<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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
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:
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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
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
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
SMART MODULAR TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MARCH 16, 1999
To the Shareholders of SMART Modular Technologies, Inc.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of
SMART Modular Technologies, Inc., a California corporation (the "Company"), will
be held on Tuesday, March 16, 1999 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, 1999; 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 January 19, 1999
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 8, 1999
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 1999
Annual Meeting of Shareholders (the "Annual Meeting") to be held Tuesday, March
16, 1999, 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 8, 1999
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, 1999, 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 January 19, 1999 (the
"Record Date") are entitled to notice of, and to vote at the Annual Meeting. At
the Record Date, 45,205,326 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 $24.25 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, and (ii) FOR ratification of the appointment of Arthur
Andersen LLP as independent auditors for the fiscal year ending October 31,
1999. 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,
<PAGE> 4
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 2000 Annual Meeting of Shareholders must
be received by the Company no later than October 11, 1999 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 1998 ended October 31,
1998 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.
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
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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.................... 39 Chairman of the Board of Directors, 1988
President and Chief Executive Officer
Mukesh Patel................. 40 Director 1988
Erik Anderson(1)(2).......... 40 Director 1994
Tor R. Braham(1)(2).......... 41 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 a director since the
Company's inception. Mr. Patel also served as the Company's Vice President and
General Manager Memory/Processor Product Line from August 1995 until his
resignation in August 1998. 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 February 1998, Mr. Anderson has served as President and Chief Executive
Officer of Matthew G. Norton Co., a diversified investment company. From January
1996 to February 1998, Mr. Anderson 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 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.
3
<PAGE> 6
Tor R. Braham has served as a director of the Company since July 1995. Mr.
Braham has served as Managing Director, Head of Technology Mergers and
Acquisitions of Warburg Dillion Read LLC, a subsidiary of UBS AG, 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 from 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 Board of Directors of 3Dlabs Inc., Ltd., a 3D graphics
company, as well as three private companies.
Ajay Shah and Lata Krishnan, the Company's Vice President, 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. 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 during the Last Fiscal Year
consisted of Mr. Anderson and Mr. Braham. During the Last Fiscal Year, the Audit
Committee held one (1) meeting. 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 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.
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<PAGE> 7
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, 1999 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, 1999.
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, 1999.
OTHER INFORMATION
EXECUTIVE OFFICERS
In addition to Mr. Shah, the following persons were executive officers of
the Company as of October 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lata Krishnan............. 37 Vice President, Administration and Secretary
David B. Mullin........... 45 Vice President, Finance and Chief Financial Officer
Alan Marten............... 39 Vice President and General Manager Memory/Processor
Product Line
Charles W. Welch.......... 33 Vice President, Business Development and General Counsel
</TABLE>
Lata Krishnan co-founded the Company and has served as the Company's Vice
President, Administration and Secretary since the Company's inception. Ms.
Krishnan also served as the Company's Vice President, Business Development from
September 1996 to August 1998. 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 and General Manager Memory/Processor Product Line since August 1998.
From July 1995 until August 1998, Mr. Marten served as the Company's Vice
President, Product Line Manager Memory Product Line. From February 1990 until
January 1997, Mr. Marten served as the Company's Vice President, Sales. Mr.
Marten
5
<PAGE> 8
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.
Charles W. Welch has served as the Company's Vice President, Business
Development since August 1998 and as General Counsel since October 1995, when he
joined the Company. From October 1995 until July 1997, Mr. Welch also served as
the Company's Director, Investor Relations. From September 1994 to October 1995,
Mr. Welch practiced law with Wilson Sonsini Goodrich & Rosati, Professional
Corporation. Mr. Welch holds a J.D. degree from the University of California,
Berkeley -- Boalt Hall School of Law, a Master of Real Estate Development degree
from the University of Southern California and a B.S. degree in Civil
Engineering from Virginia Tech.
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.
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<PAGE> 9
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 4, 1999 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, 1998, 1997 and 1996 (the "Named
Executive Officers"), and (iv) all directors and executive officers as a group.
