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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] 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 Section 240.14a-11(c) or Section 240.14a-12
QUALSTAR CORPORATION
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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Notes:
[LOGO OF QUALSTAR CORPORATION]
December 21, 2001
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Qualstar Corporation to be held on Tuesday, February 5, 2002, at the Grand
Vista Hotel located at 999 Enchanted Way, Simi Valley, California 93065,
beginning at 10:00 a.m. Pacific Time.
At this meeting you will be asked to elect six directors to serve a term
of one year. We urge you to read the attached Notice of Annual Meeting and
Proxy Statement, which contains detailed information about management's
nominees and other matters related to the Annual Meeting. In addition to the
formal business to be conducted, management will report on developments of the
past year and respond to questions and comments of general interest to
shareholders.
It is important that your shares be represented. Therefore, even if you
presently plan to attend the Annual Meeting, please complete, sign and date and
promptly return the enclosed proxy card in the envelope provided. If you do
attend the Annual Meeting and wish to vote in person, you may withdraw your
proxy at that time.
I look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ William J. Gervais
William J. Gervais
Chief Executive Officer and
President
QUALSTAR CORPORATION
3990-B Heritage Oak Court
Simi Valley, California 93063
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on February 5, 2002
NOTICE IS HEREBY GIVEN that Qualstar's Annual Meeting of Shareholders
(the "Annual Meeting") will be held at the Grand Vista Hotel located at 999
Enchanted Way, Simi Valley, California 93065, on Tuesday, February 5, 2002, at
10:00 a.m. Pacific Time, for the following purposes:
1. To elect six directors to serve one year terms expiring at the next
Annual Meeting of Shareholders, or until their successors have been
duly elected and qualified; and
2. To transact any other business as may properly come before the Annual
Meeting and any adjournment thereof.
Shareholders of record at the close of business on December 17, 2001, are
entitled to notice of, and to vote at, the Annual Meeting and any adjournment
thereof. All shareholders are cordially invited to attend the Annual Meeting in
person.
By Order of the Board of Directors
/s/ Richard A. Nelson
Richard A. Nelson
Secretary
Simi Valley, California
December 21, 2001
YOUR VOTE IS IMPORTANT. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING YOU SHOULD COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD, AND
RETURN IT IN THE PREADDRESSED ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF
MAILED IN THE UNITED STATES.
QUALSTAR CORPORATION
3990-B Heritage Oak Court
Simi Valley, California 93063
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PROXY STATEMENT
-----------------
ANNUAL MEETING OF SHAREHOLDERS
To be held on February 5, 2002
General Information
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Qualstar Corporation, a California
corporation, for use at the Annual Meeting of Shareholders of the Company to be
held on Tuesday, February 5, 2001, at 10:00 a.m. Pacific Time. The Annual
Meeting will be held at the Grand Vista Hotel located at 999 Enchanted Way,
Simi Valley, California 93065. This Proxy Statement and the accompanying proxy
are first being mailed to shareholders on or about December 21, 2001.
Voting and Solicitation of Proxies
On December 17, 2001, the record date with respect to this solicitation,
12,600,751 shares of our common stock were outstanding. No other securities are
entitled to vote at the Annual Meeting. Only shareholders of record on such
date are entitled to notice of and to vote at the Annual Meeting and at any
adjournment thereof. Each shareholder of record is entitled to one vote for
each share held as of the record date on all matters to come before the Annual
Meeting and at any adjournment thereof.
Quorum. The holders of a majority of the outstanding shares of our common
stock, present in person or by proxy and entitled to vote, will constitute a
quorum at the Annual Meeting. We count proxies marked "withhold authority" as
to any director nominee or "abstain" as to a particular proposal as well as
broker non-votes for purposes of determining the presence or absence of a
quorum at the Annual Meeting for the transaction of business.
Vote Required. The six director nominees receiving the highest number of
affirmative votes of the shares present or represented by proxy and entitled to
vote will be elected as directors. Accordingly, proxies marked "withhold
authority" and broker non-votes will have no effect in determining which
directors receive the highest number of votes. The approval of any other matter
that properly comes before the Annual Meeting will require the affirmative
votes of a majority of the shares present or represented and entitled to be
voted at the Annual Meeting.
The shares represented by all valid proxies received will be voted in
accordance with the instructions specified therein. Unless otherwise directed
in the proxy, the persons named therein will vote FOR the election of each of
the director nominees named below. As to any other business that may properly
come before the Annual Meeting, the persons named in the enclosed proxy will
vote in accordance with their best judgment. We presently do not know of any
other business which will be presented for consideration at the Annual Meeting.
