<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 240.14a-11(c) or 240.14a-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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(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
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
DENSE-PAC MICROSYSTEMS, INC.
7321 LINCOLN WAY
GARDEN GROVE, CALIFORNIA 92841
JULY 9, 1998
TO THE SHAREHOLDERS OF DENSE-PAC MICROSYSTEMS, INC.
The Annual Meeting of Shareholders of Dense-Pac Microsystems, Inc. (the
"Company") will be held at the Company's offices located at 7321 Lincoln Way,
Garden Grove, California on August 14, 1998 at 10:00 a.m., California time.
The Annual Report for the fiscal year ended February 28, 1998 is enclosed
herewith. At the stockholders' meeting, we will discuss in more detail the
subjects covered in the Annual Report as well as other matters of interest to
stockholders.
The enclosed proxy statement explains the items of business to come formally
before the Annual Meeting. As a stockholder, it is in your best interest to
express your views regarding these matters by signing and returning your proxy.
This will ensure the voting of your shares if you do not attend the Annual
Meeting.
Your vote is important regardless of the number of shares of the Company's Stock
you own, and all stockholders are cordially invited to attend the Annual
Meeting. To ensure your representation at the Annual Meeting, please mark, sign,
date and mail the enclosed proxy card promptly in the return envelope provided,
which requires no postage if mailed in the United States. The giving of a proxy
will not affect your right to vote in person if you attend the Annual Meeting.
Please note, however, that if your shares are held of record by a broker, bank,
or other nominee and you wish to vote at the Annual Meeting, you must obtain
from the record holder a proxy issued in your name.
Sincerely yours,
/s/
----------------------------------------
Uri Levy
Chairman of the Board
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DENSE-PAC MICROSYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 14, 1998
To The Shareholders of Dense-Pac Microsystems:
Notice is hereby given that the Annual Meeting of Shareholders of Dense-Pac
Microsystems, Inc. will be held on Friday, August 14, 1998 at 10:00 a.m. at the
Company's offices located at 7321 Lincoln Way, Garden Grove, California for the
following purposes:
I. To elect six directors for the ensuing year to serve until the
next annual meeting of shareholders and until their successors
are chosen.
II. To consider and act upon a proposal to approve an amendment to
the Company's 1996 Stock Option Plan to increase the number of
shares of Common Stock which may be subject to options under the
plan by 1,000,000 shares.
III. To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche, LLP as independent accountants of the Company
for the fiscal year ending February 28, 1999.
IV. To transact such other business as may properly come before the
Meeting and any adjournments thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business, June 19, 1998, 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 9, 1998
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DENSE-PAC MICROSYSTEMS, INC.
7321 Lincoln Way
Garden Grove, California 92641
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 14,
1998, at the Company's offices located at 7321 Lincoln Way, Garden Grove,
California, and at any and all adjournments thereof (the "Annual Meeting"). It
is anticipated that this Proxy Statement and accompanying proxy will first be
mailed to shareholders on or about July 9, 1998.
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, FOR the proposal to approve the
amendment to the Company's 1996 Stock Option Plan and FOR the proposal to ratify
the appointment of Deloitte & Touche, LLP as independent accountants for the
Company. In addition, as to any other matters or 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 or
her 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 19, 1998 will be entitled to vote at the Annual Meeting. On
June 19, 1998, there were outstanding 17,759,800 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 Annual
Meeting. Abstentions and broker non-votes are counted as present for purposes of
determining the existence of a quorum.
In the election of directors only, each shareholder has the right to cumulate
his or her 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 or she is entitled
to vote, or to distribute his or her votes on the same principle among as many
candidates as he or she 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
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intention to cumulate his or her votes. The candidates receiving the highest
number of 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 six 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.
THE BOARD RECOMMENDS VOTING "FOR" THE SIX NOMINEES LISTED BELOW.
