SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SOCKET COMMUNICATIONS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / 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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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SOCKET COMMUNICATIONS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 17, 1997
DEAR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders of
SOCKET COMMUNICATIONS, INC., a Delaware corporation (the "Company"), to be held
Tuesday, June 17, 1997 at 11:00 a.m., local time, at the Company's headquarters
at 37400 Central Court, Newark, California 94560 for the following purposes:
(1) To elect four directors to serve until the next Annual Meeting of
Stockholders or until their successors are elected.
(2) To amend the 1995 Stock Plan by reserving an additional 300,000
shares of Common Stock for issuance thereunder.
(3) To ratify the appointment of Ernst & Young LLP as independent
public accountants of the Company for the fiscal year ending
December 31, 1997.
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 21, 1997 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the postage
prepaid envelope enclosed for that purpose. Any stockholder attending the
meeting may vote in person even if he or she has returned a Proxy.
Sincerely,
Charlie Bass
CHAIRMAN AND ACTING CHIEF EXECUTIVE OFFICER
Newark, California
May 15, 1997
YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
SOCKET COMMUNICATIONS, INC.
PROXY STATEMENT FOR 1997
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
SOCKET COMMUNICATIONS, INC., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held Tuesday,
June 17, 1997 at 11:00 a.m., local time, or at any adjournment thereof, for the
purposes set forth herein and in the accompanying Notice of the Annual Meeting.
The Annual Meeting will be held at the Company's headquarters at 37400 Central
Court, Newark, California 94560. The Company's principal executive offices are
located at 37400 Central Court, Newark, California 94560, and the Company's
telephone number at that location is (510) 744-2700.
These proxy solicitation materials and the Annual Report on Form 10-KSB for
the year ended December 31, 1996, including financial statements, were first
mailed on or about May 15, 1997 to all stockholders entitled to vote at the
meeting.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Stockholders of record at the close of business on April 21, 1997 (the
"Record Date") are entitled to notice of and to vote at the meeting. The
Company has one series of Common Stock outstanding, designated Common Stock,
$0.001 par value. At the Record Date, 4,238,065 shares of the Company's
authorized Common Stock were issued and outstanding and held of record by
approximately 1,000 stockholders. The Company has one series of Preferred Stock
outstanding, $0.001 par value, designated Series A Convertible Preferred Stock.
At the Record Date, 8,650 shares of the Company's authorized Series A
Convertible Preferred Stock were issued and outstanding.
Provided herein is a table which sets forth certain information regarding
the beneficial ownership of Common Stock of the Company as of March 31, 1997 as
to (i) each person who is known by the Company to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) each director and each nominee
for director of the Company, and (iii) all directors and executive officers as a
group.
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REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each holder of Common Stock is entitled to one vote for each share of stock
held in all matters to be voted on by the stockholders, except that upon giving
notice as required by law, stockholders may cumulate their votes in the election
of directors. Accordingly, every stockholder voting for the election of
directors (Proposal One) may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of shares that such stockholder is entitled to vote, or
distribute such stockholder's votes on the same principle among as many
candidates as the stockholder may select, provided that votes cannot be cast for
more than five candidate. However, no stockholder shall be entitled to cumulate
votes unless the candidate's name has been placed in nomination prior to the
voting and the stockholder, or any other stockholder, has given notice at the
meeting, prior to the voting, of the intention to cumulate the stockholder's
votes. On all other matters, stockholders may not cumulate votes.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of stock for their
expenses in forwarding solicitation material to such beneficial owners. Proxies
may also be solicited by certain of the Company's directors, officers and
regular employees, without additional compensation, personally or by telephone
or telefacsimile.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting of Stockholders must
be received by the Company no later than November 30, 1997 in order that they
may be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
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PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board of Directors shall be composed
of four directors. A board of four directors is to be elected at the Annual
Meeting. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's four nominees named below, all of whom are
presently directors of the Company. In the event that any nominee of the
Company is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who shall be designated by
the present Board of Directors to fill the vacancy. The Company is not aware of
any nominee who will be unable or will decline to serve, as a director.
Different candidates may be nominated by the proxy holders. The term of office
for each person elected as a director will continue until the next Annual
Meeting or until a successor has been elected and qualified.
VOTE REQUIRED
If a quorum is present and voting, the four nominees receiving the highest
number of votes will be elected to the Board of Directors. Votes withheld from
any nominee are counted for purposes of determining the presence or absence of a
quorum. Abstentions and shares held by brokers that are present but not voted
because the brokers were prohibited from exercising discretionary authority
("broker non-votes") will be counted as present for the purposes of determining
if a quorum is present.
NOMINEES
The names of the nominees and certain information about them as of
March 31, 1997 are set forth below:
DIRECTOR
NAME OF NOMINEE AGE POSITION WITH THE COMPANY SINCE
- ---------------------------- ---- ------------------------------------ --------
Charlie Bass . . . . . . . . 54 Chairman of the Board of Directors, 1992
Acting Chief Executive Officer
Micheal L. Gifford . . . . . 38 Executive Vice President and Director 1992
Jack C. Carsten (1)(2) . . . 55 Director 1993
Gary W. Kalbach (1)(2) . . . 55 Director 1993
- ---------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
All directors hold office until the next Annual Meeting of Stockholders of
the Company or until their successors have been elected. Directors do not
receive any cash compensation for their
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service as directors of the Company, but are reimbursed for expenses incurred in
connection with attending Board or committee meetings. There are no family
relationships among any of the directors or executive officers of the Company.
CHARLIE BASS co-founded the Company in March 1992, and has been the
Chairman of the Board of Directors from such time to the present. Dr. Bass also
served as the Company's interim Chief Executive Officer during January and
February 1996 and since April 24, 1997. Dr. Bass has been the General Partner
of Bass Associates, a venture capital firm, since September 1989. Dr. Bass
currently serves as a director of Meridian Data, Inc., SoloPoint, Inc. and
several private companies. Dr. Bass is also a consulting professor of
electrical engineering at Stanford University. Dr. Bass holds a Ph.D. in
electrical engineering from the University of Hawaii.
MICHEAL L. GIFFORD has been a director of the Company since its inception
in March 1992 and has served as Executive Vice President since October 1994.
Mr. Gifford served as President of the Company from its inception in March 1992
to September 1994, and as the Company's Chief Executive Officer from March 1992
to June 1994. From December 1986 to December 1991, Mr. Gifford served as a
director and as Director of Sales and Marketing for Tidewater Associates, a
computer consulting and computer product development company. Prior to working
for Tidewater Associates, Mr. Gifford co-founded and was President of Gifford
Computer Systems, a computer network integration company. Mr. Gifford received
a B.S. in Mechanical Engineering from the University of California at Berkeley.