Solicitation. Proxies for use at the Annual Meeting are being solicited
by our Board of Directors. Proxies will be solicited principally by mail. If
desirable, to ensure a quorum at the Annual Meeting, our officers, directors,
agents and employees may contact shareholders, banks, brokerage houses and
others, by telephone, facsimile or in person to request that proxies be
furnished. Qualstar will bear all expenses incurred in connection with this
solicitation. These costs include reimbursements to banks, brokerage houses and
other custodians, nominees and fiduciaries for their reasonable expenses in
forwarding proxy materials to beneficial owners of our common stock. However,
officers, directors and employees will not receive additional compensation for
these services.
1
Revocability of Proxies
An executed proxy may be revoked at any time before its exercise by
delivering to the Secretary of Qualstar a written notice of revocation or a
duly executed proxy bearing a later date. Prior to the date of the Annual
Meeting, any notice of revocation or subsequent proxy must be delivered to our
Secretary at 3990-B Heritage Oak Court, Simi Valley, California 93063, the
principal executive office of Qualstar. On the date of the Annual Meeting, such
notice or subsequent proxy should be delivered in person at the Annual Meeting
prior to the time of the vote. Accordingly, the execution of the enclosed proxy
will not affect a shareholder's right to vote in person should such shareholder
find it convenient to attend the Annual Meeting and desire to vote in person,
so long as the shareholder has revoked his or her proxy prior to its exercise
in accordance with these instructions.
2
ELECTION OF DIRECTORS
(Proposal 1)
In accordance with Qualstar's bylaws, the number of directors
constituting the Board of Directors is currently fixed at six. All six
directors are to be elected at the Annual Meeting and will hold office until
the next Annual Meeting of Shareholders and until their respective successors
are elected and have qualified. It is intended that the persons named in the
enclosed proxy will, unless such authority is withheld, vote for the election
of the six nominees proposed by the Board. In the event that any of them should
become unavailable prior to the Annual Meeting, the proxy will be voted for a
substitute nominee or nominees designated by the Board, or the number of
directors may be reduced accordingly. All of the nominees named below have
consented to being named herein and to serve if elected. The Board has no
reason to believe that any of the nominees will be unable to serve.
The following table provides information regarding the nominees, their
ages, the year in which each first became a director of Qualstar, their
principal occupations or employment during the past five years, directorships
held with other public companies, and other biographical data:
Business Experience During Last
Name and Age Five Years and Other Directorships
------------ ------------------------------------------------------
William J. Gervais (58) William J. Gervais is a founder of Qualstar, has been
our President and a director since our inception in
1984, and was elected Chief Executive Officer in
January 2000. From 1984 until January 2000, Mr.
Gervais also served as our Chief Financial Officer.
From 1981 until 1984, Mr. Gervais was President of
Northridge Design Associates, Inc., an engineering
consulting firm. Mr. Gervais was a co-founder, and
served as Engineering Manager from 1976 until 1981, of
Micropolis Corporation, a former manufacturer of hard
disk drives. Mr. Gervais earned a B.S. degree in
Mechanical Engineering from California State
Polytechnic University in 1967.
Richard A. Nelson (58) Richard A. Nelson is a founder of Qualstar and has
been our Vice President of Engineering, Secretary and
a director since our inception in 1984. From 1974 to
1984, Mr. Nelson was self employed as an engineering
consultant specializing in microprocessor technology.
Mr. Nelson earned a B.S. in Electronic Engineering
from California State Polytechnic University in 1966.
Bruce E. Gladstone (66) Bruce E. Gladstone has been a director of Qualstar
since 1994. Since April 2000, Mr. Gladstone has served
as Executive Vice President of 2KSounds, Inc., a
company engaged in the production and distribution of
music. In 1997, Mr. Gladstone was a co-founder of
ComCore Semiconductor, a fabless semiconductor
company, and served as its Vice President and as a
director from 1997 until its sale in 1998. From 1996
until 1997, Mr. Gladstone was a consultant in the area
of high technology startup companies. In 1990,
Mr. Gladstone co-founded Chronology Corporation, a
company that provides tools for electronic engineers,
and served as an executive officer and director from
1990 until 1995. During the period 1974 through 1990,
Mr. Gladstone founded and served as chief executive
officer and president of three companies providing
electronic engineering and software development tools.
Mr. Gladstone began his career in electrical
engineering and received B.S. and M.S. degrees in
Engineering from the University of California, Los
Angeles in 1957 and 1962.
Robert E. Rich (51) Robert E. Rich has served as a director of Qualstar
since January 2000. Mr. Rich has been engaged in the
private practice of law since 1975 and has been a
shareholder of Stradling Yocca Carlson & Rauth, legal
counsel to
3
Business Experience During Last
Name and Age Five Years and Other Directorships
------------ --------------------------------------------------------
Qualstar, since 1984. Mr. Rich received a B.A. degree in
Economics from the University of California, Los Angeles
in 1972 and his J.D. degree from the University of
California, Los Angeles in 1975.
