SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
SM&A CORPORATION
- --------------------------------------------------------------------------------
(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
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)
(2) of Schedule 14A.
[ ] 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:
______________________________________________________________
[ ] Fees 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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4. Date Filed:___________________________________________________
SM&A CORPORATION
4695 MACARTHUR COURT, EIGHTH FLOOR
NEWPORT BEACH, CALIFORNIA 92660
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
TUESDAY, MAY 18, 1999
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
SM&A Corporation, a California corporation (hereinafter, the "Company"), will be
held on Tuesday, May 18, 1999 at 10:00 a.m. (Pacific Daylight Time), at the
Sutton Place Hotel, at 4500 MacArthur Boulevard, Newport Beach, California
92660, for the following purposes, as more fully described in the accompanying
Proxy Statement:
1. To elect five members of the Board of Directors to serve
until the next Annual Meeting of Shareholders;
2. To approve an amendment to the Company's 1997 Stock Option
Plan, to increase the number of shares of common stock available for
issuance under the Plan to 2,500,000 shares;
3. To approve and adopt an Employee Stock Purchase Plan to
permit employees of the Company and its subsidiaries to purchase up to
250,000 shares of the Company's common stock directly from the Company
through payroll deductions;
4. To ratify the appointment of KPMG LLP as the independent
accountants for the Company for fiscal year ending December 31, 1999;
and
5. To transact such other business as may properly come before
the meeting or any adjournments and postponements thereof.
The Board of Directors has fixed the close of business on March 31,
1999 as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting. Only holders of the Company's common stock
at the close of business on the record date are entitled to vote at the Annual
Meeting. Shareholders attending the Annual Meeting whose shares are held in the
name of a broker or other nominee should bring with them a proxy or letter from
that firm confirming their ownership of shares.
Accompanying this Notice are a Proxy and Proxy Statement. IF YOU WILL
NOT BE ABLE TO ATTEND THE MEETING TO VOTE IN PERSON, PLEASE SIGN AND DATE THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. The Proxy
may be revoked at any time prior to its exercise at the Annual Meeting.
By Order of the Board of Directors,
/s/ Steven R. Mast, Secretary
Newport Beach, California
April 19, 1999
2
YOUR VOTE IS IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER, EVEN
IF YOU DO PLAN TO ATTEND, PLEASE PROMPTLY COMPLETE, SIGN, DATE AND MAIL THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. RETURNING A SIGNED PROXY WILL NOT
PREVENT YOU FROM VOTING IN PERSON AT THE ANNUAL MEETING, IF YOU SO DESIRE, BUT
WILL HELP THE COMPANY SECURE A QUORUM AND REDUCE THE EXPENSE OF ADDITIONAL PROXY
SOLICITATION.
3
SM&A CORPORATION
4695 MACARTHUR COURT, EIGHTH FLOOR
NEWPORT BEACH, CALIFORNIA 92660
------------------
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 18, 1999
------------------
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished to the shareholders of SM&A
Corporation, a California corporation, in connection with the solicitation of
proxies by and on behalf of the Board of Directors of the Company. The proxies
solicited hereby are to be voted at the Annual Meeting of Shareholders of the
Company to be held at 10:00 a.m. on May 18, 1999, at the Sutton Place Hotel, at
4500 MacArthur Boulevard, Newport Beach, California 92660, and at any and all
adjournments and postponements thereof (the "Annual Meeting"). This Proxy
Statement and the accompanying form of proxy are being mailed to all
shareholders on or about April 19, 1999.
A form of proxy is enclosed for your use. The shares represented by
each properly executed unrevoked proxy will be voted as directed by the
shareholder with respect to the matters described therein. If no direction is
made, the shares represented by each properly executed proxy will be voted FOR
management's nominees for the Board of Directors, FOR the proposed amendment to
the Company's 1997 Stock Option Plan, FOR the adoption of the Company's Employee
Stock Purchase Plan, FOR ratification of KPMG LLP as the Company's independent
auditors for fiscal year 1999, and as the proxy holders deem advisable on other
matters that may properly come before the Annual Meeting.
Any proxy given may be revoked at any time prior to the exercise
thereof by filing with the Secretary of the Company an instrument revoking such
proxy or by the filing of a duly executed proxy bearing a later date. Any
shareholder present at the Annual Meeting who has given a proxy may withdraw it
and vote his or her shares in person if such shareholder so desires.
It is contemplated that the solicitation of proxies will be made
primarily by mail. The Company will make arrangements with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and proxy material to
the beneficial owners of the shares and will reimburse them for their expenses
in so doing. Should it appear desirable to do so in order to ensure adequate
representation of shares at the Annual Meeting, officers, agents and employees
of the Company may communicate with shareholders, banks, brokerage houses and
others by telephone or in person to request that proxies be furnished. All
expenses incurred in connection with this solicitation will be borne by the
Company. The Company has no present plans to hire special employees or paid
solicitors to assist in obtaining proxies, but reserves the option of doing so
if it should appear that a quorum otherwise might not be obtained.
4
Only holders of record of the Company's common stock (the "Common
Stock") at the close of business on March 31, 1999 are entitled to notice of and
vote at the Annual Meeting. As of March 29, 1999, the Company had issued and
outstanding 16,539,584 shares of Common Stock. Each share of Common Stock issued
and outstanding on the record date of March 31, 1999 (the "Record Date") is
entitled to one vote at the Annual Meeting.
The holders of a majority of the shares of stock of the Company issued
and outstanding and entitled to vote at the Annual Meeting, present in person or
represented by proxy, shall constitute a quorum. The five nominees for director
having the highest number of votes will be elected. Except as otherwise provided
by statute, all other matters coming before the Annual Meeting shall be decided
by the vote of the holders of a majority of the stock present in person or
represented by proxy at the Annual Meeting and entitled to vote thereat. Votes
cast at the Annual Meeting will be tabulated by the person appointed by the
Company to act as inspector of election for the Annual Meeting.
The inspector of election will treat shares of voting stock represented
by a properly signed and returned proxy as present at the Annual Meeting for
purposes of determining a quorum, without regard to whether the proxy is marked
as casting a vote or abstaining. Likewise, the inspector of election will treat
shares of voting stock represented by "broker non-votes" (i.e., shares of voting
stock held in record name by brokers and nominees concerning which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote; (ii) the broker or nominee does not have discretionary voting
power under applicable rules or the instrument under which it serves in such
capacity; or (iii) the record holder has indicated on the proxy card or has
executed a proxy and otherwise notified the Company that it does not have
authority to vote such shares on that matter) as present for purposes of
determining a quorum. Abstentions or broker non-votes will have no effect on the
election of Directors. Except as otherwise provided by statute, all other
matters to come before the Annual Meeting require the approval of a majority of
the shares of voting stock represented and entitled to vote thereat. Therefore,
abstentions concerning a particular proposal will have the same effect as votes
against such proposal.
5
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
Directors are elected at each annual meeting of shareholders and hold
office until the next annual meeting of shareholders or until their respective
successors are elected and qualified. THE BOARD OF DIRECTORS IS OF THE OPINION
THAT THE ELECTION TO THE BOARD OF DIRECTORS OF THE PERSONS IDENTIFIED BELOW, ALL
OF WHOM ARE CURRENTLY SERVING AS DIRECTORS OF THE COMPANY AND HAVE CONSENTED TO
CONTINUE TO SERVE IF ELECTED, WOULD BE IN THE BEST INTERESTS OF THE COMPANY. The
names of such nominees are as follows: Steven S. Myers, Michael A. Piraino, J.
Christopher Lewis, James R. Mellor and Malcolm R. Currie.
Management proxies will be voted FOR the election of the above-named
nominees unless the shareholders indicate that the proxy shall not be voted for
all or any one of the nominees. If for any reason a nominee should, prior to the
Annual Meeting, become unavailable for election as a Director, due to an event
not now anticipated, the proxies will be voted for such substitute nominee if
any, as may be recommended by management. In no event, however, shall the
proxies be voted for a greater number of persons than the number of nominees
named.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ELECTION
OF EACH OF THE NOMINEES LISTED ABOVE. PROXIES AND VOTING
INSTRUCTIONS WILL BE VOTED IN FAVOR OF THE ELECTION
OF EACH OF THE NOMINEES LISTED ABOVE UNLESS THE
SHAREHOLDER SPECIFIES OTHERWISE.
MANAGEMENT OF THE COMPANY
Set forth below is certain information with respect to the executive
officers and nominees of the Board of Directors of the Company.
NAME AGE POSITION
---- --- --------
Steven S. Myers 52 Chief Executive Officer, Chairman of the Board
of Directors
Michael A. Piraino(1) 45 President, Chief Operating Officer and Director
Steven R. Mast(2) 35 Senior Vice President, Chief Financial Officer
and Secretary
Thomas F. Heinsheimer 59 Senior Vice President, Chief Technical Officer
James F. Madewell 65 Senior Vice President, Corporate Development
Ajaykumar K. Patel 38 President and General Manager, Proposal
Management Group
Calvin Gegner 58 President and General Manager, Information
Technology Solutions Group
Thomas J. Amrhein 59 President and General Manager, Systems
Solutions Group
J. Christopher Lewis(3)(4) 42 Director
James R. Mellor(3)(4) 68 Director
Malcolm R. Currie 72 Director
-----------------------------------
6
(1) Elected to the Board and appointed an officer as of February 1, 1999.
(2) Appointed as of October 1, 1998.
(3) Member of the Audit Committee.
(4) Member of the Compensation Committee.
STEVEN S. MYERS founded the Company in 1982 and has been the Chief
Executive Officer and Chairman of the Board of the Company since its
incorporation in 1985. Mr. Myers was the President of the Company until February
1999. Prior to forming the Company, Mr. Myers was Vice President of Marketing
for Loral Data Systems and held several other key management positions with Ball
Aerospace Systems Division, Fairchild Space and Electronics Company, and
Watkins-Johnson Company. Mr. Myers holds a B.S. in mathematics from Stanford
University.
MICHAEL A. PIRAINO, a director of the Company, joined the Company as
President and Chief Operating Officer in February 1999. Mr. Piraino previously
served as the Executive Vice President and head of Corporate Development of Data
Processing Resources Corporation ("DPRC") from January 1996 to February 1999.
>From October 1994 to January 1996, Mr. Piraino served as Executive Vice
President, Director and Chief Operating Officer of Imagyn Medical Technologies,
Inc. (formerly known as UROHEALTH Systems, Inc.). From June 1993 to October
1994, Mr. Piraino served as Senior Vice President and Chief Financial Officer of
Syncor International Corporation. He also served in key executive management
positions with Total Pharmaceutical Care, Inc. and Lorimar Home Video. Mr.
Piraino began his career with Touche Ross & Co. (the predecessor firm to
Deloitte & Touche LLP) in 1975. Mr. Piraino holds a B.S. in accounting from
Loyola University of Los Angeles and is a certified public accountant.
STEVEN R. MAST has served as Senior Vice President, Chief Financial
Officer and Secretary of the Company since October 1998. From April 1995 to May
1998, Mr. Mast served as a Vice President and Chief Financial Officer of Space
Applications Corporation and, following the Company's acquisition of Space
Applications Corporation in May, 1998, Mr. Mast continued as Vice President,
Finance and Administration and Secretary of Space Applications Corporation.
Prior to joining Space Applications Corporation, Mr. Mast was a manager at
Coopers & Lybrand L.L.P. Mr. Mast holds a B.S. in accounting from the University
of Delaware and is a certified public accountant.
THOMAS F. HEINSHEIMER, Ph.D., has served as the Company's Senior Vice
President and Chief Technical Officer since 1993. Dr. Heinsheimer holds an
B.S.E.E. from the Massachusetts Institute of Technology and a Ph.D. in
atmospheric physics from the University of Paris. He is a Councilman and former
Mayor of Rolling Hills, California.
