SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to [ ]240.14a-11(c) or [ ]240.14a-12
SOCKET COMMUNICATIONS, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
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computed pursuant to Exchange Act Rule 0-11 (set forth the
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[ ] Fee paid previously with preliminary materials.
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by registration statement number, or the Form or Schedule and the
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<PAGE>
SOCKET COMMUNICATIONS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 16, 1999
DEAR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of
Stockholders of SOCKET COMMUNICATIONS, INC., a Delaware corporation
(the "Company"), to be held Wednesday, June 16, 1999 at 9:00 a.m.,
local time, at the Company's headquarters at 37400 Central Court,
Newark, California 94560 for the following purposes:
(1) To elect six directors to serve until the next Annual
Meeting of Stockholders or until their successors are duly elected.
(2) To approve an amendment to the Company's 1995 Stock Plan to
reserve an additional 1,200,000 shares of Common Stock for issuance
thereunder.
(3) To approve an amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of the
Company's Common Stock from 15,000,000 to 50,000,000.
(4) To ratify the appointment of Ernst & Young LLP as
independent public accountants of the Company for the fiscal year
ending December 31, 1999.
(5) To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice.
Only stockholders of record at the close of business on April 26,
1999 are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in
person. However, to assure your representation at the meeting, you
are urged to mark, sign, date and return the enclosed Proxy as
promptly as possible in the postage prepaid envelope enclosed for that
purpose. Any stockholder attending the meeting may vote in person
even if he or she has returned a Proxy.
Sincerely,
Charlie Bass
Chairman of the Board and Chief
Executive Officer
Newark, California
April 29, 1999
YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE>
SOCKET COMMUNICATIONS, INC.
PROXY STATEMENT FOR 1999
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of
Directors of SOCKET COMMUNICATIONS, INC., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held Wednesday, June 16, 1999 at 9:00 a.m., local
time, or at any adjournment thereof, for the purposes set forth herein
and in the accompanying Notice of the Annual Meeting. The Annual
Meeting will be held at the Company's headquarters at 37400 Central
Court, Newark, California 94560. The Company's principal executive
offices are located at 37400 Central Court, Newark, California 94560,
and the Company's telephone number at that location is (510) 744-2700.
These proxy solicitation materials and the Annual Report on
Form 10-KSB for the year ended December 31, 1998, including financial
statements, were first mailed on or about May 10, 1999 to all
stockholders entitled to vote at the meeting.
Record Date and Principal Share Ownership
Stockholders of record at the close of business on April 26, 1999
(the "Record Date") are entitled to notice of and to vote at the
meeting. The Company has one series of Common Stock outstanding,
designated Common Stock, $0.001 par value. At the Record Date,
7,847,572 shares of the Company's authorized Common Stock were issued
and outstanding and held of record by approximately 800 stockholders.
The Company has seven series of Preferred Shares outstanding,
designated Series B Convertible Preferred Stock, $.001 par value,
Series B-1 Convertible Preferred Stock, $.001 par value, Series B-2
Convertible Preferred Stock, $.001 par value, Series C Convertible
Preferred Stock, $.001 par value, Series C-1 Convertible Preferred
Stock, $.001 par value, Series C-2 Convertible Preferred Stock, $.001
par value, and Series D Convertible Preferred Stock, $.001 par value.
At the Record Date, 10,970 shares of the Company's Series B
Convertible Preferred Stock were outstanding and held of record by
twelve stockholders, 7,203 shares of the Company's Series B-1
Convertible Preferred Stock were outstanding and held of record by
four stockholders, 8,715 shares of Series B-2 Convertible Preferred
Stock were outstanding and held of record by one stockholder, 95,037
shares of Series C Convertible Preferred Stock were outstanding and
held of record by eleven stockholders, 51,574 shares of Series C-1
Convertible Preferred Stock were outstanding and held of record by one
stockholder, 16,857 shares of Series C-2 Convertible Preferred Stock
were outstanding and held of record by one stockholder and 174,292
shares of Series D Convertible Preferred Stock were outstanding and
held of record by three stockholders. The shares of Series B
Convertible Preferred Stock, Series B-1 Convertible Preferred Stock,
Series B-2 Convertible Preferred Stock, Series C Convertible Preferred
Stock, Series C-1 Convertible Preferred Stock, Series C-2 Convertible
Preferred Stock and Series D Convertible Preferred Stock are
convertible into 1,097,000, 720,300, 871,500, 2,241,900 (including
accrued dividends of 227,182 shares through March 31, 1999), 546,684,
318,056 and 1,742,920 shares of Common Stock, respectively. The
holders of the Series B Convertible Preferred Stock, the Series B-1
Convertible Preferred Stock, the Series B-2 Convertible Preferred
Stock (collectively, the "Series B Preferred") and the Series D
Convertible Preferred Stock are entitled to the number of votes each
would be entitled to cast as if the Series B Preferred and the
Series D Convertible Preferred Stock were converted into Common Stock.
The holders of the Series C Convertible Preferred Stock, the
Series C-1 Convertible Preferred Stock and the Series C-2 Convertible
Preferred Stock are not entitled to vote on any matter submitted to
the stockholders of the Company for approval.
Provided herein under the caption entitled "Management - Security
Ownership of Certain Beneficial Owners and Management" is a table
which sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of the Record Date as to
(i) each person who is known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, (ii) each Named
Executive Officer (as defined herein), (iii) each director and each
nominee for director of the Company, and (iv) all directors and
executive officers as a group.
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 meeting and
voting in person.
Voting and Solicitation
Each holder of Common Stock is entitled to one vote for each
share of stock held in all matters to be voted on by the stockholders.
Each holder of Series B Preferred and Series D Convertible Preferred
Stock is entitled to the number of votes such holder would be entitled
to cast if the Series B Preferred and the Series D Convertible
Preferred Stock were converted into Common Stock. As of April 1,
1999, each share of Series B Preferred was convertible into 100 shares
of Common Stock and each share of the Series D Convertible Preferred
Stock was convertible into 10 shares of Common Stock. Every
stockholder voting for the election of directors (Proposal One) may
cumulate such stockholder's votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the
number of shares that such stockholder is entitled to vote, or
distribute such stockholder's votes on the same principle among as
many candidates as the stockholder may select, provided that votes
cannot be cast for more than six candidates. However, no stockholder
shall be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and the stockholder, or
any other stockholder, has given notice at the meeting, prior to the
voting, of the intention to cumulate the stockholder's votes. On all
other matters, stockholders may not cumulate votes.
This solicitation of proxies is made by the Company, and all
related costs will be borne by the Company. In addition, the Company
may reimburse brokerage firms and other persons representing
beneficial owners of stock 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
or telefacsimile.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 2000 Annual Meeting of
Stockholders must be received by the Company no later than December
30, 1999 in order that they may be considered for inclusion in the
proxy statement and form of proxy relating to that meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board of Directors shall be
composed of six directors. The Board currently consists of six
directors each of which is listed below as a nominee. In the event
that any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the present Board of
Directors to fill the vacancy. The Company is not aware of any
nominee who will be unable or will decline to serve, as a director.