Trude C. Taylor (79) Trude C. Taylor served as a director of Qualstar from
October 1989 until December 1995, and rejoined our board
in January 2000. Since 1984, Mr. Taylor has been a
principal of TC Associates, a private investment firm.
Mr. Taylor served as Chairman of the Board, Chief
Executive Officer and a director of Zehntel Corporation,
an automatic electronic test equipment manufacturer,
from 1984 until 1988. Mr. Taylor was a founder and
served as Chief Executive Officer, President and a
director of EM&M Corporation, a computer components and
memory products company, from 1961 until 1984, and
served as its Chairman of the Board from 1984 until
1986. Mr. Taylor served on the board of directors of
Xylan Corporation until it was acquired by Alcatel S.A.
in 1999, and currently serves on the board of directors
of Plantronics, Inc. Mr. Taylor also serves as a trustee
of Harvey Mudd College, and as an arbitrator for the New
York Stock Exchange and the National Association of
Securities Dealers, Inc. Mr. Taylor received a B.S.
degree in Mechanical Engineering from the University of
California, Los Angeles in 1949, and an M.B.A. degree
from Harvard University in 1951.
Robert T. Webber (60) Robert T. Webber has served as a director of Qualstar
since January 2000. Prior to his retirement in 1999, Mr.
Webber was employed for 32 years by Lockheed-Martin
Skunk Works and its predecessors, where he served in
various positions, most recently as Chief Engineer and
Division Manager for the Systems Requirements & Analysis
Division. Mr. Webber currently serves on the executive
board of the National Defense Industrial Association's
Combat Survivability Division, a professional trade
association. Mr. Webber received a B.S. degree in
Engineering from the University of California, Los
Angeles in 1963 and an M.B.A. degree from Pepperdine
University in 1971.
4
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
Board Committees and Meetings
During the fiscal year ended June 30, 2001, our Board of Directors met
four times. Each incumbent director attended at least 75% of the aggregate of
all meetings of the Board of Directors and the committees of the Board, if any,
on which he served during fiscal 2001. There are no family relationships among
any of the directors or executive officers of Qualstar.
Our Board has two committees: the Audit Committee and the Compensation
Committee.
The Audit Committee is comprised of Bruce E. Gladstone, Trude C. Taylor
and Robert T. Webber. The Audit Committee oversees management's fulfillment of
its financial reporting and disclosure responsibilities and its maintenance of
an appropriate internal control system. It also recommends the appointment of
our independent public accountants and oversees the activities of our financial
reporting function. All members of the Audit Committee are non-employee
directors and satisfy National Association of Securities Dealers, Inc.
standards with respect to independence, financial expertise and experience.
The Audit Committee has a written charter that specifies its
responsibilities and the Audit Committee believes that it fulfills its charter.
The Board of Directors, upon the recommendation of the Audit Committee,
approved the charter in response to the audit committee requirements adopted by
the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. A copy of the Audit Committee Charter is attached as
Exhibit A to this proxy statement.
The Audit Committee held five meetings during fiscal 2001. To ensure
independence, the Audit Committee also meets separately with our independent
public accountants and members of management.
The Compensation Committee is comprised of Bruce E. Gladstone, Trude C.
Taylor and Robert T. Webber. The Compensation Committee reviews and recommends
the salaries and bonuses of our executive officers, establishes compensation
and incentive plans for our executive officers, and determines other fringe
benefits. The Compensation Committee held three meetings during fiscal 2001.
We do not have a nominating committee. Instead, the Board, as a whole,
identifies and screens candidates for membership on the Board.
Compensation of Directors
Each of our non-employee directors receives $2,000 per quarter as
compensation for his service on the Board, and is reimbursed for expenses
incurred in connection with attendance at Board meetings. Non-employee
directors who serve on a committee of the Board also receive $500 for each
committee meeting attended, excluding telephonic meetings, that is held on a
day when the full Board is not also meeting. We have in the past granted non-
employee directors options to purchase shares of our common stock pursuant to
our 1985 Stock Option Plan. Directors are eligible to receive options and
rights to purchase restricted stock under our 1998 Stock Incentive Plan. In
January 2000, we granted to each of our four non-employee directors the right
to purchase 54,000 shares of restricted stock at a price of $2.78 per share,
which each director purchased with a full-recourse promissory note. We have the
right to repurchase a director's restricted shares at the original purchase
price upon termination of his service for any reason. Our repurchase right
lapses and the director's shares vest at the rate of 25% per year of service
following the date of grant.
