<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DENSE-PAC MICROSYSTEMS, INC.
-------------------------------------------
(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):
[ ] $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:
----------------------------------
(5) Total fee paid:
----------------------------------
[X] 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> 2
DENSE-PAC MICROSYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 12, 1996
To The Shareholders:
The Annual Meeting of Shareholders of Dense-Pac Microsystems, Inc. (the
"Company") will be held at the Company's offices at 7321 Lincoln Way, Garden
Grove, California, on August 12, 1996, at 10:00 a.m. for the following purposes:
1. To elect four directors to serve until the next Annual Meeting of
Shareholders or until their successors are duly elected and qualified.
The Board of Directors' nominees are James G. Turner, Roger G. Claes,
Trude C. Taylor and Robert Southwick;
2. To approve an amendment to the Company's Articles of Incorporation to
increase the authorized shares of Common Stock from 20,000,000 to
40,000,000 shares;
3. To approve the 1996 Stock Option Plan which provides for the issuance
of up to 2,000,000 shares of Common Stock upon the exercise of options
which may be granted to employees, directors, consultants and advisors
of the Company; and
4. To transact such other business as may properly come before the Meeting
and any adjournments thereof.
The Board of Directors has fixed the close of business, June 21, 1996,
as the record date for determination of shareholders entitled to notice of and
to vote at the Annual Meeting.
EVEN THOUGH YOU MAY EXPECT TO BE PERSONALLY PRESENT AT THE MEETING,
PLEASE BE SURE THAT THE ENCLOSED PROXY CARD IS PROPERLY COMPLETED, DATED, SIGNED
AND RETURNED WITHOUT DELAY IN THE ACCOMPANYING ENVELOPE TO WHICH NO POSTAGE NEED
BE AFFIXED IF MAILED IN THE UNITED STATES.
WILLIAM M. STOWELL
Secretary
July 2, 1996
<PAGE> 3
DENSE-PAC MICROSYSTEMS, INC.
7321 Lincoln Way
Garden Grove, California 92641
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PROXY STATEMENT
---------------------
GENERAL INFORMATION
SOLICITATION, REVOCATION AND VOTING OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Dense-Pac Microsystems, Inc. (the
"Company"), for use at the Annual Meeting of Shareholders to be held at 10:00
a.m. on August 12, 1996, at the Company's offices at 7321 Lincoln Way, Garden
Grove, California, and at any and all adjournments thereof. It is anticipated
that this Proxy Statement and accompanying proxy will first be mailed to
shareholders on or about July 2, 1996.
The accompanying proxy, if properly executed and returned, will be
voted as specified by the shareholder or, if no vote is indicated, the proxy
will be voted FOR the Board's nominees for director and FOR the proposals to
approve the amendment to the Articles of Incorporation and the 1996 Stock Option
Plan. As to any other matter of business which may be brought before the
Meeting, a vote may be cast pursuant to the accompanying proxy in accordance
with the judgment of the persons voting the same, but management does not know
of any such other matter of business. A shareholder may revoke his proxy at any
time prior to the voting of shares by voting in person at the Meeting or by
filing with the Secretary of the Company a duly executed proxy bearing a later
date or an instrument revoking the proxy.
The costs of solicitation of proxies will be paid by the Company. In
addition to soliciting proxies by mail, the Company's officers, directors and
other regular employees, without additional compensation, may solicit proxies
personally or by other appropriate means. Banks, brokers, fiduciaries and other
custodians and nominees who forward proxy soliciting material to their
principals will be reimbursed their customary and reasonable out-of-pocket
expenses.
RECORD DATE AND VOTING RIGHTS
Only shareholders of record of the Company's Common Stock as of the
close of business on June 21, 1996 will be entitled to vote at the Meeting. On
June 21, 1996, there were outstanding 16,904,681 shares of Common Stock, which
constituted all of the outstanding voting securities of the Company, each of
which is entitled to one vote per share. A majority of the shares entitled to
vote, represented in person or by proxy, constitutes a quorum at the Meeting.
Abstentions and broker non-votes are counted as present for purposes of
determining the existence of a quorum.
<PAGE> 4
In the election of directors only, each shareholder has the right to
cumulate his votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares he is entitled to
vote, or to distribute his votes on the same principle among as many candidates
as he sees fit. No shareholder is entitled to cumulate votes unless the name of
the candidate or candidates for whom such votes would be cast has been placed in
nomination prior to the voting and any shareholder has given notice at the
meeting prior to the voting of such shareholder's intention to cumulate his
votes. The candidates receiving the highest number of affirmative votes, up to
the number of directors to be elected, will be elected directors. Broker
non-votes and votes withheld have no legal effect.
If voting for directors is conducted by cumulative voting, the persons
named on the enclosed proxy will have discretionary authority to cumulate votes
among the nominees with respect to which authority was not withheld or, if the
proxy either was not marked or was marked for all nominees, among all nominees.
In any case, the proxies may be voted for less than the entire number of
nominees if any situation arises which, in the opinion of the proxy holders,
makes such action necessary or desirable.
