<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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
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
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(2) Aggregate number of securities to which transaction applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
N/A
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
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
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(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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<PAGE> 2
SMART MODULAR TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MARCH 16, 1998
TO THE SHAREHOLDERS OF SMART MODULAR TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of
SMART Modular Technologies, Inc., a California corporation (the "Company"), will
be held on Monday, March 16, 1998 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 approve an amendment to the Company's Amended and Restated
Articles of Incorporation to increase the authorized number of shares of
the Company's Common Stock by 100,000,000 shares to a total of 200,000,000
shares and the authorized number of shares of the Company's Preferred Stock
by 15,000,000 shares to a total of 30,000,000 shares;
3. To approve an increase by 6,000,000 shares in the number of shares
of Common Stock authorized for issuance under the Company's 1995 Stock Plan
to a total of 12,000,000 shares;
4. To ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending October 31, 1998; and
5. 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 January 19, 1998
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 20, 1998
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 1998
Annual Meeting of Shareholders (the "Annual Meeting") to be held Monday, March
16, 1998, 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 20,
1998 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 approve
an amendment to the Company's Amended and Restated Articles of Incorporation to
increase the authorized number of shares of the Company's Common Stock by
100,000,000 shares to a total of 200,000,000 shares, and the authorized number
of shares of its Preferred Stock by 15,000,000 shares to a total of 30,000,000
shares, (iii) to approve an increase by 6,000,000 shares in the number of shares
of Common Stock authorized for issuance under the Company's 1995 Stock Plan to a
total of 12,000,000 shares, (iv) to ratify the appointment of Arthur Andersen
LLP as independent auditors of the Company for the fiscal year ending October
31, 1998, and (v) 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 January 19, 1998 (the
"Record Date") are entitled to notice of, and to vote at the Annual Meeting. At
the Record Date, 42,603,812 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 $26.625 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
On all 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, (ii) FOR approval of the proposed amendment to the
Company's Amended and Restated Articles of Incorporation, (iii) FOR approval of
the proposed increase in the number of shares of Common Stock reserved under the
Company's 1995 Stock
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Plan, and (iv) FOR ratification of the appointment of Arthur Andersen LLP as
independent auditors for the fiscal year ending October 31, 1998. 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 1999 Annual Meeting of Shareholders must
be received by the Company no later than November 16, 1998 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 1997 ended October 31,
1997 and is referred to herein as the "Last Fiscal Year."
STOCK SPLIT
On November 20, 1997, the Company's Board of Directors approved a
two-for-one stock split of the outstanding shares of Common Stock of the
Company, effected in the form of a stock dividend (the "Stock Split"). The Stock
Split entitled each shareholder of record as of the close of business on
December 3, 1997 to receive one additional share of Common Stock for each
outstanding share of Common Stock held by such shareholder. The Board of
Directors approved the Stock Split to lower the market price and to increase the
trading activity of the Company's Common Stock with a view to obtaining wider
distribution and improved marketability of the Common Stock. Unless otherwise
indicated, all share and per share amounts presented herein related to the
Company's capital stock reflect the Stock Split.
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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. 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.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE
NOMINEES LISTED BELOW.
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION WITH THE COMPANY DIRECTOR SINCE
- - ---------------------- --- --------------------------------------- --------------
<S> <C> <C> <C>
Ajay Shah 38 Chairman of the Board of Directors, 1988
President and Chief Executive Officer
Mukesh Patel 39 Vice President and General Manager 1988
Memory/Processor Product Line and
Director
Erik Anderson(1)(2) 39 Director 1994
Tor R. Braham(1)(2) 40 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 Chairman of the Company's 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. Mr. Shah also serves on the Board of Directors of Krypton
Isolation, Inc. ("Krypton"), a semiconductor company, and Proactive Networks,
Inc., a network monitoring tool company.
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. Mr. Patel also serves on the Board of Directors of
Krypton.
Erik Anderson has served as a director of the Company since November 1994.
Since January 1996, Mr. Anderson has served as Chief Executive Officer of
Trillium Corp. ("Trillium"), a diversified investment company. From February
1994 until January 1996, Mr. Anderson served in various executive capacities at
Trillium. Mr. Anderson has also served as a director of Trillium since February
1994. From March 1992 until January 1994, Mr. Anderson was a principal with
Fraizer Management LLC, a medical technology
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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 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 has served as Managing Director, Technology Mergers and Acquisitions of
UBS Securities LLC since November 1997. From 1984 until November 1997, Mr.
