-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T3awTnaT7NCcfp1An0bayYyji6FlAA68TKY5t7hXtC0l6g2Fzck6v2F/HIyL5xP+ ESslgaR5IR+HgjcUa4p7Uw== 0000950148-96-001317.txt : 19960629 0000950148-96-001317.hdr.sgml : 19960629 ACCESSION NUMBER: 0000950148-96-001317 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960702 FILED AS OF DATE: 19960627 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DENSE PAC MICROSYSTEMS INC CENTRAL INDEX KEY: 0000784770 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 330033759 STATE OF INCORPORATION: CA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14843 FILM NUMBER: 96586996 BUSINESS ADDRESS: STREET 1: 7321 LINCOLN WAY CITY: GARDEN GROVE STATE: CA ZIP: 92641 BUSINESS PHONE: 7148980007 MAIL ADDRESS: STREET 2: 7321 LINCOLN WAY CITY: GARDEN GROVE STATE: CA ZIP: 92641 DEF 14A 1 DEFINITIVE PROXY MATERIAL 1 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 DENSE-PAC MICROSYSTEMS, INC. ------------------------------------------- (Name of Registrant as Specified In Its Charter) ------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ---------------------------------- (2) Aggregate number of securities to which transaction applies: ---------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ---------------------------------- (4) Proposed maximum aggregate value of transaction: ---------------------------------- (5) Total fee paid: ---------------------------------- [X] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------ (2) Form, Schedule or Registration Statement No.: ------------------------ (3) Filing Party: ------------------------ (4) Date Filed: ------------------------ 2 DENSE-PAC MICROSYSTEMS, INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 12, 1996 To The Shareholders: The Annual Meeting of Shareholders of Dense-Pac Microsystems, Inc. (the "Company") will be held at the Company's offices at 7321 Lincoln Way, Garden Grove, California, on August 12, 1996, at 10:00 a.m. for the following purposes: 1. To elect four directors to serve until the next Annual Meeting of Shareholders or until their successors are duly elected and qualified. The Board of Directors' nominees are James G. Turner, Roger G. Claes, Trude C. Taylor and Robert Southwick; 2. To approve an amendment to the Company's Articles of Incorporation to increase the authorized shares of Common Stock from 20,000,000 to 40,000,000 shares; 3. To approve the 1996 Stock Option Plan which provides for the issuance of up to 2,000,000 shares of Common Stock upon the exercise of options which may be granted to employees, directors, consultants and advisors of the Company; and 4. To transact such other business as may properly come before the Meeting and any adjournments thereof. The Board of Directors has fixed the close of business, June 21, 1996, as the record date for determination of shareholders entitled to notice of and to vote at the Annual Meeting. EVEN THOUGH YOU MAY EXPECT TO BE PERSONALLY PRESENT AT THE MEETING, PLEASE BE SURE THAT THE ENCLOSED PROXY CARD IS PROPERLY COMPLETED, DATED, SIGNED AND RETURNED WITHOUT DELAY IN THE ACCOMPANYING ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. WILLIAM M. STOWELL Secretary July 2, 1996 3 DENSE-PAC MICROSYSTEMS, INC. 7321 Lincoln Way Garden Grove, California 92641 --------------------- PROXY STATEMENT --------------------- GENERAL INFORMATION SOLICITATION, REVOCATION AND VOTING OF PROXIES This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Dense-Pac Microsystems, Inc. (the "Company"), for use at the Annual Meeting of Shareholders to be held at 10:00 a.m. on August 12, 1996, at the Company's offices at 7321 Lincoln Way, Garden Grove, California, and at any and all adjournments thereof. It is anticipated that this Proxy Statement and accompanying proxy will first be mailed to shareholders on or about July 2, 1996. The accompanying proxy, if properly executed and returned, will be voted as specified by the shareholder or, if no vote is indicated, the proxy will be voted FOR the Board's nominees for director and FOR the proposals to approve the amendment to the Articles of Incorporation and the 1996 Stock Option Plan. As to any other matter of business which may be brought before the Meeting, a vote may be cast pursuant to the accompanying proxy in accordance with the judgment of the persons voting the same, but management does not know of any such other matter of business. A shareholder may revoke his proxy at any time prior to the voting of shares by voting in person at the Meeting or by filing with the Secretary of the Company a duly executed proxy bearing a later date or an instrument revoking the proxy. The costs of solicitation of proxies will be paid by the Company. In addition to soliciting proxies by mail, the Company's officers, directors and other regular employees, without additional compensation, may solicit proxies personally or by other appropriate means. Banks, brokers, fiduciaries and other custodians and nominees who forward proxy soliciting material to their principals will be reimbursed their customary and reasonable out-of-pocket expenses. RECORD DATE AND VOTING RIGHTS Only shareholders of record of the Company's Common Stock as of the close of business on June 21, 1996 will be entitled to vote at the Meeting. On June 21, 1996, there were outstanding 16,904,681 shares of Common Stock, which constituted all of the outstanding voting securities of the Company, each of which is entitled to one vote per share. A majority of the shares entitled to vote, represented in person or by proxy, constitutes a quorum at the Meeting. Abstentions and broker non-votes are counted as present for purposes of determining the existence of a quorum. 4 In the election of directors only, each shareholder has the right to cumulate his votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares he is entitled to vote, or to distribute his votes on the same principle among as many candidates as he sees fit. No shareholder is entitled to cumulate votes unless the name of the candidate or candidates for whom such votes would be cast has been placed in nomination prior to the voting and any shareholder has given notice at the meeting prior to the voting of such shareholder's intention to cumulate his votes. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, will be elected directors. Broker non-votes and votes withheld have no legal effect. If voting for directors is conducted by cumulative voting, the persons named on the enclosed proxy will have discretionary authority to cumulate votes among the nominees with respect to which authority was not withheld or, if the proxy either was not marked or was marked for all nominees, among all nominees. In any case, the proxies may be voted for less than the entire number of nominees if any situation arises which, in the opinion of the proxy holders, makes such action necessary or desirable. ELECTION OF DIRECTORS The four directors to be elected at the Annual Meeting will hold office until the next Annual Meeting of Shareholders and until the election of their respective successors. All proxies received by the Board of Directors will be voted for the nominees listed below if no direction to the contrary is given. In the event that any nominee is unable or declines to serve, an event that is not anticipated, the proxies will be voted for the election of any nominee who may be designated by the Board of Directors. Set forth below is information concerning the nominees for director:
NAME AND YEAR FIRST PRINCIPAL OCCUPATION BECAME A DIRECTOR AGE DURING THE PAST FIVE YEARS ------------------- --- ----------------------------------------------------------- James G. Turner 57 Chairman of the Board and Chief Executive Officer of the 1987 Company since April 1987; President of Titan Severe Environment Systems Company, a manufacturer of computer memories and subsystems for the worldwide aerospace industry, from 1981 to April 1987. Roger G. Claes 50 Partner and managing director of Euroventures Benelux Team 1989 B.V. which manages Euroventures Benelux I B.V. and Euroventures Benelux II B.V., European venture capital funds which are shareholders of the Company, since 1987; Managing Director of Euroventures Benelux I B.V. since 1988; General Manager of GTE Precision Metals, Belgium, from 1982 until 1986. See "Certain Transactions" and "Ownership of Common Stock."
2 5
NAME AND YEAR FIRST PRINCIPAL OCCUPATION BECAME A DIRECTOR AGE DURING THE PAST FIVE YEARS ------------------- --- ----------------------------------------------------------- Trude C. Taylor 75 Principal of TC Associates, a management consulting firm, 1989 since 1986; director of Plantronics, Inc. and Xylan Corporation, and a Trustee of Harvey Mudd College, Claremont, California; Chairman of the Board of Zehntel, Inc., a manufacturer of automatic test equipment for subsystems and printed circuit assemblies, from 1984 to 1988 and Chief Executive Officer from 1984 to 1986. Robert Southwick 62 Independent consultant to the electronics industry, 1990 specializing in the areas of technology applications, market research, product development and manufacturing processes for over 20 years.
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS The Company's Board of Directors held eight meetings during the fiscal year ended February 29, 1996. The members of the Audit Committee and the Compensation Committee are Trude C. Taylor and Robert Southwick. The Audit Committee is responsible for periodically reviewing the financial condition, and the results of audit examinations, of the Company with its independent accountants. The Audit Committee met once during the last fiscal year. The responsibilities of the Compensation Committee include reviewing and recommending to the Board the compensation, bonuses and employee benefits of senior management. The Compensation Committee met once during the last fiscal year. The Company also has a Stock Option Committee which is responsible for administering the Company's stock option plans. The members of the Committee are Roger Claes and Trude C. Taylor. The Stock Option Committee met three times during the last fiscal year. The Company does not have a nominating committee. DIRECTORS' COMPENSATION The Company pays its non-employee directors $1,000 for each Board meeting attended and $300 for each Committee meeting attended which is not held on the same day as a Board meeting, and reimburses out-of-pocket expenses for attending such meetings. 3 6 EXECUTIVE OFFICERS The following information is provided with respect to the Company's current executive officers. JAMES G. TURNER, age 57, has served as Chairman of the Board and Chief Executive Officer of the Company since 1987. See "Election of Directors." FLOYD K. EIDE, age 60, was elected Vice President, Engineering in March 1996. He previously served as Chief Operating officer from 1989 to 1996 and as Vice President, Engineering from 1987 to 1989. From 1982 until November 1987, he was a section manager at Northrop Electronics. Mr. Eide holds an M.S. in semiconductor physics and has been involved for 30 years in research and development, engineering and operations within the semiconductor industry. RANDALL J. GREENE, age 35, joined the Company in September 1993 as manager of quality assurance. He was elected a Vice President of Quality, Reliability and Program Management in August 1994. From September 1990 through August 1993, Mr. Greene was principal ASIC engineer at Western Digital Corporation, a semiconductor and disk drive manufacturer. ALBERT W. KILE, age 50, joined the Company in 1990 as a sales manager. He was elected Vice President, Sales in March 1996. From 1987 until joining the Company, Mr. Kile was National Sales Manager at Stanley Opto Ltd. Japan, a manufacturer of LED and LCD products. JOHN P. SPRINT, age 34, joined the Company in April 1990 as a test manager. He served as a production and operations manager before being elected Vice President, Manufacturing in March 1996. From 1986 until joining the Company, Mr. Sprint was a manager in the test, manufacturing and thick film departments at Northrup Electronics Division. WILLIAM M. STOWELL, age 40, has been Vice President, Finance and Chief Financial Officer of the Company since 1987. He served as Chief Financial Officer for Hughes Enterprises, an advertising and retail company, from April 1985 until July 1987 and as an audit manager at Price Waterhouse from September 1978 to April 1985. Officers serve at the discretion of the Board of Directors. 4 7 EXECUTIVE COMPENSATION The following tables provide information concerning compensation and stock options with respect to each of the Company's executive officers whose total salary and bonus exceeded $100,000 in fiscal year 1996 (the "Named Officers"). SUMMARY COMPENSATION TABLE
