SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. __)
Filed by the Registrant <checked-box>
Filed by a party other than the Registrant <square>
Check the appropriate box:
<square> Preliminary Proxy Statement
<square> Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
<checked-box> Definitive Proxy Statement
<square> Definitive Additional Materials
<square> Soliciting Material Pursuant to <square> <section>240.14a-11(c)
or <square> <section>240.14a-12
DIGITAL POWER CORPORATION
(Name of Registrant as Specified In Its Charter)
_____________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
<checked-box> No fee required
<square> Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-
11
1) Title of each class of securities to which transaction applies:
_______________________________
2) Aggregate number of securities to which transaction applies:
_______________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
__________________________
4) Proposed maximum aggregate value of transaction: ______________
5) Total fee paid: ___________________
<square>Fee paid previously with preliminary materials.
<square>Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ________________________________
2) Form, Schedule or Registration Statement No.: ______________
3) Filing Party: __________________________________________
4) Date Filed: ___________________________________________
<PAGE>
DIGITAL POWER CORPORATION
41920 Christy Street
Fremont, CA 94538
(510) 657-2635
To the Shareholders of Digital Power Corporation:
You are cordially invited to attend the Annual Meeting (the "Meeting") of
the Shareholders of Digital Power Corporation ("Digital") which will be held on
Wednesday, May 20, 1998, at 10:00 a.m. (Pacific Time), at the Newark-Fremont
Hilton Hotel located at 39900 Balentine Drive, Newark, California 94560.
The accompanying Notice of the Annual Meeting of the Shareholders and
Proxy Statement contain the matters to be considered and acted upon, and you
should read such material carefully.
The Proxy Statement contains important information concerning the
following two matters: (i) the election of the Board of Directors of Digital;
and (ii) the adoption of the Digital Power Corporation 1998 Stock Option Plan.
In addition, shareholders may transact such other business as may properly come
before the Meeting or any adjournment thereof. I urge you to give these
matters your close attention.
We hope you will be able to attend the Meeting, but, if you cannot do so,
it is important that your shares be represented. Accordingly, we urge you to
mark, sign, date, and return the enclosed proxy promptly. You may, of course,
revoke your proxy if you attend the meeting and choose to vote in person.
Sincerely,
Robert O. Smith
President
April 24, 1998
<PAGE>
DIGITAL POWER CORPORATION
41920 Christy Street
Fremont, California 94538
(510) 657-2635
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, MAY 20, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Digital Power Corporation, a California corporation ("Digital" or the
"Company"), will be held on Wednesday, May 20, 1998, at 10:00 a.m. (Pacific
Time), at the Newark-Fremont Hilton Hotel located at 39900 Balentine Drive,
Newark, California 94560, for the following purposes, all of which are more
completely discussed in the accompanying Proxy Statement:
1. To elect five (5) directors to serve one-year terms or until their
successors have been elected and qualified;
2. To adopt the Digital Power Corporation 1998 Stock Option Plan; and
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
All of the above-matters are more fully described in the accompanying
Proxy Statement. Only shareholders of record at the close of business on April
3, 1998, are entitled to notice of and to vote at the Annual Meeting of the
Shareholders.
BY ORDER OF THE BOARD OF DIRECTORS
PHILIP G. SWANY,
Secretary
Fremont, California
April 24, 1998
YOU ARE CORDIALLY INVITED TO ATTEND DIGITAL'S ANNUAL MEETING OF SHAREHOLDERS.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU
OWN. EVEN IF YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE URGED TO
COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE
PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY
PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY
TIME PRIOR TO THE EXERCISE THEREOF.
<PAGE>
PROXY STATEMENT OF
DIGITAL POWER CORPORATION
41920 Christy Street
Fremont, CA 94538
(510) 657-2635
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished to the shareholders of Digital Power
Corporation ("Digital" or the "Company") in connection with the solicitation of
proxies on behalf of Digital's Board of Directors for use at Digital's Annual
Meeting of the Shareholders (the "Meeting") to be held on Wednesday, May 20,
1998, at 10:00 a.m. (Pacific Time), at the Newark-Fremont Hilton Hotel, located
at 39900 Balentine Drive, Newark, California 94560, and at any and all
adjournments thereof. Only shareholders of record on April 3, 1998, will be
entitled to notice of and to vote at the Meeting.
The proxy solicited hereby, if properly signed and returned to Digital and
not revoked prior to its use, will be voted at the Meeting in accordance with
the instructions contained therein. If no contrary instructions are given,
each proxy received will be voted "FOR" each of the five nominees for the Board
of Directors, "FOR" the approval of Proposal No. 2, and, at the proxy holders'
discretion, on such other matters, if any, which may come before the Meeting
(including any proposal to adjourn the Meeting). Any shareholder giving a
proxy has the power to revoke it at any time before it is exercised by: (i)
filing with Digital written notice of its revocation addressed to Philip G.
