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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 240.14(a)-11(c) or Section
240.14a-12
SCM MICROSYSTEMS, INC
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(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules O-11(c)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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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.
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SCM MICROSYSTEMS, INC.
------------------------
NOTICE OF
1999 ANNUAL MEETING OF STOCKHOLDERS
JUNE 10, 1999
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN, that the 1999 Annual Meeting of Stockholders of SCM
Microsystems, Inc., a Delaware corporation, will be held on Thursday, June 10,
1999, at 10:00 a.m., local time, at 160 Knowles Drive, Los Gatos, California,
95032, the Company's principal executive offices, for the following purposes:
1. To elect three Class I directors to serve until the expiration of the
term of their respective classes and until their respective successors
are duly elected and qualified;
2. To approve the adoption of an amendment to our 1997 Stock Plan
increasing the number of shares reserved for issuance thereunder by
800,000 shares;
3. To ratify the appointment of KPMG LLP as our independent accountants for
the fiscal year ending December 31, 1999; and
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The foregoing items of business are more fully described in the proxy
statement accompanying this notice. All stockholders of SCM are cordially
invited to attend the Annual Meeting in person. Only stockholders of record at
the close of business on May 7, 1999 are entitled to notice of and to vote at
the Annual Meeting. To assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy as promptly as possible
in the envelope enclosed for that purpose. Any stockholder attending the Annual
Meeting in person may vote in person even if he or she previously returned a
proxy.
Sincerely,
SCM MICROSYSTEMS, INC.
John Niedermaier
Secretary
Los Gatos, California
May 12, 1999
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED PROXY
CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU MAY WITHDRAW YOUR PROXY
AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY
<PAGE> 3
SCM MICROSYSTEMS, INC.
------------------------
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
JUNE 10, 1999
------------------------
The enclosed proxy is solicited on behalf of SCM Microsystems, Inc. for use
at our 1999 Annual Meeting of Stockholders to be held on Thursday, June 10,
1999, at 10:00 a.m., local time, at 160 Knowles Drive, Los Gatos, California,
95032, the Company's principal executive offices, or any adjournment(s) or
postponement(s) thereof, for the purposes set forth herein and in the
accompanying notice of 1999 Annual Meeting of Stockholders.
These proxy solicitation materials were mailed on or about May 12, 1999 to
all stockholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE
Our Board of Directors has fixed the close of business on May 7, 1999 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Annual Meeting or any adjournment(s) or postponement(s) thereof.
SHARES OUTSTANDING
As of the Record Date, we had issued and outstanding 14,066,997 shares of
Common Stock, par value $0.001 per share. For information regarding holders of
more than 5% of the outstanding Common Stock, see "Securities Ownership of
Certain Beneficial Owners and Management."
VOTING RIGHTS
Each stockholder of record on the Record Date will be entitled to one vote
per share of common stock held on the Record Date on all matters submitted for
consideration of, and to be voted upon by, the stockholders at the Annual
Meeting. With respect to the election of directors, each stockholder will be
entitled to vote for three nominees to our Board of Directors, and the three
nominees with the greatest number of votes will be elected to the Board of
Directors. No stockholder will be entitled to cumulate votes at the Annual
Meeting for the election of any members of our Board of Directors.
VOTING PROCEDURES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of our Common Stock issued and outstanding on the
Record Date. Shares voted "FOR," "AGAINST" or "WITHHELD" from a matter voted
upon by the stockholders at the Annual Meeting will be treated as being present
at the Annual Meeting for purposes of establishing a quorum for the transaction
of business, and will also be treated as shares "represented and voting" at the
Annual Meeting (the "Votes Cast") with respect to any such matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, we believe that abstentions should be
counted for purposes of determining both (i) the presence or absence of the
quorum for the transaction of business, and (ii) the total number of Votes Cast
with respect to a proposal. In the absence of controlling precedent to the
contrary, we intend to treat abstentions in this manner. Accordingly,
abstentions will have the same effect as a vote against a proposal submitted for
consideration of the stockholders at the Annual Meeting.
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Broker non-votes will be counted for purposes of determining the presence
or absence of a quorum for the transaction of business at the Annual Meeting,
but will not be counted for purposes of determining the number of Votes Cast
with respect to a proposal.
SOLICITATION OF PROXIES
The cost of soliciting any proxies will be borne by the Company. We have
retained D.F. King, a proxy solicitation firm, to assist with solicitation at
customary rates (approximately $10,000), plus reimbursement for out of pocket
expenses. In addition, we may reimburse brokerage firms and other persons
representing the beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Solicitation of proxies by
mail may be supplemented by telephone, telegram, facsimile or personal
solicitation by our directors, officers or regular employees without additional
compensation.
REVOCABILITY OF PROXIES
The enclosed proxy is revocable by the person or institution delivering
such proxy at any time before it is voted at the Annual Meeting either by
delivering to us a written notice of revocation or a duly executed proxy bearing
a later date, or by attending the Annual Meeting and voting in person. If a
person or institution that has executed and returned a proxy is present in
person at the Annual Meeting and wishes to vote thereat, such person or
institution may elect to do so and thereby suspend the power of the proxy
holders to vote the proxy previously delivered by such person or institution.
Attendance at the Annual Meeting, however, will not by itself revoke a proxy
previously delivered to us.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING OF STOCKHOLDERS
Proposals of our stockholders which are intended to be presented by such
stockholders at our 2000 Annual Meeting must be received by us no later than
March 16, 2000 in order to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting.
ELECTION OF DIRECTORS
Our board of directors is currently comprised of seven directors. The
stockholders will not be entitled to cumulate votes at the Annual Meeting for
the election of any members of our Board of Directors. The board of directors
has nominated the three persons named below for election as directors at the
Annual Meeting. Unless otherwise instructed, the proxy holders named in the
enclosed proxy will vote the proxies received by them for the three nominees
named below, all of whom currently serve as a director. In the event that any of
the nominees named below is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies received by the proxy holders named in
the enclosed proxy will be voted for any nominee who is designated by the
present Board of Directors to fill the vacancy. We do not expect, however, that
any of the nominees named below will be unable or will decline to serve as a
director at the Annual Meeting.