A total of 45,138,620 shares of the Company's Common Stock was issued and
outstanding as of January 4, 1999.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
---------------------
DIRECTORS, NAMED EXECUTIVE OFFICERS AND 5% SHAREHOLDERS NUMBER PERCENT
------------------------------------------------------- ---------- -------
<S> <C> <C>
Ajay Shah(2)................................................ 10,333,122 22.6%
Lata Krishnan(3)............................................ 10,333,122 22.6%
Mukesh Patel(4)............................................. 6,630,800 14.7%
Alan Marten(5).............................................. 539,865 1.2%
David B. Mullin(6).......................................... 47,662 *
Charles W. Welch(7)......................................... 28,312 *
Bayside Development Corporation(8).......................... 2,875,500 6.4%
c/o International Service Co.
Apartado 7440
Panama
Attention: Dr. Sharma
Erik Anderson(9)............................................ 55,100 *
Tor R. Braham(10)........................................... 74,600 *
All directors and executive officers as a group (8
persons)(11).............................................. 17,709,461 38.5%
</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 sixty (60) days of January 4,
1999 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 6,090,182 shares held by Mr. Shah and 334,873 shares owned by Mr.
Shah in the form of options exercisable as of January 4, 1999 or within
sixty (60) days thereafter. Includes 1,832,318 shares held by Ms. Krishnan
and 235,749 shares owned by Ms. Krishnan in the form of options exercisable
as of January 4, 1999 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 1,832,318 shares held by Ms. Krishnan and 235,749 shares owned by
Ms. Krishnan in the form of options exercisable as of January 4, 1999 or
within sixty (60) days thereafter. Includes 6,090,182 shares held by Mr.
Shah and 334,873 shares owned by Mr. Shah in the form of options
exercisable as of January 4, 1999 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.
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<PAGE> 10
(4) Includes 800 shares owned by Mr. Patel in the form of options exercisable
as of January 4, 1999 or within sixty (60) days thereafter. Also includes
1,715,000 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 180,665 shares owned by Mr. Marten in the form of options
exercisable as of January 4, 1999 or within sixty (60) days thereafter.
(6) Includes 39,084 shares owned by Mr. Mullin in the form of options
exercisable as of January 4, 1999 or within sixty (60) days thereafter.
(7) Includes 27,584 shares owned by Mr. Welch in the form of options
exercisable as of January 4, 1999 or within sixty (60) days thereafter.
(8) Bayside Development Corporation is beneficially owned by Tej Kaur Sharma.
(9) Includes 9,600 shares owned by Mr. Anderson in the form of options
exercisable as of January 4, 1999 or within sixty (60) days thereafter.
(10) Includes 69,600 shares owned by Mr. Braham in the form of options
exercisable as of January 4, 1999 or within sixty (60) days thereafter.
(11) Includes 957,955 shares owned by the eight directors and executive officers
listed above in the form of options exercisable as of January 4, 1999 or
within sixty (60) days thereafter.
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, 1998, 1997 and 1996.
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........................... 1998 $173,420 $321,000 111,600 $ 1,000
Chairman of the Board of Directors, 1997 179,450 560,000 -- 60,300
President and Chief Executive
Officer 1996 165,100 551,000 -- 500
Mukesh Patel........................ 1998 $112,340(3) $110,000 111,600 $ --
Director and former Vice President 1997 147,240 440,000 -- 54,115
and General Manager Memory/ 1996 133,120 405,000 -- 500
Processor Product Line
Lata Krishnan....................... 1998 $113,750 $109,000 114,400 $ 1,000
Vice President, Administration 1997 117,475 187,000 -- 10,938
and Secretary 1996 105,300 206,000 -- 500
Alan Marten......................... 1998 $120,120 $213,000 40,000 $ 1,000
Vice President and General Manager 1997 100,625 272,000 96,000 32,908
Memory/Processor Product Line 1996 91,000 220,000 -- 500
David B. Mullin..................... 1998 $160,030 $139,000 -- $ 1,000
Vice President, Finance and Chief 1997 155,790 166,000 30,000 500
Financial Officer 1996 11,984(4) -- 150,000 --
Charles W. Welch.................... 1998 $100,100 $ 92,000 59,200 $ 1,000
Vice President, Business Development 1997 85,932 114,000 10,000 --
and General Counsel 1996 71,687 56,000 -- --
</TABLE>
- ---------------
(1) Represents discretionary bonus payments determined by the Company's Board of
Directors.