Swany, Corporate Secretary, Digital Power Corporation, 41920 Christy Street,
Fremont, California 94538; (ii) submitting a duly executed proxy bearing a
later date; or (iii) appearing at the Meeting and giving the Corporate
Secretary notice of his or her intention to vote in person.
This solicitation of proxies is being made by Digital's Board of
Directors. Digital will bear the entire cost of preparing, assembling,
printing, and mailing proxy materials furnished by the Board of Directors to
shareholders. In addition to the solicitation of proxies by use of the mail,
some of the officers, directors, employees, and agents of Digital may, without
additional compensation, solicit proxies by telephone or personal interview,
the cost of which Digital will also bear. Digital will reimburse banks,
brokerage houses, and other custodians, nominees, and fiduciaries for their
reasonable expenses in forwarding these proxy materials to shareholders whose
stock in Digital is held of record by such entities. In addition, Digital may
use the services of individuals or companies it does not regularly employ in
connection with this solicitation of proxies if management determines it to be
advisable.
A copy of Digital's Annual Report on Form 10-KSB for the year ended
December 31, 1997, accompanies this Proxy Statement.
This Proxy Statement and form of proxy were first mailed to shareholders
on or about April 24, 1998.
RECORD DATE AND VOTING RIGHTS
Digital is authorized to issue up to 5,000,000 shares of Common Stock, no
par value. As of April 3, 1998, 2,700,685 shares of Common Stock were issued
and outstanding. No shares of preferred stock are outstanding. Each share of
Common Stock shall be entitled to one vote on all matters submitted for
<PAGE>
shareholder approval. The record date for determination of shareholders
entitled to notice of and to vote at the Meeting is April 3, 1998.
The five nominees receiving the highest number of votes shall be elected
as directors. The affirmative vote of a majority of the Common Stock
represented and voting at the Meeting is necessary to approve Proposal No. 2.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Annual Meeting in accordance with the
directions given. Regarding the election of directors, shareholders may vote
in favor of all nominees, or withhold their votes as to all nominees, or
withhold their votes as to specific nominees, by following the instructions on
the enclosed proxy card. With respect to the adoption of the Digital Power
Corporation 1998 Stock Option Plan, shareholders may vote in favor of or
against the proposal, or may abstain from voting, by specifying their choice as
indicated on the enclosed proxy card. If no specific instructions are given
with respect to any matter to be voted on, the shares represented by a signed
proxy will be voted FOR the election of the Board's nominees and FOR the
adoption of the Digital Power Corporation 1998 Stock Option Plan. Directors
will be elected from nominees receiving the highest number of affirmative votes
cast by the holders of Digital's Common Stock, voting in person or by proxy at
the Annual Meeting, and adoption of the Digital Power Corporation 1998 Stock
Option Plan will require the affirmative vote of the holders of a majority of
the shares of Common Stock of Digital voting on such adoption in person or by
proxy at the Annual Meeting. Thus abstentions, because they will be counted in
determining whether a quorum is present for the vote on both matters, will have
no effect on the election of directors, but will have the effect of a no vote
for the adoption of the Digital Power Corporation 1998 Stock Option Plan.
Similarly, broker non-votes are also counted towards a quorum but are not
counted for any purpose in determining whether a matter has been approved, and
will have the same effect as an abstention.
On any matter submitted to the vote of the shareholders other than the
election of directors, each holder of Common Stock will be entitled to one
vote, in person or by proxy, for each share of Common Stock held of record on
Digital's books as of the record date. In connection with the election of
directors, shares may be voted cumulatively, but only for persons whose names
have been placed in nomination prior to the voting for election of directors
and only if the shareholder holding such shares has given notice at the Annual
Meeting, prior to such voting, of his or her intention to vote cumulatively.
(Notice of intention to vote cumulatively may not be given by simply marking
and returning a proxy.) If any Company shareholder gives such notice, then all
shareholders eligible to vote will be entitled to cumulate their votes in
voting for election of directors. Cumulative voting allows a shareholder to
cast a number of votes equal to the number of shares held in his or her name as
of the record date, multiplied by the number of directors to be elected. All
of these votes may be cast for any one nominee, or they may be distributed
among as many nominees as the shareholder sees fit. The nominees receiving the
highest number of affirmative votes, up to the number of directors to be
elected, shall be elected.
