SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission only (as
[ X ] Definitive Proxy Statement permitted by Rule 14a-6(e)(2)
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Power Spectra, Inc.
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(Name of Registrant as Specified in its Charter)
Power Spectra, Inc.
---------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] 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 transaction 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:
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(5) Total fee paid:
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[ ] 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: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
POWER SPECTRA, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 7, 1996
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Power
Spectra, Inc., a California corporation (the "Company"), will be held on Friday,
June 7, 1996 at 10:00 a.m., local time, at the Sunnyvale Hilton, 1250 Lakeside
Drive, Sunnyvale, California (telephone (408)738-4888) for the following
purposes:
1. To elect the following nominees to serve as directors for the ensuing
year and until their successors are elected: Drury J. Gallagher,
Michael I. Gamble, James A. Glaze, John Hewitt, Jr., Gene J. Kennedy,
John W. Pauly, Gordon H. Smith and Richard A. Williams.
2. To approve the Company's 1996 Stock Plan and the reservation of
1,500,000 shares of the Company's Common Stock for issuance
thereunder.
3. To approve an increase in the number of shares of Common Stock
issuable under the Company's 1992 Director Option Plan by 170,000
shares.
4. To ratify the appointment of Grant Thornton LLP as independent
auditors for the Company for the fiscal year ending December 31, 1996.
5. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 17, 1996,
are entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. You may revoke your
proxy at any time before it has been voted, and if you attend the meeting you
may vote in person even if you have previously returned your proxy card. Your
prompt cooperation will be greatly appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ MICHAEL I. GAMBLE
------------------------------------
Michael I. Gamble
President and Chief Executive Officer
Sunnyvale, California
April 30, 1996
<PAGE>
POWER SPECTRA, INC.
PROXY STATEMENT
FOR 1996 ANNUAL MEETING OF SHAREHOLDERS
----------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
Power Spectra, Inc. (the "Company") for use at the Annual Meeting of
Shareholders to be held on Friday, June 7, 1996 at 10:00 a.m., local time, or at
any adjournments thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will
be held at the Sunnyvale Hilton, 1250 Lakeside Drive, Sunnyvale, California
(telephone (408)738-4888). The Company's executive offices are located at 919
Hermosa Court, Sunnyvale, California 94086, and the Company's telephone number
at that address is (408) 737-7977.
These proxy solicitation materials were mailed on or about April 30, 1996
to all shareholders entitled to vote at the Annual Meeting.
Record Date and Share Ownership
Shareholders of record at the close of business on April 17, 1996 (the
"Record Date") are entitled to notice of the Annual Meeting and to vote at the
Annual Meeting. At the record date, 16,000,096 shares of the Company's Common
Stock were issued and outstanding and held by approximately 727 shareholders of
record. The only person known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock is the Travelers Group, and affiliated
entities, which owned approximately 17% of the Company's Common Stock.
Also at the close of business on the Record Date, 799 shares of the
Company's Series A Preferred Stock were issued and outstanding and held by 14
shareholders of record and 1,153 shares of the Company's Series B Preferred
Stock were issued and outstanding and held by 27 shareholders of record. The
only persons known by the Company to be the beneficial owners of more than 5% of
the Company's Preferred Stock were First Interstate, Custodian for the benefit
of the James Ermet Halden Trust (19.2%, on an as-converted to Common Stock
basis), David J. Holmgren (18.5%), and the estate of John C. Cahill (11.1%).
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the Annual Meeting and voting in person.
Voting and Solicitation
Each holder of Common Stock has one vote for each share of Common Stock
held. Each holder of Preferred Stock of the Company has the right to vote the
number of shares of Common Stock into which a share of Preferred Stock is
convertible, such number of shares of Common Stock being 816 in the case of the
Series A Preferred Stock of the Company and 1,280 in the case of the Series B
Preferred Stock of the Company. Each shareholder voting in the election of
directors may cumulate his or her votes, giving one candidate a number of votes
equal to the number of directors to be elected (eight) multiplied by the number
of votes to which the shareholder's shares are entitled, or distributing the
shareholder's votes on the same principle among as many candidates. However, no
shareholder shall be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and the shareholder, or any other
shareholder, has given notice at the Annual Meeting prior to the voting of the
intention to cumulate the shareholder's votes. On all other matters, each share
of Common Stock (or Common Stock into which a share of Preferred Stock is
convertible) has one vote.
<PAGE>
Shares represented by properly executed proxies will, unless such proxies
have been previously revoked, be voted in accordance with the instructions
indicated thereon. In the absence of specific instructions to the contrary,
properly executed proxies will be voted: (i) FOR the election of each of the
Company's nominees as a director; (ii) FOR approval of the Company's 1996 Stock
Plan and the reservation of 1,500,000 shares of Common Stock for issuance
thereunder, (iii) FOR approval of an increase of 170,000 shares in the number of
shares of Common Stock issuable under the 1991 Director Option Plan; and (iv)
FOR ratification of the appointment of Grant Thornton, LLP as independent
auditors. No business other than that set forth in the accompanying Notice of
Annual Meeting of Shareholders is expected to come before the Annual Meeting.
Should any other matter requiring a vote of shareholders properly arise, the
persons named in the enclosed form of proxy will vote such proxy in accordance
with their best judgment on such matter.
The cost of this solicitation will be borne by the Company. The Company may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation material to such beneficial
owners. Original solicitation of proxies by mail may be supplemented by
telephone, telegram or personal solicitations by directors, officers or
employees of the Company. No additional compensation will be paid to directors,
officers or employees for any such services.
Quorum; Abstentions; Broker Non-Votes
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of Common Stock issued and outstanding on the Record
Date, determined on an as-converted basis. Shares that are voted "FOR,"
"AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
"represented and voting" at the Annual Meeting (the "Votes Cast") with respect
to such matter.
While there is no definitive statutory case law authority in California as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this matter. Accordingly, abstentions will have the same effect
as a vote against a proposal.
Broker non-votes will be counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but will not be counted
for purposes of determining the number of Votes Cast with respect to the
proposal on which the broker has expressly not voted. Thus, a broker non-vote
will not affect the outcome of the voting on a proposal.
Deadline for Receipt of Shareholder Proposals
Proposals of shareholders of the Company which are intended to be presented
by such shareholder at the Company's 1997 Annual Meeting of Shareholders must be
received by the Company no later than January 2, 1997 in order that they may be
considered for inclusion in the proxy statement and form of proxy related to
that Annual Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
A board of eight directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's eight nominees named below, all of whom are presently
directors of the Company. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. It is not expected that any nominee will
be unable or will decline to serve as a director. In the event that additional
persons are nominated for election as directors, the proxy holders intend to
vote all proxies received by them in such a manner in accordance with cumulative
voting as will assure the election of as many of the nominees listed below as
possible, and, in such event, the specific nominees for whom the proxy holders
will vote will be determined by the proxy holders. The term of office of each
-2-
<PAGE>
person elected as a director will continue until the next Annual Meeting of
Shareholders or until a successor has been elected and qualified.
