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
/ / Soliciting Material Pursuant to Schedule 240.14a-11(c) or Schedule
240.14a-12
LUMISYS INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
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/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-
6(j)(2) or Item 22(a)(2) of Schedule 14a.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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5. Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
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LUMISYS
225 Humboldt Court
Sunnyvale CA 94089
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 1997
TO THE STOCKHOLDERS OF LUMISYS INCORPORATED
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Lumisys Incorporated, a Delaware corporation (the "Company"), will be
held on Monday, May 12, 1997 at 4:00 p.m. local time at the offices of
the Company at 225 Humboldt Court, Sunnyvale, California, for the
following purposes:
1. To elect one director to hold office until the 2000 Annual Meeting
of Stockholders and the election and qualification of his successor.
2. To approve an amendment to the Company's 1995 Stock Option Plan to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 200,000 shares.
3. To ratify the selection of Price Waterhouse LLP as independent
accountants of the Company for its fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 26,1997
as the record date for the determination of stockholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
Andrei M. Manoliu
Secretary
Sunnyvale, California
April 8, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO
ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS
POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT
PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN
PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR
SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU
WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A
PROXY ISSUED IN YOUR NAME.
LUMISYS
225 Humboldt Court
Sunnyvale, CA 94089
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
May 12, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Lumisys Incorporated, a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on May 12, 1997 at 4:00
p.m. local time (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting. The Annual Meeting will be held
at the offices of the Company at 225 Humboldt Court, Sunnyvale,
California. The Company intends to mail this proxy statement and
accompanying proxy card on or about April 8, 1997 to all stockholders
entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy
statement, the proxy and any additional information furnished to
stockholders. Copies of solicitation materials will be furnished to
banks, brokerage houses, fiduciaries and custodians holding in their
names shares of Common Stock beneficially owned by others to forward to
such beneficial owners. The Company may reimburse persons representing
beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation
of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees
of the Company. No additional compensation will be paid to directors,
officers or other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March
26, 1997 will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on March 26, 1997, the Company had
outstanding and entitled to vote 6,455,273 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to
one vote for each share held on all matters to be voted upon at the
Annual Meeting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative
votes, abstentions and broker non-votes. Abstentions will be counted
towards the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker
non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether a matter has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing
with the Secretary of the Company at the Company's principal executive
office, 225 Humboldt Court, Sunnyvale, CA 94089, written notice of
revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at
the meeting will not, by itself, revoke a proxy.
SHAREHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1997 Annual Meeting of Stockholders must be received by the
Company not later than December 9, 1997 in order to be included in the
proxy statement and proxy relating to that Annual Meeting. Stockholders
are also advised to review the Company's By-laws, which contain
additional requirements with respect to advance notice of stockholder
proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-laws provide
that the Board of Directors shall be divided into three classes, each
class consisting, as nearly as possible, of one-third of the total
number of directors, with each class having a three-year term.
Vacancies on the Board may be filled only by persons elected by a
majority of the remaining directors. A director elected by the Board to
fill a vacancy (including a vacancy created by an increase in the Board
of Directors) shall serve for the remainder of the full term of the
class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of four members. There is
one director in the class whose term of office expires in 1997. The
nominee for election to this class is currently a director of the
Company who was previously elected by the stockholders. If elected at
the Annual Meeting, the nominee would serve until the 2000 annual
meeting and until his successor is elected and has qualified, or until
such director's earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares
represented by executed proxies will be voted, if authority to do so is
not withheld, for the election of the nominee named below. In the event
that the nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of
such substitute nominee as management may propose. The person nominated
for election has agreed to serve if elected, and management has no
reason to believe that such nominee will be unable to serve.
Set forth below is biographical information for the nominee and each
person whose term of office as a director will continue after the Annual
Meeting.
NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL
MEETING:
STEPHEN J. WEISS
Mr. Weiss, 58, has served as a member of the Company's Board of
Directors, President and Chief Executive Officer since joining the
Company in January 1990. Prior to that time, Mr. Weiss was a founder of
Virtual Imaging, a medical imaging company, where he last held the
position of President. From 1971 to 1985, Mr. Weiss was an Executive
Vice President of ADAC Laboratories, a medical imaging company.
MANAGEMENT RECOMMENDS
A VOTE IN FAVOR OF MR. WEISS
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING:
DOUGLAS G. DEVIVO, PH.D.