Different candidates may be nominated by the proxy holders. The term
of office for each person elected as a director will continue until
the next Annual Meeting or until a successor has been elected and
qualified.
Vote Required; Recommendation of the Board
If a quorum is present and voting, the six nominees receiving the
highest number of votes will be elected to the Board of Directors.
Votes withheld from any nominee are counted for purposes of
determining the presence or absence of a quorum. Abstentions and
shares held by brokers that are present but not voted because the
brokers were prohibited from exercising discretionary authority
("broker non-votes") will be counted as present for the purposes of
determining if a quorum is present.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE COMPANY'S NOMINEES FOR DIRECTOR.
Nominees
The names of the nominees and certain information about them as
of April 26, 1999 are set forth below:
Director
Name of Nominee Age Position with the Company Since
- ------------------------ --- ------------------------------------- --------
Charlie Bass............ 57 Chairman of the Board and Chief 1992
Executive Officer
Micheal L. Gifford...... 41 Executive Vice President and Director 1992
Jack C. Carsten......... 57 Director 1993
Edward M. Esber, Jr. ... 47 Director 1998
Gianlucca Rattazzi...... 46 Director 1998
Lars Lindgren........... 43 Director 1998
All directors hold office until the next Annual Meeting of
Stockholders of the Company or until their successors have been
elected. There are no family relationships among any of the directors
or executive officers of the Company.
Charlie Bass co-founded the Company in March 1992, and has been
the Chairman of the Board of Directors from such time to the present.
Dr. Bass also served as the Company's interim Chief Executive Officer
during January and February 1996 and from April 1997 until February
1998, at which time Mr. Bass assumed the position of Chief Executive
Officer. Dr. Bass has been the General Partner of Bass Associates, a
venture capital firm, since September 1989. Dr. Bass currently serves
as a director of Meridian Data, Inc., SoloPoint, Inc. and several
private companies. Dr. Bass holds a Ph.D. in electrical engineering
from the University of Hawaii.
Micheal L. Gifford has been a director of the Company since its
inception in March 1992 and has served as Executive Vice President
since October 1994. Mr. Gifford served as President of the Company
from its inception in March 1992 to September 1994, and as the
Company's Chief Executive Officer from March 1992 to June 1994. From
December 1986 to December 1991, Mr. Gifford served as a director and
as Director of Sales and Marketing for Tidewater Associates, a
computer consulting and computer product development company. Prior
to working for Tidewater Associates, Mr. Gifford co-founded and was
President of Gifford Computer Systems, a computer network integration
company. Mr. Gifford received a B.S. in Mechanical Engineering from
the University of California at Berkeley.
Jack C. Carsten has been a director of the Company since
May 1993. He also served in a consulting capacity as the interim
Chief Executive Officer of the Company from July 1994 to
September 1994. Mr. Carsten owns and operates Technology Investments,
a venture capital firm. Prior to founding Technology Investments,
Mr. Carsten was a general partner of U.S. Venture Partners, a venture
capital firm. Prior to U.S. Venture Partners, he held senior
management positions at Intel Corporation, most recently serving as
Senior Vice President and General Manager of the Component Group,
Microcomputer Group and ASIC Components Group. He received an A.B. in
Physics from Duke University.
Edward M. Esber, Jr. has been a director of the Company since
June 1998. From October 1995 to March 1998, Mr. Esber served as Chief
Executive Officer of SoloPoint, Inc., a communications management
company, and has served as its Chairman since March 1998. From May
1994 to June 1995, Mr. Esber was Chairman, Chief Executive Officer and
President of Creative Insights, Inc., a computer toys company. From
May 1993 to June 1994, Mr. Esber was President and Chief Operating
Officer of Creative Labs, Inc., the US subsidiary of Creative
Technology Ltd. Mr. Esber serves as a director of several
corporations including Quantum Corporation, SoloPoint, Integrated
Circuit Systems and Borealis (now Portivity). Mr. Esber holds a
bachelor's degree in computer engineering from Case Western Reserve
University, a master's degree in electrical engineering from Syracuse
University and an M.B.A. in general management from Harvard Business
School.
Gianlucca Rattazzi has been a director of the Company since June
1998. Dr. Rattazzi co-founded Meridian Data, Inc. ("Meridian"), a
provider of CD ROM networking software and systems, in July 1988. He
has served as President and a director of Meridian since inception and
was appointed Chief Executive Officer of Meridian in October 1992.
From 1985 to 1988, Dr. Rattazzi held various executive level positions
at Virtual Microsystems, Inc., a computer peripheral networking
company, most recently as President. Dr. Rattazzi holds an M.S.
degree in Electrical Engineering and Computer Science from the
University of California, Berkeley, and a Ph.D. in Physics from the
University of Rome, Italy.
Lars Lindgren has been a director of the Company since June 1998.
Mr. Lindgren currently serves as the Managing Director of
ForetagsByggarna BV, ("ForetagsByggarna"), a private venture capital
firm which Mr. Lindgren founded in 1991. Mr. Lindgren has been
actively involved in the venture capital industry in Sweden and to a
lesser extent throughout Europe since 1984, and has founded a number
of companies including the Swedish Venture Capital Association,
Campanius Venture, a venture capital concern of which Mr. Lindgren
continues to serve as the managing partner, ForetagsByggarna, MiniDoc,
a publicly traded company in Sweden that develops information
technology system for the pharmaceutical industry, and Nykoping
Strand, a real estate company. Mr. Lindgren has served on the board
of directors for numerous companies and is presently on the boards of
JKL, a Swedish public relations firm, Campanius Venture,
ForetagsByggarna, MiniDoc, Proventure, a European Fund-of Funds, and
Time Care, a Swedish software and consulting company. Mr. Lindgren
received an M.B.A. from the Stockholm School of Economics in 1984 and
has also studied at the Sloan School of Management at M.I.T.
Board Meeting and Committees
The Board of Directors of the Company held a total of 5 regular
meetings and 3 telephonic meetings during fiscal 1998. No director
attended fewer than 75% of the meetings of the Board of Directors and
committees thereof, if any, upon which such director served. The
Board of Directors has a Compensation Committee and an Audit
Committee. The Board of Directors has no nominating committee or any
committee performing such functions.
The Compensation Committee, which consisted of Jack Carsten and
Gary Kalbach through June 10, 1998, and Jack Carsten and Gianluca
Rattazzi after June 10, 1998, did not meet or act by written consent
during the fiscal year. This Committee is responsible for determining
salaries, incentives and other forms of compensation for directors and
officers of the Company and administers various incentive compensation
and benefit plans. During fiscal 1998, the Board, as a whole
(excluding any interested parties), acted with respect to such
decisions.
