PRELIMINARY PROXY MATERIAL
OnLine Power Supply, Inc.
-------------------------
Notice of Annual Meeting of Shareholders
-------------------------
June 21, 2001
May __, 2001
We are pleased to give you notice of our Annual Meeting of
Shareholders:
Date: Thursday, June 21, 2001
Time: 10:00 AM MDT
Place: Denver Marriott Southeast
6363 East Hampden Avenue
Denver, Colorado
[I-25 at Hampden Avenue, Northeast Corner]
Purpose: - Elect four directors;
- Increase our authorized common stock from 50 million shares up
to 100 million shares
- Ratify the appointment of the independent auditors; and
- Transact any other business that may properly come before the
meeting.
Record Date: April 25, 2001
Your vote is important. Whether or not you plan to attend the meeting,
please complete, sign and date the enclosed proxy card and return it promptly in
the enclosed envelope. We appreciate your cooperation.
By Order of the Board of Directors
Kris M. Budinger, Chief Executive Officer
Information About Attending the Annual Meeting
Only shareholders of record on April 25, 2001 may vote at the meeting.
Only shareholders of record, and beneficial owners on the record date, may
attend the meeting. If you plan to attend the meeting, please bring personal
identification and proof of ownership if your shares are held in "Street Name"
(i.e., your shares are held of record by brokers, banks or other institutions).
Proof of ownership means a letter or statement from your broker showing your
ownership of OnLine shares on the record date.
1
ONLINE POWER SUPPLY, INC.
8100 S. AKRON STREET, SUITE 308
ENGLEWOOD, COLORADO 80112
TEL. 303.741.5641 FAX 303.741.5679
PROXY STATEMENT FOR ANNUAL MEETING ON JUNE 21, 2001
The 2001 Annual Report to Shareholders, including audited financial
statements for the fiscal year ended December 31, 2000, is mailed to
shareholders together with these proxy materials on or about May __, 2001. The
proxy materials consist of this proxy statement and notice of annual meeting,
the Annual Report, the Audit Committee Certification and the Audit Committee
Charter.
This proxy statement is provided in connection with a solicitation of
proxies by the Board of Directors of OnLine Power Supply, Inc. for use at our
annual meeting of shareholders (the "Meeting") to be held on June 21, 2001 and
at any adjournments of the Meeting. Although we had a meeting in December 2000,
this Meeting is being held six months later pursuant to our amending our bylaws
to re-set our annual meeting date to the third Thursday in June.
WHO CAN VOTE
If you held any shares of common stock on the record date (April 25,
2001), then you will be entitled to vote at the Meeting. If you held stock in
your own name, you may vote directly. If you owned stock beneficially but in the
record name (street name) of an institution, you may instruct the record holder
how to vote when the record holder contacts you about voting and gives you the
proxy materials. There are 2,800 shares of non-voting preferred stock issued and
outstanding.
Common Stock Outstanding on the Record Date: 21,243,155
QUORUM AND VOTING RIGHTS
You are entitled to one vote for each share of OnLine common stock you
hold. A quorum for the Meeting will exist if a majority of the voting power of
the shareholders is present at the Meeting, in person or represented by properly
executed proxy delivered to us prior to the Meeting. Shares of common stock
present at the Meeting that abstain from voting, or that are the subject of
broker non-votes, will be counted as present for determining a quorum. A broker
non-vote occurs when a nominee holding stock in street name or otherwise for a
beneficial owner does not vote on a particular matter because the nominee does
not have discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
We will be voting on three matters: First, on the election of
directors; second, on increasing the number of shares of common stock we are
authorized to issue, and third, on the ratification of the appointment of
independent auditors. For the election of directors, a nominee will be elected
if he receives a plurality of the votes cast. To increase the amount of common
stock, the holders of a majority of the shares of common stock will have to
approve the increase. Last, the selection of our independent audit firm by the
audit committee will be ratified if the number of votes cast in favor exceeds
the number of votes cast in opposition. Any other matter which properly comes
before the Meeting would be approved if the number of votes cast in favor
exceeds the number of votes cast in opposition, unless Nevada law requires a
different approval ratio. OnLine's Corporate Secretary, Richard Millspaugh, will
serve as the inspector of election.
1
Abstentions and broker non-votes will have no effect on the election of
directors. Abstentions as to all other matters which properly may come before
the Meeting will be counted as votes against those matters. Broker non-votes as
to all other matters will not be counted as votes for or against, and will not
be included in calculating the number of votes necessary for approval of these
matters.
HOW YOUR PROXY WILL BE VOTED; RECOMMENDATION OF THE BOARD
The board of directors is soliciting a proxy in the enclosed form to
provide you with the opportunity to vote on all matters scheduled to come before
the Meeting, whether or not you attend in person.
The board of directors recommends you vote in favor of the director
nominees, in favor of increasing the number of shares of authorized common
stock, and in favor of the selection of audit firm for the current fiscal year.
GRANTING YOUR PROXY
If you properly execute and return a proxy in the proposed form, your
shares will be voted as you specify. If you make no specifications, your proxy
will be voted in favor of the nominees for Director positions, in favor of
increasing the number of authorized shares of common stock, and for the
ratification of our audit firm.
We expect no matters to be presented for action at the Meeting other
than the items described in this proxy statement. However, the enclosed proxy
will confer discretionary authority with respect to any other matter that may
properly come before the Meeting. The persons named as proxies in the enclosed
proxy form intend to vote in accordance with their judgment on any matters that
may properly come before the Meeting.
