SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
DIGITAL POWER CORPORATION
-------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] 125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ______________________________________________
2) Form, Schedule or Registration Statement No.: ________________________
3) Filing Party: ________________________________________________________
4) Date Filed: __________________________________________________________
DIGITAL POWER CORPORATION
41920 Christy Street
Fremont, CA 94538
(510) 657-2635
To Our Shareholders:
You are cordially invited to attend the annual meeting of the shareholders
of Digital Power Corporation to be held at 10:00 a.m. PST, on November 17, 2005,
at our corporate offices located at 41920 Christy Street, Fremont, California
94538.
At the meeting, you will be asked to (i) elect five (5) directors to the
board, (ii) approve an amendment to increase the authorized number of shares of
common stock from 10,000,000 to 30,000,000, and (iii) approve other matters that
properly come before the meeting, including adjournment of the meeting.
We hope you will attend the shareholders' meeting. However, in order that
we may be assured of a quorum, we urge you to sign and return the enclosed proxy
in the postage-paid envelope provided as promptly as possible, whether or not
you plan to attend the meeting in person.
/s/ Jonathan Wax
-------------------------------------
Jonathan Wax
Chief Executive Officer
October 31, 2005
DIGITAL POWER CORPORATION
41920 Christy Street
Fremont, CA 94538
(510) 657-2635
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 17, 2005
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Digital
Power Corporation (the "Company"), a California corporation, will be held at our
corporate headquarters, located at 41920 Christy Street, Fremont, California
94538, on Thursday, November 17, 2005, at 10:00 a.m. (PST), for the purpose of
considering and acting on the following:
1. To elect five (5) directors to the board to hold office until the next
annual meeting of shareholders or until their successors are elected
and qualified;
2. To approve an amendment to increase the authorized number of shares
from 10,000,000 to 30,000,000 shares; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on October 28, 2005,
are entitled to receive notice of and to vote at the meeting. Shareholders are
invited to attend the meeting in person.
Please sign and date the accompanying proxy card and return it promptly in
the enclosed postage-paid envelope whether or not you plan to attend the meeting
in person. If you attend the meeting, you may vote in person if you wish, even
if you previously have returned your proxy card. The proxy may be revoked at any
time prior to its exercise.
By Order of the Board of Directors
/s/ Leo Yen
-------------------------------------
Leo Yen
Secretary
October 31, 2005
YOUR VOTE IS IMPORTANT
----------------------
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
DIGITAL POWER CORPORATION
41920 Christy Street
Fremont, CA 94538
(510) 657-2635
---------------
PROXY STATEMENT
---------------
We are furnishing this proxy statement to you in connection with our annual
meeting to be held on Thursday, November 17, 2005 at 10:00 a.m. (PST) at our
corporate headquarters, located at 41920 Christy Street, Fremont, California
94538 and at any adjournment thereof. The matters to be considered and acted
upon are (i) the election of five (5) directors to the board to hold office
until the next annual meeting of shareholders or until their successors are
elected and qualified; (ii) to approve an amendment to our articles of
incorporation to increase in the number of authorized shares from 10,000,000 to
30,000,000; and (iii) such other business as may properly come before the
meeting.
The enclosed proxy is solicited on behalf of our board of directors and is
revocable by you at any time prior to the voting of such proxy. All properly
executed proxies delivered pursuant to this solicitation will be voted at the
meeting and in accordance with your instructions, if any.
Our annual report for the fiscal year 2004, including financial statements,
is included in this mailing. Such report and financial statements are not a part
of this proxy statement.
This proxy statement was first mailed to shareholders on October 31, 2005.
ABOUT THE MEETING
What is the purpose of the Annual Meeting?
The purpose of the annual meeting is to allow you to vote on the matters
outlined in the accompanying Notice of Annual Meeting of Shareholders, including
the election of the directors and an amendment to our articles of incorporation.
Who is entitled to vote?
Only shareholders of record at the close of business on the record date,
October 28, 2005 (the "Record Date"), are entitled to vote at the annual
meeting, or any postponements or adjournments of the meeting.
What are the Board's recommendations on the proposals?
The Board recommends a vote FOR each of the nominees and FOR the amendment
to increase the number of authorized common stock.
How do I vote?
Sign and date each proxy card you receive and return it in the
postage-prepaid envelope enclosed with your proxy materials. If you are a
registered shareholder and attend the meeting, you may deliver your completed
proxy card(s) in person.
1
If your shares are held by your broker or bank, in "street name," you will
receive a form from your broker or bank seeking instructions as to how your
shares should be voted. If you do not instruct your broker or bank how to vote,
your broker or bank will vote your shares if it has discretionary power to vote
on a particular matter.
Can I change my vote after I return my proxy card?
