PRELIMINARY PROXY MATERIAL
ONLINE POWER SUPPLY, INC.
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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JULY 18, 2002
June ____, 2002
We are pleased to give you notice of our Annual Meeting of Shareholders:
Date: Thursday, July 18, 2002
Time: 10:00 AM to 12:00 PM MDT
Place: The Terrace Gardens at
Dove Valley Event and Conference Center
13065 East Briarwood
Englewood, Colorado
Purpose: - Elect four directors;
- Ratify the appointment of the independent auditors; and
- Transact any other business that may properly come before
the meeting.
Record Date: May 22, 2002
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
Glenn M. Grunewald, Chief Executive Officer
INFORMATION ABOUT ATTENDING THE ANNUAL MEETING
Only shareholders of record on May 22, 2002 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.
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 JULY 18, 2002
The 2002 Annual Report on Form 10-KSB, including audited financial
statements for the fiscal year ended December 31, 2001, is mailed to
shareholders together with these proxy materials on or about June 10, 2002. The
proxy materials consist of this proxy statement and notice of annual meeting,
the Annual Report on Form 10-KSB, 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 July 18, 2002 and
at any adjournments of the Meeting.
WHO CAN VOTE
If you hold any shares of common stock on the record date (May 22, 2002),
then you will be entitled to vote at the Meeting. If you held stock in your own
name, you may vote directly. If you own 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 SHARES
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 two matters: First, on the election of directors; and
second, 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. Under Nevada law, "plurality" of votes cast means that each
shareholder may cast as many votes for or against the election of each director
nominee, as he or she holds. For example, if you hold 10,000 shares of common
stock, you may cast 10,000 votes for or against each of the nominees, or you may
abstain from voting. Those nominees receiving more affirmative votes for
election than negative votes against election, will be elected. Abstention from
voting your shares is not counted as a negative vote or a positive vote.
Therefore, if there are four nominees to be considered for election to fill four
board of directors' positions at a meeting of shareholders (as is the case for
the 2002 Meeting), each nominee will be elected if he receives more votes in
favor of his election than are cast against his election. If there were more
nominees than positions to fill (which is not the case for the 2002 Meeting),
the same rules would apply: With six nominees and four positions, only those
four receiving the highest number of affirmative over negative votes cast
against each of them, would be elected directors.
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Cumulative voting for directors is not allowed under the company's articles
of incorporation (cumulative voting allows shareholders to multiply their shares
times the number of candidates for election, and cast that number of votes all
for or against one candidate, or distribute that number of votes in any other
manner desired).
Second, 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. The plurality vote rule doesn't apply to this matter.
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.
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, 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, 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.
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OPPOSITION PROXY FILING
James F. Glaza and his wife Jeanette Glaza, and Falcon Financial Services,
Inc., a branch office of the broker-dealer firm Rushmore Securities, have filed
a definitive proxy statement with the United States Securities and Exchange
Commission (the "SEC"). In the following discussion, "Glaza" refers to James F.
Glaza and his wife Jeanette, and Falcon, which we believe is owned by Glaza;
"Glaza proxy statement" refers to the definitive proxy statement which has been
filed with the SEC; and Glaza preliminary proxy statement refers to the
preliminary proxy statement filed by Glaza on March 15, 2002. Glaza is a
shareholder of the company. See "Security Ownership of Certain Beneficial Owners
and Management" and "Certain Relationships and Related Transactions."
The Glaza proxy statement proposes retaining Thomas Glaza (James F. Glaza's
brother who has been a director of the company since July 1999) as a director,
and electing three new persons to the board of directors: David Stein, Gary A.
Young, and Kenneth Cassady (the "new slate of directors"). The Glaza proxy
statement is proposed to be used to solicit proxies, giving Glaza authority to
vote shares held by company shareholders who sign the proxies, to vote for the
new slate of directors at the company's Meeting on July 18, 2002 or at any
special meeting of the company's shareholders called by the holders of a
majority of the outstanding shares, or by consent without a meeting. The Glaza
proxy statement therefore would seek shareholder approval of a change in control
of the company. In support of Glaza's proposed change of control proxy contest,
Glaza makes a number of statements about the company's lack of adequate
financial and marketing performance to date.