Dr. DeVivo has been a member of the Company's Board of Directors since
April 1989. Dr. DeVivo is a general partner of ALCE Partners, Vanguard
Associates and Vanguard Associates II, venture capital investment
partnerships, and has been involved in venture capital as a general
partner since 1981. Dr. DeVivo is also a director of Gabelli
Securities, Inc.
MATTHEW D. MILLER, PH.D.
Dr. Miller has been a member of the Company's Board of Directors since
March 1995. Dr. Miller has been the President of M-Squared Media and
Technology, an investment and consulting firm, since August 1994.
Previously, Dr. Miller served as Vice President, Technology of General
Instrument Corporation, a diversified electronics manufacturer, from
August 1988 to July 1994. Prior to joining General Instrument
Corporation, Dr. Miller served as Vice President, Technology of Viacom,
Inc., a broadcast and cable company, from April 1984 to August 1988.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING:
C. RICHARD KRAMLICH
Mr. Kramlich has been a member of the Company's Board of Directors since
October 1987. Mr. Kramlich has been the Managing General Partner of New
Enterprise Associates, a venture capital firm, since June 1978. Mr.
Kramlich is also a director of Ascend Communications, Inc., Chalone
Inc., Graphix Zone, Inc., Macromedia, Inc., Neopath, Inc., Silicon
Graphics, Inc. and SyQuest Technology, Inc.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996, the Board of Directors
held five meetings. The Board has an Audit Committee and a Compensation
Committee. The Audit Committee and Compensation Committee each met one
time during the year ended 1996.
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with and reviews the
services provided by the Company's independent accountants. The Audit
Committee is composed of two non-employee directors: Messrs. DeVivo and
Miller.
The Compensation Committee of the Board of Directors reviews and
recommends to the Board the compensation and benefits of employees of
the Company. The Compensation Committee also administers the issuance
of stock options and other awards under the Company's stock option
plans. During the year ended December 31, 1997, the Compensation
Committee was composed of three non-employee directors: Messrs.
Kramlich, Treu and Miller.
During the fiscal year ended December 31, 1996, each director attended
at least 75% of the aggregate of the meetings of the Board and of the
committees on which he served, held during the period for which they
were a director or committee member, respectively.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE 1995 EMPLOYEE STOCK OPTION PLAN
In September 1995, the Company adopted the Company's 1995 Stock Option
Plan (the "1995 Plan") under which an aggregate of 350,000 shares of
Common Stock have been reserved for issuance upon exercise of options
granted to employees, officers and employee-directors of and consultants
to the Company.
At December 31, 1996, options (net of canceled or expired options)
covering an aggregate of 153,625 shares of the Company's Common Stock
had been granted under the 1995 Plan, and only 196,375 shares (plus any
shares that might in the future be returned to the plans as a result of
cancellations or expiration of options) remained available for future
grant under the 1995 Plan. During the last fiscal year, under the 1995
Plan, the Company has granted to all current executive officers as a
group options to purchase 50,000 shares at an exercise price of $9.88
and to all employees (excluding executive officers) as a group options
to purchase 103,225 shares at exercise prices of $8.88 to $11.44 per
share.
In February 1997, the Board approved an amendment to the 1995 Plan,
subject to stockholder approval, to enhance the flexibility of the Board
and the Compensation Committee in granting stock options to the
Company's employees. The amendment increases the number of shares
authorized for issuance under the 1995 Plan from a total of 350,000
shares to 550,000 shares. The Board adopted this amendment to ensure
that the Company can continue to grant stock options to employees at
levels determined appropriate by the Board and the Compensation
Committee.
Stockholders are requested in this Proposal 2 to approve the 1995 Plan,
as amended. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at
the meeting will be required to approve the amendment to the 1995 Plan.
Abstentions will be counted toward the tabulation of votes cast on
proposals presented tot he stockholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are
not counted for any purpose in determining whether this matter has been
approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 1995 Plan are outlined below:
GENERAL
The 1995 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1995 Plan are
intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Nonstatutory stock options granted under the 1995 Plan are
intended not to qualify as incentive stock options under the Code. See
"Federal Income Tax Information" for a discussion of the tax treatment
of incentive and nonstatutory stock options.
PURPOSE
The 1995 Plan was adopted to provide a means by which officers and
employees of and selected consultants to the Company and its affiliates
could be given an opportunity to purchase stock in the Company, to
assist in retaining the services of employees, to secure and retain the
services of persons capable of filling such positions and to provide
incentive for such persons to exert maximum efforts for the success of
the Company. All of the Company's approximately 85 employees are
eligible to participate in the 1995 Plan.
