<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
SMART Modular Technologies, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
N/A
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
------------------------------------------------------------------------
(5) Total fee paid:
N/A
------------------------------------------------------------------------
[ ] 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:
N/A
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
------------------------------------------------------------------------
(3) Filing Party:
N/A
------------------------------------------------------------------------
(4) Date Filed:
N/A
------------------------------------------------------------------------
<PAGE> 2
SMART MODULAR TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 4, 1997
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders of
SMART Modular Technologies, Inc., a California corporation (the "Company"), will
be held on Friday, April 4, 1997 at 2:00 p.m., local time, at The Hyatt Sainte
Claire, 302 South Market Street, San Jose, California 95113, for the following
purposes:
1. To elect four (4) directors to serve for the ensuing year and until
their successors are duly elected and qualified or until their earlier
death, resignation or removal;
2. To ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending October 31, 1997; and
3. To transact such other business as may properly come before the
meeting or at any and all continuation(s) or adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on February 10, 1997
are entitled to receive notice of, to attend and to vote at the meeting and at
any and all continuation(s) or adjournment(s) thereof.
All shareholders are cordially invited to attend the meeting in person. Any
shareholder attending the meeting may vote in person even if such shareholder
returned a proxy.
FOR THE BOARD OF DIRECTORS
AJAY SHAH, Chairman of the Board,
President and
Chief Executive Officer
Fremont, California
February 27, 1997
IMPORTANT: WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE
IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES.
<PAGE> 3
SMART MODULAR TECHNOLOGIES, INC.
------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors of
SMART Modular Technologies, Inc. (the "Company") for use at the Company's 1997
Annual Meeting of Shareholders (the "Annual Meeting") to be held Friday, April
4, 1997, at 2:00 p.m., local time, or at any and all continuation(s) or
adjournment(s) thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will
be held at The Hyatt Sainte Claire, 302 South Market Street, San Jose,
California 95113. The principal executive offices of the Company are located at
4305 Cushing Parkway, Fremont, California 94538. The Company's telephone number
at that location is (510) 623-1231.
These proxy solicitation materials were mailed on or about February 27,
1997 to all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
PURPOSES OF THE ANNUAL MEETING
The purposes of the Annual Meeting are (i) to elect four (4) directors to
serve for the ensuing year and until their successors are duly elected and
qualified or until their earlier death, resignation or removal, (ii) to ratify
the appointment of Arthur Andersen LLP as independent auditors of the Company
for the fiscal year ending October 31, 1997, and (iii) to transact such other
business as may properly come before the meeting or at any and all
continuation(s) or adjournment(s) thereof.
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on February 10, 1997 (the
"Record Date") are entitled to notice of, and to vote at the Annual Meeting. At
the Record Date, 19,039,656 shares of the Company's Common Stock were issued and
outstanding. For information regarding security ownership by management and 5%
shareholders, see "OTHER INFORMATION -- Security Ownership of Certain Beneficial
Owners and Management." The closing price of the Company's Common Stock on The
Nasdaq National Market on the Record Date was $29.00 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the Annual Meeting and voting in person. Attending the
Annual Meeting in and of itself will not constitute a revocation of proxy.
VOTING AND SOLICITATION
Every shareholder voting in the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which the
shareholder's shares are entitled, or distribute such shareholder's votes on the
same principle among as many candidates as the shareholder may select, provided
that votes cannot be cast for more than four (4) candidates. However, no
shareholder shall be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and the shareholder, or any other
shareholder, has given notice at the Annual Meeting prior to the voting of the
intention to cumulate the shareholder's votes. On all other matters, each share
has one (1) vote.
Shares of Common Stock represented by properly executed proxies will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated thereon. In the absence of specific instructions to
the contrary, properly executed proxies will be voted: (i) FOR the election of
each of the Company's nominees as a director, and (ii) FOR ratification of the
appointment of Arthur Andersen LLP as
1
<PAGE> 4
independent auditors for the fiscal year ending October 31, 1997. No business
other than that set forth in the accompanying Notice of Annual Meeting of
Shareholders is expected to come before the Annual Meeting. Should any other
matter requiring a vote of shareholders properly arise, the persons named in the
enclosed form of proxy will vote such proxy as the Board of Directors may
recommend.
The cost of this solicitation will be borne by the Company. The Company may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation material to such beneficial
owners. Proxies may also be solicited by certain of the Company's directors,
officers and regular employees, without additional compensation, personally or
by telephone, telegram or letter.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of Common Stock outstanding on the Record Date.
Shares that are voted "FOR" or "AGAINST" a matter are treated as being present
at the Annual Meeting for purposes of establishing a quorum and are also treated
as shares "represented and voting" at the Annual Meeting (the "Votes Cast") with
respect to such matter.