Yes. You have the right to revoke your proxy at any time before the meeting
by notifying the Company's Secretary at Digital Power Corporation, 41920 Christy
Street, Fremont, California 94538, in writing, voting in person or returning a
proxy card with a later date.
Who will count the vote?
The Secretary will count the votes and act as the inspector of election.
Our transfer agent, Computershare Transfer & Trust is the transfer agent for the
Company's common stock. Computershare Transfer & Trust will tally the proxies
and provide this information at the time of the meeting.
What shares are included on the proxy card(s)?
The shares on your proxy card(s) represent ALL of your shares.
What does it mean if I get more than one proxy card?
If your shares are registered differently and are in more than one account,
you will receive more than one proxy card. Sign and return all proxy cards to
ensure that all your shares are voted. We encourage you to have all accounts
registered in the same name and address whenever possible. You can accomplish
this by contacting our transfer agent, Computershare Transfer & Trust, located
at 350 Indiana Street, Suite 800, Golden, Colorado 80401, phone (303) 986-5400,
fax (303) 986-2444, or, if your shares are held by your broker or bank in
"street name," by contacting the broker or bank who holds your shares.
How many shares can vote?
Only shares of common stock may vote. As of the Record Date of October 28,
2005, 6,161,859 shares of common stock were issued and outstanding.
Each share of common stock is entitled to one vote at the annual meeting,
except with respect to the election of directors. In elections of directors,
California law provides that a shareholder, or his or her proxy, may cumulate
votes; that is, each shareholder has that number of votes equal to the number of
shares owned, multiplied by the number of directors to be elected, and the
shareholder may cumulate such votes for a single candidate, or distribute such
votes among as many candidates as he or she deems appropriate. However, a
shareholder may cumulate votes only for a candidate or candidates whose names
have been properly placed in nomination prior to the voting, and only if the
shareholder has given notice at the meeting, prior to the voting, of his or her
intention to cumulate votes for the candidates in nomination. The Company's
designated proxy holders (the "Proxy Holders") have discretionary authority to
cumulate votes represented by the proxies received in the election of directors.
The Proxy Holders intend to vote all proxies received by them in such manner as
will assure the election of as many of the nominees described under "Election of
Directors" as possible.
2
What is a "quorum"?
A "quorum" is a majority of the outstanding shares entitled to vote. A
quorum may be present in person or represented by proxy to transact business at
the shareholders' meeting. For the purposes of determining a quorum, shares held
by brokers or nominees for which we receive a signed proxy will be treated as
present even if the broker or nominee does not have discretionary power to vote
on a particular matter or if instructions were never received from the
beneficial owner. These shares are called "broker non-votes." Abstentions will
be counted as present for quorum purposes.
What is required to approve each proposal?
For the election of the directors, once a quorum has been established, the
nominees for director who receive the most votes will become our directors.
Holders owning a majority of the shares outstanding must approve the amendment
to our articles of incorporation.
If a broker indicates on its proxy that it does not have discretionary
authority to vote on a particular matter, the affected shares will be treated as
not present and not entitled to vote with respect to that matter, even though
the same shares may be considered present for quorum purposes and may be
entitled to vote on other matters.
What happens if I abstain?
Proxies marked "abstain" will be counted as shares present for the purpose
of determining the presence of a quorum, but for purposes of determining the
outcome of a proposal, shares represented by such proxies will not be treated as
affirmative votes.
How will we solicit proxies?
We will distribute the proxy materials and solicit votes. The cost of
soliciting proxies will be borne by us. These costs will include the expense of
preparing and mailing proxy solicitation materials for the meeting and
reimbursements paid to brokerage firms and others for their reasonable
out-of-pocket expenses for forwarding proxy solicitation materials to
shareholders. Proxies may also be solicited in person, by telephone or by
facsimile by our directors, officers and employees without additional
compensation.
3
STOCK OWNERSHIP
The following table shows the amount of our shares of common stock (AMEX
Symbol: DPW) beneficially owned (unless otherwise indicated) by each shareholder
known by us to be the beneficial owner of more than 5% of our common stock, by
each of our directors and nominees and the executive officers, directors and
nominees as a group. As of September 28, there were 6,161,859 shares of common
stock outstanding. All information is as of September 28, 2005. Unless indicated
otherwise, the address of all shareholders listed is Digital Power Corporation,
41920 Christy Street, Fremont, California 94538.
Shares Beneficially
Owned(1)
Name & Address of Beneficial Owner Number Percent
----------------------------------- ------ -------
Telkoor Power Ltd. 2,661,261 43.2%
5 Giborei Israel
Netanya 42293
Israel
Ben-Zion Diamant 3,028,765(2) 47.6%
David Amitai 2,861,261(3) 45.0%
Yeheskel Manea 20,000(4) *
Youval Menipaz 20,000(4) *
Amos Kohn 20,000(4) *
Digital Power ESOP 167,504 2.7%
Barry W. Blank 450,800 7.3%
P.O. Box 32056
Phoenix, AZ 85064
All directors and executive officers as a group 3,363,765(5) 50.2%
(6 persons)
Footnotes to Table
------------------
* Less than one percent.