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>
Aaron Uri Levy 39 Mr. Levy was hired in January 1997 and he is the Company's
1997 Chairman, Chief Executive Officer and President. Mr. Levy
holds a Bachelors in Electrical Engineering with honors from the
University of California Irvine and a Masters in Aerospace
engineering, winning the "President's Most Distinguished
Graduate." Prior to joining Dense-Pac, Mr. Levy founded Vivid
Communications, an Internet video conferencing company (1996);
held positions as COO/President of Centennial Technologies,
Inc., manufacturer of memory cards (1994-August 1996); was
President of ACOM Computer, Inc., specializing in laser printing
applications, networking and software for IBM AS/400 users
(1989-1994); founded Cygnus Engineering, a computer aided design
firm (1987-1989). Mr. Levy is the pioneer of several patents,
two of which were applied for in 1997. He is a member of the
Young President's Organization, Tau Beta Pai, and the IEEE. Mr.
Levy is also the author of "Electronic Printing", a book
published by InterQuest in 1993 and was an invited speaker and
lecturer at Pepperdine University business program.
</TABLE>
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<TABLE>
<CAPTION>
NAME AND YEAR FIRST PRINCIPAL OCCUPATION
BECAME A DIRECTOR AGE DURING THE PAST FIVE YEARS
----------------- --- --------------------------
<S> <C> <C>
Charles Dickinson 74 Mr. Dickinson has served twice as Chairman of the Board of
Directors of Solectron Corporation since 1984 and is currently a
director; was CEO of privately held Vermont Microsystems, a
graphics board company; 1980 to 1984, President and CEO of
Dataproducts Corporation, an OEM supplier of computer printers;
1977 to 1978, Vice President of Manufacturing at Memorex. Prior
to 1977, Mr. Dickinson held various management positions at
Control Data Corporation in the memory and disk drive
businesses.
Trude C. Taylor 77 Mr. Taylor is the principal of TC Associates, a management
1989 consulting firm, since 1986; currently a 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 64 Mr. Southwick is an independent consultant to the electronics
1990 industry, specializing in the areas of technology
applications, market research, product development and
manufacturing processes, for over 20 years.
Roger G. Claes 52 Mr. Claes is a partner and managing director of Euroventures
1989 Benelux Team 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.
Lyle Jensen 47 Mr. Jensen is President/CEO of Dynaco Corporation, which
1977 includes three companies - Dynaco, Dynamem, and Comtel
Electronics, since 1988. Prior positions include Vice President
General Manager of Interconics, a division of BMC Industries
(NYSE:BMC) (1984-1987); General Manager of Maine Electronics, a
division of Rockwell International (1980-1984); and President of
Dynaco, a venture capital start-up.
</TABLE>
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. In addition, in Fiscal Year 1998, the Company awarded stock
options to certain non-employee directors as set forth below:
<TABLE>
<CAPTION>
Number of Securities Exercise Expiration
Name Underlying Options Granted Date of Grant Price/Share Date
- ---- -------------------------- ------------- ----------- ----
<S> <C> <C> <C> <C>
Lyle Jensen 20,000 09/08/97 $3.14 09/07/07
</TABLE>
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The exercise price of the options was equal to the fair market value of the
Common Stock on the date of grant and the options are exercisable in 25% annual
cumulative installments beginning one year after the grant date.
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS
The Company's Board of Directors held six meetings during the fiscal year ended
February 28, 1998. Each director attended or participated in at least 75% of the
Board meetings and/or their committee meetings. The members of the Audit
Committee are Robert Southwick and Trude C. Taylor. 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 members of the Compensation
Committee are Robert Southwick and Lyle Jensen. 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 four times during the last
fiscal year. The Company currently does not have a nominating committee.
EXECUTIVE OFFICERS
The following information is provided with respect to the Company's current
executive officers.
AARON URI LEVY, age 39, was elected Chief Executive Officer, President and
Chairman of the Board in January 1997. See "Election of Directors for
Background."
WILLIAM M. STOWELL, age 42, has served as Vice President, Finance and Chief
Financial Officer of the Company since 1987. Mr. Stowell is a CPA with a B.S. in
accounting from the University of Southern California and a teaching credential
in management information systems. Prior to joining the Company, he served as
Chief Financial Officer for Hughes Enterprises and as an audit manager at Price
Waterhouse.