The Board of Directors is divided into three classes, Class I, Class II and
Class III, with three directors serving in Class I, two directors serving in
Classes II, and three directors serving in Class III. Class I directors consist
of Messrs. Humphreys, Larsen and Ng, and the term of office of Class I directors
expires at our 1999 Annual Meeting of Stockholders; Class II directors consist
of Messrs. Meier and Vought, and the term of office of Class II directors will
expire at our 2000 Annual Meeting of Stockholders; and Class III directors
consist of Messrs. Bornikoel and Schneider, and the term of office of Class III
directors will expire at our 2001 Annual Meeting of Stockholders.
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NOMINEES TO THE BOARD OF DIRECTORS
The names of the three Class I nominees for director and certain
information about each of them are set forth in the table below. The names of,
and certain information about, the current Class II and Class III directors with
unexpired terms are also set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- --------
<S> <C> <C> <C>
NOMINEES FOR CLASS I DIRECTORS
Steven Humphreys....................... 38 President, Chief Executive Officer and 1996
Director
Oystein Larsen(2)...................... 38 Director 1998
Poh Chuan Ng(2)........................ 37 Director 1995
CONTINUING CLASS II DIRECTORS
Bernd Meier............................ 49 Chief Operations Officer, Managing 1990
Director of SCM Microsystems GmbH and
Director
Andrew Vought(1)(2).................... 44 Director 1996
CONTINUING CLASS III DIRECTORS
Friedrich Bornikoel(1)................. 49 Director 1993
Robert Schneider....................... 50 Chairman of the Board and Managing 1990
Director of SCM Microsystems GmbH
</TABLE>
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(1) Member of Compensation Committee
(2) Member of Audit Committee
Robert Schneider founded SCM in May 1990 as President, Chief Executive
Officer, General Manager and Chairman of the Board. Mr. Schneider is currently
Chairman of the Board and serves as a Managing Director of our German
subsidiary. Mr. Schneider holds a degree in engineering from HTBL Salzburg and a
B.A. degree from the Akademie for Business Administration in Uberlinger.
Steven Humphreys joined SCM in July 1996 as President and Chairman of the
Board. Mr. Humphreys currently is President, Chief Executive Officer and a
Director. From April 1994 until February 1996, Mr. Humphreys was President of
Caere Corporation, an optical character recognition software and systems
company. From November 1990 until March 1994, he was Vice President of General
Electric Information Services, an electronic commerce services provider. Mr.
Humphreys holds a B.S. degree from Yale University and a M.S. degree and a
M.B.A. degree from Stanford University.
Bernd Meier joined SCM in January 1992 as General Manager and as a
Director. Mr. Meier is currently the Chief Operations Officer, a Director of the
Company and a Managing Director of our German subsidiary. Mr. Meier holds a
degree in engineering from Fachhochschule Deiburg.
Friedrich Bornikoel has served as a Director since September 1992. Mr.
Bornikoel joined TVM Techno Venture Management GmbH, a venture capital firm, in
July 1987 and has been a Partner since 1990. Mr. Bornikoel is a director of
several privately held companies. Mr. Bornikoel holds a Masters degree in
Physics from the Technical University of Munich.
Poh Chuan Ng has served as a Director since June 1995. Mr. Ng is currently
a Managing Director and Chairman of the Board of Global Team Technology Pte.
Ltd., a manufacturer's representative for computer products. From September 1994
through May 1997. Mr. Ng served as Director, Business Development at ICS, a
contract manufacturing company and developer of communications products. Prior
to joining ICS, Mr. Ng was a product engineering managing for Compaq Computer
Corp. Mr. Ng is a director of several privately held companies. Mr. Ng holds a
B.S.E. degree from the National University of Singapore.
Andrew Vought has served as a Director since March 1996. Mr. Vought is
currently a Senior Vice President and Chief Financial Officer of Virata
Corporation, an ATM networking equipment company. From
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January 1995 through May 1996, Mr. Vought was a partner of Cheyenne Capital
Corporation. Prior to joining Cheyenne Capital Corporation, Mr. Vought was Vice
President, Chief Financial Officer and Secretary of MicroPower Systems, Inc., an
analog and mixed signal semiconductor company, from May 1990 until April 1994.
Mr. Vought is a director of several privately held companies. Mr. Vought holds a
B.S. degree and a B.A. degree from the University of Pennsylvania and a M.B.A.
degree from Harvard University.
Oystein Larsen has served as a Director of SCM since October 1998. Mr.
Larsen is currently Chief Executive Officer of Telenor Conax AS, a company based
in Norway engaged in the development and marketing of smart card-based systems
for digital pay TV, telecommunications and security, and has served in this role
since 1994. Prior to that, Mr. Larsen was Director, Development Division of
Telenor CTV, a provider of cable TV services based in Norway.
John Niedermaier joined SCM in April 1997 as Vice President, Finance and
Chief Financial Officer. From November 1995 until March 1997, Mr. Niedermaier
was Vice President, Finance and Chief Financial Officer of Voysys Corporation, a
provider of telecommunications systems for small businesses, and from April 1994
until November 1995, he was Director, Business Planning at Octel Communications
Corporation, a voice messaging company. From November 1989 until March 1994, Mr.
Niedermaier was Vice President, Corporate Controller of VMX, Inc., a voice
processing company, which merged with Octel in March 1994. Mr. Niedermaier is a
Certified Public Accountant and holds a B.S. degree from Wayne State University.
Mr. Niedermaier is not a director of SCM.
There are no family relationships among the directors named above or our
executive officers.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
At the Annual Meeting, the three nominees receiving the highest number of
affirmative votes of the shares present in person or represented by proxy at the
Annual Meeting and entitled to vote on the election of directors will be elected
to our Board of Directors. Votes withheld from any director will be counted for
purposes of determining the presence or absence of a quorum, but have no other
legal effect under Delaware law. While there is no definitive statutory or case
law authority in Delaware as to the proper treatment of abstentions and broker
non-votes in the election of directors, we believe that both abstentions and
broker non-votes should be counted for purposes of whether a quorum is present
at the Annual Meeting. In the absence of precedent to the contrary, we intend to
treat abstentions and broker non-votes with respect to the election of directors
in this manner.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE THREE NOMINEES TO THE BOARD OF
DIRECTORS NAMED ABOVE
MATTERS RELATING TO THE BOARD OF DIRECTORS
BOARD MEETINGS
Our board of directors held a total of nine meetings during the year ended
December 31, 1998. During 1998, no director attended fewer than 75% of the total
number of meetings of the Board of Directors held during the period for which he
served as a director, and the total number of meetings held by the committees of
the Board of Directors on which he served during the period for which he served
as a director.