The new slate of directors proposed by Glaza will not be considered for
vote by the shareholders at the company's meeting on July 18, 2002.
The board of directors of the company, as a matter of company policy and
corporate governance, does not and will not seek to block any shareholder who
seeks a change in the composition of the board of directors. However, the board
of directors believes that any solicitation of proxies must be conducted in
accordance with federal law and the SEC's rules.
On May 10, 2002, the company filed a motion for preliminary injunction, and
permanent injunction, in United States District Court, for the District of
Colorado (case number 02 D 0904(CBS)), against James F. Glaza, Jeanette Glaza
and Falcon Financial Services, Inc., Thomas Glaza, and John Does 1-10. The
complaint alleges that the defendants have solicited and are soliciting proxies
in violation of section 14 of the Securities Act of 1934, and the proxy rules of
the SEC.
The actions of the defendants, including actions of John Does 1-10 (which
actions of John Does 1-10 are alleged to have been conducted on the internet
without identification of the true identities of such defendants who are acting
as a group with the named defendants), are in relation to the Glaza preliminary
proxy statement. The company's motion for preliminary injunction alleges
(amongst other claims) that the Glaza preliminary proxy statement is materially
false and misleading for failure to identify all participants in the proxy
solicitation, and for failure to disclose the adverse regulatory history of
James and Jeanette Glaza as licensed securities brokers, failure to disclose
their suspension as certified financial planners, and failure to disclose a
finding by the Ohio Division of Securities that James F. Glaza has been denied a
license as a stock broker in Ohio because he is not of good business repute.
In addition, the company's motion for injunctive relief alleges that the
Glaza preliminary proxy statement is false and misleading for failure to
disclose the amount and prices paid for cheap stock of the
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company received by James F. Glaza and Jeanette Glaza while selling stock for
the company to customers of Falcon Financial at substantially higher prices, and
the failure to disclose amount of cash commissions paid by the company to the
brokerage firm with which Falcon Financial, and James and Jeanette Glaza, were
associated, in connection with stock offerings by the company from 1997 to
mid-2000.
The company's motion seeks a number of remedies, including an order of
court enjoining the defendants from solicitation of proxies in violation of
federal securities laws.
We believe Glaza's definitive proxy statement still does not provide clear
information which is not false and misleading to the company's shareholders.
The company's motion will be heard by the court on June 25, 2002.
REQUIREMENT AND DEADLINES FOR SHAREHOLDERS TO SUBMIT PROXY PROPOSALS
Generally, we will hold the annual meeting on the third Thursday of each
June (June 19 in 2003). Under the rules of the SEC, if a shareholder wants us to
include a proposal in our proxy statement and form of proxy for presentation at
our 2003 Annual Meeting of Shareholders, the proposal must be received by us in
writing at least 150 calendar days in advance of the meeting date (which would
be 120 days in advance of the mailing date), at OnLine Power Supply, Inc., 8100
South Akron Street, Suite 308, Englewood, Colorado 80112, Attention: Mr.
Millspaugh, Secretary.
For a special meeting, the proposal must be received a reasonable time
before the company begins to print and mail its proxy materials.
If we do not receive notice by the appropriate time, or if we meet other
requirements of the SEC rules, which allow the company exclude the proposal, a
vote on the proposal will not be included in the company's proxy statement, and
will not be considered for a vote at that meeting.
A notice of a proposed item of business must include:
o a brief description of the substance of the proposal, and the reasons
for conducting, such business at the annual meeting;
o the shareholder's name and address;
o the number of shares of common stock held by the shareholder (with
supporting documentation where appropriate); and
o 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 five formal
meetings during 2001, has primary responsibility for directing the management of
our business affairs. The board currently consists of four members. All of the
directors who served in 2001 (Kris Budinger, Gary Fairhead, Ronald Mathewson and
Thomas Glaza) attended all meetings in 2001. The board conferred informally on
several other occasions in 2001 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
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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 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 Ronald W. Mathewson
and Gary R. Fairhead. Kris Budinger also served on the audit committee until his
resignation as chief executive officer and director as of June 3, 2002. His
position on the audit committee has been filled by Glenn M. Grunewald. 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 (as composed prior to June 3, 2002) has reviewed our
financial statements for fiscal 2001 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). The committee is satisfied with the audit
firm's 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 April 2002.