ADMINISTRATION
The 1995 Plan is administered by the Board of Directors of the Company.
The Board has the power to construe and interpret the 1995 Plan and,
subject to the provisions of the 1995 Plan, to determine the persons to
whom and the dates of which options will be granted, the number of
shares to be subject to each option, the time or times during the term
of each option within which all or a portion of such option may be
exercised, the exercise price, the type of consideration and other terms
of the options. The Board of Directors is authorized to delegate
administration of the 1995 Plan to a committee of the Board. The Board
of Directors has delegated the administration of the 1995 Plan to the
Compensation Committee and has established a Non-Officer Stock Option
Committee consisting of Stephen J. Weiss, the Company's President and
Chief Executive Officer, with authority to grant stock options to
persons who are not at the time of the grant of the options subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "1934
Act"). As used herein with respect to the 1995 Plan, the Board of
Directors refers to the Compensation Committee and the Non-Officer Stock
Option Committee as well as to the Board of Directors itself.
ELIGIBILITY
Incentive stock options may be granted under the 1995 Plan to all
employees (including officers) of the Company and its affiliates.
Employees (including officers) and consultants are eligible to receive
nonstatutory stock options under the 1995 Plan. Directors who are not
salaried employees of or consultants to the Company or to any affiliate
of the Company are not eligible to participate in the 1995 Plan.
No option may be granted under the 1995 Plan to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than
10% of the total combined voting power of the Company or any affiliate
of the Company, unless the option exercise price is at least 110% of the
fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the
date of the grant. For incentive stock options granted under the 1995
Plan, the aggregate fair market value, determined at the time of grant,
of the shares of Common Stock with respect to which such options are
exercisable for the first time by an optionee during any calendar year
(under all such plans of the Company and its affiliates) may not exceed
$100,000.
STOCK SUBJECT TO THE 1995 PLAN
If options granted under the 1995 Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such
options again becomes available for issuance under the 1995 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1995 Plan. Individual option grants may be more restrictive as to
any or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1995 Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant, and
in some cases (see "Eligibility" above), may not be less than 110% of
such fair market value. The exercise price of nonstatutory stock
options under the 1995 Plan may not be less than 85% of the fair market
value of the Common Stock subject to the option on the date of grant.
However, if options were granted with exercise prices below market
value, deductions for compensation attributable to the exercise of such
options could be limited by Section 162(m). See "Federal Income Tax
Information." At March 11, 1997, the closing price of the Company's
Common Stock as reported on the Nasdaq National Market System was $9.13
per share.
In the event of a decline in the value of the Company's Common Stock,
the Board has the authority to offer employees the opportunity to
replace outstanding higher priced options, whether incentive or
nonstatutory, with new lower priced options. The Company has not
provided that opportunity to employees in the past.
The exercise price of options granted under the 1995 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the
Company, (ii) pursuant to a deferred payment arrangement or (c) in any
other form of legal consideration acceptable to the Board.
Option Exercise. Options granted under the 1995 Plan become exercisable
in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding options under the 1995 Plan typically vest
at a rate of 25% of the shares on the first anniversary of the date of grant
and 6.25% of the shares each quarter thereafter for the next three years
during the optionee's employment or services as a consultant. Shares covered
by options granted in the future under the 1995 Plan may be subject to
different vesting terms. The Board has teh power to accelerate the time
during which an option may be exercised. In addition, options granted under
the 1995 Plan may permit exercise prior to vesting, but in such event the
optionee may ve required to enter into an early exercise stock purchase
agreement that allows the Company to repurchase shares not yet vested at
their exercise price should the optionee leave the employ of the Company
before vesting. To the extent provided by the terms of an option, an
optionee may satisfy any federal, state or local tax withholding obligation
relating to the exercise of such option by a cash payment upon exercise, by
authorizing the Company to withhold a portion of the stock otherwise issuable
to the optionee, by delivering already-owned stock of the Company or by a
combination of these means.