BOARD COMMITTEES AND COMMITTEE MEETINGS
In March 1997, the board established an Audit Committee and a Compensation
Committee. The Audit Committee, currently comprised of directors Andrew Vought,
Poh Chuan Ng and Oystein Larsen, recommends to the Board of Directors the
engagement of our independent accountants and reviews with the accountants the
plan, scope and results of their examination of the consolidated financial
statements. The Audit Committee held two meetings during 1998. The Compensation
Committee, currently comprised of directors Friedrich Bornikoel and Andrew
Vought, reviews and makes recommendations to the Board of
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Directors regarding all forms of compensation to be provided to our executive
officers, directors and consultants. In addition, the Compensation Committee
administers our stock option plans and stock purchase plans. The Compensation
Committee held two meetings during 1998.
We do not have a standing nominating committee. Nominations for the
election of directors at the Annual Meeting, therefore, were made by our Board
of Directors.
SUMMARY OF DIRECTOR COMPENSATION
Each nonemployee member of our Board of Directors receives an annual fee of
$10,000, plus an additional $1,000 for each meeting of the Board of Directors
attended in person, for their services as a director. Prior to April 1997,
directors did not receive compensation for services as directors.
Under our 1997 Director Option Plan, a total of 50,000 shares of our Common
Stock have been reserved for issuance. The Director Plan provides that an annual
increase will be made in the number of shares of our Common Stock reserved for
issuance thereunder on each anniversary date of adoption of the Director Plan,
in an amount equal to the number of shares underlying options granted in the
immediately preceding year or a lesser amount determined by the Board. Each
outside director was granted an initial option to purchase 5,000 shares of our
Common Stock upon the effective date of the Director Plan, and each person who
becomes an outside director after that date will automatically be granted an
initial option to purchase 10,000 shares of our Common Stock. In addition, each
outside director will automatically be granted a subsequent annual option to
purchase an additional 5,000 shares of our Common Stock under the Director Plan
on the date of each Annual Meeting of Stockholders. All such options have an
exercise price equal to the fair market value of our Common Stock at the date of
grant, have a term of ten years and vest monthly over one year from the date of
grant. Options granted under the Director Plan are not transferable unless
approved by the Board of Directors. Our Director Plan will terminate in 2007.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between our Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
PROPOSAL TO APPROVE THE ADOPTION OF
AN AMENDMENT TO THE
1997 STOCK PLAN
Our 1997 Stock Plan was adopted by our board of directors in March 1997 and
approved by the stockholders in April 1997. Unless terminated sooner, the 1997
Stock Plan will terminate automatically in March 2007. A total of 2,107,650
shares of our Common Stock are currently reserved for issuance under the 1997
Stock Plan. In addition, the terms of the 1997 Stock Plan provide for an
automatic annual increase in the number of shares reserved for issuance
thereunder on each anniversary date of its adoption, in an amount equal to the
lesser of (i) 500,000 shares, (ii) three percent of the outstanding shares on
such date, or (iii) a lesser amount determined by the Board of Directors. As of
the record date, options or rights to purchase an aggregate of 1,798,122 shares
of our Common Stock, having a weighted average exercise or purchase price of
$30.06 per share and expiring on various dates between April 2007 and April
2009, were outstanding under the 1997 Stock Plan.
On April 26, 1999, the Board of Directors unanimously adopted resolutions
declaring it advisable and in the best interests of SCM and its stockholders to
amend the 1997 Stock Plan to reserve an additional 800,000 shares of our Common
Stock for issuance thereunder, thereby increasing the number of shares of our
Common Stock reserved for issuance thereunder from 2,107,650 shares to 2,907,650
shares. The foregoing resolutions further directed that the proposed amendment
to the 1997 Stock Plan be submitted to our stockholders for their approval at
the Annual Meeting. Accordingly, at the Annual Meeting, our stockholders will be
asked to approve the proposed amendment to the 1997 Stock Plan described above.
Although the
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terms of the 1997 Stock Plan provide for an automatic annual increase in the
number of shares reserved for issuance thereunder, we believe that the
additional increase proposed herein is necessary to provide an adequate reserve
to enable us to provide equity incentives to groups of employees hired by us in
connection with previously announced and potential future acquisitions. During
1998, through a combination of internal growth and acquisitions of three
companies, our number of employees grew from 78 as of January 1, 1998 to 293
employees as of December 31, 1998. We believe that our ability to grant options
and other rights under the 1997 Stock Plan will be important to our success in
attracting acquisition partners and retaining the experienced and qualified
employees of newly-acquired companies. A copy of the 1997 Stock Plan, as in
effect before incorporating the amendment contemplated by the foregoing
proposal, is attached as an exhibit to our Registration Statement on Form S-1
filed with the Securities and Exchange Commission on June 12, 1997, and the
description herein is qualified in its entirety by reference thereto.
SUMMARY OF TERMS OF 1997 STOCK PLAN
The purpose of the 1997 Stock Plan is to attract and retain the best
available persons for positions of substantial responsibility with us, to
provide additional incentive to our employees, directors and consultants and to
promote the success of our business. The 1997 Stock Plan provides for the
granting to employees of "incentive stock options" within the meaning of Section
422 of the Code, and for the granting to of nonstatutory stock options and stock
purchase rights, or SPRs, to our employees, directors and consultants. The
material features of the 1997 Stock Plan are outlined below.
Administration. The 1997 Stock Plan may be administered by the Board of
Directors or a committee of the Board of Directors (the "Plan Administrator"),
which Committee shall, in the case of options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, consist of two or more "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code. The Plan Administrator
has the power to amend, suspend or terminate the 1997 Stock Plan, provided that
no such action may affect any share of Common Stock previously issued and sold
or any option or SPR previously granted under the 1997 Stock Plan, to determine
the terms of the options and SPRs granted thereunder, including the exercise
price therefor, the number of shares subject thereto, the exercisability
thereof, and the form of consideration payable upon such exercise. In addition,
the Plan Administrator has the authority to prescribe, amend and rescind rules
and regulations relating to the 1997 Stock Plan. Pursuant to this authority, the
Board of Directors has approved the 1997 Stock Option Plan for French Employees
in April 1997, pursuant to which stock options that qualify for preferential tax
treatment under French tax law may be granted.