JACK C. CARSTEN has been a director of the Company since May 1993. He also
served in a consulting capacity as the interim Chief Executive Officer of the
Company from July 1994 to September 1994. Mr. Carsten owns and operates
Technology Investments, a venture capital firm. Prior to founding Technology
Investments, Mr. Carsten was a general partner of U.S. Venture Partners, a
venture capital firm. Prior to U.S. Venture Partners, he held senior management
positions at Intel Corporation, most recently serving as Senior Vice President
and General Manager of the Component Group, Microcomputer Group and ASIC
Components Group. He received an A.B. in Physics from Duke University.
GARY W. KALBACH has been a director of the Company since December 1993.
Mr. Kalbach co-founded and has been a general partner of El Dorado Ventures, a
venture capital firm, since May 1986. Prior to founding El Dorado Ventures,
Mr. Kalbach served as a General Partner of the Sprout Group, a venture capital
affiliate of Donaldson, Lufkin & Jenrette, from January 1983 to September 1985,
and served as the sole general partner of West Coast Venture Capital from
September 1978 to January 1983. Mr. Kalbach received an M.B.A. from San Jose
State University and a B.S. in Business Administration from the University of
California at Berkeley.
BOARD MEETING AND COMMITTEES
The Board of Directors of the Company held a total of 13 meetings during
fiscal 1996. No director attended fewer than 75% of the meetings of the Board
of Directors and committees thereof,
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if any, upon which such director served. The Board of Directors has a
Compensation Committee and an Audit Committee. The Board of Directors has no
nominating committee or any committee performing such functions.
The Compensation Committee, which consisted of directors Kalbach and
Carsten at the end of fiscal 1996, did not meet or act by written consent during
the fiscal year. This Committee is responsible for determining salaries,
incentives and other forms of compensation for directors and officers of the
Company and administers various incentive compensation and benefit plans.
Dr. Bass resigned from this Committee in February 1996 and Mr. Kalbach was
appointed to replace him.
The Audit Committee, which consisted of directors Kalbach and Carsten at
the end of fiscal 1996, did not meet during the fiscal year. This Committee is
responsible for overseeing actions taken by the Company's independent auditors
and reviews the Company's internal financial controls.
COMPENSATION COMMITTEE INTERLOCKS
The Compensation Committee consisted of the following directors during
1996: Bass, Kalbach and Carsten. Dr. Bass resigned from this Committee in
February 1996 and Mr. Kalbach was appointed to replace him. The Compensation
Committee makes recommendations to the Board of Directors concerning salaries
and incentive compensation for directors and officers of the Company. Thus,
neither Mr. Levetin, former President and Chief Executive Officer of the Company
nor Dr. Bass, acting Chief Executive Officer of the Company is a member of the
Compensation Committee and thus, neither can vote on matters decided by the
Committee. Mr. Levetin did, and Dr. Bass does participate in all discussions
and decisions regarding salaries and incentive compensation for all employees of
and consultants to the Company, except that he is excluded from discussions and
decisions regarding his own salary and incentive compensation.
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PROPOSAL TWO
AMENDMENT OF THE 1995 STOCK PLAN
At the Annual Meeting, stockholders are being asked to approve an amendment
to the Company's 1995 Stock Plan (the "1995 Plan") which would increase the
number of shares of Common Stock ("Shares") reserved for issuance thereunder by
300,000 shares to 735,000 shares.
The foregoing amendment was approved by the Board of Directors in March,
1997. The adoption of the 1995 Plan was approved by the Board of Directors in
April 1995 and by the stockholders in May 1995. As of March 31, 1997, zero
shares of Common Stock had been issued pursuant to option exercises, options to
purchase an aggregate of 428,946 shares were outstanding and 6,054 shares
(exclusive of the 300,000 shares subject to stockholder approval at the Annual
Meeting) were available for future grant. The 1995 Plan authorizes the Board of
Directors to grant to employees (including employee directors and officers)
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and to also grant nonstatutory
stock options and to grant or sell restricted stock to employees and consultants
of the Company. The 1995 Plan is structured to allow the Board of Directors
broad discretion in creating equity incentives in order to assist the Company in
attracting, retaining and motivating the best available personnel for the
successful conduct of the Company's business.
The Company does not have any formal guidelines for purpose of determining
the number of stock options or stock purchase rights to be granted to any
optionee. During fiscal 1996, the Board of Directors granted options to
purchase 360,650 shares of Common Stock to a total of 39 optionees. The Board
of Directors believes that equity incentives in the form of stock options or
stock purchase rights are an integral part of the Company's overall compensation
program and an effective way to incentivize employees. Options and restricted
stock granted under the 1995 Stock Plan to new employees will typically be
subject to a four-year vesting schedule. This results in long-term incentives
for the employees which benefits the Company because the employee's stock
options are earned over a four-year period.
VOTE REQUIRED AND BOARD OF DIRECTOR RECOMMENDATION
The affirmative vote of the holders of a majority of the stock having
voting power present in person or represented by proxy at the meeting will be
required under the Company's Bylaws to approve the amendment of the 1995 Plan.
In addition, the affirmative votes must constitute at least a majority of the
required quorum, which quorum is defined in the Bylaws as the holders of a
majority in voting power of the stock issued and outstanding and entitled to
vote on the Record Date and present in person or represented by proxy. Votes
that are cast against the proposal will be counted for purposes of determining
(i) the presence or absence of a quorum and (ii) the total number of votes cast
with respect to the proposal. Abstentions and broker non-votes will be included
in determining the number of shares held by persons present or represented by
proxy at the meeting for purposes of determining whether a quorum exists.
However, because approval of the proposal to
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amend the 1995 Plan will require the affirmative vote of shares representing a
majority of the outstanding shares of the Common Stock, abstentions and broker
non-votes will have the effect of negative votes thereon.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT OF
THE 1995 PLAN. SUMMARY OF THE 1995 PLAN.
The essential features of the 1995 Plan are outlined below.
PURPOSE
The purposes of the 1995 Plan are to attract and retain the best available
personnel, to provide additional incentive to employees and consultants of the
Company and to promote the success of the Company's business. Options granted
under the 1995 Plan may be incentive stock options or nonstatutory stock options
as determined by the Administrator at the time of grant of an option and subject
to the applicable provisions of Section 422 of the Internal Revenue Code and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the 1995 Plan.
ELIGIBILITY
The 1995 Plan provides that options and stock purchase rights may be
granted to any director, officer, employee or consultant of the Company or any
of its designated subsidiaries. Incentive stock options may be granted only to
employees (including officers and employee directors). The Board of Directors
selects the recipients of awards under the 1995 Plan and determines the number
of shares to be subject to each option or stock purchase right. There are
approximately 36 people eligible to be granted options or stock purchase rights
under the 1995 Plan.