If one of Digital's shareholders gives notice of intention to vote
cumulatively, the persons holding the proxies solicited by the Board of
Directors will exercise their cumulative voting rights, at their discretion, to
vote the shares they hold in such a way as to ensure the election of as many of
the Board's nominees as they deem possible. This discretion and authority of
the proxy holders may be withheld by checking the box on the proxy card marked
"withhold from all nominees." Such an instruction, however, will also deny the
proxyholders the authority to vote for any or all of the nominees of the Board
of Directors, even if cumulative voting is not called for at the Annual
Meeting, although it will not prevent the proxyholders from voting, at their
discretion, for any other person whose name may be properly placed in
nomination at the Annual Meeting.
<PAGE>3
A shareholder may choose to withhold from the proxyholders the authority
to vote for any of the individual candidates for the Board of Directors by
marking the appropriate box on the proxy card and striking out the names of the
disfavored candidates as they appear on the proxy card. In that event, the
proxyholders will not cast any of the shareholder's votes for candidates whose
names have been crossed out, whether or not cumulative voting is called for at
the Annual Meeting, but they will retain the authority to vote for the
candidates nominated by the Board of Directors whose names have not been struck
out, and for any other candidates who may be properly nominated at the Annual
Meeting. If a shareholder wishes to specify the manner in which his or her
votes are allocated in the event of cumulative voting, he or she must appear
and vote in person at the Annual Meeting. Ballots will be available at the
Annual Meeting for persons desiring to vote in person.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Five (5) directors are to be elected at the Meeting, each to serve until
the next Annual Meeting and until his successor shall be elected and qualified
or until his earlier death, resignation, or removal. Messrs. Edward L.
Lammerding, Philip M. Lee, and Claude Adkins, who had each previously served as
a director of the Company, are retiring, and therefore are not seeking
reelection as directors of the Company. None of the nominees for director was
selected pursuant to any arrangement or understanding other than with the
directors and officers of Digital acting within their capacities as such.
There are no family relationships between any of the directors and executive
officers of Digital. The following table sets forth the persons nominated by
the Board of Directors for election as director and certain information with
respect to those persons.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND BACKGROUND FOR THE PAST FIVE
YEARS
<S> <C> <C>
Robert O. Smith 53 Chief Executive Officer and Director since 1989 and
President since May 1996. From 1980 to 1989 variously
served as Vice President/Group Controller of Power
Conversion Group, General Manager of Compower Division,
and President of Boschert subsidiary, of Computer
Products, Inc., manufacturer of power conversion
products and industrial automation systems. Received
B.S. in Business Administration from Ohio University and
completed course work in M.B.A. program at Kent State
University.
Chris Schofield 41 Managing Director of Digital Power Limited since January
1998. Director and General Manager of Gresham Power
Group from 1995 to 1998. From 1988 to 1995, Director of
United Kingdom Operations of the Oxford Investment
Group.
<PAGE>
Thomas W. O'Neil, Jr. 68 Director since 1991. Certified Public Accountant and
Partner since 1991 of Schultze, Wallace and O'Neil,
CPAs. Retired as Partner, from 1955 to 1991, of KPMG
Peat Marwick. Director of California Exposition and
State Fair; Director of Regional Credit Association;
Director of Alternative Technology Resources, Inc.
Graduate of St. Mary's College and member of the St.
Mary's College Board of Regents.
Scott C. McDonald 44 Director of CIDCO Incorporated, a communications and
information delivery company since November 1996. From
October 1993 to January 1997, Executive Vice President,
Chief Operating and Financial Officer of CIDCO. From
March 1993 to September 1993, President, Chief Operating
and Financial Officer of PSI Integration, Inc. From
February 1989 to February 1993, Chief Financial Officer
and Vice President, Finance of Administration of
Integrated System, Inc. Received B.S. in Accounting
from The University of Akron and M.B.A. from Golden Gate
University.
Robert J. Boschert 61 Business consultant for small high-growth technology
companies. Director since 1990 of Hytek Microsystems,
Inc. From June 1986 until June 1998, served as
consultant to Union Technology. Founder of Boschert,
Inc. Retired as a member of the board of directors in
1984. Received B.S. in Electrical Engineering from
University of Missouri.
</TABLE>
COMMITTEES OF THE BOARD; MEETINGS AND ATTENDANCE
The Board has an Audit Committee and a Compensation Committee. The Audit
Committee currently consists of Messrs. Lammerding, O'Neil, and Lee, and the
Compensation Committee consists of Messrs. O'Neil and Lee. The Board does not
have a Nominating Committee. The primary functions of the Audit Committee are
to review the scope and results of audits by the Company's independent
auditors, the Company's internal accounting controls, the non-audit services
performed by the independent accountants, and the cost of accounting services.