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 committee also directs all
compensation policies and decisions for the company at large. The compensation
committee met formally on two occasions in fiscal 2001 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. The board of directors may expand the number of directors in the
future from four to five, however, there are no immediate plans to do so at the
present time.
INFORMATION ABOUT THE NOMINEES
Information about the director nominees follows:
GLENN M. GRUNEWALD, 53, has been Chief Executive Officer and a director of
OnLine since June 3, 2002, and was appointed by the board of directors to take
on the responsibilities of CEO on May 29, 2002 to replace Kris Budinger, who has
resigned as CEO, president and a director effective June 3, 2002. Mr. Grunewald
is a member of the audit committee, but is not an independent director because
he is an employee of OnLine.
His primary duties are developing plans and strategies for: supervision of
product development, coordination of research-development with prospective
customers' design needs, improving customer relations at the corporate level,
and developing strategic relationships with manufacturers and suppliers.
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Mr. Grunewald worked at Hubbell, Inc., Orange, Connecticut, from 1974 to
August 2001. He was promoted through the ranks to hold executive-level
responsibility for operations of Hubbell, most recently as executive president
and chief operating officer. Hubbell has annual sales of $1.4 billion, 11,500
employees, and more than 60 domestic and foreign manufacturing facilities, and
eight international sales offices. Mr. Grunewald directed operations of
Hubbell's five major business units: Power systems, electrical products,
industrial technology, wiring systems, and lighting. Responsibilities have
included strategic planning, downsizing and restructuring of operations
company-wide, and initiating and launching new product lines. Mr. Grunewald
holds a Bachelors Degree in Business Administration (Adelphi University, Garden
City, New York, 1971), and is a graduate of the Harvard University Strategic
Marketing Program (1990).
Mr. Grunewald has been a member of the CEO Roundtable, the National
Electrical Manufacturers Association ("NEMA"), an associate member of the
National Association of Electrical Distributors ("NAED"), and numerous other
industry associations.
EDWARD F. SIDOR, 63, is a nominee for election to the board of directors.
Since 2001, Mr. Sidor has been president of a private consulting company
(IBCCORP-International Business Consultants) to power supply industry clients in
the United States and Europe. Prior to organizing IBCCORP, Mr. Sidor was
worldwide sales manager for Ascom Energy Systems, Inc. from 1993 to 2001. Ascom
formerly was ABB Power Supplies, Inc., a division of ABB, a Swiss company; ABB
Power Supplies was sold to Ascom in 1999. Ascom designs and manufacturers custom
power supplies for the computer, telecommunications, and industrial markets,
with sales offices in the United States (Maine, California and Florida), and
Germany and Switzerland. Ascom engineering centers are located in the United
States, Germany and Switzerland; manufacturing facilities are located in the
United States, Asia and Europe. ABB Power Supplies' sales in 1993 were $25
million to one customer (IBM); in 2000, sales were approximately $450 million to
numerous customers including IBM, Compaq, Motorola, Nokia and Cisco Systems.
From 1991 to 1993, Mr. Sidor was vice president-sales and marketing for
Power Trends, Inc., a designer/manufacturer of technically advanced power
modules (integrated switching regulators and DC-DC power converters), sold in
the United States through independent manufacturer's representatives to
customers including IBM, Motorola, Data General, Hughes, Hewlett-Packard (now
merged to Compaq), and DEC.
Prior to 1991, Mr. Sidor was an officer of Zenith Electronics (1990-1991,
director of original equipment manufacturer "OEM" sales, responsible for
components group sales). He holds a Master of Science degree from the University
of Wisconsin (1960) and a Bachelor of Science degree, physics, from Wabash
College (1958).
Mr. Sidor is an advisory board member of the Power Sources Manufacturing
Association (chairman of the board 1998-2000); and is an advisory board member
of BIAS Power Technology, Inc., a start-up company introducing a family of
low-power (less than 5 watts) power supplies for the stand-by power market. Mr.
Sidor has patented devices in and published technical articles concerning
magnetic sensors, tunnel-diode audio frequency noise, and magnetic switching
components.
RONALD W. MATHEWSON, 63, was appointed to the Board of Directors of OnLine
in March 2000. 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.
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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.
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.
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.
