Doc# 1143837\2
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant x
Filed by a party other than the registrant o
Check the appropriate box: [] Confidential,
for Use of the
[] Preliminary Proxy Statement Commission Only
(as permitted
[X] Definitive Proxy Statement by Rule 14a-
6(e)(2))
[] Definitive Additional Materials
[] Soliciting Material Pursuant to [] Rule 240.14a-11(c)
or [] Rule 240.14a-12
Ault Incorporated
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Reg
istrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[] $125 per Exchange Act Rule o-11(c)(1)(ii), 14a-6(i)(1) or
Item 22(a)(2) of Schedule 14A
[] Fee computed on table below per Exchange Act Rules 14a-
6(i)(1) and 0-11.
(1) Title of each class of securities to which
transaction applies:
(2) Aggregate number of securities to which
transactions applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[] Fee paid previously with preliminary materials.
[] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
AULT INCORPORATED
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
For September 30, 1999 Annual Meeting of Shareholders
The undersigned hereby appoints Frederick M. Green, Delbert
W. Johnson and Matthew A. Sutton, or any of them, as proxies with
full power of substitution to vote all shares of stock of Ault
Incorporated of record in the name of the undersigned at the
close of business on August 6, 1999 at the Annual Meeting of
Shareholders to be held in Minneapolis, Minnesota on September
30, 1999, or at any adjournment or adjournments, hereby revoking
all former proxies.
1. ELECTION OF DIRECTORS:
[] FOR all nominees listed below [] WITHHOLD AUTHORITY
(except as marked to the contrary). to vote fpr all nominees
listed below
(INSTRUCTIONS: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name
in the list below.)
James M. Duddleston, Frederick M. Green,
Delbert W. Johnson, John G. Kassakian, David J. Larkin,
Frank L. Sims, Matthew A. Sutton
2. PROPOSAL TO RATIFY AND APPROVE AMENDING THE COMPANY'S 1996
STOCK PLAN TO INCREASE THE NUMBER OF SHARES AUTHORIZED TO BE
ISSUED UNDER THE PLAN BY 250,000 SHARES TO 750,000 SHARES.
[] FOR [] AGAINST [] ABSTAIN
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
ANY OTHER MATTERS COMING BEFORE THE MEETING.
UNLESS OTHERWISE SPECIFIED, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF ALL DIRECTOR NOMINEES LISTED
AND "FOR" PROPOSAL (2) DESCRIBED ON THE REVERSE SIDE OF THIS
CARD.
Dated: , 1999
Signed:
(Signature)
(Signature)
Please sign name(s) exactly as shown at left.
When signing as executor, administrator,
trustee, guardian, etc., give full title as
such; when shares have been issued in the
names of two or more persons, all should
sign.
AULT INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
September 30, 1999
To the Shareholders of Ault Incorporated:
Notice is hereby given that the Annual Meeting of
Shareholders of Ault Incorporated will be held September 30, 1999
at the Minneapolis Club, 729 Second Avenue South, Minneapolis,
Minnesota 55402. The meeting will convene at 3:00 p.m.,
Minneapolis time, for the following purposes:
1. To elect seven directors to hold office until the next
Annual Meeting of Shareholders or until their
successors are elected.
2. To consider and act upon a proposal to ratify and
approve an amendment to the Company's 1996 Stock Plan
to increase the number of shares authorized to be
issued under such Plan by 250,000 shares to 750,000
shares.
3. To transact such other business as may properly come
before the meeting or any adjournment or adjournments
thereof.
The Board of Directors has fixed the close of business on
August 6, 1999 as the record date for the determination of
shareholders entitled to notice of and to vote at the meeting.
By Order of the Board of Directors,
Richard A. Primuth, Secretary
Minneapolis, Minnesota
August 24, 1999
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN,
DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE, WHETHER
OR NOT YOU EXPECT TO ATTEND IN PERSON. SHAREHOLDERS WHO
ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN
PERSON IF THEY SO DESIRE.
AULT INCORPORATED
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of
Ault Incorporated (the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company
to be voted at the Annual Meeting of Shareholders to be held on
September 30, 1999, or any adjournment or adjournments thereof.
The cost of this solicitation will be borne by the Company. In
addition to solicitation by mail, officers, directors and
employees of the Company may solicit proxies by telephone,
telegraph or in person. The Company may also request banks and
brokers to solicit their customers who have a beneficial interest
in the Company's Common Stock registered in the names of nominees
and will reimburse such banks and brokers for their reasonable
out-of-pocket expenses.
Any proxy may be revoked at any time before it is voted by
written notice to the Secretary, by receipt of a proxy properly
signed and dated subsequent to an earlier proxy or by revocation
of a written proxy by request in person at the Annual Meeting;
but if not revoked, the shares represented by such proxy will be
voted. The mailing of this Proxy Statement to shareholders of
the Company commenced on or about August 24, 1999. The Company's
corporate offices are located at 7300 Boone Avenue North,
Minneapolis, Minnesota 55428 and its telephone number is (612)
493-1900. Effective September 1 , 1999, the Company's corporate
offices will be located at 7105 Northland Terrace, Minneapolis,
Minnesota 55428.