5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of our common stock as of December 7, 2001 for:
. each person (or group of affiliated persons) who we know beneficially
owns more than 5% of our common stock;
. each of our directors and nominees for election to the Board;
. each of the named executive officers; and
. all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. Except as indicated by footnote, the persons named in
the table have sole voting and sole investment control with respect to all
shares beneficially owned, subject to community property laws where applicable.
Shares of common stock subject to options currently exercisable or exercisable
within 60 days of December 7, 2001, are deemed outstanding for computing the
percentage of the person holding such options, but are not deemed outstanding
for computing the percentage of any other person. The address for those
individuals for which an address is not otherwise indicated is: c/o Qualstar
Corporation, 3990-B Heritage Oak Court, Simi Valley, California 93063.
Shares Beneficially Percent of Shares
Name of Beneficial Owner Owned Outstanding
- ------------------------ ------------------- -----------------
William J. Gervais...................... 2,969,850 23.5%
Richard A. Nelson....................... 2,097,750 16.6%
Daniel O. Thorlakson.................... 177,100 1.4%
Robert K. Covey......................... 182,200 1.4%
Matthew Natalizio(1).................... 63,600 0.5%
Bruce E. Gladstone(2)................... 54,000 0.4%
Robert E. Rich(2)....................... 131,400 1.0%
Trude C. Taylor(2)...................... 201,920 1.6%
Robert T. Webber(2)..................... 108,000 0.9%
All directors and officers as a group
(10 persons)(3)........................ 5,985,820 47.3%
- --------
(1) Includes 48,600 shares subject to stock options that are currently
exercisable or exercisable within 60 days of December 7, 2001.
(2) Includes 40,500 shares that we have the right to repurchase if the
shareholder's service on our board of directors terminates. Our repurchase
right lapses as to 13,500 shares for each year of service on the board and
will fully lapse as of January 14, 2004.
(3) Includes 48,600 shares subject to stock options that are currently
exercisable or exercisable within 60 days of December 7, 2001, and an
aggregate of 162,000 shares subject to a right of repurchase in favor of
Qualstar which lapses as to 54,000 shares each year and will fully lapse as
of January 14, 2004.
6
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by our Chief
Executive Officer and the four other most highly compensated executive officers
whose total salary and bonus exceeded $100,000 for services rendered in all
capacities to us during the fiscal year ended June 30, 2001. These individuals
are referred to as our named executive officers in other parts of this proxy
statement. The amounts shown below under "All Other Compensation" represent
matching contributions under our 401(k) plan.
Summary Compensation Table
Long Term
Annual Compensation Compensation Awards
------------------------- ----------------------------
Securities
Name and Principal Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
------------------ ---- ---------- --------- ---------- ----------------
William J. Gervais...... 2001 $148,000 -- -- --
Chief Executive Officer 2000 145,600 $40,000 -- --
and President 1999 138,400 25,000 -- --
Richard A. Nelson....... 2001 133,200 -- -- $2,002
Vice President of 2000 131,040 20,000 -- 1,376
Engineering 1999 126,720 15,000 -- 1,354
Daniel O. Thorlakson.... 2001 169,000 -- -- 2,027
Vice President of 2000 166,400 25,000 -- 1,444
Operations 1999 155,600 20,000 -- 1,434
Robert K. Covey......... 2001 152,000 -- -- 1,670
Vice President of 2000 149,760 15,000 -- 1,481
Marketing 1999 152,540 10,000 -- 1,483
Matthew Natalizio(1).... 2001 154,600 -- -- 1,367
Vice President and 2000 69,240 15,000 97,200 574
Chief Financial
Officer
- --------
(1) Mr. Natalizio became an employee of Qualstar on January 10, 2000.
Option Grants
We did not grant any stock options to our named executive officers during
the fiscal year ended June 30, 2001.
7
Options Exercised and Fiscal Year-End Values
The following table sets forth information regarding options exercised by
our named executive officers during the fiscal year ended June 30, 2001, the
number of shares covered by both exercisable and unexercisable options as of
June 30, 2001, and the value of unexercised in-the-money options held by our
named executive officers as of June 30, 2001.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Value of
Unexercised
Number of Securities In-the-Money
Number of Underlying Unexercised Options at
Shares Options at June 30, 2001 June 30, 2001(1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ----------- -------- ----------- ------------- ----------- -------------
William J. Gervais...... -- -- -- -- -- --
Richard A. Nelson....... -- -- -- -- -- --
Daniel O. Thorlakson.... -- -- -- -- -- --
Robert K. Covey......... -- -- -- -- -- --
Matthew Natalizio....... -- -- 24,300 72,900 $91,611 $274,833
- --------
(1) Represents the closing sale price of our common stock on June 29, 2001
($6.55), less the exercise price per share, multiplied by the number of
shares subject to the options held by the named executive officer.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
During the fiscal year ended June 30, 2001, the members of the
Compensation Committee of our Board of Directors were Bruce E. Gladstone, Trude
C. Taylor and Robert T. Webber. No executive officer serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving on our Board of Directors.