ADMINISTRATION; LIMITS ON GRANTS
The 1995 Plan provides for administration by the Board of Directors of the
Company or by a committee approved by the Board, in either case, in a manner
that complies with requirements under the federal securities laws, including
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in particular Rule 16b-3 under the Exchange Act, applicable Delaware corporate
law, and the Code. The 1995 Plan is currently administered by the Compensation
Committee of the Board. Except as noted below, the Compensation Committee has
full power to select, from among the employees and consultants eligible for
awards, the individuals to whom awards will be granted, to make any combination
of awards to any participant and to determine the specific terms of each grant,
subject to the provisions of the 1995 Plan. If permitted by Rule 16b-3, the
1995 Plan may be administered by different bodies with respect to directors,
officers and employees who are neither directors not officers. The
interpretation and construction of any provision of the 1995 Plan will be
determined by the Board of Directors or its appointed committee whose
determination will be final and conclusive.
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The 1995 Plan places specific limitations on the discretion allowed to the
Board in granting options and stock purchase rights to officers. These
limitations are intended to preserve the Company's ability to deduct for federal
income tax purposes the compensation expense relating to stock options and stock
purchase rights granted to certain executive officers under the 1995 Plan.
Without these provisions in the 1995 Plan, the federal income tax legislation
enacted in August 1993 would limit the Company's ability to deduct such
compensation expense. Each option is designated in the written option agreement
as either an incentive stock option or a nonstatutory stock option. However,
notwithstanding such designations, to the extent that the aggregate fair market
value of shares subject to an optionee's incentive stock options granted by the
Company which become exercisable for the first time during any calendar year
exceeds $100,000, such excess options shall be treated as nonstatutory stock
options. The fair market value of the shares shall be determined as of the time
the option, with respect to such shares, is granted. The limitations provide
that no officer shall be granted, in any fiscal year of the Company, options and
stock purchase rights to purchase more than 140,281 shares.
The limits imposed by Section 162(m) of the Code, adopted under the Federal
Revenue Reconciliation Act of 1993, on the Company's ability to deduct
compensation paid to certain of the Company's executive officers apply not only
to the persons currently serving in the affected group, but also may be
interpreted to apply to any person who in the future becomes one of the affected
group of executive officers. However, the limits on deductibility do not apply
to compensation attributable to stock options or stock purchase rights if, among
other things, the plan under which the options or rights are granted includes
limits on the discretion to make grants such as those described above. The
limits on the discretion of the Board as to individual grants have been included
in the 1995 Plan solely to preserve the Company's ability to deduct such
compensation. To the extent the Board determines in the future that such
limitations are not required to preserve the deductibility of compensation
related to such stock options and appreciation rights, the Board may modify or
eliminate these limitations.
TERM OF OPTIONS
The term of each option shall be no more than ten years from the date of
grant thereof. In the case of an incentive stock option granted to an optionee
who, at the time the option is granted, owns stock representing more than 10% of
the voting power of all classes of stock of the Company, the term of the option
shall be five years from the date of grant thereof or such shorter term as may
be provided in the option agreement.
EXERCISE OF OPTIONS
(a) Options shall become exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the optionee, but in no case at a rate of
less than 20% per year over five years from the date the option is granted.
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(b) The consideration to be paid for the shares to be issued upon exercise
of an option, including the method of payment, shall be determined by the
Administrator (and, in the case of an incentive stock option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other shares which (x) in the case of shares
acquired upon exercise of an option, have been owned by the optionee for more
than six months on the date of surrender, and (y) have a fair market value on
the date of surrender equal to the aggregate exercise price of the shares as to
which such option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
a broker, if applicable, shall require to effect an exercise of the option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
PURCHASE PRICE
The per share exercise price for the shares to be issued upon exercise of
an option shall be such price as is determined by the Administrator, but shall
be subject to the following:
(a) In the case of an incentive stock option
(i) granted to an employee who, at the time of grant of such
option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company
or any parent or subsidiary, the per share exercise price
shall be no less than 110% of the fair market value per
share on the date of grant.
(ii) granted to any other employee, the per share exercise price
shall be no less than 100% of the fair market value per
share on the date of grant.
(b) In the case of a nonstatutory stock option
(i) granted to a person who, at the time of grant of such
option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company
or any parent or subsidiary, the per share exercise price
shall be no less than 110% of the fair market value per
share on the date of the grant.
(ii) granted to any other person, the per share exercise price
shall be no less than 85% of the fair market value per share
on the date of grant.
The fair market value of the Common Stock on a given date is determined by
reference to the last reported sales price on the OTC Bulletin Board for the
last market trading day prior to the time of determination.
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TERMINATION OF EMPLOYMENT
In the event of termination of an optionee's continuous status as an
employee or consultant (but not in the event of an optionee's change of status
from employee to consultant (in which case an employee's incentive stock option
shall automatically convert to a nonstatutory stock option on the date three
months and one day following such change of status) or from consultant to
employee), such optionee may, but only within such period of time as is
determined by the Administrator, of at least 30 days, with such determination in
the case of an incentive stock option not exceeding three months after the date
of such termination (but in no event later than the expiration date of the term
of such option), exercise his or her option to the extent that the optionee was
entitled to exercise it at the date of such termination. To the extent that the
optionee was not entitled to exercise the option at the date of such
termination, or if the optionee does not exercise such option to the extent so
entitled within the time specified herein, the option shall terminate.
STOCK PURCHASE RIGHTS
Stock purchase rights may be issued either alone, in addition to, or in
tandem with other awards granted under the 1995 Plan and/or cash awards made
outside of the 1995 Plan. After the Administrator determines that it will offer
stock purchase rights under the 1995 Plan, it shall advise the offeree in
writing of the terms, conditions and restrictions related to the offer,
including the number of shares that such person shall be entitled to purchase,
the price to be paid, and the time within which such person must accept such
offer, which shall in no event exceed 30 days from the date upon which the
Administrator makes the determination to grant the stock purchase right. The
offer shall be accepted by execution of a restricted stock purchase agreement in
the form determined by the Administrator. Unless the Administrator determines
otherwise, the restricted stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for shares repurchased pursuant to the
restricted stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchase to
the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.
AMENDMENT AND TERMINATION OF THE 1995 PLAN
The Board may at any time amend, alter, suspend or discontinue the 1995
Plan, but no amendment, alteration, suspension or discontinuation shall be made
which would impair the rights of any optionee under any grant theretofore made,
without his or her consent. In addition, to the extent necessary and desirable
to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the
Internal Revenue Code (or any other applicable law or regulation, including the
requirements of the NASD or an established stock exchange), the Company shall
obtain stockholder approval of any 1995 Plan amendment in such a manner and to
such a degree as required. Any such amendment or termination of the 1995 Plan
shall not affect options or stock purchase rights already granted, and
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such options and stock purchase rights shall remain in full force and effect as
if the 1995 Plan had not been amended or terminated, unless mutually agreed
otherwise between the optionee and the Administrator, which agreement must be in
writing and signed by the optionee and the Company.