REVOKING YOUR PROXY
If you submit a proxy, you may revoke it later or submit a revised
proxy at any time before it is voted. You also may attend the Meeting in person
and vote by ballot, which would cancel any proxy you previously submitted.
PROXY SOLICITATION
We will pay all expenses of soliciting proxies for the Meeting. In
addition to solicitations by mail, arrangements have been made for brokers and
nominees to send proxy materials to their principals, and we will reimburse them
for their reasonable expenses. We have not hired a solicitation firm for the
Meeting. Our employees and directors will solicit proxies by telephone or other
means, if necessary; these people will not be paid for these services.
2
REQUIREMENT AND DEADLINES FOR SHAREHOLDERS TO SUBMIT PROXY PROPOSALS
Generally, we will hold the annual meeting on the third Thursday of
each June (June 20 in 2002). Under the rules of the SEC, if a shareholder wants
us to include a proposal (a nomination for election as Director or an item of
business to be considered) in our proxy statement and form of proxy for
presentation at our 2002 Annual Meeting of Shareholders, the proposal must be
received by us in writing at least 60 days in advance of the meeting date (March
22, 2002 for the meeting that year), at OnLine Power Supply, Inc., 8100 South
Akron Street, Suite 308, Englewood, Colorado 80112, Attention: Mr. Millspaugh,
Secretary.
For a special meeting, the nomination or item of business must be
received by the tenth day following the date of public disclosure of the date of
the meeting.
If we do not receive notice by that date, or if we meet other
requirements of the SEC rules, the persons named as proxies in the proxy
materials relating to that meeting will use their discretion in voting the
proxies when these matters are raised at the meeting.
If a shareholder wants to nominate someone to the board of directors,
the nomination must contain the following information about the nominee:
* name and age;
* business and residence addresses;
* principal occupation or employment;
* the number of shares of common stock held by the nominee;
* the information that would be required under the rules of the SEC
in a Proxy Statement soliciting proxies for the election of such
nominee as a Director;
* a signed consent of the nominee to serve as a Director, if elected.
A notice of a proposed item of business must include:
* a brief description of the substance of, and the reasons for
conducting, such business at the annual meeting;
* the shareholder's name and address;
* the number of shares of common stock held by the shareholder (with
supporting documentation where appropriate); and
* any material interest of the shareholder in such business.
CORPORATE GOVERNANCE AND AUDIT COMMITTEE REPORT
MEETINGS OF THE BOARD. The board of directors, which held four formal
meetings during 2000, has primary responsibility for directing the management of
our business affairs. The board currently consists of four members, and they all
attended all meetings in 2000. The board conferred informally on several other
occasions in 2000 and also approved various matters by consent minutes without
conducting formal meetings.
AUDIT COMMITTEE. To provide effective direction and review of fiscal
matters, the board established an audit committee in fiscal 2000. The audit
committee has the responsibility of reviewing our financial statements,
exercising general oversight of the integrity and reliability of our accounting
and financial reporting practices, and monitoring the effectiveness of our
internal control systems. The audit committee also
3
recommends a selection of the auditing firm and exercises general oversight of
the activities of our independent auditors, principal financial and accounting
officers and employees and related matters. The members of the audit committee
are Kris M. Budinger, Ronald W. Mathewson, and Gary R. Fairhead. Mr. Mathewson
and Mr. Fairhead are independent directors under criteria established by the
National Association of Securities Dealers, Inc. and the Nasdaq Stock Market
Inc. Mr. Thomas Glaza served on the audit committee from inception to August 11,
2000, but resigned when Mr. Fairhead was appointed as a third member.
The audit committee has reviewed our financial statements for fiscal
2000 and discussed them with management. The committee also discussed with the
independent audit firm the various matters required to be so discussed in SAS 63
(Codification of Statements on Auditing Standards, AU 380). The committee
received the written disclosure and the letter from the independent audit firm
as required by Independence Standards Board Standard No. 1 (Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committee),
and the committee discussed with the audit firm their independence. Based on the
foregoing, the audit committee recommended to the board of directors that the
audited financial statements be included in our Annual Report on Form 10-KSB
which was filed with the Securities and Exchange Commission in March 2001.
COMPENSATION COMMITTEE. Also in fiscal 2000, we established the
compensation committee to review salary, options and other arrangements for
compensating our officers and directors. The compensation committee met formally
on one occasion in fiscal 2000 and also discussed compensation matters
informally from time to time during the year.
PROPOSAL 1: ELECTION OF DIRECTORS
The board of directors has established the number of directors at four.
Each serves a one year term, or until his successor is elected to the board.
There are no arrangements or agreements among shareholders for the election of
any director.
INFORMATION ABOUT THE NOMINEES
Information about the director nominees follows:
KRIS M. BUDINGER, 48, has been President, Chief Operating Officer and
Treasurer of OnLine since July 29, 1996, and was appointed to take on the
responsibilities of CEO in March 2000, after the former CEO (Larry Arnold) left
OnLine. He has been a Director since early 1995 and was elected Director again
at the last shareholders' meeting in December 2000. Mr. Budinger is employed by
OnLine and therefore is not an independent Director. Mr. Budinger is a member of
the audit committee.