The Audit Committee, which consisted of Jack Carsten and Gary
Kalbach through June 10, 1998 and Edward Esber and Lars Lindgren after
June 10, 1998 did not meet during the fiscal year. This Committee is
responsible for overseeing actions taken by the Company's independent
auditors and reviews the Company's internal financial controls.
During fiscal 1998, the Board, as a whole, also acted with respect to
such responsibilities delegated to the Audit Committee.
Compensation Committee Interlocks
None of the members of the Compensation Committee of the Board
was at any time during fiscal 1998 an officer or employee of the
Company. No executive officer of the Company serves as a member of
the Board of Directors or Compensation Committee of any entity that
has one or more executive officers serving on the Board or the
Compensation Committee of the Board.
Director Compensation
Directors (except Mr. Gifford) receive $1,500 per Board meeting
attended. The Company's Directors are also entitled to participate in
the Company's 1995 Stock Option Plan, and during fiscal 1998 Messrs.
Bass, Carsten, Esber, Gifford, Lindgren and Rattazzi were granted
options to purchase 500,000, 10,000, 10,000, 66,666, 10,000 and 10,000
shares, respectively, of the Company's Common Stock, each at an option
exercise price of $0.6875 per share, the fair market value of the
Company's Common Stock on the date of grant. Mr. Gifford was also
granted options to purchase an additional 70,000 shares at $0.46 per
share, the fair market value of the Company's Common Stock on the date
of grant.
PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE 1995 STOCK PLAN
At the Annual Meeting, stockholders are being asked to approve an
amendment to the Company's 1995 Stock Plan (the "1995 Plan") which
would increase the number of shares of Common Stock ("Shares")
reserved for issuance thereunder by 1,200,000 shares to 2,935,000
shares.
The foregoing amendment was approved by the Board of Directors in
March, 1999. The adoption of the 1995 Plan was approved by the Board
of Directors in April 1995 and by the stockholders in May 1995. As of
April 26, 1999, 2,800 shares of Common Stock had been issued pursuant
to option exercises under the 1995 Plan, options to purchase an
aggregate of 1,624,742 shares were outstanding and 107,458 shares
(exclusive of the 1,200,000 shares subject to stockholder approval at
the Annual Meeting) were available for future grant under the 1995
Plan.
The purpose of the 1995 Plan is to retain, motivate and reward
employees and executives by providing them with long-term equity
participation in the Company relating directly to the financial
performance and long-term growth of the Company. The purpose of the
amendment to the 1995 Plan is to ensure the availability of Common
Stock for options to existing key executives, employees and
consultants and to attract and retain qualified personnel necessary
for the growth of the Company. In this regard, it is anticipated
that, if the amendment is approved by the stockholders, a significant
portion of the 1,200,000 additional shares available for options under
the 1995 Plan will be allocated to options granted in the future to
new personnel, including a new full time Chief Executive Officer, and
also to the present executive officers and key employees of the
Company. Mr. Bass, who has served as Chairman and Chief Executive
Officer since April 1998 and serves without cash compensation, intends
to continue as Chairman, a position which he has held since the
Company was founded in 1992. The Board believes that such an
allocation is in the best interests of the Company to attract, retain
and motivate its executive officers. Since each of the Company's
executive officers and directors is eligible to receive options under
the 1995 Plan, each such officer and director has a material financial
interest in the proposed amendment to the 1995 Plan.
Summary of the 1995 Plan
General. The purpose of the 1995 Plan is to attract and retain
the best available personnel for positions of substantial
responsibility with the Company, to provide additional incentive to
the employees, directors and consultants of the Company and to promote
the success of the Company's business. Options and stock purchase
rights may be granted under the 1995 Plan. Options granted under the
1995 Plan may be either "incentive stock options," as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonstatutory stock options.
Administration. The Plan may generally be administered by the
Board or the Committee appointed by the Board (as applicable, the
"Administrator"). The Administrator may make any determinations
deemed necessary or advisable for the 1995 Plan.
Eligibility. Nonstatutory stock options and stock purchase
rights may be granted under the 1995 Plan to employees, directors and
consultants of the Company and any parent or subsidiary of the
Company. Incentive stock options may be granted only to employees.
The Administrator, in its discretion, selects the employees, directors
and consultants to whom options and stock purchase rights may be
granted, the time or times at which such options and stock purchase
rights shall be granted, and the number of shares subject to each such
grant.
Limitations. Section 162(m) of the Code places limits on the
deductibility for federal income tax purposes of compensation paid to
certain executive officers of the Company. In order to preserve the
Company's ability to deduct the compensation income associated with
options and stock purchase rights granted to such persons, the 1995
Plan provides that no employee, director or consultant may be granted,
in any fiscal year of the Company, options and stock purchase rights
to purchase more than 750,000 shares of Common Stock.
Terms and Conditions of Options. Each option is evidenced by a
stock option agreement between the Company and the optionee, and is
subject to the following additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise
price of options at the time the options are granted. The exercise
price of an incentive stock option may not be less than 100% of the
fair market value of the Common Stock on the date such option is
granted; provided, however, the exercise price of an incentive stock
option granted to a 10% stockholder may not be less than 110% of the
fair market value of the Common Stock on the date such option is
granted. The fair market value of the 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 date the
option is granted.
(b) Exercise of Option; Form of Consideration. The
Administrator determines when options become exercisable, and may in
its discretion, accelerate the vesting of any outstanding option. The
means of payment for shares issued upon exercise of an option is
specified in each option agreement. The Plan permits payment to be
made by cash, check, promissory note, other shares of Common Stock of
the Company (with some restrictions), cashless exercises, a reduction
in the amount of any Company liability to the optionee, any other form
of consideration permitted by applicable law, or any combination
thereof.
(c) Term of Option. The term of an incentive stock option may
be no more than ten (10) years from the date of grant; provided that
in the case of an incentive stock option granted to a 10% stockholder,
the term of the option may be no more than five (5) years from the
date of grant. No option may be exercised after the expiration of its
term.
(d) Termination of Employment. If an optionee's employment or
consulting relationship terminates for any reason (including death or
disability), then all options held by the optionee under the 1995 Plan
expire on the earlier of (i) the date set forth in his or her notice
of grant or (ii) the expiration date of such option. The Plan and the
option agreement may provide for a longer period of time for the
option to be exercised after the optionee's death or disability than
for other terminations. To the extent the option is exercisable at
the time of such termination, the optionee (or the optionee's estate
or the person who acquires the right to exercise the option by bequest
or inheritance) may exercise all or part of his or her option at any
time before termination.
(e) Nontransferability of Options: Unless otherwise determined
by the Administrator, options granted under the 1995 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.
(f) Other Provisions: The stock option agreement may contain
other terms, provisions and conditions not inconsistent with the 1995
Plan as may be determined by the Administrator.