ELECTION OF DIRECTORS
The four directors to be elected at the Annual Meeting will hold office
until the next Annual Meeting of Shareholders and until the election of their
respective successors. All proxies received by the Board of Directors will be
voted for the nominees listed below if no direction to the contrary is given. In
the event that any nominee is unable or declines to serve, an event that is not
anticipated, the proxies will be voted for the election of any nominee who may
be designated by the Board of Directors.
Set forth below is information concerning the nominees for director:
<TABLE>
<CAPTION>
NAME AND YEAR FIRST PRINCIPAL OCCUPATION
BECAME A DIRECTOR AGE DURING THE PAST FIVE YEARS
------------------- --- -----------------------------------------------------------
<S> <C> <C>
James G. Turner 57 Chairman of the Board and Chief Executive Officer of the
1987 Company since April 1987; President of Titan Severe
Environment Systems Company, a
manufacturer of computer memories and
subsystems for the worldwide aerospace
industry, from 1981 to April 1987.
Roger G. Claes 50 Partner and managing director of Euroventures Benelux Team
1989 B.V. which manages Euroventures Benelux I B.V. and
Euroventures Benelux II B.V., European venture capital funds
which are shareholders of the Company, since 1987;
Managing Director of Euroventures Benelux I B.V. since 1988;
General Manager of GTE Precision Metals, Belgium, from
1982 until 1986. See "Certain Transactions" and "Ownership
of Common Stock."
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
NAME AND YEAR FIRST PRINCIPAL OCCUPATION
BECAME A DIRECTOR AGE DURING THE PAST FIVE YEARS
------------------- --- -----------------------------------------------------------
<S> <C> <C>
Trude C. Taylor 75 Principal of TC Associates, a management consulting firm,
1989 since 1986; director of Plantronics, Inc. and Xylan
Corporation, and a Trustee of Harvey Mudd
College, Claremont, California; Chairman
of the Board of Zehntel, Inc., a
manufacturer of automatic test equipment
for subsystems and printed circuit
assemblies, from 1984 to 1988 and Chief
Executive Officer from 1984 to 1986.
Robert Southwick 62 Independent consultant to the electronics industry,
1990 specializing in the areas of technology applications, market
research, product development and manufacturing processes
for over 20 years.
</TABLE>
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS
The Company's Board of Directors held eight meetings during the fiscal
year ended February 29, 1996. The members of the Audit Committee and the
Compensation Committee are Trude C. Taylor and Robert Southwick. The Audit
Committee is responsible for periodically reviewing the financial condition, and
the results of audit examinations, of the Company with its independent
accountants. The Audit Committee met once during the last fiscal year. The
responsibilities of the Compensation Committee include reviewing and
recommending to the Board the compensation, bonuses and employee benefits of
senior management. The Compensation Committee met once during the last fiscal
year. The Company also has a Stock Option Committee which is responsible for
administering the Company's stock option plans. The members of the Committee are
Roger Claes and Trude C. Taylor. The Stock Option Committee met three times
during the last fiscal year. The Company does not have a nominating committee.
DIRECTORS' COMPENSATION
The Company pays its non-employee directors $1,000 for each Board
meeting attended and $300 for each Committee meeting attended which is not held
on the same day as a Board meeting, and reimburses out-of-pocket expenses for
attending such meetings.
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<PAGE> 6
EXECUTIVE OFFICERS
The following information is provided with respect to the Company's
current executive officers.
JAMES G. TURNER, age 57, has served as Chairman of the Board and Chief
Executive Officer of the Company since 1987. See "Election of Directors."
FLOYD K. EIDE, age 60, was elected Vice President, Engineering in March
1996. He previously served as Chief Operating officer from 1989 to 1996 and as
Vice President, Engineering from 1987 to 1989. From 1982 until November 1987, he
was a section manager at Northrop Electronics. Mr. Eide holds an M.S. in
semiconductor physics and has been involved for 30 years in research and
development, engineering and operations within the semiconductor industry.
RANDALL J. GREENE, age 35, joined the Company in September 1993 as
manager of quality assurance. He was elected a Vice President of Quality,
Reliability and Program Management in August 1994. From September 1990 through
August 1993, Mr. Greene was principal ASIC engineer at Western Digital
Corporation, a semiconductor and disk drive manufacturer.
ALBERT W. KILE, age 50, joined the Company in 1990 as a sales manager.
He was elected Vice President, Sales in March 1996. From 1987 until joining the
Company, Mr. Kile was National Sales Manager at Stanley Opto Ltd. Japan, a
manufacturer of LED and LCD products.
JOHN P. SPRINT, age 34, joined the Company in April 1990 as a test
manager. He served as a production and operations manager before being elected
Vice President, Manufacturing in March 1996. From 1986 until joining the
Company, Mr. Sprint was a manager in the test, manufacturing and thick film
departments at Northrup Electronics Division.
WILLIAM M. STOWELL, age 40, has been Vice President, Finance and Chief
Financial Officer of the Company since 1987. He served as Chief Financial
Officer for Hughes Enterprises, an advertising and retail company, from April
1985 until July 1987 and as an audit manager at Price Waterhouse from September
1978 to April 1985.
Officers serve at the discretion of the Board of Directors.