His primary duties cover supervision of product development,
coordination of research-development with prospective customers' design needs,
prospective customer relations at the corporate level, and developing
relationships with manufacturers and suppliers. He had been the Chairman,
President, and CEO of OnLine Entertainment, Inc. (prior to the merger with
Glitch Master Marketing, Inc. on July 29, 1996) from February 12, 1996 to July
29, 1996. From early 1995 to February 12, 1996, he was a Director and Vice
President of OnLine Entertainment, Inc. His responsibilities at OnLine
Entertainment, Inc. included production of original direct response television
programming, management of product order fulfillment, telemarketing, merchant
banking, and television and radio distribution functions.
4
Mr. Budinger graduated from the United States Air Force Academy in 1974
and served as a Captain in the USAF until his honorable discharge in 1980. Mr.
Budinger was associated with the national investment banking firm, E.F. Hutton,
as a registered representative from 1981 to 1985, and from 1985 to 1988 as Vice-
President and Branch Manager in Peoria, Arizona. Mr. Budinger was associated
with Dean Witter Reynolds as a registered representative from 1988 to 1992, and
during those four years was a Vice-President and Assistant Branch Manager in the
Sun City, Arizona office of Dean Witter Reynolds.
THOMAS L. GLAZA, 66, was appointed to the Board of Directors of OnLine
in July 1999 and reelected to serve as a Director of OnLine at the last
shareholders' meeting in December 2000. He serves as an outside (but not
independent) Director, and is not employed by OnLine. Mr. Glaza is a member of
the compensation committee.
He is currently an independent consultant and also a Director of
Ceimis Inc., a Los Angeles based private company that provides internet related
software for companies to manage and collaborate their internal departments and
outside entities involved with the release of new or significantly revised
products. He recently retired from MAPICS Inc., a public company with annual
revenues of $160 million dollars. Mr. Glaza was VP of Marketing and Business
Development for this Enterprise Resource Planning software company. His
responsibilities at MAPICS included negotiating the terms and conditions of
marketing rights associated with new software products, developing corporate
strategy, managing traditional marketing activities such as product
specifications, advertising schedules, trade show productions and coordinating
promotional materials and events.
He was CEO of GMD, a $10 million dollar company that provided computer
consulting services to manufacturing and distribution companies implementing new
software control systems. During his 25-year career with IBM, he held various
positions in sales and marketing, both in the United States and Europe. He is a
member and Fellow of the American Production and Information Control Society
("APICS"). Mr. Glaza graduated in 1957 with a Bachelor's degree and in 1959 with
an MBA degree from the University of Michigan.
Mr. Glaza's brother, James Glaza, is associated with Northstar
Securities, Inc., a registered broker- dealer in securities which has raised
money for us in the past. This family relationship precludes Thomas Glaza from
classification as an "independent" Director.
RONALD W. MATHEWSON, 63, was appointed to the Board of Directors of
OnLine in March 2000 to fill the vacancy resulting from the departure of Larry
G. Arnold. He is not employed by OnLine, is an independent Director, and is a
member of the audit committee and the compensation committee.
Mr. Mathewson was President and Chief Operating Officer of Fibreboard
Corporation from October 1996 to February 1998 during which time he led the
merger of Fibreboard Corporation with Owens Corning. From June 1994 to November
1995 he served as Executive Vice President and President of MagneTek, Inc.
Lighting Products Group. Mr. Mathewson was Vice President and General Manager of
the Building Insulation Division of the Johns Manville Corporation from June
1988 to June 1994. From May through November 1987 he served as President and
Chief Operating Officer of Miami-Carey Corporation. Mr. Mathewson was employed
with General Electric Company from 1981 to 1987 in various management positions
including General Manager, Marketing and Sales Manager, International Strategic
Planning and Business Development Manger, and Venture Manager.
5
Mr. Mathewson has extensive experience in strategic business planning,
acquisitions and mergers, and marketing and sales. He received a bachelor degree
in Mechanical Engineering and Business from the University of Wyoming in 1960.
GARY R. FAIRHEAD, 49, was appointed a Director of OnLine on August 11,
2000 to fill the vacancy created when the Board of Directors amended the bylaws
to increase the number of directors from three to four. Mr. Fairhead is not an
employee of OnLine, is an independent Director, and is a member of the audit
committee and the compensation committee.
Since 1990, Mr. Fairhead has been the President, Chief Executive
Officer and a Director of SigmaTron International, Inc., a Delaware corporation
listed on the Nasdaq Small Cap Market. SigmaTron, based in Elk Grove, Illinois,
is an independent provider of electronic manufacturing services, including
printed circuit board assemblies and completely assembled (boxbuild) electronic
products. SigmaTron reported net sales of $88,885,000 for the fiscal year ended
April 30, 2000. Mr. Fairhead served as a Director of Circuit Systems. Inc., an
Illinois corporation listed on the Nasdaq Small Cap Market. Circuit Systems
manufactures printed circuit boards. Circuit Systems reported net sales of $23
million for the third quarter in fiscal 2000.
Mr. Fairhead received his Bachelor of Science degree in 1974 from
Purdue University, and his Master of Science, Industrial Administration in 1978
from the Krannert School of Business, Purdue University. Since 1995, Mr.
Fairhead has been a trustee of the Central States Union and a Director of the
Lattof Branch of the YMCA.
DIRECTOR COMPENSATION
We have established a policy of compensating our non-executive
directors for their services by granting to them each year nonqualified options
to purchase 10,000 shares of common stock, at an exercise price equal to the
market price on the date of grant. The non-executive Directors (Mr. Glaza, Mr.