Stock Purchase Rights. In the case of SPRs, unless the
Administrator determines otherwise, the Restricted Stock Purchase
Agreement shall grant the Company a repurchase option exercisable upon
the voluntary or involuntary termination of the purchaser's employment
with the Company for any reason (including death or disability). The
purchase price for Shares repurchased pursuant to the Restricted Stock
Purchase Agreement shall be the original price paid by the purchaser
and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate
determined by the Administrator.
Adjustments Upon Changes in Capitalization. In the event that
the stock of the Company changes by reason of any stock split, reverse
stock split, stock dividend, combination, reclassification or other
similar change in the capital structure of the Company effected
without the receipt of consideration, appropriate adjustments shall be
made in the number and class of shares of stock subject to the 1995
Plan, the number and class of shares of stock subject to any option or
stock purchase right outstanding under the 1995 Plan, and the exercise
price of any such outstanding option or stock purchase right.
In the event of a liquidation or dissolution, any unexercised
options or stock purchase rights will terminate.
Rights Upon a Change of Control. Upon a change of control, all
optionees' rights to purchase stock shall be immediately vested and be
fully exercisable on the earlier of: (i) the date immediately
preceding such change in control in the event that the 1995 Plan is
terminated or canceled, or in the event any successor to the Company
fails to assume the 1995 Plan upon becoming a successor to the
Company; (ii) the date immediately preceding an involuntary
termination of the optionee occurring upon or after the change in
control; or (iii) as of the date one year following the change in
control, provided that the optionee shall continuously remain an
employee of the Company throughout such one-year period.
Amendment and Termination of the 1995 Plan. The Board may amend,
alter, suspend or terminate the 1995 Plan, or any part thereof, at any
time and for any reason. However, the Company shall obtain
stockholder approval for any amendment to the 1995 Plan to the extent
necessary and desirable to comply with applicable law. No such action
by the Board or stockholders may alter or impair any option or stock
purchase right previously granted under the 1995 Plan without the
written consent of the optionee. Unless terminated earlier, the 1995
Plan shall terminate ten years from the date of its approval by the
stockholders or the Board of the Company, whichever is earlier.
Federal Income Tax Consequences
Incentive Stock Options. An optionee who is granted an incentive
stock option does not recognize taxable income at the time the option
is granted or upon its exercise, although the exercise is an
adjustment item for alternative minimum tax purposes and 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. 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. 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. A different rule for measuring
ordinary income upon such a premature disposition may apply if the
optionee is also an officer, director, or 10% stockholder of the
Company. Unless limited by Section 162(m) of the Code, the Company is
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 nonstatutory stock
option. Upon exercise, the optionee recognizes taxable income
generally measured 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 an employee of the Company is
subject to tax withholding by the Company. Unless limited by
Section 162(m) of the Code, the Company is 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. Stock purchase rights will generally be
taxed in the same manner as nonstatutory stock options. However,
restricted stock is generally purchased upon the exercise of a stock
purchase right. At the time of purchase, restricted stock is subject
to a "substantial risk of forfeiture" within the meaning of Section 83
of the Code, because the Company may repurchase the stock when the
purchaser ceases to provide services to the Company. As a result of
this substantial risk of forfeiture, the purchaser will not recognize
ordinary income at the time of purchase. Instead, the purchaser will
recognize ordinary income on the dates when the stock is no longer
subject to a substantial risk of forfeiture (i.e., when the Company's
right of repurchase lapses). The purchaser's ordinary income is
measured as the difference between the purchase price and the fair
market value of the stock on the date the stock is no longer subject
to right of repurchase.
The purchaser may accelerate to the date of purchase his or her
recognition of ordinary income, if any, and begin his or her capital
gains holding period by timely filing, (i.e. within thirty days of the
purchase), 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 the Company.
Different rules may apply if the purchaser is also an officer,
director, or 10% stockholder of the Company.
The foregoing is only a summary of the effect of federal income
taxation upon optionees, holders of stock purchase rights, and the
Company with respect to the grant and exercise of options and stock
purchase rights under the 1995 Plan. It does not purport to be
complete, and does not discuss the tax consequences of the employee's
or consultant's death or the provisions of the income tax laws of any
municipality, state or foreign country in which the employee or
consultant may reside.
Participation in the 1995 Plan
The Company is unable to predict the amount of benefits that will be
received or allocated to any particular participant under the 1995
Plan. The following table sets forth the dollar amount and the number
of shares granted under the 1995 Plan during the last fiscal year to
(i) each of the Company's Named Executive Officers, (ii) all executive
officers as a group, (iii) all non-employee directors as a group and
(iv) all employees other than executive officers as a group.
Shares Dollar
Subject to Value of
Options Option
Name and Position Granted(1) Grants(2)($)
- ---------------------------------------------- ---------- ------------
Charlie Bass.................................. 500,000 $343,750
Chairman and Chief Executive Officer
Micheal L. Gifford............................ 136,666 $78,033
Executive Vice President and Director
David W. Dunlap............................... 136,666 $78,033
Vice President of Finance and
Administration, Secretary and CFO
Kevin J. Mills................................ 136,666 $78,033
Chief Operating Officer
Leonard L. Ott (3)............................ 54,000 $31,125
Vice President of Engineering
All current executive officers
as a group (5 persons)..................... 963,998 $608,974
All current non-executive directors
as a group (3 persons)..................... 30,000 $20,625
All other employees (excluding current
current executive officers) as a group..... 198,150 $119,276
- --------------------
(1) Excluded from the table are 167,789 shares granted in previous
years that were repriced in January 1998 from $1.55 to $0.46,
which was the fair market value of the stock on the day of
exchange.
(2) The dollar value of option grants under the Stock Plan was
computed by multiplying the number of shares subject to the option
times the exercise price of the option. All options granted under
the 1995 Plan were granted at an exercise price equal to the fair
market value of the Common Stock on the date of grant.
(3) Mr. Ott was appointed Vice President of Engineering in December
1998.
Vote Required and Recommendation
At the Annual Meeting, the stockholders are being asked to
approve the amendment to the 1995 Plan. The affirmative vote of the
holders of a majority of the shares entitled to vote at the Annual
Meeting will be required to approve the amendment to the 1995 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE AMENDMENT TO THE COMPANY'S 1995 PLAN.
PROPOSAL THREE
APPROVAL OF AMENDMENT TO
CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES
Proposed Amendment
Proposal Four is to amend the Company's current Certificate of
Incorporation (the "Certificate") for the purpose of increasing the
total number of shares of Common Stock the Company is authorized to
issue from 15,000,000 shares to 50,000,000 shares. All references to
such amendment shall refer to the "Certificate Amendment." The
Company's current Certificate authorizes the Company to issue
3,000,000 shares of Preferred Stock, $.001 par value per share, and
15,000,000 shares of Common Stock, $.001 par value per share. On
March 17, 1999, the Board of Directors authorized an amendment to the
Certificate to increase the authorized number of shares of Common
Stock to 50,000,000 shares.