JOHN P. SPRINT, age 36, joined the Company in 1990 as a test manager. He served
as a production and operations manager, and Vice President of Manufacturing
before being elected Vice President, Operations in January 1998. From 1986 until
joining the Company, Mr. Sprint was a manager in the test, manufacturing and
thick film departments at Northrup Electronics Division.
STEVE FALLAIZE, age 37, joined the Company in February 1997 as Vice President of
Military Sales. Mr. Fallaize was U.S. Sales Manager at Mosaic Semiconductor from
1993 to January 1997 and Regional Sales Manager at Hybrid Memory Products in the
United Kingdom from 1990 to 1993. Mr. Fallaize has a degree in electronics and
communications engineering.
Officers serve at the discretion of the Board of Directors.
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PROPOSAL TO AMEND THE 1996 STOCK OPTION PLAN
TO INCREASE NUMBER OF SHARES
At the Annual Meeting, the shareholders will be asked to consider and act upon a
proposal to approve an amendment to the Company's 1996 Stock Option Plan (the
"Plan") to increase the number of shares of Common Stock reserved for issuance
thereunder from 2,000,000 shares to 3,000,000 shares. The Board of Directors
approved the proposed amendment on April 27, 1998, subject to shareholder
approval.
Management believes that this amendment is in the best interests of the Company
because of the need to provide options to attract, motivate and retain quality
employees, directors, consultants, and advisors to remain competitive in the
industry. As of June 19, 1998, of the 2,000,000 shares of Common Stock then
authorized for issuance under the Plan, 193,400 shares had been issued upon the
exercise of options granted under the Plan, 1,607,000 shares were subject to
outstanding options, and 199,500 shares were available for future option grants.
At June 19, 1998, the Company had outstanding options to purchase 254,425 shares
of Common Stock pursuant to options granted under the Company's prior option
plan. If this proposal to increase the number of shares of Common Stock reserved
for issuance under the Plan is approved by the shareholders, the Company intends
to cause the additional shares of Common Stock that will become available for
issuance under the Plan to be registered on a Form S-8 Registration Statement to
be filed with the Commission at the Company's expense.
The following summary of the principal provisions of the Plan is subject to the
full text thereof. A copy of the Plan will be delivered to any shareholder upon
any written or oral request by first class mail or other equally prompt means
within one business day of receipt of such request. Request should be directed
to William M. Stowell, Chief Financial Officer, Dense-Pac Microsystems, 7321
Lincoln Way, Garden Grove, California 92841, (714) 898-0007.
BACKGROUND AND PURPOSE OF THE PLAN
The Company's shareholders approved the Plan at the Annual Meeting of
Shareholders held in 1996. 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 employment with or
service to 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. 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").
SECURITIES SUBJECT TO THE PLAN
Currently, the Plan authorizes the issuance thereunder of 2,000,000 shares of
the Company's Common Stock. If the proposed amendment to the Plan is approved,
the number of shares of Common Stock reserved for issuance under the Plan would
increase from 2,000,000 shares to 3,000,000 shares. In the event of any change
in the number of outstanding shares of 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.
ADMINISTRATION
The Plan may be administered either by a Committee consisting of at least two
directors 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 C. Taylor. The Committee has full authority, subject to the
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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 and are eligible to receive options under the Plan, in which event
such option grants are approved by the disinterested members of the Board.
ELIGIBILITY
Options may be granted to persons who are employees, directors, consultants, and
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. At June 19, 1998, the Company had 94
employees and four non-employee directors who were eligible to receive options
under the Plan. At June 19, 1998, executive officers as a group held options
(granted under the Plan or otherwise) to purchase 1,139,800 shares, non-employee
directors as a group held options to purchase 84,000 shares, and all employees
as a group (other than executive officers) held options to purchase 637,725
shares of Common Stock. As of June 19, 1998, the following executive officers
named in the Summary Compensation Table and director nominees have been granted
options as indicated: Uri Levy, 575,000 options; William M. Stowell, 288,450
options; John P. Sprint, 201,350 options; Charles Gamer, 25,000 options; Steve
Fallaize, 50,000 options; Trude C. Taylor, 35,000 options; Robert Southwick,
29,000 options; and Lyle Jensen, 20,000 options. During Fiscal 1998, options to
purchase 698,000 shares were granted to 43 individuals. Exercise prices for the
options granted range from $2.00 to $3.78 per share. The fair market value of
the Company's common stock on June 19, 1998 was $1.875.
TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan expire no later than ten years after the grant
date (five years with respect to Incentive Options granted to an optionee 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 in such amounts and at such times
as are determined by the Committee. The purchase price for shares to be issued
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).
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, with the approval of the
Committee, in shares of the Company's Common Stock owned by the optionee, by
full recourse promissory note secured by the shares purchased, by cancellation
of indebtedness of the Company to the optionee, by waive of compensation due or
accrued for services rendered, or through a same day sale arranged through a
broker.
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
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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. 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.
DURATION AND MODIFICATION OF THE PLAN AND OPTION
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 February 13, 2007, although the
Board of Directors may terminate the granting of options under the Plan at an
earlier date or 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 to
change or accelerate the vesting of an option or to change the exercise price,
with the consent of the optionee. The Committee approved option repricings in
August/September 1996 and August 1994.
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 (by merger or otherwise) 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, or
substitute equivalent awards for, 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.
FEDERAL INCOME TAX CONSEQUENCE
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.
GRANT OF STOCK OPTIONS. The grant of an Incentive Option or a Non-Qualified
Option under the Plan is not a taxable event to the optionee.
EXERCISE OF NON-QUALIFIED STOCK OPTIONS. An optionee will recognize ordinary
income for federal income tax purposes on a date a Non-Qualified Option is
exercised. The amount of income recognized is equal to the excess of the fair
market value of the shares acquired on the date of exercise over the exercise
price of such shares.
The optionee's tax basis in the shares acquired upon the exercise of a
Non-Qualified Option is equal to the fair market value of the shares on the
exercise date. Different rules apply if an optionee exercises a stock option by
surrendering previously owned shares of Common Stock. The optionee will
recognize capital gain or loss upon a sale or exchange of the option shares to
the extent of any difference between the amount realized and the optionee's tax
basis in the shares.
EXERCISE OF INCENTIVE STOCK OPTIONS. An optionee will not recognize income upon
the exercise of an Incentive Option. However, the "spread" between the fair
market value of the shares at the time of
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exercise and the exercise price is includible in the calculation of alternative
minimum taxable income for purposes of the alternative minimum tax.
If the optionee does not dispose of the shares received upon exercise of the
option within both the two-year period after the Incentive Option was granted
and the one-year period after the exercise of the Incentive Option (the "ISO
holding periods"), the optionee will recognize capital gain or loss when he
disposes of the shares. Such gain or loss will be measured by the difference
between the exercise price and the amount received for the shares at the time of
disposition. Different rules apply if an optionee exercises a stock option by
surrendering previously owned shares of Common Stock.
If the shares acquired upon exercise of an Incentive Option are disposed of
before the end of the ISO holding periods, the disposition is a "disqualifying
disposition" which results in the optionee recognizing ordinary income in an
amount generally equal to the lesser of (i) the excess of the value of the
shares on the option exercise date over the exercise price or (ii) the excess of
the amount received upon disposition of the shares over the exercise price. Any
excess of the amount received upon disposition of the shares over the value of
the shares on the exercise date will be taxed to the optionee as capital gain.
Different rules apply if an optionee exercises an option by surrendering shares
of Common Stock which were previously acquired upon the exercise of an incentive
stock option and with respect to which the optionee has not satisfied the ISO
holding periods.
COMPANY DEDUCTIONS. The Company generally must collect and pay withholding taxes
upon the exercise of a Non-Qualified Option. The Company (or its subsidiary)
generally is entitled to a deduction for federal income tax purposes at the same
time and in the same amount that the optionee recognizes ordinary income, to the
extent that such income is considered reasonable compensation under the Code.