Braham was an attorney at the law firm of Wilson Sonsini Goodrich & Rosati,
Professional Corporation and was a member of the firm form 1988 to 1997. 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 Boards of Directors
of OPTi Inc., a semiconductor company, and 3Dlabs Inc., Ltd., a 3D graphics
processor company, as well as three private companies.
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.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of seven (7) 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 during the Last Fiscal
Year consisted 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 24,000
shares of Common Stock (the "First Option") on the date on which the person
first becomes a non-employee director, unless immediately prior to becoming a
non-employee director, such person was a director of the Company. Beginning
November 1, 1996, each non-employee director shall be automatically granted an
option to purchase 7,200 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 has a term of ten years, and the shares subject to the option
vest as to 1/36th of the shares at the end of each month after the date of
grant, provided
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that the optionee continues to serve as a director on such dates. The exercise
prices of the First Option and each Subsequent Option are 100% of the fair
market value per share of the Common Stock on the date of grant of the option.
PROPOSAL NO. 2
AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED ARTICLES OF INCORPORATION
The Board of Directors has determined that it is in the best interests of
the Company and its shareholders to amend the Company's Amended and Restated
Articles of Incorporation to increase the number of authorized shares of the
Company's Common Stock by 100,000,000 shares to a total of 200,000,000 shares
and to increase the number of authorized shares of the Company's Preferred Stock
by 15,000,000 shares to a total of 30,000,000 shares. Accordingly, the Board of
Directors has unanimously approved the proposed amendment to the Company's
Amended and Restated Articles of Incorporation (the "Amended Articles"), and
hereby solicits the approval of the Company's shareholders of the Amended
Articles.
If the shareholders approve the Amended Articles, the Board of Directors
currently intends to file the Amended Articles with the Secretary of State of
the State of California as soon as practicable following such shareholder
approval.
As of the Record Date, (i) 42,603,812 shares of the Company's Common Stock
were issued and outstanding, (ii) 13,365,967 shares of Common Stock were
available for issuance pursuant to the Company's stock option and stock purchase
plans, of which options to purchase 7,450,767 shares were outstanding, and (iii)
no shares of the Company's Preferred Stock were issued or outstanding. The Board
of Directors currently is authorized to fix the number of shares of any series
of the Preferred Stock and to determine or alter the rights, preferences,
privileges, restrictions, and designation granted to or imposed upon the
Preferred Stock.
PURPOSE OF THE PROPOSED AMENDMENT
The objective of the increase in the authorized number of shares of Common
Stock by 100,000,000 shares to a total of 200,000,000 shares and the increase in
the authorized number of shares of Preferred Stock by 15,000,000 shares to a
total of 30,000,000 shares is to ensure that there are a sufficient number of
authorized shares of the Company's capital stock available for future issuances.
Although at present the Board of Directors has no firm plans to issue
additional shares of the Company's capital stock, the Board of Directors
believes that it is prudent to increase the number of authorized shares of the
Company's capital stock to the proposed levels in order to provide a reserve of
shares available for issuance in connection with possible future actions. Such
actions may include, without limitation, the sale of stock in public or private
financings, the establishment of strategic relationships with corporate
partners, provision of equity incentives to employees, officers or directors,
the acquisition of, or investment in, complementary businesses or products or
the acquisition of rights to use complementary technologies. In addition, the
Company recently effected the Stock Split. Although it has no present plans to
do so, the Board of Directors believes it to be in the best interests of the
Company to ensure that there are sufficient authorized shares of the Company's
capital stock to allow the Board of Directors to effect a similar stock split in
the future. For all of these reasons, the Board of Directors believes that the
increase in the authorized number of shares of the Company's capital stock is in
the best interests of the Company and its shareholders.