JAMES F. MADEWELL has served as the Company's Senior Vice
President-Corporate Development since July 1998. Mr. Madewell joined the Company
in August 1997 as its Vice President, Business Development. Mr. Madewell retired
from Lockheed Martin Corporation in July 1997 where he had served as Vice
7
President, Business Development for the Lockheed Martin Corporation Aeronautics
Sector since 1995. Prior to that, Mr. Madewell was appointed Vice
President--Group Business Strategy for Lockheed Aeronautical Systems Group in
August, 1994. From 1992 until 1994, he held the position of Vice President and
director of Advanced Programs at the Lockheed Space Operations Company. He is a
graduate of the Lockheed Executive Institute and the Rockwell Executive
Institute. Mr. Madewell is a Registered Professional Engineer. Mr. Madewell
holds a B.S.M.E. from the University of Houston and an M.S. in engineering from
the University of Alabama.
AJAYKUMAR PATEL has served as the President and General Manager of the
Company's Proposal Management Group since October 1998. Mr. Patel joined the
Company in January 1994 as its Director of Marketing. From January 1995 to July
1996, Mr. Patel was the Vice President for the Department of Energy and
Environmental Services, after which he became Vice President, Business
Development from August 1996 to June 1997. From June 1997 until October 1998,
Mr. Patel served as Vice President, Operations. Mr. Patel holds a B.A. in
Physics from The Johns Hopkins University and an M.B.A. in finance and strategic
planning from the University of Southern California.
CALVIN GEGNER has served as the President and General Manager of the
Company's Information Technology Solutions Group since October 1998. Mr. Gegner
joined the Company as an Associate in June 1997. Prior to joining the Company,
Mr. Gegner was a senior consultant at International Profit Association Inc. from
September 1995 to June 1997. From March 1995 to September 1995, Mr. Gegner
served as a staff executive at Geological Services May International Co. Mr.
Gegner was a co-owner of Stardust Originals from February 1992 until March 1995.
Mr. Gegner holds a B.S. in electrical engineering from South Dakota State
University and an M.S. in management sciences from the University of Southern
California.
THOMAS J. AMRHEIN joined the Company in January 1995 and held the
position of Associate from January 1995 to January 1996 and Vice President from
January 1996 to June 1998. After the acquisition of Space Applications
Corporation, Mr. Amrhein was appointed President and General Manager of SAC in
June 1998 until the merger of SAC with SM&A Corporation (East) in December 1998.
Mr. Amrhein has served as the President and General Manager of the Company's
Systems Solutions Group since November 1998. Mr. Amrhein holds a B.S. in
mechanical engineering from Virginia Polytechnic Institute and an M.S. in
industrial and systems engineering from the University of Florida.
J. CHRISTOPHER LEWIS was elected a director of the Company in September
1996. Since 1981, Mr. Lewis has been a general partner of Riordan, Lewis &
Haden, equity investors in Southern California-based enterprises. Mr. Lewis also
serves as a director of California Beach Restaurants, Inc., Data Processing
Resources Corporation, PIA Merchandising Services, Inc., Tetra Tech, Inc. and
several private companies. Mr. Lewis holds a B.S. in business administration and
finance and an M.B.A. in business from the University of Southern California.
JAMES R. MELLOR was appointed a director of the Company in December
1997. Mr. Mellor retired from the office of Chairman and Chief Executive Officer
of General Dynamics in May 1997. He continues to serve on the General Dynamics
Board of Directors and as a consultant to the Company. Mr. Mellor was elected
Chairman of General Dynamics in May 1994. He had served as President and Chief
Executive Officer since May 1993, and as President and Chief Operating Officer
since January 1991. He is presently on the Board of Directors of Aeromovel USA,
Inc., Bergen Brunswig Corporation, Computer Sciences Corporation, General
Dynamics Corporation, IDT Corporation, Scripps Research Institute and USEC, Inc.
Mr. Mellor holds a B.S. in electrical engineering and in mathematics and an M.S.
from the University of Michigan.
8
MALCOLM R. CURRIE, PH.D., was appointed a director of the Company in
December 1997. Dr. Currie serves as Chief Executive Officer of Currie
Technologies, Inc. He served as Chairman and Chief Executive Officer of Hughes
Aircraft Company from March 1988 until his retirement in July 1992. From January
1976 until March 1988, Dr. Currie served as President and Chief Executive
Officer of Delco Electronics. From 1973 until 1977, Dr. Currie served as Under
Secretary of Defense for Research and Engineering. He presently serves on the
boards of directors of Unocal Corporation, Investment Company of America, LSI
Logic Corporation, Regal One and Moltech Corp., and as Chairman of the Board of
Trustees of the University of Southern California. From June 1994 to August
1997, Dr. Currie was a manager of Electric Bicycle Co., LLC, a limited liability
company that filed for Chapter 7 bankruptcy protection in August 1997. Dr.
Currie holds a B.A. in physics and a Ph.D. in engineering physics from the
University of California at Berkeley.
MEETINGS OF BOARD AND COMMITTEES
The Board of Directors had four meetings during the fiscal year ended
December 31, 1998, and has held one meeting since the end of such fiscal year.
Among the incumbent nominees for membership on the Board of Directors, none
attended fewer than 75% of the aggregate of the meetings of the Board of
Directors during the 1998 fiscal year.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Board does not have a Nominating Committee and, in
practice, the entire Board performs the function of such Committee.
The Audit Committee, which consists of Messrs. Lewis and Mellor,
reviews the adequacy of internal controls and the results and scope of the audit
and other services provided by the Company's independent auditors. The Audit
Committee held two meetings during the fiscal year ended December 31, 1998. None
of the members of the Audit Committee attended fewer than 75% of the aggregate
of the meetings of such Committee during the 1998 fiscal year.
The Compensation Committee, which consists of Messrs. Lewis and Mellor,
establishes salaries and other forms of compensation for officers and other
employees of the Company and administers the Company's stock option plan. During
the years ended December 31, 1996 and 1997, the Company's Board of Directors
established levels of compensation for certain of the Company's executive
officers without the involvement of the Compensation Committee, as the
Compensation Committee had not yet been formed during those periods. Mr. Myers,
the Company's Chief Executive Officer and Chairman of the Board, Kenneth W.
Colbaugh, then serving as an Executive Vice President, Chief Financial Officer
and a Director of the Company, and Paula K. Myers, then serving as a Vice
President, Secretary and a Director of the Company, participated in the
deliberations regarding executive compensation for 1996 and 1997. During 1997,
Mr. Myers, Mr. Colbaugh and Mr. Lewis, each a Director of the Company,
participated in the deliberations regarding executive compensation for 1998.
During the fiscal year ended December 31, 1998, the Compensation Committee held
three meetings. None of the members of the Compensation Committee attended fewer
than 75% of the aggregate of the meetings of such Committee during the 1998
fiscal year.
9
DIRECTOR COMPENSATION
All Directors are elected annually and hold office until the next
Annual Meeting of Shareholders and until their successors are duly elected and
qualified. The Company's non-employee Directors receive $1,000 for each Board or
committee meeting attended and are reimbursed for out-of-pocket expenses
incurred in connection with attendance at Board and committee meetings.
The Company may also periodically award options to its Directors under
its 1997 Stock Option Plan. Options granted to non-employee Directors of the
Company under the Plan have a term not to exceed four years and an exercise
price in an amount determined by the Board of Directors or a committee thereof
administering the Plan. As of March 29, 1999, options to purchase an aggregate
of 594,000 shares of the Company's Common Stock had been issued under the Plan
to the Company's Directors and current executive officers, at exercise prices
ranging from $11.750 to $17.250 per share.
During the fiscal year ended December 31, 1998, the Company issued
options to purchase the following number of shares of its Common Stock to its
non-employee Directors: (i) Malcolm R. Currie - 30,000; (ii) James R. Mellor -
30,000; and (iii) J. Christopher Lewis - 21,000; each granted on January 29,
1998, vesting over a period of four years and exercisable at $12.00 per share
(the fair market value of the Company's Common Stock on the date such options
were granted).
The Company's Articles of Incorporation and the Bylaws provide for
indemnification of the Company's directors and executive officers to the extent
permissible under California law. The Company generally enters into agreements
to indemnify its directors and executive officers in addition to the
indemnification provided for in the Articles of Incorporation and Bylaws. Among
other things, these agreements provide that the Company will indemnify, subject
to certain requirements, the Company's directors and executive officers for
certain expenses (including attorneys' fees), judgments, fines and settlement
amounts incurred by such person in any action or proceeding, including any
action by or in the right of the Company, on account of services by such person
as a director or executive officer of the Company, or as a director or officer
of any other company or enterprise to which the person provides services at the
request of the Company.
10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 29,
1999, regarding the beneficial ownership of the Company's Common Stock by: (i)
all persons known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) each director and Named Executive Officer (as
hereinafter defined) of the Company, and (iii) all directors and executive
officers as a group.
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP (2) COMMON STOCK
- --------------------------------------- ------------------------ ------------
Steve S. Myers and Paula K. Myers,
Trustees of the Steven Myers and
Paula Mathis Revocable Trust,
dated June 24, 1992(3) 7,176,417 43.4%
Michael A. Piraino(3) 25,000 *
Kenneth W. Colbaugh and Robin E.
Colbaugh, Trustees of the K. and R.
Colbaugh Revocable Trust, dated
September 1, 1994(3) 648,485 3.9%
Ajaykumar K. Patel and Elizabeth Ann
Stillman(3)(4) 60,983 *
Thomas F. Heinsheimer, Trustee of the
Heinsheimer Living Trust dated July 17,
1968(3) 187,887 1.1%
Thomas J. Amrhein(3) 59,283 *
Richard J. Riordan(5) 1,283,892 7.8%
J. Christopher Lewis(5) 281,642 1.7%
James R. Mellor(3) 7,500 *
Malcolm R. Currie(3)(6) 21,100 *
All directors and executive officers
as a group (11 persons)(7) 7,904,565 47.5%
- -------------------
* Less than 1%
(1) Mr. Myers is the Chief Executive Officer and Chairman of the Board of the
Company; Mr. Piraino is the President, Chief Operating Officer and a
Director of the Company; Mr. Patel is the President and General Manager of
the Proposal Management Group of the Company; Dr. Heinsheimer is the Senior
Vice President and Chief Technical Officer of the Company; Mr. Amrhein is
the President and General Manager of the Systems Solutions Group of the
Company; and Messrs. Lewis, Mellor and Currie are Directors of the Company.
11
(2) Includes shares of Common Stock subject to stock options which were
exercisable as of March 29, 1999 or exercisable within 60 days after March
29, 1999, and are, respectively, as follows: Mr. Myers, 12,500 shares; Mr.
Piraino, 25,000 shares; Mr. Patel, 4,000 shares; Dr. Heinsheimer, 8,000
shares; Mr. Amrhein, 3,000 shares; Mr. Lewis, 5,250 shares; Mr. Mellor,
7,500 shares; Mr. Currie, 7,500 shares; and all directors and current
executive officers as a group, 91,031 shares.
(3) Address is c/o SM&A Corporation, 4695 MacArthur Court, Eighth Floor,
Newport Beach, California 92660.
(4) Includes 700 shares of the Company's Common Stock in the name of Catherine
Patel, Mr. Patel's daughter.
(5) Address is c/o Riordan, Lewis & Haden, 300 S. Grand Avenue, 29th Floor, Los
Angeles, California 90071.
(6) Includes 13,600 shares of the Company's Common Stock in the name of Freddie
Bear Partnership, and beneficially owned by Dr. Currie.
(7) Does not include 648,485 shares of the Company's Common Stock owned
beneficially by Kenneth W. Colbaugh, who resigned from the Company
effective February 1, 1999.
12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation paid to
the Company's Chief Executive Officer and each of the four other highest paid
executive officers of the Company who received an annual salary and bonus of
more than $100,000 for services rendered to the Company during the fiscal year
ended December 31, 1998 (the "Named Executive Officers").