11
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP, independent public
accountants, to audit the financial statements of the Company for the fiscal
year ending December 31, 1997, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on
ratification, the Board of Directors will reconsider its selection.
Ernst & Young LLP has audited the Company's financial statements annually
since 1992. Representatives of Ernst & Young LLP are expected to be present at
the meeting with the opportunity to make a statement if they desire to do so and
are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.
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MANAGEMENT
The current non-director executive officers of the Company are as follows:
NAME OF OFFICER AGE POSITION WITH THE COMPANY
- ------------------------ ----- ---------------------------------------------
David W. Dunlap . . . . 54 Vice President of Finance and Administration,
Chief Financial Officer and Secretary
Kevin J. Mills . . . . 36 Vice President of Operations
John E. O'Leary . . . . 41 Vice President of Sales
DAVID W. DUNLAP has served as the Company's Vice President of Finance and
Administration and Chief Financial Officer since February 1995. Prior to
joining the Company, Mr. Dunlap served as Vice President of Finance and
Administration at Appian Technology Inc. ("Appian"), a semiconductor company,
from September 1993 to February 1995. Appian filed a voluntary petition for
bankruptcy under Chapter 11 of the United States Bankruptcy Code in August 1994
(the "Bankruptcy Code") in connection with the sale of substantially all of its
assets to Cirrus Logic, Inc. Mr. Dunlap served as Vice President of Finance and
Administration and Chief Financial Officer at Mountain Network Solutions, Inc.,
a computer peripherals manufacturing company, from March 1992 to September 1993.
He is a certified public accountant, and received an M.B.A. and a B.A. in
Business Administration from the University of California at Berkeley.
KEVIN J. MILLS has served as the Company's Vice President of Operations
since September 1993. Prior to joining the Company, Mr. Mills worked from
September 1987 to August 1993 at Logitech, Inc., a computer peripherals company,
serving most recently as Director of Operations. He received a B.E. in
Electronic Engineering from the University of Limerick, Ireland.
JOHN E. O'LEARY has served as the Company's Vice President of Sales since
July 1996. Prior to joining the Company, he held various marketing and sales
management positions with Digital Equipment Corporation ("Digital"), a computer
systems manufacturer, from 1986 through July 1996, serving most recently as Vice
President, Systems Business Unit which marketed and sold Digital's servers,
workstations and network software in the western United States. Mr. O'Leary
received an M.B.A. from the University of New Hampshire and a Bachelor of Arts
degree from Holy Cross College, Boston, Massachusetts.
13
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company during
the fiscal years ended December 31, 1996, 1995 and 1994 to the two individuals
who served as the Company's Chief Executive Officer, the former Chief Executive
Officer, and the two other executive officers whose total 1996 salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers"):
Long-Term
Compensation
Awards
------------
Securities Other
Annual Compensation Underlying Annual
Name and Principal Position Year Salary ($) Bonus ($)(1) Options Compensation($)
- ------------------------------ ----- ----------- ------------ ------------ ---------------
Martin Levetin (2). . . . . . 1996 $134,333 $62,197 126,600* $36,006(3)
Former President, Chief 1995 -- -- -- --
Executive Officer 1994 -- -- -- --
Charlie Bass (4) . . . . . . 1996 -- -- 55,767* --
Acting Chief Executive 1995 -- -- -- --
Officer and Director 1994 -- -- -- --
Micheal L. Gifford . . . . . 1996 120,000 22,211 35,745* --
Executive Vice President 1995 111,378 26,602 22,445 --
and Director 1994 100,000 5,903 -- --
David W. Dunlap (5) . . . . . 1996 120,000 18,775 15,914* --
Vice President of Finance 1995 100,008 21,232 21,341 13,500
and Administration, Chief 1994 -- -- -- 8,000
Financial Officer and
Secretary
Kevin Mills . . . . . . . . . 1996 99,999 22,291 15,914* --
Vice President of 1995 91,042 19,111 7,014 --
Operations 1994 85,934 3,934 5,144 --
- ----------------
* Includes options granted pursuant to the Compensation Committee's decision
on December, 18, 1996 to reprice certain outstanding options by exchanging
outstanding options for new options priced to reflect the market price of
the Company's Common Stock on the date of the exchange (the "Repricing").
See "Management-Stock Option Information" and "Management-Report of
Repricing of Options."
(1) Represents cash bonuses earned for work performed during fiscal 1996.
Bonuses earned during the first three fiscal quarters of fiscal 1996 were
paid in fiscal 1996 whereas bonuses earned during the fourth fiscal quarter
of 1996 were paid in the first quarter of fiscal 1997.
(2) Mr. Levetin joined the Company on March 1, 1996 as President and Chief
Executive Officer. Mr. Levetin resigned as President and Chief Executive
Officer on April 24, 1997.
14
(3) Consists of moving expenses incurred by Mr. Levetin (and reimbursed by the
Company) in connection with his relocation in order to begin work at the
Company.
(4) Dr. Bass served in a consulting capacity as acting Chief Executive Officer
of the Company from January 1, 1996 through February 28, 1996. In
consideration for such consulting services, the Company granted Dr. Bass an
option to purchase 25,000 shares of Common Stock at an exercise price of
$4.25 and vesting over a four-year period (the "Old Option"). Dr. Bass
began serving in a consulting capacity as acting Chief Executive Officer on
April 24, 1997. In connection with the Repricing, Dr. Bass received an
option to purchase 25,000 shares (the "New Option") in exchange for the
cancellation of the Old Option. The New Option has an exercise price of
$1.55. The New Option continues the vesting schedule of the Old Option
except with respect to options vested as of the Repricing, which vest in
equal monthly increments over the 12 months following the Repricing. Bass
Associates, of which Dr. Bass is General Partner, is the record owner of
the New Option. Dr. Bass disclaims beneficial ownership of shares owned by
Bass Associates except to the extent of his pecuniary interest therein.
See "Management-Report on Repricing of Options."
(5) Mr. Dunlap joined the Company as Vice President of Finance and
Administration and Chief Financial Officer and Secretary on February 16,
1995. "Other Annual Compensation" for Mr. Dunlap consists of consulting
fees paid by the Company to Mr. Dunlap prior to his joining the Company as
an employee.