POSSIBLE EFFECTS OF THE PROPOSED AMENDMENT
If the shareholders approve the Amended Articles, the Board of Directors
may cause the issuance of additional shares of Common Stock or Preferred Stock
without further vote of the shareholders of the Company, except as provided
under California corporate law or under the rules of the Nasdaq Stock Market,
Inc. or any other national securities exchange on which shares of Common Stock
of the Company may then be listed. Current holders of Common Stock have no
preemptive or similar rights, which means that current shareholders do not have
a prior right to purchase any new issues of capital stock of the Company in
order to
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maintain their percentage ownership thereof. The issuance of additional shares
of the Company's capital stock would decrease the proportionate equity interest
of the Company's current shareholders and, depending upon the price paid for
such additional shares, could result in immediate and substantial dilution to
the Company's current shareholders.
In addition, the Board of Directors could use authorized but unissued
shares of Preferred Stock to create impediments to a takeover or a transfer of
control of the Company. Accordingly, the increase in the number of authorized
shares of the Company's capital stock may deter a future takeover attempt which
holders of Common Stock may deem to be in their best interests or in which
holders of Common Stock may be offered a premium for their shares over the
market price.
The Board of Directors is not currently aware of any attempt to take over
or acquire the Company. Although it may be deemed to have potential
anti-takeover effects, the proposed amendment to increase the authorized capital
stock is not prompted by any specific effort or takeover threat currently
perceived by management.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock will be required to approve the Amended Articles.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDED ARTICLES.
PROPOSAL NO. 3
AMENDMENT OF 1995 STOCK PLAN TO
INCREASE AUTHORIZED SHARES
The 1995 Stock Plan (the "Stock Plan") was adopted by the Company's Board
of Directors and approved by the Company's shareholders on October 3, 1995.
There are currently a total of 6,000,000 shares of Common Stock reserved for
issuance under the Stock Plan. On December 19, 1997, the Board approved an
amendment to the Stock Plan to increase the number of shares of Common Stock
authorized for issuance thereunder by 6,000,000 shares to a total of 12,000,000
shares. At the Annual Meeting, the shareholders are being asked to approve this
increase in the number of shares of Common Stock authorized for issuance under
the Stock Plan.
As of the Record Date, options to purchase 303,389 shares of Common Stock
have been exercised, options to purchase 3,660,845 shares of Common Stock at a
weighted average price of $17.05 per share were outstanding and 2,035,766 shares
of Common Stock remained available for future grants under the Stock Plan.
SUMMARY OF THE STOCK PLAN
The essential features of the Stock Plan are outlined below.
Purposes. The purposes of the Stock Plan are to attract and retain the best
available personnel for positions of substantial responsibility at the Company,
to provide additional incentive to employees and consultants of the Company, and
to promote the success of the Company's business.
Administration. The Stock Plan may be administered by the Board of
Directors or a committee of the Board of Directors; provided, however, that with
respect to grants of options to employees who are also officers or directors of
the Company, the Stock Plan shall be administered by (i) the Board of Directors
if it may administer the Stock Plan in compliance with the rules governing a
plan intended to qualify thereunder as a discretionary plan under Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor rule thereto ("Rule 16b-3"), or (ii) a committee
designated by the Board of Directors to administer the Stock Plan, which
committee shall be constituted to comply with the
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rules governing a plan intended to qualify under Rule 16b-3 as a discretionary
plan under Rule 16b-3 (the "Administrator"). The Stock Plan may be administered
by different bodies with respect to directors, officers who are not directors,
and employees who are neither officers nor directors. Presently, the
Compensation Committee of the Board of Directors acts as the Stock Plan
Administrator.
The Administrator of the Stock Plan has the authority to select the persons
to receive options, to fix the number of shares that each optionee may purchase,
to set the terms and conditions of each option, and to determine all other
matters relating to the Stock Plan.
Stock Options. The Stock Plan permits the granting of stock options that
either qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended ("Incentive Stock Options" or "ISOs"), or do
not so qualify ("Nonstatutory Stock Options" or "NSOs"). All options granted
under the Stock Plan are evidenced by a stock option agreement between the
Company and the optionee to whom such option is granted.
The term of each option is fixed by the Administrator but may not exceed
ten years from the date of grant, or five years from the date of grant in the
case of options granted to a shareholder possessing more than 10% of the voting
power of all classes of stock of the Company or any parent or subsidiary of the
Company.
Option Price. The option exercise price for each share covered by an ISO
may not be less than the fair market value of a share of Common Stock on the
date of grant of such option. In the case of an ISO granted to a shareholder
possessing more than 10% of the voting power of all classes of stock of the
Company or any parent or subsidiary of the Company, the option exercise price
for each share covered by such option may not be less than 110% of the fair
market value of a share of Common Stock on the date of grant of such option. The
exercise price for each share covered by an NSO may be determined by the
Administrator.