<TABLE>
The names of the nominees, and certain information about them, are set
forth below.
<CAPTION>
Name of Nominee Age* Principal Occupation Director Since
- ----------------------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Michael I. Gamble 60 President and Chief Executive Officer of the Company April 1991
Richard A. Williams 71 Consultant October 1987
John Hewitt, Jr. 67 Investment Advisor August 1989
Drury J. Gallagher 57 Investment Banker April 1990
John W. Pauly 73 General, U.S. Air Force, Retired May 1990
Gene J. Kennedy 54 Consultant/Counselor November 1990
Gordon H. Smith 67 Chairman of the Board of the Company, Rear Admiral, January 1995
US Navy, Retired
James A. Glaze 58 Vice President of Industry Association June 1995
- ---------------------------
<FN>
* As of April 17, 1996.
</FN>
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There are no
family relationships between any director, nominee for director, nominee for
director or executive officer of the Company.
Mr. Gamble joined the Company as Director in April 1991 and has served
as the Company's President and Chief Executive Officer since that time. From
1991 until 1993 he also served as Chief Financial Officer of the Company. Prior
to joining the Company, Mr. Gamble was with the Boeing Company for 24 years,
where he was responsible for concept development, preliminary design and initial
market assessment for advanced products and systems.
Mr. Williams served as a technical staff manager of Ford Aerospace &
Communications Corp., a manufacturer of satellites, from 1965 to 1982. Since
1982, following his retirement, he has been a consultant for Ford Aerospace,
Loral Corp., and other high technology firms.
Mr. Hewitt founded John Hewitt Investment Counsel, a financial
counseling company, in 1962 and has served as its President for more than five
years. He was a founding investor in Microwave Electronics Corporation which
later became a division of Teledyne, Inc.
Mr. Gallagher is an investment banker and a real estate syndicator. He
is the general partner, operator and owner of twenty nursing homes in
Pennsylvania. Mr. Gallagher has served as Executive Vice President and Treasurer
of Penn-Med Consultants, Inc., a healthcare management services provider, since
1992. From 1986 to 1991, he served as Vice President of Pennsylvania Health and
Nursing Care Corp. , the predecessor to Penn-Med Consultants. Since 1981, he has
been the President of Global Gold Corporation (formerly Triad Energy
Corporation), of which he is also a Treasurer and Chairman of the Board.
General Pauly served as the Chairman of the Board and Chief Executive
Officer of Systems Control Technology, Inc., a software company, from 1982 until
his retirement in 1994. General Pauly is a consultant to the Army Science Board
and was a participant in the National Research Council Study on strategic
technologies in the Army.
-3-
<PAGE>
Mr. Kennedy has been in private practice related to organizational and
individual counseling and psychotherapy since 1974. In 1981 he was a founding
investor and Vice President of Beepers Northwest, Inc., a pager company which
was later purchased by McCaw Cellular Communications.
Admiral Smith served as an officer of Lockheed Missiles and Space Co.,
a space systems manufacturer, from 1988 to 1990. From 1990 to 1994, he served as
President and Chief Executive Officer of Sargent Fletcher Company. From October
to November 1995, he served as President and Chief Executive Officer of Sargent
Fletcher, Inc., a military aircraft component manufacturer.
Mr. Glaze joined the Board of Directors in June 1995. Since August,
1993, Mr. Glaze has served as a Vice President of the Semiconductor Industry
Association. Prior to August 1993, Mr. Glaze was President of Imar Technology,
Inc., a Laser technology developer.
Recommendation
The Board of Directors recommends that shareholders vote FOR each of
the Company's nominees for director.
Vote Required
The eight nominees receiving the highest number of affirmative votes of
the shares entitled to be voted for them shall be elected as directors. Votes
withheld from any director are counted for purposes of determining the presence
or absence of a quorum, but have no other legal effect under California law.
Executive Officers
The current executive officers of the Company and their ages as of
April 17, 1996 are as follows:
Name Age Position
- -------------------------------------------------------------------------
Michael I. Gamble 60 President, Chief Executive Officer
Edward J. Lamb 48 Chief Financial Officer and Secretary
All executive officers serve at the discretion of the Board of
Directors.
Mr. Lamb has served as Chief Financial Officer since October 1993, and
as Secretary since November 1994. Prior to joining Power Spectra, he was
Division Controller for Quantic Industries, Inc., a munitions manufacturer from
August 1990 to February, 1992, and served as Finance Manager for CAE-Link
Corporation, a flight simulation systems supplier from June 1988 to August 1990.
See "Nominees," above, for background information on Mr. Gamble.
-4-
<PAGE>
<TABLE>
Security Ownership of Certain Persons
The following table sets forth the beneficial ownership of Common Stock
of the Company as of April 17, 1996 by (1) each nominee for director, (2)
Michael Gamble, the Company's Chief Executive Officer and the sole executive
officer of the Company whose salary and bonus in 1995 exceeded $100,000, (3) all
directors and executive officers as a group and (4) each person known by the
Company to be the beneficial owner of more than 5% of the Company's Common
Stock.
<CAPTION>
Shares of Common Stock Beneficially Owned(1)
-----------------------------------------------------------------------------
Name No. of Shares Percent of Total
- --------------------------------------------- -----------------------------------------------------------------------------
<S> <C> <C>
Entities Affiliated with 2,734,772 17.1%
Travelers Group, Inc.(2)
388 Greenwich St.
New York, NY 10013
Gene J. Kennedy(3) 451,963 2.8%
Drury J. Gallagher(4) 279,541 1.7%
John W. Pauly(3) 149,669 *
Michael I. Gamble(5) 133,707 *
Richard A. Williams(6) 135,373 *
John Hewitt, Jr.(3) 132,057 *
James A. Glaze 8,486 *
Gordon H. Smith(7) 33,330 *
All directors and executive officers as a 1,360,078 8.3%
group (9 persons)(8)
- ---------------------------
<FN>
* Represents less than 1% of the total number of shares of Common Stock
outstanding.
(1) Except as indicated below, the persons named in the table, to the
Company's knowledge, have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) As reported in Amendment No. 1 to Schedule 13G filed by Travelers Group,
Inc. on January 31, 1996. Includes shares held by Smith Barney Holdings,
Inc. and Smith Barney Mutual Funds Management, Inc.
(3) Includes 30,000 shares issuable upon exercise of options exercisable
within 60 days of the Record Date.
(4) Includes 4,560 shares owned by Mr. Gallagher's spouse, Catherine A.
Gallagher, and 30,000 shares issuable upon exercise of options exercisable
within 60 days of the Record Date.
(5) Includes 123,707 shares issuable upon exercise of options exercisable
within 60 days of the Record Date.
(6) Includes 45,000 shares issuable upon exercise of options exercisable
within 60 days of the Record Date.
(7) Includes 10,000 shares issuable upon exercise of options exercisable
within 60 days of the Record Date.