8
REPORT OF THE COMPENSATION COMMITTEE AND
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Introduction
The Compensation Committee of the Board of Directors is composed of three
non-employee directors. The Compensation Committee is responsible for reviewing
and establishing proposed levels of executive officer compensation, including
base salaries, bonuses and stock option grants. The Committee then submits its
specific recommendations to the full Board for its approval. The following
report is submitted by the Compensation Committee and the full Board of
Directors.
Compensation Philosophy
Qualstar's compensation program is intended to attract, retain, motivate
and reward highly qualified executives who are expected to manage both the
short-term and long-term success of Qualstar. The level of compensation that is
paid to executive officers is based on both the performance of Qualstar and the
individual officer. Qualstar's performance is judged primarily upon the results
and profitability for the immediately preceding fiscal year. Individual
performance is measured based on an evaluation of the executive officer's
particular responsibilities, his performance in the prior year, and his general
management skills.
Compensation Program
Qualstar's compensation program for executive officers consists of cash
compensation, both fixed and variable, and, if the situation warrants, equity
based compensation. The principal elements of this program are the following:
Salary. The base salary component of an executive officer's compensation
is intended to reward the executive for normal levels of performance, as
opposed to the bonus component which is intended to compensate for performance
exceeding expected levels. When reviewing base salaries, the Committee will
consider the following factors: (1) individual performance, (2) the performance
of Qualstar and the extent to which the executive contributed to that
performance, and (3) the executive's level of responsibility and prior
experience. The Committee will also review published information regarding the
compensation of executives at companies comparable to Qualstar to ascertain
whether or not Qualstar's compensation rates are both competitive and
reasonable. Lastly, the CEO's evaluation of the performance and his
recommendation regarding the compensation of other executive officers is also
considered.
Bonus Compensation. Based on the quality of Qualstar's financial
performance over time and over the immediately preceding year, as well as the
performance of each individual executive officer, the Committee determines
whether a cash bonus should be awarded to an executive and, if so, also the
amount of the bonus to be awarded. The recommendation of the CEO is also
considered in determining the amount of any bonus.
In view of the only modest financial performance of Qualstar during the
fiscal year ended June 30, 2001, the Compensation Committee and the full Board
decided not to award any bonuses to executive officers for fiscal 2001.
Stock Options. In order to align the financial interests of executive
officers with those of the shareholders, the Board of Directors grants stock
options to its executives on a periodic basis. Options are granted with an
exercise price equal to the market value of Qualstar's shares on the date of
grant. Since the financial reward provided by stock options will be dependent
on appreciation in the market value of Qualstar's shares, stock options
effectively reward executives only for performance that results in improved
market performance of our common stock, which directly benefits all
shareholders. Generally, the number of shares included in each stock option
grant is determined based on an evaluation of the executive's importance to the
future performance of Qualstar, as well as his past performance. Options are
granted on terms that provide that they will become exercisable (or "vest") in
annual or other periodic installments (such as, for example, 25%
9
per year over four years), so that if an executive's employment is terminated,
whether by Qualstar or by the executive, prior to the full vesting of the
options, the unvested portion terminates automatically, thereby creating an
incentive for the executive to remain in Qualstar's employ for at least the
vesting period.
Members of the Board of Directors Members of the Compensation Committee
--------------------------------- -------------------------------------
William J. Gervais Bruce E. Gladstone
Richard A. Nelson Trude C. Taylor
Bruce E. Gladstone Robert T. Webber
Robert E. Rich
Trude C. Taylor
Robert T. Webber
10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2000 each of our four non-employee directors purchased 54,000
shares of restricted stock pursuant to our 1998 Stock Incentive Plan at a price
of $2.78 per share, which was the fair market value of our stock on the date of
grant as determined by our board of directors. Each director paid for his
shares with a full-recourse promissory note in the amount of $150,000, secured
by a pledge of the purchased shares. Payments of principal on the notes are due
in four equal annual installments commencing on the second anniversary of the
date of the note. Interest on the notes accrues at the rate of 6.21%, and is
payable annually. As of September 30, 2001, the remaining principle balances
owed under these promissory notes were $150,000 by Mr. Gladstone, $112,500 by
Mr. Rich, $112,500 by Mr. Taylor, and $112,500 by Mr. Webber.
