<PAGE>
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
POWER DESIGNS, INC.
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(Name of Registrant as Specified In Its Charter)
POWER DESIGNS, INC.
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(Name of Person(s) Filing Proxy Statement)
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 0-11:1
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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(1)Set forth the amount on which the filing fee is calculated and state how
it was determined.
/ / 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
POWER DESIGNS, INC.
14 COMMERCE DRIVE
DANBURY, CONNECTICUT 06810
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Power Designs, Inc.
The Annual Meeting of Stockholders of Power Designs, Inc. ("Power Designs"
or the "Company") will be held at the offices of the Company, 14 Commerce Drive,
Danbury, Connecticut 06810, at 10:00 a.m., Eastern Standard Time, on November
12, 1997, for the following purposes:
1. To elect a Board of Directors for the ensuing year.
2. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to increase the authorized capital stock
of the Company such that the aggregate number of common shares which
the Company shall have the authority to issue shall be increased from
10,000,000 to 20,000,000, all of which shall be designated "Common
Stock."
3. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to increase the authorized capital stock
of the Company such that the aggregate number of preferred shares
which the Company shall have the authority to issue shall be
increased from 1,000,000 to 5,000,000 shares, all of which shall be
designated "Preferred Stock."
4. To consider and act upon a proposal to effectuate a eight-for-one
reverse stock split of the Company's Common Stock.
5. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to stagger the terms of members of the
Company's Board of Directors.
6. To consider and act upon a proposal to adopt the Company's 1997 Stock
Option Plan and to grant to each of the members of the Company's
Board of Directors, options exercisable for the purchase of 50,000
(before giving effect to the reverse stock split referred to in item
4) shares of Common Stock at an exercise price of $.25 per share.
7. To ratify the appointment of McGladrey & Pullen as the independent
auditors and accountants for the Company for the year ending June 30,
1997.
8. To transact such other business as may properly come before the
meeting.
All stockholders are invited to attend the meeting. Stockholders of record
at the close of business on October 8, 1997, the record date fixed by the Board
of Directors, are entitled to notice of and to vote at the meeting. A complete
list of stockholders entitled to notice of and vote at the meeting will be open
to examination by stockholders beginning ten days prior to the meeting for any
purpose germane to the meeting during normal business hours at the office of the
Secretary of Power Designs, Inc., 14 Commerce Drive, Danbury, Connecticut 06810.
Whether or not you intend to be present at the meeting, please sign and date
the enclosed proxy and return it in the enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
MELVIN A. BECKER
SECRETARY
Danbury, Connecticut
October 27, 1997
<PAGE>
POWER DESIGNS, INC.
14 COMMERCE DRIVE
DANBURY, CONNECTICUT 06810
(203) 748-7001
--------------
PROXY STATEMENT AND ANNUAL REPORT
--------------
The accompanying proxy is solicited by the Board of Directors of Power
Designs, Inc. ("Power Designs, Inc." or the "Company") for use at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held at 10:00 a.m., Eastern
Standard New York time, on November 12, 1997 at the offices of Power Designs,
Inc., 14 Commerce Drive, Danbury, Connecticut 06810 and any adjournment thereof.
VOTING SECURITIES; PROXIES
The Company will bear the cost of solicitation of proxies. In addition to
the solicitation of proxies by mail, certain officers, consultants and employees
of the Company, without extra remuneration, may also solicit proxies personally
by telefax and by telephone. In addition to mailing copies of this material to
stockholders, the Company may request persons, and reimburse them for their
expenses in connection therewith, who hold stock in their names or custody or in
the names of nominees for others to forward such material to those persons for
whom they hold stock of the Company and to request their authority for execution
of the proxies.
The holders of not less than one-third of the outstanding shares of (i)
Common Stock, par value $.0001 per share (the "Common Stock") and (ii) Preferred
Stock, par value $.01 per share (the "Preferred Stock"), present in person or
represented by proxy shall constitute a quorum at the Annual Meeting. Where a
quorum is present at the Annual Meeting, the approval of a plurality of the
outstanding shares of Common Stock and Preferred Stock present in person or
represented by proxy at the Annual Meeting is required for election of the
nominees as directors. Where a quorum is present at the Annual Meeting, the
affirmative vote of the majority of the outstanding shares of Common Stock and
Preferred Stock present in person or represented by proxy at the Annual Meeting
is required for the adoption all other matters.
The form of proxy solicited by the Board of Directors affords stockholders
the ability to specify a choice among approval of, disapproval of, or abstention
with respect to each matter to be acted upon at the Annual Meeting. Shares of
Common Stock represented by the proxy will be voted, except as to matters with
respect to which authority to vote is specifically withheld. Where the solicited
stockholder indicates a choice on the form of proxy with respect to any matter
to be acted upon, the shares will be voted as specified. Abstentions and broker
non-votes will have the effect of votes in opposition to a director or "against"
any other proposal to be considered at the Annual Meeting.
All shares of Common Stock represented by properly executed proxies which
are returned and not revoked will be voted in accordance with the instructions,
if any, given therein. If no instructions are provided in a proxy, the shares of
Common Stock represented by such proxy will be voted FOR the Board's nominees
for director, FOR the approval of Proposals 2, 3, 4 , 5, 6, and 7 and in
accordance with the proxy-holder's best judgment as to any other matters raised
at the Annual Meeting.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice of such revocation to the Secretary of the
Company, executing and delivering to the Company a later dated proxy reflecting
contrary instructions or appearing at the Annual Meeting and taking appropriate
steps to vote in person.
At the close of business on October 8, 1997, 2,391,493 shares of Common
Stock and 316,689 shares of Preferred Stock were outstanding and eligible for
voting at the meeting. Each stockholder of record is entitled to one vote for
each share of Common Stock held on all matters that come before the meeting.
<PAGE>
Only stockholders of record at the close of business on October 8, 1997 are
entitled to notice of, and to vote at, the meeting.
NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to Proposals 2, 3, 4, 5, 6, and 7.
The Company's Annual Report on Form 10-KSB, including financial statements
for the fiscal year ended June 30, 1996, is included as a part of this proxy
statement. A copy of the Company's Annual Report on Form 10-KSB, as filed with
the Securities and Exchange Commission, will be furnished by the Company without
charge to each person to whom this proxy statement is delivered, upon written
request of such person to Power Designs Inc., 14 Commerce Drive, Danbury,
Connecticut 06810.
THIS PROXY MATERIAL IS FIRST BEING MAILED TO STOCKHOLDERS COMMENCING ON OR
ABOUT OCTOBER 27, 1997.
2
<PAGE>
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
OWNERSHIP OF SECURITIES BY DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL
OWNERSHIP.
The following table sets forth (i) those entities and individuals known to
the Company to be the beneficial owners of more than 5% of the Company's Common
Stock , (ii) beneficial ownership of the Company's Common Stock by each director
and the Chief Executive Officer and the Named Executive Officer (as defined on
Page 8 hereof) of the Company and (iii) beneficial ownership of the Company's
Common Stock by all directors and executive officers of the Company as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
dispositive power with respect to the Common Stock beneficially owned by such
stockholder.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS AMOUNT AND NATURE OUTSTANDING STOCK
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) OWNED (3)
- ---------------------------------------------------------------------- --------------------------- -----------------
<S> <C> <C>
COMMON STOCK
Millenia Capital Holdings, LLC(4)..................................... 1,072,028 44.8
P.O. Drawer 9
Kensington, Connecticut 06037
Inverness Corporation(5).............................................. 1,297,163(10) 35.2
1224 Mill Street, Bldg. A.
East Berlin, Connecticut 06023
Bril Corp.(6)......................................................... 149,468(17) 6.2
P.O. Drawer 9
Kensington, Connecticut 06037
Equitas, L.P.......................................................... 263,189(11) 9.9
2000 Glen Echo Road
Suite 101
Nashville, Tennessee 37215
Thomas O'Grady(2)..................................................... 125,323 5.2
David H. Smith II(2).................................................. 125,323 5.2
Jeri Fink(2).......................................................... 283,503 11.8
Sandra Roth(2)........................................................ 146,503 6.1
Jonathan D . Betts(2)(7).............................................. 2,518,959(8)(13)(14) 63.7
(shared)
Fred G. Basso(2)...................................................... 0
Melvin A. Becker(2)................................................... 134,871(12) 5.4
Gary M. Laskowski(2)(7)............................................... 2,528,859(9)(13)(14) 64.0
(shared)
Phillip H.R. Epps(2).................................................. 20,313(15) 0.8
All Directors and Executive Officers as a Group(16)................... 2,684,143 65.6
</TABLE>
- ------------------------
(1) For purposes of the above table, a person or group of persons is deemed to
have "beneficial ownership" of any shares that such person or group has the
right to acquire within 60 days after such
3
<PAGE>
date; for purposes of computing the percentage of outstanding shares held by
each person or group on a given date, such shares are deemed to be
outstanding, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. Beneficial ownership
is determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and is generally determined by
voting power and/or investment power with respect to securities. Except as
indicated by footnote, and subject to community property laws where
applicable, the Company believes that the persons named in the table above
have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) The address for the referenced person is c/o Jonathan D. Betts, Chairman,
Power Designs, Inc., 14 Commerce Drive, Danbury, Connecticut 06810.
(3) Individual percentages have been rounded to the nearest .1%.
(4) The member-managers of Millenia Capital Holdings ("Millenia") are Deborah
Laskowski and Kathleen Betts, the spouses of Gary M. Laskowski and Jonathan
D. Betts, respectively, each of whom is a director of the Company. The
concurrence of both Ms. Laskowski and Ms. Betts is necessary to direct the
voting of securities owned by Millenia and the disposition of such shares
requires the consent of both both Ms. Laskowski and Ms. Betts. Both, Mr.
Laskowski and Mr. Betts disclaim beneficial ownership of shares of Common
Stock owned by Millenia.
(5) The executive officers of Inverness Corporation ("Inverness") are Gary M.
Laskowski and Jonathan D. Betts, each of whom is a director of the Company.
The concurrence of both Mr. Laskowski and Mr. Betts is necessary to direct
the voting of securities owned by Inverness and the disposition of such
shares requires the consent of both remaining shareholders of Inverness,
Deborah Laskowski, the spouse of Mr. Laskowski, and Kathleen Betts, the
spouse of Mr. Betts. Accordingly, Mr. Laskowski and Mr. Betts may be deemed
the beneficial owners of shares of Common Stock owned by Inverness.
(6) The executive officers of Bril Corp. ("Bril") are Gary M. Laskowski and
Jonathan D. Betts, each of whom is a director of the Company. The
concurrence of both Mr. Laskowski and Mr. Betts is necessary to direct the
voting of securities owned by Bril and the disposition of such shares
requires the consent of both remaining shareholders of Bril, Deborah
Laskowski, the spouse of Mr. Laskowski, and Kathleen Betts, the spouse of
Mr. Betts. Accordingly, Mr. Laskowski and Mr. Betts may be deemed the
beneficial owners of shares of Common Stock owned by Bril.
(7) Mr. Betts and Mr. Laskowski share voting power over the 1,297,163 and
149,468 shares of Common Stock currently owned by (or underlying options
immediately exercisable by) Inverness and Bril, respectively. See Notes 5
and 6, above. In addition, Mr. Betts and Mr. Laskowski are trustees and
beneficiaries of a retirement plan that owns 200 shares of Common Stock.
(8) Includes 100 additional shares of Common Stock owned individually of record
and beneficially by Mr. Betts, and includes 1,072,028 shares of Common Stock
owned by Millenia as to which Mr. Betts disclaims beneficial ownership.
(9) Includes 10,000 additional shares of Common Stock owned individually of
record and beneficially by Mr. Laskowski, and includes 1,072,028 shares of
Common Stock owned by Millenia as to which Mr. Laskowski disclaims
beneficial ownership.
(10) Includes 1,297,163 shares of Common Stock underlying options which are
currently exercisable.
(11) Includes 263,189 shares of Common Stock underlying options which are
currently exercisable.
(12) Includes 121,608 shares of Common Stock underlying options which are
currently exercisable.
(13) Includes 1,297,163 shares of Common Stock underlying options which are
currently exercisable by Inverness.
4
<PAGE>
(14) Excludes 50,000 shares of Common Stock underlying options issued pursuant
to the current Option Plan which are subject to approval by the stockholders
at the Annual Meeting of stockholders.
(15) Includes 20, 313 shares of Common Stock underlying options which are
currently exercisable.
(16) Each of Millenia, Mr. Betts, Mr. Laskowski, and Mr. Becker ( the last three
all directors of the Company), failed once during fiscal year 1996 to make a
timely report under Section 16(a) of the Securities Exchange Act of 1934
(the "Exchange Act") as to a transaction involving Common Stock owned by it
or him. Late reports for them were filed in November of 1996.
Millenia, Bril, Messrs. Betts and Laskowski and Equitas, L.P. (the "Group")
have advised the Company that they intend to vote all of the shares of
Common Stock and Preferred Stock they currently own in favor of the seven
nominees listed below as members of the Board of Directors and in favor of
each of the other proposals that the Board of Directors is recommending to
the stockholders in this proxy statement. Because the Group owns a majority
of the currently outstanding Common Stock and the currently outstanding
Preferred Stock, if the Group acts in accordance with its intentions, each
of the nominees will be elected and all of the proposals will be approved.
