Proxy.      Date


     
                                                       Mark box at right if
                                                       comments address change
Shareholder sign here     Co-owner sign here           have been noted on the
                                                       reverse side of this 
                                                       card.

DETACH CARD
                         WPI GROUP, INC.
                                
Dear Shareholder:

Please take note of the important information enclosed with this
Proxy Ballot.  There are a number of issued related to the
management and operation of your Company that require your
immediate attention and approval.  These are discussed in detail
in the enclosed proxy materials.

Your vote counts, and you are strongly encouraged to exercise
your right to vote your stock.

Please mark the boxes on the proxy card to indicate how your
stock shall be voted.  Then sign the card, detach it and return
your proxy vote in the enclosed postage paid envelope.

Your vote must be received prior to the Annual Meeting of
Shareholders, February 9, 1999.

Thank you in advance for your prompt consideration of these
matters.

Sincerely,

WPI Group, Inc.



[LOGO]

                  1155 ELM STREET
                  MANCHESTER, NH 03101
                  USA
 
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            NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                                
                   TO BE HELD FEBRUARY 10, 1998To be held February 9, 1999
                                
                                
                                
TO THE SHAREHOLDERS:

The annual meeting of shareholders of WPI Group, Inc. will be
held at the Company's corporate headquarters at 1155 Elm Street,
Manchester, New Hampshire, on Tuesday, February 10, 19989, 1999 at 10:00
a.m., local time, for the following purposes:

       1.   To elect eight directors to the Board of
            Directors.
            
       2.   To approve an amendment to the WPI Group, Inc. 1997 Equity Incentive Plan.Company's Bylaws,
            increasing the maximum  number of directors that
            may serve on the Company's board.
            
       3. To approve the WPI Group, Inc. Employee Stock Purchase Plan.
 
        4.   To transact such other business as may properly
            come before the Annual Meeting and any adjournment
            thereof.

The Board of Directors has fixed December 8, 19977, 1998 as the record
date for determining the holders of Common Stock entitled to
notice of and to vote at the meeting.


                              BY ORDER OF THE BOARD OF DIRECTORS

                              MICHAEL TULE, VICE PRESIDENT,
                                          GENERAL COUNSEL AND SECRETARY
 
JANUARY 9, 1998
 
- --------------------------------------------------------------------------------Michael Tule, Vice President,
                              General Counsel and Secretary

January 15, 1999




                     YOUR VOTE IS IMPORTANT
ON BEHALF OF THE BOARD OF DIRECTORS WE URGE YOU TO PROMPTLY MARK, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE EVEN IF YOU PLAN TO
ATTEND THE MEETING. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON, BUT WILL
ASSURE THAT YOUR VOTE IS COUNTED IF YOU ARE UNABLE TO ATTEND THE MEETING.
- --------------------------------------------------------------------------------On behalf of the Board of Directors we urge you to promptly mark,
sign,  date  and  return the accompanying proxy in  the  enclosed
envelope  even if you plan to attend the Meeting.  This will  not
prevent you from voting in person, but will assure that your vote
is counted if you are unable to attend the Meeting.

                                
                                
                                
                                
                                
                         WPI GROUP, INC.
                                
                         PROXY STATEMENT
                                
                          INTRODUCTION
                                
                                
The accompanying proxy is solicited by the Board of Directors  of
WPI Group, Inc., 1155 Elm Street, Manchester, New Hampshire 03101
(the  "Company").   Copies  of  this  Proxy  Statement  and   the
accompanying proxy are being mailed on or about January 9, 199815,  1999
to the holders of record of  the Common Stock on December 8, 19977, 1998
(the  "Record Date").  The proxy may be revoked by a  shareholder
at  any time prior to its use by giving notice of such revocation
to  the Secretary of the Company, by appearing at the meeting and
voting in person or by returning a later dated proxy. The expense
of  this solicitation shall be paid by the Company. Some  of  the
officers and regular employees of the Company may solicit proxies
personally and by telephone.

Proxies   will   be   voted  in  accordance  with   stockholders'
directions. If no directions are given, proxies will be voted  in
favor  of  the eight persons named as nominees under  the  caption
"Election of Directors," in favor of the approval
of the WPI Group, Inc. 1997 Equity Incentive Plan and in favor of the approval
of the WPI Group, Inc. 1997 Employee Stock Purchase Plan.Directors". There is no reason to believe that  any
nominee  for  director will not be a candidate  or  unwilling  to
serve,  but if either event occurs it is intended that the shares
represented  by  the  proxies will be voted  for  any  substitute
nominee designated by the Board of Directors.

The Company will treat abstentions and broker non-votes as present
at the Annual Meeting solely for the purpose of determining whether
or not a quorum exists.  Abstentions and broker non-votes will have
no effect on the outcome of the election of directors or to the proposal
to amend the Company's bylaws.

The affirmative vote of a majority of the votes cast at the Annual
Meeting is required for the election of directors and for the
approval of the proposed amendment to the Company's bylaws.

At the meeting, each stockholder will be entitled to one vote for
each  share of stock standing in his or her name on the books  of
the Company at the close of business on the Record Date.

The  Company had 6,007,2476,031,404 shares of Common Stock outstanding  on
the  Record  Date.  The presence at the meeting in person  or  by
proxy  of the holders of a majority of the shares of Common Stock
outstanding on the Record Date will constitute a quorum.


                       BOARD OF DIRECTORS
                                
The Board of Directors held seven meetings during the last fiscal
year.   Each  of  the  directors attended  75%  or  more  of  the
aggregate  total  number of Board meetings and  total  number  of
meetings  of Committees on which the director served.  There  are
two  committees of the Board, the Audit Committee and  the  Stock
Option/Compensation  Committee.  The Audit Committee,  consisting
of  Paul  Giovacchini, Peter Danforth Paul Giovacchini and Robert McCrayStephen  Carlotti  held
onefour  meeting  during the last fiscal year.  The Audit  Committee
reviews  the  scope  of  and the results  of  the  audit  by  the
independent  public  accountants, makes  recommendations  to  the
Board  as to the selection of independent public accountants  for
each  fiscal  year,  and reviews the adequacy  of  the  Company's
internal   accounting   and  financial   controls.    The   Stock
Option/Compensation Committee, consisting of Paul
Giovacchini, Irving Gutin, Steven
Shulman  and Bernard  Tenenbaum held two meetingsone meeting during the  last
fiscal   year.    The  Stock  Option/Compensation  Committee   is
responsible for reviewing and making recommendations to the Board
on   matters  concerning  the  administration  of  the   employee
incentive plans and the compensation of executive officers of the
Company. The Company does not have a nominating committee.

Directors   serve  for  one  year  and  thereafter  until   their
successors are duly elected and qualified.  Directors who are not
employees  of  the Company receive an annual fee of  $14,000  and
$250  for  each  committee meeting attended;  committee  chairmen
receive  an  additional $500 annual fee for each  committee  they
chair.   Directors  may elect to take all or a portion  of  their
annual feeretainer in shares of Company common stock. Officers serve
at  the  discretion of the Board of Directors.  Mr. Foster,   Mr.
Deegan and Mr. DeeganAllard do not receive any directors' fees.

                             During
fiscal 1997, the Compensation Committee granted each non-employee director an
option to purchase 5,000 shares of Common Stock at an exercise price of $6.375.
On June 10, 1997, the WPI Group , Inc. 1997 Equity Incentive Plan (the "Plan")
was approved by the directors. Subject to stockholder approval, new directors
and current directors who did not receive option grants in fiscal 1997 will be
granted an option to purchase 10,000 shares of Common Stock when they are
elected or when the Plan is approved by the stockholders. The Non-Employee
Directors are also eligible under the Plan to receive grants of options to
purchase 2,500 shares of Common Stock each year, providing that certain earnings
growth targets are achieved by the Company.- 2 -



              MANAGEMENT AND PRINCIPAL SHAREHOLDERS
                                
The  following  table  sets forth certain  information  regarding
beneficial ownership of the Common Stock as of December  8, 19977,  1998
by  (i)  each  person who is known by the Company to beneficially
own  more than 5% of the outstanding shares of Common Stock; (ii)
each  of  the  Company's directors; and (iii) all  directors  and
officers of the Company as a group:

NUMBER OF SHARES BENEFICIALLY PERCENTAGE NAME AND ADDRESS OWNED BENEFICIALLY OWNEDNumber of Shares Name and Address Beneficially Owned Percentage Beneficially Owned - ------------------------------------------------------------------ ------------------- -------------------------------- ---------------- ------------------ ------------------------------ Michael Foster (1) 693,527 11.5%707,937 11.7% 1155 Elm Street Manchester, NH 03101 Dennis Deegan (2) 91,667 1.5%113,666 1.9% 1155 Elm Street Manchester, NH 03101 John Allard 40,400 * 1155 Elm Street Manchester, NH 03101 Stephen Carlotti -- --(3) 3,334 * 1500 Fleet Center Providence, RI 02903 Peter Danforth (3) 3,334(4) 16,667 * 21 Old Coach Road New London, NH 03257 Paul Giovacchini (4) 3,334(5) 6,667 * 55 Ferncroft Road Danvers, MA 01923 Irving Gutin (5) 12,144(6) 17,037 * One Tyco Park Exeter, NH 03833-1108 Robert McCray (6) 60,784 1% Pine Valley Mill Building Box 130 Milford, NH 03055 Steven Shulman 7,500(7) 19,834 * Liberty Lane Hampton, NH 03842 Bernard Tenenbaum (7) 5,989(8) 9,762 * 9 West 57th Street, Suite 4000767 5th Avenue 48th Floor New York, NY 1001910053 Pilgrim Baxter and 384,200 6.37% Associates (8) 584,200 9.7%(9) 1255 Drummers Lane, Suite 300 Wayne, PA 19067 Oberweis Asset Management, Inc. (9) 461,900 7.7% 951 Ice Cream Drive, Suite 200 North Aurora, IL 60542 Hathaway & 352,100 5.83% Associates, Ltd. (10) 320,000 5.3% 119 Rowayton Avenue Rowayton, CT 06853 All executive 984,969 16.3% officers and directors as a group (11) 941,983 15.7% (14 persons)
- --------------------------3 - * Less than one percent 3 (1) Includes 84,87099,280 shares of the Company's common stock which Mr. Foster has the right to acquire within 60 days of the date hereof pursuant to the exercise of stock options. (2) Includes 75,66794,666 shares of the Company's common stock which Mr. Deegan has the right to acquire within 60 days of the date hereof pursuant to the exercise of stock options. (3) Includes 3,334 shares of the Company's common stock which Mr. DanforthCarlotti has the right to acquire pursuant to exercise of stock options. (4) Includes 3,3346,667 shares of the Company's common stock which Mr. Danforth has the right to acquire pursuant to exercise of stock options. (5) Includes 6,667 shares of the Company's common stock which Mr. Giovacchini has the right to acquire pursuant to the exercise of stock options. (5)(6) Includes 3,3346,667 shares of the Company's common stock which Mr. Gutin has the right to acquire pursuant to the exercise of stock options. (6) Includes 3,300 shares owned by Mr. McCray's wife. Mr. McCray disclaims beneficial ownership of such shares. Includes 3,334 shares which Mr. McCray has the right to acquire pursuant to the exercise of stock options. (7) Includes 3,334 shares of the Company's common stock which Mr. Shulman has the right to acquire pursuant to the exercise of stock options. (8) Includes 6,667 shares of the Company's common stock which Mr. Tenenbaum has the right to acquire pursuant to the exercise of stock options. (8)(9) According to a Schedule 13G filed with the Securities and Exchange Commission (the "Commission") on March 12, 1997,February 17, 1998, Pilgrim Baxter & Associates, a Commission-registered investment adviser with its principal place of business at 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19067, has shared voting power with Harold Baxter and Gary Pilgrim but sole dispositive power with respect to the 584,200384,200 shares of Common Stock. (9) According to a Schedule 13G filed with the Commission on April 8, 1997, Oberweis Asset Management, Inc. ("OAM") and James Oberweis, both located at 951 Ice Cream Drive, Suite 200, North Aurora, Illinois 60542, have shared voting and shared dispositive power with respect to the 461,900 shares of Common Stock (including 100,000 shares of Common Stock beneficially owned by the Oberweis Funds (the "Funds") to which OAM serves as an investment adviser to which the Funds have delegated shared voting and dispositive power to OAM.) (10) According to a Schedule 13G filed with the Commission on January 14, 1994,for the period ending September 30, 1998, Hathaway & Associates, Ltd., a Commission-registered investment adviser located at 119 Rowayton Avenue, Rowayton, Connecticut 06853, has sole voting and dispositive power with respect to the 320,000352,100 shares of Common Stock. (11) Includes 203,371275,782 shares of the Company's Common Stock which certain officers and directors have a right to acquire within 60 days of the date hereof pursuant to the exercise of stock options which are deemed to be outstanding for the purpose of computing the percentage ownership of officers and directors as a group. ELECTION OF DIRECTORS (ITEM(Item 1 ON PROXY)on Proxy) Eight directors are to be elected at the Meeting to serve one-year terms until the 19992000 annual meeting of shareholders and until their respective successors are elected and shall qualify. The persons named in the accompanying proxy intend to vote for the election of Michael Foster, Dennis Deegan, John Allard, Stephen Carlotti, Peter Danforth, Paul Giovacchini, Irving Gutin, Steven Shulman and Bernard Tenenbaum, unless authority to vote for one or more of such nominees is specifically withheld in the proxy. The Board of Directors is informed that all nominees are willing to serve as directors, but if any of them should decline to serve or become unavailable for election as a director at the meeting, the persons named in the proxy will vote for such nominee or nominees as may be designated by the Board of Directors, unless the Board of Directors reduces the number of directors accordingly. - 4 - The following table sets forth, as of December 8, 1997, The following table sets forth, as of December 7, 1998, information as to the nominees, including their recent employment, positions with the Company, other directorships and age.
POSITION OFFICER OR WITH DIRECTOR THE NAME AGE SINCE COMPANY - --------------------------------------------- --- --------------- ---------------------------------------------Officer or Name Age Director Since Position with the Company Michael Foster 6263 1988 Chairman of the Board of Directors and Chief Executive Officer Dennis Deegan 5354 1988 Director, President and Chief Operating Officer John Allard 33 1998 Director, Senior Vice President, Business Development Stephen Carlotti 5556 1997 Director Peter Danforth 64 1990 Director Paul Giovacchini 4041 1990 Director Irving Gutin 6566 1994 Director Steven Shulman 5657 1997 Director Bernard Tenenbaum 4243 1994 Director
Michael Foster, Chairman of the Board of Directors and Chief Executive Officer of the Company since 1988, led the management buy-out of the Company from Walker Magnetics Group, Inc. in October 1988. Since 1997, he has been a director of Foilmark, Inc., a Massachusetts-based manufacturer of metallic foils and foil stamping machinery. Dennis Deegan has been a Director of the Company, and has been President and Chief Operating Officer since June 1996. Mr. Deegan served as Executive Vice President, Treasurer and Chief Financial Officer of the Company from 1988 to June 1996. John Allard has been a Director of the Company and Senior Vice President, Business Development since August, 1998. From December 1992 to August 1998, Mr. Allard served as President, Chief Executive Officer and Director of Allard Nazarian Group, Inc. which included Jewell Electrical Instruments, a manufacturer of avionics components, subsystems, and panel meters, and Granite State Manufacturing, a contract manufacturing service. From December 1992 to December 1996, Mr. Allard also served as a Director of The Aerospace Displays Systems Group located in Hatfield, Pennsylvania. Stephen Carlotti has been a director of WPI since September 1997. He has been a partner of the law firm of Hinckley, Allen & Snyder since 1992. From February 1996 to November 1996, he served as a Vice Chairman of AMTROL, Inc. He has been a director of Fleet National Bank since 1986. Peter Danforth has been a Director of the Company since August 1990. Mr. Danforth is the founder and proprietor of Danforth & Company, a New Hampshire-based investment advisory firm and is a general partner of Kearsarge Ventures, Ltd., a New Hampshire based investment limited partnership. Paul Giovacchini has been a Director of the Company since September 1990. Mr. Giovacchini has been a Senior Investment Manager for Signal Capital Corporation, a Massachusetts-based investment firm, since August 1990. Since 1995, Mr. Giovacchini has also been a partner of Seacoast Capital Partners, L.P., a federal licensee under the Small Business Investment Act of 1958. Irving Gutin has been a Director of the Company since February 1994. Mr. Gutin has been Senior Vice President of Tyco International (U.S.), Inc., formerly Tyco International, Ltd. a New Hampshire-based international manufacturer of fire protection and flow control products, electronic and electrical components and packaging materials since 1988. - 5 - Steven Shulman has been a Director of WPI since September 1997. He has been Managing Director of Latona Associates, Inc. since 1995 and a principal of the Hampton Group, an investment banking firm, since 1984. He has served as a director of Beacon Properties Corporation since 1995, Ermanco Incorporated since 1987 and Corinthian Directories, Inc. since 1995. He has been a director and Chairman of Terrace Holdings, Inc. since 1997. In addition, he serves as Vice Chairman of the Board of Stevens Institute of Technology. 5 Bernard Tenenbaum has been a Director of the Company since July 1994. Since April 1997, Mr. Tenenbaum has been President of the Children's Leisure Products Group of The Jordan Company, a leveraged buyout firm based in New York. From 1993 to 1997, Mr. Tenenbaum was Vice President, Corporate Development, of Russ Berrie & Company, a New Jersey-based gift company. He was also President and CEO of R.B.T. Company, a division of Russ Berrie & Company. From 1988 to 1992, he was a Founding Director and Professor of Entrepreneurial Studies at the George Rothman Institute of Entrepreneurial Studies, Fairleigh Dickinson University. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for services in all capacities to the Company for the fiscal years ended September 28, 1997, September 29, 1996 and September 24, 1995 of those persons who were at September 28, 1997 (i) the Chief Executive Officer and (ii) each of the most highly compensated executive officers of the Company, (with the Chief Executive Officer, collectively, the "Named Officers"). SUMMARY COMPENSATION TABLE- 6 -
ANNUALEXECUTIVE COMPENSATION (1) ------------------------ ALL OTHER (2) NAME AND PRINCIPAL POSITION YEAR SALARY ($The following table sets forth information concerning the compensation for services in all capacities to the Company for the fiscal years ended September 27, 1998, September 28, 1997 and September 29, 1996 of those persons who were at September 27, 1998 (i) the Chief Executive Officer and (ii) each of the four most highly compensated executive officers of the Company other than the Chief Executive Officer, (with the Chief Executive Officer, collectively, the "Named Officers") BONUS ($) COMPENSATION ($) - ---------------------------------------------------------------- --------- ----------- ----------- -----------------. Summary Compensation Table Annual Compensation (1) ----------------------- All Other ------------- Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) - - --------------------------- ---- ---------- --------- ---------------- Michael Foster 1997 325,000 -- 25,0281998 400,036 - 23,855 (3) Chairman and CEO 1997 325,000 - 25,028 1996 280,317 213,000 18,050 1995 260,000 -- 17,800 Dennis Deegan 1997 200,044 -- 16,6541998 250,016 - 6,685 (4) President and COO 1997 200,044 - 16,654 1996 153,257 84,000 14,230 1995 130,000 -- 5,400 John Allen (2) 1998 175,032 - 11,378 (5) Vice President Industrial Technology 1997 150,020 --- 11,271 Vice President, 1996 123,380 20,000 10,025 Power Solutions Group 1995 72,150 -- 5,850 Timothy Jones 1998 175,032 - 11,378 (6) Vice President Information Solutions 1997 150,020 --- 11,616 Vice President, 1996 124,738 20,000 8,913 Information Solutions Group 1995 -- -- --John Powers 1998 135,522 - 10,848 (7) Vice President and CFO 1997 - - - 1996 - - -
- -------------------------- (1) Excludes perquisites and other personal benefits, the aggregate annual amount of which was less than the lesser of $50,000 or 10% of the total of annual salary and bonus reported. (2) Mr. Allen resigned his position with the Company as of June 19, 1998. (3) Includes term$20,000 life insurance premiumspremium paid by the Company, and$3,200 contribution to the Company's 401(k) plan and $655 for group term life coverage. (4) Includes $2,380 life insurance premium paid by the Company, $3,200 contribution match to itsthe Company's 401(k) Plan. 6plan and $655 for group term life coverage. (5) Includes $7,800 auto allowance, $3,029 contribution to the Company's 401(k) plan and $549 group term life insurance coverage. (6) Includes $7,800 auto allowance, $3,029 contribution to the Company's 401(k) plan and $549 group term life insurance coverage. (7) Includes $7,800 auto allowance, $2,650 contribution to the Company's 401(k) plan and $398 group term life insurance coverage. - 7 - OPTION GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)Option Grants in Last Fiscal Year (Individual Grants) The following table contains information concerning the grant of stock options under the Company's 1995 Stock Option Plan and the 1997 Equity Incentive Plan to the Named Officers during the Company's last fiscal year.
NUMBER OF % OF TOTAL SECURITIES OPTIONS GRANTED UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION GRANT DATE NAME OPTIONS GRANTED IN FISCAL 1997 PRICE ($) DATE PRESENT VALUE - ------------------------------------------------------- --------------- ----------------- ----------- ----------- ------------- Number of % of Total Securities Options Granted Underlying to Employees Exercise Expiration Grant Date Name Options Granted In Fiscal 1998 Price ($) Date Present Value ---- --------------- -------------- --------- ---- ------------- Michael Foster 48,000(1) 21.4% $ 6.38 86,000 (1) 29.0% $8.56 02/10/18/06 $170,400 (2)08 $363,780 (3) Chairman, CEO Dennis Deegan 32,000(1) 14.2% $ 6.3825,000 (2) 8.44% $11.125 10/18/06 $113,600 (2)31/07 $135,250 (3) President, COO John Allen 20,000(1) 8.9%(4) 15,000 (2) 5.06% $11.125 10/31/07 $ 6.38 10/18/06 $71,000 (2)81,150 (3) Vice President Power Solutions GroupIndustrial Technology Timothy Jones 20,000(1) 8.9%15,000 (2) 5.06% $11.125 10/31/07 $ 6.38 10/18/06 $71,000 (2)81,150 (3) Vice President Information Solutions John Powers 5,000 (2) 1.69% $11.125 10/31/07 $ 27,050 (3) Vice President, CFO