Fair Market Value. The fair market value of a share of Common Stock, as
determined by the Stock Plan, is the closing sales price for the stock on the
market trading day as reported in the Wall Street Journal or similar
publication.
Stock Purchase Rights. The Stock Plan permits the granting of stock
purchase rights to employees, including officers, and consultants of the Company
("Stock Purchase Rights" or "SPRs"). The grant is accepted by execution of a
restricted stock purchase agreement in the form determined by the Administrator.
In no event may the SPR be accepted more than six (6) months after the date of
grant. Unless the Administrator determines otherwise, the restricted stock
purchase agreement grants the Company a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment with the
Company for any reason (including death or disability). The purchase price for
shares repurchased pursuant to the restricted stock purchase agreement is the
original price paid by the purchaser, and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option lapses at a
rate determined by the Administrator.
Eligibility. The Stock Plan provides that Nonstatutory Stock Options and
Stock Purchase Rights may be granted to employees, including officers and
consultants, of the Company or any parent or subsidiary of the Company.
Incentive Stock Options may be granted only to employees, including officers, of
the Company or any parent or subsidiary of the Company.
Consideration. The consideration to be paid for shares issued upon exercise
of options or SPRs granted under the Stock Plan, including the method of
payment, is determined by the Administrator (and, in the case of ISOs,
determined at the time of grant) and may consist entirely of (i) cash, (ii)
check, (iii) promissory note, (iv) shares of Common Stock which, in the case of
shares acquired upon exercise of an option, have been owned by the optionee or
purchaser for at least six (6) months and have a fair market value on the date
of surrender equal to the aggregate exercise price of the shares being
purchased, (v) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price, (vi) a reduction
in the amount of any Company liability to the optionee or purchaser, (vii) any
combination of the foregoing methods, or (viii) such other consideration and
method of payment permitted by applicable laws.
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Termination of Relationship with the Company. Under the Stock Plan, in the
event of an optionee's termination of employment or consulting relationship for
any reason other than death or disability, an option may thereafter be
exercised, to the extent it was exercisable at the date of such termination, for
three (3) months (but in no event later than the expiration of the term of such
option) unless otherwise specified in the optionee's notice of grant. If an
optionee's employment or consulting relationship is terminated as a result of
his or her disability or death, the optionee, or his or her personal
representative or any other person who acquires such option by will or the
applicable laws of descent and distribution, may, within twelve (12) months (but
in no event later than the expiration of the term of such option) after the
termination of employment or consultancy, exercise such option to the extent it
was exercisable on the date of the termination.
Nontransferability of Options and Stock Purchase Rights. Options and SPRs
granted pursuant to the Stock Plan are nontransferable by the optionee or
purchaser, other than by will or by the laws of descent and distribution, and
may be exercised, during the lifetime of the optionee or purchaser, only by the
optionee or purchaser.
Adjustment Upon Changes in Capitalization. In the event any change, such as
a stock split or dividend, is made in the Company's capitalization which results
in an increase or decrease in the number of outstanding shares of Common Stock,
an appropriate adjustment shall be made in the number of shares which have been
reserved for issuance under the Stock Plan and each option and SPR outstanding
thereunder and the exercise price of each outstanding option and SPR. The Stock
Plan provides that in the event of a merger of the Company with or into another
corporation or the sale of substantially all of the assets of the Company, each
option or SPR may be assumed or an equivalent option or SPR may be substituted
by a successor corporation. In the event that the successor corporation refuses
to assume or substitute for the option or SPR, the optionee shall have the right
to exercise the option or SPR as to all of the stock subject to the option or
SPR, including shares as to which it would not otherwise be exercisable. In such
case, the Administrator will notify the optionee that the option or SPR is fully
exercisable for a period of fifteen (15) days from the date of such notice,
after which the option or SPR will terminate. In the event of a proposed
dissolution or liquidation of the Company, any unexercised options or SPRs will
terminate immediately prior to the proposed action.