While there is no definitive statutory or case law authority in California
as to the proper treatment of abstentions or broker non-votes, the Company
believes that both abstentions and broker non-votes should be counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. The Company further believes that neither abstentions nor broker
non-votes should be counted as shares "represented and voting" with respect to a
particular matter for purposes of determining the total number of Votes Cast
with respect to such matter. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions and broker non-votes in this
manner. Accordingly, abstentions and broker non-votes will not affect the
determination as to whether the requisite majority of Votes Cast has been
obtained with respect to a particular matter.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 1998 Annual Meeting of Shareholders must
be received by the Company no later than December 4, 1997 in order to be
included in the proxy statement and form of proxy relating to that meeting.
FISCAL YEAR END
The Company's fiscal year ends on October 31. Fiscal 1996 ended October 31,
1996 and is referred to herein as the "Last Fiscal Year."
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<PAGE> 5
PROPOSAL NO. 1
ELECTION OF DIRECTORS
DIRECTORS
A board of four (4) directors is to be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the Company's four (4) nominees named below, all of whom are presently
directors of the Company. In the event that 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 who shall be designated by the present
Board of Directors to fill the vacancy. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner in accordance with cumulative voting
as will ensure the election of as many of the nominees listed below as possible.
In such event, the specific nominees for whom such votes will be cumulated will
be determined by the proxy holders. The term of office of each person elected as
a director will continue until the next Annual Meeting of Shareholders or until
his successor has been duly elected and qualified or until his earlier death,
resignation or removal. It is not expected that any nominee will be unable or
will decline to serve as a director.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH
OF THE NOMINEES LISTED BELOW.
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITION WITH THE COMPANY SINCE
- - ---------------------------------- --- ---------------------------------------------- --------
<S> <C> <C> <C>
Ajay Shah(1)...................... 37 Chairman of the Board of Directors, President 1988
and Chief Executive Officer
Mukesh Patel...................... 38 Vice President and General Manager 1988
Memory/Processor Product Line and Director
Erik Anderson(1)(2)............... 38 Director 1994
Tor R. Braham(1)(2)............... 39 Director 1995
</TABLE>
- - ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Ajay Shah co-founded the Company and has served as the Company's President
and Chief Executive Officer and as a director since its inception. In July 1995,
Mr. Shah became the Company's Chairman of the Board of Directors. Mr. Shah holds
an M.S. degree in Engineering Management from Stanford University and a B.S.
degree in Engineering with a major in Mechanical Engineering from the University
of Baroda, India.
Mukesh Patel co-founded the Company and has served as the Company's Vice
President and General Manager Memory/Processor Product Line since August 1995
and as a director since the Company's inception. From February 1989 until July
1995, Mr. Patel served as the Company's Vice President, Engineering. Mr. Patel
holds a B.S. degree in Engineering with emphasis on digital electronics from
Bombay University, India.
Erik Anderson has served as a director of the Company since November 1994.
Since February 1994, Mr. Anderson has served as the Co-President and a director
of Trillium Corp., a diversified investment company. From March 1992 until
January 1994, Mr. Anderson was a principal with Fraizer Management LLC, a
medical technology investment company. From October 1990 until March 1992, Mr.
Anderson served as the Vice President and Treasurer of Services Group of
America, an investment holding company, and from February 1985 until October
1990, he served as a Vice President of Goldman Sachs & Company, an
3
<PAGE> 6
investment banking firm. Mr. Anderson holds an M.S. degree and a B.S. degree in
Industrial Engineering from Stanford University and a B.A. degree in Economics
from Claremont McKenna College. Mr. Anderson also serves as Chairman of the
Board of Directors of Gargoyles Performance Eyewear, Inc., a manufacturer of
sunglasses.
Tor R. Braham has served as a director of the Company since July 1995. Mr.
Braham is a member of the law firm of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, where he has been practicing since 1984. Mr. Braham
holds a J.D. degree from New York University School of Law and a B.A. degree
from Columbia College. Mr. Braham also serves on the Board of Directors of OPTi
Inc., a semiconductor company, and 3Dlabs Inc., Ltd., a 3D graphics processor
company.
Ajay Shah and Lata Krishnan, the Company's Vice President, Business
Development and Administration and Secretary, are married to each other. There
are no other family relationships among the directors and executive officers of
the Company. The Company has obtained and is the beneficiary of a $1.0 million
insurance policy on the life of Ajay Shah, the Company's Chairman of the Board,
President and Chief Executive Officer, and a $1.0 million insurance policy on
the life of Mukesh Patel, Vice President and General Manager Memory/Processor
Product Line and a director of the Company.
