ONLINE POWER SUPPLY, INC.
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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DECEMBER 7, 2000
November 3, 2000
We are pleased to give you notice of our Annual Meeting of Shareholders:
Date: Thursday, December 7, 2000
Time: 10:00 AM MST
Place: Denver Marriott Southeast
6363 East Hampden Avenue
Denver, Colorado
[I-25 at Hampden Avenue, Northeast Corner]
Purpose: - Elect four directors;
- Ratify the appointment of the independent auditors; and
- Transact any other business that may properly come before the
meeting.
Record Date: Tuesday, October 31, 2000
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the meeting,
please complete, sign and date the enclosed proxy card and return it promptly in
the enclosed envelope. We appreciate your cooperation.
By Order of the Board of Directors
/s/ Kris M. Budinger
Kris M. Budinger, Chief Executive Officer
INFORMATION ABOUT ATTENDING THE ANNUAL MEETING
Only shareholders of record on October 31, 2000 may vote at the meeting.
Only shareholders of record, and beneficial owners on the record date, may
attend the meeting. If you plan to attend the meeting, please bring personal
identification and proof of ownership if your shares are held in "Street Name"
(i.e., your shares are held of record by brokers, banks or other institutions).
Proof of ownership means a letter or statement from your broker showing your
ownership of OnLine shares on the record date.
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ONLINE POWER SUPPLY, INC.
6909 S. HOLLY CIRCLE, SUITE 200
ENGLEWOOD, COLORADO 80112
TEL. 303.741.5641 FAX 303.741.5679
PROXY STATEMENT FOR ANNUAL MEETING ON DECEMBER 7, 2000
The 2000 Annual Report to Shareholders, including audited financial
statements for the fiscal year ended December 31, 1999, is mailed to
shareholders together with these proxy materials on or about November 3, 2000.
The proxy materials consist of this proxy statement and notice of annual
meeting, the Annual Report, the Audit Committee Certification, and the Audit
Committee Charter, adopted in June 2000.
This proxy statement is provided in connection with a solicitation of
proxies by the Board of Directors of OnLine Power Supply, Inc. for use at our
annual meeting of shareholders (the "Meeting") to be held on December 7, 2000
and at any adjournments of the Meeting.
WHO CAN VOTE
If you held any shares of common stock on the record date (October 31,
2000), then you will be entitled to vote at the Meeting. If you held stock in
your own name, you may vote directly. If you owned stock beneficially but in the
record name (street name) of an institution, you may instruct the record holder
how to vote when the record holder contacts you about voting and gives you the
proxy materials. There are 3,120 shares of non-voting preferred stock issued and
outstanding.
COMMON STOCK OUTSTANDING ON THE RECORD DATE: 21,285,715
QUORUM AND VOTING RIGHTS
You are entitled to one vote for each share of OnLine common stock you
hold. A quorum for the Meeting will exist if a majority of the voting power of
the shareholders is present at the Meeting, in person or represented by properly
executed proxy delivered to us prior to the Meeting. Shares of common stock
present at the Meeting that abstain from voting, or that are the subject of
broker non-votes, will be counted as present for determining a quorum. A broker
non-vote occurs when a nominee holding stock in street name or otherwise for a
beneficial owner does not vote on a particular matter because the nominee does
not have discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
We will be voting on two matters: First, on the election of directors, and
second, on the ratification of the appointment of independent auditors. For the
election of directors, a nominee will be elected if he receives a plurality of
the votes cast. The selection of our independent audit firm by the audit
committee will be ratified if the number of votes cast in favor exceeds the
number of votes cast in opposition. Any other matter which properly comes before
the Meeting would be approved if the number of votes cast in favor exceeds the
number of votes cast in opposition, unless Nevada law requires a different
approval ratio. OnLine's Corporate Secretary, Richard Millspaugh, will serve as
the inspector of election.
Abstentions and broker non-votes will have no effect on the election of
directors. Abstentions as to all other matters which properly may come before
the Meeting will be counted as votes against those matters. Broker non-votes as
to all other matters will not be counted as votes for or against, and will not
be included in calculating the number of votes necessary for approval of these
matters.
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HOW YOUR PROXY WILL BE VOTED; RECOMMENDATION OF THE BOARD
The board of directors is soliciting a proxy in the enclosed form to
provide you with the opportunity to vote on all matters scheduled to come before
the Meeting, whether or not you attend in person.
The board of directors recommends you vote in favor of the director
nominees and in favor of the selection of audit firm for the current fiscal
year.
GRANTING YOUR PROXY
If you properly execute and return a proxy in the proposed form, your
shares will be voted as you specify. If you make no specifications, your proxy
will be voted in favor of the nominees for Director positions, and for the
ratification of our audit firm.
We expect no matters to be presented for action at the Meeting other than
the items described in this proxy statement. However, the enclosed proxy will
confer discretionary authority with respect to any other matter that may
properly come before the Meeting. The persons named as proxies in the enclosed
proxy form intend to vote in accordance with their judgment on any matters that
may properly come before the Meeting.
REVOKING YOUR PROXY
If you submit a proxy, you may revoke it later or submit a revised proxy at
any time before it is voted. You also may attend the Meeting in person and vote
by ballot, which would cancel any proxy you previously submitted.
PROXY SOLICITATION
We will pay all expenses of soliciting proxies for the Meeting. In addition
to solicitations by mail, arrangements have been made for brokers and nominees
to send proxy materials to their principals, and we will reimburse them for
their reasonable expenses. We have not hired a solicitation firm for the
Meeting. Our employees and directors will solicit proxies by telephone or other
means, if necessary; these people will not be paid for these services.
SHAREHOLDER PROPOSALS AND NEW ANNUAL MEETING DATE
Next year we will hold the annual meeting in June 2001. Therefore, if you
want us to consider including a proposal in next year's proxy statement, you
must deliver it in writing to the Corporate Secretary, OnLine Power Supply,
Inc., 6909 South Holly Circle, Suite 200, Englewood, Colorado 80112 by March 1,
2001.