Amendment and Termination. The Board may amend, alter, suspend or
discontinue the Stock Plan at any time; provided, however, that no amendment,
alteration, suspension or discontinuation may be made that would impair the
rights of any optionee or purchaser under any option or SPR theretofore granted,
without the optionee's or purchaser's consent, or that, without the approval of
the shareholders, would increase the number of shares reserved for issuance
under the Stock Plan, extend the duration of the Stock Plan, or change the class
of persons eligible to receive options or SPRs granted under the Stock Plan.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Options granted under the Stock Plan may be either Incentive Stock Options,
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or Nonstatutory Stock Options.
An optionee who is granted an ISO will not recognize income either at the
time the option is granted or upon its exercise, although the exercise may
subject the optionee to the alternative minimum tax. Upon a sale or exchange of
the shares more than two years after the grant of the ISO and one year after its
exercise, any gain or loss will be treated as long-term capital gain or loss. If
these holding periods are not satisfied, the optionee will recognize ordinary
income at the time of the sale or exchange equal to the difference between the
exercise price and the lower of (i) the fair market value of the shares on the
date of exercise or (ii) the sale price of the shares. A different rule for
measuring ordinary income upon such a premature disposition may apply if the
optionee is also an officer, director, or 10% shareholder of the Company.
Any gain or loss recognized on such a premature disposition of the shares
in excess of the amount treated as ordinary income will be characterized as
long-term or short-term capital gain or loss, depending on the holding period.
Generally, the Company will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee at the time of such disposition.
8
<PAGE> 11
With respect to NSOs, an optionee will not recognize income at the time an
NSO is granted. However, upon its exercise, the optionee will recognize ordinary
income generally measured as the excess of the then fair market value of the
shares over the exercise price. Any ordinary income recognized in connection
with the exercise of an NSO by an optionee who is also an employee of the
Company will be subject to tax withholding by the Company. Generally, the
Company will be entitled to a tax deduction in the same amount as the ordinary
income recognized by the optionee upon exercise of an NSO.
Upon resale of the shares by the optionee, any difference between the sale
price and the optionee's purchase price, to the extent not recognized as
ordinary income as described above, will be treated as long-term or short-term
capital gain or loss, depending on the holding period.
Stock Purchase Rights generally will be taxed in the same manner as
Nonstatutory Stock Options. However, restricted stock is generally purchased
upon exercise of a stock purchase right. At the time of purchase, restricted
stock is subject to a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code. As a result, the purchaser will not recognize ordinary
income at the time of purchase. Instead, the purchaser will recognize ordinary
income on the dates when the stock ceases to be subject to a substantial risk of
forfeiture. The stock generally will cease to be subject to a substantial risk
of forfeiture when it is no longer subject to the Company's right to repurchase
the stock upon the purchaser's termination of employment with the Company (i.e.,
as it "vests"). At such times, the purchaser will recognize the ordinary income
measured as the difference between the purchase price and the fair market value
of the stock on the date the stock is no longer subject to a substantial risk of
forfeiture. However, a purchaser may accelerate to the date of purchase his or
her recognition of ordinary income, if any, and the beginning of any capital
gain holding period by timely filing an election pursuant to Section 83(b) of
the Code. In such event, the ordinary income recognized, if any, would be equal
to the difference between the purchase price and the fair market value of the
stock on the date of purchase, and the capital gain holding period would
commence on the purchase date. The ordinary income recognized by a purchaser who
is an employee will be treated as wages and will be subject to tax withholding
by the Company out of the current compensation of the purchaser. If such current
compensation is insufficient to pay the withholding tax, the purchaser will be
required to make direct payment to the Company for the tax liability.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee or purchaser and the Company with respect to the grant and
exercise of options and SPRs under the Stock Plan. It does not purport to be
complete, and it does not discuss the tax consequences of the optionee's or
purchaser's death or the income tax laws of any municipality, state or foreign
country in which an optionee or purchaser may reside.
PLAN BENEFITS
The Company cannot now determine the exact number of options to be granted
in the future under the Stock Plan to the Named Executive Officers (as defined
below), all current executive officers as a group or all employees (including
executive officers) as a group. See "OTHER INFORMATION -- Option Grants in Last
Fiscal Year" for the number of stock options granted to the Named Executive
Officers in the Last Fiscal Year.
REQUIRED VOTE; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of a majority of the Votes Cast will be required to
approve the increase in the number of shares reserved under the Stock Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
INCREASE TO THE STOCK PLAN.