Mathewson and Mr. Fairhead) each have received nonqualified options to purchase
10,000 shares. See below. The options were fully vested upon grant; the exercise
price per share is $2.88 for Mr. Glaza (option expires in July 2002), $4.50 for
Mr. Mathewson (option expires in June 2003), and $8.375 for Mr. Fairhead (option
expires in August 2003), in each case qual to the market price of our stock when
the options were granted. In June 2001 we will issue options to these
individuals pro rated for a full year's service at 10,000 options per year, and
thereafter (June 2002) each will receive 10,000 options each.
We pay the travel expenses of the non-executive Directors to attend
Board meetings, but we do not pay any other compensation to them for their
service. Mr. Budinger is paid a salary as the Chief Executive Officer but is not
separately paid for service as a director.
STOCK OPTION PLANS
We have established two stock option plans that have been approved by
our shareholders (a qualified plan for employees and the other for non-executive
Directors). We also have issued nonqualified options to five persons (four
officers, and a fifth person who was an officer but left OnLine in February
2000), and an investment relations firm.
6
QUALIFIED INCENTIVE STOCK OPTION PLAN
We have adopted an incentive stock option plan for the issuance of
options to purchase up to 3.5 million shares of common stock; the options are
intended to qualify under section 422 of the Internal Revenue Code. As of
December 31, 2000, we had issued to our employees (including officers) qualified
options to purchase 428,986 shares of common stock. Most of the options are
vested (some vest over time), and are exercisable at different prices from $2.88
to $10.62 per share (equal to or above market prices when the options were
issued). All of the options may be exercised for cash, although employees who
left us in 2000 exercised by a "cashless" method that resulted in the recording
of $ 363, 117 in non-cash compensation expense to the Company. Shares were
issued equal to the remaining share value after deducting an equivalent number
of shares at value to complete the option price on the exercise date. The net
forfeited options for shares equivalent to the option price were returned to the
stock plan and are no longer outstanding. In October, 2000, the Board of
Directors modified the plan to eliminate the "cashless" method of exercising the
options. All qualified options will expire if the employee leaves or when the
options expire (at different times from 2001 to 2009). As of December 31, 2000
options to purchase 70,738 shares have been exercised, resulting in outstanding
options to purchase 398,248 shares as of December 31, 2000.
The issuance of shares on exercise of options under the incentive stock
option plan is registered with the Securities and Exchange Commission on Form
S-8.
NONQUALIFIED STOCK OPTION PLAN FOR NON-EXECUTIVE DIRECTORS
To compensate our non-executive Directors, we established a plan for
the issuance of options to purchase up to 300,000 shares of common stock;
options under this plan will not qualify under section 422 of the Internal
Revenue Code. To date, we have issued options to purchase 30,000 shares of
common stock to our three non-executive Directors. See above. We will register
the issuance of shares on exercise of options under this plan with the
Securities and Exchange Commission on Form S-8.
NONQUALIFIED OPTIONS (AND WARRANTS)
From time to time we issue options or warrants that are not covered by
an option plan and are not qualified under section 422 of the Internal Revenue
Code. These include options granted or to be granted to officers: 650,000
options to Kris M. Budinger (500,000 vested and 150,000 options which may be
granted subject to performance vesting); 125,000 options to Richard L.
Millspaugh (26,250 vested, 80,000 vesting at 20% per year and 18,750 vesting at
25% per year); 1,023,000 options granted to Garth Woodland (623,000 vested and
400,000 vesting at 20% per year); 500,000 options granted to Chris A. Riggio
(100,000 vested and 400,000 vesting at 20% per year); and former officer Larry
G. Arnold (500,000 vested and 150,000 options which may be granted subject to
performance vesting) and 30,000 warrants to an investor relations firm (Pfeiffer
Public Relations, Inc., see "Certain Relationships and Related Transactions"
below). Nonqualified options also have been granted to three other officers, and
lesser amounts of qualified options also have been granted to all of the
officers (see "Employment Agreements" below).
COMPENSATION OF DIRECTORS
Each of our present Directors who is also an employee receives no
additional compensation for acting as a Director or attending meetings of
Directors. We pay non-employee Directors all of their costs to attend Board
meetings.
Fred Budinger, Vice President Operations, is the brother of the
Chairman and CEO. Warren "Eli" Reed, Director International Sales and Marketing,
is a son-in-law of the Chairman and CEO.
7
SECTION 16(A) REPORTING
Based upon a review of Forms 3 and 4 furnished to us under rule
16a-3(a) since we became registered with the Securities and Exchange Commission
(February 24, 2000), and written representations referred to in Item
405(b)(2)(i) of Regulation S-K, no Directors, officers, beneficial owners of
more than ten percent of our common stock, or any other person subject to
Section 16 of the Exchange Act has failed to file on a timely basis, the reports
required by Section 16(a) of the Exchange Act, except that Richard L. Millspaugh
filed four late Form 4's for sales occurring in June and July, 2000 for
acquisition of shares by exercising stock options in June, 2000.
EXECUTIVE COMPENSATION
The following table shows selected information about the compensation
paid or accrued by us to or for the account of the Chief Executive Officer, the
Chief Operating Officer (who also was the President in 1999) and the Chief
Financial Officer for services provided to us in 2000, 1999 and 1998. No other
executive officer received total annual salary and bonus in excess of $100,000
annually. Other than stock options, we do not have any long-term compensation
plan.