If you want to present a proposal at next year's annual meeting but do not
wish to have it included in our proxy statement for that meeting, you must
submit it in writing to the Corporate Secretary, at the above address, by March
1, 2001.
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CORPORATE GOVERNANCE
The board of directors, which held four meetings during 1999, has primary
responsibility for directing the management of our business affairs. The board
currently consists of four members. In 1999, there were three members. In 1999,
Kris M. Budinger attended all meetings; Thomas Glaza (appointed in July 1999)
attended all the meetings after his appointment and Larry G. Arnold, who left
our company in February 2000, attended all the board meetings.
To provide effective direction and review of fiscal matters, the board has
established an audit committee in fiscal 2000. The audit committee has the
responsibility of reviewing our financial statements, exercising general
oversight of the integrity and reliability of our accounting and financial
reporting practices, and monitoring the effectiveness of our internal control
systems. The audit committee also recommends a selection of the auditing firm
and exercises general oversight of the activities of our independent auditors,
principal financial and accounting officers and employees and related matters.
The members of the audit committee are Kris M. Budinger, Ronald W. Mathewson,
and Gary R. Fairhead. Mr. Mathewson and Mr. Fairhead are independent directors
under criteria established by the National Association of Securities Dealers,
Inc. and the Nasdaq Stock Market Inc. Mr. Thomas Glaza served on the audit
committee from inception to August 11, 2000, but resigned when Mr. Fairhead was
appointed as a third member.
The audit committee has reviewed our financial statements to date for
fiscal 2000. In fiscal 2000, the audit committee also has reviewed the financial
statements for fiscal 1999 as audited by our independent audit firm, on an
after-the-fact basis, to form a basis for its recommendation that the same firm
be selected for our audit for fiscal 2000 (Proposal 2 to be voted on at the
Meeting is the ratification of this selection of audit firm).
PROPOSAL 1: ELECTION OF DIRECTORS
The board of directors has established the number of directors at four, by
amending the bylaws in this respect in August 2000, as permitted by the law of
our corporate domicile (Nevada). Each serves a one year term, or until his
successor is elected to the board. There are no arrangements or agreements among
shareholders for the election of any director.
INFORMATION ABOUT THE NOMINEES
Information about the director nominees follows:
KRIS M. BUDINGER, 47, has been President, Chief Operating Officer and
Treasurer of OnLine since July 29, 1996, and was appointed to take on the
responsibilities of CEO in March 2000, after former CEO (Larry Arnold) left
OnLine. He has been a director since early 1995 and was elected director again
at the last shareholders' meeting in December 1999. Mr. Budinger is employed by
OnLine and therefore is not classified as an independent director. Mr. Budinger
is a member of the audit committee.
His primary duties cover supervision of product development, coordination
of research-development with prospective customers' design needs, prospective
customer relations at the corporate level, and developing relationships with
manufacturers and suppliers. He had been the Chairman, President, and CEO of
OnLine Entertainment, Inc. (prior to the merger with Glitch Master Marketing,
Inc. on July 29, 1996) from February 12, 1996 to July 29, 1996. From early 1995
to February 12, 1996, he was a Director and Vice President of OnLine
Entertainment, Inc. His responsibilities at OnLine Entertainment, Inc. included
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production of original direct response television programming, management of
product order fulfillment, telemarketing, merchant banking, and television and
radio distribution functions.
Mr. Budinger graduated from the United States Air Force Academy in 1974 and
served as a Captain in the USAF until his honorable discharge in 1980. Mr.
Budinger was associated with the national investment banking firm, E.F. Hutton,
as a registered representative from 1981 to 1985, and from 1985 to 1988 as Vice-
President and Branch Manager in Peoria, Arizona. Mr. Budinger was associated
with Dean Witter Reynolds as a registered representative from 1988 to 1992, and
during those four years was a Vice-President and Assistant Branch Manager in the
Sun City, Arizona office of Dean Witter Reynolds.
THOMAS L. GLAZA, 65, was appointed to the board of directors of OnLine in
July 1999 and elected to serve as a director of OnLine at last year's annual
meeting. He serves as an outside (but not independent) director, and is not
employed by OnLine.
He is currently an independent consultant and also a director of Ceimis
Inc., a Los Angeles based private company that provides internet related
software for companies to manage and collaborate their internal departments and
outside entities involved with the release of new or significantly revised
products. He recently retired from MAPICS Inc., a public company with annual
revenues of $160 million dollars. Mr. Glaza was VP of Marketing and Business
Development for this Enterprise Resource Planning software company. His
responsibilities at MAPICS included negotiating the terms and conditions of
marketing rights associated with new software products, developing corporate
strategy, managing traditional marketing activities such as product
specifications, advertising schedules, trade show productions and coordinating
promotional materials and events.
He was CEO of GMD, a $10 million dollar company that provided computer
consulting services to manufacturing and distribution companies implementing new
software control systems. During his 25 year career with IBM, he held various
positions in sales and marketing, both in the United States and Europe. He is a
member and Fellow of the American Production and Information Control Society
("APICS"). Mr. Glaza graduated in 1957 with a Bachelor's degree and in 1959 with
an MBA degree from the University of Michigan.
Mr. Glaza's brother, James Glaza, is associated with Northstar Securities,
Inc., a registered broker- dealer in securities which has raised money for us in
the past. This family relationship precludes Thomas Glaza from classification as
an "independent" director.
RONALD W. MATHEWSON, 62, was appointed to the board of directors of OnLine
in March 2000 to fill the vacancy resulting from the departure of Larry G.
Arnold. He is not employed by OnLine, is an independent director, and is a
member of the audit committee.
Mr. Mathewson was President and Chief Operating Officer of Fibreboard
Corporation from October 1996 to February 1998 during which time he led the
merger of Fibreboard Corporation with Owens Corning. From June 1994 to November
1995 he served as Executive Vice President and President of MagneTek, Inc.