None of the proposals is conditioned upon approval of another.
(17) Includes 26,291 and 24,700 shares of Common Stock previously owned by Bril
and transferred to Gary Laskowski as Trustee for Bril Corp. Profit Sharing
Plan and Trust and Gary Laskowski as Trustee for Bril Corp. Money Purchase
Plan, respectively, on September 15, 1997.
PROPOSAL 1
ELECTION OF DIRECTORS
DIRECTORS OF THE COMPANY
The Board of Directors of the Company currently consists of seven directors.
Information with respect to the seven nominees proposed for election is set
forth below. It is intended that the persons named in the proxy will vote in
favor of the seven nominees for election as set forth below.
If the stockholders approve the Staggered Board Amendments, as described
below, the members of the board will be elected to the following terms:
<TABLE>
<S> <C>
One year ("Class I")................. Mr. Basso and Mr. Becker
Two years ("Class II")............... Mr. LeRoy, Mr Sparacino and Mr.
Joslin
Three years ("Class III")............ Mr. Laskowski and Mr. Betts
</TABLE>
The affirmative vote of a plurality of all votes cast by holders of the
Common Stock and Preferred Stock present and voting (in person or by proxy) at
the Annual Meeting is required for the election of directors.
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE OFFICES
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Jonathan D. Betts(2)(4).............................. 36 Chairman of the Board
Fred G. Basso (3)(4)................................. 58 President and Director
Melvin A. Becker(3).................................. 56 Vice President and Director
Gary M. Laskowski(1)(3)(4)........................... 44 Director
Robert R. Sparacino(1)(2)(5)......................... 69 Director
Raymond E. Joslin.................................... 60 Director
Shannon LeRoy(2)(5).................................. 41 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Stock Option Committee
(4) Member of Executive Committee
(5) Member of Nominating Committee
5
<PAGE>
JONATHAN D. BETTS. Mr. Betts has served as Chairman of the Board of the
Company since November 1996. Mr. Betts is principal and founder of Venture
Partners, a private investment bank, and Inverness Corporation, a private
commercial finance Company, founded in 1986 and 1993, respectively. Mr. Betts,
Venture Partners and Inverness Corporation are affiliates of Millenia Capital
Holdings, LLC ("Millenia"), the largest stockholder of the Company. Mr. Betts
served as a member of the consulting operation of Technology Transitions
Incorporated, a venture capital firm, from November 1985 to December 1986 and as
Regional Sales Manager for Medical Electronics Corporation, a critical care
medical instrumentation manufacturer, from June 1983 to September 1985. Mr.
Betts has a Bachelor's Degree in Electrical Engineering from Boston University.
FRED G. BASSO. Mr. Basso has served as President of the Company since June
5, 1997 and as a Director of the Company since June 5, 1997. From 1994 to 1997,
Mr. Basso served as President and Chief Executive Officer of AFP Transformers,
Inc., a manufacturer of large transformers, and from 1993 to 1994 as General
Manager of Magnetek Electric, Inc., a manufacturer of power transformers. Mr.
Basso also served as President of Schenck Trebel Corporation, a manufacturer of
dynamic balancing equipment, from 1986 to 1992. Mr. Basso holds a Master's
Degree in Business Administration from New York University and a Bachelor's
Degree in Management Engineering from Rensselaer Polytechnic Institute.
MELVIN BECKER. Mr. Becker has served as a Vice President of the Company
since November 1996. Mr. Becker has served as a Director of the Company since
1984, and served as President of the Company from January 1984 to November 1996
and as Vice President in charge of Manufacturing of the Company from 1971 to
1979. Mr. Becker served as Vice President of Operations and as Executive
Assistant to the President at Ferranti-Venus, a manufacturer of DC power
supplies from March 1979 to December 1983. Mr. Becker holds a Bachelor's Degree
in Electrical Engineering from the University of Miami.
GARY M. LASKOWSKI. Mr. Laskowski has served as a Director of the Company
since April 1994. Mr. Laskowski is a principal and founder of Venture Partners,
a private investment bank, and Inverness Corporation, a private commercial
finance Company, founded in 1986 and 1993, respectively. Mr. Laskowski, Venture
Partners and Inverness Corporation are affiliates of Millenia. Mr. Laskowski
served as a member of the consulting operation of Technology Transitions
Incorporated, a venture capital firm, from March 1985 to January 1986 and served
in a number of posts, including Vice President, Marketing, for Canberra
Industries, Inc., a supplier of data acquisition and analysis systems, from 1976
to 1984. Mr. Laskowski holds a Bachelor's Degree in Electrical Engineering from
the University of Connecticut.
ROBERT R. SPARACINO. Mr. Sparacino was appointed as a Director of the
Company on October 7, 1997. Mr. Sparacino has served as President of Sparacino
Associates, a management and venture capital consulting firm specializing in
high technology businesses since 1982, as a Director and Vice Chairman of
Tristar Corporation since 1992 and as a Director of Concurrent Computer
Corporation, a computer equipment manufacturer, since November, 1994.
Additionally, Mr. Sparacino has served in executive management positions with
Xerox Corporation and General Motors Corporation. Mr. Sparacino holds a Doctoral
Degree in Instrumentation from the Massachusetts Institute of Technology.
RAYMOND E. JOSLIN. Mr. Joslin was appointed as a Director of the Company on
October 7, 1997. Mr. Joslin currently serves as a Director, and as Vice
President and Group Head of the Entertainment & Syndication Group, of Hearst
Corporation. Mr. Joslin is also a Founding Director and Co-Chairman of
Hearst/ABC Video Services, and serves as a Founding Director and Co-Chairman of
each of A&E Networks (which includes the History Channel) and Lifetime
Television, which are 75% and 100% owned by Hearst/ABC Video Services,
respectively. Mr. Joslin attended the Carnegie Institute of Technology and
Harvard Business School and holds a Bachelor's Degree in Economics from Trinity
College.
SHANNON LEROY. Mr. LeRoy was appointed as a Director of the Company on
October 7,1997. Mr.LeRoy currently serves as President of Tennessee Business
Investment , Inc., the general partner of
6
<PAGE>
Equitas, L.P., a licensed Small Business Investment Company. From 1984 to 1994,
Mr. LeRoy served as Senior Vice President of First Union National Bank of
Tennessee, where he managed commercial banking. Mr. LeRoy is a Director of HLM
Design, Inc., an architectural and engineering firm, and Laure Beverage Company,
Inc., a consumer beverage company. Mr. LeRoy holds a Bachelor of Arts degree
from the University of North Carolina in Chapel Hill.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES LISTED ABOVE
There were five meetings of the Board of Directors of the Company during
fiscal year 1996.
A Compensation Committee of the Board of Directors was established in
February 1995. The current members are Mr. Betts (Chairman), Mr. Sparacino and
Mr. LeRoy. The Company recently established a Nominating Committee charged with
reviewing the credentials of nominees for the Board of Directors. The Nominating
Committee consists of Mr. LeRoy and Mr. Sparacino. The Audit Committee consists
of Mr. Laskowski and Mr. Sparacino; the Stock Option Committee consists of Mr.
Laskowski, Mr. Betts and Mr. Basso; and the Executive Committee of Mr. Betts,
Mr. Laskowski and Mr. Basso. During fiscal year 1996, each director attended at
least 75% of the aggregate of (1) the total number of meetings of the Board of
Directors, and (2) the total number of meetings held by all committees of the
Board on which be served.
FUNDING TRANSACTIONS INVOLVING CERTAIN DIRECTORS
REORGANIZATION FUNDING
As part of its bankruptcy plan of reorganization, on April 27, 1994 the
Company entered into a Funding Agreement with Venture Partners Ltd., under which
Venture Partners (as agent) lent the Company $130,500. Venture Partners, as
agent, subsequently converted $25,000 of the debt into 149,468 shares of Common
Stock. The remaining portion of this debt was repaid on October 11, 1996. See
"Acquisition of Technipower and Constant Power Assets." The net proceeds from
the Funding Agreement were applied to the bankruptcy distributions required upon
confirmation of the plan of reorganization.
Under the plan of reorganization, as of April 27, 1994, the Company issued
810,716 restricted shares of Common Stock (or about 40% of the total then
outstanding shares) to Venture Partners for a total price of $1,000. Venture
Partners also purchased 407,240 shares of Common Stock from two stockholders for
nominal consideration. Through this series of transactions, Venture Partners
thus acquired control of the Company.
INTERIM FUNDING AND SHARE TRANSFERS
Beginning in fiscal 1995, Venture Partners arranged for the Company to
obtain additional capital through a revolving loan agreement (the "Revolving
Loan Agreement"), with a Venture Partners affiliate, Inverness. Loans under the
Revolving Loan Agreement bore interest at a rate of 15% per annum and, as of
July 1, 1995, the Company had a maximum credit facility of $200,000. The maximum
available under the facility was increased to $700,000 as of June 30, 1996, at
which time the Company in fact owed $834,097 and, on July 31, 1996, it was
increased again to $1.2 million. On October 11, 1996, all outstanding amounts
under the Revolving Loan Agreement were repaid in full. See "Acquisition of
Technipower and Constant Power Assets."
On September 15, 1995 Venture Partners transferred the 810,716 restricted
shares of Common Stock, plus an additional 261,312 unrestricted shares of Common
Stock, to its affiliate Millenia. Venture Partners also transferred 145,928
shares of Common Stock to four investors in consideration for loans previously
made to the Company. On October 25, 1996 Venture Partners sold its remaining
149,468 shares of Common Stock to its affiliate Bril for $25,000, the total
original cost to Venture Partners.
7
<PAGE>
ACQUISITION OF TECHNIPOWER AND CONSTANT POWER ASSETS
On October 11, 1996, the Company, through its wholly-owned subsidiary PDIXF
Acquisition Corp. ("PDIXF") purchased (the "Acquisition") the assets of
Technipower, Inc. ("TPI") and Constant Power, Inc. ("CPI"), two subsidiaries of
Penril Datacomm Networks, Inc. ("Penril"), under an Asset Purchase Agreement
(the "Agreement"). After the transaction was completed, the Company consolidated
its managerial and manufacturing operations at the facility occupied by CPI and
TPI in Danbury, Connecticut. This move was completed on November 5, 1996.
Under the terms of the Agreement, the Company acquired all of the TPI and
CPI assets employed in the manufacture of three product lines (the "Business").
Total consideration, which was determined through arms-length negotiations,
consisted of $1,586,085 in cash, a $2,750,000 Term Note, a royalty equal to 2%
of power protection sales during the period from July 1, 1997 through June 30,
2001, and various assumed liabilities related to the Business, valued at
approximately $632,600. The Term Note carried annual interest of 2% above prime
rate, and a maturity date of December 31, 1996. The principal amount of the Term
Note was not repaid when due, thereby placing the Company in default. On March
10, 1997 the Company and Penril executed a forbearance agreement (the
"Forbearance Agreement"), which required the Company to make payments of $50,000
per week totaling $200,000 prior to March 31, 1997, a payment of $500,000 on or
before April 14, 1997, and a balloon payment equal to the remainder due on or
before May 31, 1997. All payments required under the Forbearance Agreement prior
to April 29, 1997 were made in full.
On April 29, 1997, the Company and Penril entered into a modification
agreement (the "Modification Agreement"), which created a new payment schedule
under the Forbearance Agreement. The Modification Agreement requires the Company
to pay Penril $400,000 on April 30, 1997, $50,000 on each of May 5, May 12 and
May 19, 1997, $300,000 on May 30, 1997, and the remainder due under the Term
Note on July 31, 1997.
Penril subsequently agreed to permit the Company to make payments of
$100,000, $50,000, $75,000 and $75,000 on May 30, 1997, June 4, 1997, June 10,
1997 and June 20, 1997, respectively, in lieu of the $300,000 payment due on May
30, 1997. As of June 10, 1997, the Company was current on its obligations under
the terms of the Forbearance Agreement, as modified. Subsequent to June 10, the
Company remained current on interest amounts due to Penril, but commenced
negotiations with Penril concerning the amount and due date on the remainder of
the Term Note.
In connection with the Acquisition, the Company simultaneously obtained
outside financing totaling approximately $6,200,000. The financing consisted of
three primary components: a private placement of debt and equity securities for
$1,087,000 to six individuals and a limited partnership; a note payable to
Inverness in the amount of $2,290,000, and the Term Note payable to Penril of
$2,750,000 due on December 31, 1996. As part of the Acquisition and financing,
the Company also created a class of stock, the Preferred Stock, which was
authorized by vote of the stockholders in fiscal year 1995. Shares of the
Preferred Stock were included with the securities placed with the six
individuals and a limited partnership. The financing permitted the Company to
pay in full several outstanding debts, including the loan of $130,500 from
Venture Partners (as agent) and $834,097 owed under the Revolving Loan Agreement
with Inverness.