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) Mr. Diamant serves as a director of Telkoor Power Ltd. Includes
options to purchase 200,000 shares owned by Mr. Diamant and 2,661,261
shares beneficially owned by Telkoor Power Ltd., which may also be
deemed beneficially owned by Mr. Diamant.
(3) Mr. Amitai serves as a director of Telkoor Power Ltd. Includes options
to purchase 200,000 shares owned by Mr. Amitai and 2,661,261 shares
beneficially owned by Telkoor Power Ltd., which may also be deemed
beneficially owned by Mr. Amitai,.
(4) Includes options to purchase 20,000 shares exercisable within 60 days.
(5) Includes 2,661,261 shares owned by Telkoor Power Ltd., which may be
deemed beneficially owned by Mr. Diamant and Mr. Amitai, options to
purchase 460,000 shares owned by directors, options to purchase 75,000
shares owned by Mr. Wax and 167,504 shares owned by Digital Power ESOP
of which Mr. Wax and Mr. Diamant are trustees and may be deemed
beneficial owners.
4
SECTION 16 TRANSACTIONS
Section 16(a) of the Exchange Act requires our executive officers and
directors to file reports of ownership and changes in ownership of our common
stock with the SEC. Executive officers and directors are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon a review of Forms 3, 4 and 5 delivered to the Securities and
Exchange Commission ("Commission") during fiscal year 2004, all current
directors and officers of the Company timely filed all required reports pursuant
to Section 16(a) of the Securities Exchange Act of 1934.
PROPOSAL 1--ELECTION OF DIRECTORS
Our bylaws presently provide that the authorized number of directors may be
fixed by resolution of the Board from time to time, with a minimum of five (5)
directors and a maximum of nine (9) directors. The Board has fixed the
authorized number of directors at five (5). The term of office for the directors
elected at this meeting will expire at the next annual meeting of shareholders
to be held in 2005 or until a director's earlier death, resignation or removal.
Our current directors consist of Messrs. Ben-Zion Diamant, David Amitai,
Yeheskel Manea, Youval Menipaz, and Amos Kohn.
Unless otherwise instructed, the proxyholders will vote the proxies
received by them for the five (5) nominees named below. If any nominee of the
Company is unable or declines to serve as a director at the time of the annual
meeting, the proxies will be voted for any nominee designated by the present
Board of Directors to fill the vacancy. Each nominee has agreed to serve as
director, if elected.
The Board has formed a nominating committee and has nominated the following
nominees for directors: Messrs. Ben-Zion Diamant, Yeheskel Manea, Youval
Menipaz, Amos Kohn and Jonathan Wax. The following indicates the age, principal
occupation or employment for at least the last five years and affiliation with
the Company, if any, for each nominee as director.
Ben-Zion Diamant Director since 2001
Mr. Ben-Zion Diamant, age 55, has been the Chairman of the Board of the
Company since November 2001. He has also been Chairman of the Board of Telkoor
Power Ltd. since 1994. From 1992-1994, Mr. Diamant was a partner and business
development manager of Phascom. From 1989 to 1992, Mr. Diamant was a partner and
manager of Rotel Communication. He earned his BA in Political Science from
Bar-Ilan University.
Amos Kohn Director since 2003
Mr. Amos Kohn, age 45, became a Director of the Company in 2003. Mr. Kohn
is the Vice President of Network Modeling of ICTV Inc., a High Tech company
located in Los Gatos, California, which is developing a centralized software
platform that enables cable operators to deliver revenue-generating new services
with full multimedia and real-time interactivity to any digital set-top. In year
2003, Mr. Kohn was Vice President of System Engineering & Business Development
of AVIVA Communications, Inc., a High Tech company located in Cupertino,
California, which is developing a transport solution for Video On Demand
systems. From 2000 to 2003, Mr. Kohn was the Chief Architect of Liberate
Technologies, a software company specializing in telecommunications located in
San Carlos, California. From 1997 to 2000, Mr. Kohn was the Vice President of
Engineering & Technology for Golden Channel, the largest Cable Operator (MSO) in
Israel. Mr. Kohn holds a Bachelors of Science in Electronics from ORT
Technological College, Israel.