REQUIRED VOTE
The four (4) nominees receiving the highest number of affirmative votes of
the shares present or represented and entitled to be voted for them shall be
elected as directors. Votes withheld from any director are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, but have no other legal effect in the election of directors under
California law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five (5) meetings
during the Last Fiscal Year. No incumbent director attended less than 75% of the
aggregate of all meetings of the Board of Directors and any committees of the
Board on which he served, if any, during his tenure as a director. The Board of
Directors has an Audit Committee and a Compensation Committee, but does not have
a nominating committee or a committee performing the functions of a nominating
committee.
The Compensation Committee of the Board of Directors currently consists of
Mr. Shah, Mr. Anderson and Mr. Braham. During the Last Fiscal Year, the
Compensation Committee held one (1) meeting. The Compensation Committee reviews
and makes recommendations to the Board concerning the Company's executive
compensation policy.
The Audit Committee of the Board of Directors, currently consisting of Mr.
Anderson and Mr. Braham, met one (1) time during the Last Fiscal Year. The Audit
Committee recommends engagement of the Company's independent auditors, and is
primarily responsible for approving the services performed by the Company's
independent auditors and for reviewing and evaluating the Company's accounting
policies and its systems of internal accounting controls.
DIRECTOR COMPENSATION
The Company's directors are reimbursed for their out-of-pocket travel
expenses associated with their attendance at Board meetings. Non-employee
directors of the Company are paid an annual retainer of $12,000 and are paid
$1,000 for attending each meeting, including meetings of committees unless held
on the same day as a Board meeting.
Under the Company's 1995 Director Option Plan (the "Director Plan"),
non-employee directors of the Company receive automatic grants of stock options
to purchase shares of Common Stock. The Director Plan provides that each
non-employee director who first becomes a non-employee director on or after
November 17, 1995 shall be automatically granted an option to purchase 12,000
shares of Common Stock (the "First Option") on the date on which the person
first becomes a nonemployee director, unless immediately prior to becoming a
non-employee director, such person was a director of the Company. Beginning
November 1, 1996,
4
<PAGE> 7
each non-employee director shall be automatically granted an option to purchase
3,600 shares of Common Stock (a "Subsequent Option") on November 1 of each year
provided he or she is then a non-employee director and, provided further, that
on such date he or she has served on the Board of Directors for at least the
preceding six months. Each First Option and each Subsequent Option shall have a
term of ten years and the shares subject to the option shall vest as to 1/36th
of the shares at the end of each month after the date of grant, provided that
the optionee continues to serve as a director on such dates. The exercise prices
of the First Option and each Subsequent Option shall be 100% of the fair market
value per share of the Common Stock on the date of grant of the option.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending October 31, 1997 and seeks ratification of such appointment.
In the event of a negative vote on such ratification, the Board of Directors
will reconsider its appointment.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions.
In June 1995, the Company's Board of Directors retained Arthur Andersen LLP
as its independent public accountants and dismissed the Company's former
auditors Greenstein, Rogoff, Chiu & Co. The decision to change independent
accountants was approved by resolution of the Board of Directors. There were no
disagreements with the former auditors on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure with
respect to the Company's consolidated financial statements for the fiscal year
ended October 31, 1994 or up through the time of dismissal which, if not
resolved to the former auditors' satisfaction, would have caused them to make
reference to the subject matter of the disagreement in connection with their
report. Prior to retaining Arthur Andersen LLP, the Company had not consulted
with Arthur Andersen LLP regarding accounting principles.
On February 6, 1995, the Board of Directors of Apex Data, Inc. (a
wholly-owned subsidiary of the Company acquired in July 1995) after considering
the effect of the completed merger (the "Merger") between Apex Data, Inc., a
Delaware corporation ("Apex Delaware") (formerly Cozumel Funding, Inc.), and
Apex Data, Inc., a California corporation ("Apex California"), and the
relocation of Apex Data, Inc. from Salt Lake City, Utah to Pleasanton,
California, approved the engagement of BDO Seidman LLP of San Francisco,
California as Apex Data, Inc.'s principal accountant to audit Apex Data, Inc.'s
financial statements. On February 6, 1995, Ernst & Young LLP, who was formerly
engaged as the accountant for Apex California prior to the Merger, was notified
of the termination of their engagement. On February 7, 1995, Jones, Jensen &
Company of Salt Lake City, Utah ("Jones, Jensen"), who was formerly engaged as
the accountant for Apex Delaware, was notified of the termination of their
engagement.
With respect to the report of Ernst & Young LLP on the financial statements
of Apex California for the fiscal year ended March 31, 1994, there were no
adverse opinions or disclaimers of opinion; however, the report of Ernst & Young
LLP dated July 12, 1994 included an emphasis paragraph that Apex Data, Inc.'s
dependence on obtaining additional financing to fund its operations raised
substantial doubt about its ability to continue as a going concern. The report
of Ernst & Young LLP for the fiscal year ended March 31, 1994, was not qualified
as to audit scope or accounting principles. With respect to the report of Jones,
Jensen on the financial statements of Apex Delaware for the year ended March 31,
1994, there were no adverse opinions, or disclaimers of opinion, nor was such
report qualified as to uncertainty, audit scope or accounting principles.