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<PAGE> 7
EXECUTIVE COMPENSATION
The following tables provide information concerning compensation and
stock options with respect to each of the Company's executive officers whose
total salary and bonus exceeded $100,000 in fiscal year 1996 (the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
Securities
Name and Fiscal Underlying All Other
Principal Position Year Salary(1) Bonus(2) Options (#) Compensation(3)
- ------------------ ---- --------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
James G. Turner, 1996 $231,853 $52,914 87,500 $2,650
Chief Executive Officer 1995 137,519 5,375 56,250(4) 3,100
1994 178,970 29,373 200,000 2,812
Floyd K. Eide, 1996 168,690 44,095 50,000 2,000
Chief Operating Officer 1995 113,504 4,479 56,250(4) 2,051
1994 138,040 40,778 100,000 1,656
Randall J. Greene, 1996 88,475 28,221 30,000 2,000
Vice President, Quality, 1995 75,794 2,866 20,000 2,000
Reliability and Program
Management(5)
William M. Stowell, 1996 136,763 38,635 55,000 2,000
Vice President, Finance 1995 93,481 4,121 56,250(4) 2,000
1994 105,946 24,582 120,000 2,469
</TABLE>
- ----------------------------
(1) Under the Company's variable compensation plan, employees who have a base
salary of $30,000 or greater receive reduced salary during each quarter that
the Company's income before taxes represents less than 2% of beginning
shareholders' equity for that quarter. In each quarter in which income
before taxes exceeds 2% of beginning shareholders' equity for that quarter,
the Company is required to pay additional salary up to a maximum of 100% of
each employee's base salary. Includes amounts deferred under the Company's
401(k) Plan.
(2) The Management Bonus Plan provides for a bonus of up to 50% of base salary
based on three performance criteria. The bonus is an amount equal to the sum
of (i) 2% of base salary for every $1.5 million of fiscal year bookings that
exceeded the prior fiscal year bookings (maximum 15% of base salary), (ii)
2% of base salary for every $1.2 million of fiscal year shipments that
exceeded the prior fiscal year shipments (maximum 15% of base salary) and
(iii) 2% of base salary for every $250,000 of fiscal year profits. The
fiscal 1994 bonus amount for Mr. Eide includes a $16,300 discretionary bonus
in an amount equal to the voluntary salary reduction which he agreed to in
prior years in excess of that required under the variable compensation plan
described in Note 1.
(3) In fiscal year 1996, represents premiums of $650 for health insurance for
Mr. Turner and Company contributions to the 401(k) Plan for the account of
each Named Officer in the amount of $2,000.
(4) For each person, the 56,250 options were granted in connection with the
cancellation of 75,000 options which had been granted in fiscal year 1994.
(5) Mr. Greene became an executive officer in August 1994.
5
<PAGE> 8
FISCAL YEAR 1996 OPTION GRANTS
<TABLE>
<CAPTION>
% of Total
Number of Securities Options Granted Exercise
Underlying Options to Employees in Price Per Expiration
Name Granted (1) Fiscal Year Share (2) Date
------ ------------- ------------- --------- -----
<S> <C> <C> <C> <C>
James G. Turner 17,500 4% $1.72 3-14-05
70,000 16% 5.69 11-23-05
Floyd K. Eide 16,000 4% 1.72 3-14-05
35,000 8% 5.69 11-23-05
Randall J. Greene 10,000 2% 1.72 3-14-05
20,000 5% 5.69 11-23-05
William M. Stowell 20,000 5% 1.72 3-14-05
35,000 8% 5.69 11-23-05
</TABLE>
(1) The options vest in 25% installments beginning one year after the grant
date and are subject to earlier termination in the event of termination of
employment, death and certain corporate events. Under the terms of the 1985
Stock Option Plan, the Stock Option Committee may, subject to Plan limits,
modify the terms of outstanding options, including the exercise price and
vesting schedule.
(2) Fair market value of the Common Stock on the grant date.
FISCAL YEAR 1996 AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired on Value Options Held at In-the-Money Options
Name Exercise Realized(1) Fiscal Year-End at Fiscal Year-End(2)
- ------------------ ------------ ----------- ----------------------- ---------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James G. Turner 16,000 $48,240 60,562 192,188 $ 200,691 $ 513,997
Floyd K. Eide 0 0 197,562 113,688 1,103,165 375,018
Randall J. Greene 22,500 42,181 15,000 62,500 63,675 186,869
William M. Stowell 25,000 90,820 131,062 119,688 714,353 388,403
</TABLE>
- ---------------------
(1) Represents the difference between the aggregate market value on the date of
exercise and the aggregate exercise price.
(2) Represents the difference between the aggregate market value on February 29,
1996 ($6.1875 per share) and the aggregate exercise price.
6
<PAGE> 9
AMENDMENT TO ARTICLES OF INCORPORATION
PROPOSED AMENDMENT
The Company's Board of Directors has unanimously adopted, subject to
shareholder approval, an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock from 20 million to 40
million shares. Accordingly, the Company's shareholders are being asked to
approve an amendment to paragraph (a) of Article IV of the Company's Articles of
Incorporation so that such paragraph shall read in full as follows:
"(a) The number of shares of Common Stock authorized is 40 million
(40,000,000)."