Eligibility. Nonstatutory stock options and SPRs may be granted under the
1997 Stock Plan to our employees, directors and consultants or any parent or
subsidiary. Incentive stock options may be granted only to our employees or any
parent or subsidiary.
Limitations. Section 162(m) of the Code imposes limitations on the
deductibility, for United States federal income tax purposes, of compensation
paid to certain of our executive officers. In order to preserve our ability to
deduct the compensation income associated with options and SPRs granted to such
persons, the terms of the 1997 Stock Plan provide that none of our employees,
directors or consultants may be granted, in any one of our fiscal years, options
to purchase more than 100,000 shares of our Common Stock. Notwithstanding the
foregoing limitation, however, in connection with any such individual's initial
employment by SCM, he or she may be granted options to purchase up to an
additional 100,000 shares of our Common Stock.
Terms of Options. Each option granted under the 1997 Stock Plan is
evidenced by a written stock option agreement between us and the optionee, and
is subject to the following additional terms and conditions:
Exercise Price. The exercise price of options granted under the 1997
Stock Plan is determined by the Plan Administrator at the time the options
are granted. The exercise of an incentive stock option granted under the
1997 Stock Plan may not be less than 100% of the fair market value of our
Common Stock on the date such option is granted; provided, however, that
the exercise of an incentive stock option granted to a 10% stockholder may
not be less than 110% of the fair market value of our Common Stock
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on the date such option is granted. The fair market value of our Common
Stock is generally determined with reference to the closing sale price for
the Common Stock (or the closing bid if no sales were reported) on the last
market trading day prior to the date the option is granted. The exercise
price of a nonstatutory stock option granted under the 1997 Stock Plan is
also determined by the Plan Administrator; provided however, that the
exercise price of a nonstatutory stock option intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of
the Code may not be less than 100% of the fair market value of our Common
Stock on the date of grant.
Exercise of Option. The Plan Administrator determines when options
granted under the 1997 Stock Plan become exercisable, and may in its
discretion, accelerate the vesting of any outstanding option.
Form of Consideration. The means of payment for shares issued upon
exercise of an option granted under the 1997 Stock Plan is specified in
each option agreement relating thereto. The 1997 Stock Plan permits payment
to be made by cash, check, promissory note, other shares of our Common
Stock (with some restrictions), cashless exercise, a reduction in the
amount of any of our liability to the optionee, any other form of
consideration permitted by applicable law, or any combination of the
foregoing methods of payment.
Term of Option. The term of options granted under the 1997 Stock Plan
are set forth in the stock option agreement relating thereto. The term of
incentive stock options granted under the 1997 Stock Plan, however, may be
no more than ten years from the date of grant; provided, however, that in
the case of an incentive stock option granted to a 10% stockholder, the
term of such option may be no more than five years from the date of grant.
No option granted under the 1997 Stock Plan may be exercised after the
expiration of its term.
Termination of Employment. If an optionee's employment, directorship
or consulting relationship with us is terminated for any reason, other than
death or disability of the optionee, then the optionee may exercise his or
her options granted under the 1997 Stock Plan within any such period as may
be specified in the stock option agreement relating to such options, but
only to the extent that such options are vested on the date of termination.
In the absence of a specified time in the stock option agreement relating
to any such options, the optionee may exercise such options within the
three-month period immediately following the date of termination.
Permanent Disability. If an optionee's employment, directorship or
consulting relationship with us is terminated as a result of the optionee's
permanent disability ,as defined in Section 22(e)(3) of the Code, then the
optionee may exercise his or her options granted under the 1997 Stock Plan
within any such period as may be specified in the stock option agreement
relating to such options, but only to the extent that such options are
vested on the date of termination. In the absence of a specified time in
the stock option agreement relating to any such options, the optionee may
exercise such options within the twelve-month period immediately following
the date of termination.
Death. If an optionee's employment, directorship or consulting
relationship with us is terminated as a result of the optionee's death,
then the optionee's estate or any other person who acquires the right to
exercise such options by bequest or inheritance may exercise the optionee's
options granted under the 1997 Stock Plan within any such period as may be
specified in the stock option agreement relating to such options, but only
to the extent that such options are vested on the date of termination. In
the absence of a specified time in the stock option agreement relating to
any such options, such parties may exercise such options within the
twelve-month period immediately following the date of the optionee's death.
Nontransferability of Options. Unless otherwise determined by the Plan
Administrator, options granted under the 1997 Stock Plan are not
transferable other than by will or the laws of descent and distribution,
and may be exercised during the optionee's lifetime only by the optionee.
Other Provisions. The stock option agreements relating to an options
granted under the 1997 Stock Plan may contain other terms, provisions and
conditions not inconsistent with the 1997 Stock Plan as may be determined
by the Plan Administrator.
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Terms of Stock Purchase Rights. SPRs give the recipient the right to
purchase shares of our common stock pursuant to a restricted stock purchase
agreement between us and the recipient. Unless the Plan Administrator otherwise
determines, the restricted stock purchase agreement gives us an option,
exercisable upon the voluntary or involuntary termination of the recipient's
employment or consulting relationship with us for any reason, including death
and disability, to repurchase the shares sold to the recipient of an SPR granted
under the 1997 Stock Plan for the original purchase price paid by the recipient.
Our repurchase option lapses at a rate determined by the Plan Administrator. An
SPR, and the shares of stock acquired pursuant thereto, are generally
nontransferable, other than by will or the laws of descent and distribution,
until our repurchase option lapses with respect thereto.
Adjustments Upon Changes in Capitalization. In the event of a change in our
capitalization as a result of any stock split, reverse stock split, stock
dividend, combination, reclassification or any other similar changes in our
capital structure effected without the receipt of consideration by us,
appropriate adjustments will be made in the number and class of shares of stock
subject to the 1997 Stock Plan, the number and class of shares of stock subject
to any option or SPR outstanding under the 1997 Stock Plan, and the exercise
price of any such options or SPRs. In the event of our proposed liquidation or
dissolution, the Plan Administrator will notify all holders of options and SPRs
in advance of such liquidation or dissolution, and any options or SPRs granted
under the 1997 Stock Plan but not exercised prior to such liquidation or
dissolution will terminate. The Plan Administrator may, in its discretion,
provide that all optionees will fully vest in and have the right to exercise any
and all options granted to such optionee under the 1997 Stock Plan, and shall
release all restrictions on any restricted stock sold to such optionee pursuant
to the exercise of any SPRs granted under the 1997 Stock Plan, prior to the
consummation of the liquidation or dissolution.