Long-term Annual Compensation Compensation Securities Name and Fiscal Underlying All Other Principal Position Year Salary(1) Bonus(2) Options (#) Compensation(3) - ------------------ ---- --------- -------- ----------- --------------- James G. Turner, 1996 $231,853 $52,914 87,500 $2,650 Chief Executive Officer 1995 137,519 5,375 56,250(4) 3,100 1994 178,970 29,373 200,000 2,812 Floyd K. Eide, 1996 168,690 44,095 50,000 2,000 Chief Operating Officer 1995 113,504 4,479 56,250(4) 2,051 1994 138,040 40,778 100,000 1,656 Randall J. Greene, 1996 88,475 28,221 30,000 2,000 Vice President, Quality, 1995 75,794 2,866 20,000 2,000 Reliability and Program Management(5) William M. Stowell, 1996 136,763 38,635 55,000 2,000 Vice President, Finance 1995 93,481 4,121 56,250(4) 2,000 1994 105,946 24,582 120,000 2,469
- ---------------------------- (1) Under the Company's variable compensation plan, employees who have a base salary of $30,000 or greater receive reduced salary during each quarter that the Company's income before taxes represents less than 2% of beginning shareholders' equity for that quarter. In each quarter in which income before taxes exceeds 2% of beginning shareholders' equity for that quarter, the Company is required to pay additional salary up to a maximum of 100% of each employee's base salary. Includes amounts deferred under the Company's 401(k) Plan. (2) The Management Bonus Plan provides for a bonus of up to 50% of base salary based on three performance criteria. The bonus is an amount equal to the sum of (i) 2% of base salary for every $1.5 million of fiscal year bookings that exceeded the prior fiscal year bookings (maximum 15% of base salary), (ii) 2% of base salary for every $1.2 million of fiscal year shipments that exceeded the prior fiscal year shipments (maximum 15% of base salary) and (iii) 2% of base salary for every $250,000 of fiscal year profits. The fiscal 1994 bonus amount for Mr. Eide includes a $16,300 discretionary bonus in an amount equal to the voluntary salary reduction which he agreed to in prior years in excess of that required under the variable compensation plan described in Note 1. (3) In fiscal year 1996, represents premiums of $650 for health insurance for Mr. Turner and Company contributions to the 401(k) Plan for the account of each Named Officer in the amount of $2,000. (4) For each person, the 56,250 options were granted in connection with the cancellation of 75,000 options which had been granted in fiscal year 1994. (5) Mr. Greene became an executive officer in August 1994. 5 8 FISCAL YEAR 1996 OPTION GRANTS
% of Total Number of Securities Options Granted Exercise Underlying Options to Employees in Price Per Expiration Name Granted (1) Fiscal Year Share (2) Date ------ ------------- ------------- --------- ----- James G. Turner 17,500 4% $1.72 3-14-05 70,000 16% 5.69 11-23-05 Floyd K. Eide 16,000 4% 1.72 3-14-05 35,000 8% 5.69 11-23-05 Randall J. Greene 10,000 2% 1.72 3-14-05 20,000 5% 5.69 11-23-05 William M. Stowell 20,000 5% 1.72 3-14-05 35,000 8% 5.69 11-23-05
(1) The options vest in 25% installments beginning one year after the grant date and are subject to earlier termination in the event of termination of employment, death and certain corporate events. Under the terms of the 1985 Stock Option Plan, the Stock Option Committee may, subject to Plan limits, modify the terms of outstanding options, including the exercise price and vesting schedule. (2) Fair market value of the Common Stock on the grant date. FISCAL YEAR 1996 AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
Number of Securities Shares Underlying Unexercised Value of Unexercised Acquired on Value Options Held at In-the-Money Options Name Exercise Realized(1) Fiscal Year-End at Fiscal Year-End(2) - ------------------ ------------ ----------- ----------------------- --------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- James G. Turner 16,000 $48,240 60,562 192,188 $ 200,691 $ 513,997 Floyd K. Eide 0 0 197,562 113,688 1,103,165 375,018 Randall J. Greene 22,500 42,181 15,000 62,500 63,675 186,869 William M. Stowell 25,000 90,820 131,062 119,688 714,353 388,403
- --------------------- (1) Represents the difference between the aggregate market value on the date of exercise and the aggregate exercise price. (2) Represents the difference between the aggregate market value on February 29, 1996 ($6.1875 per share) and the aggregate exercise price. 6 9 AMENDMENT TO ARTICLES OF INCORPORATION PROPOSED AMENDMENT The Company's Board of Directors has unanimously adopted, subject to shareholder approval, an amendment to the Company's Articles of Incorporation to increase the number of authorized shares of Common Stock from 20 million to 40 million shares. Accordingly, the Company's shareholders are being asked to approve an amendment to paragraph (a) of Article IV of the Company's Articles of Incorporation so that such paragraph shall read in full as follows: "(a) The number of shares of Common Stock authorized is 40 million (40,000,000)." PURPOSE AND EFFECT OF AMENDMENT The Company currently has 20,000,000 authorized shares of Common Stock. As of May 31, 1996, 16,879,681 shares were issued and outstanding, 1,189,625 shares were reserved for issuance upon exercise of outstanding options under the 1985 Stock Option Plan, and 400,000 shares were reserved for issuance upon exercise of outstanding stock purchase warrants. Thus, 1,530,694 of the 20,000,000 authorized shares of Common Stock were neither issued nor reserved for issuance at May 31, 1996. The increase in the number of authorized shares of Common Stock is recommended by the Board of Directors in order to provide a sufficient reserve of such shares