Deductions may be limited by Section 162(m) of the Code with respect to options
granted to certain executive officers if the options do not qualify as
"performance-based compensation" under that section. Ordinary income recognized
by an optionee under the exercise of a Non-Qualified Option or due to a
disqualifying disposition of an Incentive Option does not qualify as
"performance-based compensation." Neither the Company nor any subsidiary is
entitled to a deduction with respect to payments that constitute "excess
parachute payments" pursuant to Section 280G of the Code and that do not qualify
as reasonable compensation pursuant to that section. Such payments also subject
the recipients to a 20% excise tax.
VOTE REQUIRED
Under California corporate law, 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 proposed amendment to the Plan. Abstentions and broker non-votes
are not counted in determining the shares voted, but abstentions and broker
non-votes, because they are counted towards a quorum, would have the affect of a
vote against the proposal if the shares voting in favor do not constitute at
least a majority of the required quorum.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
PROPOSED AMENDMENT TO THE PLAN.
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EXECUTIVE COMPENSATION
The following tables provide information concerning the compensation of each
person who served as chief executive officer during the last fiscal year and the
other executive officers whose total salary and bonus exceeded $100,000 in
Fiscal Year 1998 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
Securities
Name and Fiscal Underlying All Other
Principal Position Year Salary Bonus Options (#) Compensation(1)
------------------ ---- ------ ----- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Aaron Uri Levy, 1998 $179,000 $ 87,500 -- $ 615
Chairman, 1997 28,605 17,500 500,000 19,742(2)
Chief Executive Officer
and President
William M. Stowell, 1998 125,000 26,250 25,000 2,000
Vice President, Finance 1997 115,000(3) 10,000 94,200(4) 2,000
1996 136,763 38,635 55,000(4) 2,000
John P. Sprint 1998 93,000 15,000 50,000 2,000
Vice President, Operations 1997 67,243(3) 20,333 88,600(4) 2,000
1996 61,389 -- 60,000(4) 2,000
Charles Gamer(5) 1998 96,922 -- 50,000 68,878(5)
Vice President, Sales and 1997 2,500 -- 50,000 --
Marketing
Steve Fallaize 1998 104,551 -- 50,000 433
Vice President, Military
and Industrial
</TABLE>
- ----------
(1) In Fiscal Year 1998, includes Company contributions to the
401(k) Plan for the account of each Named Officer up to the
amount of $2,000, with the contribution to Mr. Levy at $615 and
Mr. Fallaize at $433.
(2) Pertains to relocation expenses incurred with the hiring of Mr.
Levy in January 1997.
(3) During Fiscal Year 1997, the Company terminated its variable
compensation plan and reimbursed all employees the amount of
salary reductions they had sustained during the fiscal year
under such plan.
(4) During Fiscal Year 1997, the Company repriced options which were
originally granted in Fiscal Year 1996. Pursuant to rules of the
Securities and Exchange Commission, such repriced options are
included in the number of options granted in Fiscal Year 1997
(the year in which they were repriced) and in Fiscal Year 1996
(the year they were originally granted).
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<PAGE> 13
(5) Mr. Gamer received a severance package from his position of Vice
President, Sales and Marketing effective February 10, 1998. The
amount disclosed for Mr. Gamer under the column "All Other
Compensation" includes $30,130 accrued in Fiscal Year 1998,
which is payable through June 1998, in connection with Mr.
Gamer's severance package and $38,748 in relocation expenses
upon his original hiring. See "Severance Arrangements."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total
Number of Securities Options Granted
Underlying Options to Employees in Exercise Price Per Expiration
Name Granted (1) Fiscal Year Share (2) Date
---- ----------- ----------- --------- ----
<S> <C> <C> <C> <C>
William M. Stowell 25,000 3.6% 2.03 02/23/07
John P. Sprint 25,000 3.6% 2.25 09/05/07
25,000 3.6% 2.25 11/23/05
Charles Gamer 50,000 7.2% 2.25 09/05/07
Steve Fallaize 25,000 3.6% 2.00 05/06/07
25,000 3.6% 2.25 09/05/07
</TABLE>
(1) Unless otherwise indicated, 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
Company's Stock Option Plans, the Stock Option Committee may
modify the terms of outstanding options, including the exercise
price and vesting schedule. See "Severance Arrangements."