(1) Options granted under the WPI Group, - -------------------------- (1)Inc. 1997 Equity Incentive Plan at an exercise price equal to the fair market value of the Company's Common Stock on the date of grant. The options vest in 1/4 increments on 2/10/99, 2/10/00, 2/10/01 and 2/10/02. (2) Options granted under the WPI Group, Inc. 1995 Stock Option Plan at an exercise price equal to the fair market value of the Company's Common Stockcommon stock on the date of grant. The option vestsoptions vest in 1/3 increments on 10/1/97,98, 10/1/9899 and 10/1/99. (2)00. (3) The weighted average fair value of options granted to Mr. Foster was $3.65.$4.23 and the weighted average fair value of the options granted to the remaining named officers was $5.41. The values were estimated on the date of grant using the Black-Sholes option pricing model with the following weighted average assumptions used: Risk free interest rates ranging from 5.75%5.49% to 7.05%5.72%, expected dividend yield of 0%, expected option lives of 5 years and expected volatilities ranging from 43.0%46.94% to 49.5%48.54%. OPTION EXERCISES AND FISCAL YEAR END VALUES The following table contains information(4) Mr. Allen resigned his position with respect to aggregate stock options exercised by the Named Officers during fiscal 1997Company as well as unexercised options to purchase the Company's Common Stock granted through September 28, 1997of June 19, 1998. - 8 - Option Exercises And Fiscal Year End Values The following table contains information with respect to aggregate stock options exercised by the Named Officers during fiscal 1998 as well as unexercised options to purchase the Company's Common Stock granted through September 27, 1998 under the Company's 1995 Stock Option Plan or 1997 Equity Incentive Plan to the Named Officers and held by them at that date.
Aggregated Options/SAR Exercises In Last Fiscal Year And Fiscal - - --------------------------------------------------------------- Year End Option Value ---------------------
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUE VALUE OF UNEXERCISED IN- THE NUMBER OF UNEXERCISED -MONEY OPTIONS OPTIONS AT SEPTEMBER 28, AT SEPTEMBER 28, 1997 1997 Number of Unexercised Value of Unexercised In-the-Money Options at September 27, 1998 at September 27, 1998 ($)(1) --------------------------- --------------------------- COMMON STOCK COMMON STOCK SHARES ACQUIRED VALUE --------------------------- --------------------------- NAME ON EXERCISEShares Acquired Value Common Stock Common Stock Name on Exercise (#) REALIZEDRealized ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLEExercisable Unexercisable Exercisable Unexercisable - --------------------------------------- ---------------- ---- ---------------- ------------ ----------- ------------- ----------- ------------- Michael Foster......................... -- -- 41,110 90,170 $251,799 $534,291Foster - - 84,870 132,410 $ 47,044 $ 17,006 Dennis Deegan.......................... -- -- 55,000 42,000 502,375 273,625Deegan - - 75,667 46,333 239,667 5,333 John Allen............................. -- -- 8,000 23,000 74,000 142,750Allen - - 6,667 28,333 1,666 3,333 Timothy Jones.......................... -- -- 5,000 20,000 45,625 115,000Jones - - 11,667 28,333 19,792 3,333 John Powers - - 2,500 7,500 - -
- -------------------------- (1) Based on the difference between the exercise price of each grant and the closing price of the Company's Common Stock as quoted on the NASDAQ/NMS on September 28, 1997, which was $12.125. 7 $6.625. The foregoing options were granted under either the 1995 Stock Option Plan (the "Plan""1995 Plan") or the 1997 Equity Incentive Plan (the "1997 Plan"). The 1995 Stock Option Plan isBoth plans are administered by the Stock Option/Compensation Committee, which consists of not less than three outside directors. The Committee determines the key employees to whom, and the time or times at which, options will be granted, the number of shares subject to each option and the terms upon which each option may be granted. An aggregate of 550,000 shares of common stock are reserved for issuance under the 1995 Plan and an aggregate of 750,000 shares of common stock are reserved for issuance under the 1997 Plan. Since the adoption of the 1995 Plan on June 6, 1995, options for a total of 550,000 shares of common stock (or all of the shares reserved for issuance) have been granted to selected officers and key employees of the Company. CHANGE IN CONTROL PLANSince the adoption of the 1997 Plan on June 10, 1997, options for a total of 222,500 shares of common stock have been granted to selected officers and key employees of the Company. Change In Control Plan and Severance Agreements The Board of Directors has adopted a Change in Control Plan covering eightnine officers and key employees, including the Named Executive Officers. The provisions of the Change in Control Plan only become effective upon the occurrence of an event constituting a change in control of the Company. Under the Change in Control Plan, a "Change in Control" shall be deemed to have occurred if any of the following events occur: (i) any "person" (as such term is defined in Section 13 and 14 under the Exchange Act) except for Michael Foster, directly or indirectly, is or becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act) of 25% or more of the Company's Common Stock; (ii) any change occurs in the composition of WPI's Board of Directors resulting in a majority of the present directors not constituting a majority two years from such date, provided that directors who were elected by or on the recommendation of such present majority shall be excluded; or (iii) any other event that would be required to be reported under Item 1 of Form 8-K pursuant to Section 13 or Section 15(d) of the Exchange Act. A change in control shall not be deemed to have occurred if such change in control results from a distressed sale of WPI due to the Company's material default with respect to any applicable debt covenants with its lender. The Change in Control Plan provides that if, within one (1) year after a change of control of WPI, a Named Executive Officer is discharged without Cause (as defined below) or has resigned for reasons relating to a diminution of responsibilities, compensation or benefits or relocation of place of employment, WPI shall pay to such individual a lump sum severance benefit. For purposes of the Change in Control Plan, "Cause" shall mean - 9 - conviction of certain crimes, willful misconduct or conduct that caused WPI to suffer a substantial loss or damage. Currently, each Named Executive Officer would receive between nine and eighteen months of base salary, plus bonus, depending upon the Named Executive Officer's years of service and status with the Company. At the discretion of the Board of Directors, the vesting of options may be accelerated in the event of a Change in Control. A Named Executive Officer may resign at any time and for any reason within one year of a Change in Control and receive the base salary component only of the lump sum benefit. REPORT OF THE COMPENSATION COMMITTEEIn addition to being covered by the Change In Control Plan, Mr. Allard has a Severance Agreement with the Company which provides, in relevant part, that if the Company terminates his employment for any reason other than cause, or in connection with a change- in-control, the Company will continue to pay him at his then present salary rate for a period of twelve months. Report of the Compensation Committee During fiscal 1997,1998, the Compensation Committee established the compensation of the Chairman and Chief Executive Officer and the President and Chief Operating Officer and the Vice Presidents of the operating groups of the Company. The criteria for bonus awards of the Chief Executive Officer and Chief Operating Officer in respect of the 19961998 fiscal year were determined at a meeting of the Compensation Committee as constituted on December 10, 1996.August 19, 1997. See "Board of Directors." In determining the individual elements of compensation, the Compensation Committee strives to enable the Company to attract and retain key executives critical to the long-term success of the Company, provide compensation opportunities which are comparable to those offered by similar companies, reward long-term strategic management and the enhancement of stockholder value and create a performance-oriented environment. In order to meet the foregoing objectives, the Compensation Committee has attempted to design and choose components of compensation. The Compensation Committee consulted with outside compensation consultants to assist in this process and provide competitive information, advice documentation and recommendations relating to compensation issues. Compensation packages consist of cash, certain benefits and equity-based compensation. The Company's compensation provides for competitive base salaries which reflect individual performance and level of responsibility. Annual bonuses, when given, are linked to the financial performance of the Company and its subsidiaries as a whole, job performance and the meeting of specific goals. Also included are plans which reward the enhancement of long-term value to the Company's stockholders. 8 The compensation of the above officers for fiscal 1998 was based on the policies described above. The bonusBonus awards for fiscal 1997 were computedare determined on the basis of a formula that appliedin which a weighted performance factor is applied to a target award established for each of the above officer's respective salary levels. The weighted performance factor wasis derived as a result of the achievement of certain Company performance targetingtargets, including the achievement of a certain level of earnings per share for fiscal 1997.share. No bonuses were paid to the above officers in fiscal 1997.1998. Annually, the Compensation Committee reviews with the Chief Executive Officer the individual performance of each of the other executive officers and his recommendations with respect to the appropriate compensation awards. The Stock Option/Compensation Committee also reviews with the Company's Chief Executive Officer the financial and other objectives for each of the executive officers for the following year. The Compensation Committee has not formally addressed the restrictions under Section 162(m) of the Internal Revenue Code because the Compensation Committee does not anticipate paying compensation to its executive officers in an amount to which Section 162(m) would apply. Paul Giovacchini (Chairman) Irving Gutin (Chairman) Steven Shulman Bernard Tenenbaum PERFORMANCE GRAPH- 10 - Performance Graph Set forth below is a line graph comparing the yearly percentage change in the total stockholder return on the Company's Common Stock against the total return of the NASDAQ Market Index and a peer group index consisting of companies which manufacture and sell handheld computers and terminals and associated software. The peer group also contains one manufacturer ofsoftware, electrical equipment products.products and instrumentation. The peer group was selected with the assistance of the Company's investment bankers and includes the following issuers: Aura Systems, Inc., Applied Cellular Technology, Inc., BEI Technologies, Inc., Fieldworks, Inc., Itron, Inc., Magnetek, Inc., MilltopeMetrologic Instruments, Inc., Miltope Group, Inc., NAI Technologies, Inc., Percon, Inc., Symbol Technologies, Inc., ScanSource, Inc., Telxon Corp., Unova, Inc. and Telxon Corp.Woodhead Industries, Inc. The current peer group has been changed from the peer group used last year. Management believes that the current peer group provides a broader cross section of companies in lines of business that are more similar to the Company's line of business. Also set forth below is a line graph showing the above information using last year's peer group. Comparison of Five Year-CumulativeFive-Year cumulative Total Returns Performance GraphReport Company Index: CUSIP - 92930K10 Ticker - WPIC SIC - 3620 Exchange - NASDAQ Fiscal year end is 9/30/98 Market Index: NASDAQ Stock Market (US Companies) Peer Index: Companies in self-determined group - 11 AURA AURA SYSTEMS, INC. FWRX FIELDWORKS INCORPORATED ITRI ITRON INC. MAG MAGNETEK INC. MILT MILTOPE GROUP INC. NATL N A I TECHNOLOGIES INC. PRCN PERCON ACQUISITION INC. SCSC SCANSOURCE, INC. SCSCU SCANSOURCE, INC. SBL SYMBOL TECHNOLOGIES, INC. TLXN TELXON CORP. Date Company Index Market Index Peer Index 09/30/93 100.000 100.000 100.000 10/29/93 91.667 102.247 117.892 11/30/93 102.083 99.201 119.905 12/31/93 127.083 101.966 118.838 01/31/94 141.667 105.061 122.474 02/28/94 112.500 104.080 122.326 03/31/94 108.333 97.681 121.780 04/29/94 104.167 96.412 138.957 05/31/94 100.000 96.649 141.403 06/30/94 108.333 93.114 140.842 07/29/94 91.667 95.025 136.906 08/31/94 91.667 101.084 146.438 09/30/94 95.833 100.826 138.722 10/31/94 100.000 102.806 146.583 11/30/94 91.667 99.396 135.929 12/30/94 95.833 99.674 136.492 01/31/95 83.333 100.243 124.468 02/28/95 83.333 105.544 130.294 03/31/95 91.667 108.674 137.820 04/28/95 89.583 112.098 148.689 05/31/95 83.333 114.989 160.366 06/30/95 87.500 124.308 172.382 07/31/95 104.167 133.446 162.844 08/31/95 95.833 136.151 156.249 09/29/95 100.000 139.281 166.498 10/31/95 89.583 138.477 159.113 11/30/95 104.167 141.729 164.984 12/29/95 125.000 140.974 171.139 01/31/96 158.333 141.667 158.791 02/29/96 218.750 147.059 175.597 03/29/96 212.500 147.544 167.790 04/30/96 333.334 159.781 207.592 05/31/96 350.000 167.118 168.825 06/28/96 325.000 159.585 157.321 07/31/96 225.000 145.354 155.117 08/30/96 300.000 153.498 161.102 09/30/96 270.833 165.238 159.927 10/31/96 216.667 163.412 144.172 11/29/96 275.000 173.514 152.852 12/31/96 254.167 173.358 146.392 01/31/97 279.167 185.678 176.579 02/28/97 233.333 175.408 170.437 03/31/97 208.333 163.954 162.150 04/30/97 225.000 169.080 164.263 05/30/97 275.000 188.242 172.894 06/30/97 291.667 194.007 174.471 07/31/97 308.333 214.484 180.723 08/29/97 293.750 214.157 196.629 09/30/97 404.167 226.814 221.677 10/31/97 370.833 215.072 206.613 11/28/97 252.083 216.150 205.522 12/31/97 245.833 212.688 196.024 01/30/98 295.833 219.357 203.529 02/27/98 327.083 239.944 226.227 03/31/98 275.000 248.789 226.433 04/30/98 300.000 253.005 250.322 05/29/98 258.333 239.120 230.377 06/30/98 243.750 255.976 228.403 07/31/98 225.000 253.184 226.279 08/31/98 191.667 203.694 210.140 09/30/98 220.833 231.786 244.931 The index level for all series was set to 100.0 on 09/30/93 Perm# Date Range Company Name TICK CL EX F SIC 12122 09/30/93 - 09/30/98 AURA SYSTEMS INC. AURA NQ 3660 84612 03/20/97 - 09/30/98 FIELDWORKS INC FWRX NQ 3570 79839 11/05/93 - 09/30/98 ITRON INC. ITRI NQ 3570 75596 09/30/93 - 09/30/98 MAGNETEK INC. MAG NY 3612 90211 09/30/93 - 09/30/98 MILTOPE GROUP INC. MILT NQ 3573 57999 03/30/93 - 09/30/98 N A I TECHNOLOGIES NATL NQ 3570 81891 07/28/95 - 09/30/98 PERCON ACQUISITION PRCN NQ 3570 80362 03/18/94 - 09/30/98 SCANSOURCE, INC. SCSC NQ 5040 98394 03/18/94 - 09/18/95 SCANSOURCE, INC. SCSCU NQ 5040 73940 09/30/93 - 09/30/98 SYMBOL TECHNOLOGIES SBL NY 3662 75273 09/30/93 - 09/30/98 TELXON CORP. TLXN NQ 7370 Exchange labels: NY - New York, AM - American, NQ -NASDAQ Comparison of Five-Year cumulative Total Returns Performance Report Company Index: CUSIP - 92930K10 Ticker - WPIC SIC - 3620 Exchange - NASDAQ Fiscal year end is 9/30/98 Market Index: NASDAQ Stock Market (US Companies) Peer Index: Companies in self-determined group - 11 ADLT ADVANCED LIGHTING TECHS INC. ACTC APPLIED CELLULAR TECHNOLOGY INC. AURA AURA SYSTEMS, INC. BEIQ B E I TECHNOLOGIES INC. FWRX FIELDWORKS INCORPORATED ITRI ITRON INC. MAG MAGNETEK INC. MTLG METROLOGIC INSTRUMENTS INC. MILT MILTOPE GROUP INC. NATL N A I TECHNOLOGIES INC. PSCX P S C INC. PRCN PERCON ACQUISITION INC. SCSC SCANSOURCE, INC. SCSCU SCANSOURCE, INC. SBL SYMBOL TECHNOLOGIES, INC. TLXN TELXON CORP. UNA UNOVA INC. WDHD WOODHEAD INDUSTRIES INC. Date Company Index Market Index Peer Index 09/30/93 100.000 100.000 100.000 10/29/93 91.667 102.247 115.362 11/30/93 102.083 99.201 116.015 12/31/93 127.083 101.966 114.256 01/31/94 141.667 105.061 119.921 02/28/94 112.500 104.080 119.424 03/31/94 108.333 97.681 119.154 04/29/94 104.167 96.412 134.908 05/31/94 100.000 96.649 136.339 06/30/94 108.333 93.114 136.098 07/29/94 91.667 95.025 132.679 08/31/94 91.667 101.084 141.150 09/30/94 95.833 100.826 134.717 10/31/94 100.000 102.806 141.369 11/30/94 91.667 