5
Yeheskel Manea Director since 2002
Mr. Yeheskel Manea, age 61, has served as a Director of the Company since
2002. Since 1996, he has been a Branch Manager of Bank Hapoalim, one of the
leading banks in Israel. Mr. Manea has been employed with Bank Hapoalim since
1972. He holds a Bachelors of Science in Economy and Business Administration
from Ferris College, University of Michigan.
Youval Menipaz Director since 2002
Mr. Youval Menipaz, age 55, has served as a Director of the Company since
2002. Mr. Menipaz has been the Managing Director of Foriland Investments since
2000, a privately owned company that invests in and manages several companies.
Since 1977, he has held several executive positions in leading companies within
the Israeli market. Among others, he served as the Operation Manager of Osem
Industries Ltd, Vice President of Elite Industries Ltd, President of Supershuk
Greenberg Ltd. Mr. Menipaz holds a Bachelors of Science in Industrial
Engineering from the Technion, the Israeli Institute of Technology.
Jonathan Wax Officer since 2004
Mr. Jonathan Wax, age 48, became our CEO and President in January 2004. Mr.
Wax held Vice President positions with Artesyn Technologies, Inc. and was
stationed both domestically and in the Far East, in addition to holding a wide
variety of sales positions, including global account responsibilities with some
of Artesyn Technologies, Inc.'s largest accounts. From 1994 to 1998, prior to
the merger with Zytec and Computer Products, which formed Artesyn Technologies,
Inc., Mr. Wax was Vice President of Customer Support and Quality for Computer
Products. Mr. Wax holds a Bachelor's degree in Business from the University of
Nebraska.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" THE NOMINEES
LISTED ABOVE.
How are directors compensated?
Prior to January 1, 2005, all directors who were not employees of the
Company were paid $10,000 per annum paid quarterly. Effective January 1, 2005,
each dependent director will receive $10,000 per annum paid quarterly. However,
the director who is designated as the Audit Committee financial expert is paid
$15,000 per annum paid quarterly. Upon joining the Board, all directors who are
not related parties, are granted options to purchase 10,000 shares of common
stock vesting upon completion of one year of service. On February 28, 2005 all
directors who are not related parties were granted options to purchase 10,000
shares of common stock.
How often did the Board meet during fiscal 2004?
The Board of Directors met 11 times during fiscal 2004. Each director
attended at least 75% of the total number of meetings of the Board and
Committees on which he served.
6
Family Relationships
Mr. Manea's two children are married to Mr. Diamont's two children. Mr.
Menipaz is the son of Mr. Amitai's cousin. There are no other family
relationships between any of the officers or directors.
Committees of the Board of Directors
Audit Committee
The Board of Directors of the Company has an Audit Committee. The members
of the Audit Committee in 2004 were Messrs. Mark Thum, Amos Kohn, Yeheskel Manea
and Youval Menipaz. Mr. Thum resigned in 2004. The current members of the Audit
Committee are Messrs. Kohn, Manea and Menipaz. All Audit Committee members are
independent directors.
The Audit Committee of the Board of Directors makes recommendations
regarding the retention of independent auditors, reviews the scope of the annual
audit undertaken by our independent auditors and the progress and results of
their work, and reviews our financial statements, internal accounting and
auditing procedures and corporate programs to ensure compliance with applicable
laws. The Audit Committee reviews the services performed by the independent
auditors and determines whether they are compatible with maintaining the
independent auditor's independence. The Audit Committee has a Charter, which is
reviewed annually and as may be required due to changes in industry accounting
practices or the promulgation of new rules or guidance documents. The members of
the Audit Committee in 2004 were Messrs. Mark Thum, Amos Kohn, Yeheskel Manea
and Youval Menipaz. The current members of the Audit Committee are: Messrs.
Kohn, Manea and Menipaz. All Audit Committee members are independent directors.
The Audit Committee met four times during fiscal 2004.
The Board of Directors determined that Mr. Manea is qualified as an Audit
Committee Financial Expert. Mr. Manea is independent as determined by the AMEX
listing standards.
Compensation Committee
The Compensation Committee of the Board of Directors reviews and approves
executive compensation policies and practices, reviews salaries and bonuses for
our officers, administers the Company's Stock Option Plan and other benefit
plans, and considers other matters as may, from time to time, be referred to
them by the Board of Directors. The members of the Compensation Committee in
2004 were Messrs. Thum, Kohn, Manea and Menipaz. The current members of the
Compensation Committee are Messrs. Kohn, Manea and Menipaz. All Compensation
Committee members are independent directors.
Compensation Committee Interlocks and Insider Participation
Messrs. Kohn, Manea and Menipaz serve on the Compensation Committee. There
are no compensation committee interlocks or insider participation on our
compensation committee.