The Compensation Committee administers the Company's 1996 Stock Option Plan
(and will administer the Company's 1998 Stock Option Plan upon its adoption)
and approves compensation, remuneration, and incentive arrangements for
officers and employees of the Company. It is anticipated that the Audit
Committee and the Compensation Committee will consist of Messrs. O'Neil,
McDonald and Boschert after the Meeting.
The Board met eleven times during 1997, and the Audit Committee and the
Compensation Committee each met one time during 1997. Each director attended
at least seventy-five percent of the meetings of the Board and of the
committees upon which he served.
<PAGE>
COMPENSATION OF DIRECTORS
During fiscal 1997, non-employee directors were paid $2,000 per meeting.
After payment for two meetings, this fee was terminated and, in lieu of fees,
non-employee directors were granted options to acquire 10,000 shares of Common
Stock at the fair market value at the date of grant. In addition, board
members are reimbursed for out-of-pocket expenses. For 1998, subject to board
approval, it is anticipated that non-employee directors shall receive per annum
$10,000 to be paid quarterly and options to purchase 10,000 shares of Common
Stock.
VOTE REQUIRED FOR THE ELECTION OF DIRECTORS
Directors will be elected from the nominees receiving the highest number
of affirmative votes of the shares of Common Stock present and voting at the
Meeting. Each share of Common Stock which is represented, in person or by
proxy, at the Meeting will be accorded one vote on each nominee for director,
unless one or more shareholders express an intention to exercise the right of
cumulative voting, in which case all shares will be accorded the cumulative
voting rights described under the caption "Record Date and Voting Rights,"
above.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
ALL OF THE FIVE (5) ABOVE-LISTED NOMINEES.
PROPOSAL NO. 2
ADOPTION OF DIGITAL POWER CORPORATION
1998 STOCK OPTION PLAN
The Board of Directors has adopted the Digital Power Corporation 1998
Stock Option Plan (the "1998 Plan"), subject to approval by the Company's
shareholders. The Board of Directors believes that the existence of a stock
option plan will be valuable to the Company as a means for promoting employee
loyalty and strengthening the identity of interests of employees and
shareholders. Therefore, the Board of Directors is recommending that
shareholders approve the 1998 Plan, the principal features of which are
summarized in the paragraphs below. Under the terms of the 1998 Plan, Mr.
Schofield has been granted stock options to purchase 40,000 shares of the
Company's common stock at $6.25 per share and Mr. Swany has been granted stock
options to purchase 20,000 shares of the Company's common stock at $6.125 per
share. Further, Messrs. Lammerding, O'Neil and Lee have been each granted
option to purchase 10,000 shares of Common Stock at $6.25 per share. These
exercise prices for stock options granted represent the fair market value of
the Company's common stock on the dates of grant. The stock options already
granted under the 1998 Plan are subject to shareholder approval.
PURPOSE. The Company adopted the 1998 Plan to attract, retain, and
motivate officers, employees, directors and consultants of the Company and its
subsidiaries, by giving them all the opportunity to acquire ownership in the
Company, thereby instilling in them the same goals as the Company's other
equity owners.
SHARES SUBJECT TO THE 1998 PLAN. A total of 240,000 shares of the
Company's common stock may be issued pursuant to the 1998 Plan, subject to
adjustments for changes in the Company's capitalization or for a
<PAGE>
reorganization. As discussed below, the 1998 Plan is a "dual plan" which
provides for the grant of both non-qualified stock options and incentive stock
options, as defined by the Internal Revenue Code.
ELIGIBILITY. The Administrator shall determine to whom stock options may
be granted. The Company's employees, executive officers, directors and
consultants are eligible for stock option grants. Directors or consultants who
are not full-time officers or employees of the Company may only receive non-
statutory stock options, not incentive stock options.
OPERATION OF THE 1998 PLAN. Subject to the oversight and review of the
Board of Directors, generally, the 1998 Plan shall be administered by the
Administrator which shall consist of a committee of the Board of Directors to
as to which administration of the 1998 Plan has been delegated. The
Administrator's determination with respect to whom stock options shall be
granted shall be based upon the contribution by the particular officer,
director, or employee or consultant to the successful conduct of the Company's
operations through his or her judgment, interest, ability, and special efforts.
The Administrator shall also determine whether to grant to the full-timed
salaried officer or employee incentive stock options or non-statutory stock
options. However, any stock options designated as incentive stock options that
are subsequently determined to not qualify shall then be deemed to be non-
statutory stock options. Non-employee directors or consultants may only be
granted non-statutory stock options.
The grant date, the number of shares covered by an stock option and the
terms and conditions for exercise of stock options including vesting, if any,
shall be determined by the Administrator, subject to the 1998 Plan
requirements. The Board of Directors shall determine the grant date, the
number of shares covered by an stock option and the terms and conditions for
exercise of stock options to be granted to members of the Administrator.
