<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
- -------------------------------------------------------------------------------
SMITH MICRO SOFTWARE, INC.
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
Registrant
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(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:
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- -------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filling.
(1) Amount previously paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------
<PAGE> 2
April 14, 1998
Dear Smith Micro Stockholders:
We are pleased to invite you to our 1998 Annual Meeting which will be held
at the corporate headquarters of the Company, located at 51 Columbia, Aliso
Viejo, California 92656, on Thursday, May 14, 1998, at 10:00 a.m., Pacific
Daylight Savings Time.
The Annual Meeting will begin with a report on the Company's progress,
followed by a discussion and stockholder questions. Voting on election of
directors and other matters is also scheduled. The items to be voted on are
addressed in the enclosed Notice of Annual Meeting of Stockholders and Proxy
Statement.
Your vote is important. Whether or not you plan to attend the Annual
Meeting, please complete and return the enclosed proxy card to ensure that your
shares will be represented. A postage pre-paid envelope has been provided for
your convenience. By returning the proxy card, you can help the Company avoid
the expense of duplicate proxy solicitations and possibly having to reschedule
the Annual Meeting if a quorum of the outstanding shares is not present or
represented by proxy. If you decide to attend the Annual Meeting and wish to
change your proxy vote, you may do so simply by voting in person at the meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ WILLIAM W. SMITH, JR.
-------------------------------------
William W. Smith, Jr.
Chairman of the Board,
President and Chief Executive
Officer
<PAGE> 3
SMITH MICRO SOFTWARE, INC.
--------------------------------------------
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
MAY 14, 1998
--------------------------------------------
To the Stockholders of Smith Micro Software, Inc.:
Notice is hereby given that the 1998 Annual Meeting of Stockholders
(the "Annual Meeting") of Smith Micro Software, Inc. (the "Company") will be
held at the Company's corporate headquarters, located at 51 Columbia, Aliso
Viejo, California 92656, on Thursday, May 14, 1998, at 10:00 a.m., Pacific
Daylight Savings Time, for the following purposes:
1. To elect one (1) director to serve on the Company's Board of
Directors until the 2001 Annual Meeting;
2. To approve a series of amendments to the Company's 1995 Stock
Option/Stock Issuance Plan, including a 750,000-share increase
in the number of shares of Common Stock authorized for
issuance over the term of such plan;
3. To ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditor for fiscal year 1998; and
4. To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
The close of business on March 27, 1998, has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting and any adjournment thereof. Only stockholders of record at
such time will be so entitled to vote.
You are cordially invited to attend the Annual Meeting. Whether or not
you expect to attend the Annual Meeting, PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE to ensure your representation at
the Annual Meeting. A self-addressed, postage pre-paid envelope is enclosed for
your convenience. Even if you have given your proxy, you may still vote in
person if you attend the Annual Meeting.
A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK MUST BE
REPRESENTED AT THE ANNUAL MEETING IN ORDER TO CONSTITUTE A QUORUM. PLEASE RETURN
YOUR PROXY CARD IN ORDER TO ENSURE THAT A QUORUM IS OBTAINED.
YOUR VOTE IS IMPORTANT
By Order of the Board of Directors,
RHONDA L. SMITH
Secretary
Aliso Viejo, California
April 14, 1998
<PAGE> 4
SMITH MICRO SOFTWARE, INC.
--------------------------------------------
PROXY STATEMENT
--------------------------------------------
This Proxy Statement and the enclosed proxy card are furnished in
connection with the 1998 Annual Meeting of Stockholders (the "Annual Meeting")
of Smith Micro Software, Inc. ("Smith Micro" or the "Company") which will be
held at the Company's corporate headquarters located at 51 Columbia, Suite 200,
Aliso Viejo, California 92656, on Thursday, May 14, 1998, at 10:00 a.m., Pacific
Daylight Savings Time. Stockholders of record at the close of business on March
27, 1998, are entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof.
On March 27, 1998, there were 14,074,698 shares of Common Stock
outstanding, $.001 par value per share (the "Common Stock"). Each share of
Common Stock is entitled to one vote on all matters brought before the Annual
Meeting.
A majority of the outstanding shares of Common Stock entitled to vote
at the Annual Meeting will constitute a quorum. The Company's inspector of
elections for the Annual Meeting will count abstentions and so-called "broker
non-votes" (i.e., shares held by a broker or other nominee having discretionary
power to vote on some matters but not others) for purposes of determining
whether a quorum exists for the transaction of business at the Annual Meeting.
Abstentions are also counted in tabulating the total number of votes cast on
matters voted on by the stockholders at the Annual Meeting. Broker non-votes are
not counted for purposes of determining either the number of votes cast on any
matter voted on by the stockholders or whether such matter has been approved.
Properly executed proxies will be voted in the manner directed by the
stockholders. If no direction is made on proxies, such proxies will be voted FOR
the election of the nominee named under the caption "Election of Directors" as a
director of the Company, FOR the approval of a series of amendments to the
Company's 1995 Stock Option/Stock Issuance Plan, including a 750,000-share
increase in the number of shares of Common Stock authorized for issuance over
the term of such plan, and FOR the ratification of the selection of Deloitte &
Touche LLP as independent auditor of the Company for 1998.
The enclosed proxy is being solicited by the Company's Board of
Directors and is revocable at any time prior to its exercise. A proxy may be
revoked by delivery of a written revocation to the Secretary of the Company, by
presentation of a subsequent proxy, properly signed, or by attendance at the
Annual Meeting and voting in person.
This Proxy Statement, the enclosed proxy card and the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, are scheduled to be
mailed commencing on or about April 14, 1998 to stockholders of record on March
27, 1998.
The principal executive offices of the Company are located at 51
Columbia, Suite 200, Aliso Viejo, California 92656. The Company's phone number
is (714) 362-5800.
1
<PAGE> 5
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
as of March 27, 1998, with respect to beneficial ownership of the Company's
Common Stock by (i) each person (or group of affiliated persons) who is known by
the Company to own beneficially more than 5% of the Company's outstanding Common
Stock, (ii) each director and nominee for director, (iii) the Chief Executive
Officer and each other Named Executive Officer of the Company (as such term is
defined below under the caption "Executive Compensation and Related
Information"), and (iv) all current directors and executive officers as a group,
together with the approximate percentages of outstanding Common Stock owned by
each of them. The following table is based upon information supplied by
directors, executive officers, and principal stockholders.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT OF COMMON STOCK PERCENTAGE OF COMMON STOCK
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED
- ------------------- --------------------- ------------------
<S> <C> <C>
Rhonda L. Smith and
William W. Smith, Jr. (3) 9,801,914 69.54%
Robert W. Scheussler (4) 38,146 *
Robert A. Caggiano (5) 26,623 *
Mark W. Nelson 9,000 *
Robert E. Grice, Jr. (6) 0 *
Thomas G. Campbell (7) 15,000 *
F. Terry Eger (8) 17,500 *
All directors and executive officers as
a group (7 persons) (9) 9,908,183 69.89%
</TABLE>
f
- --------------------
* Less than 1%.
(1) Unless otherwise indicated, (i) each named individual's address is 51
Columbia, Aliso Viejo, California 92656 and (ii) the persons named in
the table have sole voting and sole investment power with respect to
all shares beneficially owned, subject to community property laws where
applicable.
(2) Applicable percentage ownership is based on 14,074,698 shares of Common
Stock outstanding as of March 27, 1998. Any securities not outstanding
but subject to options exercisable as of March 27, 1998 or exercisable
within 60 days after such date are deemed to be outstanding for the
purpose of computing the percentage of outstanding Common Stock
beneficially owned by the person holding such options but are not
deemed to be outstanding for the purpose of computing the percentage of
Common Stock beneficially owned by any other person.
(3) Rhonda Smith and William Smith, Jr. are married to one another and own
their shares as community property. The Smiths' beneficial ownership of
the Company's Common Stock includes 11,134 shares and 9,110 shares
issuable upon the exercise of currently exercisable options held by Mr.
Smith and Ms. Smith, respectively.
(4) Mr. Scheussler's beneficial ownership of the Company's Common Stock
consists of 37,146 shares issuable upon the exercise of options
currently exercisable or exercisable within 60 days after March 27,
1998.
(5) Mr. Caggiano's address is 7 Brindisi, Laguna Niguel, California 92677.
Effective March 31, 1998, Mr. Caggiano resigned as an officer and
employee of the Company in order to pursue other employment
opportunities. Mr. Caggiano's beneficial ownership of the Company's
Common Stock includes 16,623 shares issuable upon the exercise of
options currently exercisable or exercisable within 60 days after March
27, 1998.
(6) Mr. Grice's address is c/o Simulation Sciences Inc., 601 Valencia
Avenue, Suite 100, Brea, California 92823. Effective October 10, 1997,
Mr. Grice resigned as an officer and employee of the Company in order
to pursue other employment opportunities.
2
<PAGE> 6
(7) Mr. Campbell's beneficial ownership of the Company's Common Stock
consists of 15,000 shares issuable upon the exercise of currently
exercisable options. Mr. Campbell's address is c/o Complete Concepts,
Ltd., 4963 South Royal Atlanta Drive, Tucker, Georgia 30084.
(8) Mr. Eger's beneficial ownership of the Company's Common Stock includes
12,500 shares issuable upon the exercise of currently exercisable
options. Mr. Eger's address is P.O. Box 1624, Los Altos, California
94023.
(9) Includes shares of Common Stock subject to stock options exercisable as
of March 27, 1998, or within 60 days after such date, and are,
respectively, as follows: Mr. Smith, 11,134; Ms. Smith, 9,110; Mr.
Scheussler, 37,146; Mr. Caggiano, 16,623; Mr. Campbell, 15,000; and Mr.
Eger 12,500.
3
<PAGE> 7
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William W. Smith, Jr. 50 Chairman of the Board, President
and Chief Executive Officer
Rhonda L. Smith 47 Executive Vice President, Chief
Operating Officer, Secretary,
Treasurer and Director
Robert W. Scheussler 51 Senior Vice President-
Engineering, Chief Technical
Officer and Director
Robert A. Caggiano 41 Vice President-Sales and
Marketing
Mark W. Nelson 37 Vice President-Finance and Chief
Financial Officer
</TABLE>
Mr. Smith co-founded the Company and has served as Chairman of the
Board, President and Chief Executive Officer since its inception. Mr. Smith was
employed by Rockwell International Corporation in a variety of technical and
management positions from 1975 to 1984. Mr. Smith served with Xerox Data Systems
from 1972 to 1975 and RCA Computer Systems Division from 1969 to 1972 in
mainframe sales and pre-sale technical roles. Mr. Smith received a B.A. in
Business Administration from Grove City College.