For the fiscal year ended March 31, 1994, and for the interim period from
April 1, 1994 through the date of their dismissal, there were no disagreements
between Ernst & Young LLP and Apex California on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures,
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<PAGE> 8
which disagreements, if not resolved to the satisfaction of Ernst & Young LLP,
would have caused it to make a reference to the subject matter of the
disagreement in connection with its reports. For the fiscal year ended March 31,
1994, and for the interim period from April 1, 1994 through the date of their
dismissal, there were no disagreements between Jones, Jensen and Apex Delaware
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedures, which disagreements, if not resolved
to the satisfaction of Jones, Jensen, would have caused it to make a reference
to the subject matter of the disagreement in connection with its reports.
REQUIRED VOTE
The affirmative votes of a majority of the Votes Cast is required to ratify
the appointment of Arthur Andersen LLP as the Company's independent auditors for
the fiscal year ending October 31, 1997.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT
OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING OCTOBER 31, 1997.
OTHER INFORMATION
EXECUTIVE OFFICERS
In addition to Messrs. Shah and Patel, the following persons were executive
officers of the Company as of October 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - -------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Lata Krishnan......................... 35 Vice President, Business Development and
Administration and Secretary
David B. Mullin....................... 43 Vice President, Finance and Chief Financial
Officer
Alan Marten........................... 37 Vice President, Product Line Manager Memory
Product Line
Jim Northington....................... 50 Vice President, Quality Assurance and Corporate
Development
Pranatharthi Haran.................... 37 Vice President, Research and Development
John Chess............................ 40 Vice President, General Manager Data
Communications Product Line
Dhaval J. Brahmbhatt.................. 41 Vice President, Technology Development Memory
Product Line
</TABLE>
Lata Krishnan co-founded the Company and has served as the Company's Vice
President, Business Development since September 1996 and Vice President,
Administration and Secretary since the Company's inception. From the Company's
inception until September 1996, Ms. Krishnan served as the Company's Vice
President, Finance and Chief Financial Officer. Ms. Krishnan holds a B.S. degree
from the London School of Economics and is a member of the Institute of
Chartered Accountants in England and Wales.
David B. Mullin has served as Vice President, Finance and Chief Financial
Officer of the Company since September 1996. From November 1995 until September
1996, Mr. Mullin served as Borland International, Inc.'s Vice President Finance
& Administration and Chief Financial Officer. From September 1990 until November
1995, Mr. Mullin served in various capacities at Conner Peripherals, Inc.
("Conner"), the most recent of which were Director of Corporate Financial
Planning & Analysis and Chief Financial Officer of
6
<PAGE> 9
Arcada Software, Inc., a subsidiary of Conner. Mr. Mullin holds a B.A. degree
from San Francisco State University, and is licensed as a certified public
accountant in California.
Alan Marten joined the Company in February 1990 and has served as Vice
President, Product Line Manager Memory Product Line since July 1995. From
February 1990 until January 1997, Mr. Marten served as the Company's Vice
President, Sales. Mr. Marten holds an M.B.A. degree from San Jose State
University and a B.S. degree in Economics and Computer Science from Santa Clara
University.
Jim Northington has served as Vice President, Quality Assurance and
Corporate Development of the Company since January 1997. From November 1994
until January 1997, Mr. Northington served as the Company's Vice President,
Operations. From July 1989 until October 1994, Mr. Northington was a principal
at APS Products, Inc., an electronics manufacturing consulting firm. From June
1986 until July 1989, Mr. Northington served as Western Digital Corporation's
Vice President of Manufacturing for North America and Hong Kong. Mr. Northington
holds a B.S. degree in Industrial Technology from California State University,
Long Beach.
Pranatharthi Haran has served as Vice President, Research and Development
of the Company since March 1993. From May 1986 until February 1993, Mr. Haran
was the Vice President of Engineering at Omnitel, Inc., a data communications
company. Mr. Haran holds an M.S. degree in Electrical Engineering from Kansas
State University and a B.S. degree in Electrical Engineering from the Indian
Institute of Technology in Madras, India.
John Chess has served as Vice President, General Manager Data
Communications Product Line since the Company's acquisition of Apex Data, Inc.
in July 1995. From May 1992 until July 1995, Mr. Chess served as President and
Chief Operating Officer of Apex Data, Inc. From March 1987 until May 1992, Mr.
Chess served as Vice President and General Manager of Piiceon, Inc., a computer
memory board manufacturer. Mr. Chess holds an M.S. degree in International
Management from the American Graduate School of International Management and a
B.S. degree in International Relations from California State University, Chico.
