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 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
AULT INCORPORATED
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
<PAGE>
[LOGO]
AULT INCORPORATED
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 26, 2000
------------------
To the Shareholders of Ault Incorporated:
Notice is hereby given that the Annual Meeting of Shareholders of Ault
Incorporated will be held September 26, 2000 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 amendments
to the Company's 1996 Stock Plan to (i) increase the number of shares
authorized to be issued under such Plan by 300,000 shares to 1,050,000
shares and (iii) require shareholder approval in connection with
repricing outstanding stock options.
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 11, 2000
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 25, 2000
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.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
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 26, 2000, 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 25, 2000. The Company's corporate offices are
located at 7105 Northland Terrace, Minneapolis, Minnesota 55428 and its
telephone number is (763) 592-1900.
Only shareholders of record at the close of business on August 11, 2000
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
4,455,432 shares were issued and outstanding and entitled to vote as of August
11, 2000. 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.
1
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table provides information as of August 11, 2000 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.
SHARES
BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED(1) OF CLASS
-------------------------------------------- -------------- ---------
Wellington Management Co. LLP 425,000 9.54%
75 State Street
Boston, MA 02109
Dimensional Fund Advisors, Inc. 384,200 8.62
1299 Ocean Avenue
Santa Monica, CA 90401-1038
Frederick M. Green 235,874 5.29
Delbert W. Johnson 12,300 .28
John G. Kassakian 21,100 .47
David J. Larkin 5,000 .11
Frank L. Sims 4,000 .09
Matthew A. Sutton 15,000 .34
James M. Duddleston 17,000 .38
All directors and officers as
a group (10 persons) 482,455 10.83
------------------
(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, 165,000 shares;
Mr. Johnson, 7,000 shares; Mr. Kassakian, 11,000 shares; Mr. Larkin, 4,000
shares; Mr. Sims, 4,000 shares; Mr. Sutton, 6,000 shares; Mr. Duddleston,
7,000 shares; and all directors and officers as a group, 331,750 shares.
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.
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<PAGE>
The names of the nominees, their principal occupations for at least the
past five years, and other information is set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE
-------------------------- ---------------------------------------------------------------------- ---------
<S> <C> <C>
James M. Duddleston (78) Self employed consultant and retired executive 1988
Frederick M. Green (57) President and Chief Executive Officer of the Company; Director 1979
of Communications Systems, Inc.
Delbert W. Johnson (61) Vice President, Safeguard Scientifics, Inc. (diversified information 1983
technology company); formerly Chairman and CEO Pioneer
Metal Finishing Co. (metal finishing); Director of U.S. Bancorp
and Compucom Systems, Inc.
John G. Kassakian (57) Professor of Electrical Engineering and Director, Laboratory 1984
for Electromagnetic and Electronic Systems, Massachusetts
Institute of Technology; Director of Sheldahl, Inc. of Northfield,
Minnesota.
David J. Larkin (58) Independent Consultant; during 1998 to 1999 Executive Vice 1998
President and Chief Operating Officer, Jostens, Inc.; from 1995
to 1998, management consultant; prior to 1995, Chairman,
President and CEO of Honeywell Limited in Canada.
Frank L. Sims (49) Corporate Vice President, Transportation, Cargill, Inc. 1999
(agricultural products trading and processing); prior to August,
2000, President of the North American Grain division of
Cargill, Inc.; director of Tennant Company.
Matthew A. Sutton (77) Independent management consultant; former Executive 1987
Vice President of Defense and Marine Systems and Group
Vice President of Aerospace/ Avionics of Honeywell Inc.
(computers and defense systems).
</TABLE>
The Board of Directors met six times during fiscal 2000. Each director
attended more than 75% of the meetings of the Board of Directors and any
committee on which he served, except for Mr. Johnson who attended 70% of such
meetings during the fiscal year.
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 2000 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 2000. The
Committee consists of Messrs. Johnson, Duddleston and Sims. 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 twice during
fiscal 2000. The Committee consists of Messrs. Sutton, Larkin and Sims. The
Compensation Committee, among other
3
<PAGE>
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 2000.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending May 28, 2000, May
30, 1999 and May 31, 1998, 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 2000
in all capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
SECURITIES
ANNUAL CASH UNDERLYING ALL OTHER
NAME AND POSITION FISCAL YEAR COMPENSATION(1) OPTIONS(2) COMPENSATION
------------------------- ------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
Frederick M. Green 2000 $263,651 40,000 $ 2,691(3)
President and Chief 1999 252,000 50,000 3,890(3)
Executive Officer 1998 233,954 30,000 4,006(3)
Gregory L. Harris 2000 $140,298 20,000 $ 2,022(4)
Vice President 1999 133,618 25,000 1,753(4)
of Sales and Marketing 1998 129,692 15,000 1,592(4)
Donald R. Henry 2000 $126,521 15,000 $ 1,521(5)
Vice President, Chief
Financial Officer and
Assistant Secretary
Hokung Choi 2000 $115,712 5,000 $ 2,023(6)
Vice President 1999 115,608 15,000 2,873(6)
Far East Operations 1998 110,986 -0- 2,740(6)
</TABLE>
------------------
(1) Represents salary paid to the Named Executives; no bonuses were paid in any
of the past three fiscal years. Mr. Henry became an executive officer in
fiscal 2000.