Ms. Smith co-founded the Company and has served as Executive Vice
President, Chief Operating Officer, Secretary and Treasurer and as a member of
the Board of Directors since the Company's inception. Ms. Smith holds an A.A.
from Orange Coast College and she attended California State University Long
Beach, majoring in Business Administration.
Mr. Scheussler joined the Company in May 1995 and since that time has
served as Senior Vice President-Engineering and Chief Technical Officer. From
May 1995 to April 1997 he was also Vice President of Operations. From February
1996 to the present, Mr. Scheussler has been a member of the Board of Directors.
Prior to joining the Company, from June 1973 to May 1995, Mr. Scheussler held
positions with Rockwell International Corporation, most recently as the
Director-Architecture and Technology at the company's Information Systems
Center. Mr. Scheussler holds a B.S. in Industrial Engineering from Pennsylvania
State University and an M.S. in Operations Research from Polytechnic University
in New York. He also completed the Executive Program at Stanford University.
Mr. Caggiano joined the Company in February 1996 as Vice
President-Sales and Marketing. From May 1985 to February 1996, Mr Caggiano was
the North American Distribution Sales Manager for Lotus Development Corporation.
Prior to that time, he was employed with Informatics General Corporation and
with Electronic Data Systems in various positions. Mr. Caggiano received a B.S.
in Marketing from Northeastern University.
Mr. Nelson joined the Company in October 1997 as Vice President-Finance
and Chief Financial Officer. From November 1992 to October 1997, Mr. Nelson was
Chief Financial Officer and Director of MIS for Airdrome Parts Co. From February
1993 to October 1997, he also served as Airdrome's Secretary, and from January
1996 to May 1997 he was its Director of Operations. From August 1986 to November
1992, Mr. Nelson held various positions with Deloitte & Touche LLP, including
Audit Manager. Mr. Nelson received a B.S. and M.Acc. in Financial Accounting and
Audit from Brigham Young University.
Officers are elected by, and serve at the discretion of, the Board of
Directors. William Smith and Rhonda Smith are married to each other. There are
no other family relationships among the Company's officers or directors.
4
<PAGE> 8
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table sets forth the compensation earned by (i) the
Company's Chief Executive Officer and (ii) each of the four other most highly
compensated executive officers of the Company whose total cash salary and bonus
for 1997 exceeded $100,000 (hereafter, with the Chief Executive Officer,
referred to as the "Named Executive Officers"), for the three fiscal years ended
December 31, 1995, 1996 and 1997, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
OTHER COMPENSATION
ANNUAL SECURITIES ALL OTHER
NAME AND SALARY BONUS COMPEN- UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) SATION($) OPTIONS(#) ($)
------------------ ---- ---- ----- ----------- ------------ ----
<S> <C> <C> <C> <C> <C> <C>
WILLIAM W. SMITH, JR. 1997 275,000 0 0 0 1,900(1)
Chairman of the Board, President and 1996 275,000 95,258(2) 0 11,134 9,057(3)
Chief Executive Officer 1995 450,465(4) 0 2,988,386(5) 0 10,832(3)
RHONDA L. SMITH 1997 225,000 0 0 0 1,900(1)
Executive Vice President, Chief 1996 225,000 95,258(2) 0 9,110 9,057(3)
Operating Officer, Secretary and 1995 289,471(6) 0 2,988,368(5) 0 10,832(3)
Treasurer
ROBERT W. SCHEUSSLER 1997 200,000 0 0 40,000 1,900(1)
Senior Vice President-Engineering 1996 200,000 0 0 7,500 11,595(3)
and Chief Technical Officer 1995 112,179 0 0 45,000 0
ROBERT A. CAGGIANO 1997 150,000 49,733(7) 0 35,000 1,900(1)
Vice President-Sales 1996 128,567 28,441(7) 0 30,000 1,595(3)
and Marketing 1995 0 0 0 0 0
ROBERT E. GRICE, JR.(8) 1997 117,259 20,000 0 0(9) 0
Former Vice President-Finance and 1996 106,875 30,000 0 85,000 0
Chief Financial Officer 1995 0 0 0 0 0
</TABLE>
- -------------------------
(1) These amounts represent contributions made by the Company on behalf of
the Named Executive Officer to the Company's 401(k) Plan.
(2) The Company has a management bonus plan under which the Chief Executive
Officer, the Executive Vice President and other executives of the
Company are eligible to receive bonuses in the event the Company
achieves certain performance targets based upon the Company's pre-tax
profits. See "Compensation Committee Report on Executive Compensation,"
below. For 1996, William Smith, Jr. and Rhonda Smith each received a
bonus of $95,258 under the plan.
(3) These amounts represent contributions made by the Company on behalf of
the Named Executive Officer to the Company's Money Purchase Plan,
Deferred Profit Sharing Plan and/or 401(k) Plan.
(4) Prior to the closing of the Company's initial public offering on
September 19, 1995, Mr. Smith's annualized base salary for 1995 was
$520,000. Following the September 19, 1995 closing and for the
remainder of 1995, Mr. Smith received a base salary at an annualized
rate of $275,000.
(5) From November 1992 to July 1995, the Company elected to be treated as
an S corporation under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), and comparable state
tax laws. The amounts set forth in this column represent distributions
to the Company's stockholders for income tax purposes while it was an S
corporation. In July 1995, in connection with the Company's
reincorporation as a Delaware corporation and its initial public
offering, the Company terminated its status as an S corporation and
elected to be treated as a C corporation under Subchapter C of the
Internal Revenue Code.
5
<PAGE> 9
(6) Prior to the closing of the Company's initial public offering on
September 19, 1995, Ms. Smith's annualized base salary for 1995 was
$320,000. Following the September 19, 1995 closing and for the
remainder of 1995, Ms. Smith received a base salary at an annualized
rate of $225,000.
(7) Represents sales commissions.
(8) In October 1997, Mr. Grice resigned as the Company's Vice
President-Finance and Chief Financial Officer in order to pursue other
employment opportunities.
(9) The Company's 1995 Stock Option/Stock Issuance Plan (the "1995 Plan")
provides that an employee who leaves the service of the Company has
three months in which to exercise any exercisable options granted
thereunder. Mr. Grice did not exercise any of his options within the
three month period following October 10, 1997, the date of his
termination of service with the Company, and as a result all such
options expired and are no longer outstanding.
In October 1997, the Company hired Mark W. Nelson as its Vice
President-Finance and Chief Financial Officer. Mr. Nelson's annualized base
salary for 1997 was $120,000 and as part of his compensation package he was
granted an option to purchase 60,000 shares of the Company's Common Stock. Mr.
Nelson's option will vest incrementally over a four-year period.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to the stock
option grants made during 1997 to the Named Executive Officers. No stock
appreciation rights were granted during 1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
FOR
INDIVIDUAL GRANTS OPTION TERM(1)
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS
STOCK GRANTED TO EXERCISE
OPTIONS GRANT EMPLOYEES PRICE PER EXPIRATION
NAME GRANTED(#)(2) DATE IN 1997(%)(3) SHARE($)(4) DATE 5% 10%
---- ------------- ------ ------------- ------------ ------ -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
William W. Smith, Jr. -- -- -- -- -- -- --
Rhonda L. Smith -- -- -- -- -- -- --
Robert W. Scheussler 40,000 9/26/97 11.1 2.875 9/25/07 72,323 183,280
Robert A. Caggiano 35,000 9/26/97 9.7 2.875 9/25/07 63,283 160,370
Robert E. Grice, Jr. -- -- -- -- -- -- --
</TABLE>
- ----------------------
(1) There is no assurance provided to any Named Executive Officer or any
other holder of the Company's Common Stock that the actual stock price
appreciation over the applicable 10-year option term will be at the
assumed 5% and 10% annual rates of compounded stock price appreciation
or at any other defined level. Unless the market price of the Common
Stock appreciates over the option term, no value will be realized from
the option grants made to the Named Executive Officers.
(2) The shares subject to each option will vest over the optionee's period
of service as follows: 25% of the option shares upon the optionee's
completion of one year of service with the Company measured from the
grant date and the remaining option shares in 36 successive equal
monthly installments upon the optionee's
6
<PAGE> 10
completion of each additional month of service thereafter. The shares
subject to each option will immediately vest in the event the Company
is acquired by merger or asset sale, unless the option is assumed by
the acquiring company. The Compensation Committee, as administrator of
the Company's Stock Option Plan, has the discretionary authority to
provide for the accelerated vesting of the option shares in the event
the optionee's employment is terminated within a designated period
following (i) an acquisition of the Company in which those options are
assumed or (ii) a hostile take-over of the Company, whether by tender
offer for more than 50% of the Company's outstanding voting securities
or a change in a majority of the members of the Board of Directors
through one or more contested elections for membership on the Board of
Directors. Each option has a maximum term of ten years, subject to
earlier termination following the optionee's cessation of service with
the Company.
(3) The Company granted options to employees to purchase a total of 360,000
shares of Common Stock for the fiscal year ended December 31, 1997.
(4) The exercise price may be paid in cash or in shares of Common Stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares and the federal and state income tax liability incurred by the
optionee in connection with such exercise.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUE
The following table sets forth certain information with respect to the
Named Executive Officers concerning the unexercised options held by them at the
close of 1997. No Named Executive Officer exercised any options or stock
appreciation rights during 1997, and none of the Named Executive Officers held
any stock appreciation rights at the end of such year.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR END OPTIONS AT YEAR END
(#) ($)(1)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- ------------- -------------
<S> <C> <C>
William W. Smith, Jr. 11,134 / 0 0 / 0
Rhonda L. Smith 9,110 / 0 0 / 0
Robert W. Scheussler 31,896 / 60,604 0 / 0
Robert E. Grice, Jr. 31,875 / 53,125(2) 0 / 0
Robert A. Caggiano 13,623 / 51,377 0 / 0
</TABLE>
(1) Calculated on the basis of $2.00, the closing sale price of the
Company's Common Stock on December 31, 1997, the last trading day in
1997, minus the exercise price of the option, multiplied by the number
of shares subject to the option. None of the outstanding options held
by the Named Executive Officers were in-the-money at end of the 1997
fiscal year.
(2) Mr. Grice resigned as an officer and employee of the Company effective
October 10, 1997. The 1995 Plan provides that an employee who leaves
the service of the Company has three months in which to exercise any
exercisable options granted thereunder. Mr. Grice did not exercise any
of his options within the three month period following October 10,
1997, the date of his termination of service with the Company, and as a
result all such options expired and are no longer outstanding.