Summary Compensation Table
Annual Compensation
-----------------------------------------
Other Annual
Name and Position Year Salary Bonuses Compensation
- ------------------ ---- ------ ------- ------------
Kris Budinger, CEO & President 2000 $150,000 $0 $0
1999 $ 72,000 $36,000 $0
1998 $ 72,000 $0 $0
Larry Arnold (former CEO)* 2000 $172,643 $0 $0
1999 $ 72,000 $36,000 $0
1998 $ 72,000 $0 $0
* Salary through February 2000; retirement pension March - December 2000.
Richard Millspaugh, CFO 2000 $ 90,000 $0 $0
(hired September, 1999) 1999 $ 18,000 $0 $0
1998 $ 0 $0 $0
8
OPTION GRANTS TO EXECUTIVE OFFICERS IN 2000 (QUALIFIED AND NONQUALIFIED)
Percent
Number of of All Options
Shares Under- Granted to
Lying Options Employees Exercise Expiration Grant Date
Name Granted in 2000 Price Date Pres. Value(1)
- ---- ------- ------- ----- ---- --------------
Fred Budinger 10,000 7 % $5.96 2005 $ 49,000
Richard L. Millspaugh 100,000 73 % $4.50 2005 $ 370,000
Warren "Eli" Reed - 0 -
Christine Maxwell - 0 -
<FN>
(1) The Black-Scholes option-pricing model was used to determine the grant
date present value of the stock options that we granted to the named
officer. The following facts and assumptions were used in making this
calculation: an exercise price of $4.50 to $5.96 per share, which was
equal to or higher than fair market value of our stock on the grant
date; a zero dividend yield; expected volatility of 79.58% (2000);
risk-free interest rate of 6.623 %, and an expected life of three
years. Please note that "present value at grant date" assumes full
vesting at that date, however, the options vest gradually over a period
of years (see "Employment Agreements" below).
</FN>
SHARES UNDERLYING OPTIONS AND THEIR VALUE
This table shows all outstanding options, and their value as of
December 31, 2000, then held by each of the named officers as of that date.
Except for Mr. Millspaugh (who exercised 11,028 options) and Mrs. Maxwell (who
exercised 7,382 options), none of the other officers exercised any options in
2000.
"Value" is determined by multiplying (x) the number of shares
underlying the options by (y) the difference between the closing stock price of
$6.00 on December 29, 2000 (the last trading day of the year) and the exercise
price of the options. "Exercisable" means "vested"; "unexercisable" means "not
vested at December 31, 2000;" "in the money" means the exercise price was less
than the closing stock price on December 29, 2000.
Number of Shares Value of Unexercised
Name Underlying Unexercised In-the-Money
Of the Options at 12/31/00 Options at 12/31/00
Officer Exercisable/Unexercisable Exercisable/Unexercisable
- ------- ------------------------- -------------------------
Kris M. Budinger 511,650/ -0- $ 250,000(1)/$ -0-(2)
Richard Millspaugh 33,972 / 80,000 $ 73,592(3)/$120,000(4)
Chris A. Riggio 136,032/400,000 $ 382,192(5)/$1,200,000(6)
Garth Woodland 659,032/400,000 $ 1,951,192(7)/$1,200,000(8)
- ----------------
<FN>
(1) Value of unexercised in-the-money vested options is based on
500,000 shares at an exercise price of $5.50, and 11,650 shares
at $6.18.
(2) None of the 150,000 performance options has vested and may not
be granted, depending on OnLine's financial performance in
2001 (see "Employment Agreements - With Kris Budinger").
9
(3) Based on 20,000 shares at an exercise price of $4.50 and 13,972
shares at $2.88.
(4) Based on 80,000 shares at an exercise price of $4.50.
(5) Based on 25,000 shares at an exercise price of $2.88 plus 11,032
shares at an exercise price of $5.62 plus 100,000 shares at an
exercise price of $3.00.
(6) Based on 400,000 shares at an exercise price of $3.00 per share.
(7) Based on 25,000 shares at an exercise price of $2.88, 11,032
shares at an exercise price of $5.62, and 623,000 shares at an
exercise price of $3.00 (523,000 vested shares plus the first
20% of the other option on 500,000 shares).
(8) Based on 400,000 shares with an exercise price of $3.00 per share.
</FN>
EMPLOYMENT AGREEMENTS
-WITH KRIS BUDINGER. We have a written employment agreement with Kris
M. Budinger through March 31, 2003 subject to automatic renewal for 5-year terms
unless terminated by us on or after September 30, 2002. The base salary was
$72,000 per year, subject to increase; in December 1999, the Board of Directors
increased the base salary to $150,000. Under the employment agreement, Mr.
Budinger was granted nonqualified stock options to purchase 500,000 shares of
common stock at $5.50 per share (all now vested), which was 110% of the fair
value of the stock at March 4, 1998. These options will expire March 4, 2004.
None have been exercised to date.
The employment agreement also provided for the grant of other
nonqualified performance stock options to purchase 500,000 shares at $.0001 per
share; if granted, these options would expire March 4, 2009. The performance
options would vest according to a formula based on gross revenues; 70% (350,000)
of the options have lapsed and won't be granted because we did not achieve the
financial goals required for vesting, but the 30% balance (covering 150,000
shares) could be granted and vest if we have more than $9 million of gross
revenues in 2001.