99.396 133.252 12/30/94 95.833 99.674 136.344 01/31/95 83.333 100.243 128.005 02/28/95 83.333 105.544 131.847 03/31/95 91.667 108.674 138.907 04/28/95 89.583 112.098 149.996 05/31/95 83.333 114.989 157.909 06/30/95 87.500 124.308 168.054 07/31/95 104.167 133.446 159.659 08/31/95 95.833 136.151 153.989 09/29/95 100.000 139.281 162.384 10/31/95 89.583 138.477 154.836 11/30/95 104.167 141.729 160.687 12/29/95 125.000 140.974 163.860 01/31/96 158.333 141.667 153.766 02/29/96 218.750 147.059 168.411 03/29/96 212.500 147.544 163.890 04/30/96 333.334 159.781 197.821 05/31/96 350.000 167.118 168.495 06/28/96 325.000 159.585 156.965 07/31/96 225.000 145.354 151.206 08/30/96 300.000 153.498 159.363 09/30/96 270.833 165.238 160.200 10/31/96 216.667 163.412 148.446 11/29/96 275.000 173.514 156.548 12/31/96 254.167 173.358 153.662 01/31/97 279.167 185.678 178.658 02/28/97 233.333 175.408 173.090 03/31/97 208.333 163.954 165.386 04/30/97 225.000 169.080 163.266 05/30/97 275.000 188.242 178.069 06/30/97 291.667 194.007 179.632 07/31/97 308.333 214.484 183.793 08/29/97 293.750 214.157 196.470 09/30/97 404.167 226.814 222.538 10/31/97 370.833 215.072 205.421 11/28/97 252.083 216.150 201.389 12/31/97 245.833 212.688 192.045 01/30/98 295.833 219.357 199.816 02/27/98 327.083 239.944 222.494 03/31/98 275.000 248.789 225.036 04/30/98 300.000 253.005 248.435 05/29/98 258.333 239.120 229.955 06/30/98 243.750 255.976 224.486 07/31/98 225.000 253.184 218.706 08/31/98 191.667 203.694 188.964 09/30/98 220.833 231.786 205.768 The index level for all series was set to 100.0 on 09/30/93 Perm# Date Range Company Name TICK CL EX F SIC 82663 12/12/95 - 09/30/98 ADVANCED LIGHTING ADLT NQ 3640 82248 09/01/95 - 09/30/98 ADVANCED CELLULAR ACTC NQ 7370 12122 09/30/93 - 09/30/98 AURA SYSTEMS INC. AURA NQ 3660 85358 09/29/97 - 09/30/98 B E I TECHNOLOGIES BEIQ NQ 3820 84612 03/20/97 - 09/30/98 FIELDWORKS INC FWRX NQ 3570 79839 11/05/93 - 09/30/98 ITRON INC. ITRI NQ 3570 75596 09/30/93 - 09/30/98 MAGNETEK INC. MAG NY 3612 80942 09/29/94 - 09/30/98 METROLOGIC INSTRUM MTLG NQ 3570 90211 09/30/93 - 09/30/98 MILTOPE GROUP INC. MILT NQ 3573 57999 03/30/93 - 09/30/98 N A I TECHNOLOGIES NATL NQ 3570 62790 09/30/93 - 09/30/98 P S C INC. PSCX NQ 3860 81891 07/28/95 - 09/30/98 PERCON ACQUISITION PRCN NQ 3570 80362 03/18/94 - 09/30/98 SCANSOURCE, INC. SCSC NQ 5040 98394 03/18/94 - 09/18/95 SCANSOURCE, INC. SCSCU NQ 5040 73940 09/30/93 - 09/30/98 SYMBOL TECHNOLOGIES SBL NY 3662 75273 09/30/93 - 09/30/98 TELXON CORP. TLXN NQ 7370 85445 10/22/97 - 09/30/98 UNOVA INC. UNA NY 3599 83433 09/30/93 - 09/30/98 WOODHEAD INDUSTRIES WDHD NQ 3610 Exchange labels: NY - New York, AM - American, NQ -NASDAQ Certain Relationships and Related Transactions The Company is currently leasing and occupying a building at 850 Perimeter Road, Manchester, New Hampshire (the "Perimeter Road Facility") from 850 Perimeter Road Associates NA, LLC, a New Hampshire limited liability company in which Mr. Allard is a member. The yearly base rental for the Perimeter Road facility, which houses the operations of WPI Group,Instruments, Inc. Prepared, is $402,408. The lease term expires on December 31, 2002, and may be renewed by the CenterCompany for Researchan extended term to December 31, 2007. In management's opinion, the lease rate for this facility is not in Security Prices Produced on 12/04/97 including data to 09/30/97
Legend Symbol CRSP Total Returns Index for 09/30/92 09/30/93 09/30/94 09/29/95 09/30/96 09/30/97 - ------ ---------------------------- -------- -------- -------- -------- -------- -------- WPI Group, Inc. 100.0 88.9 85.2 88.9 240.7 339.3 Nasdaq Stock Market (US Companies) 100.0 131.0 132.1 182.4 216.4 297.1 Self-Determined Peer Group 100.0 97.7 136.6 162.6 156.5 217.1
ADOPTION OF THE 1997 EQUITY INCENTIVE PLAN (ITEM 2 ON PROXY) The WPI Group, Inc. 1997 Equity Incentive Plan (the "Plan") was approved by the Board on June 10, 1997 and was amended by the Board on December 12, 1997. The following summaryexcess of the Planrange of fair market rentals in the relevant area. Hinckley, Allen & Snyder, a law firm of which Stephen Carlotti, a director, is qualified in its entirety by referencea member, provided legal services to the complete text of the Plan, attached as Exhibit A. Capitalized terms used herein will, unless otherwise defined, have the meanings assigned to them in the text of the Plan.Company during its 1998 fiscal year. - 11 - APPROVAL OF AMENDMENT TO BYLAWS (Item 2 on Proxy) The Company's Board of Directors believes that the future growth and profitability of the Company depend in part on its ability to attract, retain and motivate outstanding employees, officers, directors and consultants. The Planit is intended to provide officers and other employees of WPI Group, Inc. and each of its subsidiaries now held or hereinafter acquired (collectively, the "Company") with appropriate incentives and rewards to encourage them to enter into and continue in the employ of the Company and to acquire a proprietary interest in the long-term success of the Company; to compensate each member of the Board of WPI who is not an employee of the Company (each a "Non-Employee Director") and provide incentives to Non-Employee Directors which are directly linked to increases in stock value; and to reward the performance of individual officers, other employees, consultants and Non-Employee Directors in fulfilling their personal responsibilities for long-range achievements. The Plan is intended to comply with the requirements of Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as amended. In addition, the Plan is intended to provide performance-based compensation so as to be eligible for compliance with Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the "Code") which, generally, limits the deduction by an employer for compensation of 9 certain covered officers. Under Section 162(m), certain compensation, including compensation based on the attainment of performance goals, may be disregarded for purposes of this deduction limit if certain requirements are met. Among the requirements for compensation to qualify for this exception is that the material terms pursuant to which the compensation is to be paid be disclosed to and approved by the stockholders in a separate vote prior to the payment. Accordingly, if the Plan is approved by stockholders and the other conditions of Section 162(m) relating to performance-based compensation are satisfied, compensation paid to Covered Employees pursuant to the Plan will not fail to be deductible under Section 162(m). If the Plan is not approved by the Stockholders, it will remain in effect. However, certain federal income tax consequences will change as stated below. GENERAL The Plan provides for the granting of awards to such employees (including officers of the Company, whether or not they are directors of WPI) and consultants of the Company as the Stock Option/Compensation Committee of the Board (the "Committee") may select from time to time. Currently there are approximately fifty employees and consultants eligible to participate in the Plan. The Plan also provides for the mandatory grant of Non-Qualified Stock Options to Non-Employee Directors of WPI. Currently, there are seven such directors. An aggregate of 750,000 shares of common stock of WPI, par value $.01 per share ("Company Stock"), is reserved for issuance under the Plan, subject to adjustment as described below. Such shares may be authorized but unissued Company Stock or authorized and issued Company Stock held in WPI's treasury. Generally, shares subject to an award that remain unissued upon expiration or cancellation of the award will be available for other awards under the Plan. The total number of shares of Company Stock subject to awards (including awards paid in cash but denominated as shares of Company Stock) granted to any one Participant of the Plan during any tax year of the Company will not exceed 200,000 shares. In the event that the Committee determines that any dividend or other distribution, stock split, recapitalization, reorganization, merger or other similar corporate transaction or event affects the Company Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan, then the Committee will make such equitable changes or adjustments as it deems necessary to the number and kind of shares of Company Stock which may thereafter be issued in connection with awards, the limit on individual awards, the number and kind of shares of Company Stock subject to each outstanding award, and the exercise price, grant price or purchase price of each award. Awards under the Plan may be made in the form of (a) Incentive Stock Options, (b) Non-Qualified Stock Options (Incentive and Non-Qualified Stock Options are collectively referred to as "options"), (c) Stock Appreciation Rights, (d) Restricted Stock, (e) Phantom Stock, and (f) Other Awards. Awards may be granted to such officers, directors and other employees and consultants of the Company and its subsidiaries (including employees who are directors) as the Committee may select in its discretion. Non-Employee Directors will be granted Non-Qualified Stock Options under the Plan in the manner described below. ADMINISTRATION The Plan will be administered by the Committee. The Committee will, at all times, consist of two or more persons, each of whom is a "nonemployee director" within the meaning of Section 162(m) and a "disinterested person" within the meaning of Rule 16b-3. The Committee is authorized, among other things, to construe, interpret and implement the provisions of the Plan, to select the persons to whom awards will be granted, to determine the terms and conditions of such awards and to make all other determinations deemed necessary or advisable for the administration of the Plan; provided, however, that the Committee may not exercise discretion under any provision of the Plan with respect to Non-Qualified Stock Options granted to Non-Employee Directors. AWARDS UNDER THE PLAN STOCK OPTIONS The Committee will determine each option's expiration date; provided, however, that no incentive stock option may be exercised more than ten years after the date of grant. The purchase price per share payable upon the exercise of an option (the "option exercise price") will be established by the Committee; provided, however, that in 10 the case of an Incentive Stock Option, the option exercise price may be no less than the Fair Market Value of a share of Company Stock on the date of grant. The option exercise price is payable by any one of the following methods or a combination thereof: (a) cash; (b) personal, certified or bank cashier's check; (c) wire transfer; (d) with consent of the Committee, by surrender of shares of Company Stock held at least six months by the Participant and having a Fair Market Value on the date of the exercise equal to the option exercise price; or (e) by such other payment method as the Committee may prescribe. The Committee may specify at the time of grant or with respect to Non-Qualified Stock Options, at or after the time of grant, that a Participant will be granted a new Non-Qualified Stock Option (a "Reload Option") for a number of shares equal to the number of shares surrendered by the participant upon exercise of all or part of an Option. Reload Options will be subject to such conditions as may be specified by the Committee in its discretion, subject to the terms of the Plan. The Plan provides that a Non-Employee Director who first became a director after April 1, 1997 will be granted automatically a Non-Qualified Stock Option to purchase 10,000 shares of Company Stock. Commencing with the 1999 Annual Stockholders meeting, each Non-Employee Director (other than a director who is first elected at the annual meeting for that year or within six months prior to such annual meeting) will be granted automatically a Non-Qualified Stock Option to purchase 2,500 shares of Company Stock; provided, however, that no annual grants to Non-Employee Directors shall be made unless the Company's earnings per share for the most recently completed fiscal year has increased from the prior fiscal year by at least 15%. Non-Qualified Stock Options granted to Non-Employee Directors shall be exercisable in 1/3 increments beginning on the first anniversary of the date that the Non-Qualified Stock Option is granted and expire ten years from the date of grant. STOCK APPRECIATION RIGHTS Stock appreciation rights may be granted in connection with all or any part of, or independently of, any option granted under the Plan. A stock appreciation right granted independently of any option will be subject to the same vesting rules as described above for options. A stock appreciation right granted in tandem with any stock option will be exercisable only when and to the extent the option to which it relates is exercisable. The grantee of a stock appreciation right has the right to surrender the stock appreciation right and receive from the Company, in cash, an amount equal to the excess of the Fair Market Value of a share of Company Stock over the exercise price of the stock appreciation right for each share of Company Stock in respect of which such stock appreciation right is being exercised. RESTRICTED STOCK The Committee may grant restricted shares of Company Stock to such persons, in such amounts, and subject to such terms and conditions (including the attainment of performance goals) as the Committee may determine in its discretion. PHANTOM STOCK The Committee may grant shares of Phantom Stock to such persons, in such amounts, and subject to such terms and conditions (including the attainment of performance goals) as the Committee may determine in its discretion. If the requirements specified by the Committee are met, the grantee of such an award will receive a cash payment equal to the Fair Market Value of the shares covered thereby plus the dividends that would have been paid on such shares had they actually been outstanding following the grant date. OTHER AWARDS Other awards valued in whole or in part by reference to, or otherwise based on, Company Stock may be granted either alone or in addition to other awards under the Plan. Subject to the provisions of the Plan, the Committee will have the sole and complete authority to determine the persons to whom and the time or times at which such Other Awards will be granted, the number of shares of Company Stock to be granted pursuant to such Other Awards and all other conditions of such Other Awards. 11 OTHER FEATURES OF THE PLAN The Board may suspend, revise, terminate or amend the Plan at any time; provided, however, that stockholder approval must be obtained if and to the extent that the Board deems it appropriate to satisfy Section 162(m); and provided further that no such action may, without the consent of a Participant, reduce the Participant's rights under any outstanding award. Unless otherwise determined by the Committee, or unless the applicable agreement otherwise provides, in the event of a Change In Control, (as defined under the WPI Group, Inc. Change In Control Plan) all outstanding awards will become fully vested and/or immediately exercisable. NEW PLAN BENEFITS Inasmuch as (a) awards (other than awards of Non-Qualified Stock Options to Non-Employee Directors) under the Plan will be granted at the sole discretion of the Committee and (b) performance goal criteria may vary from year to year and from Participant to Participant, it is not possible to determine (except in the case of the Non-Employee Directors listed below) either the awards that will be made thereunder during fiscal 1998 or the awards that would have been made thereunder during fiscal 1997 had the Plan been in effect. NEW PLAN BENEFITS WPI GROUP, INC. 1997 EQUITY INCENTIVE PLAN