7
<PAGE> 11
MANAGEMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
None of the Named Executive Officers have employment agreements with
the Company, and the employment of each of the Named Executive Officers may
accordingly be terminated at any time at the discretion of the Board of
Directors. However, the Compensation Committee of the Board of Directors has the
authority as administrator of the 1995 Plan to provide for the accelerated
vesting of the shares of Common Stock subject to any outstanding options held by
the Chief Executive Officer and the Company's other executive officers and any
unvested shares actually held by those individuals under the 1995 Plan in the
event their employment were to be terminated (whether involuntarily or through a
forced resignation) following (i) an acquisition of the Company by merger or
asset sale in which the vesting of those options and shares does not accelerate
or (ii) a hostile take-over of the Company effected through a successful tender
for more than 50% of the Company's outstanding Common Stock or through a change
in the majority of the members of the Board of Directors as a result of one or
more contested elections for membership on the Board of Directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
It is the responsibility of the Compensation Committee of the Company's
Board of Directors to make recommendations to the Board of Directors with
respect to the base salary and bonuses to be paid to the Company's executive
officers each fiscal year. In addition, the Compensation Committee has the
exclusive authority to administer the 1995 Plan with respect to stock option
grants and direct stock issuances made thereunder to such officers and other key
employees. The following is a summary of the policies of the Compensation
Committee which affect the compensation paid to executive officers, as reflected
in the tables and text set forth elsewhere in this Proxy Statement.
GENERAL COMPENSATION POLICY. Under the supervision of the Compensation
Committee, the Company has developed a compensation policy which is designed to
attract and retain qualified key executives critical to the Company's success
and to provide such executives with performance-based incentives tied to the
Company's financial success. One of the Compensation Committee's primary
objectives is to have a substantial portion of each officer's compensation
contingent upon the Company's performance as well as upon the individual's
contribution to that performance. Accordingly, each executive officer's
compensation package is fundamentally comprised of three elements: (i) base
salary which reflects individual performance and expertise and is designed to be
competitive with salary levels in effect at companies of similar size in the
industry; (ii) variable performance awards payable in cash or equity and tied to
the Company's achievement of certain goals; and (iii) long-term stock-based
incentive awards which strengthen the mutuality of interests between the
executive officers and the Company's stockholders.
FACTORS. The principal factors which were considered in establishing
the components of each executive officer's compensation package for 1997 are
summarized below. However, the Compensation Committee may in its discretion
apply different factors, particularly different measures of financial
performance, in setting executive compensation for future years.
- BASE SALARY The base salary levels for the executive officers was
established for 1997 on the basis of the following factors: personal
performance, the estimated salary levels in effect for similar positions at a
select group of companies with which the Company competes for executive talent,
and internal comparability considerations. The Compensation Committee, however,
did not rely upon any specific compensation surveys for comparative compensation
purposes. Instead, the Compensation Committee made its decisions as to the
appropriate market level of base salary for each executive officer on the basis
of its understanding of the salary levels in effect for similar positions at
those companies with which the Company competes for executive talent. Base
salaries will be reviewed on an annual basis, and adjustments will be made in
accordance with the factors indicated above.
8
<PAGE> 12
- ANNUAL INCENTIVE COMPENSATION. The Company has established a
management bonus plan for the President and Chief Executive Officer, the
Executive Vice President and other Company executives. Under this plan, the
President and Chief Executive Officer may earn an annual bonus up to an amount
equal to 2.0% of the Company's pre-tax profits for the year, but in no event may
the bonus exceed such individual's base salary for the year. The Executive Vice
President may also earn an annual bonus up to an amount equal to 2.0% of the
Company's pre-tax profit for the year, but not more than his or her base salary
for such year. Such bonus payments are subject to the further condition that the
Company achieve a pre-tax profit margin of not less than 28.0%, as measured
prior to the payment of any bonus to the President and Chief Executive Officer
or the Executive Vice President. The management bonus plan also provides for a
bonus pool for the remaining employees of the Company in an amount not to exceed
2.0% of the Company's pre-tax profits for the year. The Compensation Committee
will make recommendations to the Board of Directors as to the actual dollar
amount of the bonus pool for the year and the portion to be allocated to the
employees selected for participation for the year. Because the Company did not
achieve a pre-tax profit margin of at least 28.0% in 1997, no bonuses were
awarded under the plan for 1997.
- LONG-TERM INCENTIVE COMPENSATION. The Company has also implemented
the 1995 Plan as a long-term equity incentive program for the Company's
executive officers and other key employees. Each option grant under the 1995
Plan is designed to align the interests of the executive officer with those of
the stockholders and provide each individual with a significant incentive to
manage the Company from the perspective of an owner with an equity stake in the
business. The number of shares subject to each option grant is based upon the
officer's tenure, level of responsibility and relative position in the Company.
The Committee has established certain general guidelines in making option grants
to the executive officers in an attempt to target a fixed number of unvested
option shares based upon the individual's position with the Company and his or
her existing holdings of unvested options. However, the Compensation Committee
does not adhere strictly to these guidelines and will vary the size of the
option grant made to each executive officer as it feels the circumstances
warrant.
Each option grant will allow the officer to acquire shares of the
Company's Common Stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to 10 years). The option normally
vests in periodic installments over a four-year period, contingent upon the
executive officer's continued employment with the Company. Accordingly, the
option will provide a return to the executive officer only if he or she remains
in the Company's employ, and then only if the market price of the Company's
Common Stock appreciates over the option term.
- CEO COMPENSATION. In setting the base salary for William Smith, Jr.,
the Company's President and Chief Executive Officer, the Compensation Committee
sought to provide him with a level of salary competitive with the salaries paid
to chief executive officers of similarly-sized companies in the industry. There
was no intent on the Compensation Committee's part to have this particular
component of Mr. Smith's compensation affected to any significant degree by
Company's performance factors.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m). Section 162(m) of
the Internal Revenue Code generally disallows a tax deduction to publicly held
corporations for compensation exceeding $1.0 million paid to certain of the
corporation's executive officers. The limitation applies only to compensation
which is not considered to be performance-based. The non-performance based
compensation to be paid to the Company's executive officers for 1997 did not
exceed the $1.0 million limit per officer, nor is it expected that the
non-performance based compensation to be paid to the Company's executive
officers for 1997 will exceed that limit. The Company's 1995 Plan is structured
so that any compensation deemed paid to an executive officer in connection with
the exercise of option grants made under that plan will qualify as
performance-based compensation which will not be subject to the $1.0 million
limitation. Because it is very unlikely that the cash compensation payable to
any of the Company's executive officers in the foreseeable future will approach
the $1.0 million limit, the Compensation Committee has decided at this time not
to take any other action to limit or restructure the elements of cash
compensation payable
9
<PAGE> 13
to the Company's executive officers. The Compensation Committee will reconsider
this decision should the individual compensation of any executive officer ever
approach the $1.0 million level.
It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align the Company's performance and the interests of the Company's
stockholders through the use of competitive and equitable executive compensation
in a balanced and reasonable manner, for both the short and long-term.
COMPENSATION COMMITTEE
Thomas G. Campbell
F. Terry Eger
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs.
Campbell and Eger. Neither of these individuals was an officer or employee of
the Company at any time during the year ended December 31, 1997. No executive
officer of the Company served on the board of directors or compensation
committee of any entity which has one or more executive officers serving as
members of the Company's Board of Directors or Compensation Committee.
10
<PAGE> 14
STOCK PERFORMANCE GRAPH
The following graph and information compares the cumulative total
stockholder return on the Company's Common Stock, assuming an initial investment
of $100, for the period beginning September 19, 1995 (the effective date of the
Company's initial public offering) and ending December 31, 1997, against the
cumulative total return of the S&P Midcap 400 Index and the S&P Midcap Computer
Software & SVC Index for the same period.
The material in this section of the Proxy Statement is not "soliciting
material," is not deemed filed with the U.S. Securities and Exchange Commission
(the "SEC") and is not to be incorporated by reference in any filing of the
Company under the 1933 Act or the 1934 Act.
11
<PAGE> 15
[BAR GRAPH]
<TABLE>
<CAPTION>
INDEXED RETURNS
YEARS ENDING
BASE
PERIOD
COMPANY/INDEX 19SEP95 DEC95 DEC96 DEC97
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SMITH MICRO SOFTWARE INC 100 46.55 33.62 13.79
COMPUTER (SOFTWARE&SVC)-MID 100 110.29 111.84 161.29
S&P MIDCAP 400 INDEX 100 100.43 119.71 158.33
</TABLE>
<PAGE> 16
COMPLIANCE WITH SECTION 16(a) OF THE 1934 ACT
Section 16(a) of the 1934 Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the National Association of Securities Dealers.
Officers, directors and greater than 10% stockholders are required by SEC
regulations 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 that no Forms 5 were
required for those persons, the Company believes that, during fiscal year 1997,
its officers, directors and greater than 10% beneficial owners complied with all
Section 16(a) filing requirements applicable to such persons, except that Mr.
Campbell filed a Form 5 on March 30, 1998, approximately one and one-half months
late, relating to the grant to him of a stock option to purchase 2,500 shares of
the Company' Common Stock.
12
<PAGE> 17
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and Bylaws provide for the
Company's Board of Directors to be divided into three classes, as nearly equal
in number as is reasonably possible, serving staggered terms that expire in
different years. At each annual meeting of stockholders, the successors to the
class of directors whose term expires at the time are elected to hold office for
a term of three years, so that the term of one class of directors expires at
each annual meeting. The preceding notwithstanding, directors serve until their
successors have been duly elected and qualified or until they resign, become
disqualified or disabled, or are otherwise removed.
The Company has five directors: William W. Smith, Jr., Rhonda L. Smith,
Robert W. Scheussler, Thomas G. Campbell and F. Terry Eger. Ms. Smith comprises
the class of directors whose term expires as of the Annual Meeting. Messrs.
Smith and Eger comprise the class of directors whose term expires in 1999.
Messrs. Scheussler and Campbell comprise the class of directors whose term
expires in 2000.
The enclosed proxy will be voted, unless authority is withheld or the
proxy is revoked, only for the election of the nominee for election named below
to hold office until the date of the Company's 2001 Annual Meeting of
Stockholders or until her successor has been duly elected and qualified or until
she resigns, becomes disqualified or disabled, or is otherwise removed. In the
unanticipated event that such nominee becomes unable or declines to serve at the
time of the Annual Meeting, the proxies will be voted for a substitute person
nominated by the Board of Directors.
NOMINEE AND DIRECTORS
NOMINEE. The name of and certain information about the nominee for
director are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Rhonda L. Smith(1) 47 Executive Vice President, Chief
Operating Officer, Secretary,
Treasurer and Director
</TABLE>
- -------------------------
(1) Member of the Nominating Committee.