Lighting Products Group. Mr. Mathewson was Vice President and General Manager of
the Building Insulation Division of the Johns Manville Corporation from June
1988 to June 1994. From May through November 1987 he served as President and
Chief Operating Officer of Miami-Carey Corporation. Mr. Mathewson was employed
with General Electric Company from 1981 to 1987 in various management positions
including General Manager, Marketing and Sales Manager, International Strategic
Planning and Business Development Manger, and Venture Manager.
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Mr. Mathewson has extensive experience in strategic business planning,
acquisitions and mergers, and marketing and sales. He received a bachelor degree
in Mechanical Engineering and Business from the University of Wyoming in 1960.
GARY R. FAIRHEAD, 48, was appointed a director of OnLine on August 11, 2000
to fill the vacancy created when the board of directors amended the bylaws to
increase the number of directors from three to four. Mr. Fairhead is not an
employee of OnLine, is an independent director, and is a member of the audit
committee.
Since 1990, Mr. Fairhead has been the President, Chief Executive Officer
and a director of SigmaTron International, Inc., a Delaware corporation listed
on the Nasdaq National Market System. SigmaTron, based in Elk Grove, Illinois,
is an independent provider of electronic manufacturing services, including
printed circuit board assemblies and completely assembled (boxbuild) electronic
products. SigmaTron reported net sales of $88,885,000 for the fiscal year ended
April 30, 2000. Mr. Fairhead is also a director of Circuit Systems. Inc., an
Illinois corporation listed on the Nasdaq Small Cap Market. Circuit Systems
manufactures printed circuit boards. Circuit Systems reported net sales of $23
million for the third quarter in fiscal 2000.
Mr. Fairhead received his Bachelor of Science degree in 1974 from Purdue
University, and his Master of Science, Industrial Administration in 1978 from
the Krannert School of Business, Purdue University. Since 1995, Mr. Fairhead has
been a trustee of the Central States Union and a director of the Lattof Branch
of the YMCA.
DIRECTOR COMPENSATION
The non-executive Directors (Mr. Glaza, Mr. Mathewson, and Mr. Fairhead)
each have received nonqualified options to purchase 10,000 shares of our common
stock for their services as directors and we expect to continue this program in
future years. See below. The options were fully vested upon grant; the exercise
price per share is $2.88 for Mr. Glaza (option expires in July 2002), $4.50 for
Mr. Mathewson (option expires in June 2003), and $8.375 for Mr. Fairhead (option
expires in August 2003), in each case equal to the market price of our stock
when the options were granted. We pay the travel expenses of the non- executive
directors to attend board meetings, but we do not pay any other compensation to
them for their service. Mr. Budinger is paid a salary as the Chief Executive
Officer but is not separately paid for service as a director.
STOCK OPTION PLANS
We have established two option plans (a qualified plan for employees and
the other for non-executive Directors). We also have issued nonqualified options
to eight persons (seven officers, and an eighth person who was an officer but
left OnLine in February 2000), and an investment relations firm.
QUALIFIED INCENTIVE STOCK OPTION PLAN
We have adopted an incentive stock option plan for the issuance of up to
3.5 million shares of common stock; the options are intended to qualify under
section 422 of the Internal Revenue Code. As of September 30, 2000, we had
issued to our employees (including officers) qualified options to purchase
428,986 shares of common stock. Most of the options are vested (some vest over
time), and are exercisable at different prices from $2.88 to $10.62 per share
(equal to or above market prices when the options were issued). All of the
options may be exercised for cash (although a few issued to employees who left
us in 2000
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were exercised a "cashless exercise" method (shares issued equal to the
difference between market value at exercise date, and the exercise price, with
the balance forfeited back to OnLine)). In late October 2000, we modified the
plan to allow exercise only for cash. All qualified options will expire if the
employee leaves us or when the options expire (at different times from 2001 to
2009). As of September 30, 2000 options to purchase 174,381 shares have been
exercised, resulting in outstanding options to purchase 254,605 shares as of
September 30, 2000.
The issuance of shares on exercise of options under the incentive stock
option plan is registered with the Securities and Exchange Commission on Form
S-8.
NONQUALIFIED STOCK OPTION PLAN FOR NON-EXECUTIVE DIRECTORS
To compensate our non-executive directors, we established this plan for the
issuance of up to 300,000 shares of common stock; options under this plan will
not qualify under section 422 of the Internal Revenue Code. To date, we have
issued options to purchase 30,000 shares of common stock to our three
non-executive directors. See above. We will register the issuance of shares on
exercise of options under this plan with the Securities and Exchange Commission
on Form S-8.
NONQUALIFIED OPTIONS (AND WARRANTS)
From time to time we issue options or warrants which are not covered by an
option plan and are not qualified under section 422 of the Internal Revenue
Code. These include options granted or to be granted to officers: 825,000 shares
to Kris M. Budinger (500,000 vested and 325,000 options which may be granted
subject to performance vesting); 200,000 shares to Richard L. Millspaugh
(100,000 shares vesting at 20% per year and 100,000 shares vesting at 25% per
year); 1,023,000 shares granted to Garth Woodland (523,000 vested and 500,000
vesting at 20% per year); 500,000 shares granted to Chris A. Riggio (vesting at
20% per year); 200,000 shares to Fred Budinger (vesting over three years);
100,000 shares to Christine Maxwell (vesting over three years); 100,000 shares
to Eli Reed (vesting over three years); and former officer Larry G. Arnold
(500,000 vested and 325,000 options which may be granted subject to performance
vesting) and 30,000 warrants to an investor relations firm (Pfeiffer Public
Relations, Inc., see "Certain Relationships and Related Transactions" below).
Lesser amounts of qualified options also have been granted to the officers (see
"Employment Agreements" below).