ADDITIONAL TRANSACTIONS
In addition, certain Directors and officers of the Company intend to
participate in the Inducement Offer (as hereinafter defined) described in
PROPOSAL 4 hereof.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation of the
former chief executive officer (the "Named Executive Officer") for services in
all capacities for the fiscal years ended June 30, 1994, 1995 and 1996. No other
employee's annual salary and bonus exceeded $100,000 in any of those fiscal
years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
NAME AND PRINCIPAL ($) STOCK
POSITION FISCAL YEAR SALARY OPTIONS
- ------------------------------------------------------------------------------ ------------- --------- -----------
<S> <C> <C> <C>
Melvin A. Becker.............................................................. 1996 88,354 -0-
President until............................................................... 1995 95,446 121,608
October 11, 1996.............................................................. 1994 105,600 -0-
</TABLE>
In fiscal year 1995, the Company adopted the Employee Incentive Stock Option
Program (the "Option Program"), which provides for the issuance of up to the
lesser of 24% of the fully diluted issued and outstanding Common Stock or
1,000,000 shares of Common Stock through the grant of incentive and
non-qualified stock options. Stock options under the Option Program are to be
issued by action of the Board of Directors or its Compensation Committee (the
"Administrator").
Subsequent to the end of the fiscal year, on October 9, 1996, the Company
entered into a three-year contract with Mr. Becker, under which he assumed the
duties of Vice President for a salary of $100,000 per annum.
Also on October 9, 1996, the Company hired a former officer of Constant
Power, Inc., Phillip H.R. Epps, to become Vice President of Engineering at
$110,000 per annum. Mr. Epps was also granted stock options, all of which carry
an exercise price of $.25 per share and expire on October 1, 2001. Mr. Epps's
options are exercisable for a total of 81,250 shares of Common Stock: 20,313 are
exercisable as of October 1, 1997, 28,437 on October 1, 1998 and the remaining
32,500 on October 1, 1999.
Fred G. Basso the ("Chief Executive Officer") assumed the office of
President of the Company on May 6, 1997. His compensation consists of an annual
cash salary of $140,000, and options for the purchase of 150,000 shares of
Common Stock at a price of $.875 per share. Of such option 45,000 will become
exercisable on April 1, 1998; 45,000 on April 1, 1999 and 60,000 on April 1,
2000. All options shall expire on April 1, 2002.
As of June 30, 1996, and subsequent to the end of the fiscal year, none of
the above-mentioned options have been exercised.
The Company has no pension plan covering executives and currently provides
no benefits to executives other than life insurance coverage of 150% of annual
salary and health insurance.
PROPOSAL 2
AUTHORIZATION OF AN ADDITIONAL 10,000,000 SHARES OF COMMON STOCK
The Company's Certificate of Incorporation currently permits the issuance of
up to 10,000,000 shares of Common Stock. Currently 2,391,493 shares of Common
Stock are issued and outstanding. If the stockholders approve the eight-for-one
reverse split proposed below, the number of shares of Common Stock issued and
outstanding will be proportionately reduced. The Board of Directors believes
that maximum flexibility in seeking additional capital sources requires an
increase in the number of authorized shares of Common Stock. Accordingly, the
Board of Directors has approved a resolution to amend the
9
<PAGE>
Certificate of Incorporation of the Company to authorize the issuance of 20
million shares of Common Stock, an increase of 10 million shares over the number
currently authorized.
Increasing the number of authorized shares of Common Stock could render it
more difficult for persons not favored by management to effect a business
combination or similar transaction (often referred to as a "takeover"), even if
the transaction is favored by the holders of a majority of the Common Stock that
is not controlled by the management of the Company. Stockholders will not have
the right to be notified prior to the issuance of any class or series of Common
Stock authorized by the Board of Directors, and will not be requested to vote on
or consent to such an issuance. Management could impede a takeover if the newly
authorized Common Stock were issued to management or persons aligned with
management. Nevertheless, because over 50% of the Common Stock is owned by the
Group, and additional Common Stock is owned by the directors and officers of the
Company, the Company believes that the increase in authorized shares will not
have any material anti-takeover effect at this time. The issuance of additional
Common Stock may have the effect of diluting the equity interests of current
stockholders in the Company.
The Company has entered into a letter of intent with an underwriter under
which, pending stockholder approval of this proposal and the eight-for-one
reverse split, the Company proposes to undertake a public offering of Common
Stock. The terms and conditions of this offering have not been finalized.
Furthermore, to provide immediate financing the Company recently completed a
private offering of units which consisted of subordinated notes and Common Stock
warrants, and has undertaken a similar additional private offering of units.
Depending on market conditions, the Company may decide at any time to terminate
the above-referenced private offering, or to decide not to proceed with the
above-referenced public offering.
The Company intends to use the proceeds from any sale of newly authorized
shares of Common Stock to satisfy existing indebtedness and for general working
capital purposes.
Approval of the increase in the authorized number of shares of Common Stock
of the Company requires the affirmative vote of the holders of at least a
majority of all of the Company's issued and outstanding Common Stock and
Preferred Stock. Approval of the additional shares of Common Stock is not
conditioned on approval of the additional shares of Preferred Stock, or on
approval of the proposed eight-for-one reverse split. Should the stockholders
fail to approve the increase in authorized shares, the eight-for-one reverse
split, or both, the Company may be unable to complete one or both of the
offerings described above. Failure to complete the offerings would leave the
Company with a serious capital shortfall, and would probably render it unable to
meet payments required under the Forbearance Agreement, as amended. However,
there can be no assurance the above-referenced financing plans will be
successful even if the amendments are approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AUTHORIZATION OF AN
ADDITIONAL TEN MILLION SHARES OF COMMON STOCK.
PROPOSAL 3
AUTHORIZATION OF AN ADDITIONAL 4,000,000 SHARES OF PREFERRED STOCK
The Company's Certificate of Incorporation currently provides for the
issuance of up to 1,000,000 shares of Preferred Stock. The Board of Directors
believes that authorizing additional Preferred Stock will create more
opportunities to raise capital, by allowing the Company to structure additional
equity securities in accordance with the wishes of investors. Furthermore,
Preferred Stock could be used instead of Common Stock to effectuate
extraordinary corporate transactions or to finance general corporate purposes.
Therefore, the Board of Directors has adopted, subject to stockholder
approval, a resolution that the Certificate of Incorporation of the Company
should be amended to authorize the issuance of a maximum of 4,000,000 shares of
Preferred Stock with a par value of $.01 per share, in addition to the 1,000,000
10
<PAGE>
currently authorized. The Preferred Stock would be issued for cash or such other
consideration permitted by law as the Board of Directors may determine. As is
true of the 1,000,000 currently authorized shares of Preferred Stock, the terms,
rights, preferences and other conditions of the Preferred Stock would be
determined by the Board of Directors from time to time. Consequently, holders of
the Company's Common Stock will not have the right to be notified prior to the
issuance of any class or series of Preferred Stock authorized by the Board of
Directors and will not be requested to vote on or consent to the issuance of any
Preferred Stock or the terms, rights, preferences and conditions of that stock.
As Preferred Stock, any shares issued can have preferences over the Common Stock
in matters such as voting rights, dividend rights, liquidation rights,
anti-dilution features and other terms.
Accordingly, enlarging a class of Preferred Stock whose terms will be
determined by the Board of Directors could render it more difficult for persons
not favored by management to effect a business combination or similar
transaction (often referred to as a "takeover"), even if the transaction is
favored by the holders of a majority of the Common Stock. This would occur if
the newly authorized Preferred Stock were issued to management or persons
aligned with management. As stated above at "Authorization of an Additional
10,000,000 Shares of Common Stock," however, the Group and various officers and
directors of the Company already beneficially own more than 50% of the Common
Stock. The Company thus believes that no material anti-takeover effect will
result from authorizing additional Preferred Stock. The equity interests of the
holders of Common Stock in the Company may be diluted by the issuance of
Preferred Stock. There are no current commitments to issue any Preferred Stock.
The Company intends to use the proceeds from any sale of newly authorized
shares of Preferred Stock to satisfy existing indebtedness and for general
working capital purposes.
Approval of the additional four million authorized shares of Preferred Stock
for the Company requires the affirmative vote of the holders of at least a
majority of all issued and outstanding Common Stock and Preferred Stock.
Approval is not conditioned on approval of the additional shares of Common Stock
or on approval of the proposed eight-for-one reverse split.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AUTHORIZATION OF AN
ADDITIONAL FOUR MILLION SHARES OF PREFERRED STOCK.
11
<PAGE>
PROPOSAL 4
EIGHT-FOR-ONE REVERSE SPLIT OF THE COMPANY'S COMMON STOCK
AND INDUCEMENT PROVISION TO CERTAIN EXISTING COMMON STOCK,
WARRANT AND PREFERRED STOCKHOLDERS
The Board of Directors has adopted, subject to stockholder approval, a
resolution proposing an amendment to the Company's Certificate of Incorporation
to effect a reverse stock split (the "Reverse Split"), pursuant to which each
eight shares of Common Stock ("Old Common Stock") will become one share of the
Company's then outstanding Common Stock ("New Common Stock").
The Company believes that the Reverse Split is necessary for two primary
reasons: to give the Company increased flexibility in raising capital; and to
enable the Company eventually to list its shares on the NASDAQ-SmallCap Market.
First, the Company has historically suffered from lack of operating capital, and
the combination of the increase in the number of authorized shares of Common
Stock and Preferred Stock (assuming stockholder approval of both proposals) and
the Reverse Split will allow the Company to provide attractive opportunities for
significant outside investment.
Second, as noted above in the proposal to increase the number of authorized
shares of Common Stock, the Company has entered into a letter of intent with an
underwriter under which it proposes to undertake a public offering of Common
Stock. Among other requirements the NASDAQ-SmallCap Market mandates that listed
issuers maintain a minimum bid price per share of $3.00. Under proposed
NASDAQ-SmallCap Market rules, this minimum may rise to between $4.00 and $5.00
per share. Notwithstanding the proposed rule changes, the prospective
underwriter has advised the Company that the attractiveness of its offering will
be enhanced by ensuring a minimum bid price of at least $5.00 per share.
Currently, the market for the Company's Common Stock is extremely thin, and the
share price remains low: a bid price of [$0.625], with the last sale executed at
$[0.875]. Beside limiting the Company's ability to offer securities on national
exchanges and NASDAQ, the thin market and depressed price diminish current
stockholders' investment liquidity.
However, the Reverse Split may cause inconvenience and extra expense to
stockholders who become owners of so called odd lots, or holdings of less than
100 shares, when such holders seek to sell their odd lot or to purchase. The
market for the purchase an odd lot to increase their holding to an integral
multiple of 100 shares. The market for the purchase or sale of odds lots is
generally less liquid than the market for even lots and commissions for odd lots
are often proportionately higher per share than round lot commissions.
Since the great bulk of all trading and investment activity is conducted in
round lots, the effective minimum investment in the Company is expected to
increase significantly as a result of the Reverse Split. This may preclude
purchase of the shares by investors who are not willing or able to invest the
higher minimum amount required. In addition, if the Reverse Split is adopted,
the Board of Directors believes the interest of those brokerage firms, analysts
and investors who invest in and follow higher priced stocks will, on balance, be
beneficial to stockholders and will result in a higher stock price and a higher
aggregate market value. Other investors, brokerage firms and financial
publications which specialize in low priced stocks may cease to invest in or
follow the Company. For these reasons there can be no assurance that the per
share price for the Common Stock after the Reverse Split will be eight times the
market price before the Reverse Split and it is possible that the aggregate
market value of a stockholder's investment in the Company may be lower as well
as higher after the Reverse Split.
The Reverse Split, if approved, will become effective upon filing an
amendment to the Company's certificate of incorporation. As soon as practicable
thereafter, the Company will request all holders of Old Common Stock previously
outstanding to transfer their stock certificates to the Company's transfer
agent, whose address is listed on the final page of this Proxy Statement. In
exchange, stockholders will receive
12
<PAGE>
certificates representing the number of whole shares of New Common Stock into
which their shares of Old Common Stock have been converted under the Reverse
Split.
Because one effect on the eight-for-one Reverse Split is to increase the
number of shares available for issuance by the Board of Directors, under certain
circumstances the split could deter unsolicited tender offers for the Company's
Common Stock. The Company may attempt to block such a hostile takeover bid by
issuing shares of Common Stock to a friendly party, diluting the voting power of
the other outstanding shares and increasing the potential costs to acquire
control of the Company. Nevertheless, the Board of Directors is not proposing
the Reverse Split for that purpose, believing that the Reverse Split is in the
best interests of the Company and its stockholders and that the Reverse Split's
advantages, including the increase in the number of shares available for
issuance by the Board of Directors, outweigh any potential disadvantages.
Moreover, as the Group already beneficially own more than 50% of the Common
Stock, the Board of Directors believes that no material anti-takeover effect
will result from authorizing the Reverse Split.