Information regarding Ms. Smith is included under the heading
"Executive Officers of the Company."
13
<PAGE> 18
DIRECTORS. The name of and certain information about the directors
comprising the class of directors whose term expires in 1999 are set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William W. Smith, Jr.(1) 50 Chairman, Chief Executive
Officer and President
F. Terry Eger(2)(3) 51 Director
</TABLE>
- -------------------------
(1) Member of the Nominating Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Information regarding Mr. Smith is included under the heading
"Executive Officers of the Company."
Mr. Eger became a director of the Company in May 1996. Since April
1992, he has been an active investor in various publicly and privately held high
technology companies, has advised certain of these companies in various
capacities, and has served on certain of the privately held companies' boards of
directors. Mr. Eger was the founding Vice President-Sales for Cisco Systems and
served in that position and with the company from April 1988 to April 1992.
While at Cisco Systems, Mr. Eger also was responsible for Business Development
and, and in his last year with the company, for Product Marketing. Prior to
1988, Mr. Eger held positions with Wang Laboratories and International Business
Machines Corporation. Mr. Eger holds a B.S. in Business Administration from
Duquesne University.
The names of and certain information about the directors comprising the
class of directors whose term expires in 2000 are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert W. Scheussler 51 Senior Vice President-
Engineering, Chief Technical
Officer and Director
Thomas G. Campbell(1)(2) 47 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Information regarding Mr. Scheussler is included under the heading
"Executive Officers of the Company."
Mr. Campbell became a Director of the Company in July 1995. From July
1996 to the present, he has served as the Vice President of Operations of
Complete Concepts, Ltd., a manufacturer and distributor of women's accessories.
From November 1995 to July 1996, Mr. Campbell was an independent management
consultant specializing in corporate turnarounds. From February 1995 to November
1995, he served as the Chief Operating Officer of Laser Atlanta Optics, Inc.
From 1990 to February 1995, he served in several senior management positions at
Hayes, including Vice President of Operations and Business Development and as
Chief Operating Officer and a member of the Board of Directors of Practical
Peripherals, a Hayes subsidiary. Prior to 1989, Mr. Campbell was employed by
Digital Equipment Corporation. Mr. Campbell attended Boston University.
14
<PAGE> 19
BOARD MEETINGS AND COMMITTEES
During 1997, the Board of Directors held four meetings and took no
actions by unanimous written consent in lieu of meetings. Each director of the
Company attended at least 75% of the meetings and participated in at least 75%
of the actions by written consent of the Board of Directors during 1997 and the
committees of the Board of Directors of which such person is a member, to the
extent he or she was a director at the time.
The Board has three committees: a Compensation Committee, an Audit
Committee and a Nominating Committee. The Compensation Committee, whose members
are Messrs. Campbell and Eger, administers the Company's executive compensation
programs and makes recommendations to the Board of Directors concerning officer
and director compensation. The Compensation Committee also has the exclusive
authority to administer the 1995 Plan and to award stock options and direct
stock issuances under that plan to the Company's officers. The Compensation
Committee held no meetings during 1997 but took four actions by written consent
in lieu of meetings in such year. All such actions by unanimous written consent
addressed stock option grants.
The Audit Committee's members are Messrs. Campbell and Eger. The Audit
Committee supervises and makes recommendations and decisions with respect to the
periodic audits of the Company's financial results. The Audit Committee held one
meeting and took no actions by written consent in lieu of meetings during 1997.
The Nominating Committee's members are Mr. Smith and Ms. Smith. The
Nominating Committee receives proposed nominations to the Board of Directors,
reviews the eligibility of each proposed nominee, and nominates, with the
approval of the Board of Directors, new members of the Board of Directors to be
submitted to the stockholders for election at the annual meetings. The
Nominating Committee held no meetings and took no actions by written consent in
lieu of meetings during 1997.
COMPENSATION OF DIRECTORS
The directors do not receive compensation for services on the Board of
Directors or any committee thereof but are reimbursed for their out-of-pocket
expenses in serving on the Board of Directors. Non-employee members of the Board
of Directors are eligible to receive periodic option grants pursuant to the
Automatic Option Grant Program in effect under the 1995 Plan and, assuming
approval of Proposal 2 by the stockholders at the Annual Meeting, will be
eligible to receive discretionary awards under the 1995 Plan's Discretionary
Option Grant and Stock Issuance Programs.
Each non-employee director will receive an option grant for 10,000
shares in connection with his or her initial appointment to the Board of
Directors. Each such option will have an exercise price per share equal to the
closing sale price per share of Common Stock on the grant date and a maximum
term of 10 years measured from the grant date. Each option will be immediately
exercisable for all the option shares, but any shares purchased under the option
will be subject to repurchase by the Company, at the option exercise price paid
per share, in the event the optionee ceases to serve as a member of the Board of
Directors prior to vesting in the option shares. The option shares will vest in
a series of four successive equal annual installments over the optionee's period
of service on the Board of Directors, with the first installment to vest upon
his or her completion of one year of serving as a member of the Board of
Directors measured from the grant date. The option shares will immediately vest
in full upon certain changes in control or ownership of the Company or upon the
optionee's death or disability while still serving as a member of the Board of
Directors.
At each Annual Meeting of Stockholders, each individual who will
continue to serve as a non-employee member of the Board of Directors will
receive an additional option grant for 2,500 shares, provided such individual
has served on the Board of Directors for at least six months. Each option will
have an exercise price per share equal to the closing sale price per share of
Common Stock on the date of
15
<PAGE> 20
the Annual Stockholders Meeting and a maximum term of 10 years measured from
such date, subject to earlier termination upon the optionee's cessation of
service on the Board of Directors. The option will be immediately exercisable
for all the option shares, but any shares purchased under the option will be
subject to repurchase by the Company, at the option exercise paid per share,
should the optionee stop serving as a member of the Board of Directors prior to
the completion of one year of service measured from the grant date. On May 15,
1997, in connection with their continuing service on the Board of Directors,
Messrs. Campbell and Eger each received an option grant of 2,500 shares at an
exercise price of $3.13 per share.
STOCKHOLDER APPROVAL
The affirmative vote of the holders of a plurality of the outstanding
shares of Common Stock present or represented at the Annual Meeting is required
for approval of the election of the nominee as a member of the Board of
Directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE NAMED ABOVE OR
HER SUBSTITUTE AS SET FORTH HEREIN.
16
<PAGE> 21
PROPOSAL 2
APPROVAL OF AMENDMENTS TO
THE 1995 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve a series of
amendments to the 1995 Plan that will effect the following changes: (i) increase
the maximum number of shares of Common Stock authorized for issuance over the
term of the 1995 Plan from 1,000,000 to 1,750,000 shares, (ii) render
non-employee Board members who are serving on the Compensation Committee of the
Board eligible to receive option grants under the Discretionary Option Grant
Program in effect under the 1995 Plan, (iii) allow unvested shares issued under
the 1995 Plan and subsequently repurchased by the Company at the option exercise
or direct issue price paid per share to be reissued under the 1995 Plan, (iv)
remove certain restrictions on the eligibility of non-employee Board members to
serve as Plan Administrator and (v) effect a series of additional changes to the
provisions of the 1995 Plan (including the stockholder approval requirements) in
order to take advantage of amendments effected in 1996 to Rule 16b-3 of the
Securities and Exchange Commission which exempts certain officer and director
transactions under the 1995 Plan from the short-swing liability provisions of
the federal securities laws.
The 1995 Plan became effective upon its adoption by the Board of
Directors in May 1995 and was approved by the stockholders in July 1995.
However, the Automatic Option Grant Program became effective in connection with
the initial public offering of the Company's Common Stock. The amendments to the
1995 Plan for which stockholder approval is sought under this Proposal 2 were
adopted by the Board on March 27, 1998, subject to stockholder approval at the
Annual Meeting.
The Board believes the increase in the number of shares available for
issuance under the 1995 Plan is necessary in order to assure that the Company
will have a sufficient reserve of Common Stock to continue to utilize option
grants for purposes of attracting and retaining the services of key individuals
essential to the Company's long-term success. The Board believes the other
amendments are needed in order to provide the Company with more opportunities to
make equity incentives available to the non-employee Board members as an
inducement for their continued service and to facilitate plan administration in
light of the changes to Rule 16b-3. However, no option grant made under the 1995
Plan as amended will have value unless the market price of the Common Stock
appreciates over the market price in effect at the time of grant.
The following is a summary of the principal features of the 1995 Plan,
including the amendments which will become effective upon stockholder approval
of this Proposal 2, together with the applicable tax and accounting implications
for the Company and the participants. However, the summary does not purport to
be a complete description of all the provisions of the 1995 Plan. Any
stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon written request to the Company's Chief Financial Officer
at the Company's principal executive offices in Aliso Viejo, California.
EQUITY INCENTIVE PROGRAMS
The 1995 Plan contains three separate equity incentive programs: (i)
the Discretionary Option Grant Program, (ii) the Stock Issuance Program and
(iii) the Automatic Option Grant Program. The principal features of each of
these programs are described below. The Compensation Committee of the Board (the
"Primary Committee") currently administers the provisions of the 1995 Plan
(other than the Automatic Option Grant Program) with respect to all officers and
directors of the Company subject to the short-swing trading restrictions of the
federal securities laws ("Section 16 Insiders"). However, the Board also may
administer the 1995 Plan with respect to Section 16 Insiders. With respect to
all other participants, the 1995 Plan may be administered by the Compensation
Committee, a special stock option committee (the "Secondary Committee")
comprised of one or more Board members appointed by the Board or the entire
Board itself. Each entity, whether the Primary Committee or the Secondary
Committee or the Board, will be referred to in this summary as the 1995 Plan
Administrator with respect to its particular
17
<PAGE> 22
administrative functions under the 1995 Plan, and each Plan Administrator will
have complete discretion (subject to the provisions of the 1995 Plan) to
authorize option grants and direct stock issuances under the 1995 Plan within
the scope of its administrative jurisdiction. However, all grants under the
Automatic Option Grant Program will be made in strict compliance with the
provisions of that program, and no administrative discretion will be exercised
by any Plan Administrator with respect to the grants made under such program.
SHARE RESERVE
A total of 1,750,000 shares of Common Stock have been reserved for
issuance over the ten (10) year term of the 1995 Plan, including the
750,000-share increase subject to stockholder approval as part of this Proposal
2. In no event, however, may any one participant in the 1995 Plan be granted
stock options and direct stock issuances for more than 250,000 shares in the
aggregate under the 1995 Plan. Should any option terminate prior to exercise in
full, the shares subject to the unexercised portion of that option will be
available for subsequent option grants. In addition, any unvested shares issued
under the 1995 Plan and subsequently repurchased by the Company at the original
option exercise or direct issue price paid per share pursuant to the Company's
repurchase rights under the 1995 Plan will be added back to the number of shares
of Common Stock reserved for issuance under the 1995 Plan and will accordingly
be available for reissuance through one or more subsequent option grants made
under the 1995 Plan.