NUMBER OF SHARES NAME AND POSITION GRANT OF OPTIONS - ------------------------------------------------ ----------------- Stephen Carlotti, Director 10,000 Steven Shulman, Director 10,000
CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion is a brief summary of the principal United States Federal income tax consequences under current Federal income tax laws relating to awards under the Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences. NON-QUALIFIED STOCK OPTIONS An optionee will not recognize any taxable income upon the grant of a Non-Qualified Stock Option. The Company will not be entitled to a tax deduction with respect to the grant of a Non-Qualified Stock Option. Upon exercise of a Non-Qualified Stock Option, the excess of the Fair Market Value of the Company Stock on the exercise date over the option exercise price will be taxable as compensation income to the optionee and will be subject to applicable withholding taxes. The Company will generally be entitled to a tax deduction at such time in the amount of such compensation income. The optionee's tax basis for the Company Stock received pursuant to the exercise of a Non-Qualified Stock Option will equal the sum of the compensation income recognized and the exercise price. In the event of a sale of Company Stock received upon the exercise of a Non-Qualified Stock Option, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss and will be long-term capital gain or loss if the holding period for such Company Stock is more than eighteen months. INCENTIVE STOCK OPTIONS An optionee will not recognize any taxable income at the time of grant or timely exercise of an Incentive Stock Option and the Company will not be entitled to a tax deduction with respect to such grant or exercise. Exercise of an Incentive Stock Option may, however, give rise to taxable compensation income subject to applicable withholding taxes, and a tax deduction to the Company, if the Incentive Stock Option is not exercised on a timely basis (generally, while the optionee is employed by the Company or within 90 days after termination of employment) or if the optionee subsequently engages in a "disqualifying disposition" as described below. 12 A sale or exchange by an optionee of shares acquired upon the exercise of an Incentive Stock Option more than one year after the transfer of the shares to such optionee and more than two years after the date of grant of the Incentive Stock Option will result in any difference between the net sale proceeds and the exercise price being treated as long-term capital gain (or loss) to the optionee. If such sale or exchange takes place within two years after the date of grant of the Incentive Stock Option or within one year from the date of transfer of the Incentive Stock Option shares to the optionee, such sale or exchange will generally constitute a "disqualifying disposition" of such shares that will have the following results: any excess of (a) the lesser of (i) the Fair Market Value of the shares at the time of exercise of the Incentive Stock Option and (ii) the amount realized on such disqualifying disposition of the shares over (b) the option exercise price of such shares, will be ordinary income to the optionee, subject to applicable withholding taxes, and the Company will be entitled to a tax deduction in the amount of such income. Any further gain or loss after the date of exercise generally will qualify as capital gain or loss and will not result in any deduction by the Company. In the event that the Plan is not approved by the stockholders, any and all options granted under the Plan will be treated as Non-Qualified Stock Options. RESTRICTED STOCK A grantee will not recognize any income upon the receipt of Restricted Stock unless the holder elects under Section 83(b) of the Code, within thirty days of such receipt, to recognize ordinary income in an amount equal to the Fair Market Value of the Restricted Stock at the time of receipt, less any amount paid for the shares. If the election is made, the holder will not be allowed a deduction for amounts subsequently required to be returned to the Company. If the election is not made, the holder will generally recognize ordinary income, on the date that the restrictions to which the Restricted Stock are subject are removed, in an amount equal to the Fair Market Value of such shares on such date, less any amount paid for the shares. At the time the holder recognizes ordinary income, the Company generally will be entitled to a deduction in the same amount. Generally, upon a sale or other disposition of Restricted Stock with respect to which the holder has recognized ordinary income (i.e., a Section 83(b) election was previously made or the restrictions were previously removed), the holder will recognize capital gain or loss in an amount equal to the difference between the amount realized on such sale or other disposition and the holder's basis in such shares. Such gain or loss will be long-term capital gain or loss if the holding period for such shares is more than eighteen months. OTHER TYPES OF AWARDS The grant of a stock appreciation right or Phantom Stock award will not result in income for the grantee or in a tax deduction for the Company. Upon the settlement of such a right or award, the grantee will recognize ordinary income equal to the aggregate value of the payment received, and the Company generally will be entitled to a tax deduction in the same amount. REQUIRED VOTE The affirmative vote of a majority of the outstanding shares of common stock present at the annual meeting and entitled to vote is required to approve the adoption of the Equity Incentive Plan. THE DIRECTORS RECOMMEND A VOTE FOR THE APPROVAL OF THE ADOPTION OF THE WPI GROUP, INC. 1997 EQUITY INCENTIVE PLAN. ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN (ITEM 3 ON PROXY) The Company's Board of Directors believes that the future growth and profitability of the Company depend, in part, on its ability to retain and motivate outstanding employees at all levels. To further this goal, the Board adopted the Walker Power, Inc. Employee Stock Purchase Plan on May 7, 1992 (the "1992 Purchase Plan"). The 1992 Stock Purchase Plan expired on May 31, 1997. On February 12, 1997, the Board adopted the WPI Group, Inc. Employee Stock Purchase Plan (the "1997 Purchase Plan"), which is substantially similar to the 1992 Purchase 13 Plan. The 1997 Purchase Plan is intended to promote thebest interests of the Company and the shareholders to adopt an amendment to the bylaws of the Company to increase the range of the number of directors that may serve on the Company's board. Currently, the Company's bylaws provide that the board shall consist of not less than three and not more than nine directors. The Board of Directors believes it is advisable to increase the maximum to fifteen directors in order to give the Company the flexibility in the future to add directors with experience that may be critical to the Company's ability to achieve its long-term strategic goals. Accordingly, the Board of Directors has approved an amendment to the bylaws, subject to approval by shareholders by giving employees an incentiveof common stock of the Company that the Board of Directors will consist of not less than three nor more than fifteen directors. The proposed text of the amendment to becomethe bylaws is set forth below: Section 3.2. Number, Tenure and Qualifications. The number of directors of the corporation shall be not fewer than three (3) and not more than fifteen (15), as the board of directors shall determine. Each director shall hold office until the next annual meeting of shareholders and until his successors shall have been elected and qualified. Directors need not be residents of the State of New Hampshire or shareholders of the Company.corporation. The Board believes that employees who hold equity interests in the Company will feel that they haveDirectors recommend a stake in the success of the Company, will have greater loyalty to the Company and will thus be more highly motivated to contribute to the success of the Company. Accordingly, the Board recommends that the Company's shareholders approve the adoption of the 1997 Purchase Plan. If the Purchase Plan is not approved by the stockholders, it will remain in effect. However, certain federal income tax consequences for both the Company and the participants will change as stated below. SUMMARY OF THE PURCHASE PLAN Full-time employees of the Company who are not owners of (or who would become owners of) five percent of the Company's stock are eligible to make purchases under the 1997 Purchase Plan. An eligible employee's participation under the 1997 Purchase Plan is completely voluntary. Eligible employees may purchase shares of the Company's common stock on a quarterly basis, on December 15, March 15, June 15 and September 15 of each year (the "Purchase Date"). The price of the common stock purchased under the Purchase Plan is ninety-three percent of the average of the closing prices of the common stock as reported on the National Association of Securities Dealers Automated Quotation System during the period of five trading days ending on the Purchase Date or the five days immediately preceding the Purchase Date if the market is closed on the Purchase Date. In no event will the price be less than eighty-five percent of the fair market value on the Purchase Date itself or less than the par value ($.01). An aggregate of 30,000 shares are reserved for issuance under the Purchase Plan. At September 28, 1997, a cumulative total of 1,870 shares have been purchased under the Purchase Plan. The Board may amend the Purchase Plan at any time withoutvote FOR the approval of the shareholdersadoption to an amendment to the Bylaws of the Company. The Purchase Plan will terminate on May 31, 2007 unless terminated by earlier action of the Board. FEDERAL INCOME TAX CONSEQUENCES The Purchase Plan is intended to be a qualified stock purchase plan under the Internal Revenue Code. Thus, a participant will not recognize income on receiving the right to participate in and purchase common stock through the Purchase Plan. Further, except as described below, participants will not recognize income on the Purchase Date on the purchase of stock. Instead, gain or loss from the sale or exchange of the shares acquired by purchase under the Purchase Plan will generally be treated as capital gain or loss at the time of such sale or exchange, provided that the shares are held as capital assets at the time of the sale or exchange and that the sale or exchange occurs no earlier than one year from the date the shares were purchased. Generally, the basis of the shares purchased under the Purchase Plan will be the price paid. If the stock purchased under the Purchase Plan is disposed of before the qualifying dates described above (or if the Purchase Plan is not approved by the shareholders), then purchases will be treated as non-qualified stock options ("NQSO's") under the Internal Revenue Code and participants will be treated as having received ordinary income equal to the difference between the fair market value of the shares purchased on the Purchase Date and the purchase price. REQUIRED VOTE The affirmative vote of the holders of a majority of the outstanding shares of common stock present at the annual meeting and entitled to vote is required to approve the adoption of the Purchase Plan. THE DIRECTORS RECOMMEND A VOTE FOR THE APPROVAL OF THE ADOPTION OF THE WPI GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN. 14 SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires that each director and certain officers of the Company file reports of initial beneficial ownership and changes in beneficial ownership of the Company's Common Stock with the Securities and Exchange Commission. To the Company's knowledge, during 19971998 all directors and officers filed such required notices. INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors, upon the recommendation of the Audit Committee, has selected the firm of Arthur Andersen LLP, independent public accountants, to audit the financial statements of the Company for the fiscal year ending September 27, 1998.26, 1999. Arthur Andersen LLP acted as the Company's independent public accountants for the fiscal year ended September 28, 1997.27, 1998. Representatives of Arthur Andersen LLP will attend the Annual Meeting, will have an opportunity to make a statement if desiring to do so and will be available to answer any pertinent questions. DEADLINE FOR SHAREHOLDERS' PROPOSALS The Company must receive any proposal which a shareholder wishes toStockholders may submit to the 1999 Annual Meeting of shareholders before September 10, 1998 if the proposal isproposals to be considered byfor stockholder action at the Board2000 Annual Meeting if they do so in accordance with appropriate regulations of Directorsthe Securities and Exchange Commission. The deadline for submitting a stockholder proposal for inclusion in the Company's proxy materials for the 2000 Annual Meeting is September 13, 1999. With respect to any stockholder proposal that meeting.a stockholder does not seek to have included in the Company's proxy materials, the proxyholders named in management's proxy for that annual meeting will be entitled to exercise their discretionary authority on that proposal if the Company does not receive proper notice of the matter proposed before November 29, 1999. If proper notice is timely received, the proxyholders named in management's proxy may nevertheless exercise discretionary authority to the extent permitted by appropriate regulations of the Securities and Exchange Commission. In any event, the Company may have no obligation to include such proposals submitted after September 13, 1999 on the agenda of the 2000 Annual Meeting. - 12 - OTHER MATTERS Management knows of no matters to be presented at the meeting other than those set forth in the accompanying proxy. However, if other matters are properly presented for action, it is the intention of the persons named in the proxy to vote upon such matters in accordance with their best judgment. AVAILABILITY OF FORM 10-K A copy of the Company's Annual Report for the last fiscal year filed on Form 10-K with the Securities and Exchange Commission will be furnished to stockholders without charge upon written request to Michele M. Normandin, Investor Relations, WPI Group, Inc., 1155 Elm Street, Manchester, New Hampshire 03101. BY ORDER OF THE BOARD OF DIRECTORS MICHAEL TULE, VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY 15Michael Tule, Vice President, General Counsel and Secretary - 13 - Exhibit A WPI GROUP, INC. 1997 EQUITY INCENTIVE PLAN 1. Establishment and Purpose. There is hereby adopted the WPI Group, Inc. 1997 Equity Incentive Plan (the "Plan"). This Plan is intended to promote the interests of the Company (as defined below) and the stockholders of WPI Group, Inc. ("WPI") by providing officers and other employees of the Company (including directors who are also employees of the Company) with appropriate incentives and rewards to encourage them to enter into and continue in the employ of the Company and to acquire a proprietary interest in the long-term success of the Company; to compensate WPI's non-employee directors and provide incentives to such non-employee directors which are directly linked to increases in stock value; and to reward the performance of individual officers, other employees, consultants and non-employee directors in fulfilling their personal responsibilities for long-range achievements. 