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION(1)(8) UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) STOCK OPTIONS(#)(8) COMPENSATION
- ------------------------------------ ---------- ---------- ---------------- ------------
Steven S. Myers
Chief Executive Officer 707,675(2) -- 100,000(3) --
Kenneth W. Colbaugh
Former Executive Vice President and
Chief Operating Officer 358,597(4) -- -- --
Ajaykumar K. Patel
President and General Manager,
Proposal Management Group 200,000 46,381 26,000 --
Thomas J. Amrhein
President and General Manager,
Systems Solutions Group 269,188 72,203 20,000 24,574(5)
Thomas F. Heinsheimer
Senior Vice President, Chief
Technical Officer 268,340(6) 80,000 32,000 $23,294(7)
- --------------------
(1) Excludes perquisites and other personal benefits that, in the aggregate, do
not exceed the lesser of either $50,000 or 10% of the total annual salary
and bonus reported for the Named Executive Officer.
(2) This amount reflects $707,675 in salary actually paid to Mr. Myers. The
Company entered into an Employment Agreement with Mr. Myers for a period of
two years commencing November 21, 1997, providing for an annual salary of
$900,000, and providing that Mr. Myers is eligible to receive an annual
bonus not to exceed $900,000, at the discretion of the Compensation
Committee. The Compensation Committee adjusted Mr. Myers' compensation in
1998.
(3) In December 1998, Mr. Myers was granted 100,000 stock options in his
capacity as a Director and Chief Executive Officer of the Company pursuant
to the Company's 1997 Stock Option Plan.
(4) This amount represents $358,597 in salary actually paid to Mr. Colbaugh.
The Company entered into an Employment Agreement with Mr. Colbaugh for a
period of two years commencing November 21, 1997, providing for an annual
salary of $450,000, and providing that Mr. Colbaugh is eligible to receive
a bonus not to exceed $450,000, at the discretion of the Compensation
Committee. The Compensation Committee adjusted Mr. Colbaugh's compensation
in 1998. Mr. Colbaugh resigned effective February 1, 1999. The Employment
Agreement did not provide for severance benefits. See "Board Compensation
Committee Report on Executive Compensation."
(5) This amount represents $15,227 in commissions paid to Mr. Amrhein; $5,686
in relocation expenses; premiums paid by the Company in connection with Mr.
Amrhein's life insurance policy; and premiums paid by the Company under the
Company's health insurance plan.
(6) This amount represents $266,490 in salary paid to Dr. Heinsheimer and
$1,850 in accrued salary not yet paid to him.
(7) This amount represents $20,249 in commissions paid to Dr. Heinsheimer and
$3,045 in accrued commissions not yet paid to him.
(8) Michael A. Piraino was elected President and Chief Operating Officer of the
Company effective February 1999. The Company entered into an Employment
Agreement with Mr. Piraino, providing for an annual salary of $300,000 plus
discretionary bonus compensation of up to $300,000. In addition, Mr.
Piraino was granted 300,000 stock options in connection with his Employment
Agreement.
13
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table provides certain information concerning stock
options granted to the Named Executive Officers during the fiscal year ended
December 31, 1998. This information includes hypothetical potential gains from
stock options granted in the 1998 fiscal year. These hypothetical gains are
based solely on assumed annual growth rates of 5% and 10% in the value of the
Company's Common Stock price over the ten-year life of the stock options granted
in 1998. These assumed rates of growth were selected by the Securities and
Exchange Commission for illustration purposes only, and are not intended to
predict future stock prices, which will depend upon market conditions and the
Company's future performance and prospects.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SHARES OF TOTAL OPTIONS PRICE APPRECIATION
COMMON STOCK GRANTED TO EXERCISE OR FOR OPTION TERM(2)
UNDERLYING EMPLOYEES DURING BASE PRICE EXPIRATION -----------------------
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE(1) DATE 5% ($) 10% ($)
---- --------------- ---------------- ------------ -------- --------- ---------
Steven S. Myers 100,000(3) 7.18% $11.750 12/9/03 58,750 117,500
Kenneth W. Colbaugh -- -- -- -- -- --
Ajaykumar K. Patel 16,000(4) 1.15% 12.000 1/29/03 9,600 19,200
10,000(4) 0.72% 15.875 10/1/03 7,938 15,875
Thomas J. Amrhein 12,000(4) 0.86% 12.000 1/29/03 7,200 14,400
8,000(4) 0.57% 15.875 10/1/03 6,350 12,700
Thomas F. Heinsheimer 32,000(4) 2.30% 12.000 1/29/03 19,200 38,400
- -----------------------
(1) The options were granted at an exercise price equal to the fair market
value of the Common Stock on the date of grant. The exercise price may be
paid by delivery of cash or already owned shares, subject to certain
conditions. As of March 29, 1999, the last sale price of the Company's
Common Stock as quoted on The Nasdaq Stock Market was $9.875.
(2) Pursuant to applicable regulations, these amounts represent certain assumed
rates of appreciation only. Actual gain, if any, on stock option exercises
are dependent on the future performance of the Common Stock and overall
stock market conditions. The amounts reflected in this table may not
necessarily be achieved.
(3) Such options vest in eight equal quarterly installments commencing March 9,
1999, and expire five years from the date of grant.
(4) These stock options vest in four equal annual installments commencing one
year from the date of grant, and expire five years from the date of grant.
14
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides certain information regarding stock
options exercised by the Named Executive Officers during the fiscal year ended
December 31, 1998, as well as the number of exercisable and unexercisable
in-the-money stock options and their values at fiscal year-end. An option is
in-the-money if the fair market value for the underlying securities exceeds the
exercise price of the option.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1999 DECEMBER 31, 1999(1)
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
Steven S. Myers -- -- --/100,000 --/$725,000
Kenneth W. Colbaugh -- -- -- --
Ajaykumar K. Patel -- -- --/26,000 --/$143,250
Thomas J. Amrhein -- -- --/20,000 --/$109,000
Thomas F. Heinsheimer -- -- --/32,000 --/$224,000
- --------------------
(1) Calculated on the basis of $19.00, the closing price of the Company's
Common Stock on December 31, 1998, minus the exercise price of the option,
multiplied by the number of shares subject to the option.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
In November 1997, the Company entered into an Employment Agreement with
each of (i) Steven S. Myers, then President, Chief Executive Officer and
Chairman of the Board of the Company, and (ii) Kenneth W. Colbaugh, then
Executive Vice President, Chief Operating Officer and a Director of the Company.
Each Employment Agreement provides for a two year term, participation in the
Company's Executive Bonus Plan, and a severance benefit payment equal to twice
the annual salary upon a termination of the employee by the Company without
"cause" as defined therein. The annual salary of Mr. Myers and Mr. Colbaugh
under their respective Employment Agreements is $900,000 and $450,000,
respectively. See "Board Compensation Committee Report on Executive
Compensation."
Michael A. Piraino was elected President and Chief Operating Officer of the
Company effective February 1999. Mr. Colbaugh resigned as Executive Vice
President, Chief Operating Officer and a Director of the Company effective
February 1999, thereby terminating his Employment Agreement with the Company. No
severance payment was made to Mr. Colbaugh.
15
CERTAIN TRANSACTIONS
In September 1998, Space Applications Corporation ("SAC"), then a
wholly-owned subsidiary of the Company, entered into a Common Stock Purchase
Agreement with Summit Aviation, Inc. ("Summit"), a company wholly owned by
Steven S. Myers, the Company's Chief Executive Officer, pursuant to which Summit
purchased from SAC 4,500 shares of common stock of Savant Corporation
("Savant"), for an aggregate purchase price of $2,000,000, of which $200,000 was
paid in cash and the remaining $1,800,000 was paid by a promissory note
guaranteed by Mr. Myers (the "Note"). The Note bears interest at a rate of nine
percent (9%) per annum, and is payable in thirty (30) equal monthly installments
of $30,000 each, commencing October 31, 1998, with a final balloon payment of
all outstanding principal and interest owing due and payable on March 31, 2001.
The largest aggregate amount of indebtedness outstanding at any time since the
beginning of the Company's 1998 fiscal year in connection with this transaction
was $1,800,000. As of March 1999, the amount outstanding was $1,699,125.
The Agreement provides that, if substantially all of the assets of Savant
are sold, or if 50% or more of the common stock purchased in the transaction is
sold or exchanged in a merger or other reorganization (a "Sale Transaction"),
within six months of the date of the Agreement, Mr. Myers would pay to SAC an
amount equal to 50% of any amount in excess of $2,000,000 ("Excess Proceeds")
payable to Mr. Myers in connection with the Sale Transaction. If the Sale
Transaction occurred after six months but within twelve months of the date of
the Agreement, Mr. Myers would be required to pay to SAC an amount equal to 25%
of any Excess Proceeds. The Note would become payable upon the Sale Transaction
if such sale resulted in a payment obligation to Mr. Myers equal to or greater
in value than the original principal balance of the Note. The terms of the
Agreement were approved by the Company's Board of Directors and considered to be
as favorable as would have been obtained from an unaffiliated third party. In
December 1998, SAC merged into SM&A Corporation (East), a wholly-owned
subsidiary of the Company.
In June 1998, the Company sold its Turbo Commander aircraft to Summit for
$880,000 represented by a promissory note secured by a first priority security
interest on the aircraft. The note bears interest at a rate of 8.5% per annum,
and is due and payable in full no later than June 25, 1999. The largest
aggregate amount of indebtedness outstanding at any time since the beginning of
the Company's 1998 fiscal year in connection with this transaction was $916,000.
As of March 1999, the amount outstanding was $934,000, which includes $880,000
in principal and $54,000 in accrued interest. The terms of such sale were
considered by the Company's Board of Directors to be as favorable as would have
been obtained from an unaffiliated third party.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1998, the members of the
Compensation Committee were J. Christopher Lewis and James Mellor, both of whom
are non-employee directors of the Company. Neither of the members of the
Compensation Committee was, at any time during fiscal 1998 or at any other time,
an officer or employee of the Company. There are no Compensation Committee
interlocks between the Company and other entities involving the Company's
executive officers and Board members who serve as executive officers or Board
members of such other entities.
16
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors
hereby submits its report concerning the compensation policies of the Company.
The Committee oversees the general compensation plan of the Company, sets the
specific compensation of Steven S. Myers, the Company's Chief Executive Officer,
and Kenneth W. Colbaugh, the Company's former Chief Operating Officer (the
"Senior Executives"), reviews the Chief Executive Officer's recommendations for
compensation levels for other executive officers, and oversees the Company's
stock incentive plans. The Committee is comprised of two non-employee directors
who have no interlocking relationships as defined by the Securities and Exchange
Commission.
Compensation Policy and Philosophy
- ----------------------------------
The Company's executive compensation program is designed to align executive
compensation with the Company's business strategy and performance. The goals of
the executive compensation program are: (i) to attract and retain key executives
critical to the success of the Company; (ii) to provide levels of compensation
which are competitive with other companies of similar size and service
offerings; and (iii) to motivate executives to enhance long-term shareholder
value by building appropriate ownership in the Company.
Executive Compensation Components
- ---------------------------------
The Company's executive compensation package is comprised of three
components: base salary, annual incentive bonuses and stock options.
Base salaries are the fixed component of the executive officers'
compensation package. For fiscal 1998, the Compensation Committee approved the
base salaries of the Senior Executives based on (i) salaries paid to executive
officers with comparable responsibilities and employed by companies with
comparable businesses, (ii) performance and profitability of the Company in
fiscal 1997, and (iii) individual performance in fiscal 1997. The Compensation
Committee reviews Senior Executives' salaries annually and exercised its
judgment based on all of the factors described above in making its decisions.
For all other executives, the Committee reviews the Chief Executive Officer's
recommendations for base salaries and attempts to establish levels that are
consistent with similar companies. No specific formula is applied to determine
the weight of each criteria.
The award of any bonuses to Senior Executives by the Committee is based
upon the audited financial results of the Company as compared to the financial
goals set by the Company. Additionally, the Committee reviews bonuses for other
executives, which are recommended by the Chief Executive Officer and are based
on the individual's contribution to the Company.