(8) Includes 298,707 shares issuable upon exercise of options exercisable
within 60 days of the Record Date held by eight nominees for director, one
of whom is also an officer, and 35,952 shares issuable upon exercise of
options exercisable within 60 days of the Record Date held by one officer
who is not a director or nominee for director. See also footnote (4) to
this table.
</FN>
</TABLE>
-5-
<PAGE>
<TABLE>
The following table sets forth the beneficial ownership of Series A
Preferred Stock and Series B Preferred Stock of the Company as of April 17, 1996
by (1) each nominee for director, (2) Michael I. Gamble, (3) each holder of 5%
or more of the Series A Preferred Stock and Series B Preferred Stock and (4) all
directors and executive officers as a group.
<CAPTION>
Shares of Preferred Stock
Beneficially Owned(1)
------------------------------------------------------------------
Name No. of Shares Percent of Class(2)
- --------------------------------------------- ------------------------------------------------------------------
<S> <C> <C>
Gene J. Kennedy 89 4.7%
Michael I. Gamble 10(3) *
John Hewitt, Jr. 10 *
Richard A. Williams 10 *
First Interstate Bank, Custodian for the 500 19.2%
benefit of James Ermet Haldan Trust
PO Box 30100
Reno, Nevada 89560
David J. Holmgren 308(4) 18.5%
30 White Birch Lane
Coscob, CT 06807
Estate of John C. Cahill 185(5) 11.1%
284 President Avenue
Providence, RI 02906
All directors and executive officers as a 129 5.2%
group (9 persons)
- ---------------------------
<FN>
* Represents less than 1% of the total number of shares of Preferred Stock
outstanding.
(1) Except as noted below, the persons named in the table, to the Company's
knowledge, have sole voting and investment power with respect to all
shares of Preferred Stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) Represents the percentage obtained by dividing the number of shares of
Common Stock into which the shares of Series A Preferred Stock and Series
B Preferred Stock held by the beneficial owner are convertible by the
number of shares of Common Stock into which all outstanding shares of
Series A Preferred Stock and Series B Preferred Stock are convertible.
(3) Represents shares owned jointly by Mr. Gamble and his spouse, Charlotte
Anne Gamble.
(4) Includes 14 shares owned jointly by Mr. Holmgren and his spouse, Karen C.
Holmgren.
(5) Does not include 5,000 shares held by each of Ann Catherine Cahill and
Mary Elizabeth Cahill, Mr. Cahill's daughters.
</FN>
</TABLE>
Compliance with Section 16(a) of the Exchange Act
Based solely on its review of the copies of Forms 3, 4 and 5 received by
the Company, or written representations from certain reporting persons that no
Forms 5 were required for such persons, the Company believes that, during the
fiscal year ended December 31, 1995, all filing requirements under Section 16(a)
of the Securities Exchange Act applicable to its officers, directors and 10%
shareholders were complied with, except that Admiral Smith and Mr. Glaze failed
to file Form 3 reports on atimely basis upon joining the Board of Directors.
-6-
<PAGE>
Board Meetings and Committees
The Board of Directors of the Company held a total of six meetings during
the fiscal year ended December 31, 1995 (the "Last Fiscal Year"). During the
Last Fiscal Year, no director attended fewer than 75% of the aggregate of all
meetings of the Board of Directors and committees on which he served, if any.
The Board has established an Audit Committee and a Compensation Committee.
The Audit Committee consists of Messrs. Hewitt, Glaze, Gallagher and Williams.
The Audit Committee recommends engagement of the Company's independent auditors
and approves the services performed by such auditors and reviews and evaluates
the Company's accounting policies and its systems of internal accounting
controls. The Compensation Committee is comprised of Messrs. Gamble, Smith,
Pauly and Kennedy. The Compensation Committee recommends to the Board of
Directors the compensation of the Company's Chief Executive Officer and
determines the compensation levels of the Company's other officers. The Audit
Committee and the Compensation Committee held two meetings and four meetings in
1995, respectively. The Company does not have a Nominating Committee or a
committee performing similar functions.
As compensation for their service as directors, non-employee directors
receive shares of the Company's Common Stock under the 1991 Director Stock Plan
described below and the Director Option Plan, also described below. See
"Employee and Director Benefit Plans."
Director Compensation
During 1995, 13,380 shares of Common Stock were issued to each of the
following directors pursuant to the 1991 Director Stock Plan: John Hewitt, Jr.,
Drury Gallagher, Richard Williams, John Pauly, and Gene Kennedy. Mr. Smith and
Mr. Glaze received 8,785 shares and 2,941 shares, respectively, under such plan
and Stuart J. Northrop, a former director of the Company, received 10,439
shares. Additionally, each Director is reimbursed for reasonable out-of-pocket
expenses incurred in attending meetings of the Board of Directors. Admiral Smith
is paid $1,500 per month as Chairman of the Board. He received $7,500 for such
services in the Last Fiscal Year. His predecessor, Mr. Hewitt, received $10,500
for his services in the Last Fiscal Year. In addition, heads of committees of
the Board of Directors are paid $250 per quarter as compensation for serving in
such positions.
Non-qualified stock options to purchase 10,000 shares of Common Stock were
issued to each of the non-employee Directors (except Mr. Glaze) pursuant to the
Director Option Plan in April 1995. See "Employee and Director Benefit Plans"
below.
-7-
<PAGE>
<TABLE>
Executive Compensation
The following table sets forth certain information regarding compensation
paid by the Company in the Last Fiscal Year to Mr. Gamble, the Chief Executive
Officer of the Company, who was the only executive officer whose salary and
bonus during the Last Fiscal Year exceeded $100,000:
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation Awards
------------------- -----------------------------
Salary Bonus
Name Year ($) ($) Securities Underlying Options
- -------------------------------- ---------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael I. Gamble 1995 162,320 0 8,535
1994 165,000 0 5,000
1993 160,014 1,000 0
</TABLE>
<TABLE>
The following table sets forth certain information regarding stock options
granted to Mr. Gamble in the Last Fiscal Year.
<CAPTION>
Option Grants in Last Fiscal Year
Number of Securities Percent of Total Options Exercise
Underlying Options Granted to Employees in Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date
- ---------------------------------------------------------------------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Michael I. Gamble 8,535(1) 3.5% $0.9375 1/2005
<FN>
- ---------------------------
(1) Incentive Stock Option granted under 1986 Stock Option Plan. The Option
vests over a period of five years. The exercise price of the Option
equaled the fair market value of the underlying securities as of the date
of grant.
</FN>
</TABLE>
<TABLE>
The following table sets forth the value of all unexercised stock
options held by Mr. Gamble on December 31, 1995. No options were exercised by
Mr. Gamble during the Last Fiscal Year.
<CAPTION>
Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year End (#) Fiscal Year End ($)
Name (Exercisable/Un-exercisable) (Exercisable/Unexercisable)
- ------------------------------- ----------------------------------- ---------------------------------
<S> <C> <C>
Michael I. Gamble 123,707/9,828 0/0(1)
<FN>
- ---------------------------
(1) The weighted average exercise price of Mr. Gamble's exercisable and
unexercisable options, granted under the 1986 Stock Option Plan, was
$1.338 per share as of December 31, 1995; the over-the-counter bulletin
board closing bid price as of December 31, 1995 of the Company's Common
Stock was $.6875 per share. Consequently, Mr. Gamble's options are not
in-the-money.