15
OPTION GRANTS IN FISCAL 1996
The following table sets forth certain information for the fiscal year
ended December 31, 1996 with respect to each grant of stock options to the Named
Executive Officers. No stock appreciation rights were granted during such year.
INDIVIDUAL GRANTS
-------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE PER
OPTIONS EMPLOYEES IN SHARE EXPIRATION
NAME GRANTED FISCAL 1996(1) ($)(2) DATE
- ----------------------- ----------- --------------- --------- -----------
Martin Levetin(3). . . 100,000 27.7 $4.25 03/01/06
26,600 7.4 1.55 12/18/06
100,000* 38.4* 1.55* 12/18/06*
Micheal L. Gifford . . 13,300 3.7 1.55 12/18/06
22,445* 8.6* 1.55* 12/18/06*
Bass Associates. . . . 25,000 6.9 4.25 03/01/06
(Charlie Bass) (4) 2,400 1.8 1.5 12/18/06
3,367* 1.3* 1.55* 12/18/06*
25,000* 9.6* 1.55* 12/18/06*
David W. Dunlap. . . . 8,900 2.5 1.55 12/18/06
7,014* 2.7* 1.55* 12/18/06*
Kevin Mills. . . . . . 8,900 2.5 1.55 12/18/06
7,014* 2.7* 1.55* 12/18/06*
- ----------------------------
* Represents grant of options made pursuant to the Repricing. See
"Management-Report on Repricing of Options."
(1) Based on options granted to employees, consultants and directors during
fiscal 1996, and, with respect to options granted in connection with the
Repricing, on the options to purchase 260,192 shares of Common Stock so
granted to employees, consultants and directors.
(2) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock, as determined by the Board of
Directors on the date of grant.
(3) Mr. Levetin resigned as the Company's President and Chief Executive
Officer, and as Director of the Company, effective April 24, 1997.
(4) Bass Associates, of which Dr. Bass is General Partner, is the record owner
of the stock options. However, Dr. Bass disclaims beneficial ownership of
shares owned by Bass Associates except to the extent of his pecuniary
interest therein.
16
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
None of the Named Executive Officers exercised any stock options during
fiscal 1996. The following table provides information on the value of such
officers' unexercised options at December 31, 1996.
Number of Securities
Underlying Unexercised Value of Unexercised
Options At In-the-Money Options at
December 31, 1996 (#)(1) December 31, 1996 ($)(2)
----------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ------------- --------------- ------------- --------------
Martin Levetin(3) . . . . . -- 126,600 $-- $--
Micheal L. Gifford . . . . -- 35,745 -- --
Charlie Bass . . . . . . . 4,489 30,767 3,546 --
David W. Dunlap . . . . . . 7,020 23,221 5,546 4,311
Kevin Mills . . . . . . . . 10,170 22,111 7,494 2,9051
- -------------------------
(1) No Named Executive Officer exercised stock options during fiscal 1996.
(2) Based upon a final bid price, as of December 31, 1996, of $1.38 per share.
(3) Mr. Levetin resigned as the Company's President and Chief Executive
Officer, and as Director of the Company, effective April 24, 1997.
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN CONTROL ARRANGEMEMTS
Mr. Levetin resigned as the Company's President and Chief Executive Officer
on April 24, 1997. In February 1996, the Company entered into an employment
agreement with Mr. Levetin (the "Levetin Employment Agreement"). Pursuant to
the Levetin Employment Agreement, the Company is obligated, upon termination of
Mr. Levetin's employment without cause, to pay Mr. Levetin (i) six months' base
salary regardless of whether he secures other employment during those six
months, (ii) health insurance until the earlier of the date of Mr. Levetin's
eligibility for the health insurance benefits provided by another employer or
the expiration of six months, (iii) the full bonus amount to which he would have
been entitled for the first quarter following termination and one-half of such
bonus amount for the second quarter following termination, and (iv) certain
other benefits including outplacement services and the ability to purchase at
book value certain items of Company property purchased by the Company for
Mr. Levetin's use, which may include a personal computer, a cellular phone, and
other similar items.
Accordingly, the Company intends to pay Mr. Levetin $80,000 to cover its
obligation to pay six months' salary and $24,375 to cover its obligation to pay
bonuses for quarters subsequent to Mr. Levetin's termination. In addition, it
is expected that Mr. Levetin will avail himself of the health
17
insurance benefits set forth in the Levetin Employment Agreement and may
purchase those items of personal property available thereunder.
In July 1996, the Company entered into an employment agreement with Micheal
Gifford, the Company's Executive Vice President. Pursuant to this agreement,
which expires in December 31, 2000 and is terminable at will by either party,
the Company is obligated to pay Mr. Gifford's base salary and if the Company
terminates Mr. Gifford's employment without cause, the Company shall pay Mr.
Gifford (i) six months' base salary regardless of whether he secures other
employment during those six months, (ii) health insurance until the earlier of
the date of Mr. Gifford's eligibility for the health insurance benefits provided
by another employer or the expiration of six months, (iii) the full bonus amount
to which he would have been entitled for the first quarter following termination
and one-half of such bonus amount for the second quarter following termination,
and (iv) certain other benefits including outplacement services and the ability
to purchase at book value certain items of Company property purchased by the
Company for Mr. Gifford's use, which may include a personal computer, a cellular
phone, and other similar items.
REPORT ON REPRICING OF OPTIONS
In December 1996, the Compensation Committee authorized the reduction of
the exercise price of options granted to employees, including executive
officers, pursuant to the 1995 Stock Plan that had exercise prices higher than
the market price of the Company's Common Stock at the time of the repricing.
This repricing (the "Repricing") was accomplished by an exchange of each option
held by an optionee at the time of the Repricing (the "Surrendered Options") for
an option with a lower exercise price and an extended vesting period (the
"Repriced Options"). Options granted to employees are intended to provide
incentive to the employees to work to achieve long term success for the Company.
The decline in the market price of the Company's Common Stock following the
grants of the Surrendered Options frustrated this purpose and the committee
deemed it to be in the best interests of the Company to allow the exchange of
Surrendered Options for Repriced Options in order to reduce the exercise price
to the market price at the time of the exchange. All Repriced Options are
subject to a new vesting period, beginning on the date of Repricing. The
vesting schedule of the Repriced Options continues the vesting schedule of the
Surrendered Options with respect to unvested shares; shares that had vested as
of the Repricing vest in equal monthly increments over the 12 months following
the Repricing.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Pursuant to the Delaware General Corporation Law ("Delaware Law"), the
Company has adopted provisions in its Amended and Restated Certificate of
Incorporation which eliminate the personal liability of its directors and
officers to the Company and its stockholders for monetary damages for breach of
the directors' fiduciary duties in certain circumstances. The Company's Bylaws
require the Company to indemnify its directors, officers, employees and other
agents to the fullest extent permitted by law.