PURPOSE AND EFFECT OF AMENDMENT
The Company currently has 20,000,000 authorized shares of Common Stock. As
of May 31, 1996, 16,879,681 shares were issued and outstanding, 1,189,625 shares
were reserved for issuance upon exercise of outstanding options under the 1985
Stock Option Plan, and 400,000 shares were reserved for issuance upon exercise
of outstanding stock purchase warrants. Thus, 1,530,694 of the 20,000,000
authorized shares of Common Stock were neither issued nor reserved for issuance
at May 31, 1996.
The increase in the number of authorized shares of Common Stock is
recommended by the Board of Directors in order to provide a sufficient reserve
of such shares for the future growth and needs of the Company. While the Company
has no present plans, agreements or commitments for the issuance of additional
shares of Common Stock, other than as described in this Proxy Statement, the
Board believes that the availability of additional shares will afford the
Company greater flexibility to meet future financing needs and to respond to
business opportunities. See "Approval of the 1996 Stock Option Plan."
Any issuance of additional shares of Common Stock is in the discretion of
the Board, as it has the authority to determine, subject to applicable law and
Nasdaq Stock Market regulations (which require shareholder approval for the
issuance of shares in certain circumstances), whether, when and on what terms to
issue shares of Common Stock. The additional authorized shares would thus be
available for issuance from time to time without further action by the
shareholders, thereby enabling the Company to avoid the delays and expenses
attendant to obtaining shareholder approval for future specific issuances of
shares.
The additional shares of Common Stock may be issued without first offering
such shares to the shareholders, since shareholders do not have preemptive
rights with respect to the Common Stock. Except where shares are issued on a pro
rata basis to all shareholders (such as in a stock dividend or stock split), the
issuance of additional shares of Common Stock, including issuances upon
conversion of securities convertible into Common Stock, reduce the proportionate
ownership interest in the Company held by current shareholders.
The Company also has authorized 8,000,000 shares of Preferred Stock, none
of which are outstanding. The rights, preferences and privileges of the
Preferred Stock, including the right to convert Preferred Stock into Common
Stock, may be fixed by the Board of Directors without shareholder approval. The
Company's Articles of Incorporation provide that the
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<PAGE> 10
Company has no authority to issue non-voting equity securities, so the terms of
any new issue of preferred shares must include voting rights. The Company has no
present plans, agreements or commitments to issue Preferred Stock.
Although the Board has no present intention of doing so, shares of
authorized and unissued Common Stock and Preferred Stock could (within the
limits imposed by applicable law) be issued in one or more transactions which
could make more difficult, and, therefore, less likely a takeover of the
Company. For example, authorized but unissued Common Stock or Preferred Stock
could be privately placed with purchasers who might side with the management of
the Company in opposing a hostile tender offer or other attempt to obtain
control.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote thereon is required for the adoption of the
proposed amendment to the Company's Articles of Incorporation. Abstentions and
broker non-votes have the effect of a vote against the proposal.
The Board unanimously recommends a vote FOR the proposal to amend the
Articles of Incorporation to increase the number of authorized shares of Common
Stock.
8
<PAGE> 11
APPROVAL OF THE 1996 STOCK OPTION PLAN
The Board of Directors has determined that it is advisable and in the best
interest of the Company and its shareholders to provide incentive for the
encouragement of the highest level of performance by selected employees,
directors, consultants and advisors of the Company by enabling such persons to
acquire a proprietary interest in the Company by ownership of its stock through
the exercise of stock options. Accordingly, the Board of Directors has approved
the 1996 Stock Option Plan (the "Plan"), subject to shareholder approval at the
Annual Meeting, pursuant to which up to 2,000,000 shares of Common Stock may be
issued upon the exercise of stock options granted to eligible participants. The
following summary of the principal provisions of the Plan is subject to the full
text thereof. A copy of the Plan may be obtained from the Company by any
shareholder upon written request.
The Company has granted a total of 126,000 options under the Plan to
employees and a consultant (none to executive officers) which are subject to
shareholder approval of the Plan. If the Plan is not approved, such options will
be void. No additional options may be granted under the Company's 1985 Stock
Option Plan. At May 31, 1996, there were 1,189,625 outstanding options under the
1985 Stock Option Plan. For information concerning stock options granted to
certain executive officers of the Company, see "Executive Compensation."
GENERAL NATURE AND PURPOSE OF THE PLAN
Options issued under the Plan may be either incentive stock options
("Incentive Options") under Section 422 of the Internal Revenue Code of 1986
(the "Code"), or non-qualified stock options ("Non-qualified Options"). The
underlying objective of the Plan is to further the interests of the Company by
strengthening the desire of employees, directors, consultants and advisors to
continue their relationship with the Company and by inducing individuals to
become employees, directors, consultants or advisors of the Company through the
grant of stock options, and to enable such persons to acquire an equity interest
in the Company.
SECURITIES SUBJECT TO THE PLAN
Subject to shareholder approval, the Plan authorizes the issuance
thereunder of 2,000,000 shares of the Company's Common Stock. The Plan provides
that in the event of any change in the number of outstanding shares of the
Common Stock by reason of reorganization, merger, recapitalization,
reclassification, stock dividend, stock split, exchange or combination of shares
or other similar transactions, appropriate and proportionate adjustment will be
made in the number of shares to which outstanding options relate and the
exercise price per share.