(2) Fair market value of the Common Stock on the grant date.
Page 12
<PAGE> 14
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Securities
Underlying
Options at Value of Unexercised
Shares Acquired Value Fiscal In-the-Money Options
Name on Exercise Realized(1) Year-End at Fiscal Year-End(2)
---- ----------- ----------- -------- ---------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Uri Levy 0 0 125,000 375,000 $284,375 $703,125
William M. Stowell 0 0 153,138 85,312 170,094 90,554
John P. Sprint 10,000 15,583 58,850 92,500 51,726 90,275
Steve Fallaize 0 0 0 50,000 0 50,000
Charles Gamer 0 0 12,500 12,500 13,688 10,938
</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 28, 1998 ($3.125 per share) and the aggregate exercise
price.
SEVERANCE ARRANGEMENTS
In connection with the severance agreement for Charles Gamer, the Company's
former Vice President, Sales and Marketing, the Company agreed to a severance
package for Mr. Gamer at the rate of $6,666.67 per month and to maintain his
medical benefits until the earlier of June 30, 1998 or the date he obtains other
full-time employment. The Company also amended Mr. Gamer's options to provide
that 25,000 options of the 100,000 options granted during his employment will
become exercisable in full on the date he was no longer employed by the Company.
CERTAIN TRANSACTIONS
The Company has outstanding loans in the principal amount of $1.8 million
payable to Euroventures Benelux II B.V., a Netherlands corporation
("Euroventures"), and $100,000 payable to Trude C. Taylor, a director of the
Company. The principal amount of the loans is due in October/November 1999 and
bears interest at the rate of 5% per annum with respect to $1.8 million and 8%
per annum with respect to $100,000. Interest is payable quarterly under both
loans. The loans are secured by all of the Company's assets, but Euroventures
has agreed to subordinate its security interest in accounts receivable in order
to permit the Company to obtain conventional bank financing for accounts
receivable.
In connection with certain amendments to the terms of its loan in October 1995,
the Company issued Euroventures four year warrants to purchase 375,000 shares of
Common Stock at $7.00 per share. The warrants are redeemable by the Company if
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 if the
Company sells Common Stock at a price which is less than $7.00 per share,
excluding issuance's pursuant to warrants outstanding at April 1, 1996 and any
issuance's pursuant to the Company's stock
Page 13
<PAGE> 15
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.
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of June 19, 1998, with
respect to ownership of the Company's Common Stock by each person who is known
by the Company to own beneficially 5% or more of the Common Stock, each Named
Officer, each director of the Company, each nominee for director, and all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Shares Beneficially Percentage
Name* Owned Ownership
----- ----- ---------
<S> <C> <C>
EBTB II B.V.
Euroventures Benelux Team B.V.
Julianaplein 10
NL-5211 BC's Hertogenbosch
The Netherlands 4,856,957(1)(2) 27.0%
Euroventures Benelux I B.V.
Julianaplein 10
NL-5211 BC's Hertogenbosch
The Netherlands 2,559,179 14.2%
Euroventures Benelux II B.V.
Julianaplein 10
NL-5211 BC's Hertogenbosch
The Netherlands 1,922,778 10.7%
Current directors, director nominees, and executive officers:
- -------------------------------------------------------------
Roger Claes 8,500(3) **
Aaron Uri Levy 260,000(7) 1.4%
William M. Stowell 233,138(5) 1.3%
Robert Southwick 14,000(6) **
Trude C. Taylor 230,667(7) 1.3%
Charles A. Dickinson 0 **
John P. Sprint 70,600(8) **
Steve Fallaize 0 **
Charles Gamer 2,500(9) **
All executive officers and
directors as a group (9 persons) 829,405(10) 4.5%
</TABLE>
* Includes addresses of 5% or more shareholders.