EXECUTIVE COMPENSATION
The following table shows selected information about the compensation paid
or accrued by us to or for the account of the Chief Executive Officer, the Chief
Operating Officer, (also the President in 1999) and Chief Financial Officer for
services and bonuses rendered in all capacities to us during each of the fiscal
years ended December 31, 1999, 1998, and 1997. No other executive officer
received total annual salary and bonus in excess of $100,000. We do not have any
long-term compensation plan, other than stock options.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
OTHER ANNUAL
NAME AND POSITION YEAR SALARY BONUSES COMPENSATION
----------------- ---- ------ ------- ------------
<S> <C> <C> <C> <C>
Kris Budinger, COO & President 1999 $72,000 $36,000 $0
1998 $72,000 $0 $0
1997 $72,000 $0 $0
Larry Arnold (former CEO) 1999 $72,000 $36,000 $0
1998 $72,000 $0 $0
1997 $72,000 $0 $0
Richard Millspaugh, CFO 1999 $18,000 $0 $0
</TABLE>
This table shows all stock options that we granted to each of the named
executive officers in 1999.
OPTION GRANTS IN 1999 (QUALIFIED AND NONQUALIFIED)
<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF ALL OPTIONS
SHARES UNDER- GRANTED TO
LYING OPTIONS EMPLOYEES EXERCISE EXPIRATION GRANT DATE
NAME GRANTED IN 1999 PRICE DATE PRES. VALUE(1)
<S> <C> <C> <C> <C> <C>
Kris M. Budinger 11,650 - $6.18 12/13/09 $ 40,581
Richard L. Millspaugh 28,203 1% $2.88/$5.62 2004/2009 $ 57,367
Chris Riggio 511,032 19% $3.00/$5.62 2004/2009 $ 997,017
Garth Woodland 1,034,032 38% $3.00/$5.62 2004/2009 $ 1,998,502
<FN>
(1) The Black-Scholes option pricing model was used to determine the grant
date present value of the stock options that we granted to the named
officer. The following facts and assumptions were used in making this
calculation: an exercise price of $2.88 to $ 6.18 per share, which was
equal to or higher than fair market value of our stock on the grant
date; a zero dividend yield; expected volatility of 97.16%; risk-free
interest rate of 6.623 %, and an expected life of three years.
</FN>
</TABLE>
SHARES UNDERLYING OPTIONS AND THEIR VALUE
This table shows all outstanding options, and their value, held by each of
the named officers as of December 31, 1999. None of the named officers exercised
any options in 1999; Mr. Millspaugh exercised options of 25,000 shares in 2000,
although these options are shown as outstanding at December 31, 1999 (see
"Employment Agreements - With Richard Millspaugh" below.)
In each case, "value" is determined by multiplying (x) the number of shares
underlying the options by (y) the difference between the closing stock price
$5.88 on December 31, 1999 (was the last trading day of the fiscal year) and the
exercise price of the options. "Exercisable" means "vested"; "unexercisable"
means "not vested at December 31, 1999."
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<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
NAME UNDERLYING UNEXERCISED IN-THE-MONEY
OF THE OPTIONS AT 12/31/99 OPTIONS AT 12/31/99
OFFICER EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C>
Kris M. Budinger 511,650/-0- $ 165,000(1)/$ -0-(2)
Richard Millspaugh 28,206/-0- $ 75,834(3)/$ -0-(4)
Chris A. Riggio 36,032/500,000 $ 77,868(5)/$1,440,000(6)
Garth Woodland 559,032/500,000 $1,584,108(7)/$1,440,000(8)
Larry G. Arnold 500,000/-0- $ 165,000(1)/$ -0-(9)
----------------
<FN>
(1) Value of unexercised in-the-money vested options is based on 500,000
shares at an exercise price of $5.50.
(2) None of the 325,000 performance options has vested and may not be
granted, depending on OnLine's fiscal years' financial performance
from fiscal 2000 forward (see "Employment Agreements - With Kris
Budinger").
(3) Value of unexercised in-the-money vested options is based on 25,000
shares at an exercise price of $2.88 plus another 3,203 shares at an
exercise price of $5.62.
(4) Does not include options on 100,000 shares at an exercise price $4.50
vesting at 20% per year starting September 2000, or options on 100,000
shares at $8.125 which were granted in September 2000 and vest over
three years.
(5) Value of unexercised in-the-money vested options is based on 25,000
shares at an exercise price of $2.88 plus another 11,032 shares at an
exercise price of $5.62.
(6) Value of unexercisable in-the-money options is based on 500,000 shares
granted in 1999, vesting at 20% per year starting 2001, with an
exercise price of $3.00 per share.
(7) Value of unexercised in-the-money vested options is based on 25,000
shares at an exercise price of $2.88, 11,032 shares at an exercise
price of $5.62, and 523,000 shares at an exercise price of $3.00.
(8) Based on unexercisable options on 500,000 shares granted in 1999,
vesting at 20% per year starting 2000, with an exercise price of $3.00
per share.
(9) Mr. Arnold left OnLine after December 31, 1999.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
-WITH KRIS BUDINGER. We have a written employment agreement with Kris M.
Budinger through March 31, 2003 subject to automatic renewal for 5 year terms
unless terminated by us on or after September 30, 2002. The base salary was
$72,000 per year, subject to increase; in December 1999, the board of directors
increased the base salary to $150,000 for the year 2000. Under the employment
agreement, Mr. Budinger was granted nonqualified stock options to purchase
500,000 shares of common stock at $5.50 per share (all now vested), which was
110% of the fair value of the stock at March 4, 1998. These options will expire
March 4, 2004. None have been exercised to date.