Nominating Committee
Our directors take a critical role in guiding our strategic direction and
oversee the management of the Company. Board candidates are considered based
upon various criteria, such as their broad-based business and professional
skills and experiences, a global business and social perspective, concern for
the long-term interests of the shareholders and personal integrity and judgment.
In addition, directors must have time available to devote to Board activities
7
and to enhance their knowledge of the power supply industry. Accordingly, we
seek to attract and retain highly qualified directors who have sufficient time
to attend to their substantial duties and responsibilities to the Company.
The Board of Directors has formed a nominating committee consisting of
Messrs. Kohn, Manea and Menipaz who are independent as defined in the AMEX
listing standards. The nominating committee recommends a slate of directors for
election at the annual meeting. In accordance with AMEX rules, the slate of
nominees is approved by a majority of the independent directors. The nominating
committee does not have a charter.
In carrying out its responsibilities, the nominating committee will
consider candidates suggested by shareholders. If a shareholder wishes to
formally place a candidate's name in nomination, however, he or she must do so
in accordance with the provisions of the Company's Bylaws. Suggestions for
candidates to be evaluated by the Board must be sent to Leo Yen, Corporate
Secretary, Digital Power Corporation, 41920 Christy Street, Fremont, California
94538.
In accordance with Securities Exchange Commission regulations, the
following is the Audit Committee Report. Such report is not deemed to be filed
with the Securities Exchange Commission.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the financial reporting process for the
Company on behalf of the Board of Directors. In fulfilling its oversight
responsibilities, the Audit Committee reviews the Company's internal accounting
procedures, consults with and reviews the services provided by the Company's
independent auditors and makes recommendations to the Board of Directors
regarding the selection of independent auditors. Management is responsible for
the financial statements and the reporting process, including the system of
internal controls. The independent auditors are responsible for expressing an
opinion on the conformity of those audited financial statements with generally
accepted accounting principles.
In accordance with Statements on Accounting Standards (SAS) No. 61,
discussions were held with management and the independent auditors regarding the
acceptability and the quality of the accounting principles used in the reports.
These discussions included the clarity of the disclosures made therein, the
underlying estimates and assumptions used in the financial reporting, and the
reasonableness of the significant judgments and management decisions made in
developing the financial statements. In addition, the Audit Committee has
discussed with the independent auditors their independence from the Company and
its management and the independent auditors provided the written disclosures and
the letter required by Independence Standards Board Standard No. 1.
The Audit Committee has also met and discussed with the Company's
management, and its independent auditors, issues related to the overall scope
and objectives of the audits conducted, the internal controls used by the
Company and the selection of the Company's independent auditors. In addition,
the Audit Committee discussed with the independent auditors, with and without
management present, the specific results of audit investigations and
examinations and the auditor's judgments regarding any and all of the above
issues.
8
Pursuant to the reviews and discussions described above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2004, for filing with the Securities and Exchange Commission.
Respectfully submitted,
DIGITAL POWER CORPORATION
AUDIT COMMITTEE
Amos Kohn
Yeheskel Manea
Youval Menipaz
Executive Officers
The following is a description of the business background of the Company's
officers:
Ben-Zion Diamant
See Description of Directors above.
Jonathan Wax
See Description of Directors above.
Leo Yen
Mr. Leo Yen became our Chief Financial Officer in January 2005. Mr. Yen is
the President of Sagent Management, a financial, accounting and tax consulting
firm. From 2002 to 2004, Mr. Yen founded and managed Crystal Compass, which was
acquired by Sagent Management in 2004. From 1999 to 2002, he was a Senior
Associate with Pricewaterhousecoopers LLP and from 1997 to 1999, he was a Senior
Tax Consultant with Ernst & Young LLP. Mr. Yen holds a BS in Finance, Real
Estate and Law and a BS in Accounting from California State Polytechnic
University Pomona.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer, controller
and other persons performing similar functions. A copy of our code of ethics can
be found on our website at http://www.digipwr.com/CodeofEthics.doc. The Company
will report any amendment or wavier to the code of ethics on our website within
five (5) days.
9
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS
This table lists the aggregate compensation paid in the past three years
for all services of the Chief Executive Officer. No other persons earned over
$100,000 during the last fiscal year.
SUMMARY COMPENSATION TABLE
Long Term Compensation
---------------------------------------------
Annual Compensation Awards Payouts
--------------------------------- ---------
Restricted Securities
Other Annual Stock Underlying LTIP
Name and Salary Compensation Award(s) Options Payouts All Other
Principal Position Year ($) ($) ($) (#) ($) Compensation
------------------ ---- ------------ ---------------- -------------- --------------- ----------- ------------
Jonathan Wax, Chief 2004 $153,066 $12,541 $0 $150,000 $0 $0
Executive Officer
Options Granted in Last Fiscal Year
Individual Grants
Number of Percent of Total
Securities Options Granted
Underlying to Employees in Exercise Base Expiration
Name Options Granted Fiscal Year Price ($/share) Date
------------ --------------- ---------------- --------------- ----------
Jonathan Wax 150,000 39.6% $0.99 1/2014
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth executive officer options exercised and
option values for fiscal year ended December 31, 2004, for all executive
officers at the end of the year.