Dhaval J. Brahmbhatt has served as Vice President, Technology Development
Memory Product Line of the Company since January 1996. From August 1991 to
January 1996, Mr. Brahmbhatt served as a Product Line Director at National
Semiconductor Inc., a semiconductor company. Mr. Brahmbhatt holds an M.S. degree
in Electrical Engineering from the University of Cincinnati, an M.S. degree in
Solid-State Electronics from Gujarat University in Ahmedabad, India and a B.S.
degree in Physics from Gujarat University.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file certain reports
regarding ownership of, and transactions in, the Company's securities with the
Securities and Exchange Commission and with The Nasdaq Stock Market, Inc. Such
officers, directors, and 10% shareholders are also required to furnish the
Company with copies of all Section 16(a) forms that they file.
Based solely on its review of copies of Forms 3 and 4 and amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) and Forms 5 and
amendments thereto furnished to the Company with respect to the Last Fiscal
Year, and any written representations referred to in Item 405(b)(2)(i) of
Regulation S-K stating that no Forms 5 were required, the Company believes that,
during the Last Fiscal Year, all Section 16(a) filing requirements applicable to
the Company's officers and directors were complied with except that John Chess
amended his Form 3 because of a mistake, John Chess amended a Form 4 because
three transactions by him were not reported on a timely basis, John Chess was
late in filing one Form 4, resulting in one transaction by him not being
reported on a timely basis, and John Chess amended a Form 4 to correct
cumulative effects of other Form 3 and Forms 4 corrections. During the Last
Fiscal Year, the Company did not receive copies of Forms 4 and 5 from any 10%
shareholders that were not officers or directors of the Company. Therefore, the
Company does not know whether all Section 16(a) filing requirements applicable
to said parties were complied with.
7
<PAGE> 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of January 6, 1997 by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each of the Company's directors, (iii) the Company's Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company whose aggregate cash compensation exceeded $100,000
during the fiscal years ended October 31, 1996, 1995 and 1994 (the "Named
Executive Officers"), and (iv) all directors and executive officers as a group.
A total of 18,991,443 shares of the Company's Common Stock was issued and
outstanding as of January 6, 1997.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
----------------------
DIRECTORS, NAMED EXECUTIVE OFFICERS AND 5% SHAREHOLDERS NUMBER PERCENT
- - ------------------------------------------------------------------------ ----------- -------
<S> <C> <C>
Ajay Shah(2)............................................................ 6,110,000 31.0
Lata Krishnan(3)........................................................ 6,110,000 31.0
Mukesh Patel(4)......................................................... 3,990,000 20.5
Alan Marten(5).......................................................... 480,000 2.5
Jim Northington(6)...................................................... 158,266 *
Bayside Development Corporation(7)...................................... 1,790,000 9.4
c/o International Service Co.
Apartado 7440
Panama
Attention: Dr. Sharma
Barclays Private Trust (BVI) Limited as Trustee of the Indira Trust..... 1,000,000 5.3
c/o C.J. Couzens
P.O. Box 70
Roadtown
Tortola, British Virgin Islands
Erik Anderson(8)........................................................ 40,400 *
Tor R. Braham(9)........................................................ 32,900 *
All directors and executive officers as a group (11 persons)(10)........ 11,240,700 54.3
</TABLE>
- - ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of January 6, 1997 are
deemed outstanding. To the Company's knowledge, except as set forth in the
footnotes to this table and subject to applicable community property laws,
each party named in the table has sole voting and investment power with
respect to the shares set forth opposite such party's name. Except as
otherwise indicated, the address of each of the parties in this table is as
follows: c/o SMART Modular Technologies, Inc., 4305 Cushing Parkway,
Fremont, California 94538.
(2) Includes 2,937,500 shares held by Mr. Shah and 450,000 shares owned by Mr.
Shah in the form of immediately exercisable options, some of which, if
exercised and issued, would be subject to a repurchase right of the Company
that lapses over time. Includes 972,500 shares held by Ms. Krishnan and
250,000 shares owned by Ms. Krishnan in the form of immediately exercisable
options, some of which, if exercised and issued, would be subject to a
repurchase right of the Company that lapses over time. Also includes
1,500,000 shares which are held in Krishnan-Shah Family Partners, LP, a
California limited partnership, in which Mr. Shah and Ms. Krishnan are the
general partners. Mr. Shah and Ms. Krishnan are married to each other.
(3) Includes 972,500 shares held by Ms. Krishnan and 250,000 shares owned by
Ms. Krishnan in the form of immediately exercisable options, some of which,
if exercised and issued, would be subject to a repurchase right of the
Company that lapses over time. Includes 2,937,500 shares held by Mr. Shah
and
8
<PAGE> 11
450,000 shares owned by Mr. Shah in the form of immediately exercisable
options, some of which, if exercised and issued, would be subject to a
repurchase right of the Company that lapses over time. Also includes
1,500,000 shares which are held in Krishnan-Shah Family Partners, LP, a
California limited partnership, in which Mr. Shah and Ms. Krishnan are the
general partners. Mr. Shah and Ms. Krishnan are married to each other.