No fractional shares of New Common Stock will be issued as a result of the
Reverse Split. In lieu of receiving fractional shares, stockholders who
immediately prior to the Reverse Split hold a number of shares not evenly
divisible by eight, will be entitled to receive a whole share of New Common
Stock for any fractional share at no additional cost. The number of shares of
New Common Stock issued in connection with this provision is not expected by the
Company's management to be material.
The following description of certain federal income tax consequences of the
Reverse Split is based on the Internal Revenue Code of 1986, as amended (the
"Code"), currently applicable Treasury Department Regulations promulgated,
proposed or temporarily issued thereunder, published administrative positions of
the Internal Revenue Service contained in Revenue Rulings, Revenue Procedures
and other relevant publications and judicial decisions, all of which are subject
to change prospectively and in certain cases retroactively. This discussions is
for general purposes only, and stockholders are urged to consult their own tax
advisers in respect of their own particular situations.
The Company has not sought and will not seek an administrative ruling from
the Internal Revenue Service or an opinion of counsel regarding the federal
income tax consequences of the Reverse Split. Nevertheless, the Company
maintains that the Reverse Split is not part of a plan to increase any
stockholder's proportionate interest in the Company's assets or earnings, and
therefore should result in the following effects:
a) There should be no recognition of gain or loss, except of that portion
of a share of New Common Stock distributed to a stockholder as a result of the
rounding up of fractional shares, as described above.
b) Provided shares of Old Common Stock were held as a capital asset, the
holding period for the shares of New Common Stock (save those issued because of
rounding up fractional shares) should include the stockholders' holding periods
for their shares of Old Common Stock. The shares of New Common Stock issued in
lieu of fractional shares should have a holding period beginning on the
effective date of the Reverse Split.
c) The adjusted basis of the shares of New Common Stock should be the same
as the adjusted basis of the shares of Old Common Stock, increased by the gain
or income attributed to the shares because of rounding up fractional shares. The
shares of New Common Stock issued because of rounding up should be treated as if
they were a disproportionate dividend distribution. Stockholders with such
shares should generally recognize ordinary income for the portion of each such
share that resulted from the rounding up. (For example, if one-quarter share
were rounded to one share, the stockholder would recognize gain for the
three-quarters share resulting from the rounding up). The remainder of any gain
(one-quarter share, in this example) would be treated as received in exchange
for property.
Approval of the eight-for-one Reverse Split requires the affirmative vote of
the holders of at least a majority of all of the issued and outstanding Common
Stock and Preferred Stock. Approval of the Reverse
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<PAGE>
Split is not conditioned on approval of the proposals to increase the number of
authorized shares of Common and Preferred Stock. Should the stockholders fail to
approve the increase in authorized shares, the Reverse Split, or both, the
Company may be unable to complete either or both of the offerings described
above. Failure to execute the offerings would leave the Company with a serous
capital shortfall, and would probably render it unable to meet payments required
under the Forbearance Agreement.
In order to induce the holders of a majority of its outstanding Common
Stock, certain warrants and its Convertible Preferred Stock to enter into
lock-up and other agreements and to exercise or convert, as the case may be,
such warrants and convertible Preferred Stock owned or held by them, the Company
intends to offer (the "Inducement Offer") to reduce the exercise price of
certain outstanding warrants, to modify the conversion price of its outstanding
Preferred Stock, and to issue holders thereof additional shares of Common Stock
above the amount thereof to which they would have been entitled pursuant to the
original terms of such warrants and convertible Preferred Stock. The Inducement
Offer may result in the issuance of up to an additional 900,000 shares of Common
Stock (after the Reverse Split). Included among the class of Common Stock,
option and warrant holders who may agree to be bound by the above-referenced
terms are the Directors, officers, and principal stockholders of the Company or
their affiliates, and, accordingly, such persons may receive a substantial
amount of such 900,000 additional shares of Common Stock. A vote "for" "Reverse
Split" shall be deemed an approval of the Inducement Offer as outlined above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE EIGHT-FOR-ONE REVERSE
SPLIT OF THE COMPANY'S COMMON STOCK.
PROPOSAL 5
STAGGERED BOARD AMENDMENTS
The Board of Directors has adopted, subject to stockholder approval, a
resolution proposing amendments to the Company's Certificate of Incorporation
and conforming amendments to the Company's Bylaws to stagger the terms of the
members of the Company's Board of Directors (collectively, the "Staggered Board
Amendments" or "Amendments"). The Staggered Board Amendments will, if adopted,
divide the Board of Directors into three classes as equal in number as possible,
with initial terms of one year, two years, and three years respectively, and
three-year terms thereafter. Therefore, at each Annual Meeting following
adoption, one class comprising approximately one-third of the total Board would
be elected.
Under the Company's current Certificate of Incorporation and Bylaws,
directors are elected annually for one-year terms. Under this proposal, the
current Board will be divided into three classes. Class I will serve for a
one-year term ending at the 1998 Annual Meeting, Class II will serve for a
two-year term ending at the 1999 Annual Meeting, and Class III will serve for a
three-year term ending at the 2000 Annual Meeting. Once the initial term of a
class has expired, all subsequent terms for that class will be for three years,
so that one class is elected at each Annual Meeting. In each case, each director
will hold office until a successor is duly elected and qualified, except for
death, resignation or removal of the director.
If at any time the size of the Board is changed, the increase or decrease in
the number of directors would be apportioned among the three classes to keep the
classes as equal in size as possible. The Board has no plans or commitments to
increase or decrease the Board's size. For further information about the
nominees, please see "Election of Directors" above. If this proposal is
approved, the class of directors in which each nominee will, if elected, serve
as follows:
<TABLE>
<S> <C>
Class I.............................. Mr. Basso and Mr. Becker
Class II............................. Mr. LeRoy, Mr. Sparacino and Mr.
Joslin
Class III............................ Mr. Laskowski and Mr. Betts
</TABLE>
Advantages of a staggered board: The Board of Directors believes that
separating the directors into three classes will enhance continuity and
stability in the direction of the Company's business and will
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<PAGE>
protect the long-term interests of all stockholders. If the Staggered Board
Amendments are approved, a change of control of the Board will require two
annual meetings, as only a minority of directors will stand for election each
year. That delay will enable stockholders to evaluate the change in control more
carefully, and will augment the Board's power to negotiate on behalf of all
stockholders equally. The Board hopes that the Amendments will thereby deter
disruptive tactics that distract management, divide stockholders and damage the
Company's long-term investment value. Furthermore, the Board believes that the
Amendments will have the effect of preserving stability in the Company's stock
price by preventing speculative swings. Finally, as Director terms under the
staggered board will be extended one to three years, classification should allow
the Board to continue to attract candidates willing to make a serious commitment
to the Company's future.
Disadvantages of a staggered board: A staggered Board will make it more
difficult for stockholders to change the Board's composition quickly, even if
the stockholders want such a change to occur. Accordingly, the proposal may have
the effect of insulating incumbent management, although the only reason for
seeking change may be unsatisfactory performance on the part of the Board. The
Amendments may also have the effect of discouraging third parties from making
tender offers for all or a portion of the Company's Common Stock, or from making
open-market purchases of available shares. Both of these circumstances usually
have the effect of raising a stock's market price, and the Amendments may
discourage tender offers or share purchases that current stockholders may
believe are in their best interest. Also, because discouraging these offers may
have the effect of diminishing short-term fluctuations in the price of the
Company's Common Stock, stockholders may lose certain opportunities to obtain
temporary premiums for their shares. The amendments might therefore diminish the
Company's stock price by decreasing its attractiveness to investors who purchase
securities in hopes of selling at a premium in the event of a takeover attempt.
Board recommendations: the Board believes that the benefits of supplementing
the Board's ability to negotiate on behalf of all stockholders should a takeover
attempt occur outweigh the disadvantages involved in discouraging certain of
those attempts. The Board is proposing the Amendments to reinforce stability and
continuity, and to deter certain tactics--common in actual or threatened
takeover attempts-- which may disrupt management and harm the interests of the
stockholders as a whole. The Board is presently not aware of any specific
attempt to effect a change in control, and proposes the consideration of the
Amendments now, outside the pressures of a takeover threat, to permit
stockholders to weigh the advantages and disadvantages of the proposal in a more
reasoned fashion.
Approval of the Staggered Board Amendments thus requires the affirmative
vote of the holders of a majority of all of the issued and outstanding Common
and Preferred Stock. Approval is not conditioned on approval of any other
proposals discussed in this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE STAGGERED BOARD
AMENDMENTS
PROPOSAL 6
1997 STOCK OPTION PLAN
The Board of Directors has adopted, subject to stockholder approval, a
resolution adopting a new stock option plan (the "1997 Plan"), which will
supersede the existing Option Program. The 1997 Plan as adopted is substantially
in the form of Exhibit A hereto. The new plan provides for the issuance up to
450,000 (after giving effect to the eight-for-one reverse stock split) shares of
the Company's Common Stock through the issuance of incentive and non-qualified
stock options. Stock options will be issued by action of the Board of Directors
or its Compensation Committee (the "Administrator"). Optionees will be
designated by the Administrator in its sole discretion, and may include (but
need not be limited to) officers, directors, agents, consultants and independent
contractors of the Company or any of its parents or
15
<PAGE>
subsidiaries, except for members of the Administrator (as defined in the 1997
Plan). As of the date of this Proxy Statement, no Optionees have been named and
no options have been granted under the 1997 Plan.
Within the limitations outlined below, as to each option the Administrator
will in its sole discretion determine: the purchase price and time period for
granting the option, the number of shares subject to exercise, the time period
for exercise and the exercise price.
PRICE LIMITATION Exercise prices for incentive stock options issued under
the 1997 Plan will differ depending on whether, prior to the option grant, the
optionee owned more than ten percent of the voting power of any class of stock
in either the Company or a related entity (a "Ten Percent Owner"). The exercise
price for such a Ten Percent Owners' incentive stock options will be at least
110% of the fair market value per share of Common Stock at the time the option
is granted. This limitation does not apply to Ten Percent Owners' non-qualified
stock options. All other options, whether incentive or nonqualified, will have
an exercise price equal to at least 100% of the fair market value per share of
Common Stock at the time of grant.
TREATMENT LIMITATION To the extent that the fair market value of the total
aggregate shares subject to exercise under an employee's incentive stock options
exceeds $100,000 in a single year, those options will be treated as
nonqualified.
TIME LIMITATION All options are limited to ten-year terms, except that
incentive options issued to Ten Percent Owners are limited to five-year terms.
All options must be issued within ten years after the 1997 Plan's effective
date.
TRANSFER LIMITATION Except as otherwise determined by the Administrator,
options under the 1997 Plan may not be transferred except by the laws of descent
and devise, or under a qualified domestic relations order as defined in the
Internal Revenue Code. Certain limitations also apply upon termination.
COMPLIANCE LIMITATION Under the 1997 Plan, no shares will be issued upon
exercise of any option unless said issuance complies with all applicable laws,
including in particular state and federal securities laws. The Company is not
obligated to register the options or the shares subject to exercise thereunder.
The 1997 Plan allows the Administrator to adopt procedures permitting the
exercise of options by tendering a check for the exercise price, by delivering
Common Stock shares with an aggregate fair market value equal to the exercise
price, by some combination thereof, or by any other means that the Administrator
may, from time to time, in its discretion approve. Therefore, an optionee may
theoretically exercise all of such optionee's stock options with no additional
investment other than the purchase of the original shares.
TAX CONSEQUENCES OF STOCK OPTIONS
The Company believes that the following discussion summarizes the federal
income tax consequences of the stock options to be granted under the 1997 Plan
under present law.
NON-QUALIFIED STOCK OPTIONS
Generally an optionee will not be taxed upon grant of any non-qualified
option under the 1997 Plan, but rather, at the time of the exercise of the
option, the optionee will realize ordinary income for federal income tax
purposes in an amount equal to the excess of the fair market value of the shares
purchased over the exercise price, except as noted below. The Company will
generally be entitled to a federal income tax deduction at such time and in the
same amount as the optionee recognizes ordinary income. If stock so acquired is
later sold or exchanged, then the difference between the sale price and the fair
market value of the stock on the date the option was exercised is generally
taxable as long-term or short-term capital gain or loss depending upon whether
the stock has been held for more than one year after exercise.
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<PAGE>
As stated above, income is generally realized by an optionee upon exercise
of a non-qualified stock option. If an exercise of an option by an optionee
could subject an optionee to suit under Section 16(b) of the Securities Exchange
Act of 1934, the determination of the income realized and the realization of
that income is postponed so long as a sale of the shares would expose the
optionee to that suit, unless the optionee elects within 30 days after exercise
to be taxed as of the exercise date. If realization is postponed, the
determination is made based on fair market value of the shares as of the first
date on which liability under Section 16(b) ends and both the optionee and the
Company would compute their tax items on that basis.
INCENTIVE STOCK OPTIONS
The Administrator in its discretion may grant to employees incentive stock
options as defined by the Code. No taxable income will be realized by an
optionee upon the grant or exercise of an incentive stock option; provided,
however, that the amount by which the fair market value of the shares on the
date of exercise of an incentive stock option exceeds the option price will be a
tax preference item subject to the alternative minimum tax. If the option is
exercised by delivery of previously-owned shares of the Company's Common Stock
or New Common Stock in partial or full payment of the option price, no gain or
loss will normally be recognized by the optionee on the transfer of such
previously-owned shares.