Only shareholders of record at the close of business on
August 6, 1999 will be entitled to vote at the Annual Meeting.
The Company has outstanding only one class of stock, no par value
Common Shares (herein "Common Stock"), of which 4,383,787 shares
were issued and outstanding and entitled to vote as of August 6,
1999. Each share is entitled to one vote. The presence in
person or by proxy of the holders of a majority of the shares of
Common Stock entitled to vote at the Annual Meeting of
Shareholders constitutes a quorum for the transaction of
business. The shares represented by the enclosed proxy will be
voted if the proxy is properly signed and received prior to the
meeting,
Under Minnesota law, each item of business properly
presented at a meeting of shareholders generally must be approved
by the affirmative vote of the holders of a majority of the
voting power of the shares present, in person or by proxy, and
entitled to vote on that item of business. However, if the
shares present and entitled to vote on that item of business
would not constitute a quorum for the transaction of business at
the meeting, then the item must be approved by a majority of the
voting power of the minimum number of shares that would
constitute such a quorum. Votes cast by proxy or in person at
the Annual Meeting of Shareholders will be tabulated to determine
whether or not a quorum is present. Abstentions will be treated
as shares that are present and entitled to vote for purposes of
determining the presence of a quorum and in tabulating votes cast
on proposals presented to shareholders for a vote, but as unvoted
for purposes of determining the approval of the matter from which
the shareholder abstains. Consequently, an abstention will have
the same effect as a negative vote. If a broker indicates on the
proxy that it does not have discretionary authority as to certain
shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that
matter.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table provides information as of August 4,
1999 concerning the beneficial ownership of the Company's Common
Stock by (i) all persons who are known by the Company to own five
percent or more of the Common Stock of the Company (ii) each of
the directors of the Company and (iii) all directors and
officers of the Company as a group. All shares represent sole
voting and investment power, unless otherwise indicated.
<TABLE>
<CAPTION>
Shares
Beneficially Percent
Beneficial Owner Owned (1) of Class
<S> <C> <C>
Wellington Management Co. LLP
75 State Street
Boston, MA 02109 400,000 9.12%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
Santa Monica, CA 90401-1038 228,000 5.20
Frederick M. Green 187,538 4.17
Delbert W. Johnson 10,300 .23
John G. Kassakian 19,100 .43
David J. Larkin 3,000 .07
Frank L. Sims 2,000 .05
Matthew A. Sutton 14,000 .32
James M. Duddleston 15,000 .34
All directors and officers as 499,490 10.59
a group (10 persons)
<FN>
(1) For each director and all officers and directors as a group
share and percent ownership information reflects the
following numbers of shares of Common Stock which may be
purchased pursuant to stock options which are exercisable
within 60 days of the date hereof: Mr. Green, 117,500
shares; Mr. Johnson, 5,000 shares; Mr. Kassakian, 9,000
shares; Mr. Larkin, 2000 shares; Mr. Sims, 2000 shares; Mr.
Sutton, 4,000 shares; Mr. Duddleston, 5,000 shares; and all
directors and officers as a group, 333,125 shares.
</TABLE>
1. ELECTION OF DIRECTORS
Seven directors will be elected at the Annual Meeting of
Shareholders, each to serve until the next Annual Meeting of
Shareholders or until a successor is elected. The Board of
Directors has nominated for election the seven persons named
below and each has consented to being named as a nominee. All of
the nominees are currently directors of the Company. It is
intended that proxies solicited will be voted for the nominees
named below. The Company believes that each nominee named below
will be able to serve. In the event any nominee is unable to
serve as a director, the persons named as proxies have advised
that they will vote for the election of such substitute nominee
as the Board of Directors may propose.
The names of the nominees, their principal occupations for
at least the past five years, and other information is set forth
below.
<TABLE>
<CAPTION>
Principal Occupation Director
Name and Other Directorships Since
<S> <S> <S>
James M. Duddleston (77) Self employed consultant
and retired executive 1988
Frederick M. Green (56) President and Chief
Executive Officer of the
Company; Director of
Communications Systems, Inc. 1979
Delbert W. Johnson (60) Chairman and Co-Chief
Executive Officer, Pioneer
Metal Finishing Co.,
a division of Safeguard
Scientifics, Inc. (metal
finishing); Director of
Tennant Company, U.S.
Bancorp and Compucom Systems,
Inc. 1983
John G. Kassakian (56) Professor of Electrical
Engineering and Director,
Laboratory for
Electromagnetic and Electronic
Systems Massachusetts Institute
of Technology; Director of
Sheldahl, Inc. 1984
David J. Larkin (59) Executive Vice President
and Chief Operating Officer,
Jostens, Inc. (recognition
award company); from 1995
to 1998, independent management
consultant; prior to
1995, Chairman, President
and CEO of Honeywell Limited in
Canada. 1999
Frank L. Sims (48) President, North American
Grain, a division of
Cargill, Inc. (agricultural
products trading and
processing); director of
Tennant Company. 1999
Matthew A. Sutton (76) Independent management
consultant, former
Executive Vice President
of Defense and Marine
Systems and Group Vice
President of Aerospace/
Avionics of Honeywell Inc.