9
<PAGE> 12
PROPOSAL NO. 4
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, 1998 and seeks ratification of such appointment.
In the event of a negative vote on such ratification, the Board of Directors
will reconsider its appointment.
Arthur Andersen LLP has acted as the Company's independent auditors since
June 1995. 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.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
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, 1998.
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, 1998.
OTHER INFORMATION
EXECUTIVE OFFICERS
In addition to Messrs. Shah and Patel, the following persons were executive
officers of the Company as of October 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------- --- ----------------------------------------------------
<S> <C> <C>
Lata Krishnan............. 36 Vice President, Business Development and
Administration and Secretary
David B. Mullin........... 44 Vice President, Finance and Chief Financial Officer
Alan Marten............... 38 Vice President, Product Line Manager 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. Ms. Krishnan serves on the Board of
Directors of Krypton.
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 the Vice President Finance & Administration and Chief
Financial Officer of Borland International, Inc., a software company. From
September 1990 until November 1995, Mr. Mullin served in various capacities at
Conner Peripherals, Inc., a disk-drive company ("Conner"), the most recent of
which were Director of Corporate Financial Planning & Analysis and Chief
Financial Officer of 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.
10
<PAGE> 13
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.
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 5, 1998 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, 1997, 1996 and 1995 (the "Named
Executive Officers"), and (iv) all directors and executive officers as a group.
A total of 42,560,489 shares of the Company's Common Stock was issued and
outstanding as of January 5, 1998.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
----------------------
DIRECTORS, NAMED EXECUTIVE OFFICERS AND 5% SHAREHOLDERS NUMBER PERCENT
---------------------------------------------------------------- ----------- -------
<S> <C> <C>
Ajay Shah(2).................................................... 10,626,625 24.2%
Lata Krishnan(3)................................................ 10,626,625 24.2%
Mukesh Patel(4)................................................. 6,911,975 15.9%
Alan Marten(5).................................................. 649,200 1.5%
David B. Mullin(6).............................................. 30,448 *
Bayside Development Corporation(7).............................. 2,971,000 7.0%
c/o International Service Co.
Apartado 7440
Panama
Attention: Dr. Sharma
Erik Anderson(8)................................................ 54,000 *
Tor R. Braham(9)................................................ 69,000 *
All directors and executive officers as a group (7
persons)(10).................................................. 18,341,248 40.5%
</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 5, 1998 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 5,665,182 shares held by Mr. Shah and 906,975 shares owned by Mr.
Shah in the form of options exercisable as of January 5, 1998 or within
sixty (60) days thereafter. Includes 1,707,318 shares
11
<PAGE> 14
held by Ms. Krishnan and 507,150 shares owned by Ms. Krishnan in the form
of options exercisable as of January 5, 1998 or within sixty (60) days
thereafter. Also includes 1,840,000 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 1,707,318 shares held by Ms. Krishnan and 507,150 shares owned by
Ms. Krishnan in the form of options exercisable as of January 5, 1998 or
within sixty (60) days thereafter. Includes 5,665,182 shares held by Mr.
Shah and 906,975 shares owned by Mr. Shah in the form of options
exercisable as of January 5, 1998 or within sixty (60) days thereafter.
Also includes 1,840,000 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 906,975 shares owned by Mr. Patel in the form of options
exercisable as of January 5, 1998 or within sixty (60) days thereafter.
Also includes 1,840,000 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 280,000 shares owned by Mr. Marten in the form of options
exercisable as of January 5, 1998 or within sixty (60) days thereafter.
(6) Includes 26,972 shares owned by Mr. Mullin in the form of options
exercisable as of January 5, 1998 or within sixty (60) days thereafter.
(7) Bayside Development Corporation is beneficially owned by Tej Kaur Sharma.
(8) Includes 4,000 shares owned by Mr. Anderson in the form of options
exercisable as of January 5, 1998 or within sixty (60) days thereafter.
(9) Includes 60,000 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 4,000 shares owned by Mr. Braham in the form of options
exercisable as of January 5, 1998 or within sixty (60) days thereafter.
(10) Includes 60,000 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 2,636,072 shares owned by the seven directors and executive
officers listed above in the form of options exercisable as of January 5,
1998 or within sixty (60) days thereafter.
12
<PAGE> 15
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, 1997, 1996 and 1995.