A stock option agreement setting forth any other terms, conditions, and
restrictions, as determined at the discretion of the Administrator, which
agreement shall be consistent with the terms of the 1998 Plan, shall be issued
upon each grant of a stock option.
To the extent the right to purchase shares has vested under a
participant's stock option agreement, options may be exercised from time to
time by delivering payment therefor in cash or check, together with written
notice to the Secretary of Digital identifying the option or part thereof being
exercised and specifying the number of shares for which payment is being
tendered. Digital shall deliver to the optionee, without transfer or issue tax
to the optionee, a certificate or certificates for such shares dated the date
the options were validly exercised. The certificate(s) shall be delivered at
the principal office of Digital or such other place as shall be mutually
acceptable. If an option covers both incentive and non-statutory stock
options, separate stock certificates and option agreements will be issued and
executed.
Upon the termination of an optionee's status as an officer or employee of
Digital due to DEATH or DISABILITY, such optionee's representative or estate,
or such optionee, shall have the right for a period of twelve months following
the date of such death or disability to exercise the option to the extent the
optionee was entitled to exercise such option on the date of the optionee's
death or disability, provided the actual date of exercise is not after the
expiration of the term of the option.
If for any reason other than death or disability an optionee ceases to be
employed by or to be a director of Digital, options held on the date of such
termination (to the extent then exercisable) may be exercised, in whole or in
part, at any time within three months after the date of such termination or
<PAGE>
such lesser period specified in the option agreement (but in no event after the
earlier of (i) the expiration date of the option as set forth in the option
agreement, and (ii) ten years from the grant date).
If an optionee granted an incentive stock option terminates employment but
continues as a consultant, advisor, or in a similar capacity to Digital, the
optionee need not exercise the option within three months of termination of
employment but shall be entitled to exercise within three months of termination
of services to Digital (one year in the event of death or disability).
However, if the optionee does not exercise within three months of termination
of employment, the option will not qualify as an incentive stock option.
NONTRANSFERABILITY. Each stock option granted shall be transferable only
by will or by the laws of descent and distribution, and shall be exercisable
only by the optionee during the optionee's lifetime. The optionee shall have
no rights as a shareholder with respect to any shares until the date of
issuance of a stock certificate for such shares.
ADJUSTMENT OF SHARES. The shares of common stock of Digital subject to
the options shall be appropriately adjusted by the Board of Directors in the
event of a reorganization, merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, etc. In the event of a
dissolution or liquidation of Digital, a merger, consolidation, combination, or
reorganization in which Digital is not the surviving corporation, or a sale of
substantially all of the assets of Digital, any outstanding option shall become
fully vested immediately upon Digital's public announcement of any of the
foregoing.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES. The 1998 Plan is a "dual
plan" in that it provides for the grant of both non-qualified stock options and
incentive stock options.
NON-QUALIFIED OPTIONS. In general, the grant of an stock option under the
1998 Plan that is designated as a non-qualified stock option will not result in
taxable income to the optionee at the time of grant.
In general, an optionee will recognize ordinary income in an amount equal
to the excess of the fair market value of the shares at the time of exercise
over the stock option price.
The Company will be entitled to tax deductions in the same amounts and at
the same times as the participant takes amounts into income. The Optionee's
cost basis in the acquired shares will be the same as the fair market value of
the shares on the date they are valued to determine taxable income.
INCENTIVE STOCK OPTIONS. The grant of an stock option under the 1998 Plan
that is designated as an incentive stock option will not result in taxable
income to the optionee at the time of the grant nor at the time of exercise if
the requirements of Section 422 of the Internal Revenue Code are met. The
optionee will, however, recognize taxable income in the year in which the
shares purchased under the Incentive stock option are sold or otherwise made
the subject of disposition.
For federal income tax purposes, dispositions are divided into two
categories: qualifying and disqualifying. If the participant makes a
disqualifying disposition of the purchased shares, then the Company will be
entitled to an income tax deduction for the taxable year in which such
disposition occurs equal to the amount by which the fair market value of such
shares on the date the stock option was exercised exceeded the stock option
price. The Company will not be allowed a deduction with respect to the
optionee's qualifying disposition of the purchased shares.
<PAGE>
Upon the exercise of any stock option, Digital shall have the right to
require the optionee to remit to Digital an amount sufficient to satisfy all
federal, state, and local withholding tax requirements prior to the delivery of
any certificate or certificates for shares of Common Stock. Upon the
disposition of any Common Stock acquired by the exercise of a stock option,
Digital shall have the right to require the optionee to remit to Digital an
amount sufficient to satisfy all federal, state, and local withholding tax
requirements as a condition to the registration of the transfer of such Common
Stock on its books. Whenever payments are to be made by Digital, such payments
shall be net of any amounts sufficient to satisfy all federal, state, and local
withholding tax requirements.