A substantial portion of the compensation of executive officers is based
upon the award of stock options which rely on increases in the value of the
Company's Common Stock. The issuance of options is intended to encourage such
employees to establish a meaningful, long-term ownership interest in the Company
consistent with the interests of the Company's shareholders. Under the Company's
stock option plan, options are granted from time to time to certain officers,
directors and key employees of the Company and its subsidiaries at the fair
market value of the Company's Common Stock at the time of grant. Because the
compensation element of options is dependent on increases over time in the
market value of such shares, stock options represent compensation that is tied
to the Company's long-term performance.
17
Stock options covering 513,000 shares of the Company's Common Stock were
granted to the Company's current executive officers and stock options covering
960,700 shares of the Company's Common Stock were granted to other employees or
directors of the Company during fiscal 1998 under the Company's 1997 Stock
Option Plan. The number of options granted to each executive officer or employee
was based primarily on the executive's or employee's ability to influence the
Company's long-term growth and profitability. The Compensation Committee
believes that option grants afford a desirable long-term compensation method
because they closely ally the interests of management with shareholder value and
motivate executive officers to improve long-term stock market performance.
Compensation of Senior Executives
- ---------------------------------
In November 1997, the Company entered into two-year employment agreements
with Steven S. Myers, the Company's Chief Executive Officer, and Kenneth W.
Colbaugh, the Company's Chief Operating Officer, which provided for an annual
base salary of $900,000 and $450,000, respectively. In addition, Mr. Myers and
Mr. Colbaugh were eligible to receive, at the discretion of the Compensation
Committee, a bonus not to exceed $900,000 and $450,000, respectively, and the
grant of stock options pursuant to the Company's 1997 Stock Option Plan. During
1998, the Committee adjusted Mr. Myers' and Mr. Colbaugh's salaries to $550,000
and $120,000, respectively. These salary levels are more consistent with
compensation levels of similar companies, and the adjustment permitted the
Company to add to its senior management team without incurring increased
compensation expense. In 1998, the Senior Executives did not receive bonuses. In
addition to his base salary, Mr. Myers received options to purchase 100,000
shares of the Company's Common Stock, at the closing price of the Company's
Common Stock on the date of grant, subject to a two-year vesting schedule.
COMPENSATION COMMITTEE:
J. Christopher Lewis
James R. Mellor
INTERESTS OF CERTAIN PERSONS IN MATTER TO BE ACTED UPON
The following Directors and executive officers of the Company have received
options to purchase shares of the Company's Common Stock pursuant to the
Company's 1997 Stock Option Plan, and are eligible to participate in such Plan
in the future and to receive option grants thereunder: Steven S. Myers, Michael
A. Piraino, Steven R. Mast, Ajaykumar K. Patel, Thomas F. Heinsheimer, James F.
Madewell, Calvin Gegner, Thomas J. Amrhein, J. Christopher Lewis, James F.
Mellor and Malcolm R. Currie.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock, based on its market price, with the
cumulative total return of companies on The Nasdaq Stock Market (U.S. common
stocks) and peer group including Hagler Bailly, Inc. (HBIX), Maximus Inc. (MMS)
and Metzler Group, Inc. (METZ), assuming reinvestment of dividends, for the
period beginning January 30, 1998 through the Company's fiscal year ended
December 31, 1998. The Company's Common Stock was initially offered to the
public on January 29, 1998. This graph assumes that the value of the investment
in the Company's Common Stock and each of the comparison groups was $100 on
January 30, 1998.
EDGAR REPRESENTATION OF
DATA POINTS USED IN
PRINTED GRAPHIC
JANUARY 29, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998 1998
---- ---- ---- ---- ----
SM&A Corporation.......................... $100.00 $148.00 $160.00 $144.00 $158.00
Peer Group................................ $100.00 $112.00 $118.00 $111.00 $145.00
Nasdaq Market Index....................... $100.00 $113.00 $117.00 $106.00 $137.00
[DATA ABOVE IS REPRESENTED AS A GRAPH HERE]
18
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO THE 1997 STOCK OPTION PLAN
On January 22, 1999, the Board of Directors approved, subject to the
approval of the shareholders, an amendment to the Company's 1997 Stock Option
Plan (the "Option Plan") that would increase the number of shares of Common
Stock underlying options that may be granted under the Option Plan from its
present number of 1,500,000 shares to 2,500,000 shares. As of March 29, 1999,
there were 38,507 shares available for future grant under the Option Plan.
The Board of Directors believes that adding shares to the Option Plan
is in the best interests of the Company because it will permit the Company to
attract and retain employees by providing them with appropriate equity
incentives. The Option Plan plays an important role in the Company's efforts to
attract and retain employees of outstanding ability. In addition, the Company
considers acquisitions as a part of its business strategy. Because the
acquisitions may involve both the issuance of additional shares and options to
acquire shares of Common Stock as consideration, and an increase in the number
of employees, the Board of Directors considered it appropriate to increase the
number of shares of Common Stock issuable pursuant to stock options that may be
granted under the Option Plan.
The following is a general summary of the Option Plan which is
qualified in its entirety by reference to the full text of the Option Plan,
attached to this Proxy Statement as Exhibit A.
SHARES SUBJECT TO THE OPTION PLAN
The stock available for issuance under the Option Plan consists of
shares of the Company's authorized but unissued Common Stock. The Board of
Directors originally reserved an aggregate of 1,500,000 shares of Common Stock
for issuance under the Option Plan. If the Company's shareholders approve the
amendment to the Option Plan, the maximum number of shares that may be issued
under the Option Plan will be 2,500,000 shares. If any previously granted option
expires or otherwise terminates, in whole or in part, without having been
exercised in full, the stock not issued under such option will revert to and
again become available for issuance under the Option Plan. The number of shares
issuable pursuant to the Option Plan, and the exercise price of such options, is
subject to proportional adjustment to reflect stock splits, stock dividends,
mergers, consolidations, and similar events.
ELIGIBILITY FOR PARTICIPATION
Options granted under the Option Plan may be either "incentive stock
options" (which qualify for special tax treatment under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")) or nonstatutory stock
options. Employees, including officers and directors who are employees, of the
Company and its subsidiaries (an "Eligible Employee"), may be granted either
incentive or nonstatutory stock options. However, members of the Board of
Directors who are not officers or employees of the Company or its subsidiaries,
and consultants to the Company and its subsidiaries (together, an "Eligible
Director or Consultant"), may only be granted nonstatutory stock options.
As of March 29, 1999, approximately 574 persons were eligible to
participate in the Option Plan, and 1,461,493 shares were subject to outstanding
options.
19
ADMINISTRATION
The Option Plan is administered by the Board of Directors or by a
committee of non-employee directors designated by the Board of Directors.
Subject to the terms of the Option Plan, the Board of Directors determines the
persons who are to receive awards, the number of shares subject to each such
award, and the terms and conditions of such awards.
EXERCISE OF OPTIONS
The Board of Directors or committee thereof may provide that the total
number of shares of stock subject to an option may vest and become exercisable
in periodic installments.
The exercise price of any incentive stock option granted under the
Option Plan may not be less than the fair market value of the shares of Common
Stock underlying such option, determined as of the date of grant. If an Eligible
Employee possesses at least 10% of the total combined voting power of all
classes of the Company's stock at the time of grant of an incentive stock option
(a "10% Eligible Employee"), the exercise price may not be less than 110% of the
fair market value of the Common Stock underlying the option, determined as of
the date of grant. The exercise price of nonstatutory stock options may be more
or less than, or equal to, the fair market value of the underlying Common Stock.
The exercise price of an option may be paid in cash or, at the discretion of the
Board of Directors or committee, through the delivery of other shares of Common
Stock of the Company or delivery to the Company of all or part of an option
granted under the Option Plan for cashless exercise. The Board of Directors or
committee may provide for other methods of payment upon the exercise of an
option.
As of March 29, 1999, the aggregate fair market value of shares of
Common Stock subject to outstanding options under the Option Plan was
$14,432,243, based upon the closing sale price of such stock on The Nasdaq Stock
Market on such date.
EXPIRATION OF OPTIONS
No option granted under the Option Plan may be made exercisable after
the expiration of ten years from the date such option is granted. In addition,
any option granted to a 10% Eligible Employee may not be made exercisable after
the expiration of five years from the date the option is granted.
TERMINATION OF EMPLOYMENT. Before the expiration date of an option,
such option is exercisable by an Eligible Employee or Eligible Director or
Consultant while such person continues to be employed by, or is performing
services for, the Company or its subsidiaries. Upon the termination of an
Eligible Employee's employment or the termination of an Eligible Director or
Consultant's relationship with the Company or its subsidiaries (other than
termination by death or disability), an option may be exercised (to the extent
exercisable at the date of termination) within the earlier of ninety (90) days
after such termination of employment or relationship, or the expiration date of
the option as provided in the option agreement.
DEATH OR DISABILITY. In the event an Eligible Employee's employment or
Eligible Director or Consultant's relationship with the Company or its
subsidiaries terminates by reason of disability, the option may be exercised (to
the extent exercisable at the date of termination) within the earlier of six (6)
months following such termination or the expiration date of the option as
provided in the option agreement. Following the death of an Eligible Employee or
Eligible Director or Consultant, the option may be exercised (to the extent
exercisable at the date of death) by the optionee's estate on the earlier of
twelve (12) months from the date of death or the expiration date of such option
as provided in the option agreement.
20
Options which are not exercisable by an Eligible Employee or Eligible
Director or Consultant at the time of termination of employment or termination
of relationship with the Company or its subsidiaries will terminate as of the
date of termination of employment or relationship, and will not be exercisable.
CORPORATE CHANGE
Upon a dissolution, liquidation or sale of substantially all of the
assets of the Company, a merger or consolidation in which the Company is not the
surviving entity, or a reverse merger in which the Company is the surviving
entity, but the shares of Common Stock of the Company are converted into other
property (collectively, a "Corporate Change"), the surviving entity must assume
any outstanding options under the Option Plan or substitute similar options for
such options, or the options will remain in full force and effect. If the
surviving entity refuses to continue such options or substitute similar options,
then the time in which such options are exercisable will be accelerated and the
options will terminate to the extent not exercised prior to the occurrence of a
Corporation Change.
AMENDMENTS
The Board of Directors may amend, suspend or terminate the Option Plan,
provided that any amendment changing the rights and obligations under any option
granted pursuant to the Option Plan must be approved by the person to whom such
option was granted.
TERM OF OPTION PLAN
Unless terminated earlier as provided in the Option Plan, the Option
Plan will terminate on October 1, 2007, which is ten years from the date the
Option Plan was adopted by the Board.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Upon the grant of an incentive stock option,
the optionee will not recognize any taxable income and the Company will not be
entitled to a tax deduction. Upon the exercise thereof while the optionee is
employed by the Company or a subsidiary or within three (3) months after
termination of employment, the optionee will not recognize taxable income if
certain holding period requirements under the Code are met; however, under
certain circumstances, the excess of the fair market value of the shares of
Common Stock acquired upon such exercise over the exercise price may be subject
to the alternative minimum tax.
If the shares of Common Stock acquired pursuant to the exercise of an
incentive stock option are held for at least two (2) years from the date of
grant and at least one (1) year from the date of exercise, the optionee's gain
or loss upon a disposition of such shares of Common Stock will be a long-term
capital gain or loss equal to the difference, if any, between the sale price and
the purchase price of the shares. If the optionee satisfies such holding periods
upon a sale of the shares, the Company will not be entitled to any deduction for
federal income tax purposes. If such shares are disposed of prior to the
expiration of these holding periods, the optionee will recognize ordinary income
on certain amounts in excess of the option price and the Company will be
entitled to a corresponding tax deduction.
NONSTATUTORY OPTIONS. Upon the grant of a nonstatutory option, the
optionee will not recognize any taxable income. Upon the exercise thereof, the
optionee will recognize taxable income in an amount equal to the difference
between (i) the fair market value of the shares of Common Stock acquired upon
such exercise, and (ii) the exercise price. At that time, the Company will be
entitled to a corresponding tax deduction. Upon a subsequent disposition of
shares of Common Stock acquired upon the exercise of a nonstatutory option, the
optionee will recognize long-term or short-term capital gain or loss, depending
on the holding period of such shares.