(4) Includes 450,000 shares owned by Mr. Patel in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time. Also
includes 1,270,000 shares which are held in Patel Family Partners, LP, a
California limited partnership, in which Mr. Patel and his spouse are the
general partners.
(5) Includes 200,000 shares owned by Mr. Marten in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(6) Includes 90,281 shares owned by Mr. Northington in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(7) Bayside Development Corporation is beneficially owned by Tej Kaur Sharma.
(8) Includes 400 shares owned by Mr. Anderson in the form of options
exercisable as of January 6, 1997 or within sixty (60) days thereafter.
(9) Includes 30,000 shares owned by Mr. Braham in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time. Also
includes 400 shares owned by Mr. Braham in the form of options exercisable
as of January 6, 1997 or within sixty (60) days thereafter.
(10) Includes 1,701,448 shares owned by the eleven directors and executive
officers listed above in the form of immediately exercisable options, some
of which, if exercised and issued, would be subject to a repurchase right
of the Company that lapses over time. Also includes 17,134 shares owned by
certain of the directors and executive officers listed above in the form of
options exercisable as of January 6, 1997 or within sixty (60) days
thereafter.
9
<PAGE> 12
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning compensation of the Company's Named Executive Officers during the
fiscal years ended October 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
FISCAL ----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS COMPENSATION(2)
- - -------------------------------------- ------ -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Ajay Shah............................. 1996 $165,100 $ 551,000 -- $ 500
Chairman of the Board of Directors, 1995 161,850 2,356,495 150,000 500
President and Chief Executive
Officer 1994 168,075 1,869,135 -- 500
Mukesh Patel.......................... 1996 $133,120 $ 405,000 -- $ 500
Vice President and General Manager 1995 128,440 1,815,570 150,000 500
Memory/Processor Product Line 1994 133,380 1,366,025 -- 500
Lata Krishnan......................... 1996 $105,300 $ 206,000 -- $ 500
Vice President, Business Development 1995 100,100 369,025 100,000 500
and Administration and Secretary 1994 103,950 179,903 -- 500
Alan Marten........................... 1996 $ 91,000 $ 220,000 -- $ 500
Vice President, Product Line Manager 1995 81,991 814,988 100,000 500
Memory Product Line 1994 83,002 428,880 -- 500
Jim Northington....................... 1996 $165,091 $ 159,000 -- --
Vice President, Quality Assurance 1995 114,294(3) 34,669 250,000 --
and Corporate Development 1994 -- -- -- --
</TABLE>
- - ---------------
(1) Represents discretionary bonus payments determined by the Company's Board of
Directors.
(2) Represents matching contributions made by the Company to the 401(k) Plan on
behalf of the Named Executive Officers.
(3) In March 1995, Mr. Northington became an employee of the Company at an
annual base salary of $165,000.
OPTION GRANTS IN LAST FISCAL YEAR
No stock option grants were made to the Named Executive Officers during the
Last Fiscal Year.
10
<PAGE> 13
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information as of October 31, 1996
concerning vested and unvested stock options held by each of the Named Executive
Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE ---------------------- -------------------------
NAME EXERCISE REALIZED VESTED UNVESTED(2) VESTED UNVESTED(2)
- - ---------------------- ----------- ------------- ------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ajay Shah............. -- -- 400,000 50,000 $7,758,000 $ 847,500
Mukesh Patel.......... -- -- 400,000 50,000 7,758,000 847,500
Lata Krishnan......... -- -- 216,667 33,333 4,161,506 564,994
Alan Marten........... 100,000 $1,381,937.50 166,667 33,333 3,171,506 574,994
Jim Northington....... 124,998 1,570,388.13 13,888 111,114 225,680 1,805,603
</TABLE>
- - ---------------
(1) The value of an "in-the-money" stock option represents the difference
between the aggregate estimated fair market value of the underlying
securities, based on the closing price of $20.25 per share of the Company's
Common Stock on The Nasdaq National Market on October 31, 1996, and the
aggregate exercise price of the subject stock option.
(2) Options are immediately exercisable for all the option shares, but any
shares purchased under the options will be subject to repurchase by the
Company, at the original exercise price per share, upon the optionee's
cessation of service prior to vesting of such shares. The table indicates
the number and value of shares no longer subject to the Company's repurchase
right (vested) and the number of shares subject to the repurchase right
(unvested) as of October 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In July 1995, the Compensation Committee of the Board of Directors
consisting of Ajay Shah, Erik Anderson and Tor R. Braham was formed. No
executive officer of the Company serves as a member of the Board of Directors or
Compensation Committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee. Wilson Sonsini Goodrich & Rosati, Professional Corporation, of which
Mr. Braham is a member, was retained by the Company during the Last Fiscal Year.