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to the securities issuable (in the aggregate and to each
participant) under the 1995 Plan and to each outstanding option.
ELIGIBILITY
Employees, non-employee Board members, and independent consultants and
advisors to the Company and its subsidiaries (whether now existing or
subsequently established) will be eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs. Non-employee members of the Board will
also be eligible to participate in the Automatic Option Grant Program.
As of March 27, 1998, five executive officers and approximately 80
other employees were eligible to participate in the 1995 Plan, and two
non-employee Board members were eligible to participate in the Automatic Option
Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date
under the 1995 Plan will be the closing selling price per share on that date on
the Nasdaq National Market. On March 27, 1998, the closing selling price of the
Company's Common Stock was $3.13 per share.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at
an exercise price per share not less than eighty five percent (85%) of the fair
market value per share of Common Stock on the option grant date. No granted
option will have a term in excess of ten (10) years.
Upon cessation of service, the optionee will have a limited period of
time in which to exercise any outstanding option to the extent exercisable for
vested shares. The 1995 Plan Administrator will have complete discretion to
extend the period following the optionee's cessation of service during which his
or
18
<PAGE> 23
her outstanding options may be exercised and/or to accelerate the exercisability
or vesting of such options in whole or in part. Such discretion may be exercised
at any time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per
share equal to at least 100% of the fair market value of the shares on the date
of issuance, payable in cash or through a promissory note payable to the
Company. Shares may also be issued as a bonus for past services.
Shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be subject to a vesting
schedule tied to the performance of service or the attainment of performance
goals. Shares which are to vest solely by reason of services to be performed by
the participant will have a minimum vesting period of two (2) years measured
from the date of issuance. Shares which are to vest upon the participant's
completion of a designated period of service and the attainment of performance
goals will have a minimum vesting period of one (1) year measured from the date
of issuance. The 1995 Plan Administrator will, however, have the discretionary
authority at any time to accelerate the vesting of any and all unvested shares
outstanding under the Stock Issuance Program.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, non-employee Board members
will receive option grants at periodic intervals over their period of Board
service. The terms and conditions of these special grants may be summarized as
follows:
Each individual serving as a non-employee Board member on September 19,
1995, the effective date of the initial public offering of the Common Stock, was
automatically granted on that date a non-statutory option to purchase 10,000
shares of Common Stock, provided such individual had not previously been in the
Company's employ. Each individual who first becomes a non-employee Board member
after such date, whether through election by the stockholders or appointment by
the Board, will automatically be granted, at the time of such initial election
or appointment, a non-statutory option to purchase 10,000 shares of Common
Stock, provided such individual has not previously been in the Company's employ.
On the date of each Annual Meeting, each individual who continues to
serve as a non-employee Board member, whether or not such individual is standing
for re-election at such Annual Meeting and whether or not he or she first joined
the Board prior to the implementation of the 1995 Plan, will automatically be
granted a non-statutory option to purchase 2,500 shares of Common Stock,
provided such individual has not received an option grant under the Automatic
Option Grant Program in connection with his or her initial appointment or
election to the Board within the preceding six (6) months. There will be no
limit on the number of such 2,500-share option grants any one non-employee Board
member may receive over his or her period of Board service, and non-employee
Board members who have previously been in the Company's employ will be eligible
to receive one or more of those annual grants.
Each option will have an exercise price per share equal to 100% of the
fair market value per share of Common Stock on the grant date. The option will
have a maximum term of ten (10) years, subject to earlier termination at the end
of the twelve (12)-month period measured from the date of the optionee's
cessation of Board service. Each option will be immediately exercisable for all
of the option shares. However, any shares purchased under the option will be
subject to repurchase by the Company, at the exercise price paid per share, upon
the optionee's cessation of Board service prior to vesting in those shares. The
shares of Common Stock subject to each initial option grant will vest in a
series of four (4) successive equal annual installments upon the optionee's
completion of each year of Board service measured from the grant date. The
shares of Common Stock subject to each annual 2,500-share option grant will vest
upon the optionee's completion of one (1) year of Board service measured from
the grant date.
19
<PAGE> 24
Each automatic option will immediately vest in the event the Company is
acquired by merger or asset sale, or should there occur certain other changes in
control or ownership of the Company.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate in full,
and all unvested shares under the Discretionary Option Grant and Stock Issuance
Programs will immediately vest, except to the extent the Company's repurchase
rights with respect to those shares are to be assigned to the successor
corporation. The 1995 Plan Administrator also has the discretionary authority to
provide for the full and immediate vesting of stock options and unvested shares
under the Discretionary Option Grant and Stock Issuance Programs upon the
involuntary termination of the optionee or participant's service with the
Company or any surviving entity within eighteen (18) months following (i) an
acquisition of the Company in which the outstanding options are assumed and the
repurchase rights with respect to unvested shares are assigned or (ii) a change
in control of the Company (whether by successful tender offer for more than
fifty percent (50%) of the outstanding voting stock or by proxy contest for the
election of Board members).
The acceleration of vesting upon a change in the ownership or control
of the Company may be seen as an anti-takeover provision and may have the effect
of discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
FINANCIAL ASSISTANCE
The 1995 Plan Administrator may institute a loan program to assist one
or more participants in financing the exercise of outstanding options or the
purchase of shares under the Discretionary Option Grant or Stock Issuance
Program. The 1995 Plan Administrator will have complete discretion to determine
the terms of any such financial assistance. However, the maximum amount of
financing provided any individual may not exceed the cash consideration payable
for the issued shares plus all applicable taxes. Any such financing may be
subject to forgiveness in whole or in part, at the discretion of the 1995 Plan
Administrator, over the participant's period of service.
SPECIAL TAX ELECTION
The 1995 Plan Administrator may provide one or more holders of options
or unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the 1995 Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
STOCK AWARDS
The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table of the Executive Compensation and
Related Information section of this Proxy Statement and the various indicated
individuals and groups, the number of shares of Common Stock subject to options
granted under the 1995 Plan between May 25, 1995, the effective date of the 1995
Plan, and March 27, 1998, together with the weighted average exercise price
payable per share. The number of shares and weighted average exercise price
calculations include (i) all options granted during the indicated period and
subsequently regranted at a lower exercise price per share pursuant to the
option cancellation/regrant program effected in May 1997 (356,499 shares) and
(ii) options granted during the
20
<PAGE> 25
specified period which subsequently terminated in connection with the employee's
termination of service with the Company (377,233 shares). No direct stock
issuances have been made to date under the 1995 Plan.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED
NAME AVERAGE
OPTIONS EXERCISE
GRANTED PRICE
(NUMBER OF OF GRANTED
SHARES)(#) OPTIONS($)
---------- ----------
<S> <C> <C>
William W. Smith, Jr.
Chairman of the Board, President
and Chief Executive Officer.............................. 11,134 7.25
Rhonda L. Smith
Executive Vice President,
Chief Operating Officer,
Secretary and Treasurer................................... 9,110 7.25
Robert W. Scheussler
Senior Vice President-Engineering
and Chief Technical Officer............................... 92,500 5.67
Robert A. Caggiano
Vice President-Sales and Marketing................................ 65,000 4.98
Mark W. Nelson
Vice President-Finance and
Chief Financial Officer................................... 60,000 3.00
Robert E. Grice, Jr.(1)
Former Vice President-Finance and
Chief Financial Officer................................... 85,000 7.25
All current executive officers as a group (5 persons)............. 237,744 4.92
All current non-employee directors as a group (2 persons)......... 27,500 10.48
All employees, including current officers who are
not executive officers, as a group (102 persons).................. 1,269,499 5.35
</TABLE>
- --------------------
(1) Mr. Grice resigned as an officer and employee of the Company effective
October 10, 1997.
As of March 27, 1998, options covering 821,004 shares of Common Stock
were outstanding under the 1995 Plan, 904,296 shares remained available for
future option grant or direct issuance (assuming stockholder approval of the
increase which forms part of this Proposal 2), and 24,700 have been issued
pursuant to the exercise of outstanding options under the 1995 Plan.
21
<PAGE> 26
AMENDMENT AND TERMINATION
The Board may amend or modify the 1995 Plan in any or all respects
whatsoever, subject to any required stockholder approval. The Board may
terminate the 1995 Plan at any time, and the 1995 Plan will in all events
terminate on May 24, 2005.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1995 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The federal income tax treatment for such options is as follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For federal tax purposes, dispositions are
divided into two categories: qualifying and disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two (2) years after the option grant date and
more than one (1) year after the exercise date. If either of these two holding
periods is not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of purchased shares,
the Company will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal to the excess of (i) the fair market value
of such shares on the option exercise date over (ii) the exercise price paid for
the shares. If the Company makes a qualifying disposition, the Company will not
be entitled to any income tax deduction.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
ordinary income recognized by the optionee with respect to the exercised
non-statutory option. Generally, the deduction will be allowed for the taxable
year of the Company in which the optionee recognizes such ordinary income.
22
<PAGE> 27
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1995
Plan will be substantially the same as those summarized above for the exercise
of non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
under the 1995 Plan will remain deductible by the Company without limitation
under Code Section 162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less
than the fair market value of the shares on the grant or issue date will result
in a compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over the
period that the option shares or issued shares are to vest. Option grants or
stock issuances at 100% of fair market value will not result in any charge to
the Company's earnings, but the Company must disclose, in pro-forma statements
to the Company's financial statements, the impact those options would have upon
the Company's reported earnings were the value of those options at the time of
grant treated as compensation expense. Whether or not granted at a discount, the
number of outstanding options may be a factor in determining the Company's
earnings per share on a fully-diluted basis.