Reasons for the Amendment
The Company believes it is important to retain a significant
reserve of authorized but unissued Common Stock that could be used to
raise additional capital through the sale of securities, declare stock
dividends or stock splits, acquire another company or its business or
assets, create negotiating leverage and flexibility in the event of an
unfriendly takeover bid or establish a strategic relationship with a
corporate partner, among other uses. In particular, the Company
believes that maintaining a sufficient reserve of authorized but
unissued Common Stock is important to preserving the Company's
flexibility to enter into future financing opportunities. The Company
expects to seek to raise additional capital through equity or debt
financing, joint ventures with corporate partners or through other
sources.
Current Number of Shares Outstanding and Subject to Issue
As of the Record Date, 7,847,572 shares of Common Stock were issued
and outstanding. Approximately 7,538,420 additional shares were
issuable upon conversion of Convertible Preferred Stock (including
227,182 shares for the payment of accrued and unpaid dividends for
Series C Convertible Preferred Stock). A total of 1,693,348 shares
were issuable upon the exercise of outstanding stock options and
107,458 shares were reserved for future stock option grants under the
Company's stock plans. In addition, the Company has reserved
4,181,940 shares for the exercise of outstanding warrants. Should
all of the current rights to acquire common stock be exercised by the
holders of those rights, a total of 21,368,738 shares of Common Stock
would be outstanding. In addition, dividends on Series C Convertible
Preferred Stock are payable in shares of Common Stock and will
continue to accrue until converted. Future dividends on Series B and
Series D Convertible Preferred Stock may also be paid in shares of
Common Stock. And, if Proposal Two is approved, stock options shares
reserved for future stock option grants will be increased by 1,200,000
shares.
Text of Certificate Amendment
Under the proposed Certificate Amendment, the first two sentences
of Article III of the Certificate would read substantially as follows:
"This Company is authorized to issue two classes of shares
to be designated, respectively, Common Stock, $0.001 par
value ("Common Stock") and Preferred Stock, $0.001 par value
("Preferred Stock"). The total number of shares of all
classes of stock which the Company shall have authority to
issue is Fifty Three Million (53,000,000), consisting of
Fifty Million (50,000,000) shares of Common Stock and Three
Million (3,000,000) shares of Preferred Stock."
Effect of Amendment
If approved, the proposed amendment to the Certificate would
authorize additional shares of Common Stock that will be available in
the event that the Board of Directors determines to authorize stock
dividends or stock splits, to raise additional capital through the
sale of securities, to acquire another company or its business or
assets, to create negotiating leverage and flexibility in the event of
an unfriendly takeover bid or to establish a strategic relationship
with a corporate partner, among other uses. Any additional equity
financings may be dilutive to stockholders, and a debt financing, if
available, may involve restrictions on stock dividends and other
restrictions on the Company.
If the proposed amendment is adopted, 35,000,000 additional
shares of Common Stock of the Company will be available to cover
existing commitments to issue Common Stock and also for the issuance
of Common Stock at the discretion of the Board of Directors, except
that certain large issuances of shares may require stockholder
approval in accordance with the requirements of The Pacific Exchange
and certain stock-based employee benefit plans may require stockholder
approval in order to obtain desirable treatment under tax or
securities laws and accounting regulations. The Board of Directors
believes it desirable that the Company have the flexibility to issue
the additional shares as described above. As is typical in publicly
held technology companies, the holders of Common Stock have no
preemptive rights to purchase any stock of the Company. Stockholders
should be aware that the issuance of additional shares could have a
dilutive effect on earnings per share and on the equity ownership of
the present holders of Common Stock. No actions are currently being
taken with respect to any large issuance of additional shares.
The flexibility of the Board of Directors to issue additional
shares of Common Stock could also enhance the Board's ability to
negotiate on behalf of the stockholders in an unfriendly takeover
situation. Although it is not the purpose of the proposed Certificate
Amendment, the authorized but unissued shares of Common Stock (as well
as the existing authorized but unissued shares of Preferred Stock)
also could be used by the Board of Directors to discourage, delay or
make more difficult a change in the control of the Company. The Board
of Directors is not aware of any pending or proposed effort to acquire
control of the Company.
Vote Required
The approval of the amendment to the Certificate requires the
affirmative vote of a majority of the outstanding shares of Common
Stock of the Company. An abstention or nonvote is not an affirmative
vote and, therefore, will have the same effect as a vote against the
proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK FROM
15,000,000 SHARES TO 50,000,000 SHARES.
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP,
independent public accountants, to audit the financial statements
of the Company for the fiscal year ending December 31, 1999, and
recommends that stockholders vote for ratification of such
appointment. In the event of a negative vote on ratification,
the Board of Directors will reconsider its selection.
Ernst & Young LLP has audited the Company's financial statements
annually since 1992. Representatives of Ernst & Young LLP are
expected to be present at the meeting with the opportunity to make a
statement if they desire to do so and are expected to be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS
MANAGEMENT
The current executive officers of the Company are as follows:
Name of Officer Age Position with the Company
- ------------------------ --- ---------------------------------------------
Charlie Bass........... 57 Chairman of the Board of Directors and
Acting Chief Executive Officer
Micheal L. Gifford..... 41 Executive Vice President and Director
David W. Dunlap........ 56 Vice President of Finance and Administration,
Chief Financial Officer and Secretary
Kevin J. Mills......... 38 Chief Operating Officer
Leonard L. Ott......... 40 Vice President of Engineering
Charlie Bass co-founded the Company in March 1992, and has been
the Chairman of the Board of Directors from such time to the present.
Dr. Bass also served as the Company's interim Chief Executive Officer
during January and February 1996 and from April 1997 until February
1998, at which time Mr. Bass assumed the position of Chief Executive
Officer. Dr. Bass has been the General Partner of Bass Associates, a
venture capital firm, since September 1989. Dr. Bass currently serves
as a director of Meridian Data, Inc., SoloPoint, Inc. and several
private companies. Dr. Bass holds a Ph.D. in electrical engineering
from the University of Hawaii.
Micheal L. Gifford has been a director of the Company since its
inception in March 1992 and has served as Executive Vice President
since October 1994. Mr. Gifford served as President of the Company
from its inception in March 1992 to September 1994, and as the
Company's Chief Executive Officer from March 1992 to June 1994. From
December 1986 to December 1991, Mr. Gifford served as a director and
as Director of Sales and Marketing for Tidewater Associates, a
computer consulting and computer product development company. Prior
to working for Tidewater Associates, Mr. Gifford co-founded and was
President of Gifford Computer Systems, a computer network integration
company. Mr. Gifford received a B.S. in Mechanical Engineering from
the University of California at Berkeley.