</FN>
</TABLE>
-8-
<PAGE>
Employee and Director Benefit Plans
The following is a brief summary of plans in effect during the last
fiscal year under which officers, directors and employees of the Company receive
benefits.
1986 Stock Option Plan. The Company's 1986 Stock Option Plan (the "1986
Plan") was adopted by the Company's Board of Directors in March 1987 and
approved by the Company's shareholders in October 1987. A total of 1,690,000
shares of Common Stock has been reserved for issuance under the Option Plan.
The 1986 Plan is administered by the Board of Directors, which has the
authority to select the employees and consultants of the Company (including
officers and employee directors) who are to receive option grants and to
determine whether each option granted is to be an incentive stock option
satisfying the requirements of Section 422A of the Internal Revenue Code of
1986, as amended, or a nonstatutory stock option. The exercise price of each
incentive stock option granted may not be less than 100% of the fair market
value of the Company's Common Stock on the date of grant and the exercise price
of a nonstatutory option may not be less than 85% of the fair market value of
the Company's Common Stock on the date of grant. No option may have a term in
excess of ten years measured from the date of grant. The Board of Directors
selects the optionees, the number of shares to be subject to each option and the
vesting period of options granted under the 1986 Plan. In making such
determination, the Board of Directors takes into account the duties and
responsibilities of the employee or consultant, as the case may be, the value of
the optionee's services, his or her present and potential contribution to the
success of the Company and anticipated number of years of future service and
other relevant factors.
In the event that the Company's 1996 Stock Plan is approved by the
Shareholder at the Annual Meeting, no further option grants will be made under
the 1986 Plan. The 1986 Plan will expire by its terms in February, 1997. All
shares available for future issuance under the Option Plan will be made
available for issuance under the 1996 Stock Plan.
1991 Director Stock Plan. The Company's 1991 Director Stock Plan (the
"Stock Plan") was adopted in March 1991 and approved by the Company's
shareholders in June 1991. The Company initially reserved 100,000 shares of
Common Stock for issuance under the Stock Plan. The shareholders approved
increases of 150,000 shares and 200,000 shares in the number of shares available
for issuance under the Stock Plan in June 1993 and June 1995, respectively.
Under the Stock Plan, each director who is not an employee or full-time
consultant of the Company (an "Outside Director") receives each quarter $3,125
in shares of Common Stock of the Company (based upon a price per share equal to
the fair market value of the Common Stock on the last day of such quarter). The
Company currently has seven Outside Directors.
1992 Director Option Plan. For a description of the 1992 Director Option
Plan, see "AMENDMENT TO THE 1991 DIRECTOR OPTION PLAN TO INCREASE THE NUMBER OF
SHARES AVAILABLE FOR ISSUANCE -- Description of Plan, As Amended."
PROPOSAL NO. 2
APPROVAL OF THE 1996 STOCK PLAN
AND THE RESERVATION OF 1,500,000 SHARES OF COMMON STOCK
FOR ISSUANCE THEREUNDER
The Board of Directors of the Company adopted the 1996 Stock Plan (the
"1996 Plan") in April, 1996. In connection with such adoption, the Board
terminated the 1986 Stock Option Plan (the "1986 Plan") as to future grants
conditioned upon and effective immediately upon shareholder approval of the 1996
Plan at the Annual Meeting.
The Board proposes to reserve 1,500,000 shares of Common Stock for
issuance upon exercise of options granted under the 1996 Plan, in addition to
the shares which remain available for issuance under to 1986 Plan. Effective on
the approval of the 1996 Plan by the shareholders, the entire reserve of shares
for grants of future options pursuant to the 1986 Plan will be canceled. The
1996 Plan was adopted by the Board due to the fact that the 1986 Plan will
expire by its trms in February, 1997
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and subsequent to such date, the Company will not be able to make additional
grants under that plan, notwithstanding the availability of additional shares
for issuance. As of the Record Date, 490,028 shares of Common Stock were
available for future grants under the 1986 Plan, and options to acquire
1,199,972 shares were issued and outstanding under the 1986 Plan. Any reserved
shares that are not issued as a result of the termination of existing options
under the 1986 Plan before they are exercised will also be canceled and no
longer available for grant. Such termination will not affect the shares subject
to options currently outstanding under the 1986 Plan.
General
The 1996 Plan provides for the grant to employees and consultants of
the Company or any parent or subsidiary thereof of stock options ("Options"),
which may be incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the Code, or nonstatutory stock options ("Nonstatutory
Options"), at the discretion of the Board of Directors of the Company.
The 1996 Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code and is not subject to the provisions of ERISA.
Purposes
The purposes of the 1996 Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company, to promote the
success of the Company's business, and to clearly align the interests of
eligible employees and consultants directly with those of the shareholders.
Administration
The 1996 Plan may be administered by the Board of Directors of the
Company or by its Corporation Committee. Once appointed, committee members shall
continue to serve until otherwise directed by the Board. The administration,
interpretation, or application of the 1996 Plan by the Board of Directors or its
committee shall be final, conclusive, and binding upon all participants. Members
of the Board and the Compensation Committee will receive no additional
compensation for their services in connection with the administration of the
1996 Plan.
Eligibility
The 1996 Plan provides for the grant of Options to employees (including
employees who are both officers and directors of the Company) and consultants of
the Company or any parent or subsidiary of the Company whom the Board of
Directors or the committees determine are eligible to be granted Options under
the 1996 Plan ("Optionees"). Incentive Stock Options may only be granted to
employees. The Board of Directors or the Compensation Committee will determine
the number of shares to be subject to each Option. As of the Record Date, 27
employees (including officers and directors) were eligible to participate in the
1986 Plan and would have been eligible to participate in the 1996 Plan.
In accordance with Section 162(m) of the Code, the 1996 Plan imposes a
limitation on grants to any Optionee in any fiscal year so that the aggregate
grants in any one year to any Optionee may not exceed 300,000 shares per fiscal
year; provided, however, that new hires may receive additional Option grants for
no more than 300,000 shares in the year they are hired. In addition, there is a
limit of $100,000 on the aggregate fair market value of shares subject to all
Incentive Stock Options which are exercisable for the first time in any calendar
year by an employee.
Terms of Options
Each Option granted pursuant to the 1996 Plan will be evidenced by a
written stock option agreement between the Company and the Optionee and is
subject to the following terms and conditions:
(a) Exercise of the Option. The Board of Directors or its
Compensation Committee determine on the date of grant when Options may
be exercisable under the 1996 Plan.
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The form of Option agreement proposed for general use under
the 1996 Plan provides that an Option will be exercisable during its
term in accordance with the vesting schedule set out in the notice of
grant and the applicable provisions of the Plan and the Option
Agreement.