NEW PLAN BENEFITS
As of March 27, 1998, no options had been granted on the basis of the
750,000-share increase which forms part of this Proposal 2.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendments to the 1995 Plan. If such approval is
not obtained, then the 750,000-share increase to the share reserve will not be
implemented, any stock options granted on the basis of the 750,000-share
increase to the 1995 Plan will immediately terminate without becoming
exercisable for the shares of Common Stock subject to those options, and no
additional options will be granted on the basis of such share increase. In
addition, the non-employee Board members serving on the Compensation Committee
will not become eligible to participate in the Discretionary Option Grant and
Stock Issuance Programs, and any unvested shares repurchased by the Company at
the option exercise price paid per share will not be added back to the share
reserve for reissuance. The 1995 Plan will, however, continue to remain in
effect and option grants may continue to be made pursuant to the provisions of
the 1995 Plan in effect prior to the amendments summarized in this Proposal 2
until the available reserve of Common Stock as last approved by the stockholders
has been issued pursuant to the 1995 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
23
<PAGE> 28
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
The accounting firm of Deloitte & Touche LLP served as the independent
auditor for the Company for the fiscal year ended December 31, 1997. The Board
of Directors has selected Deloitte & Touche LLP as the Company's independent
auditor for the fiscal year ending December 31, 1998 and has further directed
that the selection of the auditor be submitted for ratification by the
stockholders at the Annual Meeting. Neither Deloitte & Touche LLP nor any of its
members has any relationship with the Company or any of its affiliates except in
the firm's capacity as the Company's independent auditor. Representatives of
Deloitte & Touche LLP are expected to be present at the Annual Meeting. They
will have an opportunity to make statements and will be available to respond to
appropriate questions from stockholders.
Stockholder ratification of the selection of Deloitte & Touche LLP as
the Company's independent auditor is not required by the Company's Bylaws or
otherwise. However, the Board of Directors is submitting the selection of
Deloitte & Touche LLP to the stockholders for ratification as a matter of good
corporate practice. If the stockholders fail to ratify the selection by an
affirmative vote of the holders of a majority of the Common Stock present or
represented at the meeting and entitled to vote thereat, the Audit Committee and
the Board of Directors will reconsider whether to retain that firm. Even if the
selection is ratified, the Audit Committee and the Board of Directors in their
discretion may direct the appointment of a different independent accounting firm
at any time during the year if they determine that such a change would be in the
best interests of the Company and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
24
<PAGE> 29
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
A stockholder who intends to present a proposal at the Company's 1999
Annual Meeting of Stockholders must have submitted such proposal to the Company
for inclusion in the Company's 1999 Proxy Statement and proxy card relating to
such meeting not later than December 15, 1998. Stockholder proposals must be
mailed to the attention of the Company's Secretary at the Company's corporate
headquarters located at 51 Columbia, Suite 200, Aliso Viejo, California 92656.
OTHER MATTERS
Management does not know of any other matters to be brought before the
Annual Meeting. If any other matter is properly presented for consideration at
the Annual Meeting, it is intended that the proxies will be voted by the persons
named therein in accordance with their judgment on such matters.
The Company's Annual Report for the fiscal year ended December 31,
1997, including audited financial statements, is being sent with this Proxy
Statement to all stockholders of record as of March 27, 1998.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997, AS FILED WITH THE SEC, WILL BE PROVIDED TO STOCKHOLDERS
WITHOUT CHARGE UPON WRITTEN REQUEST TO MARK W. NELSON, CHIEF FINANCIAL OFFICER,
SMITH MICRO SOFTWARE, INC., 51 COLUMBIA, ALISO VIEJO, CALIFORNIA 92656.
COSTS OF SOLICITATION
Proxies will be solicited by mail. The Company will request banks,
brokerage houses and other institutions to forward the soliciting material to
persons for whom they hold shares and to obtain authorization for the execution
of proxies. The Company will reimburse banks, brokerage houses and other
institutions for their reasonable expenses in forwarding the Company's proxy
materials to beneficial owners of the Common Stock. All costs associated with
the solicitation of proxies will be borne by the Company. Proxies in the
accompanying form which are properly executed, duly returned to the Company's
management and not subsequently revoked will be voted as specified thereon.
By Order of the Board of Directors,
RHONDA L. SMITH
Secretary
Aliso Viejo, California
April 14, 1998
25
<PAGE> 30
APPENDIX A
SMITH MICRO SOFTWARE, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
(AS AMENDED ON MARCH 27, 1998)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan (the "Plan") is
intended to promote the interests of Smith Micro Software, Inc., a Delaware
corporation, by providing eligible individuals with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the Corporation
(or any Parent or Subsidiary).
II. DEFINITIONS
For purposes of the Plan, the following definitions shall be
in effect:
AUTOMATIC OPTION GRANT PROGRAM: the automatic option grant
program in effect under the Plan.
AUTOMATIC OPTION GRANT PROGRAM EFFECTIVE DATE: July 10, 1995,
the date on which the Plan was approved by the Corporation's stockholders.
BOARD: the Corporation's Board of Directors.
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition directly or indirectly by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept; or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board
<PAGE> 31
membership, to be comprised of individuals who either (a) have been
Board members continuously since the beginning of such period or (b)
have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (a) who were still in office at the time such election or
nomination was approved by the Board.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's common stock.
CORPORATE TRANSACTION: any of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
CORPORATION: Smith Micro Software, Inc., a Delaware
corporation, and its successors.
DISCRETIONARY OPTION GRANT PROGRAM: the discretionary option
grant program in effect under the Plan.
EMPLOYEE: an individual who performs services while in the
employ of the Corporation (or Parent or Subsidiary), subject to the control and
direction of the employer entity not only as to the work to be performed but
also as to the manner and method of performance.
EXERCISE DATE: the date on which the Corporation shall have
received written notice of the option exercise.
FAIR MARKET VALUE: the Fair Market Value per share of Common
Stock determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or
admitted to trading on any national securities exchange but is traded
on the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no reported closing
2.
<PAGE> 32
selling price for the Common Stock on the date in question, then the
closing selling price on the last preceding date for which such
quotation exists shall be determinative of Fair Market Value.
(ii) If the Common Stock is at the time listed or
admitted to trading on any national securities exchange, then the Fair
Market Value shall be the closing selling price per share on the date
in question on the exchange determined by the Plan Administrator to be
the primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If there
is no reported sale of Common Stock on such exchange on the date in
question, then the Fair Market Value shall be the closing selling price
on the exchange on the last preceding date for which such quotation
exists.
(iii) If the Common Stock is on the date in question
neither listed nor admitted to trading on any national securities
exchange nor traded on the Nasdaq National Market, then the Fair Market
Value of the Common Stock on such date shall be determined by the Plan
Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
INCENTIVE OPTION: a stock option which satisfies the
requirements of Code Section 422.
INVOLUNTARY TERMINATION: the termination of the Service of any
individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following
(a) a change in his or her position with the Corporation which
materially reduces his or her level of responsibility, (b) a reduction
in his or her level of compensation (including base salary, fringe
benefits and any non-discretionary and objective-standard incentive
payment or bonus award) by more than fifteen percent (15%) or (c) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
MISCONDUCT: the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent
3.
<PAGE> 33
or Subsidiary) may consider as grounds for the dismissal or discharge of any
Optionee, Participant or other person in the Service of the Corporation (or any
Parent or Subsidiary).
1934 ACT: the Securities Exchange Act of 1934, as amended.
NON-STATUTORY OPTION: a stock option not intended to meet the
requirements of Code Section 422.
OPTIONEE: a person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
PARENT: any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
PARTICIPANT: a person who is issued Common Stock under the
Stock Issuance Program.
PERMANENT DISABILITY: the inability of an individual to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months. However, for purposes of the Automatic Option Grant Program, Disability
shall mean the inability of the non-employee Board member to perform his or her
usual duties as a Board member by reason of any medically determinable physical
or mental impairment expected to result in death or to be of continuous duration
of twelve (12) months or more.
PLAN ADMINISTRATOR: the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
PLAN EFFECTIVE DATE: May 25, 1995, the date on which the Plan
was adopted by the Board.
PRIMARY COMMITTEE: the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
4.
<PAGE> 34
SECONDARY COMMITTEE: a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
SECTION 12(G) REGISTRATION DATE: September 19, 1995, the date
on which the initial registration of the Common Stock under Section 12(g) of the
1934 Act became effective.
SECTION 16 INSIDER: an officer or director of the Corporation
subject to the short- swing profit liabilities of Section 16 of the 1934 Act.
SERVICE: the performance of services on a periodic basis for
the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant or
advisor, except to the extent otherwise specifically provided in the applicable
stock option or stock issuance agreement.
STOCK ISSUANCE PROGRAM: the stock issuance program in effect
under the Plan.
SUBSIDIARY: any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
10% STOCKHOLDER: the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
III. STRUCTURE OF THE PLAN
A. Stock Programs. The Plan shall be divided into three (3)
separate components: the Discretionary Option Grant Program specified in Article
Two, the Stock Issuance Program specified in Article Three and the Automatic
Option Grant Program specified in Article Four. Under the Discretionary Option
Grant Program, eligible individuals may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock in
accordance with the provisions of Article Two. Under the Stock Issuance Program,
eligible individuals may be issued shares of Common Stock directly, either
through the immediate purchase of such shares at a price not less than one
hundred percent (100%) of the Fair Market Value of the shares at the time of
issuance or as a bonus for services rendered the Corporation or the
Corporation's attainment of financial objectives. Under the Automatic Option
Grant Program, each individual serving as a non-employee Board member on the
Automatic Option Grant Program Effective Date and each individual who first
joins the Board as a non-employee director at any time after such date shall at
periodic intervals receive option grants to purchase shares of Common Stock in
accordance with the provisions of Article Four, with the first such grants to be
made on the Automatic Option Grant Program Effective Date.
5.
<PAGE> 35
B. General Provisions. Unless the context clearly indicates
otherwise, the provisions of Articles One and Five shall apply to the
Discretionary Option Grant Program, the Automatic Option Grant Program and the
Stock Issuance Program and shall accordingly govern the interests of all
individuals under the Plan.
IV. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12(g) Registration Date, the
Discretionary Option Grant and Stock Issuance Programs shall be administered by
the Board. Beginning with the Section 12(g) Registration Date, the Board shall
have the authority to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders but may delegate such
authority in whole or in part to the Primary Committee.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish rules and regulations for the proper
administration of the Discretionary Option Grant and Stock Issuance Programs and
to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Discretionary Option Grant and Stock Issuance Programs or any option or
share issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
6.
<PAGE> 36
F. Administration of the Automatic Option Grant Program shall
be self- executing in accordance with the express terms and conditions of
Article Four, and the Plan Administrator shall exercise no discretionary
functions with respect to option grants made pursuant to that program.
V. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary
Option Grant Program under Article Two and the Stock Issuance Program under
Article Three shall be limited to the following:
(i) officers and other employees of the Corporation (or
any Parent or Subsidiary) who render services which contribute to the
management, growth and financial success of the Corporation (or any
Parent or Subsidiary);
(ii) non-employee members of the Board; and
(iii) those consultants or other independent advisors
who provide valuable services to the Corporation (or any Parent or
Subsidiary).
B. Only non-employee Board members shall be eligible to
participate in the Automatic Option Grant Program.