AMENDMENT AND TERMINATION. No amendments may be made to the 1998 Plan
that materially increases the benefits accruing to participants under the 1998
Plan without shareholder approval. In substantially all other aspects, the
1998 Plan can be amended by the Board of Directors. With certain exceptions,
the Board of Directors shall have complete authority to terminate or amend the
1998 Plan. If not terminated earlier by the Board of Directors, the 1998 Plan
will terminate automatically in or around May, 2008. The termination of the
1998 Plan shall not alter the vesting provisions or any other term or condition
of any stock option granted prior to the termination of the 1998 Plan.
VOTE REQUIRED FOR ADOPTION OF 1998 PLAN
The affirmative vote of the majority of shares of Common Stock represented
and voting at the Meeting is required to approve Proposal No. 2.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE DIGITAL POWER CORPORATION 1998 STOCK OPTION PLAN.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Digital's
directors, executive officers, and persons who own more than 10% of Digital's
outstanding Common Stock to file reports of ownership and changes in ownership
with the SEC. Directors, executive officers, and shareholders of more the 10%
of Digital's Common Stock are required by SEC regulations to furnish Digital
with copies of the Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to Digital,
or written representations that such filings were not required, Digital
believes that, during the calendar year 1997, all Section 16(a) filing
requirements applicable to its directors and officers were complied with.
<PAGE>
EXECUTIVE OFFICERS
The name, age and description of the executive officers of Digital and its
subsidiaries are listed below.
<TABLE>
<CAPTION>
NAME AGE OFFICE AND BACKGROUND
<S> <C> <C>
Robert O. Smith, 53 See "Election of Directors"
President and Chief Executive Officer
Chris Schofield, 41 See "Election of Directors"
Managing Director,
Digital Power Limited
Philip G. Swany, 48 Mr. Swany joined the Company as its Controller
Chief Financial Officer in 1981. In February 1992, he left the
Company to serve as the Controller for Crystal
Graphics, Inc., a 3-D graphics software
development company. In September 1995, Mr.
Swany returned to the Company where he was
made Vice President-Finance. In May 1996, he
was named Chief Financial Officer and
Secretary of the Company. Mr. Swany received
a B.S. degree in Business Administration -
Accounting from Menlo College, and attended
graduate courses in business administration at
the University of Colorado.
</TABLE>
EXECUTIVE COMPENSATION.
Executive officers are appointed by, and serve at the discretion of, the
Board of Directors. Except for Robert O. Smith, the Company's President and
Chief Executive Officer, the Company has no employment agreements with any of
its executive officers. The following table sets forth the compensation of the
Company's President and Chief Executive Officer during the past three years.
No other officer received annual compensation in excess of $100,000 during the
1997 fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Awards Payouts
Compensation
Restricted Securities LTIP All Other
Name and Other Annual Stock Underlying Payouts Compensa-
Principal Year Salary Compensation ($) Award(s) ($) Options (#) ($) tion
Position
Robert O. Smith 1997 $150,000 $0 $0 100,000{(1)} $0 $0
President and CEO 1996 $110,000 $0 $0 61,500{(2)} $0 $0
1995 $105,000 $0 $0 0 $0 $0
</TABLE>
(1) Pursuant to his employment contract, in January 1997, Mr. Smith received
options to acquire 100,000 shares of Common Stock at $5.4375 per share.
These options expire in January 2007.
(2) In August 1996, Mr. Smith received options to acquire 61,500 shares of
Common Stock at $1.80 per share pursuant to the 1996 Stock Option Plan.
The options are subject to a two-year vesting period.
<PAGE>
Effective October 1, 1996, the Company and Mr. Smith entered into an
employment contract which terminates on December 31, 1999. Under the terms of
Mr. Smith's employment contract, Mr. Smith shall serve as President and Chief
Executive Officer of the Company and his salary shall be $175,000 per annum
effective on January 1, 1998, and increasing to $200,000 per annum by
January 1, 1999. Mr. Smith's salary for 1997 was $150,000. In addition,
pursuant to Mr. Smith's contract, he shall have the right to receive on the
first business day of each January during the term of his contract options to
acquire 100,000 shares of Common Stock at the lower of market value as of such
date or the average closing price for the first six months of each year of his
contract. Finally, pursuant to Mr. Smith's employment contract, in the event
there is a change in control of the Company, Mr. Smith shall be granted a five
year consulting contract at $200,000 per year.