If the holders of a majority of the outstanding shares of Common Stock
approve the Plan but the proposed amendment to the Articles of Incorporation to
increase the number of authorized shares is not approved, under the California
General Corporation Law, the Board of Directors may, without further shareholder
approval, amend the Articles of Incorporation to increase the authorized shares
of Common Stock to such number as will be sufficient from time to time, when
added to the previously authorized but unissued shares of Common Stock, for the
issuance of shares upon the exercise of options granted under the Plan. If the
Plan is approved by less than a majority of the outstanding shares and the
proposed amendment to the Articles of Incorporation is not approved, the Company
would be able to grant options under the Plan only to the extent that there are
unreserved, authorized shares available. See "Amendment to Articles of
Incorporation."
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<PAGE> 12
ADMINISTRATION
The Plan may be administered either by a Stock Option Committee appointed
by the Board of Directors or by the Board of Directors. Currently the Plan is
administered by a Committee consisting of Roger Claes and Trude Taylor. The
Committee has full authority, subject to the provisions of the Plan, to grant
options, to designate the optionees and terms of the options, to establish rules
and regulations which the Committee deems appropriate for the proper
administration of the Plan, and to interpret and make determinations under the
Plan. Members of the Committee serve at the discretion of the Board.
ELIGIBILITY
Options may be granted to persons who are employees, directors, consultants
or advisors of the Company or any subsidiary or parent company of the Company.
Incentive Options may be granted only to employees of the Company or any
subsidiary or parent of the Company. The terms "consultant" and "advisor" are
not defined in the Plan. While such terms are generally considered to refer to
persons who render services or advice in a capacity other than as an employee,
it will be the responsibility of the Stock Option Committee to construe and
interpret such terms on a case by case basis. At May 2, 1996, the Company had 93
employees, three non-employee directors and one consultant who were eligible to
receive options under the Plan.
TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan expire on such date as is determined by the
Committee, unless earlier terminated as provided in the Plan, but in no event
later than ten years after the grant date (five years with respect to Incentive
Options granted to a person who owns, or would be considered to own by reason of
Section 424(d) of the Code, more than 10% of the outstanding Common Stock of the
Company or any subsidiary on the grant date).
An option is exercisable at such times as are determined on the grant date
by the Committee. An optionee may exercise a part of the option from the date
that part first becomes exercisable until the option expires or is otherwise
terminated. The purchase price for shares to be issued to an optionee upon
exercise of an Option is determined by the Committee at the time of grant, but
with respect to an Incentive Option such price may not be less than 100% of the
fair market value of the Common Stock on the grant date (110% of the fair market
value in the case of Incentive Options granted to a person who on the grant date
owns or is considered to own more than 10% of the outstanding Common Stock). On
May 31, 1996, the closing sale price of the Company's Common Stock was $5-3/8
per share.
If the aggregate fair market value (determined at the time each Incentive
Option is granted) of Common Stock for which all Incentive Options held by an
optionee (whether granted under the Plan or any other plan of the Company) are
exercisable for the first time during any calendar year exceeds $100,000, the
amount of such excess will be treated as a Non-qualified Option.
The exercise price of an option is payable in cash or, at the option of the
Committee, in shares of the Company's Common Stock, by full recourse promissory
note secured by the shares purchased, by cancellation of indebtedness of the
Company to the optionee, by waiver of compensation due or accrued for services
rendered, or through a same day sale arranged
10
<PAGE> 13
through a broker. The use of Common Stock as payment for the exercise of an
option enables an optionee to "pyramid" his options; that is, to automatically
apply the shares received upon the exercise of a portion of an option to satisfy
the exercise price for additional portions of the option. The effect of
pyramiding is to allow an optionee to deliver a relatively small number of
shares in satisfaction of the exercise price of a greater number of shares under
the option.
Options granted under the Plan are not transferable or assignable other
than by will or by the laws of descent and distribution. If an optionee ceases
to be employed or retained by the Company for any reason other than death or
permanent disability (as defined in the Plan), the option expires on the earlier
of three months from the date of such termination or expiration of the term of
the option. During the period between the optionee's termination and expiration
of the option, the option may only be exercised to the extent that it was
exercisable on the date of such termination. Upon the death or permanent
disability of an optionee while an employee, director, consultant or advisor,
the option expires on the earlier of one year from the date of death or
permanent disability or expiration of the term of the option, but can be
exercised only to the extent that it could have been exercised on the date of
death or permanent disability. During the period between the optionee's death
and expiration of the option, the option may be exercised by the person or
persons to whom the optionee's rights under the option have passed by will or by
the laws of descent and distribution. The foregoing provisions regarding
termination of options upon termination of employment, permanent disability or
death may be varied by the Committee with respect to Non-qualified Options.
These and other terms and conditions of the options are set forth in an
agreement which is entered into between the Company and the optionee at the time
an option is granted to such optionee.
DURATION AND MODIFICATION OF THE PLAN AND OPTIONS
The Plan will remain in effect until all shares covered by options granted
under the Plan have been purchased or all rights to acquire the shares have
lapsed. No options may be granted under the Plan after January 16, 2006,
although the Board of Directors may terminate the granting of options under the
Plan at an earlier date or may amend or otherwise modify the Plan. Except for
adjustments made necessary by changes in the Company's Common Stock, the Board
of Directors may not, without shareholder approval, increase the total number of
shares to be offered under the Plan or materially modify the eligible class of
optionees.