for the future growth and needs of the Company. While the Company has no present plans, agreements or commitments for the issuance of additional shares of Common Stock, other than as described in this Proxy Statement, the Board believes that the availability of additional shares will afford the Company greater flexibility to meet future financing needs and to respond to business opportunities. See "Approval of the 1996 Stock Option Plan." Any issuance of additional shares of Common Stock is in the discretion of the Board, as it has the authority to determine, subject to applicable law and Nasdaq Stock Market regulations (which require shareholder approval for the issuance of shares in certain circumstances), whether, when and on what terms to issue shares of Common Stock. The additional authorized shares would thus be available for issuance from time to time without further action by the shareholders, thereby enabling the Company to avoid the delays and expenses attendant to obtaining shareholder approval for future specific issuances of shares. The additional shares of Common Stock may be issued without first offering such shares to the shareholders, since shareholders do not have preemptive rights with respect to the Common Stock. Except where shares are issued on a pro rata basis to all shareholders (such as in a stock dividend or stock split), the issuance of additional shares of Common Stock, including issuances upon conversion of securities convertible into Common Stock, reduce the proportionate ownership interest in the Company held by current shareholders. The Company also has authorized 8,000,000 shares of Preferred Stock, none of which are outstanding. The rights, preferences and privileges of the Preferred Stock, including the right to convert Preferred Stock into Common Stock, may be fixed by the Board of Directors without shareholder approval. The Company's Articles of Incorporation provide that the 7 10 Company has no authority to issue non-voting equity securities, so the terms of any new issue of preferred shares must include voting rights. The Company has no present plans, agreements or commitments to issue Preferred Stock. Although the Board has no present intention of doing so, shares of authorized and unissued Common Stock and Preferred Stock could (within the limits imposed by applicable law) be issued in one or more transactions which could make more difficult, and, therefore, less likely a takeover of the Company. For example, authorized but unissued Common Stock or Preferred Stock could be privately placed with purchasers who might side with the management of the Company in opposing a hostile tender offer or other attempt to obtain control. VOTE REQUIRED The affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote thereon is required for the adoption of the proposed amendment to the Company's Articles of Incorporation. Abstentions and broker non-votes have the effect of a vote against the proposal. The Board unanimously recommends a vote FOR the proposal to amend the Articles of Incorporation to increase the number of authorized shares of Common Stock. 8 11 APPROVAL OF THE 1996 STOCK OPTION PLAN The Board of Directors has determined that it is advisable and in the best interest of the Company and its shareholders to provide incentive for the encouragement of the highest level of performance by selected employees, directors, consultants and advisors of the Company by enabling such persons to acquire a proprietary interest in the Company by ownership of its stock through the exercise of stock options. Accordingly, the Board of Directors has approved the 1996 Stock Option Plan (the "Plan"), subject to shareholder approval at the Annual Meeting, pursuant to which up to 2,000,000 shares of Common Stock may be issued upon the exercise of stock options granted to eligible participants. The following summary of the principal provisions of the Plan is subject to the full text thereof. A copy of the Plan may be obtained from the Company by any shareholder upon written request. The Company has granted a total of 126,000 options under the Plan to employees and a consultant (none to executive officers) which are subject to shareholder approval of the Plan. If the Plan is not approved, such options will be void. No additional options may be granted under the Company's 1985 Stock Option Plan. At May 31, 1996, there were 1,189,625 outstanding options under the 1985 Stock Option Plan. For information concerning stock options granted to certain executive officers of the Company, see "Executive Compensation." GENERAL NATURE AND PURPOSE OF THE PLAN Options issued under the Plan may be either incentive stock options ("Incentive Options") under Section 422 of the Internal Revenue Code of 1986 (the "Code"), or non-qualified stock options ("Non-qualified Options"). The underlying objective of the Plan is to further the interests of the Company by strengthening the desire of employees, directors, consultants and advisors to continue their relationship with the Company and by inducing individuals to become employees, directors, consultants or advisors of the Company through the grant of stock options, and to enable such persons to acquire an equity interest in the Company. SECURITIES SUBJECT TO THE PLAN Subject to shareholder approval, the Plan authorizes the issuance thereunder of 2,000,000 shares of the Company's Common Stock. The Plan provides that in the event of any change in the number of outstanding shares of the Common Stock by reason of reorganization, merger, recapitalization, reclassification, stock dividend, stock split, exchange or combination of shares or other similar transactions, appropriate and proportionate adjustment will be made in the number of shares to which outstanding options relate and the exercise price per share. If the holders of a majority of the outstanding shares of Common Stock approve the Plan but the proposed amendment to the Articles of Incorporation to increase the number of authorized shares is not approved, under the California General Corporation Law, the Board of Directors may, without further shareholder approval, amend the Articles of Incorporation to increase the authorized shares of Common Stock to such number as will be sufficient from time to time, when added to the previously authorized but unissued shares of Common Stock, for the issuance of shares upon the exercise of options granted under the Plan. If the Plan is approved by less than a majority of the outstanding shares and the proposed amendment to the Articles of Incorporation is not approved, the Company would be able to grant options under the Plan only to the extent that there are unreserved, authorized shares available. See "Amendment to Articles of Incorporation." 