CERTAIN TRANSACTIONS
In July 1994, the Company paid $30,000 for a warrant to purchase 2,000,000
shares of Series A Preferred Stock of Krypton Isolation, Inc. ("Krypton") at
$0.05 per warrant share (for an aggregate of $100,000). The warrant is
exercisable, in whole or in part, at any time through the earlier of 48 months
from its July 1994 issuance date, a sale of substantially all the assets of
Krypton, a merger of Krypton, or the effective date of a registration statement
in connection with Krypton's public offering. Ajay Shah (the Company's Chairman
of the Board of Directors, President and Chief Executive Officer), Mukesh Patel
(the Company's Vice President and General Manager Memory/Processor Product Line
and a Director) and Lata Krishnan (the Company's Vice President, Business
Development and Administration and Secretary) concurrently purchased 400,000,
400,000 and 200,000 shares, respectively, of Krypton's Common Stock,
representing at that time an aggregate 42.8% interest in Krypton. Mr. Shah, Mr.
Patel and Ms. Krishnan are members of Krypton's Board of Directors.
Krypton and the Company, Mr. Shah, Mr. Patel, Ms. Krishnan and certain
other of Krypton's shareholders (the "Holders") are parties to a Holders'
Agreement. Under the Holders' Agreement, the Holders are entitled to periodic
information about Krypton and have certain registration rights and rights of
first refusal. The Company also was granted certain voting rights under this
agreement.
In July 1994, the Company entered into a License and Supply Agreement with
Krypton, whereby Krypton agreed to supply 100% of certain of Krypton's product
required by the Company. In addition,
11
<PAGE> 14
Krypton granted to the Company certain license and trademark rights with respect
to the use and modification of said product. In exchange, the Company provided
research and development funding to Krypton in an aggregate amount of $750,000.
The license portion of this agreement has no expiration date. All other
provisions of this agreement shall continue in effect for a period of 15 years.
In January 1996, the Company and Krypton entered into an agreement whereby
the Company paid an additional $80,000 for a warrant to purchase 2,000,000
shares of Krypton's Series B Preferred Stock at $0.15 per warrant share (for an
aggregate of $300,000). The Company has the right to exercise the warrant, in
whole or in part, at any time through the earlier of 48 months from its January
1996 issuance date, a sale of substantially all the assets of Krypton, a merger
of Krypton, or the effective date of a registration statement in connection with
Krypton's public offering. Krishnan-Shah Family Partners, LP, a California
limited partnership with Mr. Shah and Ms. Krishnan as general partners, and
Patel Family Partners, LP, a California limited partnership with Mr. Patel and
his spouse as general partners, concurrently purchased an additional 600,000 and
400,000 shares, respectively, of Krypton's Common Stock for an aggregate
purchase price of $150,000.
In January 1996, the Company and Krypton also entered into a new License
and Supply Agreement similar to that described above but covering different
intellectual property. The funding requirement for this new agreement totals
$500,000 with $100,000 due at inception, and an additional $100,000 due every
six weeks, provided certain milestones are met, until paid in full. At October
31, 1996, the Company had paid Krypton $380,000 in funding. The license portion
of the agreement has no expiration date. All other provisions of the agreement
will continue in effect for a period of 15 years.
In April 1996, Krishnan-Shah Family Partners, LP (a California limited
partnership with Mr. Shah and Ms. Krishnan as general partners), Patel Family
Partners, LP (a California limited partnership with Mr. Patel and his spouse as
general partners) and Tor R. Braham (one of the Company's directors) purchased
65,000, 37,000 and 38,000 shares, respectively, of Krypton's Common Stock from
other shareholders of Krypton. At October 31, 1996, Mr. Shah, Ms. Krishnan, Mr.
Patel and Mr. Braham's (or their respective limited partnerships') aggregate
interest in Krypton was 50.4%.
During fiscal 1996, the Company paid approximately $47,800 to Krypton for
Krypton products. At October 31, 1996, Krypton owed the Company approximately
$9,800 on a note that bears interest at 10% per annum and is payable in full by
July 1997 and approximately $25,000 on a note that bears interest at 10% per
annum and is payable in full by April 1998.
On June 30, 1995, pursuant to a stock purchase right granted under the
Company's 1989 Incentive Stock Plan, the Company sold 50,000 shares of Common
Stock to Erik Anderson (one of the Company's directors) in consideration of Mr.