The following table sets forth the options granted to Mr. Smith during the
past fiscal year.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
<S> <C> <C> <C> <C>
Individual Grants
% of Total Options
Number of Securities Granted to Exercise or
Underlying Options Employees in Fiscal Base Price Expiration
Name Granted (#) Year ($/Sh) Date
Robert O. Smith 100,000 72.46% $5.4375 January 2007
</TABLE>
The following table sets forth Mr. Smith's fiscal year end option
values. No options were exercised by Mr. Smith during 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<S> <C> <C> <C> <C>
Number of Unexercised Value of Unexercised In-
Options at FY-End (#) the-Money Options
at FY-End ($){(1)}
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
Robert O. Smith None None 298,400 Exercisable/ $1,189,000/
0 Unexercisable $0
</TABLE>
(1) Market price at December 31, 1997, for a share of common stock was $6.625.
STOCK PLANS
EMPLOYEE STOCK PURCHASE PLAN. The Company has adopted an Employee Stock
Ownership Plan ("ESOP") in conformity with ERISA requirements. As of December
31, 1997, the ESOP owns, in the aggregate, 173,000 shares of the Company's
Common Stock. In June 1996, the ESOP entered into a $500,000 loan with San
Jose National bank to finance the purchase of shares. The Company has
guaranteed the repayment of the loan, and it is intended that Company
contributions to the ESOP will be used to pay off the loan. All employees of
<PAGE>
the Company participate in the ESOP on the basis of level of compensation and
length of service. Participation in the ESOP is subject to vesting over a six-
year period. The shares of the Company's Common Stock owned by the ESOP are
voted by the ESOP trustees. Mr. Smith, President and Chief Executive Officer
of the Company, is one of two trustees of the ESOP.
1996 STOCK OPTION PLAN. The Company has established a 1996 Stock Option
Plan (the "1996 Plan"). The purpose of the 1996 Plan is to encourage stock
ownership by employees, officers, and directors of the Company to give them a
greater personal interest in the success of the business and to provide an
added incentive to continue to advance in their employment by or service to the
Company. A total of 513,000 options are authorized to be issued under the
Plan, of which 483,500 options have already been issued. The 1996 Plan
provides for the grant of either incentive or non-statutory stock options. The
exercise price of any incentive stock option granted under the 1996 Plan may
not be less than 100% of the fair market value of the Common Stock of the
Company on the date of grant. The fair market value for which an optionee may
be granted incentive stock options in any calendar year may not exceed
$100,000. Shares subject to options under the 1996 Plan may be purchased for
cash. Unless otherwise provided by the Board, an option granted under the 1996
Plan is exercisable for ten years. The 1996 Plan is administered by the
Compensation Committee which has discretion to determine optionees, the number
of shares to be covered by each option, the exercise schedule, and other terms
of the options. The 1996 Plan may be amended, suspended, or terminated by the
Board but no such action may impair rights under a previously granted option.
Each incentive stock option is exercisable, during the lifetime of the
optionee, only so long as the optionee remains employed by the Company. No
option is transferrable by the optionee other than by will or the laws of
descent and distribution.
OTHER STOCK OPTIONS
The Company, as of December 31, 1997, has outstanding options to acquire
179,500 shares of Common Stock at $1.80 per share and options to acquire 86,900
shares of Common Stock at $.50 per share. These options were granted to
employees in May 1993 and are now fully vested.
401(K) PLAN
The Company has adopted a tax-qualified employee savings and retirement
plan (the "401(k) Plan"), which generally covers all of the Company's full-time
employees. Pursuant to the 401(k) Plan, employees may make voluntary
contributions to the 401(k) Plan up to a maximum of six percent of eligible
compensation. These deferred amounts are contributed to the 401(k) Plan. The
401(k) Plan permits, but does not require, additional matching and Company
contributions on behalf of Plan participants. The Company matches
contributions at the rate of $.25 for each $1.00 contributed. The Company can
also make discretionary contributions. The 401(k) Plan is intended to qualify
under Sections 401(k) and 401(a) of the Internal Revenue Code of 1986, as
amended. Contributions to such a qualified plan are deductible to the Company
when made and neither the contributions nor the income earned on those
contributions is taxable to Plan participants until withdrawn. All 401(k) Plan
contributions are credited to separate accounts maintained in trust.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 3, 1998, certain information
with respect to the beneficial ownership of shares of Digital Common Stock by
all shareholders known by Digital to be the beneficial owners of more than five
percent of the outstanding shares of such Common Stock, all directors and
<PAGE>
executive officers of Digital individually, and all directors and all executive
officers of Digital as a group. As of April 3, 1998, there were 2,700,685
shares of Common Stock outstanding.