DIRECTOR COMPENSATION
The non-executive Directors (Mr. Glaza, Mr. Mathewson, and Mr. Fairhead)
have received nonqualified options to purchase 73,000 shares of our common stock
for their services as Directors and will be given additional options in future
years. See below. The options were fully vested upon grant; the exercise price
per share is from $2.88 to $8.375 , in each case equal to the market price of
our stock when the options were granted and no options were exercised as of
December 31, 2001. We pay the travel expenses of the non- executive Directors to
attend Board meetings, but we do not pay any other cash compensation to them for
their service.
STOCK OPTION PLANS
We have established two stock option plans (a qualified plan for employees
that was approved by the shareholders and another plan for non-executive
Directors). We have issued nonqualified options to executive officers and to our
investor public relations firm, through December 31, 2001.
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1) ISOP approved by shareholders in December, 1999:
Total number of shares to be issued upon exercise of options: 962,324 shares
Remaining options available in the plan 2,537,676 shares
2) Non Executive Directors Plan (not shareholder approved):
Total number of shares to be issued upon exercise of options: 73,000 shares
Remaining options available in the plan 227,000 shares
3) Non qualified option (not part of any plan) shares: 2,163,000 shares
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,
2001, we had outstanding to our employees (including officers) qualified options
to purchase 362,324 shares of common stock, not including options on 600,000
shares issued to Mr. Grunewald, exercisable, at $1.40 per share (closing bid
price on May 29, 2002); 120,000 are vested and the balance vest over four years.
At June 3, 2002, there are 962,324 options outstanding to employees. Most of the
options are vested (some vest over time), and are exercisable at prices from
$1.40 to $10.62 per share (equal to or above market prices when the options were
issued). 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. The shareholders approved the incentive stock option plan in December 1999.
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 73,000 shares of common stock to our
three non-executive Directors. We have registered 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 any
option plan and are not qualified under section 422 of the Internal Revenue
Code. These include outstanding options granted to officers as directed in their
employment agreements: 500,000 options to Kris M. Budinger (100 % vested);
723,000 options to former officer Garth Woodland ( 100 % vested); 125,000
options to Richard L. Millspaugh (46,250 options fully vested, 78,750 options
vesting over three years); 500,000 options granted to Chris A. Riggio (200,000
vested and 300,000 vesting at 20% per year); and 30,000 warrants (all vested) to
Pfeiffer Public Relations, Inc., exercisable at various prices, see "Certain
Relationships and Related Transactions" below).
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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.
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.
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 and Chief
Financial Officer for services and bonuses rendered in all capacities during
each of the fiscal years ended December 31, 2001, 2000, and 1999. No other
executive officer received total annual salary and bonus in excess of $100,000
this year. Other than stock options, we do not have any long-term compensation
plan.
SUMMARY COMPENSATION TABLE
Annual Compensation
-----------------------------------------
Name and Position Year Salary Bonus
- ----------------- -----------------------------------------
Kris Budinger, (former CEO, 2001 $ 177,083 $ -
as of June 3, 2002) 2000 $ 150,000 $ -
1999 $ 72,000 $ 36,000
Larry Arnold (former CEO)* 2001 $ 108,000 $ -
2000 $ 172,463 $ -
1999 $ 72,000 $ 36,000
* Retirement provision for 18 months (8 months paid through August 2001.)
Richard Millspaugh, CFO 2001 $ 102,000 $ -
2000 $ 90,000 $ -
1999 $ 18,000 $ -
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OPTION GRANTS IN 2001 (QUALIFIED AND NONQUALIFIED)
PERCENT
NUMBER OF OF ALL OPTIONS
SHARES UNDER- GRANTED TO
LYING OPTIONS EMPLOYEES EXERCISE EXPIRATION GRANT DATE
EXECUTIVE'S NAME GRANTED IN 2001 PRICE DATE PRES. VALUE(1)
- -----------------------------------------------------------------------------------------------------------------
Richard L. Millspaugh 25,000 4.0 % $ 3.75 2009 $ -0-
Richard L. Millspaugh 15,900 2.5 % $ 2.88 2010 $ -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:
exercise prices, which was equal to or above the fair market value of our
stock on the grant date; a zero dividend yield; expected volatility of
79.58% (2002) and 97.16% (2001); risk-free interest rate of 6.623 %, and an
expected life of ten 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, 2001, held by each of the named officers as of that date. None of the
officers exercised any options in 2001.