2. Definitions. As used in the Plan, the following definitions apply to the terms indicated below: (a) "Agreement" shall mean the written agreement between WPI and a Participant evidencing an Incentive Award. (b) "Board of Directors" shall mean the Board of Directors of WPI. (c) "Cause" shall mean (1) the willful and continued failure by the Participant substantially to perform his or her duties and obligations to the Company (other than any failure resulting from his or her incapacity due to physical or mental illness); (2) the willful engaging by the Participant in misconduct which is materially injurious to the Company; (3) the commission by the Participant of a felony; or (4) the commission by the Participant of a crime against the Company which is materially injurious to the Company. For purposes of this Section 2(c), no act, or failure to act, on a Participant's part shall be considered "willful" unless done, or omitted to be done, by the Participant in bad faith and without reasonable belief that his or her action or omission was in the best interest of the Company. Determination of Cause shall be made by the Committee in its sole discretion. (d) "Change In Control" shall have the same meaning as in the WPI Group, Inc. Change In Control Plan adopted on December 15, 1995. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (f) "Committee" shall mean the Stock Option/Compensation Committee of the Board of Directors. The Committee shall consist of two or more persons, each of whom is an "outside director" within the meaning of Section 162(m) of the Code and a "Non-Employee Director" within the meaning of Rule 16b-3. (g) "Company" shall mean, collectively, WPI and each of its Subsidiaries now held or hereinafter acquired. (h) "Company Stock" shall mean the common stock of WPI, par value of $.01 per share. (i) "Disability" shall mean: (1) any physical or mental condition that would qualify a Participant for a disability benefit under the long-term disability plan maintained by the Company and applicable to him or her; (2) when used in connection with the exercise of an Incentive Stock Option following termination of employment, disability within the meaning of Section 22(e)(3) of 16 the Code; or (3) such other condition as may be determined in the sole discretion of the Committee to constitute Disability. (j) "Effective Date" shall mean the date upon which this Plan is adopted by the Board of Directors. (k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (l) The "Fair Market Value" of a share of Company Stock, as of a date of determination, shall mean the closing sales price per share of Company Stock on the NASDAQ/NMS on the date preceding the date of the action requiring such determination. (m) "Incentive Award" shall mean any Option, Tandem SAR, Stand-Alone SAR, Restricted Stock, Phantom Stock or Other Award granted pursuant to the terms of the Plan. (n) "Incentive Stock Option" shall mean an Option that is an "incentive stock option" within the meaning of Section 422 of the Code, or any successor provision, and that is designated by the Committee as an Incentive Stock Option. (o) "Issue Date" shall mean the date established by WPI on which certificates representing shares of Restricted Stock shall be issued by WPI pursuant to the terms of Section 10(e). (p) "Non-Employee Director" shall mean a member of the Board of Directors who is not an employee of the Company. (q) "Non-Qualified Stock Option" shall mean an Option other than an Incentive Stock Option. (r) "Option" shall mean an option to purchase shares of Company Stock granted pursuant to Section 7. (s) "Other Award" shall mean an award granted pursuant to Section 13 hereof. (t) "Partial Exercise" shall mean an exercise of an Incentive Award for less than the full extent permitted at the time of such exercise. (u) "Participant" shall mean (1) an employee, non-employee director or consultant of the Company to whom an Incentive Award has been granted pursuant to the Plan, and (2) upon the death of an individual described in (1), his or her successors, heirs, executors and administrators, as the case may be. (v) "Phantom Stock" shall mean the right, granted pursuant to Section 11, to receive in cash or shares the Fair Market Value of a share of Company Stock. (w) "Reload Option" shall mean a Non-Qualified Stock Option granted pursuant to Section 7(c)(5). (x) "Restricted Stock" shall mean a share of Company Stock which is granted pursuant to the terms of Section 10 hereof and which is subject to the restrictions set forth in Section10(c). (y) "Rule 16b-3" shall mean the Rule 16b-3 promulgated under the Exchange Act, as amended from time to time. (z) "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. (aa) "Stand-Alone SAR" shall mean a stock appreciation right which is granted pursuant to Section 9 and which is not related to any Option. (bb) "Subsidiary" shall mean a "subsidiary corporation" within the meaning of Section 424(f) of the Code. 17 (cc) "Tandem SAR" shall mean a stock appreciation right which is granted pursuant to Section 8 and which is related to an Option. (dd) "Vesting Date" shall mean the date established by the Committee on which a share of Restricted Stock or Phantom Stock may vest. 3. Stock Subject to the Plan. (a) Shares Available for Awards. The maximum number of shares of Company Stock reserved for issuance under the Plan shall be 750,000 (subject to adjustment as provided herein). The maximum number of shares of Company Stock which may be the subject of Options (which shall include any Tandem SARs related to such Options) granted to any individual during any calendar year shall not exceed 200,000 shares. Such shares may be authorized but unissued Company Stock or authorized and issued Company Stock held in WPI's treasury. The Committee may direct that any stock certificate evidencing shares issued pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as may apply to such shares pursuant to the Plan. The grant of a Tandem SAR, a Stand-Alone SAR which is paid only in cash or Phantom Stock which is paid only in cash shall not reduce the number of shares of Company Stock with respect to which Incentive Awards may be granted pursuant to the Plan. Notwithstanding the preceding, the maximum number of shares of Company Common Stock with respect to which Stand-Alone SARs may be granted to any individual during any calendar years shall not exceed 200,000 shares. (b) Adjustment for Change in Capitalization. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Company Stock, or other property), recapitalization, Company Stock split, reverse Company Stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Company Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (1) the number and kind of shares of Company Stock which may thereafter be issued in connection with Incentive Awards, (2) the number and kind of shares of Company Stock issued or issuable in respect of outstanding Incentive Awards, (3) the exercise price, grant price or purchase price relating to any Incentive Award, and (4) the maximum number of shares subject to Incentive Awards which may be awarded to any employee during any tax year of the Company; provided that, with respect to Incentive Stock Options, such adjustment shall be made in accordance with Section 424 of the Code. (c) Re-use of Shares. Except as restricted by applicable laws or regulations, any shares subject to an Incentive Award that remain unissued upon the cancellation, surrender, exchange or termination of such award for any reason whatsoever and any shares of Restricted Stock forfeited shall again become available for Incentive Awards. Notwithstanding the preceding, with respect to any Option (and any related Tandem SAR) and/or any Stand-Alone SAR granted to any individual who is a "covered employee" within the meaning of Section 162(m) of the Code that is cancelled, the number of shares subject to such Option (and Tandem SARs), and/or Stand-Alone SAR, shall continue to count against the maximum number of shares which may be the subject of Options (and Tandem SARs) and Stand-Alone SARs granted to such individual. For purposes of the preceding sentence, if, after grant, the exercise price of an Option (and any related Tandem SAR) and/or the base amount of any Stand-Alone SAR is reduced, such reduction shall be treated as a 18 cancellation of such Option, Tandem SAR and/or Stand-Alone SAR and the grant of a new Option, Tandem SAR and/or Stand-Alone SAR and both the cancellation and the new grant shall reduce the maximum number of shares for which Options (and related Tandem SARs) and Stand-Alone SARs may be granted to the holder of such Option (and related Tandem SAR) and/or Stand-Alone SAR. 4. Administration of the Plan. The Plan shall be administered by the Committee. The Committee shall have the authority in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Incentive Awards; to determine the person to whom and the time or times at which Incentive Awards shall be granted; to determine the type and number of Incentive Awards to be granted, the number of shares of Stock to which an Award may relate and the terms, conditions, restrictions and performance criteria relating to any Incentive Award; to determine whether, to what extent, and under what circumstances an Incentive Award may be settled, cancelled, forfeited, exchanged, or surrendered; to make adjustments in the performance goals in recognition of unusual or non-recurring events affecting the Company or the financial statements of the Company, or in response to changes in applicable laws, regulations, or accounting principles; to construe and interpret the Plan and any Incentive Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of Agreements; and to make all other determinations deemed necessary or advisable for the administration of the Plan; provided, however, that the Committee may not exercise discretion under any provision of the Plan with respect to Non-Qualified Stock Options granted to Non-Employee Directors pursuant to Section 12 of the Plan. The Committee may, in its absolute discretion, without amendment to the Plan, (a) except with regard to Non Qualified Stock Options granted to Non- Employee Directors pursuant to Section 12 hereof, accelerate the date on which any Option or Stand-Alone SAR granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such Option or Stand-Alone SAR, and (b) accelerate the Vesting Date or Issue Date, or waive any condition imposed hereunder, with respect to any share of Restricted Stock, Phantom Stock or other Incentive Award or otherwise adjust any of the terms applicable to any such Incentive Award. No member of the Committee shall be liable for any action, omission or determination relating to the Plan, and the Company shall indemnify (to the extent permitted under New Hampshire law and the bylaws of the Company) and hold harmless each member of the Committee and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any action, omission or determination relating to the Plan, unless, in either case, such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company. 5. Eligibility. The persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be such employees of the Company (including officers of the Company, whether or not they are directors of the Company) and consultants of the Company as the Committee shall select from time to time. Non-Qualified Stock Options shall be granted to Non-Employee Directors in accordance with the provisions of Section 12 hereof. 6. Awards Under the Plan; Agreement. The Committee may grant Options, Tandem SARs, Stand-Alone SARs, shares of Restricted Stock, shares of Phantom Stock and Other Awards in such amounts and with such terms and conditions as the Committee shall determine, subject to the provisions of the Plan. Each Incentive Award granted under the Plan shall be evidenced by an Agreement which shall contain such provisions as the Committee may in its sole discretion deem necessary or desirable. By accepting an 19 Incentive Award, a Participant thereby agrees that the award shall be subject to all of the terms and provisions of the Plan and the applicable Agreement. 7. Options. The provisions of this Section 7 shall apply to the grant of Options under the Plan, except to the extent the same are inconsistent with Section 12, which shall govern grants of Non-Qualified Stock Options to Non-Employee Directors. (a) Identification of Options. Each Option shall be clearly identified in the applicable Agreement as either Incentive Stock Option or a Non-Qualified Stock Option. (b) Exercise Price. Each Agreement with respect to an Option shall set forth the amount (the "option exercise price") payable by the grantee to the Company upon exercise of the Option. The option exercise price per share shall be determined by the Committee; provided, however, that in the case of an Incentive Stock Option, the option exercise price shall in no event be less than the Fair Market Value of a share of Company Stock on the date the Option is granted. (c) Term and Exercise of Options. (1) The Committee shall determine the vesting and the expiration date of each Option; provided, however, that no Incentive Stock Option shall be exercisable more than 10 years after the date of grant. (2) An Option many be exercised for all or any portion of the shares as to which it is exercisable, provided that no Partial Exercise of an Option shall be for an aggregate exercise price of less than $1,000. The Partial Exercise of an Option shall not cause the expiration, termination or cancellation of the remaining portion thereof. (3) An Option shall be exercised by delivering notice to WPI's principal office, to the attention of its Secretary. Such notice shall specify the number of shares of Company Stock with respect to which the Option is being exercised and the effective date of the proposed exercise and shall be signed by the Participant or other person then having the right to exercise the Option. Payment for shares of Company Stock purchased upon the exercise of an Option shall be made on the effective date of such exercise by one or a combination of the following means: (i) in cash or by personal check, certified check, bank cashier's check or wire transfer; (ii) subject to the approval of the Committee, in shares of Company Stock owned by the Participant for at least six months prior to the date of exercise and valued at their Fair Market Value on the effective date of such exercise; or (iii) subject to the approval of the Committee, by such other means as the Committee may from time to time authorize. Any payment in shares of Company Stock shall be effected by the delivery of such shares to the Secretary of WPI, duly endorsed in blank or accompanied by stock powers duly executed in blank, together with any other documents and evidences as the Secretary of WPI shall require. (4) Certificates for shares of Company Stock purchased upon the exercise of an Option shall be issued in the name of the Participant or other person entitled to receive such shares, and delivered to the Participant or such other person as soon as practicable following the effective date on which the option is exercised. (5) The Committee shall have the authority to specify, at the time of grant or, with respect to Non-Qualified Stock Options, at or after the time of grant, that a Participant shall be 20 granted a new Non-Qualified Stock Option (a "Reload Option") for a number of shares equal to the number of shares surrendered by the Participant upon exercise of all or a part of an Option in the manner described in Section 7(c)(3)(ii) above, subject to the availability of shares of Company Stock under the Plan at the time of such exercise; provided, however, that no Reload Option shall be granted to a Non-Employee Director. Reload Options shall be subject to such conditions as may be specified by the Committee in its discretion, subject to the terms of the Plan. (d) Limitations on Incentive Stock Options. (1) To the extent that the aggregate Fair Market Value of shares of Company Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company (or any Subsidiary) shall exceed $100,000, such Options shall be treated as Non-Qualified Stock Options. Such Fair Market Value shall be determined as of the date on which each such Incentive Stock Option is granted. (2) No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual owns (or is attributed to own by virtue of the Code) stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Subsidiary unless (i) the exercise price of such Incentive Stock Option is at least 110 percent of the Fair Market Value of a share of Company Stock at the time such Incentive Stock Option is granted and (ii) such Incentive Stock Option is not exercisable more than five years after the date such Incentive Stock Option is granted. (e) Effect of Termination of Employment. (1) Unless the applicable Agreement provides otherwise, in the event that the employment of a Participant with the Company shall terminate for any reason other than Disability or death, Options granted to such Participant shall terminate on the date of termination of such employment or other relationship. The Committee may, in its sole discretion, extend the exercise period for the vested portion of the Option for up to three consecutive months after such termination, on which date the Option shall expire. Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term. (2) Unless the applicable Agreement provides otherwise, in the event that the employment of a Participant with the Company shall terminate on the account of the Disability or death of a Participant, (i) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the first anniversary of such termination, on which date they shall expire, and (ii) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no Option shall be exercisable after the expiration of its term. (f) Acceleration of Exercise Date Upon Change In Control. Unless the Committee otherwise determines or unless the applicable agreement otherwise provides, upon the occurrence of a Change In Control, each Option granted under the Plan and outstanding at such time shall become fully and immediately exercisable and shall remain exercisable until its expiration, termination or cancellation. 21 8. Tandem SARs. The Committee may grant in connection with any Option granted hereunder, except a Non-Qualified Stock Option granted to a Non-Employee Director pursuant to Section 12 hereof, one or more Tandem SARs relating to a number of shares of Company Stock less than or equal to the number of shares of Company Stock subject to the related Option. A Tandem SAR granted in connection with a Non-Qualified Stock Option may be granted subsequent to the time that such Non-Qualified Stock Option is granted. (a) Benefit Upon Exercise. The exercise of a Tandem SAR with respect to any number of shares of Company Stock shall entitle the Participant to cash payment, for each such share, equal to the excess of (1) the Fair Market Value of a share of Company Stock on the exercise date over (2) the option exercise price of the related Option. Such payment shall be made as soon as practicable after the effective date of such exercise. (b) Term and Exercise of Tandem SAR. (1) A Tandem SAR shall be exercisable only if and to the extent that its related Option is exercisable. (2) The exercise of a Tandem SAR with respect to a number of shares of Company Stock shall cause the immediate and automatic cancellation of its related Option with respect to an equal number of shares. The exercise of an Option, or the cancellation, termination or expiration of an Option (other than pursuant to this Section 8(b)(2)), with respect to a number of shares of Company Stock shall cause the automatic and immediate cancellation of any related Tandem SARs to the extent of the number of shares of Company Stock subject to such Option which is so exercised, cancelled, terminated or expired. (3) A Tandem SAR may be exercised for all or any portion of the shares as to which it is exercisable; provided, that no Partial Exercise of a Tandem SAR shall be for an aggregate payment by the Company of less than $1,000. (4) No Tandem SAR shall be assignable or transferable otherwise than together with its related Option. (5) A Tandem SAR shall be exercised by delivering notice to WPI's principal office, to the attention of its Secretary. Such notice shall be accompanied by the applicable Agreement, shall specify the number of shares of Company Stock with respect to which the Tandem SAR is being exercised and the effective date of the proposed exercise and shall be signed by the Participant or other person then having the right to exercise the Option to which the Tandem SAR is related. 9. Stand-Alone SARs. (a) Base Amount. The base amount per share of a Stand-Alone SAR shall be determined by the Committee at the time of grant, but shall in no event be less than the Fair Market Value of a share of Company Stock on the date of grant. (b) Benefit Upon Exercise. The exercise of a Stand-Alone SAR with respect to any number of shares of Company Stock shall entitle the Participant to a payment, for each such share, equal to the excess of (1) the Fair Market Value of a share of Company Stock on the exercise date over (2) the base amount of the 22 Stand-Alone SAR. Such payments shall be made as soon as practicable after such exercise, in cash and/or shares of the Company Stock, as determined by the Committee. (c) Term and Exercise of Stand-Alone SAR's. (1) The Committee shall determine the terms, vesting and expiration date of each Stand-Alone SAR. Unless the applicable Agreement provides otherwise, no Stand-Alone SAR shall be exercisable prior to the first anniversary of the date of grant. (2) A Stand-Alone SAR may be exercised for all or any portion of the shares as to which it is exercisable; provided, that no Partial Exercise of a Stand-Alone SAR shall be for an aggregate payment by the Company of less than $1,000. (3) A Stand-Alone SAR shall be exercised by delivering notice to WPI's principal office, to the attention of its Secretary. Such notice shall be accompanied by the applicable Agreement, shall specify the number of shares of Company Stock with respect to which the Stand-Alone SAR is being exercised, and the effective date of the proposed exercise, and shall be signed by the Participant. (d) Effect of Termination of Employment. The provisions set forth in Section 7(e) with respect to the exercise of Options following termination of employment shall apply as well to such exercise of Stand-Alone SARs. (e) Acceleration of Exercise Date Upon Change In Control. Unless the Committee otherwise determines or unless the applicable agreement otherwise provides, upon the occurrence of a Change In Control, any Stand Alone SAR granted under the Plan and outstanding at such time shall become fully and immediately exercisable and shall remain exercisable until its expiration, termination or cancellation. 10. Restricted Stock. (a) Issue Date and Vesting Date. At the time of the grant of shares of Restricted Stock, the Committee shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with respect to such shares. The Committee may divide such shares into classes and assign a different Issue Date and/or Vesting Date for each class. If the grantee is employed by the Company on an Issue Date (which may be the date of grant), the specified number of shares of Restricted Stock shall be issued in accordance with the provisions of Section 10(e). Provided that all conditions to the vesting of a share of Restricted Stock imposed pursuant to Section 10(b) are satisfied, and except as provided in Section 10(g), upon the occurrence of the Vesting Date with respect to a share of Restricted Stock, such share shall vest and the restrictions of Section 10(c) shall lapse. (b) Conditions to Vesting. At the time of grant of shares of Restricted Stock, the Committee may impose such restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems appropriate. (c) Restrictions on Transfer Prior to Vesting. Prior to the vesting of a share of Restricted Stock, no transfer of a Participant's rights with respect to such share, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such share, and all of the rights related thereto, shall be forfeited by the Participant. 23 (d) Dividends on Restricted Stock. The Committee in its discretion may require that any dividends paid on shares of Restricted Stock be held in escrow until all restrictions on such shares have lapsed. (e) Issuance of Certificates. (1) Reasonably promptly after the Issue Date with respect to shares of Restricted Stock, WPI shall cause to be issued a stock certificate, registered in the name of the Participant to whom such shares were granted, evidencing such shares; provided that WPI shall not cause such a stock certificate to be issued unless it has received a stock power duly endorsed in blank with respect to such shares. Each such stock certificate shall bear the following legend: The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the WPI Group, Inc. 1997 Equity Incentive Plan and an Agreement entered into between the registered owner of such shares and WPI. A copy of the Plan and Agreement is on file in the office of the Secretary of WPI, 1155 Elm Street., Manchester, New Hampshire, 03101. Such legend shall not be removed until such shares vest pursuant to the terms hereof. (2) Each certificate issued pursuant to this Section 10(e), together with the stock powers relating to the shares of Restricted Stock evidenced by such certificate, shall be held by WPI unless the Committee determines otherwise. (f) Consequences of Vesting. Upon the vesting of a share of Restricted Stock pursuant to the terms hereof, the restrictions of Section 10(c) shall lapse with respect to such share. Reasonably promptly after a share of Restricted Stock vests, WPI shall cause to be delivered to the Participant to whom such shares were granted, a certificate evidencing such share, free of the legend set forth in Section 10(e). (g) Effect of Termination of Employment. Subject to such other provision as the Committee may set forth in the applicable Agreement, and to the Committee's amendment authority pursuant to Section 4, upon the termination of a Participant's employment for any reason any and all shares to which restrictions on transferability apply shall be immediately forfeited by the Participant and transferred to, and reacquired by, WPI; provided that if the Committee, in its sole discretion, shall within thirty (30) days after such termination of employment notify the Participant in writing of its decision not to terminate the Participant's rights in such shares, then the Participant shall continue to be the owner of such shares subject to such continuing restrictions as the Committee may prescribe in such notice. In the event of a forfeiture of shares pursuant to this section, WPI shall repay to the Participant (or the Participant's estate) any amount paid by the Participant for such shares. In the event that WPI requires a return of shares, it shall also have the right to require the return of all dividends paid on such shares, whether by termination of any escrow arrangement under which such dividends are held or otherwise. (h) Effect of Change In Control. Unless the Committee otherwise determines or unless the applicable agreement otherwise provides, upon the occurrence of a Change In Control, all outstanding shares of Restricted Stock which have not theretofore vested shall immediately vest and all restrictions on such shares shall immediately lapse. 24 11. Phantom Stock. (a) Vesting Date. At the time of the grant of shares of Phantom Stock, the Committee shall establish a Vesting Date or Vesting Dates with respect to such shares. The Committee may divide such shares into classes and assign a different Vesting Date for each class. Provided that all conditions to the vesting of a share of Phantom Stock imposed pursuant to Section 11(c) are satisfied, and except as provided in Section 11(d), upon the occurrence of the Vesting Date with respect to a share of Phantom Stock, such share shall vest. (b) Benefit Upon Vesting. Upon the vesting of a share of Phantom Stock, the Participant shall be entitled to receive, within 30 days of the date on which such share vests, an amount, in cash and/or shares of Company Stock, as determined by the Committee, equal to the sum of (1) the Fair Market Value of a share of Company Stock on the date on which such share of Phantom Stock vests and (2) the aggregate amount of cash dividends paid with respect to a share of Company Stock during the period commencing on the date on which the share of Phantom Stock was granted and terminating on the date on which such share vests. (c) Conditions to Vesting. At the time of the grant of shares of Phantom Stock, the Committee may impose such restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems appropriate. (d) Effect of Termination of Employment. Subject to such other provision as the Committee may set forth in the applicable Agreement, and to the Committee's amendment authority pursuant to Section 4, shares of Phantom Stock that have not vested, together with any dividends credited on such shares, shall be forfeited upon the Participant's termination of employment for any reason. (e) Effect of Change In Control. Unless the Committee otherwise determines or unless the applicable agreement otherwise provides, upon the occurrence of a Change In Control, all outstanding shares of Phantom Stock which have not theretofore vested shall immediately vest and payment in respect of such shares shall be made in accordance with the Plan. 12. Non-Employee Director Formula Stock Options. The provisions of this Section 12 shall apply only to grants of Non-Qualified Stock Options to Non-Employee Directors. (a) General. Non-Employee Directors shall receive Non-Qualified Stock Options under the Plan. The exercise price per share of the Company Stock purchasable under Non-Qualified Stock Options granted to Non-Employee Directors shall be the Fair Market Value of a share of Company Stock on the date of grant. Non-Qualified Stock Options granted to a Non-Employee Director shall not be subject to an acceleration of exercisability except upon a Change in Control as described in Section 12(g). 