The employment agreement provides a cash bonus of 50% of base salary
if the average closing price of the common stock for the last 20 business days
of the current year exceeds the previous year's comparable amount by 51%. Based
on stock prices in December 1999, the bonus was earned and we paid Mr. Budinger
a cash bonus of $36,000 in March, 2000; December, 2000 closing stock prices were
below the criteria for the 50 % cash bonus, so no bonus was earned or paid
accordingly.
Separate from the employment agreement, we issued qualified options to
Mr. Budinger to purchase 11,650 shares of common stock at $6.18 per share.
-WITH GARTH WOODLAND. Garth Woodland has a five-year written employment
agreement, at a starting salary of $84,000 (increased to $102,000 per year
effective September 1, 2000). He received nonqualified stock options to purchase
523,000 shares of common stock at $3.00, all of which are vested, and options
for another 500,000 shares at the same price, to vest 20% per year starting
September 1, 2000. Mr. Woodland has separate qualified options to buy 11,032
shares at $5.62 and 25,000 shares at $2.88 (the options expire on termination of
employment or 2009.
-WITH CHRIS RIGGIO. Chris Riggio has a five year written employment
agreement at a starting salary of $84,000 per year (increased to $102,000 per
year effective September 1, 2000), He received nonqualified stock options to
purchase 500,000 shares of common stock at $3.00, to vest 20% per year starting
September 1, 2000. Mr. Riggio has separate qualified options to buy 11,032
shares at $5.62 and 25,000 shares at $2.88; these options expire on termination
of employment or 2009.
-WITH RICHARD MILLSPAUGH. Mr. Millspaugh has a five-year written
employment agreement, at a starting salary of $84,000 per year (increased to
$102,000 per year effective September 1, 2000). He received nonqualified stock
options to purchase 100,000 shares of common stock at $4.50, which will vest 20%
per year starting in 2001. We granted to Mr. Millspaugh separate qualified
options to buy 3,206 shares at $5.62
10
(expiring on termination of employment or 2009). In 2001 we granted him options
to buy 25,000 shares of common stock at $3.50; 6,250 are vested and the balance
vest at 25% annually. All options will expire on termination of employment or
2005, except that the options granted in 2001 expire in 2011. In 2000, he
acquired 11,028 shares by exercise of options.
- WITH FRED BUDINGER. Mr. Fred Budinger, Vice President Operations as
of October 26, 2000, is Kris Budinger's brother. Fred Budinger is paid a salary
of $102,000 per year (effective September 1, 2000, an increase from his starting
salary of $60,000 on January 1, 2000). We granted to Mr. Budinger a qualified
stock option to purchase 10,000 shares at $5.96 (market value on the January 3,
2000 grant date), which are all vested and expire on termination of employment
or December 13, 2009. In 2001 we granted to him nonqualified options to purchase
50,000 shares at $8.125 (one-third vested now, one-third at April 2, 2002 and
the balance at April 2, 2003); and 50,000 shares at $3.50 (25% vested now and
the balance at 25% annually. The options granted in 2001 expire in 2011.
- WITH WARREN "ELI" REED. Mr. Reed, Director International Sales and
Marketing, is Kris Budinger's son-in-law. He is paid a salary of $90,000 per
year (effective September 1, 2000, an increase from his starting salary of
$45,000 in 1996). He has been granted a qualified option to purchase 25,000
shares at $2.88, all vested, expiring on termination of employment or December
2001, and a separate qualified option to purchase 5,067 shares at $5.62, all
vested, expiring on termination of employment or December 2009. In 2001 we
granted to him nonqualified options to purchase 40,000 shares at $8.125
(one-third vested now, one- third at April 2, 2002 and the balance at April 2,
2003); and 35,000 shares at $3.50 (25% vested now and the balance at 25%
annually each April 2). The options granted in 2001 expire in 2011.
- WITH CHRISTINE MAXWELL. Mrs. Maxwell, also Director International
Sales and Marketing, is paid a salary of $90,000 per year (effective September
1, 2000, an increase from her starting salary in 1990 of $45,000 while at Glitch
Master Marketing, Inc. before its acquisition by OnLine). She has been granted a
qualified option to purchase 15,000 shares at $2.88, all vested, expiring on
termination of employment or December 2001, and a separate qualified option to
purchase 5,746 shares at $5.62 expiring on termination of employment or December
2009. In 2001 we granted to her nonqualified options to purchase 40,000 shares
at $8.125 (one-third vested now, one-third at April 2, 2002 and the balance at
April 2, 2003); and 35,000 shares at $3.50 (25% vested now and the balance at
25% annually each April 2). The options granted in 2001 expire in 2011.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information about beneficial
ownership of our common stock as of April 12, 2001 by each officer and Director,
by any person or group who is known by us to own more than 5% of our common
stock, and by the officers and Directors as a group. The ownership information
is based on the Forms 3 and 4 filed by our officers and Directors with the
Securities and Exchange Commission as required by section 16(a) of the
Securities and Exchange Act of 1934. Based on those Forms 3 and 4, the
beneficial owners have sole voting and dispositive power with respect to their
shares except as noted.
In each instance, the number of shares shown as owned by the individual
includes shares issuable on exercise of options which are or would be
exercisable by June 11, 2001 (60 days from April 12, 2001), as required by the
disclosure rules of the Securities and Exchange Commission. Similarly, the
percentage for each person has been determined by dividing (x) the shares owned
by the individual plus the shares he or she has the right to acquire on exercise
of options by June 11, 2001, by (y) the 21,243,155 shares of common stock
outstanding as of April 12, 2001, plus for each person with options, the number
of shares he or she has the right to acquire by option exercise by June 11,
2001. For information about the options, see "Executive Compensation -
Employment Agreements" above. The shares shown as owned by officers and
Directors as a group includes shares issuable on exercise of options which are
or would be exercisable by June 11, 2001, and the percentage of shares shown as
owned by that group has been determined as if all such options were exercised.