Value of Unexercised
Options
Number of Options at In-the-Money
December 31, 2004 at December 31, 2004
Shares Acquired (Exercisable/ (Exercisable/
Name or Exercised Value Realized Unexercisable) Unexercisable)(1)
------- -------------- -------------- ---------------------- ---------------------
Jonathan Wax 0 0 37,500/112,500 $9,750/$29,250
Footnotes to Table
(1) Market price at December 31, 2004 for a share of common stock was $1.25.
Employment Agreements
In January 2004, we entered into an employment agreement with Mr. Jonathan
Wax, our President and Chief Executive Officer. The agreement has a term of one
year with annual renewals thereafter. Annual compensation is $165,000. In the
event of a change in control or early termination without cause, we will be
10
required to pay Mr. Wax one year compensation. As a part of the employment
contract, Mr. Wax was granted options to purchase 150,000 shares, 37,500 shares
vested immediately and the remainder vests over three years.
Ten-Year Options/SAR Repricings
There were no repricings during the year ended December 31, 2004
Equity Compensation Plan Information
The following table provides aggregate information as of the end of the
fiscal year ended December 31, 2004 with respect to all compensation plans
(including individual compensation arrangements) under which equity securities
are authorized for issuance.
=====================================================================================================================
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and rights future issuance under
warrants and rights equity compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c)
=====================================================================================================================
Equity compensation plans 1,550,425 1.37 522,480
approved by security holders
=====================================================================================================================
Equity compensation plans - - -
not approved by security
holders
=====================================================================================================================
Total 1,550,425 1.37 522,480
=====================================================================================================================
Benefit Plans
Equity Compensation Plans Not Approved by Security Holders
Subsequent to the year end, on January 17, 2004, the Board granted 150,000
options that are not part of compensation plans approved by the security
holders. There are options to purchase 150,000 shares of common stock granted in
the fiscal 2004 to the Company's Chief Executive Officer and President at an
exercise price of $0.99 vest 25% annual beginning January 17, 2004.
Employee Stock Ownership Plan
We adopted an Employee Stock Ownership Plan ("ESOP") in conformity with
ERISA requirements. As of December 31, 2004, the ESOP owns, in the aggregate,
167,504 shares of our common stock. All eligible employees of the Company
participate in the ESOP on the basis of level of compensation and length of
service. Participation in the ESOP is subject to vesting over a six-year period.
The shares of our common stock owned by the ESOP are voted by the ESOP trustees.
Mr. Wax and Mr. Diamant are the two trustees of the ESOP.
11
2002, 1998 and 1996 Stock Option Plans
We have established the 2002, 1998 and 1996 Stock Option Plans (the
"Plans"). The purposes of the Plans are to encourage stock ownership by our
employees, officers, and directors to give them a greater personal interest in
the success of the business and to provide an added incentive to continue to
advance in their employment or service to us. The Plans provide for the grant of
either incentive or non-statutory stock options. The exercise price of any stock
option granted under the Plans may not be less than 100% of the fair market
value of our common stock on the date of grant. The fair market value for which
an optionee may be granted incentive stock options in any calendar year may not
exceed $100,000. Generally, the Company's stock option agreements require all
stock to be purchase by cash or check. Unless otherwise provided by the Board,
an option granted under the Plans is exercisable for ten years. The Plans are
administered by the Compensation Committee, which has discretion to determine
optionees, the number of shares to be covered by each option, the exercise
schedule and other terms of the options. The Plans may be amended, suspended, or
terminated by the Board but no such action may impair rights under a previously
granted option. Each incentive stock option is exercisable, during the lifetime
of the optionee, only so long as the optionee remains employed by us. In
general, no option is transferable by the optionee other than by will or the
laws of descent and distribution.
As of December 31, 2004, a total of 2,272,000 options are authorized to be
issued under the 2002, 1998 and 1996 Plans and options to purchase 1,140,425
shares of common stock were outstanding.
401(k) Plan
We adopted a tax-qualified employee savings and retirement plan (the
"401(k) Plan"), which generally covers all of our full-time employees. Pursuant
to the 401(k) Plan, employees may make voluntary contributions to the 401(k)
Plan up to a maximum of six percent of eligible compensation. The 401(k) Plan
permits, but does not require, additional matching and Company contributions on
behalf of Plan participants. We match contributions at the rate of $0.25 for
each $1.00 contributed up to 6% of the base salary. We can also make
discretionary contributions. The 401(k) Plan is intended to qualify under
Sections 401(k) and 401(a) of the Internal Revenue Code of 1986, as amended.