(computers and defense system) 1987
</TABLE>
The Board of Directors met 8 times during fiscal 1999. Each
director attended more than 75% of the meetings of the Board of
Directors and any committee on which he served, except for
Messrs. Larkin and Sims who were appointed during the year and
attended all meetings during the fiscal year following their
appointment to the Board of Directors..
Members of the Board who are not otherwise employed by the
Company are paid an annual fee of $4,000 plus $500 for each Board
meeting or Board committee meeting attended. Each non-employee
member of the Board of Directors also receives at the time of
election or reelection to the Board an option to purchase 2,000
shares of the Company's common stock at a purchase price equal to
the fair market value of the Company's common stock on the date
of such election or reelection. In addition to the foregoing,
during fiscal 1999 Mr. Kassakian received a $600.00 monthly fee
in exchange for certain consulting services provided to the
Company.
The Company has an Audit Committee which met once during
fiscal 1999. The Committee consists of Messrs. Johnson and
Duddleston, as continuing members, and Mr. Sims who was added to
the Audit Committee in March, 1999. The Audit Committee, among
other responsibilities, recommends to the full Board of Directors
the selection of auditors and reviews and evaluates the
activities and reports of the auditors, as well as the internal
accounting controls of the Company.
The Company also has a Compensation Committee which met once
during fiscal 1999. The Committee currently consists of Mr.
Sutton as a continuing member and Messrs. Larkin and Sims who
were added to the Compensation Committee in January 1999. The
Compensation Committee, among other responsibilities, recommends
to the full Board of Directors compensation for executive
officers and key personnel and reviews the Company's compensation
policies and practices.
The Board of Directors has a Nominating and Governance
Committee which consists of Messrs. Johnson, Kassakian and
Larkin. Its duties include evaluating and making recommendations
with respect to Board composition, director candidates to be
proposed for election by the shareholders of the Company, and
Board compensation and other policies affecting the Board
members, as well as considering and making recommendations with
respect to corporate governance issues. The Nominating and
Governance Committee met once in fiscal 1999.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ending May
30, 1999, May 31, 1998 and June 1, 1997, the direct cash
compensation paid by the Company, as well as certain other
compensation paid or accrued for these years, to Frederick M.
Green, the Company's President and Chief Executive Officer, and
to other executive officers of the Company (together with Mr.
Green, the "Named Executives") whose total cash compensation
exceeded $100,000 during fiscal 1999 in all capacities in which
they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
Securities All
Name and Fiscal Underlying Other
Position Year Salary Bonus(1) Options(2) Compensation
<S> <C> <C> <S> <C> <C>
Frederick M. Green 1999 $252,000 -0- 50,000 $3,890(3)
President and Chief 1998 233,954 -0- 30,000 4,006(3)
Executive Officer 1997 208,354 $8,814 45,000 3,506(3)
Gregory L. Harris 1999 $133,618 -0- 25,000 $1,753(4)
Vice President 1998 129,692 -0- 15,000 1,592(4)
of Sales and 1997 121,765 $4,885 25,000 1,479(4)
Marketing
Carlos S. Montague 1999 $123,266 -0- 30,000 $4,793(5)
Vice President, 1998 114,434 -0- 20,000 4,157(5)
Chief Financial 1997 105,734 $4,208 27,500 2,962(5)
Officer and
Assistant Secretary
Hokung Choi 1999 $115,608 -0- 15,000 $2,873(6)
Vice President 1998 110,986 -0- -0- 2,740(6)
Far East 1997 107,541 4,259 10,000 2,795(6)
Operations
<FN>
(1) Represents bonuses earned in the fiscal year shown but which
were paid in the following fiscal year.
(2) Reflects the number of shares potentially purchasable under
options granted in the year indicated.
(3) Reflects 401(k) matching contributions of $1,640, $2,566 and
$2,066 under the Company's Profit Sharing and Retirement
Plan in 1999, 1998 and 1997, respectively, and the payment
of $2,250, $1,440 and $1,440 for life insurance premiums in
1999, 1998 and 1997, respectively.
(4) Reflects 401(k) matching contributions of $1,497, $1,441 and
$1,338 under the Company's Profit Sharing and Retirement
Plan in 1999, 1998 and 1997, respectively and the payment of
$256, $151 and $141 for life insurance premiums in 1999,
1998 and 1997, respectively.
(5) Reflects 401(k) matching contributions of $1,839, $1,812 and
$1,556 under the Company's Profit Sharing and Retirement
Plan in 1999, 1998 and 1997, respectively, and the payment
of $2,955, $2,345 and $1,406 for life insurance premiums in
1999, 1998 and 1997, respectively.
(6) Reflects 401(k) matching contributions of $1,291, $1,273 and
$1,358 under the Company's Profit Sharing and Retirement
Plan in 1999, 1998 and 1997, respectively, and the payment
of $1,582, $1,467 and $1,437 for life insurance premiums in
1999, 1998 and 1997, respectively.