Payments for shares issued upon exercise of an Option may
consist of cash, check, promissory note, an exchange of shares of the
Company's Common Stock, any combination of such methods of payment, or
such other consideration as determined by the Board of Directors or the
Compensation Committee and as permitted under the California
Corporations Code.
(b) Exercise Price. The exercise price of Options granted
under the 1996 Plan is determined by the Board of Directors or the
committees but may not be less than 100% of the fair market value of
the Common Stock on the date the Option is granted.
(c) Termination of Employment. If the Optionee's employment
with the Company is terminated for any reason (other than death, total
and permanent disability, or in certain cases, retirement), a vested
Option may be exercised within three months of the Optionee's
termination (but in no event later than the date of expiration of the
term of such Option) as to all or part of the shares as to which the
Optionee was entitled to exercise at the date of such termination.
(d) Death or Disability. If an Optionee is unable to continue
his or her employment with the Company as a result of death or
disability, his or her Options may be exercised at any time within
twelve months from the date of death or termination of employment due
to disability (but in no event later than the date of expiration of the
term of such Option) to the extent such Options would otherwise have
been exercisable.
(e) Term and Termination of Options. Options granted under the
1996 Plan expire ten years from the date of grant, unless a shorter
period is provided in the Option agreement. The current form of Option
agreement provides for a ten-year term. No Option may be exercised by
any person after the expiration of its term.
(f) Nontransferability of Options. An Option is not
transferable by the Optionee, other than by will or the laws of descent
and distribution. In the event of the Optionee's death, Options may be
exercised by a person who acquires the right to exercise the Option by
bequest or inheritance.
(g) Other Provisions. Option agreements may contain such other
terms, provisions, and conditions not consistent with the 1996 Plan as
may be determined by the Board of Directors or the Compensation
Committee.
Adjustments Upon Changes in Capitalization; Merger or Sale of Assets
In the event any change, such as a stock split or payment of a stock
dividend, is made in the Company's capitalization which results in an increase
or decrease in the number of outstanding shares of Common Stock without receipt
of additional consideration by the Company, an appropriate adjustment shall be
made by the Board of Directors in the Option exercise price and in the number of
shares to each Option.
In the event of a proposed dissolution or liquidation of the Company,
the Company is required to notify each Optionee as soon as practicable prior to
the effective date of the proposed transaction. To the extent an Option has not
been previously exercised, it will terminate immediately prior to the proposed
liquidation or dissolution.
In the event of a proposed sale of the assets of the Company or the
merger of the Company with or into another corporation, all Options will be
assumed or an equivalent option will be substituted by the successor
corporation. If the successor corporation refuses to fully assume all Options,
the Options will terminate. Options will be considered assumed if, following the
merger or sale of assets, the option or right granted to the Optionee by the
purchaser or acquiror confers the right to receive for each share of Common
Stock subject to such Options the consideration received in the merger or sale
of assets in exchange for outstanding shares of the Common Stock on the date of
the transaction; provided, however, that if the consideration received in the
merger or sale of assets was not solely Common stock of the successor
corporation or its parent, the Board may, with the
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consent of the successor corporation, provide for the consideration to be
received upon exercise of the Option to be solely Common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by holders of the Company's Common Stock in the merger or
sale of assets.
Amendment and Termination
The Board may amend, suspend, or terminate the 1996 Plan, or any part
thereof, at any time and for any reason. However, the Company shall obtain
shareholder approval for any amendment to the 1996 Plan to the extent necessary
to comply with Rule 16b-3, Section 422 of the Code, or any similar rule or
statute. No such action by the Board or shareholders may alter or impair any
option of stock purchase right previously granted under the 1996 Plan without
the written consent of the optionee. Unless terminated earlier, the 1996 Plan
shall terminate ten years from the date of its approval by the shareholders of
the Company.
Tax Information
Incentive Stock Options
The Code provides to Optionees favorable federal income tax treatment
of Options which qualify as Incentive Stock Options. Even if designated as
Incentive Stock Options in the Option Agreement, any Options in excess of the
$100,000 limit on exercisability in any calendar year will be deemed to be a
Nonstatutory Options and treated as described under "Nonstatutory Options." If
an Option granted under the 1996 Plan is treated as an Incentive Stock Option,
the Optionee will recognize no income upon grant of the Option, and will
recognize no income upon exercise of the Option unless the alternative minimum
tax rules apply. The Company will not be allowed a deduction for federal tax
purposes in connection with the exercise of an Incentive Stock Option.
Upon the sale of the shares issued upon exercise of an Incentive Stock
Option at least two years after the grant of the Option and one year after
exercise of the Option (the "statutory holding periods"), any gain will be taxed
to the Optionee as long-term capital gain. Under current law, the federal tax
rate on net capital gain (net long-term capital gain minus net short-term
capital loss) is capped at 28%. If the statutory holding periods are not
satisfied (i.e., the Optionee makes a "disqualifying disposition"), the Optionee
will recognize compensation income equal to the difference between the exercise
price and the lower of (i) the fair market value of the stock at the date of the
Option exercise, or (ii) the sale price of the stock, and the Company will be
entitled to a deduction in the same amount. Any gain or loss recognized on a
disqualifying disposition of the shares in excess of the amount treated as
compensation income will be characterized as capital gain or loss.
Different rules may apply if shares are purchased by an Optionee who is
subject to Section 16(b) of the Exchange Act, and the Optionee subsequently
disposes of such shares prior to the expiration of the statutory holding
periods.
Nonstatutory Options
Nonstatutory Options granted under the 1996 Plan will not qualify for
any special tax benefits to the Optionee.
An Optionee will not recognize any taxable income at the time he or she
is granted a Nonstatutory Option under the 1996 Plan. Upon exercise of the
Option, the Optionee will generally recognize compensation income for federal
tax purposes measured by the excess, if any, of the then fair market value of
the shares over the exercise price. However, if shares subject to a repurchase
option of the Company (i.e., invested shares) are purchased upon exercise of a
Nonstatutory Option, no tax will be imposed at the time of exercise with respect
to such invested shares (and the Optionee's long-term capital gain holding
period will not begin at such time) unless the Optionee files an election with
the Internal Revenue Service pursuant to Section 83(b) of the Code within 30
days after the date of exercise. In the absence of such election, the Optionee
is taxed (and the long-term capital gain holding period begins) at the time at
which the shares vest (i.e., the time at which the repurchase option lapses with
respect to such shares), and the Optionee recognizes compensation income in the
amount of the difference between the value of the shares at that time and the
Option exercise price. If a Section 83(b) election is timely filed, the invested
shares will be treated for federal income tax purposes as if they had been
vested at the time of exercise. Taxation upon exercise of the option may also
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be deferred (unless a Section 83(b)) election is filed) in the case of an
Optionee who is subject to Section 16(b) of the Exchange Act.
The compensation income recognized by the Optionee who is also an
employee will be treated as wages and will be subject to tax withholding by the
Company out of the current compensation paid to the Optionee. If such current
compensation is sufficient to pay the withholding tax, the Optionee will be
required to make direct payment to the Company for the tax liability.