C. The Plan Administrator shall have full authority to
determine, (i) with respect to the option grants made under the Discretionary
Option Grant Program, which eligible individuals are to receive option grants,
the time or times when such options are to be granted, the number of shares to
be covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option is to become exercisable and the maximum term for which the
option may remain outstanding and (ii), with respect to stock issuances under
the Stock Issuance Program, the number of shares to be issued to each
Participant, the vesting schedule (if any) to be applicable to the issued shares
and the consideration for which such shares are to be issued.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance
under the Plan and shall be drawn from either the Corporation's authorized but
unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Corporation on the open market. The maximum
number of shares of Common Stock which may be issued over the term of the Plan
shall not exceed 1,750,000 shares, subject to adjustment from time to time in
accordance with the provisions of this Section VI.
7.
<PAGE> 37
B. In no event shall the aggregate number of shares of Common
Stock for which any one individual participating in the Plan may be granted
stock options and direct stock issuances exceed 250,000 shares per calendar
year, beginning with the 1996 calendar year.
C. Should one or more outstanding options under this Plan
expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section IV of Article Two of the Plan), then the shares subject to the portion
of each option not so exercised shall be available for subsequent option grants
under the Plan. Unvested shares issued under the Plan and subsequently
repurchased by the Corporation, at the option exercise or direct issue price
paid per share, pursuant to the Corporation's repurchase rights under the Plan
shall be added back to the number of shares of Common Stock reserved for
issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants or direct stock issuances under the
Plan. However, should the exercise price of an outstanding option under the Plan
be paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an outstanding
option under the Plan or the vesting of a direct share issuance made under the
Plan, then the number of shares of Common Stock available for issuance under the
Plan shall be reduced by the gross number of shares for which the option is
exercised or which vest under the share issuance, and not by the net number of
shares of Common Stock actually issued to the holder of such option or share
issuance.
D. Should any change be made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum
number and/or class of securities for which any one individual participating in
the Plan may be granted stock options and direct stock issuances in the
aggregate per calendar year, (iii) the number and/or class of securities for
which automatic option grants are to be subsequently made per eligible
non-employee Board member under the Automatic Option Grant Program and (iv) the
number and/or class of securities and price per share in effect under each
option outstanding under either the Discretionary Option Grant or Automatic
Option Grant Program. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
8.
<PAGE> 38
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the
Plan Administrator but shall not be less than eighty-five percent (85%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Section I of
Article Five and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held by the
Optionee for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised
for vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
written instructions (a) to a Corporation- approved brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Corporation by
reason of such purchase and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance
procedure is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
9.
<PAGE> 39
B. Term and Exercise of Options. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. No such option, however, shall have a term in
excess of ten (10) years from the option grant date.
C. Termination of Service.
1. The following provisions shall govern the exercise
period applicable to any options held by the Optionee at the time of cessation
of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in
part by the Optionee at the time of death may be subsequently exercised
by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and cease
to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
(iv) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time the option is granted or at any time
while the option remains outstanding,
(i) to extend the period of time for which the
option is to remain exercisable following the Optionee's cessation of
Service to such period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term;
and/or
10.
<PAGE> 40
(ii) to permit the option to be exercised,
during the applicable post-Service exercise period, for one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to any shares covered by the option until such
person shall have exercised the option, paid the exercise price and become the
holder of record of the purchased shares.
E. Unvested Shares. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. Non-Statutory Options
may, to the extent permitted by the Plan Administrator, be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
person who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to
Employees.
B. Exercise Price. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one
11.
<PAGE> 41
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the grant date, and the option term shall not exceed
five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding option
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof), (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
such option or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
The determination of option comparability under clause (i) above shall be made
by the Plan Administrator, and its determination shall be final, binding and
conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
12.
<PAGE> 42
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance under the remaining term of the Plan and (iii) the maximum number
and/or class of securities for which any one person may be granted stock options
and direct stock issuances under the Plan per calendar year.
E. The Plan Administrator shall have full power and authority
to grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do not
otherwise accelerate. Each option so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights with
respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have full power and authority
to grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for fully-vested
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full.
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar limitation is not exceeded. To the extent such dollar limitation
is exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
13.
<PAGE> 43
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program and to grant in substitution new options under the Plan
covering the same or different numbers of shares of Common Stock but with an
exercise price per share based on the Fair Market Value per share of Common
Stock on the new grant date.
14.
<PAGE> 44
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance
Program directly without any intervening option grants. Each such stock issuance
shall be evidenced by one or more documents which comply with the terms
specified below.
A. The shares shall be issued for such valid consideration
under the Delaware General Corporation Law as the Plan Administrator may deem
appropriate, but the value of such consideration as determined by the Plan
Administrator shall not be less than one hundred percent (100%) of the Fair
Market Value of the issued shares of Common Stock on the issuance date.
B. The Plan Administrator shall have full power and authority
to issue shares of Common Stock under the Stock Issuance Program as a bonus for
past services rendered to the Corporation (or any Parent or Subsidiary). All
such bonus shares shall be fully and immediately vested upon issuance.
C. All other shares of Common Stock authorized for issuance
under the Stock Issuance Program by the Plan Administrator shall have a minimum
vesting schedule determined in accordance with the following requirements:
(i) For any shares which are to vest solely by
reason of Service to be performed by the Participant, the Plan
Administrator shall impose a minimum Service period of at least two (2)
years measured from the issue date of such shares.
(ii) For any shares which are to vest upon the
Participant's completion of a designated Service requirement and the
Corporation's attainment of one or more prescribed performance
milestones, the Plan Administrator shall impose a minimum Service
period of at least one (1) year measured from the issue date of such
shares.
D. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
15.
<PAGE> 45
E. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
F. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase- money note of
the Participant attributable to such surrendered shares.
G. The Plan Administrator shall have full power and authority,
exercisable upon a Participant's termination of Service, to waive the surrender
and cancellation of any or all unvested shares of Common Stock (or other assets
attributable thereto) at the time held by that Participant, if the Plan
Administrator determines such waiver to be an appropriate severance benefit for
the Participant.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding
repurchase/cancellation rights under the Stock Issuance Program shall terminate
automatically, and all the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent (i) those rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed at the
time the repurchase right is issued.
B. The Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase/cancellation
rights under the Stock Issuance Program in such manner that those rights shall
automatically terminate, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of any Corporate
Transaction in which those rights are assigned to the successor corporation (or
parent thereof).
C. The Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase/cancellation
rights under the Stock Issuance Program in such manner that those rights shall
automatically terminate, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event the
16.
<PAGE> 46
Participant's Service should subsequently terminate by reason of an Involuntary
Termination within eighteen (18) months following the effective date of any
Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
17.
<PAGE> 47
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
The individuals eligible to receive automatic option grants
pursuant to the provisions of this Article Four program shall be limited to
those individuals who are serving as non-employee Board members on the Automatic
Option Grant Program Effective Date or who are first elected or appointed as
non-employee Board members on or after the Automatic Option Grant Program
Effective Date, whether through appointment by the Board or election by the
Corporation's stockholders.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants shall be made under this Article
Four on the dates specified below:
(i) Initial Grant. Each individual serving as a
non-employee Board member on the Automatic Option Grant Program
Effective Date and each individual who is first elected or appointed as
a non-employee Board member after the Automatic Option Grant Program
Effective Date shall automatically be granted, on the Automatic Option
Grant Program Effective Date or on the date of such initial election or
appointment (as the case may be), a Non-Statutory Option to purchase
10,000 shares of Common Stock upon the terms and conditions of this
Article Four. In no event, however, shall a non-employee Board member
be eligible to receive such an initial option grant if such individual
has at any time been in the prior employ of the Corporation (or any
Parent or Subsidiary).
(ii) Annual Grant. On the date of each Annual
Stockholders Meeting, beginning with the 1996 Annual Meeting, each
individual who will continue to serve as a non-employee Board member
shall automatically be granted, whether or not such individual is
standing for re-election as a Board member at that Annual Meeting, a
Non-Statutory Option to purchase an additional 2,500 shares of Common
Stock upon the terms and conditions of this Article Four, provided he
or she has served as a non-employee Board member for at least six (6)
months prior to the date of such Annual Meeting. Non-employee Board
members who have previously been in the employ of the Corporation (or
any Parent or Subsidiary) shall be eligible to receive such annual
option grants over their continued period of Board service through one
or more Annual Stockholders Meetings.
18.
<PAGE> 48
(iii) No Limitation. There shall be no limit on the
number of shares for which any one non-employee Board member may be
granted stock options under this Article Four over his or her period of
Board service.
B. Exercise Price. The exercise price per share of Common
Stock subject to each automatic option grant made under this Article Four shall
be equal to one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. Payment. The exercise price shall be payable in one of the
alternative forms specified below:
(i) full payment in cash or check drawn to the
Corporation's order;
(ii) full payment in shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date;
(iii) full payment in a combination of shares
of Common Stock held for the requisite period necessary to avoid a
charge to the Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date and cash or check
drawn to the Corporation's order; or
(iv) to the extent the option is exercised for
vested shares, full payment through a sale and remittance procedure
pursuant to which the Optionee shall provide irrevocable written
instructions to (a) a Corporation- designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares and (b) the Corporation to deliver the certificates
for the purchased shares directly to such brokerage firm in order to
complete the sale transaction.
Except to the extent the sale and remittance procedure
specified above is used for the exercise of the option for vested shares,
payment of the exercise price for the purchased shares must accompany the
exercise notice.
D. Option Term. Each automatic grant under this Article Four
shall have a maximum term of ten (10) years measured from the automatic grant
date.
E. Exercisability/Vesting. Each automatic grant shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares in accordance with the applicable
schedule below:
19.
<PAGE> 49
Initial Grant. Each initial 10,000-share automatic
grant shall vest, and the Corporation's repurchase right shall lapse,
in a series of four (4) equal and successive annual installments over
the Optionee's period of continued service as a Board member, with the
first such installment to vest upon Optionee's completion of one (1)
year of Board service measured from the option grant date.
Annual Grant. Each annual 2,500-share automatic grant
shall vest, and the Corporation's repurchase right shall lapse, upon
the Optionee's completion of one (1) year of Board service measured
from the option grant date.
F. Termination of Board Membership. The following provisions
shall govern the exercise of any outstanding options held by the Optionee under
this Article Four at the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death,
the personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution) shall
have a twelve (12)-month period following the date of such cessation of
Board service in which to exercise each such option. However, each
option shall, immediately upon the Optionee's cessation of Board
service, terminate and cease to remain outstanding with respect to any
option shares in which the Optionee is not vested on the date of such
cessation of Board service.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable at the time of the
Optionee's cessation of Board service. However, should the Optionee
cease to serve as a Board member by reason of death or Permanent
Disability, then all shares at the time subject to the option shall
immediately vest so that such option may, during the twelve (12)-month
exercise period following such cessation of Board service, be exercised
for all or any portion of such shares as fully-vested shares.