</TABLE>
Option Grants in Fiscal Year 1999
The following table contains information concerning grants
of stock options to the named executives during the fiscal year
ending May 30, 1999:
<TABLE>
<CAPTION>
Potential
Percent Realizable
of Total Value at
Options Assumed
Number of Granted Annual Rate of
Securities to All Stock Price
Underlying Employees Exercise Appreciation for
Options in Fiscal Price Expiration Option Term
Name Granted(1) Year ($/Share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Frederick M. Green 50,000(1) 19.6% $3.78 8/3/08 $118,861 $301,217
Gregory L. Harris 25,000(1) 9.8% 3.78 8/3/08 $59,431 $150,609
Carlos S. Montague 30,000(1) 11.7% 3.78 8/3/08 $71,317 $180,730
Hokung Choi 15,000(1) 5.8% 3.78 8/3/08 $35,658 $90,365
<FN>
(1) Each option becomes exercisable in equal installments over a
period of four years, commencing February 3, 1999.
</TABLE>
Option Exercises in Fiscal Year 1999 and Fiscal Year-End Option
Values
The following table sets forth information with respect to
the Named Executives concerning the exercise of options during
the fiscal year ending May 30, 1999 and unexercised options held
as of May 30, 1999.
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying in-the-
Unexercised Money
Options at Options at
Shares FY-End FY-End (1)
Acquired Value
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Frederick M. Green 10,000 $109,350 117,500 37,500 $484,238 $170,189
Gregory L. Harris -0- -0- 77,000 20,000 $366,364 $88,438
Carlos S. Montague -0- -0- 71,125 24,375 $304,932 $106,972
Hokung Choi -0- -0- 40,500 7,500 $233,829 $43,838
<FN>
(1) Based on closing price of $9.625 per share of the Company's
Common Stock on May 28, 1999.
</TABLE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") consists of
three non-employee members of the Company's Board of Directors
(the "Board"): Messrs. David J. Larkin, Frank L. Sims and
Matthew A. Sutton. Mr. Larkin and Mr. Sims joined the Board
during the last five months of fiscal 1999 and did not
participate in the decisions for fiscal 1999 discussed in this
Report.
The Committee develops proposed compensation for the Chief
Executive Officer and other executive officers, based on
qualitative and quantitative measures of performance, and makes
recommendations to the Board for approval. Actions by the
Committee relating to awards under the Company's Stock Option
Plan are, however, final in accordance with the provisions of the
Company's 1996 Stock Option Plan.
Executive Officer Compensation Policy. The Committee's
policy is to provide executive compensation that is externally
competitive at the various professional levels. Application of
the policy utilizes retrospective quantitative criteria and
qualitative evaluation of individual initiatives and
achievements. It is also the Committee's policy to encourage and
recognize strategic actions that position the Company to better
compete in its markets for enhanced operational results in the
longer term. As a result of these factors, the actual change in
compensation for any particular executive officer for a
particular year may not necessarily reflect operational results
of the preceding year. The Company utilizes independently
conducted market surveys to obtain comparative compensation data.
Compensation Elements. Compensation currently paid to the
Company's executive officers principally consists of three
elements: base salary, bonus and periodic stock option awards.
Salary. The base salary of the Company's executive officers
is generally established by reference to base salaries paid to
executives in similar positions with similar responsibilities
based on publicly available compensation surveys. Base salaries
are reviewed at the beginning of each fiscal year and adjusted as
appropriate. At the beginning of fiscal 1999, the Committee
increased base salaries of the Company's executive officers as a
group by 7%. By way of comparison, the Company's revenues
increased approximately 3% in fiscal 1998 over fiscal 1997 and
the Company achieved pre-tax income in fiscal 1998 of $1,926,718
as compared to pre-tax income of $2,275,079 in fiscal 1997. The
Committee regards cash compensation paid to the Company's
executive officers as reasonable in relation to published
information regarding compensation of executives with similar
responsibilities, as well as when measured against progress the
Company has achieved in revenue and net income growth over the
last several fiscal years.
Bonus. During the past several years, the Company's
executive officers have participated in a bonus program available
to all of the Company's U.S. employees whereby each employee can
earn a bonus of one, two or three weeks' compensation based upon
the Company reaching certain operational targets established at
the beginning of the fiscal year. In fiscal 1997, each of the
Company's executive officers, along with all the Company's other
U.S. employees, earned a bonus equal to two weeks' base
compensation. Because operational targets were not met in fiscal
1998 and fiscal 1999, no bonuses were paid with respect to fiscal
1998 or fiscal 1999 results.
Options/Stock Based Compensation. Stock options are
generally awarded at the beginning of each fiscal year under
stock option plans approved by the Company's shareholders.
Options are granted at an exercise price that is equal to the
fair market value of a common share on the date of the grant.
The Committee believes that stock ownership by management derived
from granting of stock options is beneficial because it aligns
the interests of executives with that of shareholders. It serves
to further encourage superior management performance and
specifically motivates executives to remain focused on factors
which enhance the market value of the Company's common stock. At
the beginning of fiscal 1999, the Committee granted stock options
to purchase 120,000 shares of common stock to executive officers,
which represented 43% of the total options granted to all
officers and key employees.