9 12 ADMINISTRATION The Plan may be administered either by a Stock Option Committee appointed by the Board of Directors or by the Board of Directors. Currently the Plan is administered by a Committee consisting of Roger Claes and Trude Taylor. The Committee has full authority, subject to the provisions of the Plan, to grant options, to designate the optionees and terms of the options, to establish rules and regulations which the Committee deems appropriate for the proper administration of the Plan, and to interpret and make determinations under the Plan. Members of the Committee serve at the discretion of the Board. ELIGIBILITY Options may be granted to persons who are employees, directors, consultants or advisors of the Company or any subsidiary or parent company of the Company. Incentive Options may be granted only to employees of the Company or any subsidiary or parent of the Company. The terms "consultant" and "advisor" are not defined in the Plan. While such terms are generally considered to refer to persons who render services or advice in a capacity other than as an employee, it will be the responsibility of the Stock Option Committee to construe and interpret such terms on a case by case basis. At May 2, 1996, the Company had 93 employees, three non-employee directors and one consultant who were eligible to receive options under the Plan. TERMS AND CONDITIONS OF OPTIONS Options granted under the Plan expire on such date as is determined by the Committee, unless earlier terminated as provided in the Plan, but in no event later than ten years after the grant date (five years with respect to Incentive Options granted to a person who owns, or would be considered to own by reason of Section 424(d) of the Code, more than 10% of the outstanding Common Stock of the Company or any subsidiary on the grant date). An option is exercisable at such times as are determined on the grant date by the Committee. An optionee may exercise a part of the option from the date that part first becomes exercisable until the option expires or is otherwise terminated. The purchase price for shares to be issued to an optionee upon exercise of an Option is determined by the Committee at the time of grant, but with respect to an Incentive Option such price may not be less than 100% of the fair market value of the Common Stock on the grant date (110% of the fair market value in the case of Incentive Options granted to a person who on the grant date owns or is considered to own more than 10% of the outstanding Common Stock). On May 31, 1996, the closing sale price of the Company's Common Stock was $5-3/8 per share. If the aggregate fair market value (determined at the time each Incentive Option is granted) of Common Stock for which all Incentive Options held by an optionee (whether granted under the Plan or any other plan of the Company) are exercisable for the first time during any calendar year exceeds $100,000, the amount of such excess will be treated as a Non-qualified Option. The exercise price of an option is payable in cash or, at the option of the Committee, in shares of the Company's Common Stock, by full recourse promissory note secured by the shares purchased, by cancellation of indebtedness of the Company to the optionee, by waiver of compensation due or accrued for services rendered, or through a same day sale arranged 10 13 through a broker. The use of Common Stock as payment for the exercise of an option enables an optionee to "pyramid" his options; that is, to automatically apply the shares received upon the exercise of a portion of an option to satisfy the exercise price for additional portions of the option. The effect of pyramiding is to allow an optionee to deliver a relatively small number of shares in satisfaction of the exercise price of a greater number of shares under the option. Options granted under the Plan are not transferable or assignable other than by will or by the laws of descent and distribution. If an optionee ceases to be employed or retained by the Company for any reason other than death or permanent disability (as defined in the Plan), the option expires on the earlier of three months from the date of such termination or expiration of the term of the option. During the period between the optionee's termination and expiration of the option, the option may only be exercised to the extent that it was exercisable on the date of such termination. Upon the death or permanent disability of an optionee while an employee, director, consultant or advisor, the option expires on the earlier of one year from the date of death or permanent disability or expiration of the term of the option, but can be exercised only to the extent that it could have been exercised on the date of death or permanent disability. During the period between the optionee's death and expiration of the option, the option may be exercised by the person or persons to whom the optionee's rights under the option have passed by will or by the laws of descent and distribution. The foregoing provisions regarding termination of options upon termination of employment, permanent disability or death may be varied by the Committee with respect to Non-qualified Options. These and other terms and conditions of the options are set forth in an agreement which is entered into between the Company and the optionee at the time an option is granted to such optionee. DURATION AND MODIFICATION OF THE PLAN AND OPTIONS The Plan will remain in effect until all shares covered by options granted under the Plan have been purchased or