25 (b) Initial Grants to Directors. Each Non-Employee Director who first became a director after April 1, 1997 and is reelected at the stockholders meeting at which the Plan is approved shall be granted automatically a Non-Qualified Stock Option to purchase 10,000 shares of Company Stock, effective at such stockholders meeting. Each Non-Employee Director who is first elected after such stockholders meeting shall be granted automatically, at the times such director first becomes a member of the Board of Directors, a Non-Qualified Stock Option to purchase 10,000 shares of Company Stock. (c) Subsequent Grants to Directors. Commencing with the annual meeting of the stockholders of the Company held in 1999, on the date of the first Board meeting following the annual meeting of stockholders of each year, each Non-Employee Director (other than a director who is first elected at the annual meeting for that year or within six months prior to such annual meeting) shall be granted automatically a Non-Qualified Stock Option to purchase 2,500 shares of Company Stock. Notwithstanding the foregoing, no annual grants to Non-Employee Directors shall be made unless the Company's earnings per share for the most recently completed fiscal year has increased from the prior fiscal year by at least 15%. (d) Method and Time of Payment. The Option exercise price shall be paid in full, at the time of exercise, in cash (including cash received from the Company as compensation or, in the discretion of the Committee, cash borrowed from the Company on such terms and subject to such conditions as the Committee shall prescribe), in shares of Company Stock having a Fair Market Value equal to such Option exercise price, in a combination of cash and Company Stock or through a cashless exercise procedure. (e) Term and Exercisability. Each Non-Qualified Stock Option granted under this Section 12 shall (i) be exercisable in 1/3 increments beginning on the first anniversary of the date that the Non-Qualified Stock Option is granted and (ii) expire ten years from the date of grant. (f) Termination. In the event of the termination of a Non-Employee Director's service with the Company other than for Cause, any Non-Qualified Stock Option granted to such Non-Employee Director under this Section 12, to the extent that it is exercisable on the date of such termination, may be exercised by such Non-Employee Director (or, if applicable, by his or her executors, administrator, legatees or distributees) until the earlier of (i) the date that is two years from the date of such termination or (ii) the expiration of such Non-Qualified Stock Option. In the event of the termination of a Non-Employee Director's service with the Company for Cause, all outstanding Non-Qualified Stock Options granted to such Non-Employee Director shall expire at the commencement of business on the date of such termination. (g) Acceleration of Exercise Date Upon Change In Control. Upon the occurrence of a Change In Control, each Non-Qualified Stock Option granted under this Section 12 and outstanding at such time shall become fully and immediately exercisable and shall remain exercisable until its expiration, termination or cancellation. 13. Other Awards. Other forms of Incentive Awards ("Other Awards") valued in whole or in part by reference to, or otherwise based on, Company Stock may be granted either alone or in addition to other Incentive Awards under the Plan. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the 26 persons to whom and the time or times at which such Other Awards shall be granted, the number of shares of Company Stock to be granted pursuant to such Other Awards and all other conditions of such Other Awards. 14. Rights as a Stockholder. No person shall have any rights as a stockholder with respect to any shares of Company Stock covered by or relating to any Incentive Award until the date of issuance of a stock certificate with respect to such shares. Except as otherwise expressly provided in Section 3(c), no adjustments to any Incentive Award shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. 15. No Special Employment Rights; No Right to Incentive Award. Nothing contained in the Plan or any Agreement shall confer upon any Participant any right with respect to the continuation of employment by the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the Participant. Except for the automatic grant of Non-Qualified Stock Options to Non-Employee Directors pursuant to Section 12 hereof, no person shall have any claim or right to receive an Incentive Award hereunder and there is no obligation of uniformity for treatment of Participants. The Committee's granting of an Incentive Award to a Participant at any time shall neither require the Committee to grant any other Incentive Award to such Participant or other person at any time or preclude the Committee from making subsequent grants to such Participant or any other person. 16. Securities Matters. (a) WPI shall be under no obligation to effect the registration pursuant to the Securities Act of any interests in the Plan or any Options or shares of Company Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, WPI shall not be obligated to cause to be issued or delivered any certificates evidencing shares of Company Stock pursuant to the Plan unless and until WPI is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Company Stock are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing shares of Company Stock pursuant to the terms hereof, that the recipient of such shares make such agreements and representations, and that such certificates bear such legends, as the Committee, in its sole discretion, deems necessary or desirable. (b) The transfer of any shares of Company Stock hereunder shall be effective only at such time as counsel to WPI shall have determined that the issuance and delivery of such shares is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Company Stock are traded. The Committee may, in its sole discretion, defer the effectiveness of any transfer of shares of Company Stock hereunder in order to allow the issuance of such shares to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. The Committee shall inform the Participant in writing of its decision to defer the effectiveness of a transfer. During the period of such deferral in connection with the exercise of an Option, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto. 17. Withholding Taxes. Whenever cash is to be paid pursuant to an Incentive Award, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. 27 Whenever shares of Company Stock are to be delivered pursuant to an Incentive Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. With the approval of the Committee, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery shares of Company Stock having a value equal to the amount of tax to be withheld. Such shares shall be valued at their Fair Market Value on the date as of which the amount of tax to be withheld is determined (the "Tax Date"). Fractional share amounts shall be settled in cash. Such a withholding election may be made with respect to all or any portion of the shares to be delivered pursuant to an Incentive Award. 18. Notification of Election Under Section 83(b) of the Code. If any Participant shall, in connection with the acquisition of shares of Company Stock under the Plan, make the election permitted under Section 83(b) of the Code (i.e., an election to include in gross income in the year of transfer the amounts specified in Section 83(b)), such Participant shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulation issued under the authority of Section 83(b) of the Code. 19. Notification Upon Disqualifying Disposition Under Section 421(b) of the Code. Each Agreement with respect to an Incentive Stock Option shall require the Participant to notify the Company of any disposition of shares of Company Stock issued pursuant to the exercise of such Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), within 10 days of such disposition. 20. Amendment or Termination of the Plan. The Board of Directors may, at any time, suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that stockholder approval shall be required if and to the extent required by Rule 16b-3 or by any comparable or successor exemption under which the Board of Directors believes it is appropriate for the Plan to qualify, or if and to the extent the Board of Directors determines that such approval is appropriate for purposes of satisfying Sections 162(m) or 422 of the Code. Incentive Awards may be granted under the Plan prior to the receipt of such stockholder approval but each such grant shall be subject in its entirety to such approval and no award may be exercised, vested or otherwise satisfied prior to the receipt of such approval. Nothing herein shall restrict the Committee's ability to exercise its discretionary authority pursuant to Section 4, which discretion may be exercised without amendment to the Plan. No action hereunder may, without the consent of a Participant, reduce the Participant's rights under any outstanding Incentive Award. 21. Transfers Upon Death; Nonassignability. Upon the death of a Participant, outstanding Incentive Awards granted to such Participant may be exercised only by the executor or administrator of the Participant's estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution. No transfer of an Incentive Award by will or the laws of descent and distribution shall be effective to bind the Company unless the Committee shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Incentive Award that are or would have been applicable to the Participant and to be bound by the acknowledgments made by the Participant in connection with the grant of the Incentive Award. During a Participant's lifetime, the Committee may permit the transfer, assignment or other encumbrance of an outstanding Option unless such Option is an Incentive Stock Option and the Committee and the Participant intend that it shall retain such status. Subject to any conditions as the Committee may prescribe and to approval by the Committee, a Participant may, upon providing written notice to the Secretary of WPI, elect to transfer any or all such Options granted to such Participant pursuant to the Plan to members of his or her immediate family, including, but not limited to, children, grandchildren and spouse or to trusts for the benefit of such immediate family members or to partnerships in which such family members are the only partners; provided, however, that no such transfer by any Participant may be made in exchange for consideration. 28 22. Expenses and Receipts. The expenses of the Plan shall be paid by the Company. 23. Failure to Comply. In addition to the remedies of the Company elsewhere provided for herein, failure by a Participant (or beneficiary) to comply with any of the terms and conditions of the Plan or the applicable Agreement, unless such failure is remedied by such Participant (or beneficiary) within ten days after notice of such failure by the Committee, shall be grounds for the cancellation and forfeiture of such Incentive Award, in whole or in part, as the Committee, in its absolute discretion, may determine. 24. Effective Date and Term of Plan. The Plan became effective on the Effective Date, but the Plan (and any grants of Incentive Awards made prior to stockholder approval of the Plan) shall be subject to the requisite approval of the stockholders of WPI. In the absence of such approval, such Incentive Awards shall be null and void. Unless earlier terminated by the Board of Directors, the right to grant Incentive Awards under the Plan will terminate on the tenth anniversary of the Effective Date. Incentive Awards outstanding at Plan termination will remain in effect according to their terms and the provisions of the Plan. 25. Applicable Law. Except to the extent preempted by any applicable federal law, the Plan will be construed and administered in accordance with the laws of the State of New Hampshire, without reference to its principles of conflicts of law. 26. Participant Rights. Except as provided specifically herein, a Participant or a transferee of an Incentive Award shall have no rights as a stockholder with respect to any shares covered by any award until the date of issuance of a Company Stock certificate to him or her for such shares. 27. Unfunded Status of Awards. The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments not yet made under or pursuant to an Incentive Award, nothing contained in the Plan or any Agreement shall give any such Participant any rights that are greater than those of a general creditor of the Company. 28. No Fractional Shares. No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan. Except as provided specifically herein, the Committee shall determine whether cash, other Incentive Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. 29. Interpretation. The Plan is designed and intended to permit Options, Tandem SARs and Stand-Alone SARs which have an exercise price or base amount equal to the Fair Market Value of the underlying Company Stock on the date of grant to qualify as performance-based compensation under Section 162(m) of the Code, and all provisions hereof shall be construed in accordance with such intention. 30. Severability. If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan. 29 Page 1 WPI Group, Inc. Annual Meeting of Shareholders to be held February 10, 1998 THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS The undersigned hereby appoints Michael Foster and Dennis Deegan, and each of them, with power of substitution, as proxies, to vote the Common Stock of the undersigned at the Annual Meeting of Shareholders of the Company to be held on February 10, 1998, and at any adjournment thereof. The matters listed on the back of this card are described in the proxy statement. The proxies will vote: (1) as you specify on the reverse side, (2) as the Board of Directors recommends if you do not specify a choice on the matters listed on the reverse side, and (3) according to their best judgment upon any other business which may properly come before the meeting or any adjournment thereof. PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE Please sign this proxy exactly as your name appears on the books of the Company. Joint owners should sign personally. Trustee and other fiduciaries should indicate the capacity in which they sign, and where more than one name appears, a majority must sign. If a corporation, this signature should be that of an authorized officer who should state his or her title. HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS? Page 2 X PLEASE MARK VOTES AS IN THIS EXAMPLE
With- For All For hold Except 1. Election of Directors. / / / / / / WPI GROUP, INC. Michael Foster, Dennis Deegan, Stephen Carlotti., Peter Danforth, Paul Giovacchini, Irving Gutin, Steven Shulman and Bernard Tenenbaum. If you do not wish your shares voted "For" a particular nominee, mark the "For All Except" box and strike a line through that nominees name. Your shares will be voted for the remaining nominee(s). For Against Abstain 2. The approval of the adoption of the WPI Group, Inc. 1997 Equity Incentive Plan. / / / / / / RECORD DATE SHARES: 3. The approval of the WPI Group, Inc. 1997 Employee Stock Purchase Plan. / / / / / / 4. In their discretion, the proxies are authorized to vote upon any other business which may properly come before the meeting. / / / / / / Please be sure to sign and date this Proxy. Date Mark box at right if comments or address change have been Shareholder sign here Co-owner sign here noted on the reverse side of / / this card.
Page 3 DETACH CARD WPI GROUP, INC. Dear Shareholder: Please take note of the important information enclosed with this Proxy Ballot. There are a number of issued related to the management and operation of your Company that require your immediate attention and approval. These are discussed in detail in the enclosed proxy materials. Your vote counts, and you are strongly encouraged to exercise your right to vote your stock. Please mark the boxes on the proxy card to indicate how your stock shall be voted. Then sign the card, detach it and return your proxy vote in the enclosed postage paid envelope. Your vote must be received prior to the Annual Meeting of Shareholders, February 10, 1998. Thank you in advance for your prompt consideration of these matters. Sincerely, WPI Group, Inc.