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............................ 1997 $179,450 $ 560,000 -- $60,300
Chairman of the Board of Directors, 1996 165,100 551,000 -- 500
President and Chief Executive
Officer 1995 161,850 2,356,495 300,000 500
Mukesh Patel......................... 1997 $147,240 $ 440,000 -- $54,115
Vice President and General Manager 1996 133,120 405,000 -- 500
Memory/Processor Product Line 1995 128,440 1,815,570 300,000 500
Lata Krishnan........................ 1997 $117,475 $ 187,000 -- $10,938
Vice President, Business
Development 1996 105,300 206,000 -- 500
Development and Administration and
Secretary 1995 100,100 369,025 200,000 500
Alan Marten.......................... 1997 $100,625 $ 272,000 96,000 $32,908
Vice President, Product Line 1996 91,000 220,000 -- 500
Manager Memory Product Line 1995 81,991 814,988 200,000 500
David B. Mullin...................... 1997 $155,790 $ 166,000 30,000 $ 500
Vice President, Finance and Chief 1996 11,984(3) -- 150,000 --
Financial Officer 1995 -- -- -- --
</TABLE>
- - ---------------
(1) Represents discretionary bonus payments determined by the Company's Board of
Directors.
(2) For the Last Fiscal Year, represents payout of accumulated accrued vacation
to the Named Executive Officers relating to service years prior to the Last
Fiscal Year and up to $500 of matching contributions made by the Company to
the Company's 401(k) Plan on behalf of the Named Executive Officers. For
fiscal 1996 and fiscal 1995, represents matching contributions made by the
Company to the Company's 401(k) Plan on behalf of the Named Executive
Officers.
(3) In September 1996, Mr. Mullin became an employee of the Company at an annual
base salary of $155,790.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to options granted in
the Last Fiscal Year to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------- VALUE AT ASSUMED
SHARES OF PERCENT OF ANNUAL RATES OF STOCK
COMMON STOCK TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
- - ------------------------ ------------ ----------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ajay Shah............... -- -- -- -- -- --
Mukesh Patel............ -- -- -- -- -- --
Lata Krishnan........... -- -- -- -- -- --
Alan Marten............. 96,000 8.0 17.125 06/01/07 1,033,896 2,620,108
David B. Mullin......... 30,000 2.5 17.125 06/01/07 323,092 818,783
</TABLE>
- - ---------------
(1) All options were granted under the Company's 1995 Stock Plan at an exercise
price equal to the fair market value on the date of grant. All options vest
as to 1/48th of the shares on the monthly anniversary
13
<PAGE> 16
date of each month after the date of grant. The options expire ten (10)
years from the date of grant. The 1995 Stock Plan is currently administered
by the Compensation Committee of the Board of Directors, which has broad
discretion and authority to amend outstanding options and to reprice
options, whether through an exchange of options or an amendment thereto.
(2) Based on 1,206,440 shares of common stock underlying options granted to
employees during the Last Fiscal Year.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future common stock price.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information as of October 31, 1997
concerning exercisable and unexercisable stock options held by each of the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED IN-THE-
SHARES UNEXERCISED OPTIONS MONEY OPTIONS AT FISCAL
ACQUIRED AT FISCAL YEAR END YEAR END(1)
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---------------------- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ajay Shah............. -- -- 900,000 -- $21,880,500 --
Mukesh Patel.......... -- -- 900,000 -- 21,880,500 --
Lata Krishnan......... -- -- 500,000 -- 12,101,499 --
Alan Marten........... 40,000 $ 662,425 369,998 86,002 8,729,683 $ 666,515
David B. Mullin....... 37,500 1,091,095 6,248 136,252 78,490 2,108,695
</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 $24.875 per share of the Company's
Common Stock on The Nasdaq National Market on October 31, 1997 and the
aggregate exercise price of the subject stock option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors was formed in July
1995. Currently the Compensation Committee consists of Erik Anderson and Tor
Braham. 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 was a member during the Last Fiscal Year, 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
14
<PAGE> 17
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, 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. In exchange, the Company provided research and
development funding to Krypton in an aggregate amount of $500,000. 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, 1997, Mr. Shah, Ms. Krishnan, Mr.
Patel and Mr. Braham's (or their respective limited partnerships') aggregate
interest in the outstanding shares of Krypton was 50.4%.