Term. The maximum term of options under the 1995 Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is
five years. Options under the 1995 Plan terminate three months after
termination of the optionee's employment or relationship as a consultant
or director of the Company or any affiliate of the Company, unless (a)
such termination is due to such person's permanent and total disability
(as defined in the Code), in which case the option may, but need not,
provide that it may be exercised at any time within one year of such
termination; (b) the optionee dies while employed by or serving as a
consultant or director of the Company or any affiliate of the Company,
or within three months after termination of such relationship, in which
case the option may, but need not, provide that it may be exercised (to
the extent the option was exercisable at the time of the optionee's
death) within eighteen months of the optionee's death by the person or
persons to whom the rights to such option pass by will or by the laws of
decent and distribution; or (c) the option by its terms specifically
provides otherwise. Individual options by their terms may provide for
exercise within a longer period of time following termination of
employment or the consulting relationship. The option term may also be
extended in the event that exercise of the option within these periods
is prohibited for specific reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1995 Plan or subject
to any option granted under the 1995 Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend,
dividend in property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure
or otherwise), the 1995 Plan and options outstanding thereunder will be
appropriately adjusted as to the class and the maximum number of shares
subject to such plan, and the class, number of shares and price per
share of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1995 Plan provides that, in the event of a dissolution of
liquidation of the Company, specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving
corporation will be required to assume options outstanding under the
1995 Plan or substitute similar options for those outstanding under such
plan, or such outstanding options will continue in full force and
effect. In the event that any surviving corporation declines to assume
or continue options outstanding under the 1995 Plan, or to substitute
similar options, then the time during which such options may be
exercised will be accelerated and the options terminated if not
exercised during such time. The acceleration of an option in the event
of an acquisition or similar corporate event may be viewed as an
antitakeover provision, which may have the effect of discouraging a
proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1995 Plan without stockholder
approval or ratification at any time or from time to time. Unless
sooner terminated, the 1995 Plan will terminate in September 2005.
The Board may also amend the 1995 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the
stockholders of the Company within twelve months before or after its
adoption by the Board if the amendment would: (a) modify the
requirements as to eligibility for participation (to the extent such
modification requires stockholder approval in order for the Plan to
satisfy Section 422 of the Code, if applicable, or Rule 16b-3 ("Rule
16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for
issuance upon exercise of options; or (c) change any other provision of
the Plan in any other way if such modification requires stockholder
approval, including, but not limited to, amendments intended to satisfy
the requirements of Section 162(m) of the Code regarding the exclusion
of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the 1995 Plan, options are generally nontransferable by the
optionee other than by will or by the laws of descent and distribution
and during the lifetime of the optionee, may be exercised only by the
optionee. In addition, shares subject to repurchase by the Company
under an early exercise stock purchase agreement may be subject to
restrictions on transfer which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1995 Plan
are intended to be eligible for the favorable federal income tax
treatment accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock
option. However, the exercise of an incentive stock option may increase
the optionee's alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is
granted and at least one year from the date on which the shares are
transferred to the optionee upon exercise of the option, any gain or
loss on a disposition of such stock will be long-term capital gain or
loss. Generally, if the optionee disposes of the stock before the
expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize
taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise
price, or (b) the optionee's actual gain, if any, on the purchase and
sale. The optionee's additional gain, or any loss, upon the
disqualifying disposition will be a capital gain or loss, which will be
long-term or short-term depending on whether the stock was held for more
than one year. Long-term capital gains currently are generally subject
to lower tax rates than ordinary income. The maximum capital gains rate
for federal income tax purposes is currently 28% while the maximum
ordinary income rate is effectively 39.6% at the present time. Slightly
different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled
(subject to the requirement of reasonableness, the provisions of Section
162(m) of the Code and the satisfaction of a tax reporting obligation)
to a corresponding business expense deduction in the tax year in which
the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under
the 1995 Plan generally have the following federal income tax
consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a nonstatutory option. Upon exercise of a nonstatutory
option, the optionee normally will recognize taxable ordinary income
equal to the excess of the stock's fair market value on the date of
exercise over the option exercise price. Generally, with respect to
employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the
provisions of Section 162(m) of the Code and the satisfaction of a tax
reporting obligation, the Company will generally be entitled to a
business expense deduction equal to the taxable ordinary income realized
by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the
selling price and the sum of the amount paid for such stock plus any
amount recognized as ordinary income upon exercise of the option. Such
gain or loss will be long or short-term depending on whether the stock
was held for more than one year. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who
are subject to Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. As a part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to
add Section 162(m), which denies a deduction to any publicly held
corporation for compensation paid to certain employees in a taxable year
to the extent that compensation exceeds $1,000,000 for a covered
employee. It is possible that compensation attributable to stock
options, when combined with all other types of compensation received by
a covered employee from the Company, may cause this limitation to be
exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation.