If the stock received upon exercise of an incentive stock option is held for
more than one year after the date of transfer (the "One Year Holding Period")
and more than two years after the option is granted (the "Two-Year Holding
Period"), the optionee will have a long-term capital gain or loss on the sale of
such stock measured by the difference between the amount realized and his or her
basis in such shares. If an optionee disposes of any shares acquired upon the
exercise of an Incentive Stock Option prior to the expiration of the One-Year
and Two-Year Holding Periods, including a disposition by delivering those shares
in full or partial payment of the price of another incentive stock option, this
will be a "disqualifying disposition." Generally, upon a disqualifying
disposition, the optionee will realize compensation taxable as ordinary income
in an amount equal to the excess of the fair market value of the shares at the
time of exercise over the option price paid by the optionee for such shares,
limited, however, to the gain realized on the sale. Any further gain would be
taxable as a long-term or short-term capital gain.
The Company generally will not be entitled to claim a Federal income tax
deduction with respect to the grant or exercise of an incentive stock option
unless the optionee realizes ordinary income by making a disqualifying
disposition. In the event of a disqualifying disposition, the Company will be
entitled to a deduction at the same time and in the same amount that the
optionee realizes compensation taxable as ordinary income.
Options issued under the 1997 Plan are intended to comply with the
requirements of rule 16b-3 under the Securities Exchange Act of 1934, as
amended.
As disclosed at footnote 14 to "Ownership of Securities by Directors,"
pending stockholder approval the Company has approved options for the purchase
of 50,000 (before giving effect to the eight-for-one reverse stock split) shares
of the Company's Common Stock for each of Messrs. Betts, Laskowski, Sparacino,
Joslin and LeRoy tions (the "Director Options") are to be awarded in accordance
with the current Option Program, which was approved by the Company's
stockholders in April of 1995. A vote "for" approval of the 1997 Plan will have
the effect of approving the issuance of the Director Options.
Approval of the 1997 Plan requires the affirmative vote of the holders of a
majority of all of the issued and outstanding Common and Preferred Stock.
Approval is not conditioned on approval of any other proposals discussed in this
Proxy Statement. The form of 1997 Plan is attached as Exhibit A to this Proxy
Statement and Annual Report.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE 1997 PLAN
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PROPOSAL 7
INDEPENDENT PUBLIC ACCOUNTANTS
At a meeting held on March 19, 1997, the Company's Board of Directors
recommended the appointment of McGladry & Pullen of 555 Fifth Avenue, New York,
New York, 10017 as auditors for the Company for fiscal year 1997, subject to
stockholder approval. A majority of all of the votes cast on the proposal is
required in order to approve the selection of auditors. A representative of
McGladry & Pullen will attend the Annual Meeting and, if he so desires, make a
statement; he will also respond to appropriate questions.
Through the end of fiscal year 1996, the firm of Kostin, Ruffkess & Company,
LLC, of West Hartford, Connecticut is served as the Company's auditors. In order
to facilitate the Company's contemplated public and private offerings of equity
and debt, the Board determined that it would be desirable to retain an
accounting firm with a presence in New York City. To the Company's knowledge, at
the time Kostin, Ruffkess ceased to act as its independent accountants, there
were no disagreements that would have been referred to in their report on the
Company's financial statements. The Company or persons on its behalf have not
consulted McGladry & Pullen regarding the application of accounting principles
to a specific completed or contemplated transaction or the type of audit opinion
that might be rendered on the Company's financial statements.
Ratification of McGladry & Pullen as auditors requires the affirmative vote
of at least a majority of all shares of Common Stock and Preferred Stock present
and entitled to vote on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATAION OF MCGLADRY
& PULLEN AS AUDITORS FOR THE COMPANY.
OTHER MATTERS FOR THE MEETING
No other business is to be presented to the meeting so far as is now known
or foreseen, but in the event that any other matter is properly presented by
persons other than the Board of Directors, it is intended that the enclosed
proxy will be voted upon it according the judgment of the person or persons
voting the proxy to the extent permitted by regulations of the Securities and
Exchange Commission.
VOTING PROCEDURES
Votes made by proxies returned prior to the date of the Annual Meeting will
be counted by the Company's transfer agent. Votes made by proxies returned on
the date of the Annual Meeting to the secretary to the meeting and votes cast by
stockholders attending or represented by proxy holders (other than those named
by management) will be counted by inspectors of election appointed by the
chairman of the meeting and who are expected to be employees of the Company.
Those votes will be added to those counted by the transfer agent and the last
vote or proxy will control. Abstentions and failures by record holders
represented at the meeting to vote the shares owned by beneficial owners
(including "broker non-votes") on any proposal will be counted as being
represented at the meeting for purposes of determining the existence of a quorum
but those shares will not be counted as voting on the proposal in question.
Abstentions and failures to vote therefore will have no effect on proposals that
must be adopted by a majority of the votes cast but will have the effect of a
"no" vote on proposals requiring approval by a percentage of all outstanding
shares.
PROPOSALS FOR 1998 ANNUAL MEETING
Stockholder proposals for the 1998 Annual Meeting of the Company must be
received at the executive offices of Power Designs, Inc, 14 Commerce Drive,
Danbury, Connecticut 06810 no later than December 21, 1997 for inclusion in the
1998 proxy statement and form of proxy.
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TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004, acts as transfer agent and registrar for the Common Stock.
Danbury, Connecticut, October 27, 1997
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EXHIBIT A
POWER DESIGNS, INC.
1997 STOCK OPTION PLAN
SECTION 1. PURPOSE. The purpose of the Power Designs, Inc. 1997 Stock
Option Plan (this "Plan") is to provide a means whereby selected employees,
officers, directors, agents, consultants and independent contractors of Power
Designs, Inc. (the "Company") or of any parent or subsidiary (as defined in
subsection 5.7 and referred to hereinafter as "related corporations") thereof,
may be granted incentive stock options and/or non-qualified stock options to
purchase the Common Stock (as defined in Section 3) of the Company, in order to
attract and retain the services or advice of such employees, officers,
directors, agents, consultants and independent contractors and to provide added
incentive to them by encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION.
(a) This Plan shall be administered by the Board of Directors of the Company
(the "Board"), except to the extent the Board delegates its authority to a
committee of the Board to administer this Plan. The administrator of this Plan
shall hereinafter be referred to as the "Plan Administrator."
(b) For so long as the Company's Common Stock is registered under Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no
Option shall be granted to a director or officer (subject to Section 16 of the
Exchange Act) of the Company by the Board unless (i) approved in advance by the
Board or the Plan Administrator in accordance with the provisions of Rule
16b-3(d)(1) under the Exchange Act (where the Plan Administrator, if not the
entire Board, is a committee of the Board composed solely of two or more
non-employee directors who satisfy the requirements of Rule 16b-3(b)(3) under
the Exchange Act), or (ii) approved in advance, or subsequently ratified by, the
stockholders in accordance with the provisions of Rule 16b-3(d)(2) under the
Exchange Act, except that an option may be granted absent such approval if the
option provides that no officer or director of the Company may sell shares
received upon the exercise of such option during the six-month period
immediately following the grant of such option.
2.1 PROCEDURES. The Board shall designate one of the members of the
Plan Administrator as chairman. The Plan Administrator may hold meetings at
such times and places as it shall determine. The acts of a majority of the
members of the Plan Administrator present at meetings at which a quorum
exists, or acts reduced to or approved in writing by all Plan Administrator
members, shall be valid acts of the Plan Administrator.
2.2 RESPONSIBILITIES. Except for the terms and conditions explicitly
set forth in this Plan, the Plan Administrator shall have the authority, in
its discretion, to determine all matters relating to the options to be
granted under this Plan, including selection of the individuals to be
granted options, the number of shares to be subject to each option, the
exercise price, and all other terms and conditions of the options, including
the designation of such options as an incentive stock option or
non-qualified stock option. Grants under this Plan need not be identical in
any respect, even when made simultaneously. The interpretation and
construction by the Plan Administrator of any terms or provisions of this
Plan or any option issued hereunder, or of any rule or regulation
promulgated in connection herewith, shall be conclusive and binding on all
interested parties, so long as such interpretation and construction with
respect to incentive stock options corresponds to the requirements of
Internal Revenue Code (the "Code") Section 422, the regulations thereunder,
and any amendments thereto.
2.3 SECTION 16(B) COMPLIANCE AND BIFURCATION OF PLAN. It is the
intention of the Company that this Plan comply in all respects with Section
16(b) and Rule 16b-3 under the Exchange Act, to the extent applicable, and,
if any Plan provision is later found not to be in compliance with such
Section or
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Rule, as the case may be, the provision shall be deemed null and void, and
in all events the Plan shall be construed in favor of its meeting the
requirements of Section 16(b) and Rule 16b-3 under the Exchange Act.
Notwithstanding anything in the Plan to the contrary, the Board, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to participants who are
officers and directors or other persons subject to Section 16(b) of the
Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other participants.
SECTION 3. STOCK SUBJECT TO THIS PLAN. The stock subject to this Plan
shall be the Company's Common Stock, par value $.0001 per share (the "Common
Stock"), presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7 hereof, the aggregate
amount of Common Stock to be delivered upon the exercise of all options granted
under this Plan shall not exceed 450,000 shares as such Common Stock was
constituted on the effective date of this Plan. If any option granted under this
Plan shall expire, be surrendered, exchanged for another option, canceled or
terminated for any reason without having been exercised in full, the unpurchased
shares subject thereto shall thereupon again be available for purposes of this
Plan, including for replacement options which may be granted in exchange for
such surrendered, canceled or terminated options.
SECTION 4. ELIGIBILITY. An incentive stock option may be granted only to
any individual who, at the time the option is granted, is an employee of the
Company or any related corporation. A nonqualified stock option may be granted
to any director, employee, officer, agent, consultant or independent contractor
of the Company or any related corporation, whether an individual or an entity.
Any party to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee".
SECTION 5. TERMS AND CONDITIONS OF OPTIONS. Options granted under this
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan (the "Option
Agreement"). Notwithstanding the foregoing, options shall include or incorporate
by reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE. The maximum number of shares that may
be purchased pursuant to the exercise of each option and the price per share
at which such option is exercisable (the "exercise price") shall be as
established by the Plan Administrator, provided that the Plan Administrator
shall act in good faith to establish the exercise price which shall be not
less than the fair market value per share of the Common Stock at the time
the option is granted with respect to incentive stock options and not less
than the fair market value per share of the Common Stock at the time the
option is granted with respect to nonqualified stock options and also
provided that, with respect to incentive stock options granted to greater
than 10% stockholders, the exercise price shall be as required by Section 6.
5.2 TERM AND MATURITY. Subject to the restrictions contained in
Section 6 with respect to granting incentive stock options to greater than
10% stockholders, the term of each incentive stock option shall be as
established by the Plan Administrator and, if not so established, shall be
10 years from the date it is granted but in no event shall the term of any
incentive stock option exceed 10 years. The term of each nonqualified stock
option shall be as established by the Plan Administrator and, if not so
established, shall be 10 years from the date it is granted. To ensure that
the Company or related corporation will achieve the purpose and receive the
benefits contemplated in this Plan, any option granted to any Optionee
hereunder shall, unless the condition of this sentence is waived or modified
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<PAGE>
in the agreement evidencing the option or by resolution adopted by the Plan
Administrator, be exercisable according to the following schedule:
<TABLE>
<CAPTION>
PERIOD OF OPTIONEE'S
CONTINUOUS RELATIONSHIP
WITH THE COMPANY OR RELATED
CORPORATION FROM THE DATE PORTION OF TOTAL OPTION
THE OPTION IS GRANTED WHICH IS EXERCISABLE
- --------------------------------------------------------------------------- -----------------------
<S> <C>
after 1 year............................................................... 25%
after 2 years.............................................................. 50%
after 3 years.............................................................. 75%
after 4 years.............................................................. 100%
</TABLE>
5.3 EXERCISE. Subject to any vesting schedule described in subsection
5.2 above, each option may be exercised in whole or in part; provided,
however, that no fewer than 100 shares (or the remaining shares then
purchasable under the option, if less than 100 shares) may be purchased upon
any exercise of an option hereunder and that only whole shares will be
issued pursuant to the exercise of any option. Options shall be exercised by
delivery to the Company of notice of the number of shares with respect to
which the option is exercised, together with payment of the exercise price.
5.4 PAYMENT OF EXERCISE PRICE. Payment of the option exercise price
shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's
check or personal check (unless at the time of exercise the Plan
Administrator in a particular case determines not to accept a personal
check) for the Common Stock being purchased.