The Committee may modify or amend the terms of outstanding options,
including a change or acceleration of the vesting of the option or a change of
the exercise price, with the consent of the optionee.
In the event of the liquidation or dissolution of the Company, or upon any
reorganization, merger or consolidation in which the Company is not the
survivor, or upon the sale of substantially all of the assets of the Company or
of more than 80% of the then outstanding stock of the Company to another
corporation or entity, the Plan and each outstanding option will terminate
unless the surviving or acquiring company agrees to assume all outstanding
options; provided, however, that the Committee may, in its sole discretion,
accelerate the vesting of outstanding options or give the optionees advance
notice of such event.
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<PAGE> 14
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain significant federal income
tax consequences of the Plan based on currently applicable provisions of the
Code and the regulations promulgated thereon.
INCENTIVE OPTIONS. No income is recognized by an optionee at the time an
Incentive Option is granted, and no income is recognized by an optionee upon his
exercise of the option (although the difference between the fair market value of
the shares on the date of exercise and the option price is an item of tax
preference for purposes of the alternative minimum tax). If the optionee makes
no disposition of the shares received upon exercise of the option within two
years from the date the option was granted and one year from the date the shares
were issued to him upon exercise of the option, he will recognize capital gain
or loss when he disposes of his shares. Such gain or loss will be long-term and
will be measured by the difference between the option price and the amount
received for the shares at the time of disposition.
If the optionee disposes of shares acquired upon exercise of an Incentive
Option before the expiration of the applicable holding periods, any gain
recognized from such disqualifying disposition will be taxable as ordinary
income in the year of disposition generally to the extent of the amount by which
the lesser of the fair market value of the shares on the date the option was
exercised or the amount received upon such disposition exceeds the option price.
Any additional gain recognized upon such a disposition in excess of the fair
market value of the shares on the date of exercise will be treated as long-term
or short-term capital gain, depending upon whether the shares have been held for
more than one year.
According to proposed Treasury regulations, in general, no gain or loss
will be recognized by an optionee who uses shares of stock to exercise an
Incentive Option. A number of new shares of stock acquired equal to the number
of shares surrendered will have a basis and holding period equal to those of the
shares surrendered. To the extent new shares of stock acquired pursuant to the
exercise of the option exceed the number of shares of stock surrendered, such
additional shares will have a zero basis and will have a holding period
beginning on the date the option is exercised. Any disqualifying disposition of
stock acquired through the surrender of other shares of stock will be deemed to
be a disposition of the stock with the lowest basis first.
The use of stock acquired through exercise of an Incentive Option to
exercise an Incentive Option will constitute a disqualifying disposition with
respect to such stock if the applicable holding period requirement has not been
satisfied. This provision is intended to prevent the "pyramiding" of Incentive
Options.
NON-QUALIFIED OPTIONS. An optionee recognizes no income at the time a
Non-qualified Option is granted under the Plan. At the time of exercise of a
Non-qualified Option, the optionee will recognize ordinary income in an amount
equal to the excess of the fair market value of the shares on the date of
exercise over the exercise price; provided, however, that if an optionee who is
subject to the provisions of Section 16(b) ("Section 16(b)") of the Securities
Exchange Act of 1934 (an executive officer, director or 10% shareholder)
exercises a Non-qualified Option within six months of the date of grant, such
optionee will recognize ordinary income on the date which is six months after
the date of grant unless he makes an
12
<PAGE> 15
election under Section 83(b) of the Code to recognize income based on such value
on the date of exercise.
An optionee will recognize gain or loss on the subsequent sale of shares
acquired upon exercise of a Non-qualified Option in an amount equal to the
difference between the amount realized and the tax basis of such shares, which
will equal the option price paid plus the amount included in the employee's
income by reason of the exercise of the option; provided, however, that if the
optionee is subject to Section 16(b) and sells shares received upon exercise of
a Non-qualified Option within six months of the date of grant such optionee will
recognize ordinary income based on the fair market value of the shares on the
date which is six months after the date of grant unless he makes an election
under Section 83(b) of the Code to recognize income on the date the shares were
sold. Provided such shares are held as a capital asset, such gain or loss will
be long-term or short-term capital gain or loss depending upon whether the
shares have been held for more than one year.
No gain or loss will be recognized by an optionee who uses shares of stock
to exercise a Non-qualified Option. A number of the shares acquired equal to the
number of shares surrendered will have a tax basis and holding period equal to
those of the shares surrendered. The optionee will recognize ordinary income in
an amount equal to the fair market value of the additional shares acquired at
the time of exercise (or, if the recipient is subject to Section 16(b) and
exercises the option within six months of the date of grant, on the date which
is six months after the date of grant unless the optionee makes an election
under Section 83(b) of the Code to recognize income at the date of exercise.)
Such additional shares will be deemed to have been acquired on such date and
will have a tax basis equal to their fair market value on such date.
CORPORATE TAX DEDUCTIONS. The Company is not allowed a deduction for
federal income tax purposes at the time of the grant or exercise of an Incentive
Option. At the time of a disqualifying disposition by an optionee, the Company
is entitled to a deduction to the extent that the optionee recognizes ordinary
income to the extent such income is considered reasonable compensation.