In accordance with Treasury regulations issued under Section 162(m),
compensation attributable to stock options will qualify as performance-
based compensation, provided that the option is granted by a
compensation committee comprised solely of "outside directors" and
either: (i) the option plan contains a per-employee limitation on the
number of shares for which options may be granted during a specified
period, the per-employee limitation is approved by the stockholder, and
the exercise price of the option is no less than the fair market value
of the stock on the date of grant; or (ii) the option is granted (or
exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in
writing by the compensation committee while the outcome is substantially
uncertain, and the option is approved by stockholders.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP as the
Company's independent accountants for the fiscal year ending December
31, 1997, and has further directed that management submit the selection
of independent accountants for ratification by the stockholders at the
Annual Meeting. Price Waterhouse LLP has audited the Company's
financial statements since the fiscal year ended December 31, 1992. A
representative of Price Waterhouse LLP is expected to be present at the
Annual Meeting, will have an opportunity to make a statement if he so
desires and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Price Waterhouse LLP as the
Company's independent accountants is not required by the Company's By-
laws or otherwise. However, the Board is submitting the selection of
Price Waterhouse LLP to the stockholders for ratification as a matter of
good corporate practice. If the stockholders fail to ratify the
selection, the Audit Committee and the Board will reconsider whether or
not to retain that firm. Even if the selection is ratified, the Audit
Committee and the Board in their discretion may direct the appointment
of different independent accountants at any time during the year if they
determine that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual
Meeting will be required to ratify the selection of Price Waterhouse
LLP.
MANAGEMENT RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of February 3, 1997 by: (i)
each director and nominee for director; (ii) each of the executive
officers named in the Summary Compensation Table; (iii) all executive
officers and directors of the Company as a group; and (iv) all those
known by the Company to be beneficial owners of more than five percent
of its Common Stock.
Beneficial Ownership (1)
-----------------------
Number of Percent of
Beneficial Owner Shares Total
- ---------------- ---------- ----------
The TCW Group, Inc. . . . . . . . . . 564,300 8.80%
865 South Figueroa Street
Los Angeles, CA 90017
Bala S. Manian. . . . . . . . . . . . 369,597 5.76
Biometric Imaging
1025 Terra Bella Avenue
Mountain View, CA 94043
C. Richard Kramlich (2) . . . . . . . 214,104 3.33
Stephen J. Weiss (3). . . . . . . . . 175,577 2.72
Craig L. Klosterman (4) . . . . . . . 69,654 1.08
John M. Burgess (5) . . . . . . . . . 70,468 1.09
Linden J. Livoni (6). . . . . . . . . 78,469 1.22
Douglas G. DeVivo, Ph.D. (7). . . . . 50,000 *
Matthew D. Miller, Ph.D.. . . . . . . 14,063 *
Jesse Treu (8). . . . . . . . . . . . 12,641 *
Kuldip K. Ahluwalia . . . . . . . . . 0 *
All directors and executive officers
as a group (9 persons) (9) . . . . . 684,976 10.46
- ----------------------------------
* Less than one percent.
(1) This table is based upon information supplied by officer, directors
and principal stockholders and Schedules 13D and 13G filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise
indicated in the footnotes to this table and subject to community
property laws where applicable, the Company believes that each of the
stockholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 6,425,578 shares outstanding on February 3,
1997, adjusted as required by rules promulgated by the SEC.
(2) Includes 199,736 shares beneficially owned by New Enterprise
Associates IV, Limited Partnership, a Delaware limited partnership. Mr.
Kramlich is a general partner of NEA Partners IV, Limited Partnership, a
Delaware limited partnership, which is the general partner of New
Enterprise Associates IV, Limited Partnership, a Delaware limited
partnership. Mr. Kramlich shares voting and investment power with
respect to such shares and disclaims beneficial ownership of such shares
except to the extent of his proportionate partnership interest therein.
Also includes 7,031 shares subject to stock options exercisable within
60 days of February 3, 1997.
(3) Includes 30,000 shares subject to stock options exercisable within
60 days of February 3, 1997.
Includes 24,087 shares subject to stock options exercisable within 60
days of February 3, 1997.
(4) Includes 24,218 shares subject to stock options exercisable within
60 days of February 3, 1997.
(5) Includes 11,719 shares subject to stock options exercisable within
60 days of February 3, 1997.
(6) Includes 25,000 shares subject to stock options exercisable within
60 days of February 3, 1997.
(7) Includes 5,859 shares beneficially owned by Domain Associates. Dr.
Treu is a general partner of Domain Associates. Dr. Treu shares voting
and investment power with respect to such shares and disclaims
beneficial ownership of such shares except to the extent of his
proportionate partnership interest therein. Also includes 1,172 shares
subject to stock options exercisable within 60 days of February 3, 1997.