(2) Reflects the number of shares potentially purchasable under options granted
in the year indicated.
(3) Reflects 401(k) matching contributions of $1,755, $1,640 and $2,566 under
the Company's Profit Sharing and Retirement Plan in 2000, 1999 and 1998,
respectively, and the payment of $936, $2,250 and $1,440 for life insurance
premiums in 2000, 1999 and 1998, respectively.
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<PAGE>
(4) Reflects 401(k) matching contributions of $1,583, $1,497 and $1,441 under
the Company's Profit Sharing and Retirement Plan in 2000, 1999 and 1998,
respectively and the payment of $439, $256 and $151 for life insurance
premiums in 2000, 1999 and 1998, respectively.
(5) Reflects 401(k) matching contributions of $1,116, $1,839 and $1,812 under
the Company's Profit Sharing and Retirement Plan in 2000, 1999 and 1998,
respectively, and the payment of $405, $2,955 and $2,345 for life insurance
premiums in 2000, 1999 and 1998, respectively.
(6) Reflects 401(k) matching contributions of $1,302, $1,291 and $1,273 under
the Company's Profit Sharing and Retirement Plan in 2000, 1999 and 1998,
respectively, and the payment of $721, $1,582 and $1,467 for life insurance
premiums in 2000, 1999 and 1998, respectively.
OPTION GRANTS IN FISCAL YEAR 2000
The following table contains information concerning grants of stock options
to the named executives during the fiscal year ending May 28, 2000:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATE OF STOCK PRICE
NUMBER OF SECURITIES OPTIONS GRANTED APPRECIATION FOR OPTION TERM
UNDERLYING TO ALL EMPLOYEES EXERCISE PRICE EXPIRATION -------------------------
NAME OPTIONS GRANTED(1) IN FISCAL YEAR ($/SHARE) DATE 5% 10%
-------------------- ---------------------- ------------------ ---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Frederick M. Green 40,000 19% $ 5.38 8/09 $166,781 $392,921
Gregory L. Harris 20,000 10% 5.38 8/09 $ 83,390 $196,461
Donald R. Henry 15,000 7% 5.875 8/09 $ 55,421 $140,449
Hokung Choi 5,000 2% 5.875 8/09 $ 18,874 $ 46,816
</TABLE>
------------------
(1) Options are generally exercisable in equal installments over a period of
four years commencing six months after the date of grant.
OPTION EXERCISES IN FISCAL YEAR 2000 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
28, 2000 and unexercised options held as of May 28, 2000.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END OPTIONS AT FY-END(1)
SHARES ACQUIRED ------------------------------- ------------------------------
ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------- --------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Frederick M. Green -- -- 135,000 60,000 $161,438 $58,625
Gregory L. Harris 8,000 $34,500 68,500 30,000 $104,525 $29,313
Donald R. Henry -- -- 3,750 11,250 -- --
Hokung Choi -- -- 41,750 11,250 $ 96,900 $14,775
</TABLE>
------------------
(1) Based on closing price of $5.750 per share of the Company's Common Stock on
May 28, 2000.
5
<PAGE>
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. 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 2000, the Committee
increased base salaries of the Company's executive officers as a group by 4.5%.
By way of comparison, the Company's revenues increased approximately 24% in
fiscal 1999 over fiscal 1998 and the Company's net income in fiscal 1999
increased approximately 51% to $1,988,116, as compared to net income of
$1,317,718 in fiscal 1998. 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. Because operational targets were not met during
the last three fiscal years, no bonuses were paid for such fiscal years.
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 2000, the Committee granted stock options to purchase 80,000 shares of
common stock to executive officers, which represented approximately 38% of the
total options granted to all officers and key employees.
6
<PAGE>
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 2000, the
Compensation Committee increased Mr. Green's base salary 4.5% from the prior
year. Mr. Green also was awarded at the beginning of fiscal 2000 stock options
to acquire 40,000 shares of Company common stock. Mr. Green has not received
bonus compensation for the last three fiscal years. 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. The Compensation Committee is currently
reviewing the Company's overall approach to executive compensation. 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 is using the services of an outside consulting firm. The Committee
expects to complete its review and bring a recommendation to the full Board
during the latter part of calendar 2000.
Submitted by the Compensation Committee of the Company's Board of
Directors:
David J. Larkin Frank L. Sims Matthew A. Sutton
7
<PAGE>
STOCK PERFORMANCE GRAPH
The graph 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 NASDAQ Electronic Components Index. 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 28, 1995.