David W. Dunlap has served as the Company's Vice President of
Finance and Administration, Secretary and Chief Financial Officer
since February 1995. Prior to joining the Company, Mr. Dunlap served
as Vice President of Finance and Administration at Appian Technology
Inc. ("Appian"), a semiconductor company, from September 1993 to
February 1995. Appian filed a voluntary petition for bankruptcy under
Chapter 11 of the United States Bankruptcy Code in August 1994 in
connection with the sale of substantially all of its assets to Cirrus
Logic, Inc. Mr. Dunlap served as Vice President of Finance and
Administration and Chief Financial Officer at Mountain Network
Solutions, Inc., a computer peripherals manufacturing company, from
March 1992 to September 1993. He is a certified public accountant,
and received an M.B.A. and a B.A. in Business Administration from the
University of California at Berkeley.
Kevin J. Mills has served as the Company's Chief Operating
Officer since September 1998. Mr. Mills joined the Company in
September 1993 as Vice President of Operations. Prior to joining the
Company, Mr. Mills worked from September 1987 to August 1993 at
Logitech, Inc., a computer peripherals company, serving most recently
as its Director of Operations. He received a B.E. in Electronic
Engineering from the University of Limerick, Ireland.
Leonard L. Ott was appointed Vice President of Engineering in
December 1998. Mr. Ott joined the Company in March 1994, serving in
increasingly responsible engineering positions including Director of
Software Development and Director of Engineering. Mr. Ott also worked
as an engineering consultant with the Company from November 1993 to
March 1994. Prior to joining the Company, Mr. Ott served from March
1988 to November 1993 with Vision Network Systems, a networking
systems company, serving most recently as its Vice President Research
and Development. He received a B.S. in Computer Science from the
University of California at Berkeley.
EXECUTIVE COMPENSATION AND OTHER MATTERS
Executive Compensation
Summary Compensation Table
The following table sets forth the compensation paid by the
Company during the fiscal years ended December 31, 1998, 1997 and 1996
to the Company's Chief Executive Officer, and the four other most
highly compensated executive officers whose total 1998 salary and
bonus exceeded $100,000 (collectively, the "Named Executive
Officers"):
<TABLE>
<CAPTION>
Long-term
Compensation
Awards
Annual Compensation Securities Other All
----------------------- Underlying Annual Other
Name and Principal Position Year Salary ($) Bonus ($)(1) Options(#) Compensation($) Compensation($)
- ------------------------------------ ---- ---------- ----------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Charlie Bass (2)................... 1998 -- -- 530,767(3) 7,500(2) --
Chief Executive Officer 1997 -- -- 30,000 -- --
and Director 1996 -- -- 55,767 -- --
Micheal L. Gifford................. 1998 125,000 17,536 172,411(3) -- --
Executive Vice President 1997 120,000 21,829 32,500 -- --
and Director 1996 120,000 22,211 35,745 -- --
David W. Dunlap.................... 1998 125,000 17,114 152,580(3) -- --
Vice President of Finance and 1997 120,000 20,696 32,500 -- --
Administration, Chief Financial 1996 120,000 18,775 15,914 -- --
Officer and Secretary
Kevin J. Mills..................... 1998 125,000 17,239 152,580(3) -- --
Chief Operating Officer 1997 115,000 20,930 32,500 -- --
1996 99,999 22,291 15,914 -- --
Leonard L. Ott..................... 1998 101,250 7,133 60,703(3) -- --
Vice President of Engineering
</TABLE>
- --------------------
(1) Represents cash bonuses earned for work performed during fiscal
1998. Bonuses earned during the first three fiscal quarters of
fiscal 1998 were paid in fiscal 1998 whereas bonuses earned during
the fourth fiscal quarter of 1998 were paid in the first quarter of
fiscal 1999.
(2) Dr. Bass served as Acting Chief Executive Officer from April 24,
1997 through January 1998, at which time Dr. Bass assumed the role
of Chief Executive Officer. In consideration for such services,
the Company granted Dr. Bass an option in 1998 to purchase 500,000
shares of Common Stock at an exercise price of $0.6875 and vesting
over a four-year period commencing April 24, 1997. Dr. Bass serves
without cash compensation. Other annual compensation consists of
fees for attendance at board meetings at a rate of $1,500 per
meeting attended during 1998.
(3) Includes options granted pursuant to the Board of Director's
decision on January 14, 1998 to reprice certain outstanding options
by exchanging outstanding options for new options priced to reflect
the market price of the Company's Common Stock on the date of the
exchange (the "1998 Repricing"). See "Report on Repricing of
Options."
Report on Repricing of Options
In January 1998, the Board of Directors authorized the reduction
of the exercise price of options that had exercise prices of $1.55 per
share granted pursuant to the 1995 Stock Plan to the Company's
employees, including its executive officers, and the Company's
directors to $0.46 per share, the then current market value (the
"Repricing"). The Repricing was accomplished by an exchange of each
option held by an optionee at the time of the Repricing (the
"Surrendered Options") for an option with a lower exercise price and
an extended vesting period (the "Repriced Options"). Options granted
to employees are intended to incentivize, motivate and retain
employees in order to achieve long-term success for the Company. The
decline in the market price of the Company's Common Stock following
the grants of the Surrendered Options frustrated this purpose, and the
Board deemed it to be in the best interest of the Company to allow the
exchange of Surrendered Options for Repriced Options in order to
reduce the exercise price to the market price at the time of the
exchange. All Repriced Options were subject to a new vesting period,
beginning on the date of the Repricing. The vesting schedule of the
Repriced Options continues the vesting schedule of the Surrendered
Options with respect to unvested shares; shares that had vested as of
the Repricing vested in equal monthly increments over the six months
following the Repricing.
Option Grants in Fiscal 1998
The following table sets forth certain information for the fiscal
year ended December 31, 1998 with respect to each grant of stock
options to the Named Executive Officers. No stock appreciation rights
were granted during such year.
Individual Grants (3)
----------------------------------------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to Price Per
Options Employees in Share Expiration
Name Granted Fiscal 1998(1) ($)(2) Date
- ----------------------- ----------- -------------- ----------- ----------
Charlie Bass.......... 500,000 41.9 0.6875 06/10/08
Micheal L. Gifford.... 70,000 5.9 0.46 01/14/08
66,666 5.6 0.6875 06/10/08
David W. Dunlap....... 70,000 5.9 0.46 01/14/08
66,666 5.6 0.6875 06/10/08
Kevin J. Mills........ 70,000 5.9 0.46 01/14/08
66,666 5.6 0.6875 06/10/08
Leonard L. Ott........ 30,000 2.5 0.6875 06/10/08
24,000 2.0 0.4375 12/09/08
- --------------------
(1) Based on options granted to employees, consultants and directors
during fiscal 1998 to purchase 1,192,148 shares of Common Stock.
(1) All options were granted at an exercise price equal to the fair
market value of the Company's Common Stock, as determined by the
Board of Directors on the date of grant.
(2) The table excludes options granted in previous years that were
repriced in January 1998 from $1.55 per share to $0.46 per share,
the fair market value on the date of exchange.