all rights to acquire the shares have lapsed. No options may be granted under the Plan after January 16, 2006, although the Board of Directors may terminate the granting of options under the Plan at an earlier date or may amend or otherwise modify the Plan. Except for adjustments made necessary by changes in the Company's Common Stock, the Board of Directors may not, without shareholder approval, increase the total number of shares to be offered under the Plan or materially modify the eligible class of optionees. The Committee may modify or amend the terms of outstanding options, including a change or acceleration of the vesting of the option or a change of the exercise price, with the consent of the optionee. In the event of the liquidation or dissolution of the Company, or upon any reorganization, merger or consolidation in which the Company is not the survivor, or upon the sale of substantially all of the assets of the Company or of more than 80% of the then outstanding stock of the Company to another corporation or entity, the Plan and each outstanding option will terminate unless the surviving or acquiring company agrees to assume all outstanding options; provided, however, that the Committee may, in its sole discretion, accelerate the vesting of outstanding options or give the optionees advance notice of such event. 11 14 FEDERAL INCOME TAX CONSEQUENCES The following discussion is a summary of certain significant federal income tax consequences of the Plan based on currently applicable provisions of the Code and the regulations promulgated thereon. INCENTIVE OPTIONS. No income is recognized by an optionee at the time an Incentive Option is granted, and no income is recognized by an optionee upon his exercise of the option (although the difference between the fair market value of the shares on the date of exercise and the option price is an item of tax preference for purposes of the alternative minimum tax). If the optionee makes no disposition of the shares received upon exercise of the option within two years from the date the option was granted and one year from the date the shares were issued to him upon exercise of the option, he will recognize capital gain or loss when he disposes of his shares. Such gain or loss will be long-term and will be measured by the difference between the option price and the amount received for the shares at the time of disposition. If the optionee disposes of shares acquired upon exercise of an Incentive Option before the expiration of the applicable holding periods, any gain recognized from such disqualifying disposition will be taxable as ordinary income in the year of disposition generally to the extent of the amount by which the lesser of the fair market value of the shares on the date the option was exercised or the amount received upon such disposition exceeds the option price. Any additional gain recognized upon such a disposition in excess of the fair market value of the shares on the date of exercise will be treated as long-term or short-term capital gain, depending upon whether the shares have been held for more than one year. According to proposed Treasury regulations, in general, no gain or loss will be recognized by an optionee who uses shares of stock to exercise an Incentive Option. A number of new shares of stock acquired equal to the number of shares surrendered will have a basis and holding period equal to those of the shares surrendered. To the extent new shares of stock acquired pursuant to the exercise of the option exceed the number of shares of stock surrendered, such additional shares will have a zero basis and will have a holding period beginning on the date the option is exercised. Any disqualifying disposition of stock acquired through the surrender of other shares of stock will be deemed to be a disposition of the stock with the lowest basis first. The use of stock acquired through exercise of an Incentive Option to exercise an Incentive Option will constitute a disqualifying disposition with respect to such stock if the applicable holding period requirement has not been satisfied. This provision is intended to prevent the "pyramiding" of Incentive Options. NON-QUALIFIED OPTIONS. An optionee recognizes no income at the time a Non-qualified Option is granted under the Plan. At the time of exercise of a Non-qualified Option, the optionee will recognize ordinary income in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price; provided, however, that if an optionee who is subject to the provisions of Section 16(b) ("Section 16(b)") of the Securities Exchange Act of 1934 (an executive officer, director or 10% shareholder) exercises a Non-qualified Option within six months of the date of grant, such optionee will recognize ordinary income on the date which is six months after the date of grant unless he makes an 12 15 election under Section 83(b) of the Code to recognize income based on such value on the date of exercise. An optionee will recognize gain or loss on the subsequent sale of shares acquired upon exercise of a Non-qualified Option in an amount equal to the difference between the amount realized and the tax basis of such shares, which will equal the option price paid plus the amount included in the employee's income by reason of the exercise of the option; provided, however, that if the optionee is subject to Section 16(b) and sells shares received upon exercise of a Non-qualified Option within six months of the date of grant such optionee will recognize ordinary income based on the fair market value of the shares on the date which is six months after the date of grant unless he makes an election under Section 83(b) of the Code to recognize income on the date the shares were sold. Provided such shares are held as a capital asset, such gain or loss will be long-term or short-term capital gain or loss depending upon whether the shares have been held for more than one year. No gain or loss will be recognized by an optionee who uses shares of stock to exercise a Non-qualified Option. A number of the shares acquired equal to the number of shares surrendered will have a tax basis and holding period equal to