21
NEW PLAN BENEFITS
As stated above, the Board or a committee thereof has the authority to
determine the amounts, terms and grant dates of options to be granted in the
future to Eligible Employees or Eligible Directors or Consultants under the
Option Plan. To date, no such determinations have been made and, as a result, it
is not possible to state such information.
The following table sets forth information concerning stock options
granted pursuant to the Option Plan from January 1, 1998 through December 31,
1998 to (1) the Named Executive Officers,, (ii) all current executive officers
as a group, (iii) all current directors who are not executive officers as a
group, and (iv) all employees, including all current executive officers who are
not executive officers, as a group.
NO. OF SHARES AVERAGE
SUBJECT TO EXERCISE PRICE
NAME TITLE OPTIONS GRANTED(#) PER SHARE($)
---- ----- ------------------ --------------
Steven S. Myers Chief Executive Officer, Chairman of 100,000 11.750
the Board, Director Nominee
Kenneth W. Colbaugh Former Executive Vice President,
Chief Operating Officer, Director -- --
Ajaykumar K. Patel President and General Manager, Proposal
Management Group 26,000 13.938
Thomas F. Heinsheimer Senior Vice President, Chief Technical
Officer 32,000 12.000
Thomas J. Amrhein President and General Manager,
Systems Solutions Group 20,000 13.938
All current executive
officers as a group
(8 persons) 513,000 13.688
All current directors
(other than executive
officers) as a group
(3 persons) 81,000 12.000
All employees (including all
officers who are not
executive officers) as a
group (approximately 559
persons) 879,700 14.369
No person other than those individuals set forth above was granted five
percent or more of the total amount of options granted under the Plan during
that period.
The affirmative vote of a majority of the shares of Common Stock
present in person or by proxy at the Annual Meeting and entitled to vote is
required to approve amendment of the Option Plan.
22
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL
OF AMENDMENT OF THE OPTION PLAN. PROXIES AND VOTING
INSTRUCTIONS WILL BE VOTED IN FAVOR OF THE APPROVAL
OF THE AMENDMENT OF THE OPTION PLAN UNLESS THE
SHAREHOLDER SPECIFIES OTHERWISE.
PROPOSAL NO. 3
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
On January 22, 1999, the Board of Directors approved an Employee Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan authorizes the issuance
of 250,000 shares of the Company's Common Stock. Participants in the Purchase
Plan will be permitted to purchase shares of the Company's Common Stock directly
from the Company by authorizing payroll withholdings over a predetermined period
(each, an "Offering Period"), and purchasing such shares at the end of each
Offering Period with the payroll amounts withheld. Such purchase rights will be
granted solely to eligible employees of the Company and its subsidiaries. The
Purchase Plan is intended to be an "employee stock purchase plan" as defined in
Section 423 of the Code.
The Purchase Plan was adopted by the Board of Directors to provide a
means by which employees of the Company and its subsidiaries will be given an
opportunity to purchase stock in the Company at a discount from the market
price, to attract and retain employees, and to increase employee morale.
The following is a general summary of the Purchase Plan which is
qualified in its entirety by reference to the full text of the Purchase Plan,
attached to this Proxy Statement as Exhibit B.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors, or a
committee thereof, which has the final power to construe and interpret the
Purchase Plan and the rights granted under it. The Board of Directors has the
power, subject to the provisions of the Purchase Plan, to interpret and apply
the Purchase Plan and to establish rules and procedures for the administration
of its responsibilities under the Purchase Plan.
SHARES SUBJECT TO THE PURCHASE PLAN
The maximum number of shares of Common Stock that will be made
available for sale under the Purchase Plan will be 250,000, subject to
proportional adjustment to reflect stock splits, stock dividends, mergers,
consolidations, and similar events. The shares to be sold to the Participants
will be issued by the Company. In the event that insufficient shares of Common
Stock are available under the Purchase Plan for a full allocation of shares to
all Participants (as defined herein) on a Purchase Date (as defined herein), the
Company will make a pro rata allocation of the shares remaining available for
issuance, and return to each Participant any unused payroll deductions.
23
ELIGIBILITY
Any person currently employed by the Company or its subsidiaries, any
portion of whose income is subject to withholding of income tax or for whom
Social Security retirement contributions are made by the Company or its
subsidiaries (an "Employee") may participate in the Purchase Plan.
Notwithstanding the foregoing, no Employee is eligible for the grant of
any rights under the Purchase Plan if, immediately after such grant, such
Employee would own, directly or indirectly, stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company or
its subsidiaries (including any stock which such Employee may purchase under all
outstanding rights and options). In addition, no Employee may be granted rights
that would permit such Employee to buy more than $20,000 worth of Common Stock
(determined at the fair market value of the Common Stock on the first day of an
Offering Period) under all employee stock purchase plans of the Company in any
calendar year, and no Employee may purchase more than 5,000 shares of Common
Stock on each Purchase Date under the Purchase Plan.
As of the March 29, 1999, approximately 600 of the Company's employees
were eligible to participate in the Purchase Plan.
PARTICIPATION IN THE PURCHASE PLAN
An Employee who has satisfied the eligibility requirements may
participate in the Purchase Plan (a "Participant") by delivering a stock
purchase agreement to the Company, authorizing payroll deductions and
designating the amount of payroll deductions to be made from the Participant's
paycheck. The amount of payroll deductions must be in whole percentages, not to
exceed 15%. Payroll deductions will begin on the first day of each Offering
Period (January 1 and July 1) (an "Enrollment Date") following the filing of a
stock purchase agreement with the Company.
The Company will establish and maintain a separate account for each
Participant (the "Account"), and all payroll deductions made for a Participant
are credited to such Participant's Account and deposited with the general funds
of the Company. No interest will be paid or allowed on amounts credited to a
Participant's Account, and a Participant may not make any additional payments in
such account.
On the last day of each Offering Period (June 30 and December 31) (a
"Purchase Date"), each Participant will have the right to purchase from the
Company, at the purchase price discussed below, that number of whole shares of
Common Stock that can be purchased or issued by the Company with the amounts
held in such Participant's Account.
24
PURCHASE OF SHARES UNDER THE PURCHASE PLAN
A Participant who does not, prior to a Purchase Date, notify the
Company that such Participant does not want to purchase any shares of Common
Stock pursuant to the Purchase Plan or that such Participant wants to purchase
fewer than the maximum number of shares available for purchase, will be deemed
to elect to purchase the maximum number of whole shares of Common Stock
purchasable with the amounts held in such Participant's Account. Any amounts in
an Account not used on a Purchase Date will remain in such Account and be
eligible to purchase Common Stock on a subsequent Purchase Date.
PURCHASE PRICE
The purchase price for the Common Stock purchased pursuant to the
Purchase Plan (the "Purchase Price") shall be the lesser of (i) 85% of the Fair
Market Value of the Common Stock on the Enrollment Date, or (ii) 85% of the Fair
Market Value of the Common Stock on the Purchase Date.
The "Fair Market Value" means the value of the Common Stock determined
as follows:
(a) If the Company Stock is listed or admitted to trading on
The Nasdaq National Market or a stock exchange which reports closing
sale prices, the Fair Market Value shall be the closing sale price for
such stock on the date of valuation on The Nasdaq National Market or
principal stock exchange on which the Common Stock is then listed or
admitted to trading, or, if no closing sale price is quoted or no sale
takes place on such day, then the Fair Market Value shall be the
closing sale price of the Common Stock on The Nasdaq National Market or
such exchange on the next preceding day on which a sale occurred.
(b) If the Common Stock is not then listed or admitted to
trading on The Nasdaq National Market or a stock exchange which reports
closing sale prices, the Fair Market Value shall be the average of the
closing bid and asked prices of the Common Stock in the
over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the
administrator in good faith using any reasonable method of valuation,
which determination shall be conclusive and binding.
As of March 29, 1999, the closing price of the Company's Common Stock
on The Nasdaq National Market was $9.875 per share.
WITHDRAWAL
A Participant may withdraw the amounts held in such Participant's
Account at any time prior to the Purchase Date of an Offering Period by
delivering a written notice of withdrawal to the Company. The entire balance of
the Account will be paid to the Participant, and the Participant will cease to
participate in the Plan for the remainder of the Offering Period in which the
withdrawal notice was given. However, such Participant may be reinstated for a
subsequent Offering Period by delivering a new stock purchase agreement to the
Company.
25
EXPIRATION OF RIGHTS
A Participant's participation in the Purchase Plan terminates upon
termination of such Participant's employment with the Company or its
subsidiaries for any reason. Upon such termination, the entire balance of such
Participant's Account will be paid to the Participant or his or her beneficiary,
without interest.
A Participant may designate a beneficiary who is to receive any shares
of Common Stock purchased under the Purchase Plan or any cash from the
Participant's Account in the event of such Participant's death. If no
beneficiary is designated, any cash or shares will be delivered to the executor
or administrator of the Participant's estate.
CORPORATE CHANGE
Upon a merger or consolidation in which the Company is not the
surviving entity, or the sale of substantially all of the assets of the Company
or a reverse merger in which the Company is the surviving entity (a "Corporate
Change"), either (i) the surviving corporation shall assume the rights
previously granted pursuant to the Purchase Plan or substitute new rights
covering the shares of the successor corporation, with appropriate adjustments
to the number and kind of shares and prices, or (ii) the Purchase Plan and
rights previously granted pursuant to the Purchase Plan will continue in full
force. If a surviving corporation refuses to assume or continue the Purchase
Plan, or to substitute similar options, then any rights outstanding will be
exercised automatically as if the effective date were a Purchase Date, unless a
Participant withdraws from the Purchase Plan prior to the effective date.
AMENDMENTS AND TERMINATION
The Company may amend, modify or terminate the Purchase Plan at any
time. Unless terminated earlier pursuant to the terms of the Purchase Plan, the
Purchase Plan will terminate on December 31, 2008. Upon termination of the
Purchase Plan, all benefits will become payable immediately.
The Company may make the following amendments to the Purchase Plan,
provided that the Company obtain the prior approval of the Company's
shareholders:
(a) Amendments that increase the number of shares of Common
Stock that may be issued under the Purchase Plan;
(b) Amendments that materially modify the eligibility
requirements for participation in the Purchase Plan; and
(c) Amendments that increase the benefits that accrue to
Participants under the Plan.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable other than
by will or the laws of descent and distribution, and during an Employee's
lifetime, may be exercised only by the Employee to whom such rights are granted.
26
FEDERAL INCOME TAX INFORMATION
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Code. Under the Code, no income
will be taxable to a Participant at the time the shares of Common Stock are
purchased from the Company pursuant to the Purchase Plan, and no income will be
taxable to a Participant until disposition of the shares acquired. The method of
taxation upon disposition will depend upon the holding period of the purchased
shares.
If the Common Stock is disposed of at least two (2) years after the
date the option is granted to the Participant and at least one (1) year after
the stock is transferred to the Participant, then the lesser of (a) the 15%
excess of the Fair Market Value of the Common Stock at the time the option was
granted over the Purchase Price, or (b) the excess of the Fair Market Value of
the Common Stock at the time of the disposition over the Purchase Price, will be
treated as ordinary income. Any further gain or any loss will be taxed as
capital gain or loss.
If the Common Stock is disposed of before the expiration of either of
the holding periods described above (a "Disqualifying Disposition"), then the
entire excess of the Fair Market Value of the stock on the Purchase Date over
the Purchase Price will be treated as ordinary income at the time of such
disposition. The balance of any gain will be treated as capital gain. Even if
the Common Stock is disposed of for less than the Fair Market Value on the
Purchase Date, the same amount of ordinary income is attributed to the
Participant, and a capital loss is recognized equal to the difference between
the sale price and the Fair Market Value of the stock on the Purchase Date.
There are no federal income tax consequences to the Company by reason
of the grant or purchase of rights under the Purchase Plan. The Company will be
entitled to a deduction, however, to the extent that a Participant recognizes
ordinary income on a Disqualifying Disposition of the shares.
NEW PLAN BENEFITS
Participation in the Purchase Plan is voluntary and is dependent upon
each eligible Employee's election to participate and his or her determination as
to the level of payroll deductions. Accordingly, future purchases under the
Purchase Plan are not determinable.