Merger; Sale of Assets. In the event of our merger with another corporation
or the sale of all or substantially all of our assets, each outstanding option
or SPR granted under the 1997 Stock Plan will be assumed or an equivalent option
or right substituted by the successor corporation. If the successor corporation
refuses to assume such options or SPRs, or to substitute substantially
equivalent options or rights, however, the optionee will fully vest in and have
the right to exercise any and all options granted to such optionee under the
1997 Stock Plan, and any restrictions shall lapse with respect to restricted
stock sold to such optionee pursuant to the exercise of any SPRs granted under
the 1997 Stock Plan. In such event, the Plan Administrator shall notify the
optionee that the option or SPR is fully vested and exercisable for fifteen (15)
days from the date of such notice, that the option or SPR will terminate upon
expiration of such period, and that all restrictions have lapsed with respect to
their restricted shares.
Amendment and Termination. Our board of directors may amend, alter, suspend
or terminate the 1997 Stock Plan, or any part thereof, at any time and for any
reason. No such action by the board of directors may alter or impair any option
or SPR previously granted under the 1997 Stock Plan without the written consent
of the optionee/recipient. Unless terminated earlier, the 1997 Stock Plan will
terminate ten years from the date of its approval by the stockholders or our
board of directors, whichever is earlier.
FEDERAL INCOME TAX CONSIDERATIONS
Incentive Stock Options. An optionee who is granted an incentive stock
option does not generally recognize taxable income 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 disposition of the shares more than two
years after grant of the option and one year after exercise of the option, any
gain or loss is treated as long-term capital gain or loss. If these holding
periods are not satisfied, the optionee recognizes ordinary income at the time
of disposition equal to the difference between the exercise price and the lower
of (i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. Net capital gains on shares held between 12 and 18 months
may be taxed at a maximum federal rate of 28%, while net capital gains on shares
held for more than 18 months may be taxed at a maximum federal rate of 20%.
Capital losses are allowed in full against capital gains and up to $3,000
against other income. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is our officer, director or 10%
stockholder.
8
<PAGE> 11
We are entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Unless limited by Section 162(m) of the Code, we are
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a non-statutory stock option. Upon
exercise, the optionee recognizes ordinary income generally by the excess of the
then fair market value of the shares over the exercise price. Any taxable income
recognized in connection with an option exercise by our employee is subject to
tax withholding. We are entitled to a deduction in the same amount as the
ordinary income recognized by the optionee. Unless limited by Section 162(m) of
the Code, we are entitled to a deduction in the same amount as the ordinary
income recognized by the optionee. Upon a disposition of such shares by the
optionee, any difference between the sale price and the optionee's exercise
price, to the extent not recognized as taxable income as provided above, is
treated as long-term or short-term capital gain or loss, depending on the
holding period. Net capital gains on shares held between 12 and 18 months may be
taxed at a maximum federal rate of 28%, while net capital gains on shares held
for more than 18 months may be taxed at a maximum federal rate of 20%. Capital
losses are allowed in full against capital gains and up to $3,000 against other
income.
Stock Purchase Rights. Restricted stock is generally acquired pursuant to
SPRs. At the time of acquisition, restricted stock is subject to a "substantial
risk of forfeiture" within the meaning of Section 83 of the Code. As a result,
the recipient will not generally recognize ordinary income at the time of
acquisition. Instead, the recipient will recognize ordinary income on the dates
when the stock ceases to be subject to a substantial risk of forfeiture. The
stock will generally cease to be subject to a substantial risk of forfeiture
when it is no longer subject to our right to reacquire the stock upon the
recipient's termination of employment with us. At such times, the recipient will
recognize ordinary income measured as the difference between the purchase price,
if any, and the fair market value of the stock on the date the stock is no
longer subject to a substantial risk of forfeiture.
The purchaser may accelerate to the date of acquisition, and his or her
recognition of ordinary income, if any, and may begin the 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, is measured as 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 commences on such date.
The ordinary income recognized by a purchaser who is an employee will be subject
to tax withholding by us. Different rules may apply if the purchaser is also our
officer, director, or 10% stockholder.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND US WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS, AND
UPON RECIPIENTS OF SPRS, UNDER THE 1997 STOCK PLAN. IT DOES NOT PURPORT TO BE
COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF THE EMPLOYEE'S,
DIRECTOR'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY
MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE EMPLOYEE, DIRECTOR OR
CONSULTANT MAY RESIDE.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of the holders of a majority of the shares of our
common stock represented in person or by proxy at the annual meeting and voting
with respect to this proposal will be required to approve the proposed amendment
to the 1997 Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE PROPOSED AMENDMENT
TO THE 1997 STOCK PLAN
9
<PAGE> 12
PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
Our board of directors have appointed KPMG LLP, independent accountants, to
audit our financial statements for the current year ending December 31, 1999.
KPMG LLP has audited our consolidated financial statements since 1994. At the
annual meeting, our stockholders are being asked to ratify the appointment of
KPMG LLP as independent accountants to audit our financial statements for the
current fiscal year ending December 31, 1999. We expect that a representative of
KPMG LLP will be available at the annual meeting, will have the opportunity to
make a statement if he or she desires to do so, and will be available to respond
to any appropriate questions. In the event that our stockholders fail to ratify
the appointment of KPMG LLP as independent accountants to audit our financial
statements for the current year ending December 31, 1999, our Board of directors
will reconsider its selection.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of the holders of a majority of the shares of our
common stock present or represented at the annual meeting and voting with
respect to this proposal will be required to approve the proposed ratification
of KPMG LLP, independent accountants, to audit our financial statements for the
current year ending December 31, 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF
KPMG LLP
10
<PAGE> 13
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of the Record Date for: (a) each
person or entity who is known by us to beneficially own five percent or more of
our outstanding common stock; (b) each of our directors; (c) each of the Named
Executive Officers; and (d) all of our directors and executive officers as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
--------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ --------- -------
<S> <C> <C>
TVM Techno Venture Management GmbH(2)....................... 143,580 1.0
c/o Friedrich Bornikoel
Tolzerstrasse 12A
82031 Grunwald Germany
Robert Schneider(3)......................................... 520,402 3.7
c/o SCM Microsystems GmbH
Luitpoldstrasse 6
D-85276 Pfaffenhofen Germany
Bernd Meier(4).............................................. 249,637 1.8
c/o SCM Microsystems GmbH
Luitpoldstrasse 6
D-85276 Pfaffenhofen Germany
Steven Humphreys(5)......................................... 106,570 *
John Niedermaier(6)......................................... 18,333 *
Friedrich Bornikoel(7)...................................... 148,163 1.1
Oystein Larsen(8)........................................... 6,667 *
Poh Chuan Ng(9)............................................. 4,583 *
Andrew Vought(10)........................................... 5,583 *
All directors and executive officers as a group (8
persons)(11).............................................. 1,059,940 7.5
</TABLE>
- ---------------
* Less than one percent.