18
The Company has entered into indemnification agreements with each of its
current directors and officers which provide for indemnification to the fullest
extent permitted by Delaware Law, including in circumstances in which
indemnification and the advancement of expenses are discretionary under Delaware
Law. The Company believes that the limitation of liability provisions in its
Amended and Restated Certificate of Incorporation and the indemnification
agreements will enhance the Company's ability to continue to attract and retain
qualified individuals to serve as directors and officers.
There is no pending litigation or proceeding involving a director, officer
or employee of the Company to which the indemnification agreements would apply.
COMPENSATION OF DIRECTORS
See the information set forth above under "Proposal One-Election of
Directors-Nominees."
CERTAIN TRANSACTIONS WITH MANAGEMENT
Pursuant to the resignation, on April 24, 1997, of Martin Levetin as the
Company's President and Chief Executive Officer, the Company intends to pay Mr.
Levetin $80,000 to cover its obligation under the Levetin Employment Agreement
to pay Mr. Levetin six months' salary and $24,375 to cover its obligation to pay
bonuses for quarters subsequent to Mr. Levetin's termination. In addition, it
is expected that Mr. Levetin will avail himself of the health insurance benefits
set forth in the Levetin Employment Agreement and may purchase those items of
personal property available thereunder.
In January 1994, the Company issued to Bass Associates (of which Charlie
Bass, the Chairman of the Company's Board of Directors, is the General Partner),
Jack Carsten (a director of the Company), El Dorado C&L Fund ("ED C&L"), El
Dorado Ventures III, L.P. ("EDV III") and El Dorado Technology IV, L.P. ("EDT
IV") convertible promissory notes bearing interest at 8% per year (the "Second
Series C Notes") in the principal amounts of $131,000, $50,000, $5,255, $283,799
and $10,966, respectively. Gary Kalbach, a director of the Company, is a
General Partner of El Dorado Ventures, the General Partner of each of ED C&L,
EDV III and EDT IV. In April 1994, the Second Series C Notes, plus all accrued
interest, converted into 19,917; 7,622; 799; 43,144 and 1,667 shares
respectively, of Series C Preferred Stock, which converted into 25,309; 9,685;
1,015; 54,824 and 2,118 shares, respectively, of Common Stock upon the closing
of the Company's initial public offering (the "Initial Public Offering") in
June 1996. In connection with the issuance of the Second Series C Notes, in
January 1994, the Company issued to Bass Associates, Mr. Carsten, ED C&L, EDV
III and EDT IV warrants to purchase 4,979; 1,905; 200; 10,786 and 417 shares,
respectively, of Series C Preferred Stock at an exercise price of $6.68 per
share. In connection with the First Bridge Financing (described below), these
warrants were converted into warrants to purchase 4,979; 1,905; 200; 10,786 and
417 shares, respectively, of Common Stock at an exercise price of $0.59 per
share. In connection with the initial Public Offering, these warrants were
19
exercised on a net exercise basis to purchase 4,491; 1,718; 180; 9,728 and 376
shares, respectively, of Common Stock.
In March and April 1994, the Company issued to Bass Associates, ED C&L, EDV
III and EDT IV convertible promissory notes bearing interest at 8% per year (the
"Series D Notes") in the principal amounts of $50,000, $2,628, $141,889 and
$5,483, respectively. In May 1994, the Series D Notes converted into 6,285;
330; 17,802 and 688 shares, respectively, of Series D Preferred Stock. In
connection with the First Bridge Financing (described below), these shares
converted into the right to receive 8,570; 450; 24,275 and 938 shares,
respectively, of Series D-1 Preferred Stock, which converted into 10,213; 536;
28,930 and 1,118 shares, respectively, of Common Stock upon the closing of the
Initial Public Offering. In connection with the issuance of the Series D Notes,
in March and April 1994, the Company issued to Bass Associates, ED C&L, EDV III
and EDT IV warrants to purchase 1,571; 82; 4,449 and 172 shares, respectively,
of Series D Preferred Stock at an exercise price of $8.02 per share. In
connection with the First Bridge Financing (described below), these warrants
were converted into warrants to purchase 1,571; 82; 4,449 and 172 shares,
respectively, of Common Stock at an exercise price of $0.59 per share. In
connection with the Initial Public Offering, these warrants were exercised on a
net exercise basis to purchase, 1,417; 74; 4,013 and 155 shares, respectively,
of Common Stock.
In addition, in May 1994 the Company issued to ED C&L, EDV III and EDT IV
an additional 1,201; 64,874 and 2,507 shares, respectively, of Series D
Preferred Stock for aggregate prices of $9,635, $520,262 and $20,105,
respectively. In October and November 1994, in connection with the First Bridge
Financing (described below), these shares converted into the right to receive
1,638; 88,464 and 3,419 shares, respectively, of Series D-1 Preferred Stock,
which converted into 1,952; 105; 425 and 4,074 shares, respectively, of Common
Stock upon the closing of the Initial Public Offering.
In March 1994, the Company issued to Dale Gifford, the former Vice
President of Engineering of the Company, 13,092 shares of the Company's Common
Stock in consideration for past consulting services, the fair market value of
which the Board estimated to be $8,400. Dale Gifford is also the President and
sole proprietor of The Impact Zone, a software consulting firm. The Impact Zone
rents office space to the Company pursuant to a lease which expires in
November 1997. The Company occupied this space through September 1994 and is
currently subleasing this space to an outside third party. In addition, The
Impact Zone rents engineering computer equipment to the Company. During 1994
and 1995, employees of The Impact Zone, including Dale Gifford, provided
consulting services to the Company. In 1994 and 1995, the Company incurred an
aggregate of $361,169 and $130,340, respectively, in expenses to The Impact Zone
for such services and rentals. The Company believes that the terms and
conditions of its relationship with The Impact Zone are no less favorable than
the terms and conditions it could have obtained from an unaffiliated third
party.
Mr. Carsten served in a consulting capacity as interim Chief Executive
Officer of the Company from July 1994 to October 1994. In consideration for
such consulting services the
20
Company paid him $8,000 in cash per month and granted him 6,734 shares of the
Company's Common Stock in August 1994, the fair market value of which the Board
estimated to be $4,500, and 2,244 shares of the Company's Common Stock in
October 1994, the fair market value of which the Board estimated to be $1,320,
for an aggregate value of $5,820. In 1994 and 1995 the Company paid Mr. Carsten
an aggregate of $32,097 and $11,314, respectively, in fees and reimbursed
expenses for other consulting assignments. Mr. Carsten may provide consulting
services to the Company from time to time in the future, as requested by the
Board of Directors. Mr. Carsten has agreed that he will provide the Company the
first 1.5 days of such services in any month (including preparation for, and
attendance at, Board of Directors' meetings) at no charge and charge the Company
$1,500 per day for every day of consulting services provided thereafter.