Aggregated Option Exercises in Fiscal 1998
and Fiscal Year-End Option Values
None of the Named Executive Officers exercised any stock options
during fiscal 1998. The following table provides information on the
value of such officers' unexercised options at December 31, 1998.
Number of Securities
Underlying Unexercised Value of Unexercised
Options At In-the-Money Options at
December 31, 1998 (#) December 31, 1998 ($)(1)
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ----------- ------------- ----------- -------------
Charlie Bass......... 257,027 308,229 3,622 1,279
Micheal L. Gifford... 83,141 121,770 7,423 7,299
David W. Dunlap...... 77,637 121,770 4,845 7,299
Kevin J. Mills....... 79,677 121,770 4,845 7,299
Leonard L. Ott....... 23,147 53,167 1,083 3,688
- --------------------
(1) Based upon a final bid price, as of December 31, 1998, of $0.59
per share.
Employment Contracts and Termination of
Employment and Change-in Control Arrangements
In February, 1998, the Company initiated a bonus plan pursuant
to which the Company will create a bonus pool in the amount of 10% of
any consideration payable by a buyer in a change of control
transaction to be allocated to the executive officers and such other
employees the Board of Directors determine in its discretion to
include in such bonuses.
In October 1997, the Company entered into separate employment
agreements with Micheal Gifford, Kevin Mills and David Dunlap (each an
"Executive" and collectively the "Executives"). Pursuant to these
agreements, which expire on December 31, 2000 and are each terminable
at will by each party, respectively, the Company is obligated to pay
the Executive's base salary of $125,000. If the Company terminates
the Executive's employment without cause, the Company shall pay the
Executive (i) six months' base salary regardless of whether he secures
other employment during those six months, (ii) health insurance until
the earlier of the date of the Executive's eligibility for the health
insurance benefits provided by another employer or the expiration of
six months, (iii) the full bonus amount to which he would have been
entitled for the first quarter following termination and one-half of
such bonus amount for the second quarter following termination, and
(iv) certain other benefits including the ability to purchase at book
value certain items of Company property purchased by the Company for
the Executive's use, which may include a personal computer, a cellular
phone, and other similar items.
Additionally, under the 1995 Plan, all optionees' rights to
purchase stock shall, upon a change of control of the Company, be
immediately vested and be fully exercisable under certain
circumstances.
Limitation of Liability and Indemnification Matters
Pursuant to the Delaware General Corporation Law ("Delaware
Law"), the Company has adopted provisions in its Amended and Restated
Certificate of Incorporation which eliminate the personal liability of
its directors and officers to the Company and its stockholders for
monetary damages for breach of the directors' fiduciary duties in
certain circumstances. The Company's Bylaws require the Company to
indemnify its directors, officers, employees and other agents to the
fullest extent permitted by law.
The Company has entered into indemnification agreements with each
of its current directors and officers which provide for
indemnification to the fullest extent permitted by Delaware Law,
including in circumstances in which indemnification and the
advancement of expenses are discretionary under Delaware Law. The
Company believes that the limitation of liability provisions in its
Amended and Restated Certificate of Incorporation and the
indemnification agreements will enhance the Company's ability to
continue to attract and retain qualified individuals to serve as
directors and officers.
There is no pending litigation or proceeding involving a
director, officer or employee of the Company to which the
indemnification agreements would apply.
Compensation of Directors
See the information set forth above under "Proposal One-Election
of Directors-Director Compensation."
Certain Transactions
On November 9, 1998, the Company sold 130,719 shares of Series D
Convertible Preferred Stock, $0.001 par value, at a price per share of
$5.7375 for an aggregate purchase price of $750,000 to the Harmat
Organization, Inc. in a private placement offering. The Series D
Convertible Preferred Stock accrues dividends at the rate of 8% per
annum and is convertible into Common Stock at the option of the holder
at a price of $0.57375 per share, with a mandatory conversion date of
November 9, 2001.The Company also issued to the Harmat Organization
three-year warrants to acquire 435,729 shares of Common Stock at
$0.57375 per share.
On November 23, 1998, the Company sold 17,429 shares of its
Series D Preferred Stock at a price per share of $5.7375, for an
aggregate purchase price of $100,000, to the Bass Trust in a private
placement offering. Charlie Bass, acting Chief Executive Officer and
Chairman of the Board of the Company, is the trustee of the Bass
Trust. The Company also issued to the Bass Trust three-year warrants
to acquire 58,097 shares of Common Stock at $0.57375 per share.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of April 26, 1999, certain
information with respect to the beneficial ownership of the Common
Stock of the Company on an as-converted basis for the Series B, C and D
Preferred Stock of the Company as to (i) each person known by the
Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer, and (iv) all directors and officers of the Company
as a group. Except as otherwise noted, the named beneficial owner has
sole voting and investment power with respect to the shares shown.
Pro-forma %
Owned
Assuming
Number of Percentage Conversion
Shares of Shares of all
Beneficially Beneficially Preferred
Name and Address of Beneficial Owner Owned (1) Owned (%)(2) Shares (3)
- --------------------------------------- ------------- ------------ -----------
Cetronic Aktiebolag [Publ]............. 1,997,846(4) 20.3 13.0
Kungsholms Strand 147
114 28 Stockholm, Sweden
The Harmat Organization 1,784,190(5) 18.6 11.3
Old Country Road
Quogue, N.Y. 11959
Explorer Funds......................... 1,391,372(6) 15.2 8.8
c/o Explorer Fund Management, L.L.C.
444 North Michigan Avenue
Suite 2910
Chicago, IL 60611
ForetagsByggarna BV.................... 860,857(7) 10.3 5.6
A.J. Erststraat 595H
1082 LD Amsterdam, The Netherlands
Charlie Bass........................... 1,241,970(8) 14.2 7.9
Lars Lindgren.......................... 860,857(7) 10.3 5.6
Micheal L. Gifford..................... 244,327(9) 3.1 1.6
Jack C. Carsten........................ 179,364(10) 2.3 1.2
Edward M. Esber, Jr. .................. 15,000(11) * *
Gianlucca Rattazzi..................... 5,000(12) * *
David W. Dunlap........................ 119,325(13) 1.5 *
Kevin J. Mills......................... 110,450(14) 1.4 *
Leonard L. Ott......................... 32,143(15) * *
All Directors and Officers
as a group (9 persons)............... 2,808,436(16) 29.1 17.4
- --------------------
*Less than 1%
(1) To the Company's knowledge, the persons named in the table have
sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to
community property laws where applicable and the information
contained in the footnotes to this table.
(2) Percentage ownership is based on 7,847,572 shares of Common Stock
outstanding on April 26, 1999 and any shares issuable pursuant to
securities convertible into or exercisable for shares of Common
Stock by the person or group in question on April 26, 1999 or
within 60 days thereafter.