In each case, "value" is determined by multiplying (x) the number of shares
underlying the options by (y) the difference between the closing stock price of
$2.43 per share on December 31, 2001 (the last trading day of the year) and the
exercise price of the options. "Exercisable" means "vested"; "unexercisable"
means, "not vested at December 31, 2001;" "in the money" means the exercise
price was less than the closing stock price on December 31, 2001.
NUMBER OF SHARES VALUE OF UNEXERCISED
NAME UNDERLYING UNEXERCISED IN-THE-MONEY
OF THE OPTIONS AT 12/31/01 OPTIONS AT 12/31/01
OFFICER EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
Kris M. Budinger* 511,650 / -0- $ -0- / $ -0-
Richard Millspaugh 53,428 / 90,675 $ -0- / $ -0-
Chris A. Riggio 236,032 / 300,000 $ -0- / $ -0-
* Resigned as of June 3, 2002.
EMPLOYMENT AGREEMENTS
- WITH GLENN GRUNEWALD. We have a written employment agreement with Mr.
Grunewald through May 29, 2007, subject to automatic renewal for another two
year term unless terminated or extended; the agreement will be automatically
extended for an additional two year term unless we or Mr. Grunewald notify each
other of non-extension at least 180 days before end of the term.
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Mr. Grunewald is paid a base salary of $250,000, plus annual incentive
bonuses as determined in good faith by the board of directors based on
achievement of targeted annual earnings goals or other relevant factors as
determined by the board. No goals or other factors have been determined yet for
Mr. Grunewald's bonus participation, except that he will receive a minimum of
25% of 2002 earned compensation (payable by February 14, 2003).
Options have been granted to Mr. Grunewald to purchase 600,000 shares of
common stock under the incentive stock option plan, at a exercise price of $1.40
per share (closing bid price on May 29, 2002). 120,000 shares are vested now and
120,000 more shares will vest each year on June 1, 2003, 2004, 2005 and 2006.
All these options will be exercisable until June 1, 2012, or if his employment
is terminated, then one year after termination. In addition, over the term of
the agreement, the company will grant Mr. Grunewald additional incentive stock
options to purchase at least another 250,000 shares at market value on grant
date, with vesting within one year of grant date. These options have not been
granted to date, nor has a schedule of the amounts of grants been determined
We will pay Mr. Grunewald an automobile allowance of $1,000 per month, and
pay his itemized relocation expenses from Roanoke, Virginia to the Denver,
Colorado area not in excess of $75,000.
If he dies or is incapacitated, we will pay his estate or custodians six
months of benefits under the agreement, and unvested options (schedule to vest
within 90 days after the event) will vest immediately to be exercisable for one
year after the event.
If we terminate Mr. Grunewald's employment without cause, or if he
terminates the agreement for good reason (see below), we will pay him within 30
days his base salary for 24 months after termination, plus an amount equal to
his bonus compensation earned in the prior two fiscal years, and keep his health
and insurance plans in effect for 24 months. Further, any stock options which
then were granted and scheduled to vest within 90 days of the event of
termination, will vest at termination and be exercisable for one year after the
event. If he is terminated for cause (continual or deliberate neglect of duties
as established by the board of directors, or conviction or indictment or other
matters related to felony acts, or breach of the agreement or violation of
standards of behavior applicable to officers of the company), no further
benefits will be paid to him.
He may terminate the agreement for good reason, if he is assigned duties
inconsistent with his position, or if his status and responsibilities are
reduced, and similar matters. Mr. Grunewald also may terminate the agreement for
good reason if, after a change in control of the company, the company does not
comply substantially with the terms of the agreement. "Change in control"
includes: Acquisition by a person or group of company securities representing
30% or more of the combined voting power (excluding securities originally bought
directly from the company by a person or group); or, where the current incumbent
directors as of June 1, 2002 cease for any reason to constitute at least a
majority of the board of directors (but a new director elected, or nominated for
election by the shareholders, will be considered as though the individual were a
member of the incumbent board, but not if that person becomes a director through
an actual or threatened election contest or other actual or threatened
solicitation of proxies). Other actions (such as a merger or sale of assets) may
constitute a change in control of the company.