Chief Executive Officer Compensation. Frederick M. Green is
evaluated by the same factors applicable to the evaluation of
other executive officers, as described above and participates in
the same executive compensation plans provided to the other
senior executives. At the beginning of fiscal 1999, the
Compensation Committee increased Mr. Green's base salary
approximately 10% from the prior year. Mr. Green also was
awarded at the beginning of fiscal 1999 stock options to acquire
50,000 shares of Company common stock. Mr. Green did not
receive bonus compensation for fiscal 1998 or fiscal 1999. The
Committee regards Mr. Green's compensation as reasonable in
relation to published information on compensation of executives
with similar responsibilities, as well as when measured against
the progress the Company has achieved in revenue and net income
growth over the past several fiscal years.
Review of Executive Compensation in Fiscal 2000. In July
1999 the Compensation Committee determined to review the
Company's overall approach to executive compensation in relation
to various approaches used by public companies throughout the
country. In this connection, the Committee expects to consider
what, if any, changes may be appropriate in the absolute level of
compensation paid to Company executives, as well as the relative
proportion of compensation paid through base compensation, cash
incentive compensation and stock options. In conducting its
review, the Committee will use the services of an outside
consulting firm. The Committee expects to bring a recommendation
to the full Board during the latter part of fiscal 2000.
Submitted by the Compensation Committee of the Company's
Board of Directors:
David J. Larkin Frank L. Sims
Matthew A. Sutton
STOCK PERFORMANCE TABLE
The table below sets forth a comparison of the cumulative
shareholder return of the Company's Common Stock over the last
five fiscal years with the cumulative total return over the same
periods for the Nasdaq Market Index and the Electronic
Components, N.E.C. (SIC Code 3679, which includes 67 companies).
The graph below compares the cumulative total return of the
Company's Common Stock over the last five fiscal years assuming a
$100 investment at May 29, 1994.
<TABLE>
<CAPTION>
May 29, May 28, June 2, June 1, May 31, May 30,
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Ault $100.00 156.84 886.14 509.72 376.41 603.83
Incorporated
Electronic $100.00 170.94 223.88 353.57 330.95 521.42
Components
Index
NASDAQ $100.00 118.92 172.91 194.82 247.14 347.24
Market
Index
(U.S.)
</TABLE>
2. PROPOSAL TO RATIFY AND APPROVE
THE COMPANY'S 1996 STOCK PLAN
General Information
On December 12, 1996, the Company's Board of Directors
adopted the Ault Incorporated 1996 Stock Plan (the "1996 Plan"),
and the shareholders of the Company ratified and approved
adoption of the 1996 Plan at 1997 Annual Shareholders' Meeting.
The purpose of the 1996 Plan is to enable the Company and its
subsidiaries to retain and attract key employees, consultants and
non-employee directors who will contribute to the Company's
success by their ability, ingenuity and industry, and to enable
such key employees, consultants and non-employee directors to
participate in the long-term success and growth of the Company by
giving them a proprietary interest in the Company. The 1996 Plan
authorizes the granting of awards in any of the following forms:
(i) stock options, (ii) stock appreciation rights, (iii)
restricted stock, and (iv) deferred stock. The 1996 Plan
currently provides for an authorization of 500,000 shares which
may be issued pursuant to options or other awards granted under
the Plan to key employees and outside consultants and also
provides for ongoing automatic grants of stock options to non-
employee directors. On August 4, 1999, the last reported sales
price of the Company's common stock in the Nasdaq Stock Market
was $5.50.
Amendment to 1996 Plan to Increase Authorized Shares
The Plan currently authorizes the issuance of 500,000 shares
of common stock pursuant to options and awards granted
thereunder. The Board of Directors amended the 1996 Plan
effective July 21, 1999, subject to ratification by the
shareholders, to increase the total number of shares available
under the Plan by 250,000 shares to a total of 750,000 shares.
There were outstanding on August 24, 1999 options to purchase
499,100 shares granted prior to July 21, 1999. In addition,
options to purchase 172,000 shares were granted by the
Compensation Committee on July 21, 1999, contingent upon approval
by the shareholders of the proposed amendment to the Plan and
absent stockholder approval of the amendment of the 1996 Plan,
the July 1999 grants would be canceled. Accordingly, to maintain
the July 1999 option grants, the Board approved and recommends
for shareholder approval an increase in the shares authorized
under the Plan by 250,000 shares to a total of 750,000 shares.
As discussed above under "Compensation Committee Report", the
Compensation Committee is undertaking in fiscal 2000 a review of
the Company's overall approach to executive compensation. If the
Committee, at the conclusion of this review, determines to
continue the Company's practice of granting stock options as part
of overall executive compensation, it is likely that a further
increase in the number of shares authorized for issuance under
the 1996 Plan will be sought next year.
Summary of the Plan
The principal features of the 1996 Plan are summarized
below.