Anderson's execution of a full recourse promissory note secured by said 50,000
shares of Common Stock. The note bears interest at 6.27% compounded
semi-annually and is due in full on June 30, 1998. As of October 31, 1996,
approximately $217,200 was outstanding under the note. Portions of this stock
are subject to repurchase by the Company, at the original purchase price per
share, upon Mr. Anderson's cessation of service prior to vesting of such shares.
The shares vest as to 1/36th of the shares at the end of each month after the
date of purchase, provided that Mr. Anderson continues to serve as a director on
such dates.
On November 15, 1993, John Chess (the Company's Vice President, General
Manager Data Communications Product Line) borrowed $146,250 from the Company.
The debt arose from the issuance and sale of shares of the Common Stock of Apex
Data, Inc. to Mr. Chess prior to the Company's acquisition of Apex Data, Inc.
The loan, which is unsecured, bears interest at a rate of 6.5% per annum, and is
payable in annual interest-only installments through November 15, 1998, when the
principal balance is due in full. As of October 31, 1996, Mr. Chess owed the
Company approximately $176,600 under this loan.
The Company has entered into indemnification agreements with its executive
officers, directors and certain significant employees. The Company's
indemnification agreements will require the Company, among other things, to
indemnify such persons against certain liabilities that may arise by reason of
their status or service as directors, executive officers or significant
employees and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
12
<PAGE> 15
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. Any future transactions, including loans, between
the Company and any of its officers, directors, affiliates and principal
shareholders will be on terms no less favorable to the Company than can be
obtained from unaffiliated third parties. Any such transactions will be subject
to approval of a majority of the Board of Directors, including a majority of the
independent, disinterested directors.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors establishes the
general compensation policies of the Company as well as the compensation plans
and specific compensation levels for executive officers. It also administers the
Company's employee stock benefit plan for executive officers. The majority of
the Compensation Committee is currently composed of independent, non-employee
directors who, except as disclosed under "OTHER INFORMATION -- Compensation
Committee Interlocks and Insider Participation," have no interlocking
relationships as defined by the Securities and Exchange Commission.
The Compensation Committee believes that the compensation of the executive
officers, including that of the Chief Executive Officer (collectively the
"Executive Officers"), should be influenced by the Company's performance. The
Committee establishes the salaries of all of the Executive Officers by
considering (i) the Company's financial performance for the past year, (ii) the
achievement of certain objectives related to the particular Executive Officer's
area of responsibility, (iii) the salaries of executive officers in similar
positions of comparably-sized companies and (iv) the relationship between
revenue and executive officer compensation. The Committee believes that the
Company's executive officer salaries in the Last Fiscal Year were comparable in
the industry for similarly-sized businesses.
In addition to salary, the Committee, from time to time, grants options to
Executive Officers. The Committee thus views option grants as an important
component of its long-term, performance-based compensation philosophy. Since the
value of an option bears a direct relationship to the Company's stock price, the
Committee believes that options motivate Executive Officers to manage the
Company in a manner which will also benefit shareholders. As such, options are
granted at the current market price. And one of the principal factors considered
in granting options to an Executive Officer is the Executive Officer's ability
to influence the Company's long-term growth and profitability.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Ajay Shah
Erik Anderson
Tor R. Braham
13
<PAGE> 16
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder
return, calculated on a dividend reinvested basis, from the effective date of
the initial public offering of the Company's Common Stock (November 17, 1995)
through the fiscal 1996 year end (October 31, 1996) for the Company, the Nasdaq
Stock Market -- U.S. Index (the "Nasdaq Index") and the Nasdaq Electronic
Components Index (the "Electronic Index"). The graph assumes that $100 was
invested in the Company's Common Stock on November 17, 1995 and in the Nasdaq
Index and the Electronic Index on October 31, 1995. Note that historic stock
price performance is not necessarily indicative of future stock price
performance.
COMPARISON OF 11 MONTH CUMULATIVE TOTAL RETURN*
AMONG SMART MODULAR TECHNOLOGIES, INC., THE NASDAQ STOCK
MARKET-US INDEX AND THE NASDAQ ELECTRONIC COMPONENTS INDEX
<TABLE>
<CAPTION>
SMART MODULAR
MEASUREMENT PERIOD TECHNOLOGIES, NASDAQ STOCK NASDAQ ELECTRONIC
(FISCAL YEAR COVERED) INC. MARKET-US COMPONENTS
<S> <C> <C> <C>
1 100 100 100
12 169 118 122
</TABLE>
- - ---------------
* $100 INVESTED ON 11/17/95 IN STOCK OR ON 10/31/95 IN INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING OCTOBER 31.
14
<PAGE> 17
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy to vote the shares they represent as the
Board of Directors may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute and
return the accompanying proxy in the envelope which has been enclosed, at your
earliest convenience.
FOR THE BOARD OF DIRECTORS
Ajay Shah, Chairman of the Board of
Directors,
President and Chief Executive Officer
Dated: February 27, 1997
15