The foregoing is only a summary of principal terms of the agreement with
Mr. Grunewald. The contract is available for review as an exhibit to the
company's Report on Form 8-K filed with the SEC on June 3, 2002.
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-WITH KRIS BUDINGER. We have a written employment agreement with Kris M.
Budinger through March 31, 2003. Mr. Budinger resigned as of June 3, 2002, at
which time his base salary was $200,000 per year. 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. Mr. Budinger will be paid his
base salary, and insurance benefits will be continued, through November 30,
2003, pursuant to the terms of his employment agreement.
-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 per share. All vested options
(pursuant to the employment agreement) will survive any voluntary termination of
employment and will expire on the third anniversary date of the separation from
the company or 2009 if not exercised. Mr. Riggio's employment contract provides
a cash bonus of 50 % of his annual salary if the company achieves $2,000,000 in
sales for any calendar year. The bonus of $51,000 for the year ended December
31, 2001 was earned and accrued for calendar year 2001 and paid in January 2002.
-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 per share, which will vest 20%
per year starting in 2000. In 1999, we granted to Mr. Millspaugh qualified
options to buy 3,203 shares at $5.62 per share. In April, 2001, we granted
25,000 non qualified options at $3.75 per share. In December 2001, we granted
15,900 options at $2.88 per share. All vested options (pursuant to the
employment agreement) will survive any voluntary termination of employment and
will expire on the third anniversary date of the separation from the company or
2009 if not exercised.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND SENIOR MANAGEMENT.
The following table sets forth certain information about beneficial
ownership of our common stock as of May 22, 2002 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, except James F. and Jeanette Glaza, whose
ownership is based on their Schedule 13D filed with the SEC. Based on the Forms
3 and 4, the beneficial owners have sole voting and dispositive power with
respect to their shares except as otherwise 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 August 3, 2002 (60 days from June 3, 2002), 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 the person has the right to acquire on
exercise of options by August 3, 2002 by (y) the 21,243,155 shares of common
stock outstanding as of June 3, 2002, plus for each person with options, the
number of shares the person has the right to acquire on exercise of options by
August 3, 2002. 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
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August 3, 2002, and the percentage of shares shown as owned by that group has
been determined as if all such options had been exercised.
NAME SHARES PERCENTAGE
Glenn M. Grunewald* 120,000(1) **
6471 Fairway Estates Drive
Roanoke, Virginia 24018
Kris M. Budinger 1,378,125(2) 6.4 %
8100 S. Akron, Suite 308
Englewood, Colorado 80112
Richard l. Millspaugh 53,428 **
Chief Financial Officer
6335 Lemonwood Drive
Colorado Springs, Colorado 80918
Thomas L. Glaza* 70,309 **
370 Fallen Leaf Lane
Roswell, Georgia 30075
Ronald W. Mathewson * 28,250 **
87 Glenmoor Place
Englewood, Colorado 80110
Gary R. Fairhead * 47,500 **
2201 Landmeier Road
Elk Grove Village, Illinois 60007
Chris A. Riggio 1,136,845 4.8%
Vice-President Discovery
8100 South Akron, Suite 308
Englewood, Colorado 80112
James F. Glaza 1,413,334(3) 6.7%
and Jeanette A. Glaza
15435 Gleneagle Drive, Suite 210
Colorado Springs, Colorado 80921
Total 4,247,791 20.0%
* Director
** Less than 1%
(1) Shares issuable on options which are vested.
(2) 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.).
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(3) Includes shares owned by each person, each of whom disclaim beneficial
ownership in the shares held by the other. James F. and Jeanette Glaza
report that they are husband and wife.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Fred Budinger, Director of Laboratory, is the brother of Kris Budinger,
former Chairman and CEO. Warren "Eli" Reed, Director International Sales and
Marketing, is a son-in-law of Kris Budinger.
Effective December 31, 2001, Mr. Garth Woodland (formerly Vice President -
Research) was no longer an employee of the company and his employment agreement
was terminated by negotiations, except for the confidentiality, trade secret
protection and non competition provisions, which continue in effect. We paid
$100,000 in cash to Mr. Woodland in full and final settlement of all payroll and
related benefits he would have received if he had remained with the company. Mr.