Shares Available Under 1996 Plan. The maximum number of
common shares that is currently reserved and available under the
1996 Plan for awards is 500,000 (subject to possible adjustment
in the event of stock splits or other similar changes in
outstanding common shares). Common shares covered by expired or
terminated stock options and forfeited shares of restricted stock
or deferred stock may be used for subsequent awards under the
1996 Plan.
Eligibility and Administration. Officers and other key
employees of the Company and its subsidiaries who are responsible
for or contribute to the management, growth and/or profitability
of the business of the Company and its subsidiaries, as well as
consultants and non-employee directors, are eligible to be
granted awards under the 1996 Plan. The 1996 Plan will be
administered by the Board or, in its discretion, by a committee
of not less than two non-employee directors who are "outside
directors" as defined in the 1996 Plan (the "Committee")
appointed by the Board of Directors. The term "Board" as used in
this section refers to the Board of Directors or if the Board has
delegated its authority, the Committee. The Board will have the
power to make awards (other than awards to non-employee
directors), determine the number of shares covered by each award
and other terms and conditions of such awards, interpret the 1996
Plan, and adopt rules, regulations and procedures with respect to
the administration of the 1996 Plan. The Board may delegate its
authority to officers of the Company for the purpose of selecting
key employees who are not officers of the Company to be
participants in the 1996 Plan.
Stock Options. The Board may grant stock options that
either qualify as "incentive stock options" under the Internal
Revenue Code of 1986, as amended ("Code") or are "non-qualified
stock options" in such form and upon such terms as the Board may
approve from time to time. Stock options granted under the 1996
Plan may be exercised during their respective terms as determined
by the Board. The purchase price may be paid by tendering cash
or, in the Board's discretion, by tendering promissory notes or
common stock. The optionee may elect to pay all or part of the
option exercise price by having the Company withhold upon
exercise of the option a number of shares with a fair market
value equal to the aggregate option exercise price for the shares
with respect to which such election is made. No stock option
shall be transferable by the optionee or exercised by anyone else
during the optionee's lifetime.
Stock options may be exercised during varying periods of
time after a participant's termination of employment, dependent
upon the reason for the termination. Following a participant's
death, the participant's stock options may be exercised to the
extent they were exercisable at the time of death by the legal
representative of the estate or the optionee's legatee for a
period of one year or until the expiration of the stated term of
the option, whichever is less. The same time periods apply if
the participant is terminated by reason of disability. If the
participant retires, the participant's stock options may be
exercised to the extent they were exercisable at the time of
retirement or for a period of three months (or such longer period
as determined by the Board at the time of retirement) from the
date of retirement or until the expiration of the stated term of
the option, whichever is less. If the participant is
involuntarily terminated without cause, the participant's options
may be exercised to the extent they were exercisable at the time
of termination for the lesser of three months or the balance of
the stated term of the option. If the participant's employment
is terminated for cause, the participant's stock options
immediately terminate. These exercise periods may be reduced by
the Board for particular options. The Board may, in its
discretion, accelerate the exercisability of stock options which
would not otherwise be exercisable upon death, disability or
retirement.
No incentive stock options shall be granted under the 1996
Plan after December 11, 2006. The term of an incentive stock
option may not exceed 10 years (or 5 years if issued to a
participant who owns or is deemed to own more than 10% of the
combined voting power of all classes of stock of the Company, any
subsidiary or affiliate). The aggregate fair market value of the
common stock with respect to which an incentive stock option is
exercisable for the first time by an optionee during any calendar
year shall not exceed $100,000. The exercise price under an
incentive stock option may not be less than the fair market value
of the common stock on the date the option is granted (or, in the
event the participant owns more than 10% of the combined voting
power of all classes of stock of the Company, the option price
shall be not less than 110% of the fair market value of the stock
on the date the option is granted). The exercise price for non-
qualified options granted under the 1996 Plan may be less than
100% of the fair market value of the common stock on the date of
grant.
Pursuant to a limitation in the 1996 Plan, no eligible
person may be granted any stock options for more than 100,000
shares of common stock in the aggregate during any fiscal year.
This limitation is included pursuant to Section 162(m) of the
Internal Revenue Code, which provides a $1 million limitation on
the compensation of certain executive officers that is deductible
by the Company for federal income tax purposes. The limitation
on stock options granted to an individual during any fiscal year
is intended to preserve the Company's federal tax deduction for
compensation expense related to stock options that may be granted
to executive officers under the 1996 Plan.
Automatic Grant of Options to Non-employee Directors. The
1996 Plan provides for the automatic granting of options to non-
employee directors. Such options are granted to each person who
(i) is not an employee of the Company, any parent corporation or
subsidiary and (ii) is elected or re-elected as a director by
vote of the Board or the shareholders subsequent to December 31,
1996. Each such person automatically receives, as of the date of
each such election or re-election, a non-qualified option to
purchase 2,000 shares of common stock with an option price equal
to the fair market value of the Company's common stock on the
date the option is granted. The Board in appropriate
circumstances may adjust the option to be granted under this
provision to any such person who has received a stock option from
the Company in the three preceding years. The options have ten-
year terms and are exercisable, as to one-third of the shares
subject to the option, beginning one year after the date of
option grant; as to the second third, beginning two years after
the date of option grant; and as to the last third, beginning
three years after the date of option grant. Any vested portion
of these options will not expire upon termination of service as a
director. Non-employee directors are also eligible to receive
additional grants of non-qualified stock options under the 1996
Plan.