The employment agreement also provided for the grant of other nonqualified
performance stock options to purchase 500,000 shares of common stock at $.0001
per share; if granted, this option will expire March 4, 2009. The performance
option would vest according to a formula: If we had more than $3 million of
gross revenues by December 31, 1999, 35% of the options would have vested (we
didn't make this target so this part of the option has lapsed). If we have more
than $6 million of gross revenues by December 31,
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2000, 35% of the options would vest. Finally, if we have more than $9 million of
gross revenues by December 31, 2001, an additional 30% of the options would
vest. These options are discussed in our financial statements (note 6 for the
vested options and note 10 for the performance options which are included in the
Annual Report for 2000 which accompanies this proxy statement).
For the year ending December 31, 1999 and later, the employment agreement
provides a cash bonus of 50% of base salary if the average closing price of the
common stock for the last 20 business days of the year exceeds the previous
year's comparable amount by 51% or more. For fiscal 1999, the stock price
exceeded the threshold, and Mr. Budinger was paid in 2000 a cash bonus of
$36,000 based on stock prices for 1999.
In addition, we issued qualified options to Mr. Budinger to purchase 11,650
shares of common stock at $6.18 per share.
-WITH GARTH WOODLAND. Garth Woodland has a five year written employment
agreement, at a starting salary of $84,000 (increased to $102,000 per year
effective September 1, 2000). He received nonqualified stock options to purchase
523,000 shares of common stock at $3.00, all of which are vested, and options
for another 500,000 shares at the same price, to vest 20% per year starting
September 1, 2000. Mr. Woodland has separate qualified options to buy 11,032
shares at $5.62 and 25,000 shares at $2.88; these options expire on termination
of employment or 2009.
-WITH CHRIS RIGGIO. Chris Riggio has a five year written employment
agreement at a starting salary of $84,000 per year (increased to $102,000 per
year effective September 1, 2000), He received nonqualified stock options to
purchase 500,000 shares of common stock at $3.00, to vest 20% per year starting
September 1, 2000. Separate from the agreement, Mr. Riggio has separate
qualified options to buy 11,032 shares at $5.62 and 25,000 shares at $2.88;
these options expire on termination of employment or 2009.
-WITH RICHARD MILLSPAUGH. Mr. Millspaugh has a five year written employment
agreement, at a starting salary of $84,000 per year (increased to $102,000 per
year effective September 1, 2000), He received nonqualified stock options to
purchase 100,000 shares of common stock at $4.50 (repriced in June, 2000 from
the original exercise price which was $5.625), which will vest 20% per year
starting in 2001. Mr. Millspaugh has separate qualified options to buy 3,206
shares at $5.62 (expiring on termination of employment or 2009), and
nonqualified options to buy 100,000 shares at $8.125 which vest over a period of
three years (expiring on termination of employment or 2005). In 2000, he
acquired 17,101 shares by exercise of his options on 25,000 shares.
- WITH FRED BUDINGER. Mr. Fred Budinger, Vice President Operations as of
October 26, 2000, is Kris Budinger's brother. Fred Budinger is paid a salary of
$102,000 per year (effective September 1, 2000, an increase from his starting
salary of $60,000 on January 1, 2000). He also has been granted a nonqualified
stock option to purchase 200,000 shares of common stock at $8.125 (market value
on the September 1, 2000 grant date), vesting over a three year period, and will
expire on termination of employment or September 1, 2005, and a qualified stock
option to purchase 10,000 shares at $5.96 (market value on the January 3, 2000
grant date), which are all vested and expire on termination of employment or
December 13, 2009.
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- WITH ELI REED. Mr. Reed, Director International Sales and Marketing, is
Kris Budinger's son-in- law. He is paid a salary of $90,000 per year (effective
September 1, 2000, an increase from his starting salary of $45,000 in 1996). Mr.
Reed has been granted a non-qualified stock option to purchase 100,000 shares of
common stock at $8.125 (market value on the grant date); these options will vest
over a three year period and expire on termination of employment or September 1,
2005. He also has been granted a qualified option to purchase 25,000 shares at
$2.88, all vested, expiring on termination of employment or December 2001, and a
separate qualified option to purchase 5,067 shares at $5.62, all vested,
expiring on termination of employment or December 2009.
- WITH CHRISTINE MAXWELL. Mrs. Maxwell, also Director International Sales
and Marketing, is paid a salary of $90,000 per year (effective September 1,
2000, an increase from her starting salary in 1990 of $45,000 while at Glitch
Master Marketing, Inc. before its acquisition by OnLine). Mrs. Maxwell has been
granted a non-qualified option to purchase 100,000 shares of common stock at
$8.125 (market value on the grant date), which will vest over three years,
expiring on termination of employment or September 1, 2005. She also has been
granted a qualified option to purchase 25,000 shares at $2.88, all vested,
expiring on termination of employment or December 2001, and a separate qualified
option to purchase 5,746 shares at $5.62 expiring on termination of employment
or December 2009.
SECURITY OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information about beneficial
ownership of our common stock as of October 31, 2000 by each officer and
director, by any person or group who is known by us to own more than 5% of our
common stock, and by the officers and directors as a group. The ownership
information is based on the Forms 3 and 4 filed by our officers (except for Eli
Reed, Christine Maxwell and Fred Budinger) and directors (and by Larry G.
Arnold) with the Securities and Exchange Commission as required by section 16(a)
of the Securities and Exchange Act of 1934. Based on those Forms 3 and 4, the
beneficial owners have sole voting and dispositive power with respect to their
shares except as otherwise noted. Ownership information for Eli Reed, Christine
Maxwell and Fred Budinger, who were appointed executive officers on October 26,
2000, is based on information provided by these persons, who have stated that
each has sole voting and dispositive powers over their shares. Each of these
persons will have filed a Form 3 with the Securities and Exchange Commission on
or before November 5, 2000.
In each instance, the number of shares shown as owned by the individual
includes shares issuable on exercise of options which are or would be
exercisable by December 30, 2000 (60 days from the October 31,2000 record date),
as required by the disclosure rules of the Securities and Exchange Commission.