The affirmative vote of a majority of the shares of Common Stock
present in person or by proxy at the Annual Meeting and entitled to vote is
required to approve the Purchase Plan.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL
OF ADOPTION OF THE PURCHASE PLAN. PROXIES AND VOTING
INSTRUCTIONS WILL BE VOTED IN FAVOR OF THE APPROVAL
OF THE ADOPTION OF THE PURCHASE PLAN UNLESS
THE SHAREHOLDER SPECIFIES OTHERWISE.
27
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
KPMG LLP was engaged as the Company's independent accountants during
its fiscal year ended December 31, 1998, and has been appointed by the Board of
Directors to continue as the Company's independent accountants for the fiscal
year ending December 31, 1999. Although ratification by shareholders is not a
legal prerequisite to the Board of Directors' selection of KPMG LLP as the
Company's independent accountants, the Company believes such ratification to be
appropriate. In the event the shareholders do not ratify such appointment, the
Board of Directors will reconsider its selection. KPMG LLP has audited the
Company's financial statements for the fiscal years ending December 31, 1996,
1997 and 1998. The Board of Directors expects that representatives of KPMG LLP
will be present at the Annual Meeting and will have the opportunity to make a
statement if they so desire, and are expected to be available to respond to
appropriate questions.
The affirmative vote of a majority of the shares of Common Stock
present in person or by proxy at the Annual Meeting and entitled to vote is
required to ratify the appointment of KPMG LLP as the Company's independent
accountants.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF THE INDEPENDENT ACCOUNTANTS. PROXIES
AND VOTING INSTRUCTIONS WILL BE VOTED IN FAVOR OF THE
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
ACCOUNTANTS UNLESS THE SHAREHOLDER
SPECIFIES OTHERWISE.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, and the
regulations thereunder, requires the Company's directors, executive officers and
persons who own more than ten percent (10%) of a registered class of the
Company's equity securities ("Reporting Persons"), to file reports of securities
ownership and changes in such ownership with the Securities and Exchange
Commission (the "SEC"). Such persons are also required by rules promulgated by
the SEC to furnish the Company with copies of all Section 16(a) forms they file
with the SEC.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during its fiscal year ended December 31, 1998, all
Reporting Persons complied with all applicable filing requirements, with the
following exceptions: (a) a Statement of Changes in Beneficial Ownership on Form
4 prepared on behalf of Kenneth W. Colbaugh, a Director and executive officer of
the Company during such fiscal year, to report Mr. Colbaugh's stock sale in
October 1998, was not timely filed; and (b) a Statement of Changes in Beneficial
Ownership on Form 4 prepared on behalf of Thomas F. Heinsheimer, an executive
officer of the Company, to report Dr. Heinsheimer's stock sale in October 1998,
was not timely filed.
The delinquent forms referred to in the foregoing paragraph were
subsequently filed.
28
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders are advised that any shareholder proposal intended for
consideration at the next Annual Meeting must be received by the Company at the
address set forth on the first page of this Proxy Statement no later than
December 20, 1999 to be included in the proxy material for the 2000 Annual
Meeting. It is recommended that shareholders submitting proposals direct them to
the Secretary of the Company and utilize certified mail, return-receipt
requested in order to ensure timely delivery.
OTHER MATTERS
The Board of Directors knows of no matter to come before the Annual
Meeting other than as specified herein. If other business should, however, be
properly brought before such meeting the persons voting the proxies will vote
them in accordance with their best judgment.
THE SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND PROMPTLY RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ Steven R. Mast, Secretary
Newport Beach, California
April 19, 1999
29
EXHIBIT A
SM&A CORPORATION
AMENDED
1997 STOCK OPTION PLAN
NOTICE: QUALIFIED OPTIONS UNDER THIS PLAN BEAR RESTRICTIONS GOVERNED BY SECTION
422 OF THE INTERNAL REVENUE CODE. PLAN PARTICIPANTS ARE URGED TO READ SECTION
422 AND TO UNDERSTAND THE RESTRICTIONS CONTAINED THEREIN. NOT ALL SECTION 422
RESTRICTIONS ARE REFERENCED IN THIS PLAN. OPTIONS GRANTED HEREUNDER MAY BEAR
RESTRICTIONS IMPOSED BY FEDERAL AND STATE SECURITIES LAWS. PLAN PARTICIPANTS ARE
URGED TO CONSULT WITH THEIR TAX AND LEGAL ADVISORS CONCERNING THE NATURE AND
RESTRICTIONS UPON THE OPTIONS GOVERNED HEREBY.
1. Purposes.
---------
(a) The purpose of the Plan is to provide a means by which selected
employees, Directors and Consultants of the Company and its Affiliates, may be
given an opportunity to benefit from increases in value of the stock of the
Company through the granting of Incentive Stock Options and Nonstatutory Stock
Options, as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants of the Company or its
Affiliates, to secure and retain the services of new Employees, Directors and
Consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to SECTION 3(c), be
either Incentive Stock Options and Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to SECTION 6, and a
certificate or certificates will be issued for shares purchased on exercise of
such Options.
2. Definitions.
------------
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
30
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with SECTION 3(c) of the Plan.
(e) "COMPANY" means SM&A Corporation, a California corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave or any other personal leave; PROVIDED, HOWEVER, that for
purposes of Incentive Stock Options, any such leave may not exceed three (3)
months, unless reemployment upon the expiration of such leave is guaranteed by
contract, Company policies or statute; or (ii) transfers between locations of
the Company or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a share
of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such system or
exchange on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the
Fair Market Value of a share of Common Stock shall be the mean between
the bid and asked prices for the Common Stock on the last market
trading day prior to the day of determination, as reported in the Wall
Street Journal or such other source as the Board deems reliable;
31
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(m) "NON-EMPLOYEE DIRECTOR" shall mean a director who:
(i) Is not currently an officer (as defined in Rule 16a-1(f) of the
Exchange Act) of the Company or a parent or subsidiary of the Company,
or otherwise currently employed by the Company or a parent or
subsidiary of the Company;
(ii) Does not receive compensation, either directly or indirectly,
from the Company or a parent or subsidiary of the Company, for services
rendered as a consultant or in any capacity other than as a director,
except for an amount that does not exceed the dollar amount for which
disclosure would be required pursuant to Rule 404(a) of the Exchange
Act;
(iii) Does not possess an interest in any other transaction for
which disclosure would be required pursuant to Rule 404(a) of the
Exchange Act; and
(iv) Is not engaged in a business relationship for which disclosure
would be required pursuant to Rule 404(b) of the Exchange Act.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(Q) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(r) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(s) "PARTICIPANT" means an Employee, Director or Consultant who is
granted Options.
(t) "PLAN" means this 1997 Stock Option Plan.
32
(u) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(v) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. Administration.
---------------
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in SECTION 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how Options shall be
granted; whether an Option will be an Incentive Stock Option or a
Nonstatutory Stock Option, the provisions of each Option granted (which
need not be identical), including the vesting schedule for the Options,
and the number of shares underlying such Options to be granted to each
such person;
(ii) To construe and interpret the Plan and Options granted under
it, and to establish amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct
any defect, omission or inconsistency in the Plan or in any Option
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective;
(iii) To amend the Plan as provided in SECTION 12; and
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or advisable to promote the best interests of
the Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "COMMITTEE"), all
of the members of which Committee shall be Non-Employee Directors. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board (and references in this Plan to the Board shall thereafter be to
the Committee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
33
4. Shares Subject to the Plan.
---------------------------
Subject to the provisions of SECTION 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Options shall not
exceed in the aggregate Two Million Five Hundred Thousand (2,500,000) shares of
the Company's Common Stock. If any Option shall for any reason expire or
otherwise terminates, in whole or in part, without having been exercised in
full, the stock not acquired under such Option shall revert to and again become
available for issuance under the Plan.
5. Eligibility.
------------
(a) INCENTIVE STOCK OPTIONS MAY BE GRANTED ONLY TO EMPLOYEES.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) A Director shall be eligible for the benefits of the Plan provided
that such Director's participation conforms to the requirements of Rule 16b-3,
if applicable.
(c) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant.
6. Option Provisions.
------------------
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, the exercise price of any Incentive Stock Option granted hereunder to
any stockholder possessing at least 10% of the total combined voting power of
all classes of stock of the Company shall be not less than one hundred ten
percent (110%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, (ii) at the
discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, by delivering to the Company other shares of Common
Stock of the Company (provided that the shares have been held for the period
required to avoid a charge to the Company's reported earnings), (iii) at the
discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, by delivering to the Company all or any part of an
Option granted under this Plan for a cashless exercise (provided that such
cashless exchange will not result in a charge to the Company's reported
earnings), or (iv) by tendering any other form of legal consideration that may
be acceptable to the Board.
34
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option granted
to an Optionee subject to Section 16 of the Exchange Act on the date of grant
shall not be transferable except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order satisfying the
requirements of Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person or any transferee pursuant to a QDRO. A Nonstatutory Stock Option
granted to an Optionee who is not subject to Section 16 of the Exchange Act on
the date of grant may not be transferable except by will or by the laws of
descent and distribution, unless otherwise permitted by the Board. The person to
whom the Option is granted may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("VEST")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
SECTION 6(e) are subject to any Option provisions governing the minimum number
of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date ninety (90) days after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer period specified in the Option Agreement), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionee does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
35
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date six (6) months following such termination (or such longer period
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to SECTION 6(d), but
only within the period ending on the earlier of (i) the date twelve (12) months
following the date of death (or such longer period specified in the Option
Agreement), or (ii) the expiration of the term of such Option as set forth in
the Option Agreement. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
7. Cancellation and Regrant of Options.
------------------------------------
The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options under
the Plan, and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than one hundred percent (100%) of the Fair Market Value in the case of an
Incentive Stock Option or, in the case of a ten percent (10%) stockholder (as
described in SECTION 5(c)) not less than one hundred ten percent (110%) of the
Fair Market Value in the case of an Incentive Stock Option.
8. Covenants of the Company.
-------------------------
(a) During the terms of the Options, the Company shall keep available
at all times the number of shares of stock which would be issuable under such
outstanding Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Options or any stock issued or issuable
pursuant to any such Options. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
36
9. Use of Proceeds from Stock.
---------------------------
Proceeds from the sale of Common Stock upon exercise of the Options
shall constitute general funds of the Company.
10. Miscellaneous.
--------------
(a) Neither an Optionee nor any person to whom an Option is transferred
under SECTION 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(b) Nothing in the Plan or any Option granted pursuant thereto shall
confer upon any Employee, Director, Consultant or other holder of Options any
right to continue in the employ of the Company or any Affiliate (or to continue
acting as a Director or Consultant) or shall affect the right of the Company or
any Affiliate to terminate the employment or relationship as a Director or
Consultant of any Employee, Director, Consultant or other holder of Options with
or without cause.
(c) TO THE EXTENT THAT THE AGGREGATE FAIR MARKET VALUE (DETERMINED AT
THE TIME OF GRANT) OF STOCK WITH RESPECT TO WHICH INCENTIVE STOCK OPTIONS ARE
GRANTED ARE EXERCISABLE FOR THE FIRST TIME BY AN OPTIONEE DURING ANY CALENDAR
YEAR UNDER ALL PLANS OF THE COMPANY AND ITS AFFILIATES EXCEEDS ONE HUNDRED
THOUSAND DOLLARS ($100,000), THE OPTIONS OR PORTIONS THEREOF WHICH EXCEED SUCH
LIMIT (ACCORDING TO THE ORDER IN WHICH THEY WERE GRANTED) SHALL BE TREATED AS
NONSTATUTORY STOCK OPTIONS.