Stock Appreciation Rights. The Board may grant stock
appreciation rights ("SARs") in connection with all or part of
any stock option (with the exception of options granted to non-
employee directors), either at the time of the stock option
grant, or, in the case of non-qualified options, later during the
term of the stock option. SARs entitle the participant to
receive from the Company the same economic value that would have
been derived from the exercise of an underlying stock option and
the immediate sale of the shares of common stock. Such value is
paid by the Company in cash, shares of common stock or a
combination of both, in the discretion of the Board. SARs are
exercisable or transferable only at such times and to the extent
stock options to which they relate are exercisable or
transferable. If an SAR is exercised, the underlying stock
option is terminated as to the number of shares covered by the
SAR exercise.
Restricted Stock. The Board may grant restricted stock
awards that result in shares of common stock being issued to a
participant subject to restrictions against disposition during a
restricted period established by the Board. The Board may
condition the grant of restricted stock upon the attainment of
specified performance goals or service requirements. The
provisions of restricted stock awards need not be the same with
respect to each recipient. The restricted stock will be held in
custody by the Company until the restrictions thereon have
lapsed. During the period of the restrictions, a participant has
the right to vote the shares of restricted stock and to receive
dividends and distributions unless the Board requires such
dividends and distributions to be held by the Company subject to
the same restrictions as the restricted stock. Notwithstanding
the foregoing, all restrictions with respect to restricted stock
lapse 60 days (or less as determined by the Board) prior to the
occurrence of a merger or other significant corporate change, as
provided in the 1996 Plan.
If a participant terminates employment during the period of
the restrictions, all shares still subject to restrictions will
be forfeited and returned to the Company, subject to the right of
the Board to waive such restrictions in the event of a
participant's death, total disability, retirement or under
special circumstances approved by the Board.
Deferred Stock. The Board may grant deferred stock awards
that result in shares of common stock being issued to a
participant or group of participants upon the expiration of a
deferral period. The Board may condition the grant of deferred
stock upon the attainment of specified performance goals. The
provisions of deferred stock awards need not be the same with
respect to each recipient.
Upon termination of employment for any reason during the
deferral period for a given award, the deferred stock in question
shall be forfeited by the participant, subject to the Board's
ability to waive any remaining deferral limitations with respect
to a participant's deferred stock. During the deferral period,
deferred stock awards may not be sold, assigned, transferred,
pledged or otherwise encumbered and any dividends declared with
respect to the number of shares covered by a deferred stock award
will either be immediately paid to the participant or deferred
and deemed to be reinvested in additional deferred stock, as
determined by the Board. The Board may allow a participant to
elect to further defer receipt of a deferred stock award for a
specified period or until a specified event.
Federal Income Tax Consequences
Stock Options. An optionee will not realize taxable
compensation income upon the grant of an incentive stock option.
In addition, an optionee generally will not realize taxable
compensation income upon the exercise of an incentive stock
option if he or she exercises it as an employee or within three
months after termination of employment (or within one year after
termination if the termination results from a permanent and total
disability). The amount by which the fair market value of the
shares purchased exceeds the aggregate option price at the time
of exercise will be alternative minimum taxable income for
purposes of applying the alternative minimum tax. If stock
acquired pursuant to an incentive stock option is not disposed of
prior to the date two years from the option grant date or prior
to one year from the option exercise date (the "Applicable
Holding Periods"), any gain or loss realized upon the sale of
such shares will be characterized as capital gain or loss. If
the Applicable Holding Periods are not satisfied, then any gain
realized in connection with the disposition of such stock will
generally be taxable as ordinary compensation income in the year
in which the disposition occurred, to the extent of the
difference between the fair market value of such stock on the
date of exercise and the option exercise price. The Company is
entitled to a tax deduction to the extent, and at the time, the
participant realizes compensation income. The balance of any
gain will be characterized as a capital gain. Under current law,
net capital gains are taxed at a maximum federal rate of 28%
while compensation income may be taxed at higher federal rates.
An optionee generally will not realize taxable compensation
income upon the grant of a non-qualified stock option. As a
general matter, when an optionee exercises a non-qualified stock
option, he or she will realize taxable compensation income at
that time equal to the difference between the aggregate option
price and the fair market value of the stock on the date of
exercise. The Company is entitled to a tax deduction to the
extent, and at the time, the participant realizes compensation
income.
SARs. The grant of an SAR would not result in income for
the participant or in a deduction for the Company. Upon receipt
of shares or cash from exercise of an SAR, the participant would
generally recognize compensation income, measured by the fair
market value of the shares plus any cash received, and the
Company would be entitled to a corresponding deduction.