Similarly, the percentage for each person has been determined by dividing (x)
the shares owned by the individual plus the shares the person has the right to
acquire on exercise of options within 60 days of October 31, 2000, by (y) the
21,285,715 shares of common stock outstanding as of October 31, 2000, plus for
each person with options, the number of shares the person has the right to
acquire on exercise of options within 60 days of October 31, 2000. For
information about the options, see "Executive Compensation - Employment
Agreements" above.
11
<PAGE>
NAME AND ADDRESS AMOUNT OF SHARES PERCENT OF CLASS
Kris M. Budinger * 1,397,125 (1) 6.4%
Chief Executive Officer
6909 S. Holly Circle, Suite 200
Englewood, Colorado 80112
Richard L. Millspaugh 64,206 ***
Chief Financial Officer
6909 S. Holly Circle, Suite 200
Englewood, Colorado 80112
Thomas Glaza * 70,309 ***
370 Fallen Leaf Lane
Roswell, Georgia 30075
Ronald W. Mathewson * 14,750 ***
87 Glenmoor Place
Englewood, Colorado 80110
Gary R. Fairhead * 37,500 ***
2201 Landmeier Road
Elk Grove Village, Illinois 60007
Garth A. Woodland 719,032 3.3%
Vice-President Engineering,
6909 S. Holly Circle, Suite 200
Englewood, Colorado 80112
Chris A. Riggio 1,036,845 8.5%
Vice-President Research
And Development
6909 S. Holly Circle, Suite 200
Englewood, Colorado 80112
Fred Budinger -0- -0-
Vice President Operations
6909 S. Holly Circle, Suite 200
Englewood, Colorado 80112
Christine Maxwell 2,618 -0-
Director International Sales
and Marketing
6909 S. Holly Circle, Suite 200
Englewood, Colorado 80112
Warren "Eli" Reed 8,709 ***
Director International Sales
and Marketing
6909 S. Holly Circle, Suite 200
Englewood, Colorado 80112
Larry G. Arnold ** 1,849,427 8.5%
917 Lost Trail Road
Castle Rock, Colorado 80104
All Officers and Directors as a 5,200,521 25.0%
Group (10 persons)
12
<PAGE>
* Director
** Former Director and Officer
*** Less than 1%
(1) Includes 516,691 shares owned by immediate family members of Mr. Budinger
(Kris's wife holds sole voting and dispositive power over 412,291 shares
and Mr. Budinger shares voting and dispositive power over 102,400 shares
owned by his children.)
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time since 1998, we have borrowed money from our officers to
sustain operations and pay other expenses. At December 31, 1999, these loans had
been paid off, in the amounts of $231,750 plus $15,098 interest (10 % annual
rate) which was paid in cash to Larry G. Arnold, a former officer and Director
who left OnLine in February, 2000 and $150,000 (plus annual interest at 12%)
which was paid in stock to a trust controlled by a member of Mr. Budinger's
family. The trust had loaned the $150,000 to us in December 1998 to pay a
settlement to a bankruptcy trustee; the loan from the Budinger trust was paid by
issuing 53,571 shares of restricted common stock at market value in October
1999.
Through September 30, 2000, we have paid Mr. Arnold (former CEO and
Chairman of the board of directors who left OnLine on February 29, 2000) $94,500
in severance compensation under his employment agreement which had the same
terms as the agreement with Mr. Budinger. Mr. Arnold holds options to purchase
500,000 shares of common stock at $5.50 per share (all now vested) which was
110% of the fair value of the stock at March 4, 1998; these options will expire
March 4, 2004. None have been exercised to date. Mr. Arnold also is entitled to
be granted the same number of performance options which would be granted to Mr.
Budinger if the financial targets are achieved. Mr. Arnold also was paid in 2000
the same cash bonus amount as was paid to Mr. Budinger, based on stock price.
In 1999, we borrowed $88,000 from Falcon Financial Benefit Pension Plan. We
paid off this loan plus annual interest at 18% in late 1999. One of the trustees
of this Plan is James Glaza, brother to Thomas Glaza who is one of our
directors. James Glaza is associated with Northstar Securities, Inc., a
registered broker-dealer which has helped us raise money from time to time in
private placements of our securities. In 1998 and 1999, Northstar has paid James
Glaza approximately $299,919 in net sales commissions related to our sales of
securities for his services as a stock broker. These were part of the gross
commissions we paid to Northstar. The financing activities at Northstar to some
extent predated Thomas Glaza's appointment to our board of directors. Neither
Thomas Glaza nor James Glaza is affiliated with Northstar, and neither owns any
stock in Northstar. Thomas Glaza is not an employee or affiliate or stockholder
of the Plan. Thomas Glaza, director, did not participate in negotiating or
approving our financial arrangements with Northstar Securities.
At December 31, 1999, we owed $101,081 in gross commissions to Northstar
Securities, Inc. for services related to our private placement offerings of
common stock in the last two quarters of 1999. We paid this obligation in 2000.
Part of the amount paid to Northstar was due to James Glaza as a Northstar
broker, but the exact amount he received from Northstar is not known to us.
On September 1, 2000, we signed a 12 month contract with Pfeiffer Public
Relations, Inc. ("PPR") to provide investor public relations services to us. PPR
is paid base compensation of $7,000 per month and has been issued warrants to
purchase 30,000 shares of restricted common stock at $9.50 for 10,000 shares,
10,000 shares at $12.50 and 10,000 shares at $15.50. The warrants are fully
vested. The contract may be canceled by either party on 30 days notice.
13
<PAGE>
PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The board of directors seeks shareholder ratification of the board's
appointment of Ehrhardt Keefe Steiner & Hottman, P.C., Certified Public
Accountants, to act as the auditors of our financial statements for the year
2000. The audit committee has recommended that the Board retain this auditing
firm for year 2000. EKS&H audited our financial statements for 1999. The board
has not determined what action, if any, would be taken should the appointment of
EKS&H not be ratified at the Meeting. It is expected that a representative of
EKS&H will be available at the Meeting to respond to appropriate questions.