Upon a resale of the shares issued upon exercise of a Nonstatutory
Option, any difference between the sales price and the fair market value of the
shares on the date of exercise of the Nonstatutory Option (or the fair market
value of the shares on the date they become vested, if a Section 83(b) election
has not been timely filed) will be treated as capital gain or loss. Under
current law, the federal tax rate on net capital gain is capped at 28%. Capital
losses are allowed in full against capital gains plus $3,000 of other income.
The Company will be entitled to a corresponding tax deduction in the
amount and at the time that the Optionee recognizes ordinary income with respect
to shares acquired upon exercise of a Nonstatutory Option. During 1995, the
Company received $25,162 as payment of the exercise price of exercised options.
Alternative Minimum Tax
The exercise of an Incentive Stock Option may subject to the
alternative minimum tax ("AMT") under Section 55 of the Code. The AMT is
calculated by applying a tax rate of 26% to alternative minimum taxable income
("AMTI") up to$175,000, and 28% to AMTI above $175,000. AMTI is equal to (i)
taxable income adjusted for certain items (including the difference between the
exercise price and the fair market value of shares underlying in Incentive Stock
Option at exercise), plus (ii) items of tax preference, less (iii) an exclusion
of $45,000 for joint returns and $33,750 for individual returns (including the
difference between the exercise price and the fair market value of shares
underlying an Incentive Stock Option at exercise). However, these exclusion
amounts are reduced by an amount equal to 25% of the amount by which the
taxpayers AMTI exceeds $150,000 and $112,500, respectively. Under certain
circumstances, an optionee may affect the timing and measurement of AMTI by
filing an election with the Internal revenue Service under Section 83(b) within
30 days after the date of exercise of an Incentive Stock Option.
Plan Participation
The Company proposes to adopt the 1996 Plan in connection with the
termination of the 1986 Stock Option Plan (the "1986 Plan"). If this proposal is
adopted, there will be no future grants under the 1986 Plan. Grants under the
1996 Plan will be made at the discretion of the Board of Directors. Accordingly,
future grants under the 1996 Plan are not yet determinable. The following table
sets forth grants during the Last Fiscal Year under the 1986 Plan to (i) the
Chief Executive Officer, (2) all current executive officers as a group, and (3)
all employees, including all officers who are not executive officers, as a
group:
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Dollar Value Number
Name and Position of Grant($)(1) of Shares
- -------------------------------------------------------------------------------
Michael I. Gamble
President and Chief Executive Officer....... $8,002 8,535
All Executive officers, as a group............ $12,468 13,299
All Other employees, as a group............... $217,600 202,474
- ----------------------------------
(1) Based on the difference between the weighted average exercise price of
the option or options and the fair market value of the Company's Common
Stock, as measured by the average of the bid and ask prices for the
Common Stock in over-the-counter trading as of the end of December 31,
1995.
Vote Required and Board of Directors' Recommendation
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present or represent and voting at the Annual Meeting
will be required to approve the 1996 Plan. In order to incentivize eligible
employees, and align their interests directly with those of the shareholders,
the Company's Board of Directors unanimously recommends that the shareholders
vote FOR adoption of the 1996 Plan. Approval of the 1996 Plan will make
effective the termination of the 1986 Plan.
PROPOSAL NO. 3
AMENDMENT TO THE 1992 DIRECTOR OPTION PLAN
TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
The Company's Director Option Plan was adopted in October 1992 by the
Board of Directors, and approved by the shareholders in June, 1993. An aggregate
of 230,000 shares of Common Stock was reserved for issuance under the 1992
Director Option Plan (the "Director Option Plan"). Under the 1992 Director
Option Plan each Outside Director is automatically granted an option to purchase
10,000 shares each year on the third trading day following the public
announcement of the Company's financial results for the preceding fiscal year.
Only Outside Directors are eligible to participate in the Director Option Plan.
The Company currently has seven Outside Directors. Each Outside Director was
automatically granted an option for 10,000 shares in April, 1995 following the
release of the Company's financial results for 1994.
At the Annual Meeting, the shareholders are being requested to ratify
and approve the Amendment to the Option Plan to increase the number of shares
available for issuance under the Director Option Plan by 170,000 shares. This
amendment to the Director Option Plan was approved by the Board of Directors in
April, 1996. The Board believes the Option Plan is a valuable incentive for the
continued service of its Outside Directors and recommends approval of the
Amendment, which is necessary in light of the fact that only 40,000 shares
remain available for issuance under the Option Plan.
Options granted under the Director Option Plan are nonstatutory
options, and do not qualify as "incentive stock options," as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
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Description of the Plan, as Amended
Purpose
The purposes of the Director Option Plan are to attract and retain the
best available individuals for service as Outside Directors of the Company, to
provide additional incentive to the Outside Directors and to encourage their
continued service on the Board.
Administration
The Director Option is designed to work automatically and to not
require administration. However, to the extent administration is necessary, it
will be provided by the Board.
Eligibility for and Exercisability of Options
The Director Option Plan provides for the grant of nonstatutory stock
options to Outside Directors of the Company. During the term of the Director
Option Plan, each Outside Director is automatically granted an option to
purchase 10,000 shares of the Company's Common Stock each year on the third
trading day following the public announcement of the Company's results of
operations for the preceding fiscal year. Options granted under the Director
Option Plan are fully exercisable as of the date of grant. An option is
exercised by giving notice of exercise to the Company, specifying the number of
full shares of Common Stock to be purchased and tendering payment to the Company
of the purchase price.
Terms of Options
Options granted under the Director Option Plan have a term of ten
years. Each option is evidenced by a written stock option agreement between the
Company and the director to whom such option is granted.
Rule 16b-3. Options granted to directors must comply with the
applicable provisions of Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any successor rule thereto and must contain
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Director Option Plan transactions.
Consideration. The consideration to be paid for shares to be issued
upon exercise of an option, including the method of payment, is determined by
the Board and may consist entirely of (1) cash, (2) check, (3) promissory note,
(4) other shares of the Company's Common Stock which (i) in the case of shares
acquired upon exercise of an option, have been owned by the optionee for more
than six months on the date of surrender, and (ii) have a fair market value on
the date of surrender equal to the aggregate exercise price of the shares as to
which the option is being exercised, (5) any combination of the foregoing
methods of payment, or (6) such other consideration and method of payment for
the issuance of shares as is permitted under applicable law.
Exercise Price. The per share exercise for optioned stock shall be 100%
of the fair market value per shares of Common Stock on the date of grant of the
option. The fair market value of a share of Common Stock, as determined by the
Board, is the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on any established stock exchange or a national
market system. In the absence of an established market for the Common Stock, the
fair market value thereof is determined in good faith by the Board of Directors.
Termination of Status as a Director. Under the Director Option Plan, in
the event an optionee ceases to serve as a director of the Company for any
reason other than death or total and permanent disability, an option may
thereafter be exercised for three years. If an optionee's service as a director
of the Company is terminated as a result of the optionee's permanent and total
disability, the option will be exercisable for three years following such
termination. If an optionee's service as a director of the Company is terminated
by reason of the optionee's death, the option will be exercisable by the
optionee's estate or successor for three years following death. However, in no
event may an option be exercised once its 10-year term has expired.