During the Last Fiscal Year, the Company paid approximately $235,500 to
Krypton for Krypton products. At October 31, 1996, Krypton owed the Company
approximately $7,600 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 100,000 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 100,000
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, 1997,
approximately $107,200 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 former 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, 1997, Mr. Chess
owed the Company approximately $71,500 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
15
<PAGE> 18
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.
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 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 and bonuses 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 and bonuses 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 and bonuses in the Last
Fiscal Year were comparable in the industry for similarly-sized businesses.
In addition to salary and bonus, 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
Erik Anderson
Tor R. Braham
16
<PAGE> 19
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 end of the Last Fiscal Year (October 31, 1997) 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 23 MONTH CUMULATIVE TOTAL RETURN*
AMONG SMART MODULAR TECHNOLOGIES, INC., THE NASDAQ STOCK
MARKET-US INDEX AND THE NASDAQ ELECTRONIC COMPONENTS INDEX
LOGO
<TABLE>
<CAPTION>
SMART MODULAR
MEASUREMENT PERIOD TECHNOLOGIES, NASDAQ STOCK NASDAQ ELECTRONIC
(FISCAL YEAR COVERED) INC. MARKET-US COMPONENTS
- - --------------------- -------------- ------------ -----------------
<S> <C> <C> <C>
11/17/95 100 100 100
10/31/96 169 118 122
10/31/97 415 155 167
</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.
17
<PAGE> 20
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual
Meeting. If any other matters properly come before the Annual 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 Annual 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 20, 1998
18
<PAGE> 21
SMART MODULAR TECHNOLOGIES, INC.
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of SMART MODULAR TECHNOLOGIES, INC., a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated February 20, 1998, and
hereby appoints Ajay Shah and David Mullin, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution and resubstitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the 1998 Annual Meeting of Shareholders of SMART MODULAR TECHNOLOGIES, INC. to
be held on Monday, March 16, 1998, at 2:00 p.m., local time, at The Hyatt Sainte
Claire, 302 South Market Street, San Jose, California 95113, and at any and all
continuation(s) or adjournment(s) thereof, and to vote all shares of Common
Stock which the undersigned would be entitled to vote, if then and there
personally present, on the matters set forth on the reverse side.
Both of such attorneys or substitutes as shall be present and shall act
at said meeting or any and all continuation(s) or adjournment(s) thereof (or if
only one shall be present and acting, then that one) and shall have and may
exercise all of the powers of said attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE APPROVAL OF THE
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION, FOR THE APPROVAL OF THE
INCREASE IN THE SHARES RESERVED UNDER THE COMPANY'S 1995 STOCK PLAN, FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
FOR THE COMPANY FOR THE FISCAL YEAR ENDING OCTOBER 31, 1998, AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- - --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
<PAGE> 22
1. ELECTION OF DIRECTORS:
----------------------------------------------------
WITHHOLD Nominees: Ajay Shah; Mukesh Patel; Erik Anderson,
FOR AUTHORITY Tor. R. Braham
[ ] [ ] For all nominees except as noted above
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK
FROM 100,000,000 SHARES TO 200,000,000 SHARES AND TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF THE COMPANY'S PREFERRED STOCK FROM
15,000,000 SHARES TO 30,000,000 SHARES.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. PROPOSAL TO APPROVE AN INCREASE FROM 6,000,000 SHARES TO 12,000,000 SHARES
IN THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE UNDER THE
COMPANY'S 1995 STOCK PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE FISCAL YEAR ENDING OCTOBER 31, 1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the proxies are authorized to vote upon such other matter
or matters which may properly come before the meeting or any and all
continuation(s) or adjournment(s) thereof.
Signature: __________________________________ Date: _____________________
Signature: __________________________________ Date: _____________________
THIS PROXY SHOULD BE MARKED, DATED AND SIGNED BY THE SHAREHOLDER(S) EXACTLY AS
HIS OR HER NAME APPEARS HEREON, AND RETURNED PROMPTLY IN THE ENCLOSED ENVELOPE.
PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO INDICATE. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE NAME BY AN AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AN AUTHORIZED PERSON. IF SHARES ARE HELD BY
JOINT TENANTS OR AS COMMUNITY PROPERTY, BOTH SHOULD SIGN.
- - --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
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