(8) Includes 205,595 shares held by entities affiliated with certain
directors and includes 123,227 shares subject to stock options held by
directors and officers exercisable within 60 days of February 3, 1997.
See footnotes (2)-(8).
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the SEC initial reports of ownership and
reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten
percent stockholders are required by the SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
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 the fiscal year ended December
31, 1996, all Section 16(a) filing requirements applicable to its
officer, directors and greater than ten percent beneficial owners were
complied with; except that Mr. Thordarson, a former executive officer of
the Company, filed one late report covering one transaction occurring
after he left the Company. The report was filed once he became aware of
the requirement to report certain post-termination transactions. In
addition, an initial report of ownership was filed late by Mr. Ahluwalia
and one report was filed late by Mr. Kramlich.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors do not currently receive any cash compensation from the
Company for their service as members of the Board of Directors, although
they are reimbursed for certain expenses in connection with attendance
at Board and Committee meetings. Douglas G. DeVivo, Ph.D., Chairman of
the Board of the Company, received the amount of $15,000 during 1996 for
services rendered to the Company.
In August 1995, the Board adopted the 1995 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant
of options to purchase shares of Common Stock to non-employee directors
of the Company ("Non-Employee Directors"). The maximum number of shares
of Common Stock that may be issued pursuant to options granted under the
Directors' Plan is 112,500. Pursuant to the terms of the Directors'
Plan, each Non-Employee Director (other than a compensated Chairman of
the Board) will automatically be granted an option to purchase 18,750
shares of Common Stock on the date of his or her election to the Board.
On the date of adoption of the Directors' Plan, each person who was then
a Non-Employee Director of the Company and who had not received within
the one-year period prior to adoption of the Directors' Plan either an
option grant or the right to purchase shares of Common Stock of the
Company, was granted an option to purchase 18,750 shares of Common Stock
of the Company under the Directors' Plan. Thereafter each Non-Employee
Director will automatically be granted an option to purchase an
additional 18,750 shares of Common Stock under the Directors' Plan on
the date any and all previous options or stock purchases by such person
either under the Directors' Plan or otherwise become fully vested.
Outstanding options under the Directors' Plan vest at the rate of 25% of
the shares subject to the option on the first anniversary of the date of
grant and 6.25% of the shares subject to the option each quarter
thereafter for the next three years. The exercise price of options
granted under the Directors' Plan must equal the fair market value of
the Common Stock on the date of grant. No option granted under the
Directors' Plan may be exercised after the expiration of ten years from
the date it was granted. Options granted under the Directors' Plan are
generally non-transferable. The Directors' Plan will terminate on
August 15, 2005, unless earlier terminated by the Board.
In the event of a merger or consolidation, or a reverse merger or
reorganization in which the Company is not the surviving corporation,
options outstanding under the Directors' Plan will automatically become
fully vested and will terminate if not exercised prior to such event.
During the last fiscal year, the Company did not grant any options under
the Directors' Plan. As of February 3, 1997, 5,859 options were
exercised under the Directors' Plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1995
and 1996, compensation awarded or paid to, or earned by, the Company's
Chief Executive Officer and the Company's other executive officers who
earned more than $100,000 during the year ended December 31, 1996 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
Long-term
Compensation
Awards
Annual Compensation --------------
------------------- Securities All Other
Name and Salary Bonus Underlying Compensation
Principal Position Year ($) ($)(1) Options (#) ($)(2)
- ------------------------ ----- --------- --------- ------------- -----------
Stephen J. Weiss . . . 1996 $179,432 $40,346 --- $ 500
President and Chief 1995 138,613 65,246 25,000 500
Executive Officer
Craig L. Klosterman . . 1996 144,500 30,319 --- 500
Chief Operating and 1995 128,769 40,006 25,000 500
Financial Officer
John M. Burgess . . . . 1996 125,000 105,325(3) --- 500
Vice President, Sales 1995 125,000 86,346(4) 12,500 500
Linden J. Livoni . . . 1996 129,717 27,100 --- 500
Vice President, 1995 119,653 31,738 --- 500
Engineering
Eystein G. Thordarson. . 1996 132,872 --- --- 500
Former Vice President 1995 134,000(5) 10,000 75,000 500
and President of
Imagraph Corporation
- --------------------------------
(1) Bonus payments are based on the individuals performance, the
individual's salary level and the Company's overall financial
performance. Also includes interest forgiven on loans from the Company
to Messrs. Weiss, Klosterman, Burgess and Livoni. See "Certain
Transactions."