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the total cumulative return to our
shareholders on shares of Qualstar's common stock during the period from June
23, 2000 (the date of our initial public offering) through November 30, 2001,
with the cumulative total returns of the Nasdaq Stock Market Composite Index
and the Nasdaq Computer Manufacturers' Index. The graph assumes that the value
of the investment in Qualstar's common stock and each index was $100.00 on June
23, 2000.
PERFORMANCE GRAPH APPEARS HERE
Measurement Period NASDAQ Computer NASDAQ Composite
(Fiscal Year Covered) QBAK Mfg. Index Index
- ------------------------- ------- --------------- ----------------
Measurement Pt- 6/23/2000 $100.00 $100.00 $100.00
FYE 6/30/2000 $ 99.18 $103.47 $103.14
FYE 7/31/2000 $114.17 $ 99.05 $ 97.96
FYE 8/31/2000 $174.89 $111.68 $109.39
FYE 9/29/2000 $154.66 $ 93.74 $ 95.51
FYE 10/31/2000 $135.22 $ 87.70 $ 87.63
FYE 11/30/2000 $ 89.07 $ 65.31 $ 67.56
FYE 12/29/2000 $ 85.02 $ 57.16 $ 64.25
FYE 1/31/2001 $113.36 $ 65.15 $ 72.11
FYE 2/28/2001 $ 97.98 $ 47.46 $ 55.96
FYE 3/30/2001 $100.80 $ 39.20 $ 47.86
FYE 4/30/2001 $ 90.69 $ 46.84 $ 55.03
FYE 5/31/2001 $ 89.91 $ 45.77 $ 54.88
FYE 6/29/2001 $ 84.86 $ 47.84 $ 56.19
FYE 7/31/2001 $ 84.21 $ 44.53 $ 52.72
FYE 8/31/2001 $ 64.78 $ 37.50 $ 46.95
FYE 9/28/2001 $ 74.23 $ 29.81 $ 38.98
FYE 10/31/2001 $ 68.66 $ 36.27 $ 43.95
FYE 11/30/2001 $ 63.61 $ 43.16 $ 50.21
11
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires Qualstar's executive officers and directors, and persons who
beneficially own more than ten percent of Qualstar's common stock, to file
initial reports of ownership and reports of changes in ownership with the SEC
and the National Association of Securities Dealers, Inc. Executive officers,
directors and persons who beneficially own more than ten percent of Qualstar's
common stock are required by SEC regulations to furnish Qualstar with copies of
all Section 16(a) forms they file.
Based solely upon our review of the copies of reporting forms furnished
to Qualstar, and written representations that no other reports were required,
we believe that all filing requirements under Section 16(a) of the Securities
Exchange Act of 1934 applicable to directors, officers and any persons holding
more than ten percent of Qualstar's common stock with respect to the fiscal
year ended June 30, 2001, were satisfied on a timely basis.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors is composed of three non-
employee directors who satisfy the requirements of the National Association of
Securities Dealers, Inc. with respect to independence, financial expertise and
experience. The Audit Committee operates pursuant to a written charter adopted
by the Board of Directors, a copy of which is attached as Exhibit A to this
proxy statement.
The role of the Audit Committee is to oversee the Company's financial
reporting processes on behalf of the Board of Directors. Management of the
Company has the primary responsibility for the Company's financial statements
as well as the Company's financial reporting processes, principles and internal
controls. The independent auditors are responsible for performing an audit of
the Company's financial statements and expressing an opinion as to the
conformity of such financial statements with generally accepted accounting
principles.
In this context, the Audit Committee: (a) has reviewed and discussed with
management and Ernst & Young LLP, the Company's independent auditors, the
audited financial statements for the fiscal year ended June 30, 2001; (b) has
discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees);
(c) has received from the independent auditors the written disclosures required
by Independence Standards Board Standard No. 1 (Independence Discussions With
Audit Committees) and has discussed with them their independence from the
Company and its management; (d) has considered whether the independent
auditors' provision of non-audit services is compatible with maintaining their
independence; and (e) has discussed with management and the independent
auditors the adequacy of the Company's internal controls.
The members of the Audit Committee are not engaged in the accounting or
auditing profession and, consequently, are not experts in matters involving
accounting or auditing. In the performance of their oversight function, the
members of the Audit Committee necessarily relied upon the information,
opinions, reports and statements presented to them by management of the Company
and by the independent auditors. As a result, the Audit Committee's oversight
and the review and discussions referred to above do not assure that management
has maintained adequate financial reporting processes, principles and internal
controls, that the Company's financial statements are accurate, that the audit
of such financial statements has been conducted in accordance with generally
accepted auditing standards, or that the Company's auditors meet the applicable
standards for auditor independence.
Based on the reviews and discussions referred to above, the Audit
Committee has recommended to the Board of Directors, and the Board has
approved, that the audited financial statements be included in the Company's
Annual Report on SEC Form 10-K for the fiscal year ended June 30, 2001, for
filing with the Securities and Exchange Commission.