Contributions to such a qualified plan are deductible to the Company when made
and neither the contributions nor the income earned on those contributions is
taxable to Plan participants until withdrawn. All 401(k) Plan contributions are
credited to separate accounts maintained in trust.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 31, 2003, we entered into an agreement to sell 900,000 shares of
common stock to Telkoor Power Ltd. ("Telkoor") in consideration of $600,000. As
a part of the transaction, Telkoor's warrant to purchase 900,000 shares was
canceled. The warrant to purchase 900,000 shares would have expired on May 23,
2003. Our Chairman, Mr. Diamant owns 42.45% and our Director, Mr. Amitai owns
39.98% of the outstanding shares of Telkoor Power Ltd.
On January 12, 2004, we entered into a securities purchase agreement with
Telkoor. Under the securities purchase agreement, Telkoor acquired 290,023
shares of common stock for the aggregate purchase price of $250,000.
Additionally, under the agreement, Telkoor had the right to invest an additional
$250,000 on or before June 30, 2004. The purchase price per share for the
additional investment was agreed to be the average closing price of the
Company's common stock twenty (20) trading days prior to notice of intent to
invest. On June 14, 2004, Telkoor gave notice of its intent to invest $250,000
and the parties entered into a definitive agreement on June 16, 2004. Telkoor
purchased 221,238 shares at $1.13 per share.
12
On February 3, 2005, Telkoor loaned the Company $250,000 through a
Convertible Note. Under the terms of the Convertible Note, Telkoor loaned
$250,000 interest free until the tenth business day after the Company announces
its financial results for fiscal 2005. Telkoor has the right to convert the debt
to common stock at $1.06 per share. The loan will automatically convert at $1.06
per share if the Company meets its set budget for the fiscal year 2005.
There is currently a dispute between certain shareholders and managers of
Telkoor, which is subject to litigation in Israel. Two of the members of our
Board of Directors and the two members that comprise the Board of Directors of
Digital Power Limited are involved in this dispute. Although, the Company does
not believe the dispute has seriously effected the day-to-day operations of the
Company, it has an impact on certain decision making on the Company or with one
of its suppliers (Telkoor).
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO THE ARTICLES OF INCORPORATION INCREASING
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Company's authorized capital stock currently consists of 10,000,000
shares of common stock and 1,500,000 shares of preferred stock. As of the record
date of October 28, 2005, there were 6,161,859 shares of common stock
outstanding and no preferred stock outstanding. The Board of Directors has
proposed the Company increase its authorized common stock from 10,000,000 shares
and 30,000,000 shares.
The amendment will allow the Company to issue additional shares of common
stock as may be necessary in order to provide potential growth to the Company
through financings, additional research and development activities, and to
provide equity incentives to employees, officers, and directors. Future
issuances of additional shares of common stock would have the effect of diluting
the voting rights and could have the effect of diluting earnings per share and
book value per share of existing stockholders. The availability for issuance of
additional shares of Common Stock could discourage or make more difficult
efforts to obtain control of the Company. As of the date of this proxy
statement, the Company has no understandings or agreements to issue additional
shares of common stock.
The amendment must be approved by the holders representing the majority of
the outstanding shares of common stock. The effective date of the amendment will
occur upon filing such amendment with the California Secretary of State.
Assuming that the stockholders approve the amendment, management intends to file
the amendment as soon as practicable thereafter.
If this proposal 2 is adopted by the shareholders, the first paragraph of
Section (a)(i) of Article III of the Articles of Incorporation will be amended
to read as follows:
"III: (a) (i) This Corporation is authorized to issue two classes of shares
to be designated respectively Preferred Stock, no par value, ("Preferred")
and Common Stock, no par value, ("Common"). The total number of shares of
Preferred this corporation shall have authority to issue is 2,000,000 and
the total number of shares of Common the Corporation shall have authority
to issue is 30,000,000."
13
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
10,000,000 SHARES TO 30,000,000 SHARES.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global served as
our independent auditors for the annual audit for the year ended December 31,
2004 and 2003.
Audit Fees
The aggregate fees billed by Kost Forer Gabbay & Kasierer, a Member of
Ernst & Young Global, for professional services rendered for the audit of the
Company's financial statements for the fiscal year ended December 31, 2004 was
$98,000 and December 31, 2003 was $95,000.
Audit-Related Fees
The aggregate fees billed for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
or review of the Company's financial statements for the years ended December 31,
2004 and 2003 was $0.