The Plan Administrator can determine at the time the option is granted
for incentive stock options, or at any time before exercise for nonqualified
stock options, that additional forms of payment will be permitted. To the
extent permitted by the Plan Administrator and applicable laws and
regulations (including, but not limited to, federal tax and securities laws
and regulations and state corporate law), an option may be exercised by:
(a) delivery of shares of stock of the Company held by an Optionee
having a fair market value equal to the exercise price, such fair market
value to be determined in good faith by the Plan Administrator;
(b) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the
Company the amount of sale or loan proceeds necessary to pay the exercise
price and any federal, state or local withholding tax obligations that
may arise in connection with the exercise; or
(c) delivery of a properly executed exercise notice together with
instructions to the Company to withhold from the shares that would
otherwise be issued upon exercise that number of shares having a fair
market value equal to the option exercise price.
5.5 WITHHOLDING TAX REQUIREMENT. The Company or any related
corporation shall have the right to retain and withhold from any payment of
cash or Common Stock under the Plan the amount of taxes required by any
government to be withheld or otherwise deducted and paid with respect to
such payment. At its discretion, the Company may require an Optionee
receiving shares of Common Stock to reimburse the Company for any such taxes
required to be withheld by the Company and withhold such shares in whole or
in part until the Company is so reimbursed. In lieu thereof, the Company, at
its option in its sole discretion, shall (a) have the right to withhold from
any other cash amounts due or to become due from the Company to the Optionee
an amount equal to such taxes or (b) retain and withhold a number of shares
having a market value not less than the amount of such taxes required to be
withheld by the Company to reimburse the Company for any such taxes and
cancel (in whole or in part) any such shares so withheld. If required by
Section 16(b) of the Exchange Act, the election to
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<PAGE>
pay withholding taxes by delivery of shares held by any person who at the
time of exercise is subject to Section 16(b) of the Exchange Act, shall be
made either six months prior to the date the option exercise becomes taxable
or at such other times as the Company may determine as necessary to comply
with Section 16(b) of the Exchange Act.
5.6 ASSIGNABILITY AND TRANSFERABILITY OF OPTION. Options granted under
this Plan and the rights and privileges conferred hereby may not be
transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than (i) by will or by the applicable
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined in Section 414(p) of the Code, or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder or (iii) as otherwise determined by the Plan Administrator and
set forth in the applicable Option Agreement. Any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of any option under this
Plan or of any right or privilege conferred hereby, contrary to the Code or
to the provisions of this Plan, or the sale or levy or any attachment or
similar process upon the rights and privileges conferred hereby shall be
null and void. The designation by an Optionee of a beneficiary does not, in
and of itself, constitute an impermissible transfer under this Section.
5.7 TERMINATION OF RELATIONSHIP. If the Optionee's relationship with
the Company or any related corporation ceases for any reason other than
termination for cause, death or total disability, and unless by its terms
the option sooner terminates or expires, then the Optionee may exercise, for
a three-month period, that portion of the Optionee's option which is
exercisable at the time of such cessation, but the Optionee's option shall
terminate at the end of the three-month period following such cessation as
to all shares for which it has not theretofore been exercised, unless, in
the case of a nonqualified stock option, such provision is waived in the
agreement evidencing the option or by resolution adopted by the Plan
Administrator within 90 days of such cessation. If, in the case of an
incentive stock option, an Optionee's relationship with the Company or
related corporation changes (i.e., from employee to non-employee, such as a
consultant), such change shall constitute a termination of an Optionee's
employment with the Company or related corporation and the Optionee's
incentive stock option shall become a non-qualified stock option.
If an Optionee is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of
any reason for termination for cause, and such Optionee shall thereupon have
no right to purchase any shares pursuant to such option. "Termination for
cause" shall mean dismissal for dishonesty, conviction or confession of a
crime punishable by law (except minor violations), fraud, misconduct or
disclosure of confidential information. If an Optionee's relationship with
the Company or any related corporation is suspended pending an investigation
of whether or not the Optionee shall be terminated for cause, all Optionee's
rights under any option granted hereunder likewise shall be suspended during
the period of investigation.
If an Optionee's relationship with the Company or any related
corporation ceases because of a total disability, the Optionee's option
shall not terminate or, in the case of an incentive stock option, cease to
be treated as an incentive stock option until the end of the 12-month period
following such cessation (unless by its terms it sooner terminates and
expires). As used in this Plan, the term "total disability" refers to a
mental or physical impairment of the Optionee which is expected to result in
death or which has lasted or is expected to last for a continuous period of
12 months or more and which causes the Optionee to be unable, in the opinion
of the Company and two (if more than one is required by the Company in its
sole discretion) independent physicians, to perform his or her duties for
the Company and to be engaged in any substantial gainful activity. Total
disability shall be deemed to have occurred on the first day after the
Company and the two (if more than one is required by the Company in its sole
discretion) independent physicians have furnished their opinion of total
disability to the Plan Administrator.
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<PAGE>
For purposes of this subsection 5.7, a transfer of relationship between
or among the Company and/or any related corporation shall not be deemed to
constitute a cessation of relationship with the Company or any of its
related corporations. For purposes of this subsection 5.7, with respect to
incentive stock options, employment shall be deemed to continue while the
Optionee is on military leave, sick leave or other bona fide leave of
absence (as determined by the Plan Administrator). The foregoing
notwithstanding, employment shall not be deemed to continue beyond the first
90 days of such leave, unless the Optionee's reemployment rights are
guaranteed by statute or by contract.
As used herein, the term "related corporation", when referring to a
subsidiary corporation, shall mean any corporation (other than the Company)
or other entity in, at the time of the granting of the option, an unbroken
chain of corporations ending with the Company, if stock or other interests
possessing 50% or more of the total combined voting power of all classes of
stock or other interests of each of the corporations or other entities other
than the Company is owned by one of the other corporations or other entities
in such chain. When referring to a parent corporation or other entity, the
term "related corporation" shall mean any corporation or other entity in an
unbroken chain of corporations or other entities ending with the Company if,
at the time of the granting of the option, each of the corporations or other
entities other than the Company owns stock or other interests possessing 50%
or more of the total combined voting power of all classes of stock or other
interests in one of the other corporations or other entities in such chain.
5.8 DEATH OF OPTIONEE. If an Optionee dies while he or she has a
relationship with the Company or any related corporation or within the
three-month period (or 12-month period in the case of totally disabled
Optionees) following cessation of such relationship, any option held by such
Optionee to the extent that the Optionee would have been entitled to
exercise such option, may be exercised within one year after his or her
death by the personal representative of his or her estate or by the person
or persons to whom the Optionee's rights under the option shall pass by will
or by the applicable laws of descent and distribution.
5.9 STATUS OF STOCKHOLDER. Neither the Optionee nor any party to which
the Optionee's rights and privileges under the option may pass shall be, or
have any of the rights or privileges of, a stockholder of the Company with
respect to any of the shares issuable upon the exercise of any option
granted under this Plan unless and until such option has been exercised.
5.10 CONTINUATION OF EMPLOYMENT. Nothing in this Plan or in any option
granted pursuant to this Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of a related corporation, or to
interfere in any way with the right of the Company or of any such related
corporation to terminate his or her employment or other relationship with
the Company at any time.
5.11 MODIFICATION AND AMENDMENT OF OPTION. Subject to the requirements
of Code Section 422 with respect to incentive stock options and to the terms
and conditions and within the limitations of this Plan, the Plan
Administrator may modify or amend outstanding options granted under this
Plan. The modification or amendment of an outstanding option shall not,
without the consent of the Optionee, impair or diminish any of his or her
rights or any of the obligations of the Company under such option. Except as
otherwise provided in this Plan, no outstanding option shall be terminated
without the consent of the Optionee. Unless the Optionee agrees otherwise,
any changes or adjustments made to outstanding incentive stock options
granted under this Plan shall be made in such a manner so as not to
constitute a "modification" as defined in Code Section 424(h) and so as not
to cause any incentive stock option issued hereunder to fail to continue to
qualify as an incentive stock option as defined in Code Section 422(b).
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS. As to all
incentive stock options granted under the terms of this Plan, to the extent
that the aggregate fair market value (determined at the time the incentive
stock option is granted) of the stock with respect to which incentive stock
options are exercisable for the first time by the Optionee during any
calendar year (under this Plan and all
5
<PAGE>
other incentive stock option plans of the Company, a related corporation or
a predecessor corporation) exceeds $100,000, such options shall be treated
as nonqualified stock options. The previous sentence shall not apply if the
Code is amended or if the Internal Revenue Service publicly rules, issues a
private ruling to the Company, any Optionee, or any legatee, personal
representative or distributee of an Optionee or issues regulations, changing
or eliminating such annual limit, in which case the limitation shall be that
provided by the Code or the Internal Revenue Service, as the case may be.
5.13 VALUATION OF COMMON STOCK RECEIVED UPON EXERCISE
5.13.1 EXERCISE OF OPTIONS UNDER SECTIONS 5.4(A) AND (C). The value
of Common Stock received by the Optionee from an exercise under Sections
5.4(a) and 5.4(c) hereof shall be the fair market value, which shall mean
the last reported sales price, regular way, of the Common Stock on the
date of receipt by the Company of the Optionee's delivery of shares under
Section 5.4(a) hereof or delivery of the exercise notice under Section
5.4(c) hereof (or, if no sale takes place on any such day, the closing
bid price of the Common Stock on such day), on the principal securities
exchange (including the National Association of Securities Dealers, Inc.
(the "NASD'S") National Market System) on which the Common Stock is
admitted or listed for trading, or, if the Common Stock is not listed on
any such exchange on any such day, the highest reported bid price for the
Common Stock as furnished by the NASD through NASDAQ, or a similar
organization if NASDAQ is no longer reporting such information, or, if
the Common Stock is not listed for trading on an exchange and is not
quoted on NASDAQ or any similar organization on any such day, the fair
value of a share of Common Stock on such day as determined by the Plan
Administrator of the Company in good faith.
5.13.2 EXERCISE OF OPTION UNDER SECTION 5.4(B). The value of Common
Stock received by the Optionee from an exercise under Section 5.4(b)
hereof (a) in the case of the sale of the Common Stock received as a
result of the exercise by a broker on the date of receipt by the Company
of the Optionee's exercise notice, shall equal the sales price received
for such shares; and (b) in all other cases, shall be determined as
provided in Section 5.13.1 hereof.
SECTION 6. GREATER THAN 10% STOCKHOLDERS.
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS. If incentive
stock options are granted under this Plan to employees who own more than 10%
of the total combined voting power of all classes of stock of the Company or
any related corporation, the term of such incentive stock options shall not
exceed five years and the exercise price shall be not less than 110% of the
fair market value of the Common Stock at the time the incentive stock option
is granted. This provision shall control notwithstanding any contrary terms
contained in an option agreement or any other document. The term and
exercise price limitations of this provision shall be amended to conform to
any change required (or, in the sole discretion of the Plan Administrator,
permitted) by a change in the Code or by a ruling or pronouncement of the
Internal Revenue Service.
6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in determining
stock ownership, an employee shall be deemed to own the stock owned,
directly or indirectly, by or for his or her brothers, sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries. If an
employee or a person related to the employee owns an unexercised option or
warrant to purchase stock of the Company, the stock subject to that portion
of the option or warrant which is unexercised shall not be counted in
determining stock ownership. For purposes of this Section 6, stock owned by
an employee shall include all stock owned by him which is actually issued
and outstanding immediately before the grant of the incentive stock option
to the employee.
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SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate
number and class of shares for which options may be granted under this Plan, the
number and class of shares covered by each outstanding option, and the exercise
price per share thereof (but not the total price), shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock of the Company resulting from a split-up or consolidation of shares or any
like capital adjustment, or the payment of any stock dividend.
7.1. EFFECT OF LIQUIDATION, REORGANIZATION OR CHANGE IN CONTROL.
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK. Except as provided
in subsection 7.1.2, upon a merger (other than a merger of the Company in
which the holders of Common Stock immediately prior to the merger have
the same proportionate ownership of common stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company) or liquidation of
the Company, as a result of which the stockholders of the Company receive
cash or property other than capital stock in exchange for or in
connection with their shares of Common Stock, any option granted
hereunder shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation to exercise
such Optionee's option in whole or in part whether or not the vesting
requirements set forth in the option agreement have been satisfied.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE. If the
stockholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in
which the holders of Common Stock immediately prior to the merger have
the same proportionate ownership of common stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation or reorganization (other than a mere
reincorporation or the creation of a holding company), all options
granted hereunder shall be converted into options to purchase shares of
Exchange Stock unless the Company and corporation issuing the Exchange
Stock, in their sole discretion, determine that any or all such options
granted hereunder shall not be converted into options to purchase shares
of Exchange Stock but instead shall terminate in accordance with the
provisions of subsection 7.1.1. The amount and price of converted options
shall be determined by adjusting the amount and price of the options
granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock
receive in such merger, consolidation, acquisition of property or stock,
separation or reorganization. Unless the Board determines otherwise, the
converted options shall be fully vested whether or not the vesting
requirements set forth in the option agreement have been satisfied.