Restricted Stock and Deferred Stock. The grant of
restricted stock and deferred stock should not result in
immediate income for the participant or in a deduction for the
Company for federal income tax purposes, assuming the shares are
nontransferable and subject to restrictions or to a deferral
period which would result in a "substantial risk of forfeiture"
as intended by the Company and as defined in applicable Treasury
regulations. If the shares are transferable or there are no such
restrictions or significant deferral periods, the participant
will realize compensation income upon receipt of the award.
Otherwise, a participant generally will realize taxable
compensation when any such restrictions or deferral period
lapses. The amount of such income will be the value of the
common stock on that date less any amount paid for the shares.
Dividends paid on the common stock and received by the
participant during the restricted period or deferral period also
will be taxable compensation income to the participant. In any
event, the Company will be entitled to a tax deduction to the
extent, and at the time, the participant realizes compensation
income. A participant may elect, under Section 83(b) of the
Code, to be taxed on the value of the stock at the time of award.
If the election is made, the fair market value of the stock at
the time of the award is taxable to the participant as
compensation income and the Company is entitled to a
corresponding deduction.
Withholding. The 1996 Plan requires each participant, no
later than the date as of which any part of the value of an award
first becomes includible as compensation in the gross income of
the participant, to pay to the Company any federal, state or
local taxes required by law to be withheld with respect to the
award. The Company shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment otherwise due
to the participant. With respect to any award under the 1996
Plan, if the terms of the award so permit, a participant may
elect to satisfy part or all of the withholding tax requirements
associated with the award by (i) authorizing the Company to
retain from the number of shares of Company common stock which
would otherwise be deliverable to the participant, or (ii)
delivering to the Company from shares of Company common stock
already owned by the participant that number of shares having an
aggregate fair market value equal to part or all of the tax
payable by the participant. In that case, the Company would pay
the tax liability from its own funds.
Further Information
A copy of the 1996 Plan can be obtained by writing to: Chief
Financial Officer, Ault Incorporated, 7105 Northland Terrace,
Brooklyn Park, Minnesota 55428.
Registration with SEC
The Company intends to file a Registration Statement
covering the issuance of shares issuable under the Stock Plan
with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, amended.
Shareholder Approval
The affirmative vote of a majority of the outstanding shares
of the Company's Common Stock voting at the meeting in person or
by proxy is required for ratification and approval of the
Company's 1996 Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION
AND APPROVAL OF THE AMENDMENT OF THE 1996 PLAN TO INCREASE BY
250,000 SHARES THE NUMBER OF SHARES WHICH MAY BE ISSUED UNDER
OPTIONS AND OTHER AWARDS GRANTED PURSUANT TO THE 1996 PLAN.
THE COMPANY'S AUDITORS
McGladrey & Pullen, LLP, independent public accountants,
have served as the auditors of the Company since 1974. A
representative of McGladrey & Pullen, LLP is expected to be
present at the Annual Meeting of Shareholders, will have an
opportunity to make a statement if he or she desires to do so and
will be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
The proxy rules of the Securities and Exchange Commission
permit shareholders of a company, after timely notice to the
company, to present proposals for shareholder action in the
company's proxy statements where such proposals are consistent
with applicable law, pertain to matters appropriate for
stockholder action and are not properly omitted by company action
in accordance with the proxy rules. The Ault Incorporated 2000
Annual Meeting of Shareholders is expected to be held on or about
September 30, 2000 and proxy materials in connection with that
meeting are expected to be mailed on or about August 24, 2000.
Shareholder proposals prepared in accordance with the proxy rules
to be included in the company's proxy materials for the 2000
Annual Meeting of Shareholders must be received by the Company on
or before May 30, 2000. In addition, pursuant to the
Commission's Rules 14a-4 and 14a-5(e), a shareholder must give
notice to the Company prior to July 11, 2000 of any proposal
which such shareholder intends to raise at the 2000 Annual
Meeting of Shareholders. If the Company receives notice of such
shareholder proposal after July 11, 2000, such proposal will be
considered untimely under the Commission's rules and the persons
named in proxies solicited by the Board of Directors of the
Company for its 2000 Annual Meeting of Shareholders may exercise
discretionary voting power with respect to such proposal.
GENERAL
Compliance with Section 16(a) of the Securities Exchange Act of
1934.
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the
Company's equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities
of the Company. These insiders are required by Securities and
Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file, including Forms 3, 4
and 5.
To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, the
Company's insiders complied with all Section 16(a) finding
requirements applicable to them during the fiscal year ended May
30, 1999.
Other Matters
Management knows of no other matters that will be presented
at the Annual Meeting of Shareholders. However, the enclosed
proxy gives discretionary authority in the event that any
additional matters should be presented.
The Annual Report of the Company for the past fiscal year is
enclosed herewith and contains the Company's financial statements
for the fiscal year ended May 30, 1999. Shareholders may receive
without charge a copy of the Company's Annual Report on Form 10-
K, including financial statements and schedules thereto, as filed
with the Securities and Exchange Commission, by writing to: Vice
President and Chief Financial Officer, Ault Incorporated, 7105
Northland Terrace, Brooklyn Park, Minnesota 55428.
By Order of the Board of Directors,
Richard A. Primuth, Secretary