The Company is entitled to a deduction for federal income tax purposes in
the year and in the same amount as the optionee is considered to have recognized
ordinary income in connection with the exercise of a Non-qualified Option if
provision is made for withholding of federal income taxes, where applicable. The
Company has the right to deduct any sums required by federal, state or local tax
laws to be withheld with respect to the exercise of any Non-qualified Option
from sums owing to the person exercising the option or, in the alternative, may
require the person exercising the option to pay such sums to the Company prior
to or in connection with such exercise.
Internal Revenue Code Section 162(m), enacted in 1993, precludes a public
corporation from taking a deduction for compensation in excess of $1,000,000 per
year paid to its chief executive officer or any of its other four highest paid
officers. Based on the current market price of the Company's Common Stock and
the amount of options historically granted to officers, the Company does not
believe that any compensation derived from the exercise of options granted under
the Plan, together with other compensation paid to such officers, will exceed
$1,000,000 in any year with respect to any such officer. If, however, it appears
that such limit could be exceeded at any time in the future, the Board of
Directors will determine what action, if any, at that time would be appropriate
in light of Section 162(m).
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<PAGE> 16
VOTE REQUIRED
The affirmative vote of a majority of the shares represented and voting at
the Meeting, which shares voting affirmatively also constitute at least a
majority of the required quorum, is necessary for the approval of the Plan.
Abstentions and broker non-votes are not counted in determining the shares
voted, but abstentions and broker non-votes would have the effect of a vote
against the Plan if the shares voting in favor do not constitute at least a
majority of the required quorum.
The Board unanimously recommends that the shareholders vote FOR approval of
the Plan.
CERTAIN TRANSACTIONS
Pursuant to a Loan Agreement dated October 12, 1994, the Company borrowed
$1.8 million from Euroventures Benelux II B.V. ("Euroventures"), a major
shareholder, and $200,000 from Trude C. Taylor, a director of the Company. The
loan was due in five years, required quarterly interest payments at the rate of
8% per year, and was secured by all of the Company's assets. As additional
consideration for the loan, the lenders received five year warrants to purchase
an aggregate of 1,000,000 shares of Common Stock at an exercise price of $2.00
per share. The exercise price could be paid in cash or by cancellation of
amounts outstanding under the loan.
In October 1995, Mr. Taylor exercised his warrants to purchase 100,000
shares in consideration for cancellation of $100,000 of his loan to the Company
and a cash payment of $100,000. The terms of the remaining $100,000 loan payable
to Mr. Taylor were not changed. Euroventures exercised its 900,000 warrants for
a cash payment of $1.8 million. In consideration for Euroventures' agreement to
exercise its warrants for cash in lieu of cancellation of debt, the Company
agreed to renegotiate the terms of Euroventures' $1.8 million loan and to issue
additional warrants to Euroventures. Euroventures agreed to reduce the interest
rate of the loan from 8% to 5% per annum over the remaining four years of the
loan and to subordinate its security interest in accounts receivable in order to
permit the Company to obtain future bank financing. The Company agreed to issue
375,000 four year warrants to Euroventures with an exercise price to be
determined on May 1, 1996 based on the market value of the Common Stock on that
date. On April 1, 1996, the Company and Euroventures mutually agreed to fix the
exercise price of the warrants at $7.00 per share. On April 1, 1996 and May 1,
1996, the closing sale prices of the Common Stock were $6-1/2 and $6-11/16 per
share, respectively.
The warrants will be redeemable by the Company when the Company's stock
price reaches $9.00 per share for 20 consecutive trading days. The warrant
exercise price will be subject to downward adjustment should the Company sell
Common Stock at a price which is less than $7.00 per share, excluding issuances
pursuant to warrants outstanding at April 1, 1996 and any issuances pursuant to
the Company's stock option plans. In addition, Euroventures has the right to
require the Company to register the shares underlying the warrants under the
Securities Act of 1933, as amended.
Euroventures is a major shareholder of the Company. See "Ownership of
Common Stock." Roger Claes, a director of the Company, is a partner and managing
director of Euroventures Benelux Team B.V., which manages Euroventures.
14
<PAGE> 17
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of May 31, 1996, with
respect to ownership of the Company's Common Stock by (i) each person who is
known by the Company to own beneficially 5% or more of the Common Stock, (ii)
each Named Officer and director of the Company and (iii) all executive officers
and directors of the Company as a group.
<TABLE>
<CAPTION>
Shares Beneficially Percentage
Name* Owned Ownership
- ------------------------------- ------------------- ----------
<S> <C> <C>
Euroventures Benelux Team B.V. 4,796,657 (1) 27.8%
Joh. Vermeerplein 9I, 1071 DV
Amsterdam, The Netherlands
Euroventures Benelux I B.V. 2,498,879 14.5%
Joh. Vermeerplein 9I, 1071 DV
Amsterdam, The Netherlands
Euroventures Benelux II B.V. 2,297,778 (2) 13.6%
Joh. Vermeerplein 9I, 1071 DV
Amsterdam, The Netherlands
BeneVenture Founders 1,136,613 6.7%
Risicokapitaalfonds II N.V.