(2) For the Last Fiscal Year, represents $1,000 of matching contributions made
by the Company to the Company's 401(k) Plan on behalf of the Named Executive
Officers. For 1997, represents payout of accumulated accrued vacation to the
Named Executive Officers relating to service years prior to 1997 and
8
<PAGE> 11
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,
represents $500 of matching contributions made by the Company to the
Company's 401(k) Plan on behalf of the Named Executive Officers.
(3) Represents Mr. Patel's compensation through August 1998, when Mr. Patel
resigned as an officer of the Company.
(4) In September 1996, Mr. Mullin became an employee of the Company at an annual
base salary of $155,790.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to options granted in
the Last Fiscal Year to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL POTENTIAL REALIZABLE
SHARES OF GRANTS VALUE AT ASSUMED
COMMON PERCENT OF ANNUAL RATES OF STOCK
STOCK TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
---- ------------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ajay Shah............. 15,552 0.5% 25.7125 11/13/02 64,083 185,584
96,048 3.0% 23.3750 11/13/07 1,411,937 3,578,140
Mukesh Patel(4)....... 15,552 0.5% 25.7125 11/13/02 64,083 185,584
96,048 3.0% 23.3750 11/13/07 1,411,937 3,578,140
Lata Krishnan......... 17,825 0.6% 25.7125 11/13/02 73,449 212,708
96,575 3.0% 23.3750 11/13/07 1,419,684 3,597,773
Alan Marten........... 40,000 1.3% 12.5000 06/15/08 314,444 796,869
David B. Mullin....... -- -- -- -- -- --
Charles W. Welch...... 19,200 0.6% 23.3750 11/13/07 282,245 715,270
24,000 0.8% 12.5000 06/15/08 188,666 478,121
16,000 0.5% 16.7500 10/14/08 168,542 427,121
</TABLE>
- ---------------
(1) All options were granted under the Company's 1995 Stock Plan and vest as to
1/48 of the shares on the monthly anniversary date of each month after the
date of grant. Other than noted below, all options were granted at an
exercise price equal to the fair market value on the date of grant and
expire ten (10) years from the date of grant. In the case of incentive stock
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, such options were granted at an exercise price equal to 110% of
the fair market value on the date of grant and expire five (5) 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 3,178,300 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.
(4) Mr. Patel resigned from the Company in August 1998. Under the 1995 Stock
Plan, in the event of an employee's termination of employment 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 employee's notice of grant.
9
<PAGE> 12
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information as of October 31, 1998
concerning exercisable and unexercisable stock options held by each of the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ajay Shah............ 600,000 $ 7,488,000 325,573 86,027 $5,805,000 $ 0
Mukesh Patel......... 900,000 11,416,750 18,598 0 0 0
Lata Krishnan........ 300,000 3,744,000 226,216 88,184 3,869,999 0
Alan Marten.......... 195,000 3,903,763 202,332 98,668 3,377,575 551,922
David B. Mullin...... 15,000 201,249 36,257 91,243 387,164 1,045,333
Charles W. Welch..... 8,331 192,838 21,608 59,261 229,084 280,034
</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 $21.00 per share of the Company's
Common Stock on The Nasdaq National Market on Friday, October 30, 1998, 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.
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 January 29,
2000, 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 former Vice
President and General Manager Memory/Processor Product Line and a current
Director) and Lata Krishnan (the Company's Vice President, 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, 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. Pursuant to Krypton's Series C
Preferred Stock financing in June 1998, the Company agreed to amend the
termination provisions of this agreement. In general, the license portion of
this agreement has no expiration date and all other provisions of this agreement
shall continue in effect for a period of 15 years; provided, however, this
agreement, including the license portion of this agreement, can be terminated
earlier upon certain events including Krypton's initial public offering.