[GRAPH]
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
1995 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C>
Ault Incorporated $ 100.00 $ 565.00 $ 325.00 $ 240.00 $ 385.00 $ 230.00
Electronic Components Index 100.00 131.08 207.25 194.12 301.57 746.90
Nasdaq Market Index (U.S.) 100.00 145.34 163.55 207.53 298.38 401.94
</TABLE>
2. PROPOSAL TO RATIFY AND APPROVE AMENDMENTS TO
THE COMPANY'S 1996 STOCK PLAN
GENERAL INFORMATION
The Company's Board of Directors adopted the Ault Incorporated 1996 Stock
Plan on December 12, 1996 (the "1996 Plan"), and the shareholders of the Company
ratified and approved adoption of the 1996 Plan in September 1997. 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
authorizes issuing up to 750,000 shares 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 11, 2000, the last reported sales price of the Company's
common stock in the Nasdaq Stock Market was $6.25.
8
<PAGE>
PROPOSED AMENDMENTS TO 1996 PLAN
INCREASE IN AUTHORIZED SHARES. At August 11, 2000, of the 750,000 shares of
common stock authorized under the 1996 Plan, 90,636 shares had been issued
pursuant to option exercises and 622,214 shares were reserved for options
granted, but not exercised. Therefore, as of August 11, 2000, additional
options, covering no more than 37,150 shares, could be granted under the 1996
Plan. (Additionally, as of such date, options to acquire 178,000 shares granted
under the Company's 1986 Stock Option Plan were outstanding, but no further
options may be granted under the 1986 Plan) Because of the limited number of
options presently available for future option grants under the 1996 Plan, the
Board of Directors amended the 1996 Plan on August 10, 2000, subject to
ratification by the shareholders, to increase the total number of available
shares by 300,000 shares to a total of 1,050,000 shares. The Board took this
action so that it would be able to continue its practice of awarding stock
options to retain, attract and motivate Company executives and key employees
consistent with past practice. Accordingly, the Board recommends shareholders
approve increasing the shares authorized under the Plan by 300,000 shares to a
total of 1,050,000 shares.
LIMITATION ON REPRICING OUTSTANDING OPTIONS. Under Section 10 of the 1996
Plan, the Compensation Committee is authorized to amend the terms of any award
or option granted to the extent such amendment is consistent with the terms of
the Plan. When the exercise price of an outstanding option is greater than the
prevailing market price, this provision gives the Committee the discretion to
reduce the exercise price to the prevailing market price, a practice frequently
referred to as "repricing." While the Board of Directors has not repriced any
options granted under the 1996 Plan, to alleviate concern regarding the
potential for repricing, the Board of Directors has approved and recommends that
shareholders approve amending the relevant sentence in Section 10 to read as
follows (with the language to be added in italics):
"The Committee may amend the terms of any option or award theretofore
granted, prospectively or retroactively, to the extent such amendment is
consistent with the terms of this Plan, provided that no such amendment shall
impair the rights of any holder without his or her consent except to the extent
authorized under the Plan; AND PROVIDED FURTHER THAT THE COMMITTEE MAY NOT AMEND
THE TERMS OF ANY OPTION PREVIOUSLY GRANTED SO AS TO REDUCE THE EXERCISE PRICE OF
SUCH OPTION UNLESS SUCH AMENDMENT IS APPROVED BY THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK VOTING AT A
DULY CONVENED ANNUAL OR SPECIAL MEETING OF THE SHAREHOLDERS OF THE COMPANY."
If Section 10 is amended as indicated above, repricing of outstanding
options would only be permitted if the amended exercise price was approved by a
vote of the Company's shareholders.
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 750,000
(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 is administered by the
Board or, in its discretion, by
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<PAGE>
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 for a
period of one year 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
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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 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
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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 20% 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.
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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 the additional 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
AMENDMENTS OF THE 1996 PLAN TO INCREASE BY 300,000 SHARES THE NUMBER OF SHARES
WHICH MAY BE ISSUED PURSUANT TO THE 1996 PLAN AND TO REQUIRE SHAREHOLDER
APPROVAL FOR ANY PRICING OF OUTSTANDING OPTIONS.
THE COMPANY'S AUDITORS
Deloitte & Touche, LLP, independent public accountants, have served as the
auditors of the Company beginning in fiscal 2000. A representative of Deloitte &
Touche, 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.
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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 2001 Annual Meeting of Shareholders
is expected to be held on or about September 30, 2001 and proxy materials in
connection with that meeting are expected to be mailed on or about August 24,
2001. Shareholder proposals prepared in accordance with the proxy rules to be
included in the company's proxy materials for the 2001 Annual Meeting of
Shareholders must be received by the Company on or before May 30, 2001. 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, 2001 of any proposal which
such shareholder intends to raise at the 2001 Annual Meeting of Shareholders. If
the Company receives notice of such shareholder proposal after July 11, 2001,
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 2001 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 28,
2000.
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 28, 2000. 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
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AULT INCORPORATED
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SEPTEMBER 26, 2000 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 11, 2000 at the Annual Meeting of
Shareholders to be held in Minneapolis, Minnesota September 26, 2000, 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 TO VOTE FOR ALL
CONTRARY). 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
300,000 SHARES TO 1,050,000 SHARES AND TO REQUIRE SHAREHOLDER APPROVAL FOR
ANY REPRICING OF OUTSTANDING STOCK OPTIONS. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED, AND TO BE COMPLETED AND SIGNED ON THE REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
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: ______________, 2000
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.