Woodland retained all vested stock options (723,000 shares) and forfeited
unvested stock options totaling 300,000 shares.
From January 1, 2001 through August 31, 2001, we have paid Mr. Arnold
(former CEO and Chairman of the Board of Directors who left OnLine on February
29, 2000) $108,000 in continuing severance compensation under the provisions of
his employment agreement. See below.
Mr. Kris Budinger resigned as CEO effective June 3, 2002. He will be paid
$200,000 annual base salary as severance, for 18 months after resignation, in
accordance with his employment agreement.
Thomas Glaza has been a Director of the company since July, 1999. James
Glaza, his brother, is a broker and principal in Falcon Financial Inc. of
Colorado Springs, Colorado. Falcon Financial Inc., in association with Northstar
Securities, Inc. of Dallas, Texas, (the registered broker-dealer) raised money
for us from 1996 to 2000 in private placements of our securities. See "Certain
Relationships and Related Transactions."
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
was paid a base compensation of $7,000 per month for 15 months and effective
March 1, 2002 is paid a base compensation of $4,000 per month. They have 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 terminated without cause on 30
days written notice. The contract for services was renewed for an additional
twelve months on the anniversary date of the original contract with the same
terms and conditions, except for reduced monthly cash compensation.
INTERNAL INVESTIGATION AND LAWSUIT TO BE FILED. Outside securities counsel
engaged by the company have completed an internal investigation of certain
financial transactions involving a) stock sales by the company, b)
misappropriated proceeds of stock issuances, c) certain stock transactions
conducted by Larry G. Arnold, former CEO and Chairman of the company, utilizing
an entity owned by him, and d) conduct of other persons involved in sales of
stock. The results of the investigation indicate the following:
1. That Larry G. Arnold misappropriated 47,000 shares of company stock in
late February 2000 (that was registered in another person's name and
were to be cancelled and returned to the company treasury), by
transferring that stock to a stock brokerage account, apparently for
his own personal benefit. He was asked to and did return an equivalent
number of shares to the
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company but has not accounted for any profits he may have realized
from transactions involving the original misappropriated shares.
2. That in 1996, Mr. Arnold, President of Glitchmaster Marketing Inc.,
caused Glitchmaster (since merged into OnLine Entertainment Inc. in
1996) to issue stock to certain of his friends and acquaintances, as
his nominees, maintaining physical possession of their stock
certificates. After the merger and the exchange of Glitchmaster shares
for OnLine shares, he periodically sold the nominee OnLine stock for
his personal financial benefit from 1997 to mid-1999, all in violation
of duties he owed to the company as the CEO and Chairman.
3. That from 1997 to mid-1999, Mr. Arnold sold OnLine stock, held in the
names of certain friends and acquaintances, and caused the company to
issue additional OnLine treasury shares that were also sold to
investors by Mr. Arnold. None of the proceeds (all cash) of these
stock sales were received by the company; all of the sale proceeds
were deposited into a separate bank account that was apparently owned
and controlled by Mr. Arnold. He did not disclose to the company that
he received money or other benefits from the investors who purchased
the treasury stock.
4. That Mr. Arnold may have engaged in other activities, involving stock
of the company, for his personal financial benefit, all in violation
of his duties he owed to the company as CEO and Chairman.
5. That James F. Glaza and persons associated with him acquired stock
from Larry Arnold, and from the company, at an average price of less
than $0.20, at the same time he and persons associated with him were
selling the company's stock to Glaza's customers at prices ranging
from $1.00 to $5.00, without disclosing the cheap prices at which
Glaza and persons associated with him were acquiring stock.
Based on the results of the investigation, in June 2002 the company will
file a lawsuit against Mr. Arnold for breach of fiduciary duties
(misappropriation and conversion of corporate assets), and against others, for
aiding and abetting Mr. Arnold's misdeeds, and request an accounting from him
and the other parties of the fruits of their misdeeds. The company will also
seek the return of salary and other financial benefits paid to Mr. Arnold while
employed by the company and seek recovery of the retirement benefits paid to him
pursuant to his employment agreement for 18 months following his departure from
the company in late February 2000. We estimate that the amount of financial
losses to the company, plus the amount of personal gain enjoyed by Mr. Arnold
and others acting with him, to the detriment of the company, will prove to be
substantial. However, the extent of such losses will not be completely known
until discovery is completed in the lawsuit to be filed .