In October, November and December 1994 and January 1995, the Company issued
to Bass Associates, Mr. Carsten, ED C&L, EDV III and EDT IV convertible
promissory notes bearing interest at the rate of 8% per annum (the "First Bridge
Notes") in the principal amounts of $225,000, $56,000, $4,802, $259,282 and
$4,916, respectively, and five year warrants to purchase Common Stock at an
exercise price of $0.59 per share (the "First Bridge Financing"). In
February 1995, the First Bridge Notes were amended to extend the due date to
May 15, 1995. In March 1995, the First Bridge Notes were amended to extend the
due date to August 15, 1995. In March 1995, the holders of the First Bridge
Notes also agreed that if the Company completed a public offering of its Common
Stock in which it received aggregate proceeds of at least $3,000,000 on or
before August 15, 1995, then the conversion price of the First Bridge Notes
would equal 66 2/3% of the initial public offering price per share, and the
warrants to purchase Common Stock issued in the First Bridge Financing would be
canceled. Accordingly, upon the closing of the Initial Public Offering, the
First Bridge Notes held by Bass Associates, Mr. Carsten, ED C&L, EDV III and
EDT IV converted into 59,507; 14,823; 1,290; 68,061 and 1,290 shares,
respectively, of Common Stock at a conversion price equal to 66 2/3% of the
Initial Public Offering price of $6.00 per share, and the warrants to purchase
Common Stock issued in the First Bridge Financing were canceled. In addition,
as part of the First Bridge Financing, the Company agreed (i) that each
stockholder who participated in the First Bridge Financing would be entitled to
exchange any warrants to purchase Series C or Series D Preferred Stock then held
by such stockholder for warrants to purchase shares of Common Stock at an
exercise price of $0.59 per share, which warrants would expire if not exercised
upon the closing of the Initial Public Offering, and (ii) that each holder of
Series D Preferred Stock who participated in the First Bridge Financing would be
entitled to exchange any shares of Series D Preferred Stock then held by such
stockholder for a number of shares of Series D-1 Preferred Stock equal to the
ratio of the original issuance price per share of the Series D Preferred Stock
($8.02) to $5.88. The terms of the First Bridge Financing were approved by
Murray Dennis, the Company's former President and Chief Executive Officer, and
Mr. Micheal Gifford, Executive Vice President of the Company, neither of whom
participated in the First Bridge Financing as lenders.
In March and April 1995, the Company issued to Bass Associates,
Mr. Carsten, ED C&L, EDV III and EDT IV convertible promissory notes (the
"Second Bridge Notes") in the principal amounts of $120,000, $40,000, $3,927,
$212,052 and $4,021, respectively. The Second Bridge Notes bore interest at the
rate of 8% per annum and would have been due on August 15, 1995. One-
21
half of the aggregate principal amount of the Second Bridge Notes was paid out
of the proceeds of the Initial Public Offering, and the remaining half, plus
accrued interest, converted into 15,433; 5,144; 505: 27,273 and 517 shares,
respectively, of Common Stock upon the closing of the Initial Public Offering at
a conversion price equal to 66 2/3% of the Initial Public Offering price of
$6.00 per share. The terms of the Second Bridge Notes were approved by
Mr. Dennis and Mr. Micheal Gifford, neither of whom participated in the
transaction as lenders. Dr. Bass served in a consulting capacity as acting
Chief Executive Officer of the Company from January 1, 1996 through February 28,
1996. In consideration for such consulting services, the Company granted Dr.
Bass an option to purchase 25,000 shares of Common Stock at an exercise price of
$4.25 and vesting over a four-year period (the "Old Option"). In connection
with the Repricing, Dr. Bass received an option to purchase 25,000 shares (the
"New Option") in exchange for the cancellation of the Old Option. The New
Option has an exercise price of $1.55. The New Option continues the vesting
schedule of the Old Option except with respect to options vested as of the
Repricing, which vest in equal monthly increments over the 12 months following
the Repricing. Bass Associates, of which Dr. Bass is General Partner, is the
record owner of the New Option. Dr. Bass disclaims beneficial ownership of
shares owned by Bass Associates except to the extent of his pecuniary interest
therein. See "Management-Report on Repricing of Options."
All future affiliated transactions and/or loans between the Company and its
officers, directors and/or 5% stockholders will be on terms no less favorable
than could be obtained from unaffiliated third parties and will be approved by a
majority of the independent, disinterested directors of the Company.
SECURITY OWNERS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1997, certain information
with respect to the beneficial ownership of the Common Stock of the Company on
an as-converted basis and of the Series A Convertible Preferred Stock of the
Company ("Series A") as to (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) each Named Executive Officer, and (iv) all
directors and officers of the Company as a group. Except as otherwise noted,
the named beneficial owner has sole voting and investment power with respect to
the shares shown.
NUMBER OF PERCENTAGE
SHARES OF CLASS
TITLE OF BENEFICIALLY BENEFICIALLY
CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) OWNED (%)(2)
- -------- -------------------------------------- ------------ ------------
Common Berckeley Investment Group (3) . . . . 1,230,769 22.5
c/o American Offshore Management, Inc.
2875 NE 191st Street, Suite 702C
Aventura, Florida 33180
22
NUMBER OF PERCENTAGE
SHARES OF CLASS
TITLE OF BENEFICIALLY BENEFICIALLY
CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) OWNED (%)(2)
- -------- -------------------------------------- ------------ ------------
Common Cetronic AB and affiliates (4). . . . . . 1,000,000 19.1
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Common Julius Baer Securities (5). . . . . . . . 418,462 9.0
Julius Baer Securities
330 Madison Avenue
New York, NY 10017
Common Entities affiliated with El Dorado
Ventures (6). . . . . . . . . . . . . . 350,472 8.3
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Common Bass Associates (7) . . . . . . . . . . . 313,571 7.4
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Common Swedbank (Luxembourg) S.A. (8). . . . . . 221,539 5.0
P.O. Box 1305
L-1013
Luxembourg
Common Charlie Bass (9). . . . . . . . . . . . . 343,972 8.1
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Common Jack C. Carsten (10). . . . . . . . . . . 78,958 1.9
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Common Martin S. Levetin(11) . . . . . . . . . . 33,450 *
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Common Micheal L. Gifford (12) . . . . . . . . . 136,458 3.2
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
23
NUMBER OF PERCENTAGE
SHARES OF CLASS
TITLE OF BENEFICIALLY BENEFICIALLY
CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) OWNED (%)(2)
- -------- -------------------------------------- ------------ ------------
Common Gary W. Kalbach (13). . . . . . . . . . . 350,472 8.2
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Common David W. Dunlap (14). . . . . . . . . . . 15,924 *
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA
Common Kevin J. Mills (15) . . . . . . . . . . . 18,976 *
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Common All directors and officers as a
group (16). . . . . . . . . . . . . . . 992,625 22.7
(nine persons)
Series A Berckeley Investment Group. . . . . . . . 5,000 52.1
c/o American Offshore Management, Inc.