those of the shares surrendered. The optionee will recognize ordinary income in an amount equal to the fair market value of the additional shares acquired at the time of exercise (or, if the recipient is subject to Section 16(b) and exercises the option within six months of the date of grant, on the date which is six months after the date of grant unless the optionee makes an election under Section 83(b) of the Code to recognize income at the date of exercise.) Such additional shares will be deemed to have been acquired on such date and will have a tax basis equal to their fair market value on such date. CORPORATE TAX DEDUCTIONS. The Company is not allowed a deduction for federal income tax purposes at the time of the grant or exercise of an Incentive Option. At the time of a disqualifying disposition by an optionee, the Company is entitled to a deduction to the extent that the optionee recognizes ordinary income to the extent such income is considered reasonable compensation. The Company is entitled to a deduction for federal income tax purposes in the year and in the same amount as the optionee is considered to have recognized ordinary income in connection with the exercise of a Non-qualified Option if provision is made for withholding of federal income taxes, where applicable. The Company has the right to deduct any sums required by federal, state or local tax laws to be withheld with respect to the exercise of any Non-qualified Option from sums owing to the person exercising the option or, in the alternative, may require the person exercising the option to pay such sums to the Company prior to or in connection with such exercise. Internal Revenue Code Section 162(m), enacted in 1993, precludes a public corporation from taking a deduction for compensation in excess of $1,000,000 per year paid to its chief executive officer or any of its other four highest paid officers. Based on the current market price of the Company's Common Stock and the amount of options historically granted to officers, the Company does not believe that any compensation derived from the exercise of options granted under the Plan, together with other compensation paid to such officers, will exceed $1,000,000 in any year with respect to any such officer. If, however, it appears that such limit could be exceeded at any time in the future, the Board of Directors will determine what action, if any, at that time would be appropriate in light of Section 162(m). 13 16 VOTE REQUIRED The affirmative vote of a majority of the shares represented and voting at the Meeting, which shares voting affirmatively also constitute at least a majority of the required quorum, is necessary for the approval of the Plan. Abstentions and broker non-votes are not counted in determining the shares voted, but abstentions and broker non-votes would have the effect of a vote against the Plan if the shares voting in favor do not constitute at least a majority of the required quorum. The Board unanimously recommends that the shareholders vote FOR approval of the Plan. CERTAIN TRANSACTIONS Pursuant to a Loan Agreement dated October 12, 1994, the Company borrowed $1.8 million from Euroventures Benelux II B.V. ("Euroventures"), a major shareholder, and $200,000 from Trude C. Taylor, a director of the Company. The loan was due in five years, required quarterly interest payments at the rate of 8% per year, and was secured by all of the Company's assets. As additional consideration for the loan, the lenders received five year warrants to purchase an aggregate of 1,000,000 shares of Common Stock at an exercise price of $2.00 per share. The exercise price could be paid in cash or by cancellation of amounts outstanding under the loan. In October 1995, Mr. Taylor exercised his warrants to purchase 100,000 shares in consideration for cancellation of $100,000 of his loan to the Company and a cash payment of $100,000. The terms of the remaining $100,000 loan payable to Mr. Taylor were not changed. Euroventures exercised its 900,000 warrants for a cash payment of $1.8 million. In consideration for Euroventures' agreement to exercise its warrants for cash in lieu of cancellation of debt, the Company agreed to renegotiate the terms of Euroventures' $1.8 million loan and to issue additional warrants to Euroventures. Euroventures agreed to reduce the interest rate of the loan from 8% to 5% per annum over the remaining four years of the loan and to subordinate its security interest in accounts receivable in order to permit the Company to obtain future bank financing. The Company agreed to issue 375,000 four year warrants to Euroventures with an exercise price to be determined on May 1, 1996 based on the market value of the Common Stock on that date. On April 1, 1996, the Company and Euroventures mutually agreed to fix the exercise price of the warrants at $7.00 per share. On April 1, 1996 and May 1, 1996, the closing sale prices of the Common Stock were $6-1/2 and $6-11/16 per share, respectively. The warrants will be redeemable by the Company when the Company's stock price reaches $9.00 per share for 20 consecutive trading days. The warrant exercise price will be subject to downward adjustment should the Company sell Common Stock at a price which is less than $7.00 per share, excluding issuances pursuant to warrants outstanding at April 1, 1996 and any issuances pursuant to the Company's stock option plans. In addition, Euroventures has the right to require the Company to register the shares underlying the warrants under the Securities Act of 1933, as amended. Euroventures is a major shareholder of the Company. See "Ownership of Common Stock." Roger Claes, a director of the Company, is a partner and managing director of Euroventures Benelux Team B.V., which manages Euroventures. 14 17 OWNERSHIP OF COMMON STOCK The following table sets forth certain information as of May 31, 1996, with respect to ownership of the Company's Common Stock by (i) each person who is known by the Company to own beneficially 5% or more of the Common Stock, (ii) each Named Officer and director of the Company and (iii) all executive officers and directors of the Company as a group.