11
NAME AND ADDRESS AMOUNT OF SHARES PERCENT OF CLASS
Kris M. Budinger * 1,390,125 (1) 6.4%
Chief Executive Officer
8100 South Akron, Suite 308
Englewood, Colorado 80112
Richard L. Millspaugh 43,428 **
Chief Financial Officer
6335 Lemonwood Drive
Colorado Springs, Colorado 80918
Thomas Glaza * 70,309 **
370 Fallen Leaf Lane
Roswell, Georgia 30075
Ronald W. Mathewson * 14,750 **
87 Glenmoor Place
Englewood, Colorado 80110
Gary R. Fairhead * 37,500 **
2201 Landmeier Road
Elk Grove Village, Illinois 60007
Garth A. Woodland 819,032 3.7%
Vice-President Engineering,
8100 South Akron, Suite 308
Englewood, Colorado 80112
Chris A. Riggio 1,136,845 4.8%
Vice-President Research
And Development
8100 South Akron, Suite 308
Englewood, Colorado 80112
Fred Budinger 39,000 **
Vice President Operations
8100 South Akron, Suite 308
Englewood, Colorado 80112
Christine Maxwell 44,568 -0-
Director International Sales
and Marketing
8100 South Akron, Suite 308
Englewood, Colorado 80112
Warren "Eli" Reed 65,659 **
Director International Sales
and Marketing
8100 South Akron, Suite 308
Englewood, Colorado 80112
All Officers and Directors as a 3,661,216 17.2%
Group (10 persons)
12
* Director
** Less than 1%
(1) Includes 516,691 shares owned by immediate family members of Mr.
Budinger (Kris's wife holds sole voting and dispositive power over
412,291 shares and Mr. Budinger shares voting and dispositive power
over 102,400 shares owned by his children.)
CERTAIN RELATIONS AND RELATED TRANSACTIONS.
From January 1, 2000 through December 31, 2000, we paid Mr. Arnold
(former CEO and Chairman of the board of directors who left OnLine on February
29, 2000) $172,643 in salary plus severance compensation under the provisions of
his employment agreement, which had the same terms as the agreement with Mr.
Budinger. Mr. Arnold holds options to purchase 500,000 shares of common stock at
$5.50 per share (all now vested) which was 110% of the fair value of the stock
at March 4, 1998; these options will expire March 4, 2004. None have been
exercised to date. Mr. Arnold also is entitled to be granted the same number of
performance options which would be granted to Mr. Budinger if the financial
target is achieved in 2001. Mr. Arnold also was paid in 2000 the same cash bonus
amount as was paid to Mr. Budinger, based on stock prices in December 1999.
Thomas Glaza is a Director of OnLine. James Glaza, his brother, is
associated with Northstar Securities, Inc., a registered broker-dealer which has
helped us raise money from time to time in private placements of our securities,
most recently in 2000. We have paid cash commissions of $ 868,290 to Northstar
in 2000 (to include $ 519,529 paid to Mr. James Glaza by Northstar) and issued
Mr. James Glaza 82,237 shares of restricted common stock, also in payment of
commissions, all for his services as a stock broker associated with Northstar.
Neither Thomas Glaza nor James Glaza owns any stock in Northstar Securities Inc.
Thomas Glaza, our Director, did not participate in any way to hire Northstar
Securities Inc.
At December 31, 2000, we did not owe commissions to Northstar
Securities, Inc. for services related to our private placement offerings of
common stock. We paid all of those obligations in 2000.
On September 1, 2000, we signed a 12-month contract with Pfeiffer
Public Relations, Inc. ("PPR") to provide investor public relations services to
us. PPR is paid base compensation of $7,000 per month and has been issued
warrants to purchase 30,000 shares of restricted common stock at $9.50 for
10,000 shares, 10,000 shares at $12.50 and 10,000 shares at $15.50. The warrants
are fully vested. The contract may be canceled by either party on 30 days
notice.
PROPOSAL 2: INCREASE AUTHORIZED COMMON STOCK
The board of directors has approved the amendment of our articles of
incorporation to increase the number of shares of common stock we are authorized
to issue from the current number (50 million shares) to 100 million shares. The
amendment must be approved by the holders of a majority of the 21,243,155 shares
of common stock which are now issued and outstanding. The board of directors
recommends that you vote in favor of the increase.
Why is the amendment necessary ?
We now are authorized to issue 50 million shares of common stock. On
the record date for this meeting, 21, 243,155 shares of common stock were issued
and outstanding. In addition, a total of 6,723,000 shares are reserved for
future issue under the option plans.
13
Also, the board of directors has adopted a shareholder rights
(sometimes referred to as a "poison pill"). Under this plan, assuming an
unsolicited hostile takeover of OnLine were to begin and the board of directors
did not approve the terms of the takeover, up to approximately 18,000,000 more
shares of common stock could be issued to the shareholders (i.e., one additional
share for each outstanding share except the 15% owned by a hostile takeover
party). While the plan is designed to encourage a party to negotiate with us
about an acquisition and thereby avoid triggering the poison pill features
(issuing more stock to our shareholders), we have reserved the necessary shares
to implement those features if the need arises. We emphasize that we have no
information about any proposed acquisition of OnLine, friendly or otherwise.