10
<PAGE> 13
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. Pursuant to
Krypton's Series C Preferred Stock financing in June 1998, the Company agreed to
amend the termination provisions of this agreement. In general, the license
portion of this agreement has no expiration date and all other provisions of
this agreement shall continue in effect for a period of 15 years; provided,
however, this agreement, including the license portion of this agreement, can be
terminated earlier upon certain events including Krypton's initial public
offering.
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, 1998, Mr. Shah, Ms. Krishnan, Mr.
Patel and Mr. Braham's (or their respective limited partnerships') aggregate
interest in the outstanding shares of Krypton was 40.2%.
During the Last Fiscal Year, the Company paid approximately $200,000 to
Krypton for Krypton products. At October 31, 1997, Krypton owed the Company
approximately $7,600 on a note bearing interest at 10% per annum and payable in
full by April 1998. At October 31, 1998, no amount was owed to the Company from
Krypton.
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 $200,000 full recourse promissory note secured by said
100,000 shares of Common Stock. During the Last Fiscal Year, Mr. Anderson paid
the remaining balance due under the note, which bore interest at 6.27%
compounded semi-annually.
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, 1998, 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 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. During the Last Fiscal Year,
certain officers and directors of the Company were named as defendants in
several securities class action lawsuits. As a result of such litigation, those
officers and directors may seek indemnity from the Company pursuant to such
indemnification agreements.
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
11
<PAGE> 14
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 Committee is
composed of independent, non-employee directors who have no interlocking
relationships as defined by the Securities and Exchange Commission.
The 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. 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. 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 either the current
market price, or 110% of the current market price in the case of options granted
to an Executive Officer possessing more than 10% of the voting power of all
classes of stock of the Company or any parent or subsidiary of the Company.
Compensation Committee of the Board of
Directors
Erik Anderson
Tor R. Braham
12
<PAGE> 15
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, 1998) 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 35 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 NASDAQ ELECTRONIC
TECHNOLOGIES, INC. NASDAQ STOCK MARKET-US COMPONENTS INDEX
------------------ ---------------------- -----------------
<S> <C> <C> <C>
'11/17/95' 100.00 100.00 100.00
'10/31/96' 169.00 118.00 122.00
'10/31/97' 415.00 155.00 167.00
'10/31/98' 350.00 174.00 173.00
</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.
13
<PAGE> 16
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 8, 1999
14
<PAGE> 17
PROXY
SMART MODULAR TECHNOLOGIES, INC.
PROXY FOR 1999 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 8, 1999, 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 1999 Annual Meeting of Shareholders of SMART MODULAR TECHNOLOGIES, INC. to
be held on Tuesday, March 16, 1999, 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 represent 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 RATIFICATION OF
THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS FOR THE COMPANY
FOR THE FISCAL YEAR ENDING OCTOBER 31, 1999, AND AS SAID PROXIES DEEM ADVISABLE
ON SUCH OTHER MATTER(S) AS MAY PROPERLY COME BEFORE THE MEETING.
- ----------- -----------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ----------- -----------
<PAGE> 18
<TABLE>
<S> <C>
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
1. Election of Directors. FOR AGAINST ABSTAIN
NOMINEES: Ajay Shah; Mukesh Patel; Erik Anderson; 2. Proposal to ratify the appointment of
Tor R. Braham Arthur Andersen LLP as the [ ] [ ] [ ]
independent auditors for the
FOR WITHHELD Company for the fiscal year ending
[ ] [ ] October 31, 1999.
In their discretion, the proxies are authorized to vote upon such
[ ] ________________________________________ other matter(s) which may properly come before the meeting or
For all nominees except as noted above any and all continuation(s) or adjournment(s) thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
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.
Signature: _______________________________ Date: ________________ Signature: _______________________________ Date: ________________
</TABLE>