Tax Fees
The aggregate fees billed for tax compliance, tax advice and tax planning
rendered by our independent auditors for the fiscal year ended December 31, 2004
was $24,000 and December 31, 2003 was $30,000.
All Other Fees
The aggregate fees billed for all other professional services rendered by
the Company's independent auditors for the fiscal years ended December 31, 2004
and 2003 was $0.
The Audit Committee approved 100% of the fees paid to the principal
accountant for audit-related, tax and other fees in the fiscal year 2004. The
Audit Committee pre-approves all non-audit services to be performed by the
auditor in accordance with the Audit Committee Charter. The percentage of hours
expended on the principal accountant's engagement to audit the Company's
financial statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal accountant's full-time,
permanent employees was 0%.
Proposals of Shareholders
We must receive proposals intended to be presented by shareholders at 2006
annual meeting of shareholders no later than June 29, 2006 for consideration for
possible inclusion in the proxy statement relating to that meeting. All
proposals must meet the requirements of Rule 14a-8 of the Exchange Act.
For any proposal that is not submitted for inclusion in next year's proxy
statement (as described in the preceding paragraph), but is instead intended to
be presented directly at next year's annual meeting, Rule 14a-14 of the Exchange
Act permits management to vote proxies in its discretion if the Company (a)
receives notice of the proposal before the close of business on June 29, 2006
14
and advises shareholders in the next year's proxy statement about the nature of
the matter and how management intends to vote on such matter or (b) does not
receive notice of the proposal prior to the close of business on June 29, 2004.
Notices of intention to present proposal at the 2006 Annual Meeting should
be addressed to Digital Power Corporation, 41920 Christy Street, Fremont, CA
94538, Attention: Secretary. The Company reserves the right to reject, rule out
of order or take other appropriate action with respect to any proposal that does
not comply with these and other applicable requirements.
Annual Report to Shareholders
The Annual Report on Form 10-KSB for the fiscal year ended December 31,
2004, including audited financial statements, was mailed to the shareholders
concurrently with this proxy statement, but such report is not incorporated in
this proxy statement and is not deemed to be a part of the proxy solicitation
material. The Form 10-KSB and all other periodic filings made with the
Securities and Exchange Commission are available on the Company's website at
www.digipwr.com.
OTHER BUSINESS
We do not know of any business to be presented for action at the meeting
other than those items listed in the notice of the meeting and referred to
herein. If any other matters properly come before the meeting or any adjournment
thereof, it is intended that the proxies will be voted in respect thereof in
accordance with the recommendations of the Board of Directors.
By Order of the Board of Directors
/s/ Leo Yen
--------------------------------
Leo Yen,
Secretary
October 31, 2005
PROXY
DIGITAL POWER CORPORATION
41920 Christy Street
Fremont, CA 94538
(510) 657-2635
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jonathan Wax and Leo Yen as proxies, each
with full power to appoint substitutes, and hereby authorizes them or either of
them to represent and to vote as designated below, all the shares of common
stock of Digital Power Corporation held of record by the undersigned as of
October 28, 2005, at the Annual Meeting of Shareholders to be held at the
Company's headquarters located at 41920 Christy Street, Fremont, CA 94538, at
10:00 a.m. (PST), on November 17, 2005, and any adjournments or postponements
thereof, and hereby ratifies all that said attorneys and proxies may do by
virtue hereof.
PLEASE MARK VOTE IN BRACKET IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
Proposal 1: To elect directors to serve for the ensuing year and until their
successors are elected.
Nominees
Ben-Zion Diamant [ ] FOR [ ] WITHHOLD AUTHORITY
Jonathan Wax [ ] FOR [ ] WITHHOLD AUTHORITY
Yehezkel Manea [ ] FOR [ ] WITHHOLD AUTHORITY
Youval Menipaz [ ] FOR [ ] WITHHOLD AUTHORITY
Amos Kohn [ ] FOR [ ] WITHHOLD AUTHORITY
Proposal 2. To approve an amendment to the Company's Articles of
Incorporation to increase the authorized number of shares of
common stock from 10,000,000 to 30,000,000.
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY
Proposal 3: To transact such other business as may properly come before the
meeting and any adjournments thereof.
1
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS ONE AND TWO.
THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY TO VOTE WITH RESPECT TO OTHER
BUSINESS WHICH PROPERLY MAY COME BEFORE THE MEETING, OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
PLEASE READ, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT FURNISHED IN CONNECTION THEREWITH.
Dated: _____________, 2005
-------------------------------
Signature
-------------------------------
Signature
Common Stock
Please sign exactly as name appears at left. When shares are held by joint
tenants or more than one person, all owners should sign. When signing as
attorney, as executor, administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in partnership name
by authorized person.
2