(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 but not necessarily vested within 60
days of April 30, 1999 are deemed outstanding. Such shares, however, are
not deemed outstanding for the purpose of computing the percentage
ownership of each other person. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, each
stockholder named in the table has sole voting and investment power with
respect to the shares set forth opposite such stockholder's name.
(2) Includes 52,081 shares held by TVM Eurotech Ltd.
(3) Includes: (i) 13,510 shares held by Robert Schneider's wife, Ursula
Schneider; and (ii) options to purchase 56,458 shares and 500 shares of
common stock exercisable within 60 days of April 30, 1999 held by Robert
Schneider and Ursula Schneider, respectively.
(4) Includes: (i) 5,000 shares held by Bernd Meier's wife, Sonja Meier; (ii)
options to purchase 56,458 shares and 500 shares of common stock
exercisable within 60 days of April 30, 1999 held by Bernd Meier and Sonja
Meier, respectively, and (iii) 35,064 shares held in trust for Nicholas
Efthymiou.
(5) Includes 74,904 shares of common stock which are subject to repurchase by
SCM until vested.
(6) Includes options to purchase 15,851 shares of common stock exercisable
within 60 days of April 30, 1999.
(7) Includes: (i) 143,580 shares held by TVM Techno Venture Management GmbH.
Mr. Bornikoel is a partner of TVM Techno Venture Management GmbH. Mr.
Bornikoel disclaims beneficial ownership of
11
<PAGE> 14
shares beneficially owned by such entity except to the extent of his
pecuniary interest therein and (ii) options to purchase 4,583 shares of
common stock exercisable within 60 days of April 30, 1999.
(8) Includes options to purchase 4,583 shares of common stock exercisable
within 60 days of April 30, 1999.
(9) Includes options to purchase 6,667 shares of common stock exercisable
within 60 days of April 30, 1999.
(10) Includes options to purchase 4,583 shares of common stock exercisable
within 60 days of April 30, 1999.
(11) Includes shares and exercisable options which may be deemed to be
beneficially owned by certain directors and executive officers. See Notes
3, 4, 6, 7, 8, 9, and 10 above.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our executive officers and directors, and persons who
own more than ten percent of a registered class of our equity securities, or 10%
stockholders, to file certain reports of ownership with the Securities and
Exchange Commission, or the Commission, and with the National Association of
Securities Dealers. Such officers, directors and 10% stockholders are also
required by the Commission's rules and regulations to provide us with copies of
all forms that they file under Section 16(a) of the Exchange Act. Based solely
on its review of copies of such forms received by us, or on written
representations from certain reporting persons, we believe that, during the
period from January 1, 1998 to December 31, 1998, our executive officers,
directors and 10% stockholders filed all required reports under Section 16(a) of
the Exchange Act on a timely basis.
CERTAIN TRANSACTIONS
During 1995, 1996 and 1997, we purchased contract manufacturing services
totaling $3.5 million, $3.3 million and $3.4 million, respectively, from
Intellicard Systems Pte. Ltd., or ICS. Poh Chuan Ng, one of our directors,
served as the Director, Business Development for ICS from September 1994 through
May 1997. We completed the acquisition of ICS in June of 1998.
Our bylaws provide that we are required to indemnify our officers and
directors to the fullest extent permitted by Delaware law, including those
circumstances in which indemnification would otherwise be discretionary, and
that we are required to advance expenses to our officers and directors as
incurred. Further, we have entered into indemnification agreements with our
officers and directors. We believe that our charter and bylaw provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
We believe that the transactions set forth above were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
All future transactions between us and our officers, directors, principal
stockholders and affiliates will be approved by a majority of the board of
directors, including a majority of the independent and disinterested outside
directors on the board of directors, and will be on terms no less favorable to
us than could be obtained from unaffiliated third parties.
12
<PAGE> 15
EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE OFFICER COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to us in all capacities to the Named Executive
Officers during 1996, 1997 and 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)
--------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert Schneider............................. 1998 190,000 60,000 30,000 1,935(1)
Managing Director of German subsidiary 1997 190,000 75,000 120,000 1,935(1)
Steven Humphreys(2).......................... 1998 190,000 60,000 30,000 --
President and Chief Executive Officer 1997 190,000 75,000 -- --
Bernd Meier.................................. 1998 190,000 78,000 30,000 1,935(1)
Chief Operations Officer and Managing 1997 190,000 75,000 120,000 1,935(1)
Director of German subsidiary
John Niedermaier(3).......................... 1998 149,300 38,596 15,000 --
Vice President, Finance and Chief 1997 108,750 20,164 80,000 --
Financial Officer
</TABLE>
- ---------------
(1) Represents payments of life insurance premiums.
(2) Mr. Humphreys began working at SCM in July 1996.
(3) Mr. Niedermaier began working at SCM in April 1997.
SUMMARY OF STOCK OPTION GRANTS
The following table sets forth certain information concerning stock options
granted during 1998 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES PRICE OPTION TERM(2)
OPTIONS IN PER EXPIRATION ---------------------
NAME GRANTED 1998 SHARE($) DATE(1) 5%($) 10%($)
---- ---------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert Schneider................... 30,000 3.0 30.00 10/9/2008 566,000 1,434,400
Steven Humphreys................... 30,000 3.0 30.00 10/9/2008 566,000 1,434,400
Bernd Meier........................ 30,000 3.0 30.00 10/9/2008 566,000 1,434,400
John Niedermaier................... 15,000 1.5 30.00 10/9/2008 283,000 717,200
</TABLE>
- ---------------
(1) The option grants presented here vest as to 100% of the shares four years
from the date of grant. Options may generally be exercised ahead of vesting,
subject to a right of SCM to repurchase the unvested portion of the shares
if the optionee's status as an employee or consultant is terminated or upon
the optionee's death or disability prior to the shares vesting.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent SCM's estimate or projection of SCM's future Common Stock prices.