Therefore, after setting aside for future issue approximately
25,000,000 shares (for the shareholder rights plan, options and warrant), we
have approximately 4,000,000 shares available for issue. The board of directors
believes OnLine could need the additional authorized shares for possible equity
financing, acquisitions, and other corporate purposes. While we do not have
current plans for raising money or acquiring other companies, it is very
important that we be able to move quickly if the need or opportunity arises in
the future.
How would the additional authorized stock be issued?
As before, our articles of incorporation and Nevada law empower the
board of directors to issue stock for consideration they determine is fair to
OnLine. This provision will not change. Shareholders will not have the right to
approve or disapprove of a stock issue.
Is there any disadvantage to having the added authorized shares?
Under our articles of incorporation and Nevada law, shareholders do not
have preemptive rights to acquire more shares, i.e., they do not have the right
to buy for themselves (to prevent dilution of their percentage ownership) any
shares of new stock proposed to be issued to others.
Why has the board of directors approved such a large increase?
The board of directors does not expect all of the added 50,000,000
shares will be needed in the near future. However, this increase is expected to
cover our issue needs hopefully for the foreseeable future, and is warranted in
light of the expense and time which would be required if a small increase were
sought now with another smaller increase possibly needed to be approved later.
PROPOSAL 3: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The board of directors seeks shareholder ratification of the board's
appointment of Ehrhardt Keefe Steiner & Hottman, P.C., Certified Public
Accountants, to act as the auditors of our financial statements for the year
2001. The audit committee has recommended that the Board retain this auditing
firm for year 2001. EKS&H audited our financial statements for 2000 and 1999.
The board has not determined what action, if any, would be taken should the
appointment of EKS&H not be ratified at the Meeting. It is expected that a
representative of EKS&H will be available at the Meeting to respond to
appropriate questions. The representative will have the opportunity to make a
statement if he or she desires to do so.
14
ACCOUNTANT'S FEES
EKS&H billed us the following fees in 2000:
Audit Fees: $60,675
Financial Information Systems Design and Implementation Fees: $ -0-
All Other Fees: $15,395
The audit committee of the board of directors considers the provision
of services described under "All Other Fees" to be compatible with EKS&H's
independence.
COPIES OF OUR FORM 10-KSB
Promptly upon receiving a request from any shareholder, without charge
we will send to the requester a copy of our Form 10-KSB, with exhibits, as filed
with the Securities and Exchange Commission. Please address your request to Kari
Austin at OnLine Power Supply, Inc., 8100 S. Akron Street, Suite 308, Englewood,
Colorado 80112. You also may call or fax her at T 303.741.5641, F 303.741.5679.
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
99.1 Audit Committee Charter
99.2 Certification by Audit Committee
15
PROXY ONLINE POWER SUPPLY, INC. PROXY
The undersigned hereby appoints Kris M. Budinger and Richard
Millspaugh, or either of them, with full power of substitution, as proxies to
all of the shares of stock of the undersigned in OnLine Power Supply, Inc. at
the Annual Meeting of Shareholders to be held on Thursday, June 21, 2001 at
10:00 a.m., local time, or at any adjournments thereof, on the matters numbered
below:
THE PROXIES WILL VOTE: (1) AS YOU SPECIFY ON THIS CARD; (2) AS THE
BOARD OF DIRECTORS RECOMMENDS WHERE YOU DO NOT SPECIFY YOUR VOTE ON A MATTER
LISTED ON THIS CARD, AND (3) AS THE PROXIES DECIDE ON ANY OTHER MATTER.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE IN FAVOR OF ALL DIRECTOR
NOMINEES AND IN FAVOR OF RATIFYING THE SELECTION OF INDEPENDENT AUDITORS.
If you wish to vote on all matters as the Board of Director recommends,
please sign, date and return this card. If you wish to vote on items
individually, please also mark the appropriate boxes below.
(INSTRUCTION: Mark only one box to each item. For election of
Directors, if you want to vote for some of the nominees but withhold
authority from the proxies to vote for other(s), please draw a line
through the name of that nominee for Director.)
1. Election of Directors:
_ FOR the nominees listed below _ AGAINST the nominees listed below _ ABSTAIN
Kris M. Budinger Thomas Glaza Gary R. Fairhead Ronald W. Mathewson
2. Increase authorized common stock to 100 million shares.
- FOR the increase _ AGAINST the increase _ ABSTAIN
3. Ratification of appointment of Ehrhardt Keefe Steiner & Hottman as indepen-
dent auditors for the current fiscal year.
_ FOR the appointment _ AGAINST the appointment _ ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
16
PROXY ONLINE POWER SUPPLY, INC. PROXY
Sign your name exactly as it appears on the mailing label below. It is
important to return this Proxy properly signed in order to exercise your right
to vote, if you do not attend in person. When signing as an attorney, executor,
administrator, trustee, guardian, corporate officer, etc., indicate your full
title as such.
Sign on this line - joint holders may sign here too: ___________________________
_______________________, 2001. ___________________
(Date) (Number of Shares)
NOTE: Please sign, date, and place this Proxy in the enclosed self-addressed,
postage prepaid envelope and deposit it in the mail as soon as possible.
Please check if you are planning to attend the meeting. __
If the address on the mailing label is not correct, please give us the correct
address:
________________________________________________________________________________
________________________________________________________________________________
17