(2) Consists of $500 per year in Company matching payments under its
401(k) Plan.
(3) Includes a commission payment of $104,643.
(4) Includes a commission payment of $82,800.
(5) Mr. Thordarson joined the Company in March 1995 when the Company
acquired Imagraph Corporation. Includes salary paid to Mr. Thordarson
in 1995 prior to the Company's acquisition of Imagraph Corporation.
STOCK OPTION GRANTS AND EXERCISES
The Company has granted options to its executive officers under its 1987
Stock Option Plan and in the future, intends to grant options under its
1995 Stock Option Plan (the "1995 Plan"). As of February 3, 1997,
options to purchase 196,375 shares remained available for grant under
the 1995 Plan. In 1996, no options were granted to the Named Executive
Officers.
The following table shows for the fiscal year ended December 31, 1996,
certain information regarding options exercised by and held at year end
by the Named Executive Officers:
Aggregate Option Exercises in 1996 and December 31, 1996 Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired December 31, December 31,
on Value 1996 (#) 1996 ($)(2)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($)(1) Unexercisable Unexercisable
- -------- --------- ---------- -------------- ------------------
Stephen J. Weiss . . . --- --- 26,374/31,626 $189,379/184,861
Craig L. Klosterman . . . --- --- 20,493/31,407 139,364/182,938
John M. Burgess . . . . --- --- 21,874/15,626 176,118/110,632
Linden J. Livoni . . . . --- --- 10,547/8,203 92,603/72,022
Eystein G. Thordarson 23,350 $447,553 9,462/--- 77,399/---
- -------------------------------
(1) Value realized is based on the fair market value of the Company's
Common Stock on the date of exercise minus the exercise price and does
not necessarily indicate that the optionee sold such stock.
(2) Fair market value of the Company's Common Stock at December 31,
1996 ($9.38) minus the exercise price of the options multiplied by the
number of shares underlying the option.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS ON EXECUTIVE COMPENSATION
During the year ended December 31, 1996 the Compensation Committee of
the Board of Directors (the "Committee") was comprised of Messrs.
Kramlich, Miller and Treu, none of whom has been an officer or employee
of the Company. The Committee is responsible for establishing the
Company's compensation for the executive officers.
The goals of the compensation program are to align compensation with
business objectives and performance and to enable the Company to
attract, retain and reward executive officers and other key employees
who contribute to the long-term success of the Company and to motivate
them to enhance long-term stockholder value. To meet these goals, the
Committee has adopted a mix among the compensation elements of salary,
bonus (or commission with respect to Mr. Burgess) and stock options.
Base Salary. The Committee meets at least annually to review and
approve each executive officer's salary for the ensuing year. When
reviewing base salaries, the Committee considers the following factors,
in order of importance: competitive pay practices, individual
performance, levels of responsibility, breadth of knowledge and prior
experience. To provide the Committee with more information for making
compensation comparisons, the Company surveys a group of comparable
companies that have recently made public offerings or are publicly
traded, with a capitalization similar to that of the Company. The
companies appearing in this self-selected peer group survey include some
companies that are not included in the Nasdaq or Dow Jones Advanced
Technology Medical Devices indices as the Company desires to provide the
committee with more information for making compensation comparisons.
Based upon such survey, the executive officers' salaries are set in the
mid-range as compared to comparable companies.
Bonus. The bonus program is a variable pay program for executive
officers and other key employees of the Company. The Committee meets in
January following the year of the awards to be made to determine the
amount of the bonuses. The bonus award depends on the extent to which
the Company and individual performance objectives are achieved. The
Company's objectives consist of operating, strategic and financial goals
that are considered to be critical to the Company's fundamental long-
term goal of building shareholder value. For fiscal 1996, these goals
were (i) identification, successful acquisition and integration of
complementary products and technologies (ii) penetration of new
geographic markets and gains in market share with newly introduced
products, specifically the Lumiscan 20 (iii) increases in revenue and
net income over the prior years, and (iv) introduction of new products,
including the successful launch of the Lumiscan 110. These goals were
partially met and bonuses were awarded, ranging from $10,000 to $36,000.
With respect to Mr. Burgess, the Company's Vice President, Sales, no
bonus payment is awarded, but rather a commission based solely on a
percentage of sales during the fiscal year is made based on sales goals
set by the Committee at the beginning of the fiscal year.