(3) Proforma percentage ownership is based on 15,385,992 shares of
Common Stock outstanding on April 26, 1999 (includes 7,538,420
additional shares of Common Stock issuable upon conversion of all
outstanding shares of convertible preferred stock) and any shares
issuable pursuant to securities other than convertible preferred
stock into or exercisable for shares of Common Stock by the person or
group in question on April 26, 1999 or within 60 days thereafter.
(4) Represents 1,269,540 shares of Common Stock issuable upon
conversion of Series C Convertible Preferred Stock and 546,684
shares of Common Stock issuable upon conversion of Series C-1
Convertible Preferred Stock plus 181,622 shares relating to accrued
dividends issuable upon the conversion of the Series C and Series
C-1 shares within 60 days of April 26, 1999. Cetronic Aktiebolag
[Publ] holds 63% and 100% of the Series C and C-1 Convertible
Preferred Stock outstanding.
(5) Consists of 1,307,190 shares of Common Stock issuable upon the
conversion of 130,719 shares of Series D Convertible Preferred
Stock, warrants to acquire 435,729 shares of Common Stock and
41,271 shares of common stock representing the payment of dividends
through March 31, 1999. The Harmat Organization holds 75% of the
Series D Convertible Preferred Stock.
(6) Consists of 871,500 shares of Common Stock issuable upon the
conversion of 8,715 shares of Series B-2 Convertible Preferred
Stock owned by Explorer Partners II, L.L.C., 68,897 Common Shares
representing the payment of dividends to Explorer Partners II
through March 31, 1999, and 450,975 shares owned by Explorer Fund
Management, L.L.C. subject to warrants exercisable within 60 days
of April 26, 1999. Explorer Partners II hold 100% of the shares of
Series B-2 Convertible Preferred Stock outstanding. Explorer Fund
Management, as investment advisor to Explorer Partners II has
shared voting and investment power of the shares directly owned by
Explorer Partners II with Tom Papoutsis, the Managing Director of
Explorer Partners II. Robert Holz, as Managing Director of
Explorer Fund Management, exercises voting and investment control
with respect to the shares held by Explorer Fund Management.
Messrs. Papoutsis and Holz disclaim beneficial ownership of the
shares held by the Explorer Funds except to the extent of their
respective pecuniary interests therein.
(7) Includes 505,857 shares of Common Stock issuable upon conversion of
Series C Convertible Preferred Stock within 60 days of April 26,
1999 and 5,000 shares of Common Stock subject to options
exercisable within 60 days of April 26, 1999. ForetagsByggarna BV,
an investment management company, holds 22.8% of the Series C
Convertible Preferred Stock outstanding. Mr. Lindgren is the
beneficial owner of these shares and exercises ownership and
investment control.
(8) Consists of 356,842 shares owned by Bass Associates (including
54,830 shares of Common Stock subject to options exercisable within
60 days of April 26, 1999) and 885,128 shares owned by Bass Trust
(including 346,680 shares of Common Stock issuable upon conversion
of Series C Convertible Preferred Stock within 60 days of April 26,
1999, 270,833 shares of Common Stock subject to options exercisable
within 60 days of April 26, 1999, 174,290 shares of Common Stock
issuable upon conversion of Series D Convertible Preferred Stock
within 60 days of April 26, 1999, and 63,097 shares of Common Stock
subject to warrants exercisable within 60 days of April 26, 1999).
Dr. Bass is the General Partner of Bass Associates and may be
deemed to share voting and investment power with respect to these
shares. However, Dr. Bass disclaims beneficial ownership of shares
owned by Bass Associates except to the extent of his pecuniary
interest therein. The Bass Trust owns 100% of the Series C-2
Convertible Preferred Stock outstanding and 10% of the Series D
Convertible Preferred Stock outstanding.
(9) Includes 108,350 shares of Common Stock subject to options
exercisable within 60 days of April 26, 1999.
(10) Includes 39,517 shares of Common Stock subject to options
exercisable within 60 days of April 26, 1999.
(11) Includes 5,000 shares of Common Stock subject to options
exercisable within 60 days of April 26, 1999.
(12) Represents shares of Common Stock subject to options exercisable
within 60 days of April 26, 1999.
(13) Includes 102,846 shares of Common Stock subject to options
exercisable within 60 days of April 26, 1999.
(14) Includes 104,886 shares of Common Stock subject to options
exercisable within 60 days of April 26, 1999.
(15) Includes 31,897 shares of Common Stock subject to options
exercisable within 60 days of April 26, 1999.
(16) See notes (6) through (14) above
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act ("Section 16(a)") requires the
Company's executive officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with
the Securities and Exchange Commission ("SEC") and the National
Association of Securities Dealers, Inc. Executive officers, directors
and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on its review of the copies of such
forms received by it, or written representations from certain
reporting persons, the Company believes that, during fiscal 1998, all
filing requirements applicable to its executive officers and directors
were complied with.
OTHER MATTERS
The Company knows of no other matters to be submitted at the
meeting. If any other matters properly come before the meeting, it is
the intention of the persons named in the enclosed form of Proxy to
vote the stock they represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: April 29, 1999
<PAGE>
EDGAR APPENDIX A
Form of Proxy
This Proxy is solicited on behalf of the Board of Directors
of Socket Communications, Inc.
1999 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of SOCKET COMMUNICATIONS, INC., a
Delaware corporation, hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated April 29,
1999, and hereby appoints Charlie Bass and David Dunlap, and each of
them, proxies and attorneys-in-fact, with full power to each of
substitution, on behalf and in the name of the undersigned, to represent
the undersigned at the 1999 Annual Meeting of Stockholders of SOCKET
COMMUNICATIONS, INC. to be held on Wednesday, June 16, 1999 at 9:00 a.m.
local time, at the Company's headquarters at 37400 Central Court,
Newark, California 94560, and at any adjournment or adjournments
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 below:
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed [ ] Withhold Authority to vote for
ALL Nominees Listed
Nominees: Charlie Bass, Micheal Gifford, Jack Carsten,
Edward Esber, Gianluca Rattazzi, Lars Lindgren
If you wish to withhold authority to vote for any individual
nominee, strike a line through that nominee's name in the list
below:
Charlie Bass; Micheal Gifford; Jack Carsten;
Edward Esber; Gianluca Rattazzi; Lars Lindgren
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1995 STOCK PLAN
TO RESERVE AN ADDITIONAL 1,200,000 SHARES OF COMMON STOCK FOR
ISSUANCE THEREUNDER
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF THE
COMPANY'S COMMON STOCK FROM 15,000,000 TO 50,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG, LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and, in their discretion, upon such other matter or matters which may
properly come before the meeting or any adjournment or adjournments
thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE
AMENDMENT OF THE 1995 STOCK PLAN, FOR THE INCREASE IN AUTHORIZED COMMON
SHARES, AND FOR THE RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
____________________ ____________________ Date: ______________, 1999
Signature Signature
(This Proxy should be marked, dated and signed by the stockholder(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 shares are held by joint tenants or as community
property, both should sign.)