12
Members of the Audit Committee
Bruce E. Gladstone
Trude C. Taylor
Robert T. Webber
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP, independent accountants, audited Qualstar's financial
statements for the fiscal year ended June 30, 2001. Representatives of Ernst &
Young LLP will be present at the Annual Meeting to respond to appropriate
questions and will be given an opportunity to make a statement if they so
desire.
Fees Paid to Independent Accounts. Fees paid to Ernst & Young LLP for the
fiscal year ended June 30, 2001 were comprised of the following:
Audit fees......................................... $ 92,000
Financial information systems design and
implementation fees............................... $ 0
All other fees*.................................... $115,000
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* Consists primarily of income tax consulting, planning and return preparation,
and other operationa consulting projects.
13
SHAREHOLDER PROPOSALS
Proposals to be Included in Our Proxy Statement
A shareholder who wishes to have a proposal considered for inclusion in
our proxy statement for action at the next Annual Meeting of Shareholders must
comply with the requirements of Rule 14a-8 under the Securities Exchange Act of
1934. The proposal must be in writing and be received by the Secretary of
Qualstar at our principal place of business no later than August 23, 2001.
Advance Notice Procedures
If a shareholder desires to have a proposal acted upon at the next Annual
Meeting of Shareholders that is not included in our proxy statement in
accordance with SEC Rule 14a-8, or if a shareholder desires to nominate someone
for election to our Board of Directors, the shareholder must follow the
procedures outlined in our bylaws. Our bylaws provide that in order for a
shareholder proposal to be considered at an annual meeting of shareholders,
written notice of the proposal must be received by the Secretary of Qualstar
generally not less than 60 days nor more than 90 days prior to the anniversary
of the preceding year's annual meeting of shareholders. The notice must contain
information required by our bylaws, including a description of the proposal and
any material interest of the shareholder relating to such proposal.
In order to nominate someone for election to our Board of Directors at an
annual meeting of shareholders, written notice of the proposed nomination must
be received by the Secretary of Qualstar not less than 60 days nor more than 90
days prior to the anniversary of the preceding year's annual meeting of
shareholders. The notice must contain information required by our bylaws
regarding the shareholder and the nominee, as well as information required to
be included in a proxy statement by SEC rules and regulations.
Accordingly, in order for a shareholder proposal or nomination to be
considered at the next Annual Meeting of Shareholders, a written notice of the
proposal or the nomination, which includes the information required by our
bylaws, must be received by the Secretary of Qualstar between November 7, 2002
and December 7, 2002.
A copy of the full text of the bylaw provisions containing the advance
notice procedures described above may be obtained upon written request to the
Secretary of Qualstar at our principal place of business.
December 21, 2001 By Order of the Board of Directors
/s/ Richard A. Nelson
Richard A. Nelson
Secretary
14
EXHIBIT A
Qualstar Corporation
Audit Committee Charter
Purpose
The purpose of this Charter is to:
. establish the Audit Committee of the Board of Directors of Qualstar
Corporation (Qualstar or the "Company"),
. define the Audit Committee's financial oversight responsibilities,
. meet the audit committee requirements established by the Securities and
Exchange Commission, and
. meet the audit committee requirements established by the National
Association of Securities Dealers, Inc.
Statement of Policy
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling its responsibilities to the Company's shareholders, potential
shareholders, and the investment community regarding the quality and integrity
of the financial information developed through the Company's accounting systems
and reporting practices. In so doing, it is the responsibility of the Audit
Committee to maintain free and open communication between the directors,
independent auditors, and the financial management of the Company. In
discharging its oversight role, the Audit Committee is empowered to investigate
any matter brought to its attention with full access to all books, records,
facilities and personnel of Qualstar and has the power to retain outside
counsel, or to engage experts for this purpose.
Organization
The Audit Committee shall be comprised of at least three directors who are
independent of management. Members of the Audit Committee shall be considered
independent if they have no relationship to Qualstar that may interfere with
the exercise of their independence from management and the Company. All Audit
Committee members will be financially literate, and at least one member will
have accounting or related financial management expertise. The Audit Committee
will review this Charter annually, for appropriateness and adequacy, and will
recommend any changes it believes are appropriate to the Board of Directors.
Responsibilities
The primary responsibility of the Audit Committee is to oversee the Company's
financial reporting processes on behalf of the Board of Directors. Management
is responsible for preparing the Company's financial statements, and the
independent auditors are responsible for auditing those financial statements.
In carrying out its financial oversight responsibilities, the Audit Committee's
policies and procedures should remain flexible in order to best react to
changing conditions and circumstances. The following are the principal
recurring processes of the Audit Committee. The processes described are a guide
with the understanding the Audit Committee may modify and supplement them, as
it considers appropriate.