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Nontransferability of Options. Options granted pursuant to the Director
Option Plan are nontransferable by the optionee, other than by will or by the
laws of descent and distribution and may be exercised, during the lifetime of
the optionee, only by the optionee.
Changes in Capitalization.
In the event any change, such as a stock split or payment of a stock
dividend, is made in the Company's capitalization which results in an increase
or decrease in the number of outstanding shares of Common Stock without receipt
of consideration by the Company, an appropriate proportionate adjustment will be
made in the exercise price and in the number of shares subject to options
outstanding under the Director Option Plan, as well as in the number of shares
reserved for issuance under the Director Option Plan.
Change in Control Provisions.
In the event of the proposed dissolution or liquidation of the Company,
all outstanding options will terminate immediately prior to the consummation of
such action. At least thirty days prior to the consummation of such action, the
Board will declare that all stock options will terminate as of such date and
give each optionee the right to exercise its stock options as to all of the
stock subject to the option. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the successor corporation must assume all
outstanding options or substitute equivalent options therefor. However, if such
successor corporation or a parent or subsidiary of such successor corporation
does not assume or substitute an equivalent option, then the optionee will have
the right to exercise its options as to all stock subject to such options for a
period of fifteen days.
Amendment and Termination.
The Board may at any time amend, alter, suspend or discontinue the
Director Option Plan at any time, but such amendment, alteration, suspension or
discontinuation may not adversely affect any stock option then outstanding under
the Director Option Plan, without the consent of the holder of such option.
Federal Income Tax Consequences.
The following is only a brief summary of the effect of federal income
tax consequences of transactions under the Director Option Plan based on income
tax and federal securities law in effect on the date of this Proxy Statement.
This summary is not intended to be exhaustive, and does not discuss the tax
consequences of a participant's death or provisions of the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
Options granted under the Director Option Plan are nonstatutory stock
options. An optionee will not recognize any taxable income at the time he or she
is granted a nonstatutory stock option. Upon exercise of the option, the
optionee will generally recognize compensation income for federal tax purposes
measured by the excess, if any, of the then fair market value of the shares over
the price. Because the optionee is a director of the Company, the date of
taxation (and the date of measurement of taxable ordinary income) may be
deferred for up to six months from the date of grant unless the optionee files
an election under Section 83(b) of the Code within 30 days of the date of
exercise. Upon resale of such shares by the optionee, any difference between the
sales price and the exercise price, to the extent not recognized as compensation
income as provided above, will be treated as capital gain or loss, and will
qualify for long-term capital gain or loss treatment if the shares have been
held for more than one year.
The Company will be entitled to a tax deduction in the amount and at
the time that the optionee recognizes ordinary income with respect to shares
acquired upon exercise of a nonstatutory option.
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Vote Required and Recommendation of Board of Directors
Affirmative votes constituting a majority of the Votes Cast will be
required to ratify and approve the proposed Amendment to the Director Option
Plan. Management and the Board recommend voting "FOR" ratification and approval
of the Amendment to the Director Option Plan.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has nominated Grant Thornton LLP to audit the
financial statements of the Company for the fiscal year ending December 31,
1996. Such nomination is being presented to the shareholders for ratification at
the Annual Meeting. The affirmative vote of the holders of a majority of the
shares represented and voting at the Annual Meeting is required to ratify the
Board's selection. If the shareholders reject the nomination, the Board of
Directors will reconsider its selection.
On January 19, 1996, the Company dismissed the accounting firm of Ernst &
Young LLP, which had previously been engaged as the Company's independent
accountant to audit the Company's financial statements. Ernst & Young's reports
on the Company's financial condition for the fiscal years ended December 31,
1993 and December 31, 1994, did not contain any adverse opinion or disclaimer of
opinion, and such reports were not otherwise modified or qualified as to
uncertainty, audit scope, or accounting principles, except that Ernst & Young's
report on the Company's financial condition for the fiscal year ended December
31, 1994, contained an explanatory paragraph with respect to the Company's
ability to continue as a going-concern. Furthermore, to the knowledge of current
management, during the last two fiscal years and any interim period, the Company
had no disagreements with Ernst & Young on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Ernst & Young, would
have caused it to make reference to the subject matter of the disagreements in
connection with its report(s). The decision to dismiss Ernst & Young was
approved by the Company's Board of Directors. On January 19, 1996, the Company
retained the accounting firm of Grant Thornton LLP as its principal accountant
to audit the Company's financial statements in the future.
A representative or representatives of Grant Thornton LLP is expected
to be present at the Annual Meeting, will have the opportunity to make a
statement and is expected to be available to respond to appropriate questions.
Vote Required and Recommendation of the Board of Directors
Ratification of the selection of Grant Thornton LLP as the Company's
independent auditors requires a majority of the votes cast at the Annual
Meeting. The Board of Directors recommends that shareholders vote "FOR"
ratification of the selection of Grant Thornton LLP as the Company's independent
auditors.
CERTAIN TRANSACTIONS
Common Stock Offering
Between August 1995 and March 1996, the Company sold an aggregate of
5,418,373 units (the "Units") consisting of shares of its Common Stock and
warrants to purchase Common Stock (the "Warrants") in a private offering (the
"Common Offering") to certain investors. Each Unit consisted of one share of
Common Stock and a Warrant to purchase one half of one share of Common Stock.
Units were sold at a per-Unit price of $1.10 (the "Unit Price"), before
deducting placement agent fees and commissions of $.0825 per unit. Gross
proceeds from the Common Offering totaled $5,960,209.20.
The Warrants are exercisable for a period of 10 years commencing in
August, 1995 (the "Original Issuance Date"), subject to the following
restrictions: (i) in the event that, within three years of the Original Issuance
Date, the Company issues
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Common Stock or securities convertible into Common Stock at a price below the
Unit Price, 50% of the total number of Warrants held by each warrantholder will
become exercisable at a per-share price equal to the price offered in such
subsequent financing, and (ii) 50% of the total number of Warrants held by each
warrantholder will become exercisable at a per-share price equal to the Unit
Price if, within two years of the Original Issuance Date, the Company's Common
Stock is not quoted on the National Market or the Small-Cap Market of the Nasdaq
Stock Marker.
The Company agreed to grant to holders of Common Stock purchased in the
Common Offering certain registration rights with respect to such stock. In
particular, the Company agreed to exert its best efforts to file a registration
statement pursuant to the Securities Act of 1933, as amended, registering all
shares of Common Stock sold in the Common Offering no later than 90 days after
the completion of the Common Offering.
The Company has further agreed that, for three years from the Original
Issuance Date, it will not grant any stock options under existing or future
stock option plans at an exercise price less than 110% of the Unit Price.