** Less than 1%.
Page 14
<PAGE> 16
1) Includes the shares owned by Euroventures Benelux I B.V. and
Euroventures Benelux II B.V., which are widely held venture capital
funds. According to filings made with the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities Exchange Act of
1934, 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, and EBTB II B.V. is an indirect beneficial owner
of such shares. Under the rules set forth pursuant to the Securities
Exchange Act of 1934, more than one person may be deemed to be a
beneficial owner of the same securities. See Notes (2) and (3).
2) Includes 375,000 shares subject to currently exercisable warrants. See
Notes (1) and (3).
3) Mr. Claes is managing director of Euroventures Benelux I B.V. and a
partner and managing director of Euroventures Benelux Team B.V. and EBTB
II B.V. See Note (1).
4) Includes 125,000 shares subject to options which are exercisable within
60 days.
5) Includes 158,138 shares subject to options which are exercisable within
60 days.
6) Represents 14,000 shares subject to options which are exercisable within
60 days.
7) Includes 20,000 shares subject to options which are exercisable within
60 days.
8) Includes 67,600 shares subject to options which are exercisable within
60 days.
9) Includes 12,500 shares subject to option which are exercisable within 60
days
10) See Notes (4) through (9) above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During Fiscal Year 1998, to the Company's knowledge no persons filed late
reports under Section 16(a) of the Securities Exchange Act of 1934. 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.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending February 28, 1999, and has
further directed that management submit the selection of independent public
auditors for ratification by the stockholders at the Annual Meeting. Deloitte &
Touche LLP has audited the Company's financial statements since 1989.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Deloitte & Touche
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Board will reconsider
whether or not to retain that firm. Even if the selection is ratified, the Board
in its discretion may direct the appointment of a different accounting firm at
any time during the year if the Board determines that such a change would be in
the best interests of the Company and its stockholders.
Page 15
<PAGE> 17
The affirmative vote of the holders of the majority of the shares represented
and voting at the meeting will be required to ratify the selection of Deloitte &
Touche LLP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP.
SHAREHOLDER PROPOSALS
Any shareholder intending to submit to the Company a proposal for inclusion in
the Company's Proxy Statement and proxy for the 1999 Annual Meeting must submit
such proposal so that the Company no later than March 12, 1999 receives it.
ANNUAL REPORT
A copy of the Annual Report on Form 10-KSB for the 1998 fiscal year, including
the financial statements and the financial statements schedules required to be
filed with the U.S. Securities and Exchange Commission may be obtained by each
stockholder of record and each beneficial holder on the record date, without
charge. Copies of exhibits to the Form 10-KSB are available for a reasonable
fee. All such requests should be made in writing to the Company at 7321 Lincoln
Way, Garden Grove, California 92841, attention William M. Stowell, Chief
Financial Officer.
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 9, 1998
Page 16
<PAGE> 18
DENSE-PAC MICROSYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
AUGUST 14, 1998
KNOW ALL MEN BY THESE PRESENTS that the undersigned hereby constitutes and
appoints AARON URI LEVY 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 19, 1998 at the Annual Meeting of Shareholders
to be held on August 14, 1998, or any adjournment thereof, as designated below.
<TABLE>
<S> <C> <C>
(1) ELECTION OF DIRECTORS: [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as indicated to the contrary below). to vote for all nominees listed below.
</TABLE>
Roger Claes, Aaron Uri Levy, Robert Southwick, Trude C. Taylor, Lyle Jensen,
Charles A. Dickinson
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
(2) APPROVAL OF AMENDMENT TO THE COMPANY'S 1996 STOCK OPTION PLAN TO INCREASE
THE NUMBER OF SHARES OF COMMON STOCK WHICH MAY BE SUBJECT TO OPTIONS UNDER
THE PLAN BY 1,000,000 SHARES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT
ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENTS THEREOF.
(Continued and to be signed on the other side)
<PAGE> 19
(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.
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: -------------, 1998
-------------------------
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.