Regentlaan 54 Bus 2
1000 Brussels, Belgium
James G. Turner 308,188 (3) 1.8%
Roger Claes 0 (4) --
Trude C. Taylor 258,167 (5) 1.5%
Robert Southwick 17,500 (6) **
Floyd Eide 196,563 (7) 1.2%
Randall J. Greene 0 --
William M. Stowell 132,813 (8) **
All executive officers and 955,669 (9) 5.5%
directors as a group (9 persons)
</TABLE>
- --------------------------
* Includes addresses of 5% or more shareholders.
** Less than 1%.
(1) Includes the shares owned by Euroventures Benelux I B.V. and Euroventures
Benelux II B.V., which are widely held venture capital funds. Euroventures
Benelux Team B.V. is the investment manager of both such funds and has
voting and dispositive power over their shares of the Company's Common
Stock. See Notes (2) and (4).
15
<PAGE> 18
(2) Includes 375,000 shares subject to currently exercisable warrants. See Notes
(1) and (4).
(3) Includes 46,188 shares subject to options which are exercisable within 60
days.
(4) Mr. Claes is managing director of Euroventures Benelux I B.V. and a partner
and managing director of Euroventures Benelux Team B.V. See Note (1).
(5) Includes 32,500 shares subject to options which are exercisable within 60
days.
(6) Includes 15,000 shares subject to options which are exercisable within 60
days.
(7) Represents 196,563 shares subject to options which are exercisable within 60
days.
(8) Includes 97,813 shares subject to options which are exercisable within 60
days.
(9) See Notes (3) through (8) above. Also includes 42,438 shares subject to
options which are exercisable within 60 days held by officers not named in
the foregoing table.
SECTION 16 REPORTS
EBTB II is an affiliate of Euroventures Benelux I B.V. and Euroventures
Benelux II B.V. which is deemed to beneficially own the shares owned of record
by such funds. In fiscal year 1996, EBTB II did not timely file pursuant to
Section 16(a) of the Securities Exchange Act of 1934, as amended, a Form 3 to
report its initial beneficial ownership of the Company's Common Stock, and a
Form 4 to report three transactions in the Company's Common Stock by such funds,
which transactions had been timely reported on Forms 4 by such funds. Also
during the fiscal year, James G. Turner did not timely file a Form 4 with
respect to one transaction. In making these disclosures, the Company has relied
solely on written representations of its directors, executive officers and 10%
shareholders and copies of the reports that they have filed with the Securities
and Exchange Commission.
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<PAGE> 19
AUDITORS OF THE COMPANY
The Company's independent certified public accountants for the fiscal year
ended February 29, 1996 were Deloitte & Touche LLP, which firm the Company
intends to appoint for the current fiscal year. A representative of Deloitte &
Touche LLP is expected to be present at the Meeting with the opportunity to make
a statement if he so desires and to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Any shareholder intending to submit to the Company a proposal for inclusion
in the Company's Proxy Statement and proxy for the 1997 Annual Meeting must
submit such proposal so that it is received by the Company no later than March
5, 1997.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Shareholders calls for the
transaction of such other business as may properly come before the meeting, the
Board of Directors has no knowledge of any matters to be presented for action by
the shareholders other than as set forth above. The enclosed proxy gives
discretionary authority, however, in the event any additional matters should be
presented.
WILLIAM M. STOWELL
Secretary
July 2, 1996
17
<PAGE> 20
DENSE-PAC MICROSYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
AUGUST 12, 1996
KNOW ALL MEN BY THESE PRESENTS that the undersigned hereby constitutes
and appoints JAMES G. TURNER and WILLIAM M. STOWELL, and each of them, the
attorneys and proxies of the undersigned with full power of substitution to
appear and to vote all of the shares of Common Stock of Dense-Pac Microsystems,
Inc. held of record by the undersigned on June 21, 1996 at the Annual Meeting
of Shareholders to be held on August 12, 1996, or any adjournment thereof, as
designated below.
(1) Election of Directors
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as indicated to the to vote for all nominees
contrary below) listed below
Roger Claes, Robert Southwick, Trude C. Taylor, James G. Turner
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- ------------------------------------------------------------------------------
(2) TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION TO INCREASE THE
AUTHORIZED SHARES OF COMMON STOCK FROM 20 MILLION TO 40 MILLION SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) TO APPROVE THE 1996 STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
(Continued and to be signed on the other side)
<PAGE> 21
(Continued from reverse side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
DENSE-PAC MICROSYSTEMS, INC. IF NO VOTE IS INDICATED, THIS PROXY WILL BE VOTED
WITH AUTHORITY FOR THE ELECTION OF DIRECTORS AND FOR PROPOSALS (2) AND (3).
YOU ARE URGED TO DATE, SIGN AND RETURN PROMPTLY THIS PROXY IN THE
ENVELOPE PROVIDED. IT IS IMPORTANT FOR YOU TO BE REPRESENTED AT THE MEETING,
THE EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU
ARE PRESENT AT THE MEETING.
Date: _____________________, 1996
_________________________________
SIGNATURE
_________________________________
SIGNATURE
IMPORTANT: Please sign exactly as
your name or names appear on the share
certificates, and when signing as an
attorney, executor, administrator,
trustee or guardian, give your full
title as such. If the signatory is a
corporation, sign the full corporate
name by duly authorized officer, or if
a partnership, sign in partnership
name by authorized person.