2875 NE 191st Street, Suite 702C
Aventura, Florida 33180
Series A Julius Baer Securities. . . . . . . . . . 1,700 17.7
Julius Baer Securities
330 Madison Avenue
New York, NY 10017
Series A Swedbank (Luxembourg) S.A. . . . . . . . 900 9.4
P.O. Box 1305
L-1013
Luxembourg
Series A Coutts & Co. AG . . . . . . . . . . . . . 500 5.2
Talstraase 59
Zurich, Switzerland 8022
Series A Peter Colmer. . . . . . . . . . . . . . . 500 5.2
c/o Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
- -------------------
* Less than 1%
(1) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes to this
table.
24
(2) Percentage ownership is based on 4,238,065 shares of Common Stock
outstanding as of March 31, 1997 and any shares issuable pursuant to
securities convertible into or exercisable for shares of Common Stock by
the person or group in question on February 20, 1997 or within 60 days
thereafter. Percentages of Series A Convertible Preferred Stock
represent relative proportions of the 9,600 shares of Series A
Convertible Preferred Stock outstanding as of March 31, 1997.
(3) Represents shares of Common Stock issuable upon conversion of the 5,000
shares of Series A Convertible Preferred Stock beneficially owned and
assumes notice of conversion of such shares of Series A Convertible
Preferred Stock is transmitted on March 31, 1997.
(4) Represents shares receivable upon conversion of convertible notes
convertible within 60 days of March 31, 1997 by Cetronic AB or certain of
its shareholders.
(5) Represents shares of Common Stock issuable upon conversion of the 1,700
shares of Series A Convertible Preferred Stock beneficially owned and
assumes notice of conversion of such shares of Series A Convertible
Preferred Stock is transmitted on March 31, 1997.
(6) Consists of 6,180 shares owned by El Dorado C&L Fund (including 178
shares of Common Stock issuable upon the exercise of outstanding
warrants), 333,809 shares owned by El Dorado Ventures III (including
9,616 shares of Common Stock issuable upon the exercise of outstanding
warrants) and 10,483 shares owned by El Dorado Technology IV, L.P.
(including 206 shares of Common Stock issuable upon the exercise of
outstanding warrants).
(7) Includes options to purchase 11,559 shares of Common Stock exercisable on
March 31, 1997 or within 60 days thereafter.
(8) Represents shares of Common Stock issuable upon conversion of the 900
shares of Series A Convertible Preferred Stock beneficially owned and
assumes notice of conversion of such shares of Series A Convertible
Preferred Stock is transmitted on March 31, 1997.
(9) Consists of 313,571 shares owned by Bass Associates (including 11,559
shares subject to stock options exercisable on March 31, 1997 or within
60 days thereafter), and 30,401 shares controlled by the Bass Family
Trust (including warrants to acquire 5,000 shares each exercisable on
March 31, 1997 or within 60 days thereafter). Dr. Bass is the General
partner of Bass Associates and may be deemed to share voting and
investment power with respect to those shares. However, Dr. Bass
disclaims beneficial ownership of shares owned by Bass Associates except
to the extent of his pecuniary interest therein.
(10) Includes 2,513 shares subject to stock options exercisable on March 31,
1997 or within 60 days thereafter.
(11) Includes 23,450 shares subject to stock options exercisable on March 31,
1997 or within 60 days thereafter.
(12) Includes 17,492 shares subject to stock options exercisable on March 31,
1997 or within 60 days thereafter.
(13) Consists of 7,048 shares subject to stock options exercisable on March
31, 1997 or within 60 days thereafter. Also includes 343,424 shares
owned by entitles affiliated with El Dorado Ventures set forth in Note
(6) above (the "El Dorado Entities"). Mr. Kalbach is a General Partner
of El Dorado Ventures and may be deemed to share voting and investment
power with respect to those shares. However, Mr. Kalbach disclaims
beneficial ownership of shares, warrants and options owned by the El
Dorado Entities except to the extent of his pecuniary interest therein.
(14) Represents 15,924 shares subject to stock options exercisable on March
31, 1997 or within 60 days thereafter.
25
(15) Represents 18,976 shares subject to stock options exercisable on March
31, 1997 or within 60 days thereafter.
(16) Also includes 111,377 shares subject to stock options exercisable on
March 31, 1997 or within 60 days thereafter.
26
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)") requires the
Company's executive officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC") and the National Association of Securities
Dealers, Inc. Executive officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely in its review of
the copies of such forms received by it, or written representations from
certain reporting persons, the Company believes that, during fiscal 1996, all
filing requirements applicable to its executive officers and directors were
complied with.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If
any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed form of Proxy to vote the stock they
represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: May __, 1997
27
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SOCKET COMMUNICATIONS, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of SOCKET COMMUNICATIONS, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 30, 1997, and hereby
appoints Charlie Bass and David Dunlap, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1997 Annual
Meeting of Stockholders of SOCKET COMMUNICATIONS, INC. to be held on June 17,
1997 at 11:00, local time, at the Company's headquarters at 37400 Central
Court, Newark, California 94560, and at any adjournment or adjournments
thereof, and to vote all shares of Common Stock which the undersigned would
be entitled to vote if then and there personally present, on the matters set
forth below:
See Reverse Side
Please mark your
/X/ votes as in this
example.
1. ELECTION OF
DIRECTORS
NOMINEES: Charlie Bass, Micheal Gifford, Jack Carsten, Gary Kalbach
For all Withhold Authority
Nominees / / / / to Vote for All
Listed Nominees Listed
Above Above
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below:
Charlie Bass; Micheal Gifford; Jack Carsten; Gary Kalbach
FOR AGAINST ABSTAIN
2. PROPOSAL TO AMEND THE 1995
STOCK PLAN: / / / / / /
3. PROPOSAL TO RATIFY THE
APPOINTMENT OF ERNST & YOUNG LLP
AS THE INDEPENDENT PUBLIC / / / / / /
ACCOUNTANTS OF THE COMPANY
FOR FISCAL 1997:
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT OF THE 1995 STOCK
PLAN AND FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTER AS MAY PROPERLY COME BEFORE THE MEETING.
Dated: , 1997
-------------------------
--------------------------------------
Signature
--------------------------------------
Signature
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)