On January 12, 2000 we terminated our relationship with Cordavano &Harvey,
independent certified public accountants, which had audited our financial
statements for fiscal 1996, 1997 and 1998. C&H's audit reports on our financial
statements for each of those years contained a "going concern qualification"
that because of our recurring losses and lack of working capital, there was
substantial doubt about our ability to continue as a going concern. Except for
the uncertainty associated with the "going concern qualification," C&H's audit
reports for those three years did not contain an adverse opinion or disclaimer
of opinion, or modification as to uncertainty, audit scope or accounting
principles. In late 1999, our board of directors approved the termination of our
relationship with C&H and our engagement of the firm Ehrhardt Keefe Steiner &
Hottman PC, Denver, Colorado, which audited our financial statements for fiscal
1999.
We have never had any disagreements with C&H on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to C&H's satisfaction, would have caused C&H
to make reference to the subject matter of the disagreement in connection with
its reports.
COPIES OF OUR FORM 10-KSB
Promptly upon receiving a request from any shareholder, without charge we
will send to the requester a copy of our Form 10-KSB, with exhibits, as filed
with the Securities and Exchange Commission. Please address your request to Kari
Austin at OnLine Power Supply, Inc., 6909 S. Holly Circle, Suite 200, Englewood,
Colorado 80112. You also may call or fax her at T 303.741.5641, F 303.741.5679.
14
<PAGE>
PROXY ONLINE POWER SUPPLY, INC. PROXY
The undersigned hereby appoints Kris M. Budinger and Richard Millspaugh, or
either of them, with full power of substitution, as proxies to all of the shares
of stock of the undersigned in OnLine Power Supply, Inc. at the Annual Meeting
of Shareholders to be held on Thursday, December 7, 2000 at 10:00 a.m., local
time, or at any adjournments thereof, on the matters numbered below:
THE PROXIES WILL VOTE: (1) AS YOU SPECIFY ON THIS CARD; (2) AS THE BOARD OF
DIRECTORS RECOMMENDS WHERE YOU DO NOT SPECIFY YOUR VOTE ON A MATTER LISTED ON
THIS CARD, AND (3) AS THE PROXIES DECIDE ON ANY OTHER MATTER.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE IN FAVOR OF ALL DIRECTOR
NOMINEES AND IN FAVOR OF RATIFYING THE SELECTION OF INDEPENDENT AUDITORS.
If you wish to vote on all matters as the Board of Director recommends,
please sign, date and return this card. If you wish to vote on items
individually, please also mark the appropriate boxes below.
(INSTRUCTION: Mark only one box to each item.)
1. Election of Directors:
__ FOR the nominees listed below __ AGAINST the nominees listed below
__ ABSTAIN
Kris M. Budinger Thomas Glaza Gary R. Fairhead Ronald W. Mathewson
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, PLEASE DRAW A LINE THROUGH
THE NAME OF THAT NOMINEE.
2. Ratification of appointment of Ehrhardt Keefe Steiner & Hottman as indepen-
dent auditors for the current fiscal year.
__ FOR the appointment __ AGAINST the appointment __ ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
15
<PAGE>
PROXY ONLINE POWER SUPPLY, INC. PROXY
Sign your name exactly as it appears on the mailing label below. It is
important to return this Proxy properly signed in order to exercise your right
to vote, if you do not attend in person. When signing as an attorney, executor,
administrator, trustee, guardian, corporate officer, etc., indicate your full
title as such.
Sign on this line - joint holders may sign here too: ___________________________
_______________________, 2000. ___________________
(Date) (Number of Shares)
NOTE: Please sign, date, and place this Proxy in the enclosed self-addressed,
postage prepaid envelope and deposit it in the mail as soon as possible.
PLEASE IF YOU ARE PLANNING TO ATTEND THE MEETING. __
IF THE ADDRESS ON THE MAILING LABEL IS NOT CORRECT, PLEASE PROVIDE THE CORRECT
ADDRESS:
________________________________________________________________________________
________________________________________________________________________________
16
<PAGE>
Audit Committee Charter
of
OnLine Power Supply, Inc.
I. Membership
The audit committee shall be composed of a minimum of three members. As long as
the Company is designated a Small Business, the audit committee may include one
member who is an officer of the company and two members who are independent,
outside directors; however, a majority of the members must be independent of
management at all times. When the Small Business designation changes, or at the
discretion of the Board of Directors, all audit committee members shall be
independent directors as defined by the SEC. Committee members who are
independent directors or others serving on the committee shall be free from
relationships that may, in the opinion of the Board of Directors, interfere with
their ability to exercise independent judgment as a committee member.
Each member of the audit committee shall be capable of reading and understanding
fundamental financial statements, including a company's balance sheet, income
statement, and cash flow statement or be able to do so within a reasonable
period of time after his or her election to serve on the committee.
A former officer of the company may serve on the audit committee during this
period of small business status (even though the former officer is receiving
pension or deferred compensation payments from the company) if, in the opinion
of the Board of Directors, the former officer is able to exercise independent
judgment and will significantly assist the committee to function by furnishing
information about the company and its operations. However, at all times, a
majority of the committee members will be outside directors not formerly serving
in any capacity within the company.
The members of the Committee shall be nominated and elected to serve on the
committee by the Board of Directors. The initial committee members will be the
Chief Executive Officer of the Company and two independent directors. The
organizational meeting will be held to adopt the charter and to appoint the
initial members who will serve until their successors shall be duly qualified
and elected. Unless a chairman is elected by the full Board of Directors, the
members of the Committee may designate a chairman by majority vote of the full
Committee membership. Vacancies may be filled by the Board of Directors until a
replacement member can be duly elected.