(d) The Company may require any person to whom an Option is granted, or
any person to whom an Option is transferred under SECTION 6(d), as a condition
of exercising any Option, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Option; and (2)
to give written assurances satisfactory to the Company stating that such person
is acquiring the stock subject to the Option for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
37
(e) To the extent provided by the terms of an Option Agreement, the
person to whom an Option is granted may, at the discretion of the Board, satisfy
any mandatory federal, state or local tax withholding obligation relating to the
exercise or acquisition of stock under an Option by any of the following means
or by a combination of such means: (1) tendering cash payment; (2) authorizing
the Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Participant as a result of the exercise or acquisition of stock
under the Option provided that such arrangement will not result in a charge to
the Company's reported earnings; or (3) delivering to the Company owned and
unencumbered shares of the Common Stock of the Company that have been held for
the period required to avoid a charge to the Company's reported earnings. The
exercise of the Option may be conditioned upon the receipt by the Company of
satisfactory evidence of the Participant's satisfaction of any withholding
obligations.
11. Adjustments Upon Changes in Stock.
----------------------------------
(a) Subject to any required action by stockholders, the number of
shares which may be purchased upon the exercise of each outstanding Option shall
be proportionately increased or decreased upon the occurrence of any change,
increase or decrease in the number and type of issued shares of Common Stock of
the Company, without receipt of consideration by the Company, which change
results from a stock split, a stock dividend, a merger, consolidation,
reorganization, reincorporation, a recapitalization, a combination of shares,
change in corporate structure or other like capital adjustment, so that upon the
exercise of each Option the holders of such Options shall receive the number and
type of securities which the holders would have received had the Options been
exercised on the date preceding such change, increase or decrease. In the event
of any such adjustment, the exercise price for each share shall be likewise
adjusted in inverse proportion to the increase or decrease in the number of
shares purchasable.
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then to the extent permitted by applicable law: (i) any
surviving corporation shall assume any Options outstanding under the Plan or
shall substitute similar Options for those outstanding under the Plan, or (ii)
such Options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Options, or to substitute similar
options for those outstanding under the Plan, then, with respect to Options held
by persons then performing services as Employees, Directors or Consultants, the
time during which such Options vest shall be accelerated and the Options
terminated if not exercised prior to such event.
38
12. Amendment of the Plan.
----------------------
(a) The Board at any time, and from time to time, may amend the Plan
provided that the implementation of such amendment by the Company complies with
all applicable law.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Option granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Option was
granted, and (ii) such person consents in writing.
13. Termination or Suspension of the Plan.
--------------------------------------
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on October 1, 2007, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent to the person to whom the Option was granted.
14. Effective Date of Plan.
-----------------------
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
15. Financial Information.
----------------------
The Company will provide to each Optionee financial statements of the
Company at least annually in accordance with Section 260.140.46 of Title 10 of
the California Code of Regulations.
39
EXHIBIT B
EMPLOYEE STOCK PURCHASE PLAN
THIS EMPLOYEE STOCK PURCHASE PLAN (the "PLAN") is hereby established by
SM&A Corporation, a California corporation (the COMPANY") effective as of May
1, 1999 (the "EFFECTIVE DATE").
ARTICLE 1
PURPOSE OF THE PLAN
-------------------
1.1 PURPOSE. The Company has determined that it is in its best interest
to provide incentives to attract and retain employees and to increase employee
morale by providing a program through which employees of the Company, and the
Company's subsidiaries as the Company's Board of Directors (the "BOARD OF
DIRECTORS") may from time to time designate (each a "DESIGNATED SUBSIDIARY," and
collectively, "DESIGNATED SUBSIDIARIES"), may acquire a proprietary interest in
the Company through the purchase of shares of the Common Stock of the Company
("COMPANY STOCK"). The Plan is hereby established by the Company to permit
employees to subscribe for, and purchase directly from the Company, shares of
the Company Stock at a discount from the market price and to pay the purchase
price in installments by payroll deductions. The Plan is intended to qualify as
an "employee stock purchase plan" under Section 423 of the Internal Revenue Code
of 1986, as amended from time to time (the "CODE"). Accordingly, the provisions
of the Plan shall be administered, interpreted, and construed in a matter
consistent with the requirements of that section of the Code. The Plan is not
intended to be an employee benefit plan under the Employee Retirement Income
Security Act of 1974, and therefore is not required to comply with that Act.
ARTICLE 2
DEFINITIONS
-----------
2.1 COMPENSATION. "COMPENSATION" means wages, tips, overtime pay,
bonuses, commissions, and other Compensation reported on Form W-2. Compensation
shall include any amounts contributed by the Employer pursuant to a salary
reduction agreement that is not currently includible in the Participant's gross
income by reason of the application of Code Sections 125, 402(e)(3), 402(g)(3),
402(h)(1)(B), 403(b), 414(h)(2), or 457(b). Compensation excludes the sum of all
of the following items, even if otherwise includible in gross income: (i)
reimbursements or other expense allowances; (ii) cash and noncash fringe
benefits; (iii) moving expenses; (iv) deferred compensation; and (v) welfare
benefits.
2.2 EMPLOYEE. "EMPLOYEE" means each person currently employed by the
Company or any of its Designated Subsidiaries, any portion of whose income is
subject to withholding of income tax or for whom Social Security retirement
contributions are made by the Company or any Designated Subsidiary.
2.3 FIVE PERCENT (5%) OWNER. "5% OWNER" means an Employee who,
immediately after the grant of any rights under the Plan, would own Company
Stock or hold outstanding options to purchase Company Stock possessing five
percent (5%) or more of the total combined voting power of all classes of stock
of the Company. For purposes of this Section, the ownership attribution rules of
Code Section 425(d) shall apply.
40
2.4 ENROLLMENT DATE. "ENROLLMENT DATE" means the first day of each
Offering Period (January 1 and July 1) under the Plan. However, for the first
Offering Period, the Enrollment Date shall be the Effective Date of the Plan.
2.5 PARTICIPANT. "PARTICIPANT" means an Employee who has satisfied the
eligibility requirements of SECTION 3.1 and has become a participant in the Plan
in accordance with SECTION 3.2.
2.6 PLAN YEAR. "PLAN YEAR" means the twelve consecutive month period
ending on the last day of December.
2.7 OFFERING PERIOD. "OFFERING PERIOD" means the six-month periods from
January 1 through June 30 and July 1 through December 31 of each Plan Year.
However, the first Offering Period shall commence on the Effective Date and end
June 30, 1999 regardless of whether such initial Offering Period is more or less
than six months.
2.8 PURCHASE DATE. "PURCHASE DATE" means the last day of each Offering
Period (June 30 or December 31).
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
-----------------------------
3.1 ELIGIBILITY. Subject to limitations imposed by Section 423(b) of
the Code, each Employee of the Company, or any Designated Subsidiary may become
a Participant in the Plan on the Enrollment Date coincident with or next
following the initial date of employment with the Company or any Designated
Subsidiary.
3.2 PARTICIPATION. An Employee who has satisfied the eligibility
requirements of SECTION 3.1 may become a Participant in the Plan upon his
completion and delivery to the Human Resources Department of the Company of a
stock purchase agreement provided by the Company (the "STOCK PURCHASE
AGREEMENT") authorizing payroll deductions. Payroll deductions for a Participant
shall commence on the Enrollment Date coincident with or next following the
filing of the Participant's Stock Purchase Agreement and shall remain in effect
until revoked by the Participant by the filing of a notice of withdrawal from
the Plan under ARTICLE 8 or by the filing of a new Stock Purchase Agreement
providing for a change in the Participant's payroll deduction rate in accordance
with SECTION 5.2.
3.3 SPECIAL RULES. Under no circumstances shall:
(a) A 5% Owner be granted a right to purchase Company Stock under
the Plan;
(b) A Participant be entitled to purchase Company Stock under the
Plan which, when aggregated with all other employee stock purchase plans of the
Company, exceed an amount equal to the Aggregate Maximum. "AGGREGATE MAXIMUM"
means an amount equal to $20,000 worth of Company Stock (determined using the
fair market value of such Company Stock at each applicable Enrollment Date)
during each calendar year; or
41
(c) The number of shares of Company Stock purchasable by a
Participant on any Purchase Date exceed 5,000 shares, subject to
periodic adjustments under SECTION 10.4.
ARTICLE 4
OFFERING PERIOD
---------------
The initial grant of the right to purchase Company Stock under the Plan
shall occur on the Effective Date and terminate on June 30, 1999. Thereafter,
the Plan shall provide for Offering Periods commencing on each Enrollment Date
and terminating on the next following Purchase Date.
ARTICLE 5
PAYROLL DEDUCTIONS
------------------
5.1 PARTICIPANT ELECTION. Upon completion of the Stock Purchase
Agreement, each Participant shall designate the amount of payroll deductions to
be made from his or her paycheck to purchase Company Stock under the Plan. The
amount of payroll deductions shall be designated in whole percentages of
Compensation, not to exceed 15%. The amount so designated upon the Stock
Purchase Agreement shall be effective as of the next payroll period and shall
continue until terminated or altered in accordance with SECTION 5.2 below.
5.2 CHANGES IN ELECTION. A Participant may terminate participation in
the Plan at any time prior to the close of an Offering Period as provided in
ARTICLE 8. A Participant may increase or decrease the rate of payroll deductions
once during each Offering Period by completing and delivering to the Human
Resources Department of the Company a new Stock Purchase Agreement setting forth
the desired change. A Participant may also terminate payroll deductions and have
accumulated deductions for the Offering Period applied to the purchase of
Company Stock as of the next Purchase Date by completing and delivering to the
Human Resources Department a new Stock Purchase Agreement setting forth the
desired change. Any change under this Section shall become effective on the next
payroll period (to the extent practical under the Company's payroll practices)
following the delivery of the new Stock Purchase Agreement.
5.3 PARTICIPANT ACCOUNTS. The Company shall establish and maintain a
separate account ("ACCOUNT") for each Participant. The amount of each
Participant's payroll deductions shall be credited to his / her Account. No
interest will be paid or allowed on amounts credited to a Participant's Account.
All payroll deductions received by the Company under the Plan are general
corporate assets of the Company and may be used by the Company for any corporate
purpose. The Company is not obligated to segregate such payroll deductions.
ARTICLE 6
GRANT OF PURCHASE RIGHTS
------------------------
6.1 RIGHT TO PURCHASE SHARES. On each Purchase Date, each Participant
shall have the right to purchase at the price determined under SECTION 6.2 that
number of WHOLE SHARES of Company Stock that can be purchased or issued by the
Company based upon that price with the amounts held in his Account, subject to
the limits set forth in SECTION 3.3. In the event that there are amounts held in
a Participant's Account that are not used to purchase Company Stock, such
amounts shall remain in the Participant's Account and shall be eligible to
purchase Company Stock in any subsequent Offering Period.
42
6.2 PURCHASE PRICE. The purchase price for any Offering Period shall be
the lesser of:
(a) 85% of the Fair Market Value of Company Stock on the Enrollment
Date; or
(b) 85% of the Fair Market Value of Company Stock on the Purchase
Date.
6.3 FAIR MARKET VALUE. "FAIR MARKET VALUE" shall be determined as
follows:
(a) If the Company Stock is then listed or admitted to trading on
the NASDAQ National Market or a stock exchange which reports closing
sale prices, the Fair Market Value shall be the closing sale price on
the date of valuation on the NASDAQ National Market or principal stock
exchange on which the Company Stock is then listed or admitted to
trading, or, if no closing sale price is quoted or no sale takes place
on such day, then the Fair Market Value shall be the closing sale price
of the Company Stock on the NASDAQ National Market or such exchange on
the next preceding day on which a sale occurred.
(b) If the Company Stock is not then listed or admitted to trading
on the NASDAQ National Market or a stock exchange which reports closing
sale prices, the Fair Market Value shall be the average of the closing
bid and asked prices of the Company Stock in the over-the-counter
market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the
Administrator (see Section 7.2) in good faith using any reasonable
method of valuation, which determination shall be conclusive and
binding on all interested parties.
ARTICLE 7
PURCHASE OF STOCK
-----------------
7.1 PURCHASE OF COMPANY STOCK. A Participant who does not, prior to a
Purchase Date, notify the Company that such Participant does not want to
purchase any shares of Company Stock pursuant to the Plan or that such
Participant wants to purchase fewer than the maximum number of shares available
for purchase, shall be deemed to elect to purchase the maximum number of whole
shares of Company Stock purchasable with the amounts held in such Participant's
Account, at the purchase price determined under Section 6.2 above and, on each
Purchase Date, the Plan shall purchase such shares on behalf of such
Participant. In the event that there are amounts held in a Participant's Account
that are not used to purchase Company Stock, all such amounts shall be held in
the Participant's Account and carried forward to the next Offering Period.