SEC INVESTIGATION. The Securities and Exchange Commission commenced a
formal inquiry regarding trading in the company's stock. The investigation
initially focused on statements made on internet chat rooms about the company's
expected revenue performance in calendar year 2000. No one currently affiliated
with the company is believed to have made or participated in the making of the
targeted statements. When the company learned of such statements, in late
February 2000, the company filed a Current Report on Form 8-K to clarify its
position and correct the public record.
The SEC has requested copies of documents from the company and interviewed
current employees of the company in relation to certain stock transactions: a)
between the company and Larry G. Arnold, b)
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between the company and James F. Glaza and/or Falcon Financial Services, Inc. c)
between the company and other stock brokers associated with Falcon, and d)
between Larry G. Arnold and Mr. Glaza and Falcon and others. Falcon Financial
Services, James Glaza and other brokers affiliated with Falcon Financial were
the selling agents for OnLine stock sales from 1996 to 2000. The company and its
employees have cooperated fully with investigators and has conducted its own
internal investigation into the alleged facts and circumstances to independently
determine the merits of the allegations.
We have been notified by the SEC staff that they intend to recommend that
formal civil proceedings be initiated against the company alleging violations of
the federal securities laws. The company does not believe that monetary remedies
will be sought from the company as a result of this investigation.
The SEC staff has advised that its allegations may include charges that the
antifraud prohibitions of the federal securities laws were violated in certain
public statements made by the company. The SEC may also allege that certain
sales of securities violated the registration requirements of federal law.
The company hopes to resolve the threatened charges quickly and without
undue expense or distraction to the company. Notwithstanding the SEC staff's
allegations, the company believes the basis for the proposed charges lies with
persons not associated with the company, or who left the company over two years
ago. However, the SEC may initiate formal civil proceedings against Kris
Budinger, former CEO and director of the company, who resigned June 3, 2002,
alleging violations of the antifraud prohibitions of the federal securities
laws.
The ultimate outcome of the SEC's investigation (and resulting impact to
the company) cannot be currently determined with any degree of certainty. When
the investigation is resolved, its results will be immediately reported on Form
8-K.
PROPOSAL 2: 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
2002. The audit committee has recommended that the Board retain this auditing
firm for the current year. EKS&H audited our financial statements for 2001, 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.
ACCOUNTANT'S FEES
EKS&H billed us the following fees in 2001:
Audit and Review Fees: $63,300
Financial Information Systems Design and Implementation Fees: $ -0-
All Other Fees: $6,660 (Tax Planning and Preparation)
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The audit committee of the board of directors deems the provision of
services described under "All Other Fees - Tax Preparation Work" to be
insignificant and does not adversely affect auditor independence and function.
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
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PROXY ONLINE POWER SUPPLY, INC. PROXY
The undersigned hereby appoints Gary Fairhead 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, July 18, 2002 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. PLEASE FOLLOW THE
INSTRUCTIONS CAREFULLY.
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 and date this card on the reverse side, and return this card in the
envelope. If you wish to vote on items individually, please also mark the
appropriate boxes below.
1. Election of Directors:
Instruction: If you want the proxies to vote for all the nominees,
check the FOR box. If you want the proxies to vote against all the
nominees, check the AGAINST box. If you want the proxies to abstain
from voting from all the nominees, check the ABSTAIN box.
If you want to vote for some of the nominees but withhold authority
from the proxies to vote for others (abstain from voting for the
others), check the FOR box and draw a line through the name of that
nominee for Director, but do not write anything under the line you
draw.
If you want the proxies to vote for some nominees, but against some
other nominees, check the FOR box and draw a line through the name of
the nominees you want to vote against and write "against" under each
line you draw.
__ FOR the nominees listed below __ AGAINST the nominees listed below
__ ABSTAIN
Glenn M. Grunewald Edward F. Sidor Gary R. Fairhead Ronald W. Mathewson
2. Ratification of appointment of Ehrhardt Keefe Steiner & Hottman as
independent auditors for the current fiscal year.
Instruction: Mark only one box.
__ FOR the appointment __ AGAINST the appointment __ ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Meeting.
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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: ___________________________
_______________________, 2002. ___________________
(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:
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