7.2 FRACTIONAL SHARES. In the event of any adjustment in the number of
shares covered by an option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the
number of full shares resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL. All Section 7 adjustments
shall be made by the Board, and its determination as to what adjustments
shall be made, and the extent thereof, shall be final, binding and
conclusive. Unless an Optionee agrees otherwise, any change or adjustment to
an incentive stock option shall be made in such a manner so as not to
constitute a "modification" as defined in Code Section 425(h) and so as not
to cause his or her incentive stock option issued hereunder to fail to
continue to qualify as an incentive stock option as defined in Code Section
422(b).
SECTION 8. SECURITIES REGULATION. Shares shall not be issued with respect
to an option granted under this Plan unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, any applicable state
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securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange or inter-dealer quotation system upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance, including the availability of an exemption from
registration for the issuance and sale of any shares hereunder. Inability of the
Company to obtain from any regulatory body having jurisdiction the authority
deemed by the Company's counsel to be necessary for the lawful issuance and sale
of any shares hereunder or the unavailability of an exemption from registration
for the issuance and sale of any shares hereunder shall relieve the Company of
any liability in respect of the nonissuance or sale of such shares as to which
such requisite authority shall not have been obtained.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such representation is required by any relevant provision of the aforementioned
laws. At the option of the Company, a stop-transfer order against any shares of
stock may be placed on the official stock books and records of the Company, and
a legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Company may also require such other
action or agreement by the Optionees as it may from time to time deem to be
necessary or advisable. THE COMPANY SHALL NOT BE OBLIGATED, BY REASON OF THIS
PROVISION OR OTHERWISE, TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities exchange
or inter-dealer quotation system, all stock issued hereunder if not previously
listed on such exchange or inter-dealer quotation system shall be authorized by
that exchange or system for listing thereon prior to the issuance thereof.
SECTION 9. AMENDMENT AND TERMINATION.
9.1 BOARD ACTION. The Board may at any time suspend, amend or
terminate this Plan, provided that except as set forth in Section 7, the
approval of the holders of a majority of the Company's outstanding shares of
voting capital stock present and entitled to vote at any meeting is
necessary for the adoption by the Board of any amendment which will:
(a) increase the number of shares which are to be reserved for the
issuance of options under this Plan;
(b) permit the granting of stock options to a class of persons other
than those presently permitted to receive stock options under this Plan;
or
(c) require stockholder approval under applicable law, including
Section 16(b) of the Exchange Act.
9.2 AUTOMATIC TERMINATION. Unless sooner terminated by the Board, this
Plan shall terminate ten years from the earlier of (a) the date on which
this Plan is adopted by the Board or (b) the date on which this Plan is
approved by the stockholders of the Company. No option may be granted after
such termination or during any suspension of this Plan. The amendment or
termination of this Plan shall not, without the consent of the option
holder, alter or impair any rights or obligations under any option
theretofore granted under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN. This Plan shall become effective
upon adoption by the Board so long as it is approved by the holders of a
majority of the Company's outstanding shares of voting capital stock present and
entitled to vote at any meeting at any time within 12 months before or after the
adoption of this Plan.
Adopted by the Board of Directors on October 7, 1997 and approved by the
stockholders on .
8
<PAGE>
POWER DESIGNS, INC.
NONQUALIFIED STOCK OPTION LETTER AGREEMENT
Date:_________________
TO:______________________
We are pleased to inform you that you have been selected by the Plan
Administrator of Power Designs, Inc. (the "Company") 1997 Stock Option Plan (the
"Plan"). The Plan was adopted by the Board of Directors, subject to stockholder
approval, which approval was obtained at the Company's 1997 Annual Meeting of
Stockholders. When you sign and return to the Company the Acceptance and
Acknowledgment attached to this Stock Option Agreement you will be entitled to
receive a nonqualified option for the purchase of shares of the Company's
common stock, par value $.0001 per share ("Common Stock"), at an exercise price
of $ per share (the "exercise price"), subject to the vesting provisions
set forth herein. A copy of the Plan is attached and the provisions thereof,
including, without limitation, those relating to withholding taxes, are
incorporated into this Agreement by reference. It is understood that this Option
is not intended to constitute an incentive stock option as that term is defined
in Section 422A of the Internal Revenue Code of 1986, as amended.
The terms of the option are as set forth in the Plan and in this Agreement.
The most important of the terms set forth in the Plan are summarized as follows:
NUMBER OF SHARES: The option granted to you covers an aggregate of
shares of Common Stock.
EXERCISE PRICE: The exercise price per share of Common Stock subject to
your option is $ per share (the "Exercise Price").
ADJUSTMENTS. The number of shares of Common Stock subject to your option
and the Exercise Price may be subject to adjustment under certain circumstances
as described in the Plan.
DATE OF GRANT: The date of grant of the option is .
TERM: The term of the option is ten years from date of grant, unless sooner
terminated.
VESTING: Your option shall vest according to the following schedule,
provided you continue your relationship with the Company or a related
corporation:
<TABLE>
<CAPTION>
PERIOD OF YOUR CONTINUOUS
RELATIONSHIP WITH THE
COMPANY OR A RELATED
CORPORATION FROM THE PORTION OF TOTAL OPTION
DATE OPTION IS GRANTED WHICH IS EXERCISABLE
- ----------------------------------------------------------------------- -----------------------
<S> <C>
after 1 year....................................................... 25%
after 2 years...................................................... 50%
after 3 years...................................................... 75%
after 4 years...................................................... 100%
</TABLE>
EXERCISE: The vested portion of the option may be exercised, in whole or in
part, but not as to any fractional shares, during the term of the option. You
should use a Notice of Exercise of Nonqualified Stock Option in the form
attached to this Agreement when you exercise the option. During your lifetime
only you can exercise the option. The Plan also provides for exercise of the
option by the personal representative of your estate or the beneficiary thereof
following your death.
PAYMENT FOR SHARES: The vested portion of this option may be exercised by
the delivery of:
1
<PAGE>
(a) Cash, personal check (unless, at the time of exercise, the Plan
Administrator determines otherwise), certified or bank cashier's checks in an
amount equal to the aggregate Exercise Price for the number of shares as to
which the option is being exercised together with a properly executed Notice of
Exercise;
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, shares of the capital stock of the Company held by you having a fair
market value at the time of exercise, as determined by the Plan Administrator in
accordance with the Plan, equal to the aggregate Exercise Price for the number
of shares as to which the option is being exercised;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise together with instructions to
the Company to withhold from the shares that would otherwise be issued upon
exercise that number of shares having a fair market value equal to the aggregate
Exercise Price for the number of shares as to which the option is being
exercised; or
(d) A properly executed Notice of Exercise together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the aggregate Exercise Price for the number of shares as
to which the option is being exercised;.
Upon receipt of written Notice of Exercise and payment and delivery of any
other required documentation, the Company shall deliver to the person exercising
the option a certificate or certificates for the appropriate number of shares of
Common Stock. It shall be a condition to the performance of the Company's
obligation to issue or transfer Common Stock upon exercise of this option that
you pay, or make provision satisfactory to the Company for the payment of, any
taxes which the Company is obligated to collect with respect to the issue or
transfer of Common Stock upon exercise.
TERMINATION: Your option will terminate immediately upon termination for
cause, as defined in the Plan, or three months after cessation of your
relationship with the Company or a related corporation, unless cessation is due
to death or total disability, in which case the portion of this option which is
vested at the time of such termination shall terminate one year after cessation
of such relationship. All unvested options will terminate immediately upon the
cessation of your relationship with the Company or a related corporation for any
reason, including, without limitation, termination for cause, resignation, death
or disability.
TRANSFER OF OPTION: The option is not transferable except by will or by the
applicable laws of descent and distribution or pursuant to a qualified domestic
relations order.
NOTICE: All notices sent in connection with this option shall be in writing
and, if to the Company, shall be delivered personally to the President of the
Company or mailed to its principal office, addressed to the attention of the
President, and, if to you, shall be delivered personally or mailed to you at the
address noted on the attached Acceptance and Acknowledgment. Such addresses may
be changed at any time by notice from one party to the other.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY,
YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON
SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING
THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR
SELLING THE SHARES UNDERLYING SUCH OPTIONS.
2
<PAGE>
It is the intention of the Company that this Plan comply in all respects
with Section 16(b) and Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act"), to the extent applicable, and, if any Plan provision is later
found not to be in compliance with such Section or Rule, as the case may be, the
provision shall be deemed null and void, and in all events the Plan shall be
construed in favor of its meeting the requirements of Section 16(b) and Rule
16b-3 under the Exchange Act. Notwithstanding anything in the Plan to the
contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
participants who are officers and directors or other persons subject to Section
16(b) of the Exchange Act without so restricting, limiting or conditioning the
Plan with respect to other participants.
All decisions or interpretations made by the Plan Administrator with regard
to any question arising hereunder or under the Plan shall be binding and
conclusive on the Company and you.
This Agreement shall bind and inure to the benefit of the parties hereto and
the successors and assigns of the Company and, to the extent provided in the
Plan, your executors, administrators, legatees and heirs.
Please execute the Acceptance and Acknowledgment set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
POWER DESIGNS, INC.
By:
--------------------------------------
[NAME AND TITLE]
3
<PAGE>
ACCEPTANCE AND ACKNOWLEDGMENT
I, a resident of the State of , accept the nonqualified stock
option described above and in the Power Designs, Inc. 1997 Stock Option Plan
(the "Plan"), and acknowledge receipt of a copy of this Agreement, including a
copy of the Plan. I have read and understand this Agreement and the Plan,
including the provisions of Section 8.
Dated: ___________________
- ------------------------------------ ------------------------------------
Taxpayer I.D. Number
By his or her signature below, the spouse of the Optionee, if such Optionee
is legally married as of the date of his or her execution of this Agreement,
acknowledges that he or she has read this Agreement and the Plan and is familiar
with the terms and provisions thereof, and agrees to be bound by all the terms
and conditions of this Agreement and the Plan.
Dated: ___________________
--------------------------------------
Spouse's Signature
--------------------------------------
Printed Name
4
<PAGE>
NOTICE OF EXERCISE
Power Designs, Inc.
14 Commerce Drive
Danbury, CT 06810
Gentlemen:
I hereby exercise my right to purchase shares of Common Stock (the
"Shares") of Power Designs, Inc., a Delaware corporation, pursuant to, and in
accordance with, the Power Designs, Inc. 1997 Nonqualified Stock Option
Agreement ("Agreement") dated . As provided in that Agreement, I deliver
herewith a certified or bank cashier's check in the amount of the aggregate
option price (unless alternative payment methods have been approved by the Plan
Administrator). Please deliver to me stock certificates representing the subject
shares registered as follows:
Name:
- --------------------------------------------------------------------------------
Address:
- ------------------------------------------------------------------------------
------------------------------------------------------------------------------
Social Security Number:
- -----------------------------------------------------------------
The aggregate exercise price is $ (total number of shares to be
purchased X $ per share).
1. If the sale of the Shares and the resale thereof has not, prior to the
date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"), the
undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own account
(and not for the account of others), for investment and not with a view to
the distribution or resale thereof;
(b) by virtue of his or her position, the undersigned has access to the
same kind of information which would be available in a registration
statement filed under the Act;
(c) the undersigned is a sophisticated investor;
(d) the undersigned understands that he or she may not sell or otherwise
dispose of the Shares in the absence of either (i) a registration statement
filed under the Act or (ii) an exemption from the registration provisions
thereof; and
(e) the certificates representing the Shares may contain a legend to the
effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been registered
pursuant to a registration statement filed and declared effective under the Act,
the undersigned hereby represents and warrants that he or she has received the
applicable prospectus and a copy of the most recent annual report, as well as
all other material sent to stockholders generally.
3. The undersigned acknowledges that the number of shares of Common Stock
subject to the Agreement is hereafter reduced by the number of shares of Common
Stock represented by the Shares.
1
<PAGE>
4. The undersigned understands that there are certain tax implications to
his or her exercise of his or her right to purchase shares of Common Stock under
the Agreement. The undersigned further understands that it is his or her
obligation to confer with his or her own tax advisor with respect to such tax
implications.
Very truly yours,
--------------------------------------
(signature)
--------------------------------------
( please type or print name)
2
<PAGE>
POWER DESIGNS, INC.
INCENTIVE STOCK OPTION LETTER AGREEMENT
Date:
TO:
We are pleased to inform you that you have been selected by the Plan
Administrator of the Power Designs, Inc. (the "Company") 1997 Stock Option Plan
(the "Plan"). The Plan was adopted by the Board of Directors, subject to
stockholder approval, which approval was obtained at the Company's 1997 Annual
Meeting of Stockholders. When you sign and return to the Company the Acceptance
and Acknowledgment attached to this Stock Option Agreement you will be entitled
to receive an incentive option for the purchase of shares of the Company's
common stock, $ par value ("Common Stock"), at an exercise price of
$ per share (the "exercise price") subject to the vesting provisions set
forth herein. A copy of the Plan is attached and the provisions thereof,
including, without limitation, those relating to withholding taxes, are
incorporated into this Agreement by reference.
The terms of the option are as set forth in the Plan and in this Agreement.
The most important of the terms set forth in the Plan are summarized as follows:
NUMBER OF SHARES: The option granted to you covers an aggregate of
shares of Common Stock.