The actual value realized may be greater or less than the potential
realizable values set forth in the table.
13
<PAGE> 16
SUMMARY OF OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth the year-end value of unexercised options
held by each of the Named Executive Officers as of December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE(1) OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END(#): OPTIONS AT YEAR-END($):
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
---- ---------------------------- -------------------------------
<S> <C> <C>
Robert Schneider............................. 41,458/108,542 2,570,654/6,097,721
Steven Humphreys............................. 32,094/139,476 2,277,497/9,000,539
Bernd Meier.................................. 41,458/108,542 2,570,654/6,097,721
John Niedermaier............................. 15,851/ 61,667 1,035,766/3,665,254
</TABLE>
- ---------------
(1) Options are generally exercisable by the optionee ahead of vesting. Unvested
shares purchased on exercise of an option are subject to a repurchase right
of SCM, and may not be sold by an optionee until the shares vest. Options
indicated as "Exercisable" are those options which were both vested and
exercisable as of December 31, 1998. All other options are indicated as
"Unexercisable."
(2) Market value of underlying securities at year-end minus the exercise price.
EMPLOYMENT CONTRACTS
Our German subsidiary has entered into substantially similar employment
agreements with each of Messrs. Schneider and Meier pursuant to which each
serves as a Managing Director of the subsidiary. Each agreement continues for an
indefinite term and each party may terminate the agreement at any time with six
months notice. Each executive receives an annual base salary of $190,000 and an
annual target bonus of $75,000, payable based upon achievement of performance
objectives. Furthermore, each executive is subject to a non-compete provision
for a period of one year after the termination of employment.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee reviews and approves our compensation policies.
The following is the report of the Compensation Committee describing the
compensation policies applicable to the compensation of our executive officers
for their services to the Company during 1998.
Compensation Philosophy. Our philosophy in setting its compensation
policies for executive officers is to maximize shareholder value over time. The
primary goal of our executive compensation program is therefore to closely align
the interests of the executive officers with those of our stockholders. To
achieve this goal, we attempt to (i) offer compensation opportunities that
attract and retain executives whose abilities are critical to our long-term
success, motivate individuals to perform at their highest level and reward
outstanding achievement, (ii) maintain a portion of the executive total
compensation at risk, with payment of that portion tied to achievement of
financial, organizational and management performance goals, and (iii) encourage
executives to manage from the perspective of owners with an equity stake in SCM.
The Compensation Committee currently uses salary, incentive bonuses and stock
options to meet these goals.
Base Salary. The base salary component of total compensation is primarily
designed to attract, motivate, reward and retain highly skilled executives and
to compensate executives competitively within the industry and the marketplace.
The Compensation Committee reviewed and approved fiscal 1998 base salaries for
the Chief Executive Officer and other executive officers at the beginning of
fiscal 1998. In establishing base salaries of executive officers, the
Compensation Committee evaluates each executive's salary history, scope of
responsibility, prior experience, past performance for us and recommendations
from management. The Compensation Committee also takes into account the salaries
for similar positions at comparable companies in our industry, based on each
individual Committee member's industry experience. In reviewing and setting base
salaries for executive officers, the Compensation Committee focused on each
executive's historical salary level, which in most instances was based upon the
date on which the executive was hired by us, the executive's prior performance
with us and expected contribution to our future success. In making its salary
decisions, the
14
<PAGE> 17
Compensation Committee exercised its discretion and judgment based upon these
factors. No specific formula was applied to determine the weight of each factor.
Incentive Bonuses. Each executive officer's annual bonus is based on
qualitative and quantitative factors and is intended to motivate and reward
executive officers by directly linking the amount of the bonus to performance
targets. In addition, incentive bonuses for executive officers are intended to
reflect the Compensation Committee's belief that the compensation of each
executive officer should be contingent upon our overall performance. To carry
out this philosophy, our board of directors reviews and approves the financial
goals for the fiscal year. The Compensation Committee evaluates our overall
performance and approves performance bonuses based on the extent to which the
goals of the board of directors have been achieved.
Equity Incentives. The Compensation Committee views stock option grants as
an important component of its long-term, performance-based compensation
philosophy. The Company provides long-term incentives to its Chief Executive
Officer and its other executive officers through its 1997 Stock Plan, or the
Plan. The purpose of the Plan is to attract and retain the best employee talent
available and to create a direct link between compensation and our long-term
performance. The Compensation Committee believes that stock options directly
motivate its executive officers to maximize long-term shareholder value. The
options also utilize vesting periods that encourage key executives to continue
in our employ. All options granted to executive officers to date have been
granted at the fair market value of our common stock on the date of grant. The
board of directors considers the grant of each option subjectively, considering
factors such as the individual performance of the executive officer and the
anticipated contribution of the executive officer to the attainment of our
long-term strategic performance goals.
CEO Compensation. The compensation of Mr. Humphreys, our Chief Executive
Officer, consists of base salary, an annual bonus and stock options. For 1998,
the Compensation Committee retained Mr. Humphreys' base salary at $190,000, the
same level as in 1997 based upon the Compensation Committee's knowledge of base
salary levels for similar positions in the industry. In May 1998, Mr. Humphreys
was awarded an incentive bonus of $60,000 based on the financial and operational
performance of the Company during 1997.
Compensation of Certain Other Executive Officers. The compensation of Mr.
Schneider, our Executive Chairman and a Managing Director of our German
subsidiary, consists of base salary, an annual bonus and stock options. For
1998, the Compensation Committee retained Mr. Schneider's base salary at
$190,000 based upon the Compensation Committee's knowledge of base salary levels
for similar positions in the industry. In May 1998, Mr. Schneider was awarded an
incentive bonus of $60,000 based on the financial and our operational
performance during 1997.
The compensation of Mr. Meier, our Chief Operations Officer and a Managing
Director of our German subsidiary, consists of base salary, an annual bonus and
stock options. For 1998, the Compensation Committee retained Mr. Meier's base
salary at $190,000 based upon the Compensation Committee's knowledge of base
salary levels for similar positions in the industry. In May 1998, Mr. Meier was
awarded an incentive bonus of $78,000 based on our financial and operational
performance during 1997.