II. Purpose
The primary purpose of the audit committee is to assist the Board of Directors
in fulfilling its oversight responsibilities and to accomplish a higher level of
compliance for financial reporting by the company. The functions of the audit
committee shall include: (1) review of the outside audit efforts of the
independent auditors and appraise the overall scope of the audit process, (2)
monitor the company's financial reporting process and evaluate the internal
accounting control system, (3) consult and communicate with the independent
auditors, financial officer(s) and senior management providing a consistent flow
of ideas and recommendations for improvements in the reporting system to and
from the Board of Directors, management and the outside accountants.
<PAGE>
Page 2 of 4
III. Meetings
The committee shall meet at least annually, or more frequently as circumstances
dictate or at the special request of the chairman of the committee. As part of
its job to foster open communication, the committee should meet at least
annually with the Chief Financial Officer and the independent accountants to
discuss any matters that the committee or each of these groups believe should be
discussed privately. In addition, the committee, or at least its chairman,
should meet at least quarterly with the independent accountants and corporate
management to review the Company's financials as prescribed in article IV.3
below.
IV. Responsibilities
To fulfill its responsibilities the Audit Committee shall:
Documents/Reports Review
------------------------
1. Review this Charter annually and update it as conditions dictate.
2. Review the Company's annual financial report (10-K) or other financial
information prior to submission to the SEC, or any financial information to
be made public, including any certification, report, opinion, or review
rendered by the independent accountants.
3. Review with the Chief Financial Officer and, if the Committee believes it
to be advisable, the independent accountants, the 10-Q's and 10-K's prior
to their filing. The Chairman of the Committee may represent the entire
committee for purposes of these reviews.
4. The committee shall issue a report to the Board of Directors disclosing
whether (1) the committee has reviewed and discussed the audited financial
statements with management; (2) the committee has discussed with the
independent accountants the matters required to be discussed by SAS 61, as
may be modified or supplemented; (3) the committee has received the written
disclosures and the letter from the independent accountants required by ISB
Standard No. 1, as may be modified or supplemented, and has discussed with
the accountants the accountants' independence: and 4) whether, based on the
review and discussions referred to in (1)-(3) above, the committee
recommended to the Board that the financial statements be included in the
Annual Report on Form 10-K or 10-KSB for the last fiscal year for filing
with the SEC. These disclosures shall appear over the printed names of each
member of the committee, and shall be included in the Company's proxy
statement, if said proxy statement relates to an annual meeting of
shareholders at which directors are to be elected (or special meeting or
written consents in lieu of such meeting). The disclosures shall be made at
least once a year.
<PAGE>
Page 3 of 4
Independent Accountants
-----------------------
5. The independent accountants are ultimately accountable to the Board of
Directors, but they are also responsible for informing and advising the
Audit Committee on matters as prescribed by this charter and directive. The
Audit Committee will insure the compliance with the rules of independence
and recommend changes to the Board of Directors when necessary. As
representatives of the shareholders, the Board of Directors has the
ultimate authority and responsibility to select, evaluate, and where
appropriate, replace the outside accountants (or in the alternative, to
nominate an outside accountant to be proposed for shareholder approval in
any proxy statement).
6. After conferring with management, recommend to the Board of Directors the
selection of the independent accountants, considering their independence
and effectiveness, and approve the auditing fees and other compensation to
be paid to the independent accountants. On an annual basis, the Committee
should discuss with the outside accountants all significant relationships
or services that the accountants have that may affect their objectivity and
independence to serve as the corporation's independent accountants and to
obtain from the accountants a written statement setting forth any
relationships between the accountants and the Company as prescribed in ISB
Standard No. 1.
7. Review the performance of the independent accountants and, after
consultation with management, recommend discharge of the independent
accountants when circumstances warrant.
8. Receive copies of the annual comments from the independent auditors on
accounting practices and policies and systems of control of the Company,
and review with them any questions, comments or suggestions they may have
relating thereto.
9. Take, or recommend that the Board take, appropriate action to oversee the
independence of the independent accountants.
Financial Reporting Processes
-----------------------------
10. Consider and approve, if appropriate, material changes to the Company's
auditing and accounting principles and practices as suggested by the
independent accountants, management, or the internal accounting department.
11. Make or cause to be made, from time to time, such other examinations or
reviews as the Committee may deem advisable with respect to the adequacy of
the systems of internal controls and accounting practices of the Company
and with respect to current accounting trends and developments, and take
such action with respect thereto as may be deemed appropriate by the
Committee.
<PAGE>
Page 4 of 4
Process Improvement
-------------------
12. Establish a regular system of reporting by management to the Audit
Committee and reporting procedures for the independent accountants and
internal accounting department.
13. As part of the annual audit process, review the scope of the audit to be
performed by the independent accountants.
14. Review any significant disagreements between management and the independent
accountants in connection with the preparation of the financial statements,
including the use of estimates in the accounting process or the necessity
for exercising disclosure judgments when reporting any financial
transaction or preparing footnote disclosures to the financial statements.
15. Review, at least annually, the then current and future programs of the
internal accounting department, including the procedure for assuring
implementation of accepted recommendations made by the auditors, and review
the implementation of any accepted recommendations.
Compliance
----------
16. Review the status of corporate compliance with all laws, regulations and
internal control procedures by receiving regularly scheduled reports from
management, legal counsel and other third parties as determined by the
committee. The committee should stay informed on major legislative and
regulatory developments that could materially and adversely impact the
Company's contingent liabilities and risks. Be informed about future
compliance issues and assure changes to incorporate new policies to address
emerging financial reporting issues or conditions.
17. Perform any other activities consistent with this Charter, as amended, the
Company's articles and by-laws, other governing Federal and state laws, and
finally as the committee or the Board of Directors deems necessary or
appropriate.
Approved: /s/ Kris Budinger
-----------------------------------
Kris Budinger, Director
Approved: /s/ Thomas Glaza
-----------------------------------
Thomas Glaza, Director
Approved: /s/ Ron Mathewson
-----------------------------------
Ron Mathewson, Director