(iii) In no event shall the option remain exercisable
after the expiration of the option term.
G. Stockholder Rights. The holder of an automatic option grant
under this Article Three shall have none of the rights of a stockholder with
respect to any shares subject to such option until such individual shall have
exercised the option, paid the exercise price and become the holder of record of
the purchased shares.
H. Remaining Terms. The remaining terms and conditions of each
automatic option grant shall be the same as the terms for option grants made
under the Discretionary Option Grant Program.
20.
<PAGE> 50
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option under this Article
Four but not otherwise vested shall automatically vest in full so that each such
option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable for all of the shares of Common
Stock at the time subject to that option and may be exercised for all or any
portion of those shares as fully vested shares of Common Stock. Immediately
following the consummation of the Corporate Transaction, all automatic option
grants under this Article Four shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation or parent thereof.
B. Each outstanding option under this Article Four which is
assumed in connection with a Corporate Transaction outstanding shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been issuable
to the Optionee in the consummation of such Corporate Transaction, had the
option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the class and number of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction, and (ii) the exercise price payable per share,
provided the aggregate exercise price payable for such securities shall remain
the same.
C. In connection with any Change in Control of the
Corporation, the shares of Common Stock at the time subject to each outstanding
option under this Article Four but not otherwise vested shall automatically vest
in full so that each such option shall, immediately prior to the specified
effective date for the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to that option and may be
exercised for all or any portion of those shares as fully vested shares of
Common Stock. Each such option shall remain so exercisable for all the option
shares following the Change in Control, until the expiration or sooner
termination of the option term.
D. The automatic option grants outstanding under this Article
Four shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
21.
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ARTICLE FIVE
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Discretionary Option Grant Program or the purchase of one or
more shares issued to such Participant under the Stock Issuance Program,
including the satisfaction of any Federal, state and local income and employment
tax obligations arising therefrom, by (i) authorizing the extension of a loan
from the Corporation to such Optionee or Participant or (ii) permitting the
Optionee or Participant to pay the exercise price or purchase price for the
purchased Common Stock in installments over a period of years. The terms of any
loan or installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate at the
time such exercise price or purchase price becomes due and payable. Loans or
installment payments may be authorized with or without security or collateral.
In all events, the maximum credit available to the Optionee or Participant may
not exceed the option or purchase price of the acquired shares (less the par
value of such shares) plus any Federal, state and local income and employment
tax liability incurred by the Optionee or Participant in connection with the
acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this financial assistance
program shall be subject to forgiveness in whole or in part upon such terms and
conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require stockholder
approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and shares of Common Stock may be
issued under the Stock Issuance Program, which are in both instances in excess
of the number of shares then available for issuance under the Plan, provided any
excess shares actually issued under the Discretionary Option Grant Program or
the Stock Issuance Program are held in escrow until stockholder approval is
obtained for a sufficient increase in the number of shares available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess option grants or excess
share issuances are made, then (i) any unexercised
22.
<PAGE> 52
excess options shall terminate and cease to be exercisable and (ii) the
Corporation shall promptly refund the purchase price paid for any excess shares
actually issued under the Plan and held in escrow, together with interest (at
the applicable Short Term Federal Rate) for the period the shares were held in
escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of stock options for such shares or the vesting of such
shares under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income tax and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion and in
accordance with the provisions of this Section III of this Article Five and such
supplemental rules as the Plan Administrator may from time to time adopt
(including the applicable safe-harbor provisions of Rule 16b-3 of the Securities
and Exchange Commission), provide any or all holders of Non-Statutory Options
(other than the automatic grants made pursuant to Article Four of the Plan) or
unvested shares under the Plan with the right to use shares of Common Stock in
satisfaction of all or part of the Federal, state and local income and
employment tax liabilities incurred by such holders in connection with the
exercise of their options or the vesting of their shares (the "Taxes"). Such
right may be provided to any such holder in either or both of the following
formats:
(i) The holder of the Non-Statutory Option or
unvested shares may be provided with the election to have the
Corporation withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such Non-Statutory Option or the vesting
of such shares, a portion of those shares with an aggregate Fair Market
Value equal to the percentage of the applicable Taxes (not to exceed
one hundred percent (100%)) designated by the holder.
(ii) The Plan Administrator may, in its discretion,
provide the holder of the Non-Statutory Option or the unvested shares
with the election to deliver to the Corporation, at the time the
Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such individual (other
than in connection with the option exercise or share vesting triggering
the Taxes) with an aggregate Fair Market Value equal to the percentage
of the Taxes incurred in connection with such option exercise or share
vesting (not to exceed one hundred percent (100%)) designated by the
holder.
23.
<PAGE> 53
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan became effective on May 25, 1995, the Plan
Effective Date, and was subsequently approved by the Corporations's stockholders
on July 10, 1995.
B. On March 27, 1998, the Board amended the Plan to (i)
increase the maximum number of shares of Common Stock authorized for issuance
over the term of the Plan from 1,000,000 to 1,750,000 shares, (ii) render all
non-employee Board members eligible to receive option grants under the
Discretionary Option Grant Program in effect under the Plan, (iii) allow
unvested shares issued under the Plan and subsequently repurchased by the
Company at the option exercise or direct issue price paid per share to be
reissued under the Plan, (iv) remove certain restrictions on the eligibility of
non-employee Board members to serve as Plan Administrator and (v) effect a
series of additional changes to the provisions of the Plan (including the
stockholder approval requirements) in order to take advantage of amendments
effected in 1996 to Rule 16b-3 of the Securities and Exchange Commission which
exempts certain officer and director transactions under the Plan from the
short-swing liability provisions of the federal securities laws. However, to the
extent that options are granted under the Plan after March 27, 1998 in reliance
upon the 750,000-share increase, no such option may be exercised, and no shares
shall be issued under the Plan, until the increase is approved by the
Corporation's stockholders. If such stockholder approval is not obtained at or
prior to the 1998 Annual Meeting, then the 1,000,000-share reserve amount shall
be reinstated as of such date and all options previously granted under this Plan
in reliance upon the 750,000-share increase shall terminate and cease to be
outstanding as of the date of such meeting.
C. The Plan shall terminate upon the earlier of (i) May 24,
2005 or (ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise of the options granted under the
Plan or the issuance of shares (whether vested or unvested) under the Stock
Issuance Program. If the date of termination is determined under clause (i)
above, then all option grants and unvested share issuances outstanding on such
date shall thereafter continue to have force and effect in accordance with the
provisions of the instruments evidencing such grants or issuance.
V. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
under the Plan, the issuance of any shares under the Stock Issuance Program, and
the issuance of Common Stock upon the exercise of the option grants made
hereunder shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it, and the Common Stock issued pursuant to it.
24.
<PAGE> 54
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants or share issuances under the Plan shall be used
for general corporate purposes.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the Plan shall be construed so as to grant any individual the right
to remain in the employ or service of the Corporation (or any Parent or
Subsidiary) for any period of specific duration, and the Corporation (or any
Parent or Subsidiary retaining the services of such individual) may terminate
such individual's employment or service at any time and for any reason, with or
without cause.
VIII. MISCELLANEOUS PROVISIONS
A. Except as otherwise expressly provided under the Plan, the
right to acquire Common Stock or other assets under the Plan may not be
assigned, encumbered or otherwise transferred by any Optionee or Participant.
B. The provisions of the Plan relating to the exercise of
options and the vesting of shares shall be governed by the laws of the State of
California as such laws are applied to contracts entered into and performed in
such State.
C. The provisions of the Plan shall inure to the benefit of,
and be binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
25.
<PAGE> 55
PROXY
SMITH MICRO SOFTWARE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned
hereby appoints William W. Smith, Jr. and Rhonda L. Smith, and each of them, as
proxyholder, with full power of substitution, to represent, vote and act with
respect to all shares of Common Stock, $.001 par value per share, of Smith Micro
Software, Inc. (the "Company") which the undersigned would be entitled to vote
at the Annual Meeting of Stockholders, to be held on May 14, 1998 at 10:00 a.m.,
Pacific Daylight Savings Time, at the Company's corporate headquarters located
at 51 Columbia, Aliso Viejo, California 92656, or at any adjournment thereof,
with all the powers the undersigned would possess if personally present as
follows:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE BY NOTIFYING THE SECRETARY OF THE COMPANY IN WRITING OF
REVOCATION OF THE PROXY, BY FILING A DULY EXECUTED PROXY BEARING A LATER DATE OR
BY ATTENDING THE ANNUAL MEETING AND VOTING IN PERSON.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
FOLD AND DETACH HERE
<PAGE> 56
Please mark /x/
your vote as
indicated in
this sample
<TABLE>
<CAPTION>
FOR THE NOMINEE WITHHOLD
1. Election of one (1) person to be a director: LISTED BELOW AUTHORITY
<S> <C> <C> <C>
Rhonda L. Smith / / / /
FOR AGAINST ABSTAIN
2. Approval of a series of amendments to the / / / / / /
Company's 1995 Stock Option/Stock Issuance Plan,
including a 750,000 share increase in the number
of shares of Common Stock authorized for issuance
thereunder.
FOR AGAINST ABSTAIN
3. Ratification of the appointment of Deloitte & Touche / / / / / /
LLP as the Company's independent auditor for the
fiscal year ending December 31, 1998.
4. Transaction of such other business as may properly
come before the meeting and any adjournment thereof.
</TABLE>
I DO DO NOT EXPECT TO ATTEND THE MEETING
/ / / / PLEASE SIGN AND DATE BELOW.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE MATTERS LISTED ABOVE.
This Proxy confers authority to vote and shall be voted in accordance with such
recommendation unless a contrary instruction is indicated, in which case, the
shares represented by this Proxy will be voted in accordance with such
instruction. IF NO INSTRUCTION IS SPECIFIED WITH RESPECT TO A MATTER TO BE ACTED
UPON, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD. IF ANY OTHER BUSINESS IS REPRESENTED AT THE
MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN ACCORDANCE WITH
THE RECOMMENDATIONS OF THE BOARD.
Signature(s)........................................ Date...................
Please date this Proxy and sign exactly as it appears on your stock
certificate(s). Executors, administrators, trustees, etc., should give their
full title. If a corporation, please sign full corporate name by the president
or other authorized officer. If a partnership, please sign in partnership name
by an authorized person. All joint owners should sign.
FOLD AND DETACH HERE