15
<PAGE> 18
PERFORMANCE GRAPH
The following Performance Graph compares the cumulative total return to
stockholders of our common stock since October 7, 1997, the date we first became
subject to the reporting requirements of the Exchange Act, to the cumulative
total return over such period of (i) the Standard & Poor's 500 Stock Index, and
(ii) the Hambrecht & Quist Technology Index, which is comprised of publicly
traded stocks of approximately 275 companies in the computer hardware, computer
software, communications, semiconductor and information services industries. The
Performance Graph assumes that $100 was invested on October 7, 1997 in our
common stock and in each of the comparative indices. The Performance Graph
further assumes that such amount was initially invested in our common stock at a
price of $13.00 per share, the price at which our stock was first offered to the
public by us on such date.
COMPARISON OF 15 MONTH CUMULATIVE TOTAL RETURN*
AMONG SCM MICROSYSTEMS, INC., THE S & P 500 INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
<TABLE>
<CAPTION>
SCM MICROSYSTEMS, HAMBRECHT & QUIST
S & P 500 INC. TECHNOLOGY
--------- ----------------- -----------------
<S> <C> <C> <C>
'10/7/97' 100.00 100.00 100.00
'12/97' 99.00 185.00 82.00
'12/98' 127.00 547.00 128.00
</TABLE>
* $100 invested on 10/7/87 in stock or index -- including reinvestment of
dividends. Fiscal year ending December 31.
Our historic stock price performance is not necessarily indicative of
future stock price performance. The information contained in the Performance
Graph shall not be deemed to be "soliciting material" or to be "filed" with the
Commission, nor shall such information be incorporated by reference into any
existing or future filing by the Company under the Securities Act of 1933, as
amended, or the Exchange Act, except to the extent that we specifically
incorporate such information by reference into any such filing.
16
<PAGE> 19
OTHER MATTERS
We do not intend to bring any matters before the annual meeting other than
those set forth herein, and our management has no present knowledge that any
other matters will or may be brought before the annual meeting by others.
However, 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 our board of directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
SCM MICROSYSTEMS, INC.
John Niedermaier
Secretary
Los Gatos, California
May 12, 1999
17
<PAGE> 20
SCM MICROSYSTEMS, INC.
PROXY FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of SCM MICROSYSTEMS, INC., a Delaware corporation,
hereby acknowledges receipt of the Notice of 1999 Annual Meeting of
Stockholders and Proxy Statement, each dated May 12, 1999, and hereby appoints
Steven Humphreys and John Niedermaier, and each of them, proxies and
attorneys-in-fact, with full power of substitution, on behalf and in the name
of the undersigned, to represent the undersigned at the 1999 Annual Meeting of
Stockholders to be held at the Company's headquarters, 160 Knowles Drive, Los
Gatos, California, 95032, on June 10, 1999 at 10:00 a.m. local time, and any
adjournment(s) and postponement(s) thereof, and to vote all shares of common
stock which the undersigned would be entitled to vote thereat if then and there
personally present, on the matters in the manner set forth below:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
-------------
SEE REVERSE
SIDE
-------------
<PAGE> 21
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
<TABLE>
<CAPTION>
<S> <C> <C>
WITHHOLD
FOR all authority to vote
nominees listed below for the nominees
(except as indicated) listed below FOR AGAINST
1. Proposal to List the [ ] [ ] 2. Proposal to Approve the Adoption of [ ] [ ]
Following Three in Amendment to the 1997 Stock Plan.
Nominees as NOMINEES: Steven Humphreys, Poh Chuan Ng,
Members of Our Oysten Larsen FOR AGAINST
Board of Directors 3. Proposal to Ratify the Appointment of [ ] [ ]
Independent Public Accountants.
INSTRUCTIONS; IF YOU WISH TO WITHHOLD AUTHORITY TO
VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
SUCH NOMINEE'S NAME ON THE LIST ABOVE. In their discretion, the proxies are authorized to vote upon
such other matter(s) which may properly come before the
annual meeting, or at any adjournment(s) or postponement(s)
thereof.
THIS PROXY WILL BE VOTED AS DIRECTED AND, IF NO DIRECTION IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE THREE LISTED
NOMINEES FOR ELECTION AS DIRECTORS, TO APPROVE THE PROPOSED
AMENDMENT TO THE 1997 STOCK PLAN, AND TO RATIFY THE APPOINT-
MENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR OUR
FISCAL YEAR ENDING DECEMBER 31, 1998.
Both of the foregoing attorneys-in-fact or their substitutes
or, if only one shall be present and acting at the annual
meeting or any adjournment(s) or postponement(s) thereof,
the attorney-in-fact so present, shall have and may exercise
all of the powers of said attorney-in-fact hereunder.
</TABLE>
SIGNATURE(S) ____________________________________________ DATE _________________
NOTE: THIS PROXY SHOULD BE MARKED, DATED AND SIGNED BY THE STOCKHOLDER EXACTLY
AS HIS, HER OR ITS NAME APPEARS HEREON. PERSONS SIGNING IN A FIDUCIARY
CAPACITY SHOULD SO INDICATE AND IF SHARES ARE HELD BY JOINT TENANTS OR AS
COMMUNITY PROPERTY, BOTH SHOULD SIGN.
<PAGE> 22
VOTE YOUR PROXY OVER
THE INTERNET OR BY TELEPHONE!
It's fast, convenient, and your vote is immediately confirmed and tabulated.
Most important, by choosing either option, you help SCM Microsystems
reduce postage and proxy tabulation costs.
OPTION 1: VOTE OVER THE INTERNET
1. Read the accompanying Proxy Statement.
2. Have your 12-digit control number located on your voting ballot available.
3. Point your browser to http://www.proxyvote.com.
4. Follow the instructions. You will be given two choices:
o You can simply cast your vote, or
o You can cast your vote and register to receive all future shareholder
communications electronically, instead of in print. This means that the
annual report, proxy, and any other correspondence will be delivered to you
electronically via e-mail.
OPTION 2: VOTE BY TELEPHONE
1. Read the accompanying Proxy Statement.
2. Have your 12-digit control number located on your voting ballot available.
3. Using a touch-tone phone, call the toll-free number shown on the voting
ballot.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT
Using the internet or telephone, you can vote anytime, 24 hours a day.
Or if you prefer, you can return the enclosed paper ballot in the envelope
provided.
Please do not return the enclosed paper ballot if you are voting using the
internet or telephone.