No. of Shares
Name Common Stock{(1)} Percent
Rhodora Finance Corporation Limited 183,464 6.79%
80 Broad Street
Monrovia, Liberia
Digital Power - ESOP 173,333 6.42%
41920 Christy Street
Fremont, CA 94538
Edward L. Lammerding, 95,740{(2)} 3.50%
Chairman of the Board
Philip M. Lee, 142,266{(3)} 5.19%
Director
Thomas W. O'Neil, Jr., 75,600{(4)} 2.76%
Director
Robert O. Smith, 491,733{(5)} 16.29%
Director and Chief Executive Officer
Claude Adkins, 163,500{(6)} 5.84%
Director and Vice President
Chris Schofield, 40,000{(7)} *
Managing Director, Digital Power Limited
Philip G. Swany, 44,250{(8)} 1.61%
Chief Financial Officer
Scott C. McDonald, 10,000 *
Nominee for Director
Robert J. Boschert, 0 0%
Nominee for Director
All directors and executive officers 1,026,573{(9)} 30.91%
as a group (7 persons)
* Less than one percent.
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) Includes 38,440 shares subject to options and warrants exercisable
within 60 days.
(3) Includes 59,750 shares held by a family trust of which Mr. Lee is a
trustee and 40,000 shares subject to options and warrants exercisable
within 60 days.
(4) Includes 40,000 shares subject to options and warrants exercisable
within 60 days.
<PAGE>
(5) Includes 318,400 shares subject to options and warrants exercisable
within 60 days. Also includes 173,333 owned by the Digital Power ESOP
of which Mr. Smith is a trustee.
(6) Includes 99,500 shares subject to options and warrants exercisable
within 60 days.
(7) Represents 40,000 shares subject to options exercisable within 60
days.
(8) Represents 44,250 shares subject to options exercisable within 60
days.
(9) Includes 580,590 shares subject to options and warrants and
exercisable within 60 days. Also includes 173,333 shares owned by the
Digital Power ESOP of which Mr. Smith is a trustee and may be deemed a
beneficial owner.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors retained the firm of Hein + Associates, LLP as
independent auditor for Digital and its subsidiaries for the year 1998. A
representative of Hein + Associates, LLP will be at the Meeting to respond
to appropriate questions.
OTHER MATTERS AND ADDITIONAL INFORMATION
The Board of Directors of Digital knows of no other matters that may
or are likely to be presented at the Meeting. However, in such event, the
persons named in the enclosed form of proxy will vote such proxy in
accordance with their best judgement in such matters pursuant to
discretionary authority granted in the proxy.
Shareholders should direct any requests for additional information to
Digital Power Corporation, 41920 Christy Street, Fremont, California 94538.
SHAREHOLDER PROPOSALS
Shareholder proposals to be included in Digital's Proxy Statement and
Proxy for its 1998 Annual Meeting must meet the requirements of Rule 14a-8
promulgated by the SEC and must be received by Digital no later than
Friday, December 4, 1998.
ALL SHAREHOLDERS ARE URGED TO EXECUTE THE ACCOMPANYING PROXY AND TO
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE. SHAREHOLDERS MAY REVOKE
THE PROXY IF THEY DESIRE AT ANY TIME BEFORE IT IS VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
PHILIP G. SWANY,
Corporate Secretary
April 24, 1998
<PAGE>
DIGITAL POWER CORPORATION
41920 CHRISTY STREET, FREMONT, CA 94538
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert O. Smith and Philip G. Swany, and
each of them, as proxies with the power to appoint his or their successor, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of Common Stock of DIGITAL POWER CORPORATION ("Digital"), held of record
by the undersigned on April 3, 1998, at the Annual Meeting of Shareholders to
be held on May 20, 1998, at 10:00 a.m. (Pacific Time), at the Newark-Fremont
Hilton Hotel located at 39900 Balentine Drive, Newark, California 94560, and at
any and all adjournments thereof.
1. Election of Directors.
FOR all nominees listed below _____ WITHOUT AUTHORITY ____
(except as marked to the contrary below) (to vote for all Nominees
below)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert O. Smith Chris Schofield Thomas W. O'Neil, Jr.
Scott C. McDonald Robert J. Boschert
1. Adoption of the Digital Power Corporation 1998 Stock Option Plan.
FOR _________ AGAINST _________ ABSTAIN _________
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE FIVE ABOVE-LISTED DIRECTOR NOMINEES AND FOR PROPOSAL NO.
2.
Please sign exactly as name appears on the share certificates. When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title as such.
If a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
__________________________________ __________________________________
Name (Print) Name (Print) (if held jointly)
Dated: ____________
__________________________________ __________________________________
Signature Signature (if held jointly)
__________________________________ __________________________________
__________________________________ __________________________________
(Address) (Address)
I will ___ will not ___ attend the Meeting.
Number of persons to attend: _____.
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