. The Audit Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Audit Committee and the Board of Directors, as
representatives of Qualstar's shareholders. The Audit Committee shall have
the ultimate authority and responsibility to evaluate and recommend to the
Board of Directors the selection of the independent auditors. The Audit
Committee shall discuss with the auditors their independence from management
and Qualstar, and the matters included in the written disclosures required
by the Independence Standards
1
Board. Annually, the Audit Committee shall review and recommend to the
Board of Directors the selection of Qualstar's independent auditors.
. The Audit Committee shall discuss with the independent auditors the overall
scope and plans for their audit, including the adequacy of the staffing and
compensation. Also, the Audit Committee shall discuss with management and
the independent auditors the adequacy and effectiveness of the accounting
and financial reporting controls, including Qualstar's system to monitor
and manage business risk, legal and ethical compliance programs. Further,
the Audit Committee shall meet separately with the independent auditors,
with and without management present, to discuss the results of their
examination, the competency of the Company's financial/accounting staff and
the cooperation provided to the auditors during their examination.
. The Audit Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of Qualstar's
quarterly report on Form 10-Q. Also, the Committee shall discuss the
results of the quarterly review and any other matters required to be
communicated to the Audit Committee by the independent auditors under
generally accepted auditing standards. The chair of the Audit Committee may
represent the entire Audit Committee for the purpose of the review.
. The Audit Committee shall review with management and the independent
auditors the financial statements to be included in Qualstar's annual
report on Form 10-K (or the annual report to shareholders if distributed
prior to the filing of Form 10-K), including their judgment about the
quality, not just acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of the disclosures
in the financial statements. Also, the Audit Committee shall discuss the
results of the annual audit and any other matters required to be
communicated to the Audit Committee by the independent auditors under
generally accepted auditing standards and report and recommend any changes
to the Board of Directors.
. The Audit Committee shall prepare a report to be included in Qualstar's
proxy statements. The Audit Committee's report shall state whether:
A. The Audit Committee has reviewed and discussed the audited financial
statements with management;
B. The Audit Committee has discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No.
61, as may be amended or supplemented;
C. The Audit Committee has received from the auditors the written
disclosures and the letter regarding the auditors' independence required
by Independence Standards Board Standard No. 1, as may be amended or
supplemented, and has discussed with the auditors the auditors'
independence; and
D. Based upon the review and discussions noted above, it has recommended to
the Board of Directors that the audited financial statements be included
in the Company's Annual Report on Form 10-K for the last fiscal year for
filing with the Securities and Exchange Commission.
2
PROXY
QUALSTAR CORPORATION
3990-B Heritage Oak Court
Simi Valley, California 93063
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF QUALSTAR
CORPORATION.
The undersigned hereby appoints William J. Gervais and Richard A. Nelson, and
each of them individually, the attorney, agent and proxy of the undersigned,
with full power of substitution, to vote all the shares of QUALSTAR CORPORATION
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
to be held at the Grand Vista Hotel located at 999 Enchanted Way, Simi Valley,
California, 93065 on February 5, 2002, at 10:00 a.m. Pacific Time, and at any
and all adjournments or postponements thereof, as follows:
1. Election of Directors:
[_] FOR [_] WITHHOLD AUTHORITY
all nominees listed below (except to vote for all nominees listed
as indicated to the contrary below) below
William J. Gervais, Richard A. Nelson, Bruce E. Gladstone, Robert E. Rich,
Trude C. Taylor, and Robert T. Webber
(INSTRUCTIONS: To withhold authority to vote for any nominee, print that
nominee's name in the space provided below.)
This Proxy when properly executed will be voted in the manner directed above.
If no direction is given, this Proxy will be voted FOR the election of the
nominees listed above.
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IMPORTANT--PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY
- --------------------------------------------------------------------------------
(continued from reverse side)
This Proxy confers discretionary authority to vote on any other matters as
may properly come before the meeting. The undersigned acknowledges receipt of
the Notice of Annual Meeting of Shareholders and Proxy Statement dated December
21, 2001.
Please date this Proxy and sign it exactly as your name or names appear
hereon. When shares are held by two or more persons, both should sign. When
signing as an attorney, executor, administrator, trustee or guardian, please
give full title as such. If shares are held by a corporation, please sign in
full corporate name by the President or other authorized officer. If shares are
held by a partnership, please sign in partnership name by an authorized person.
Dated: __________________
_________________________
Signature
_________________________
Signature if held
jointly
Please mark, sign, date
and return this Proxy
promptly using the
enclosed envelope. If
your address is
incorrectly shown,
please print changes.