EXERCISE PRICE: The exercise price per share of Common Stock subject to
your option is $ per share (the "Exercise Price").
ADJUSTMENTS. The number of shares of Common Stock subject to your option
and the Exercise Price may be subject to adjustment under certain circumstances
as described in the Plan.
DATE OF GRANT: The date of grant of the option is .
TERM. The term of the option is ten years from date of grant, unless sooner
terminated.
VESTING: Your option shall vest according to the following schedule,
provided you continue your relationship with the Company or a related
corporation:
<TABLE>
<CAPTION>
PERIOD OF YOUR CONTINUOUS
RELATIONSHIP WITH THE
COMPANY OR A RELATED
CORPORATION FROM THE PORTION OF TOTAL OPTION
DATE OPTION IS GRANTED WHICH IS EXERCISABLE
- -------------------------------------------------------------------- ---------------------------
<S> <C>
after 1 year.................................................... 25%
after 2 years................................................... 50%
after 3 years................................................... 75%
after 4 years................................................... 100%
</TABLE>
EXERCISE. The vested portion of the option may be exercised, in whole or in
part, but not as to any fractional shares, during the term of the option. You
should use a Notice of Exercise of Incentive Stock Option in the form attached
to this Agreement when you exercise the option. During your lifetime only you
can exercise the option. The Plan also provides for exercise of the option by
the personal representative of your estate or the beneficiary thereof following
your death.
PAYMENT FOR SHARES. The vested portion of this option may be exercised by
the delivery of:
1
<PAGE>
(a) Cash, personal check (unless at the time of exercise the Plan
Administrator determines otherwise), or certified or bank cashier's checks in an
amount equal to the aggregate Exercise Price for the number of shares as to
which the option is being exercised together with a properly executed Notice of
Exercise;
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with shares of the
capital stock of the Company held by you having a fair market value at the time
of exercise, as determined by the Plan Administrator in accordance with the
Plan, equal to the aggregate Exercise Price for the number of shares as to which
the option is being exercised;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise together with instructions to
the Company to withhold from the shares that would otherwise be issued upon
exercise that number of shares having a fair market value equal to the aggregate
Exercise Price for the number of shares as to which the option is being
exercised; or
(d) A properly executed Notice of Exercise together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the aggregate Exercise Price for the number of shares as
to which the option is being exercised.
Upon receipt of written Notice of Exercise and payment and delivery of any
other required documentation, the Company shall deliver to the person exercising
the option a certificate or certificates for the appropriate number of shares of
Common Stock. It shall be a condition to the performance of the Company's
obligation to issue or transfer Common Stock upon exercise of this option that
you pay, or make provision satisfactory to the Company for the payment of , any
taxes which the Company is obligated to collect with respect to the issue or
transfer of Common Stock upon exercise.
TERMINATION. Your option will terminate immediately upon termination for
cause, as defined in the Plan, or three months after cessation of your
relationship with the Company or a related corporation thereof, unless cessation
is due to death or total disability, in which case the portion of this option
which is vested at the time of such termination shall terminate one year after
cessation of such relationship. All unvested options will terminate immediately
upon the cessation of your relationship with the Company or a related
corporation for any reason, including, without limitation, termination for
cause, resignation, death or disability.
TRANSFER OF OPTION. The option is not transferable except by will or by the
applicable laws of descent and distribution.
Notice: All notices sent in connection with this option shall be in writing
and, if to the Company, shall be delivered personally to the President of the
Company or mailed to its principal office, addressed to the attention of the
President, and, if to you, shall be delivered personally or mailed to you at the
address noted on the attached Acceptance and Acknowledgment. Such addresses may
be changed at any time by notice from one party to the other.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY,
YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON
SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH
2
<PAGE>
YOUR TAX ADVISOR CONCERNING THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING
YOUR OPTIONS OR HOLDING OR SELLING THE SHARES UNDERLYING SUCH OPTIONS.
It is the intention of the Company that this Plan comply in all respects
with Section 16(b) and Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act"), to the extent applicable, and, if any Plan provision is later
found not to be in compliance with such Section or Rule, as the case may be, the
provision shall be deemed null and void, and in all events the Plan shall be
construed in favor of its meeting the requirements of Section 16(b) and Rule
16b-3 under the Exchange Act. Notwithstanding anything in the Plan to the
contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
participants who are officers and directors or other persons subject to Section
16(b) of the Exchange Act without so restricting, limiting or conditioning the
Plan with respect to other participants.
All decisions or interpretations made by the Plan Administrator with regard
to any question arising hereunder or under the Plan shall be binding and
conclusive on the Company and you.
This Agreement shall bind and inure to the benefit of the parties hereto and
the successors and assigns of the Company and, to the extent provided in the
Plan, your executors, administrators, legatees and heirs.
Please execute the Acceptance and Acknowledgment set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
<TABLE>
<S> <C> <C>
Very truly yours,
POWER DESIGNS, INC.
By:
------------------------------------------
[NAME AND TITLE]
</TABLE>
3
<PAGE>
ACCEPTANCE AND ACKNOWLEDGMENT
I, a resident of the State of , accept the stock option described
above granted under the Power Designs, Inc. 1997 Stock Option Plan (the "Plan"),
and acknowledge receipt of a copy of this Agreement, including a copy of the
Plan. I have read and understand this Agreement and the Plan, including the
provisions of Section 8 thereof.
Dated: ---------------------------
- ------------------------------------- --------------------------------
Taxpayer I.D. Number Signature
By his or her signature below, the spouse of the Optionee, if such Optionee
is legally married as of the date of such Optionee's execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by all
the terms and conditions of this Agreement and the Plan.
Dated:
- ------------------------
--------------------------------------
Spouse's Signature
--------------------------------------
Printed Name
4
<PAGE>
NOTICE OF EXERCISE
Power Designs, Inc.
14 Commerce Drive
Danbury, CT 06810
Gentlemen:
I hereby exercise my right to purchase shares of Common Stock (the
"Shares") of Power Designs, Inc., a Delaware corporation, pursuant to, and in
accordance with, the Power Designs, Inc. 1997 Incentive Stock Option Agreement
("Agreement") dated . As provided in that Agreement, I deliver
herewith a certified or bank cashier's check in the amount of the aggregate
option price (unless alternative payment methods have been approved by the Plan
Administrator). Please deliver to me stock certificates representing the subject
shares registered as follows:
Name: -----------------------------------
Address: ---------------------------------
- ----------------------------------------
Social Security Number: -------------------
The aggregate exercise price is $ (total number of shares to be
purchased X $ per share).
1. If the sale of the Shares and the resale thereof has not, prior to the
date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"), the
undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own account
(and not for the account of others), for investment and not with a view to
the distribution or resale thereof;
(b) by virtue of his or her position, the undersigned has access to the
same kind of information which would be available in a registration
statement filed under the Act;
(c) the undersigned is a sophisticated investor;
(d) the undersigned understands that he or she may not sell or otherwise
dispose of the Shares in the absence of either (i) a registration statement
filed under the Act or (ii) an exemption from the registration provisions
thereof; and
(e) the certificates representing the Shares may contain a legend to the
effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been registered
pursuant to a registration statement filed and declared effective under the Act,
the undersigned hereby represents and warrants that he or she has received the
applicable prospectus and a copy of the most recent annual report, as well as
all other material sent to stockholders generally.
3. The undersigned acknowledges that the number of shares of Common Stock
subject to the Agreement is hereafter reduced by the number of shares of Common
Stock represented by the Shares.
1
<PAGE>
4. The undersigned understands that there are certain tax implications to
his or her exercise of his or her right to purchase shares of Common Stock under
the Agreement. The undersigned further understands that it is his or her
obligation to confer with his or her own tax advisor with respect to such tax
implications.
<TABLE>
<S> <C>
Very truly yours,
-------------------------------------------
(signature)
-------------------------------------------
(please type or print name)
</TABLE>
2
<PAGE>
POWER DESIGNS, INC.
ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 12, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder in Power Designs, Inc. ("Company") hereby
constitutes and appoints Jonathan D. Betts, Fred G. Basso and Gary M. Laskowski
and each of them, his true and lawful attorneys and proxies, with full power of
substitution in and for each of them, to vote all shares of the Company which
the undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held at the offices of the Company, 14 Commerce Drive, Danbury, Connecticut
06810, on November 12, 1997, at 10:00 a.m., Eastern Standard Time, or at any
postponement or adjournment thereof, on any and all of the proposals contained
in the Notice of the Annual Meeting of Stockholders, with all the powers the
undersigned would possess if present personally at said meeting, or at any
postponement or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE NOMINEES LISTED ON THE REVERSE SIDE AND FOR THE APPROVAL OF
PROPOSALS 2, 3, 4, 5, 6 AND 7.
<TABLE>
<S> <C>
THE DIRECTORS RECOMMEND A VOTE FOR PROPOSALS 2, 3, 4, 5, 6 AND 7. /X/ PLEASE MARK YOUR
VOTES
AS IN THIS EXAMPLE
</TABLE>
------------------------------
COMMON
1. Election of Directors
<TABLE>
<S> <C> <C> <C>
FOR ALL nominees listed / / WITHHOLD AUTHORITY / /
(except as marked in the to vote for all nominees listed at
contrary, see instruction left
below)
Jonathan D. Betts Fred G. Basso Gary M. Laskowski
Robert R. Sparacino Raymond E. Joslin Melvin A. Becker and
Shannon LeRoy
</TABLE>
INSTRUCTION: To withhold authority to vote for any individual nominee, line
through the name of the nominee above.
2. Proposal to approve an amendment to the Company's Certificate of
Incorporation, to increase the authorized shares of Common Stock to
20,000,000.
/ / FOR / / AGAINST / / ABSTAIN
(Continued and to be signed and dated on the other side)
<PAGE>
3. Proposal to approve an amendment to the Company's Certificate of
Incorporation, to increase the authorized shares of Preferred Stock to
5,000,000.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to approve reverse stock split of the Company's Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
5. Proposal to approve amendment to the Company's Certificate of Incorporation
and Bylaws to create Staggered terms for the Company's Board members.
/ / FOR / / AGAINST / / ABSTAIN
6. Proposal to approve the Company's 1997 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
7. Proposal to ratify McGladry & Pullen as independent auditors.
/ / FOR / / AGAINST / / ABSTAIN
Dated _______________________, 1997
Signature(s) ______________________
Please sign exactly as your name
appears and return this proxy
immediately in the enclosed stamped
self-addressed envelope.
<PAGE>
POWER DESIGNS, INC.
ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 12, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder in Power Designs, Inc. ("Company") hereby
constitutes and appoints Jonathan D. Betts, Fred G. Basso and Gary M. Laskowski
and each of them, his true and lawful attorneys and proxies, with full power of
substitution in and for each of them, to vote all shares of the Company which
the undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held at the offices of the Company, 14 Commerce Drive, Danbury, Connecticut
06810, on November 12, 1997, at 10:00 a.m., Eastern Standard Time, or at any
postponement or adjournment thereof, on any and all of the proposals contained
in the Notice of the Annual Meeting of Stockholders, with all the powers the
undersigned would possess if present personally at said meeting, or at any
postponement or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE NOMINEES LISTED ON THE REVERSE SIDE AND FOR THE APPROVAL OF
PROPOSALS 2, 3, 4, 5, 6 AND 7.
<TABLE>
<S> <C>
THE DIRECTORS RECOMMEND A VOTE FOR PROPOSALS 2, 3, 4, 5, 6 AND 7. /X/ PLEASE MARK YOUR
VOTES
AS IN THIS EXAMPLE
</TABLE>
------------------------------
PREFERRED
1. Election of Directors
<TABLE>
<S> <C> <C> <C>
FOR ALL nominees listed / / WITHHOLD AUTHORITY / /
(except as marked in the to vote for all nominees listed at
contrary, see instruction left
below)
Jonathan D. Betts Fred G. Basso Gary M. Laskowski
Robert R. Sparacino Raymond E. Joslin Melvin A. Becker and
Shannon LeRoy
</TABLE>
INSTRUCTION: To withhold authority to vote for any individual nominee, line
through the name of the nominee above.
2. Proposal to approve an amendment to the Company's Certificate of
Incorporation, to increase the authorized shares of Common Stock to
20,000,000.
/ / FOR / / AGAINST / / ABSTAIN
(Continued and to be signed and dated on the other side)
<PAGE>
3. Proposal to approve an amendment to the Company's Certificate of
Incorporation, to increase the authorized shares of Preferred Stock to
5,000,000.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to approve reverse stock split of the Company's Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
5. Proposal to approve amendment to the Company's Certificate of Incorporation
and Bylaws to create Staggered terms for the Company's Board members.
/ / FOR / / AGAINST / / ABSTAIN
6. Proposal to approve the Company's 1997 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
7. Proposal to ratify McGladry & Pullen as independent auditors.
/ / FOR / / AGAINST / / ABSTAIN
Dated _______________________, 1997
Signature(s) ______________________
Please sign exactly as your name
appears and return this proxy
immediately in the enclosed stamped
self-addressed envelope.