7.2 DELIVERY OF COMPANY STOCK.
(a) Company Stock acquired under the Plan shall be issued directly
to a contract administrator ("ADMINISTRATOR") engaged by the Company to
administer the Plan under ARTICLE 9. All Company Stock so issued ("PLAN
HELD STOCK") shall be held in the name of the Administrator for the
benefit of the Plan. The Administrator shall maintain accounts for the
benefit of the Participants that shall reflect each Participant's
interest in the Plan Held Stock. Such accounts shall reflect the number
of whole shares of Company Stock that are being held by the
Administrator for the benefit of each Participant.
43
(b) Where Company Stock is issued under this paragraph, only
full shares of stock will be issued to a Participant. The time of
issuance and delivery of shares may be postponed for such period as may
be necessary to comply with the registration requirements under the
Securities Act of 1933, as amended, the listing requirements of any
securities exchange on which the Company Stock may then be listed, or
the requirements under other laws or regulations applicable to the
issuance or sale of such shares.
ARTICLE 8
WITHDRAWAL
----------
8.1 IN SERVICE WITHDRAWAL. At any time prior to the Purchase Date of an
Offering Period, any Participant may withdraw the amounts held in his/her
Account by executing and delivering to the Human Resources Department of the
Company written notice of withdrawal on the form provided by the Company. In
such a case, the entire balance of the Participant's Account shall be paid to
the Participant, without interest, as soon as is practicable. Upon such
notification, the Participant shall cease to participate in the Plan for the
remainder of the Offering Period in which the notice is given. Any Employee who
has withdrawn under this Section shall be excluded from participation in the
Plan for the remainder of the Offering Period, but may then be reinstated as a
participant for a subsequent Offering Period by executing and delivering a new
Stock Purchase Agreement to the Human Resources Department of the Company.
8.2 TERMINATION OF EMPLOYMENT.
(a) In the event that a Participant's employment with the Company
terminates for any reason, the Participant shall cease to participate
in the Plan on the date of termination. As soon as is practical
following the date of termination, the entire balance of the
Participant's Account shall be paid to the Participant or his
beneficiary, without interest.
(b) A Participant may file a written designation of a beneficiary
who is to receive any shares of Company Stock purchased under the Plan
or any cash from the Participant's Account in the event of his or her
death subsequent to a Purchase Date, but prior to delivery of such
shares and cash. In addition, a Participant may file a written
designation of a beneficiary who is to receive any cash from the
Participant's Account under the Plan in the event of his death prior to
a Purchase Date under paragraph (a) above.
44
(c) Any beneficiary designation under paragraph (b) above may be
changed by the Participant at any time by written notice. In the event
of the death of a Participant, the Committee (see Section 9.1) may rely
upon the most recent beneficiary designation it has on file as being
the appropriate beneficiary. In the event of the death of a Participant
where no valid beneficiary designation exists or the beneficiary has
predeceased the Participant, the Committee shall deliver any cash or
shares of Company Stock to the executor or administrator of the estate
of the Participant, or if no such executor or administrator has been
appointed to the knowledge of the Committee, the Committee, in its sole
discretion, may deliver such shares of Company Stock or cash to the
spouse or any one or more dependents or relatives of the Participant,
or if no spouse, dependent or relative is known to the Committee, then
to such other person as the Committee may designate.
ARTICLE 9
PLAN ADMINISTRATION
-------------------
9.1 PLAN ADMINISTRATION.
(a) Authority to control and manage the operation and
administration of the Plan shall be vested in the Board of Directors
(the "BOARD") for the Company, or a committee ("COMMITTEE") thereof.
The Board or Committee shall have all powers necessary to supervise the
administration of the Plan and control its operations.
(b) In addition to any powers and authority conferred on the Board
or Committee elsewhere in the Plan or by law, the Board or the
Committee shall have the following powers and authority:
(i) To designate agents to carry out responsibilities relating
to the Plan;
(ii) To administer, interpret, construe and apply this Plan and
to answer all questions which may arise or which may be raised
under this Plan by a Participant, his beneficiary or any other
person whatsoever;
(iii) To establish rules and procedures from time to time for
the conduct of its business and for the administration and
effectuation of its responsibilities under the Plan; and
(iv) To perform or cause to be performed such further acts as
it may deem to be necessary, appropriate, or convenient for the
operation of the Plan.
(c) Any action taken in good faith by the Board or Committee in the
exercise of authority conferred upon it by this Plan shall be
conclusive and binding upon a Participant and his beneficiaries. All
discretionary powers conferred upon the Board shall be absolute.
45
9.2 LIMITATION ON LIABILITY. No Employee of the Company or member of
the Board or Committee shall be subject to any liability with respect to his
duties under the Plan unless the person acts fraudulently or in bad faith. To
the extent permitted by law, the Company shall indemnify each member of the
Board or Committee, and any other Employee of the Company with duties under the
Plan who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed proceeding, whether civil, criminal,
administrative, or investigative, by reason of the person's conduct in the
performance of his duties under the Plan.
ARTICLE 10
COMPANY STOCK
-------------
10.1 LIMITATIONS ON PURCHASE OF SHARES. The maximum number of shares of
Company Stock that shall be made available for sale under the Plan shall be
250,000 shares, subject to adjustment under SECTION 10.4 below. The shares of
Company Stock to be sold to Participants under the Plan will be issued by the
Company. If the total number of shares of Company Stock that would otherwise be
issuable pursuant to rights granted pursuant to SECTION 6.1 of the Plan at the
Purchase Date exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available in as
uniform and equitable manner as is practicable. In such event, the Company shall
give written notice of such reduction of the number of shares to each
participant affected thereby and any unused payroll deductions shall be returned
to such participant if necessary.
10.2 VOTING COMPANY STOCK. The Participant will have no interest or
voting right in shares to be purchased under SECTION 6.1 of the Plan until such
shares have been purchased.
10.3 REGISTRATION OF COMPANY STOCK. Shares to be delivered to a
Participant under the Plan will be registered in the name of the Participant
unless designated otherwise by the Participant.
10.4 CHANGES IN CAPITALIZATION OF THE COMPANY. Subject to any required
action by the shareholders of the Company, the number of shares of Company Stock
covered by each right under the Plan which has not yet been exercised and the
number of shares of Company Stock which have been authorized for issuance under
the Plan but have not yet been placed under rights or which have been returned
to the Plan upon the cancellation of a right, as well as the Purchase Price per
share of Company Stock covered by each right under the Plan which has not yet
been exercised, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Company Stock resulting from a stock split,
stock dividend, spin-off, reorganization, recapitalization, merger,
consolidation, exchange of shares or the like. Such adjustment shall be made by
the Board of Directors for the Company, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Company
Stock subject to any right granted hereunder.
46
10.5 MERGER OF COMPANY. In the event that the Company at any time
proposes to merge into, consolidate with or enter into any other reorganization
pursuant to which the Company is not the surviving entity (including the sale of
substantially all of its assets or a "reverse" merger in which the Company is
the surviving entity), then, to the extent permitted by applicable law: (i) any
surviving corporation shall assume the rights theretofore granted or substitute
for such rights new rights covering the shares of a successor corporation, with
appropriate adjustments as to the number and kind of shares and prices, or (ii)
the Plan and the rights theretofore granted shall continue in full force and
effect. In the event any surviving corporation refuses to assume or continue the
Plan, or to substitute similar options for those under the Plan, then the Board
of Directors or its committee shall cause written notice of the proposed action
to be given to the persons holding rights not less than 10 days prior to the
anticipated effective date of the proposed transaction and, concurrent with the
effective date of the proposed transaction, such rights shall be exercised
automatically in accordance with Section 7.1 as if such effective date were a
Purchase Date of the applicable Offering Period unless a Participant withdraws
from the Plan as provided in Section 8.1.
ARTICLE 11
MISCELLANEOUS
-------------
11.1 AMENDMENT AND TERMINATION. The Plan shall terminate on December
31, 2008. Since future conditions affecting the Company cannot be anticipated or
foreseen, the Company reserves the right to amend, modify, or terminate the Plan
at any time. Upon termination of the Plan, all benefits shall become payable
immediately. Notwithstanding the foregoing, no such amendment or termination
shall affect rights previously granted, nor may an amendment make any change in
any right previously granted which adversely affects the rights of any
Participant. In addition, no amendment may be made without prior approval of the
shareholders of the Company if such amendment would:
(a) Increase the number of shares of Company Stock that may be
issued under the Plan;
(b) Materially modify the requirements as to eligibility for
participation in the Plan; or
(c) Materially increase the benefits that accrue to Participants
under the Plan.
11.2 SHAREHOLDER APPROVAL. Continuance of the Plan and the
effectiveness of any right granted hereunder shall be subject to approval by the
shareholders of the Company, within twelve months before or after the date the
Plan is adopted by the Board.
11.3 BENEFITS NOT ALIENABLE. Benefits under the Plan may not be
assigned or alienated, whether voluntarily or involuntarily. Any attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Article 8.
47
11.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Employee or to be
consideration for, or an inducement to, or a condition of, the employment of any
Employee. Nothing contained in the Plan shall be deemed to give the right to any
Employee to be retained in the employ of the Company or to interfere with the
right of the Company to discharge any Employee at any time.
11.5 GOVERNING LAW. To the extent not preempted by Federal law, all
legal questions pertaining to the Plan shall be determined in accordance with
the laws of the State of California.
11.6 NON-BUSINESS DAYS. When any act under the Plan is required to be
performed on a day that falls on a Saturday, Sunday or legal holiday, that act
shall be performed on the next succeeding day which is not a Saturday, Sunday or
legal holiday. Notwithstanding the above, Fair Market Value shall be determined
in accordance with SECTION 6.3.
11.7 COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision of
the Plan, the Committee shall administer the Plan in such a way to ensure that
the Plan at all times complies with any requirements of Federal Securities Laws.
48
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
SM&A CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Steven S. Myers and Michael A. Piraino, and
each of them, with full power of substitution, to vote all shares of Common
Stock of any class of SM&A Corporation ("SM&A") held of record by the
undersigned as of March 31, 1999, at the Annual Meeting of Shareholders of SM&A
to be held at the Sutton Place Hotel, at 4500 MacArthur Boulevard, Newport
Beach, California, on Tuesday, May 18, 1999 at 10:00 a.m. local time, and at all
adjournments thereof, (the "Annual Meeting") upon the following matters, which
are described in SM&A's Proxy Statement for the Annual Meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
A [X] Please mark your votes as in this example.
FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as marked to to vote for all
the contrary below) nominees listed at right
1. ELECTION OF [ ] [ ] NOMINEES: Steven S. Myers
DIRECTORS:
Michael A. Piraino
J. Christopher Lewis
James R. Mellor
Malcolm R. Currie
(INSTRUCTIONS: To withhold authority to vote for any individual
nominee, write the nominee's name on the lines
immediately below)
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
2. For approval of amendment to 1997 Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. For approval of Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. For ratification of appointment of independent accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. In accordance with the discretion of the proxy holder,
to act upon all matters incident to the conduct of the
meeting and upon other matters that properly come
before the meeting.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF ANY NOMINEE NAMED ABOVE DECLINES OR IS UNABLE TO
SERVE AS A DIRECTOR, THE PERSONS NAMED AS PROXIES SHALL HAVE FULL DISCRETION TO
VOTE FOR ANY OTHER PERSON WHO MAY BE NOMINATED.
PLEASE DATE, SIGN, MAIL AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
SIGNATURE(S)_________________________________________ DATE_____________________
NOTE: Please sign exactly as your name appears herein. If the stock is
registered in the name of two or more persons, each should sign.
Executors, administrators, trustees, guardians, attorneys and corporate
officers should add their titles.