Shares Beneficially Percentage Name* Owned Ownership - ------------------------------- ------------------- ---------- Euroventures Benelux Team B.V. 4,796,657 (1) 27.8% Joh. Vermeerplein 9I, 1071 DV Amsterdam, The Netherlands Euroventures Benelux I B.V. 2,498,879 14.5% Joh. Vermeerplein 9I, 1071 DV Amsterdam, The Netherlands Euroventures Benelux II B.V. 2,297,778 (2) 13.6% Joh. Vermeerplein 9I, 1071 DV Amsterdam, The Netherlands BeneVenture Founders 1,136,613 6.7% Risicokapitaalfonds II N.V. Regentlaan 54 Bus 2 1000 Brussels, Belgium James G. Turner 308,188 (3) 1.8% Roger Claes 0 (4) -- Trude C. Taylor 258,167 (5) 1.5% Robert Southwick 17,500 (6) ** Floyd Eide 196,563 (7) 1.2% Randall J. Greene 0 -- William M. Stowell 132,813 (8) ** All executive officers and 955,669 (9) 5.5% directors as a group (9 persons)
- -------------------------- * Includes addresses of 5% or more shareholders. ** Less than 1%. (1) Includes the shares owned by Euroventures Benelux I B.V. and Euroventures Benelux II B.V., which are widely held venture capital funds. Euroventures Benelux Team B.V. is the investment manager of both such funds and has voting and dispositive power over their shares of the Company's Common Stock. See Notes (2) and (4). 15 18 (2) Includes 375,000 shares subject to currently exercisable warrants. See Notes (1) and (4). (3) Includes 46,188 shares subject to options which are exercisable within 60 days. (4) Mr. Claes is managing director of Euroventures Benelux I B.V. and a partner and managing director of Euroventures Benelux Team B.V. See Note (1). (5) Includes 32,500 shares subject to options which are exercisable within 60 days. (6) Includes 15,000 shares subject to options which are exercisable within 60 days. (7) Represents 196,563 shares subject to options which are exercisable within 60 days. (8) Includes 97,813 shares subject to options which are exercisable within 60 days. (9) See Notes (3) through (8) above. Also includes 42,438 shares subject to options which are exercisable within 60 days held by officers not named in the foregoing table. SECTION 16 REPORTS EBTB II is an affiliate of Euroventures Benelux I B.V. and Euroventures Benelux II B.V. which is deemed to beneficially own the shares owned of record by such funds. In fiscal year 1996, EBTB II did not timely file pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, a Form 3 to report its initial beneficial ownership of the Company's Common Stock, and a Form 4 to report three transactions in the Company's Common Stock by such funds, which transactions had been timely reported on Forms 4 by such funds. Also during the fiscal year, James G. Turner did not timely file a Form 4 with respect to one transaction. In making these disclosures, the Company has relied solely on written representations of its directors, executive officers and 10% shareholders and copies of the reports that they have filed with the Securities and Exchange Commission. 16 19 AUDITORS OF THE COMPANY The Company's independent certified public accountants for the fiscal year ended February 29, 1996 were Deloitte & Touche LLP, which firm the Company intends to appoint for the current fiscal year. A representative of Deloitte & Touche LLP is expected to be present at the Meeting with the opportunity to make a statement if he so desires and to respond to appropriate questions. SHAREHOLDER PROPOSALS Any shareholder intending to submit to the Company a proposal for inclusion in the Company's Proxy Statement and proxy for the 1997 Annual Meeting must submit such proposal so that it is received by the Company no later than March 5, 1997. DISCRETIONARY AUTHORITY While the Notice of Annual Meeting of Shareholders calls for the transaction of such other business as may properly come before the meeting, the Board of Directors has no knowledge of any matters to be presented for action by the shareholders other than as set forth above. The enclosed proxy gives discretionary authority, however, in the event any additional matters should be presented. WILLIAM M. STOWELL Secretary July 2, 1996 17 20 DENSE-PAC MICROSYSTEMS, INC. PROXY FOR ANNUAL MEETING OF SHAREHOLDERS AUGUST 12, 1996 KNOW ALL MEN BY THESE PRESENTS that the undersigned hereby constitutes and appoints JAMES G. TURNER and WILLIAM M. STOWELL, and each of them, the attorneys and proxies of the undersigned with full power of substitution to appear and to vote all of the shares of Common Stock of Dense-Pac Microsystems, Inc. held of record by the undersigned on June 21, 1996 at the Annual Meeting of Shareholders to be held on August 12, 1996, or any adjournment thereof, as designated below. (1) Election of Directors [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY (except as indicated to the to vote for all nominees contrary below) listed below Roger Claes, Robert Southwick, Trude C. Taylor, James G. Turner (INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name on the space provided below.) - ------------------------------------------------------------------------------ (2) TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK FROM 20 MILLION TO 40 MILLION SHARES. [ ] FOR [ ] AGAINST [ ] ABSTAIN (3) TO APPROVE THE 1996 STOCK OPTION PLAN. [ ] FOR [ ] AGAINST [ ] ABSTAIN (4) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. (Continued and to be signed on the other side) 21 (Continued from reverse side) THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DENSE-PAC MICROSYSTEMS, INC. IF NO VOTE IS INDICATED, THIS PROXY WILL BE VOTED WITH AUTHORITY FOR THE ELECTION OF DIRECTORS AND FOR PROPOSALS (2) AND (3). YOU ARE URGED TO DATE, SIGN AND RETURN PROMPTLY THIS PROXY IN THE ENVELOPE PROVIDED. IT IS IMPORTANT FOR YOU TO BE REPRESENTED AT THE MEETING, THE EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT THE MEETING. Date: _____________________, 1996 _________________________________ SIGNATURE _________________________________ SIGNATURE IMPORTANT: Please sign exactly as your name or names appear on the share certificates, and when signing as an attorney, executor, administrator, trustee or guardian, give your full title as such. If the signatory is a corporation, sign the full corporate name by duly authorized officer, or if a partnership, sign in partnership name by authorized person. -----END PRIVACY-ENHANCED MESSAGE-----