<TABLE>
Among the persons purchasing Units in the Common Offering were the
following persons who are executive officers, nominees for director, holders of
5% or more of the outstanding shares of a class of the Company's capital stock
or members of the immediate family of the foregoing:
<CAPTION>
Name No. of Units Aggregate Purchase Price ($)
- -------------------------------------------- ---------------------------------------------------------------------
<S> <C> <C>
Entities Affiliated with the Travelers
Group, Inc. 2,734,772 $ 3,008,249.20
David J. Holmgren 400,000 440,000.00
Gene J. Kennedy 20,000 22,000.00
Michael I. & Charlotte A. Gamble 10,000 11,000.00
Gordon H. Smith 10,000 11,000.00
</TABLE>
Series B Preferred Stock Offering
Between January and May, 1995, the Company sold an aggregate of 1,153
shares of its newly designated Series B Preferred Stock (the "Series B
Preferred") at a per share price of $1,000 (the "Series B Price"). The shares of
Series B Preferred were sold in a private placement to certain investors (the
"Series B Offering").
All holders of the Series B Preferred are entitled to receive
cumulative dividends at the rate of 10% of the Series B Price, payable on a
calendar quarterly basis, after any dividend payments required to be made to the
Series A Preferred Stock, and in preference to any dividends on the Common
Stock.
Each share of Series B Preferred is convertible, at the option of the
holder, at any time after the date of issuance, into 1,280 shares of Common
Stock. Each share of the Series B Preferred will be automatically converted into
Common Stock if at any time the holders of at least sixty-seven percent (67%) of
the outstanding Series B Preferred approve the conversion.
The Series B Preferred will be subject to redemption at the option of
the Company at any time commencing in January 13, 1997. In the event that the
Company redeems the Series B Preferred in or after January, 1997, but not after
January, 2000, the redemption price will be equal to 106% of the Series B Price,
plus accumulated but unpaid dividends to the date of redemption; thereafter, the
redemption price will equal the Series B Price plus accumulated but unpaid
dividends to the date of redemption.
The Company is precluded, without first obtaining the approval of a
majority of the outstanding shares of the Series B Preferred, voting as a
separate class, from (1) engaging in any merger, consolidation, sale of
substantially all of its assets, or other reorganization in which the holders of
Series B Preferred would not receive their full liquidation preference; (2)
declaring any dividends on the Common Stock (except dividends payable solely in
Common Stock) while any Series B Preferred is outstanding; (3) authorizing or
issuing shares of any class or series having rights, preferences, or privileges
senior to the Series
-18-
<PAGE>
B Preferred with respect to dividends, liquidation, or redemption, or issuing
any convertible debt instruments or debt instruments together with warrants
which if converted or exercised would have a preference or priority as to
dividends, liquidation, or redemption senior to the Series B Preferred; (4)
amending or repealing any provision of, or adding any provision to, the
Company's articles of incorporation or by-laws if such action would alter or
change the preferences, rights, privileges, or powers of, or the restrictions
provided for the benefit of, the Series B Preferred materially and adversely; or
(5) reclassifying any shares of Common Stock or any other shares of capital
stock into shares having any preference or priority as to dividends, liquidation
preference, or redemption rights superior to any such preference or priority of
the Series B Preferred.
In the event of any liquidation or winding up of the Company, the
holders of the Series B Preferred are entitled to receive, in preference to the
holders of Common Stock but subject to the rights of the Series A Preferred
Stock on liquidation, an amount equal to the Series B Price plus accumulated but
unpaid dividends.
Among the persons purchasing shares of Series B Preferred in the Series
B Offering were the following persons who are executive officers, nominees for
director, holders of 5% or more of the outstanding shares of a class of the
Company's capital stock or members of the immediate family of the foregoing:
Name No. of Shares Aggregate Purchase Price ($)
- ---------------------- ---------------------------------------------------------
David J. Holmgren 308 $ 308,000
John C. Cahill 185(1) 185,000
Gene J. Kennedy 60 60,000
Edward J. Lamb 10 10,000
- ------------------------------
(1) Does not include 5,000 shares transferred to each of Ann Catherine Cahill
and Mary Elizabeth Cahill, Mr. Cahill's daughters.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the form of proxy to vote the shares they
represent as the Company may recommend.
It is important that your stock be represented at the Annual Meeting,
regardless of the number of shares which you hold. You are, therefore, urged to
execute and return the accompanying proxy in the envelope which has been
enclosed, at your earliest convenience.
BY ORDER OF THE BOARD OF DIRECTORS
Michael I. Gamble
President and Chief Executive Officer
April 30, 1996
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<PAGE>
APPENDIX A
PROXY
POWER SPECTRA, INC.
Proxy for 1996 Annual Meeting of Shareholders
June 7, 1996
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Power Spectra, Inc. (the "Company")
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement for the 1996 Annual Meeting of Shareholders of the Company to be
held on Friday, June 7, 1996 at 10:00 a.m., local time, at the Sunnyvale Hilton,
1250 Lakeside Drive, Sunnyvale, California, and hereby revokes all previous
proxies and appoints Michael I. Gamble and Gordon H. Smith, or either of them,
with full power of substitution, Proxies and Attorneys-in-Fact, on behalf and in
the name of the undersigned, to vote and otherwise represent all of the shares
registered in the name of the undersigned at said Annual Meeting, or any
adjournment thereof, with the same effect as if the undersigned were present and
voting such shares, on the matters and in the manner specified on the reverse
side.
1. Election of Directors:
|_| FOR all the nominees listed below (except as indicated).
|_| WITHHOLD authority to vote for all nominees listed below.
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below:
DRURY J. GALLAGHER, MICHAEL I. GAMBLE, JAMES A. GLAZE, GENE J. KENNEDY, JOHN
HEWITT, JR., JOHN W. PAULY, GORDON H. SMITH, RICHARD A. WILLIAMS
2. Proposal to approve the Company's 1996 Stock Plan and the reservation of
1,500,000 shares of the Company's Common Stock for issuance thereunder.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. Proposal to approve an increase in the number of shares of Common Stock
issuable under the Company's 1992 Director Option Plan by 170,000 shares.
FOR AGAINST ABSTAIN
|_| |_| |_|
4. Proposal to ratify the appointment of Grant Thornton LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1996.
FOR AGAINST ABSTAIN
|_| |_| |_|
(Continued and to be signed on reverse side)
<PAGE>
In their discretion, the Proxies are entitled to vote upon such other matters as
may properly come before the Annual Meeting or any adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR THE ABOVE NOMINEES AND PROPOSALS, AND FOR SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE PROXYHOLDERS DEEM
ADVISABLE.
I plan to attend
the meeting. |_|
Dated_____________________________, 1996
Signature:
-----------------------------------
Signature:
-----------------------------------
-----------------------------------
(This proxy should be marked, dated and signed by each shareholder exactly as
such stockholder's name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. A
corporation is requested to sign its name by its President or other authorized
officer, with the office held designated. If shares are held by joint tenants or
as community property, both holders should sign.)
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND
DATE THIS PROXY
AND RETURN IT AS PROMPTLY AS POSSIBLE.