Stock Options. The Option Plans maintained by the Company have been
established to provide all employees of the Company with an opportunity
to share, along with stockholders of the Company, in the long-term
performance of the Company. Initial grants of stock options are
generally made to all eligible employees upon commencement of
employment, with additional grants being made to certain employees
periodically or following a significant change in the job
responsibilities, scope or title of such employment. Stock options
under the Options Plans generally vest over a four-year period and
expire ten years from the date of grant. The exercise price of such
options is usually 100% of the fair market value of the underlying stock
on the date of grant.
Guidelines for the number of stock options for each participant under
the Option Plans are generally determined by a formula established by
the Committee whereby several factors are applied to the salary and
performance level of each participant and then related to the
approximate market price of the stock at the time of grant. In awarding
stock options, the Committee considers individual performance, overall
contribution to the Company, officer retention, the number of unvested
stock options held by the officer and the total number of stock options
to be awarded. During fiscal 1996, after considering the criteria
relating to awarding stock options, the Committee determined that no
grants be made to the Named Executive Officers of the Company. A grant
of 50,000 shares was made to Kuldip Ahluwalia, the Company's Vice
President, Marketing and Business Development, upon his hire date in
November 1996.
Section 162(m) of the Internal Revenue Code (the "Code") limits the
Company to a deduction for federal income tax purposes of no more than
$1 million of compensation paid to certain Named Executive Officers in a
taxable year. Compensation above $1 million may be deducted if it is
"performance-based compensation." The Compensation Committee has
determined that stock options granted under the Company's 1995 Plan with
an exercise price at least equal to the fair market value of the
Company's Common Stock on the date of grant shall be treated as
"performance-based compensation" and any compensation recognized by a
Named Executive Officer as a result of the grant of such a stock options
is deductible by the Company.
CEO Compensation. The Committee uses the same procedures described
above in setting the annual salary, bonus and stock option awards for
the CEO. The CEO's salary is determined based on comparisons with
recently public comparable companies. Mr. Weiss' 1996 salary of 179,432
was lower than the average for such comparable companies. As described
above, since the Company partially met its corporate and financial
objectives, the Committee rated Mr. Weiss' performance as average and
awarded him a bonus of $36,000.
Summary. Through the plans described above, a significant portion of
the Company's compensation program for its executive officers (including
the CEO) is contingent upon the Company's performance, and realization
of benefits by the CEO and the other executive officers is closely
linked to increases in long-term shareholder value. The Company remains
committed to this philosophy of pay for performance, recognizing that
the competitive market for talented executives and the volatility of the
Company's business may result in highly variable compensation during any
given annual period.
COMPENSATION COMMITTEE
C. Richard Kramlich
Matthew D. Miller, Ph.D.
Jesse I. Treu, Ph.D.
PERFORMANCE MEASUREMENT COMPARISON (1)
The following graph shows the total stockholder return of an investment
of $100 in cash on November 15, 1995 for (i) the Company's Common Stock,
(ii) the Nasdaq Stock Market Index ("Nasdaq") and (iii) the Dow Jones
Advanced Technology Medical Devices Index ("Dow Jones ATMD"). All
values assume reinvestment of the full amount of all dividends and are
calculated as of December 31 of each year. Although the Securities and
Exchange Commission regulations generally require the graph to cover a
five-year period, the graph below covers the period between the
commencement of public trading of the Company's stock on November 15,
1995 and December 31, 1996. The comparisons in the graph are required
by the Securities and Exchange Commission and are not intended to
forecast or to be indicative of possible future performance of the
Company's Common Stock.
11/15/95 12/31/95 12/31/96
-------- -------- --------
Lumisys Incorporated 100.00 155.17 126.72
Industry Index 100.00 109.35 118.12
Broad Market 100.00 99.63 123.81
- --------------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with
the SEC and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended or the 1934 Act
whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
CERTAIN TRANSACTIONS
In May 1994, the Company loaned the following directors and officers of
the Company the amounts set forth below in connection with such person's
exercise of certain outstanding stock options. Each loan was made
pursuant to a promissory note secured by the underlying stock, bears
interest at the rate of 4.94% per year and becomes due and payable on
May 31, 1997.
Name Amount
---- -------
Stephen J. Weiss. . . . . . . . . . . . $65,250
John M. Burgess . . . . . . . . . . . . ---
Linden J. Livoni. . . . . . . . . . . . 12,225
Craig L. Klosterman . . . . . . . . . . 22,050
Douglas G. DeVivo, Ph.D.. . . . . . . . 15,000
The Company believes that the foregoing transactions were in its best
interests and were on terms no less favorable to the Company than could
be obtained from unaffiliated third parties.
The Company has entered into indemnity agreements with certain officers
and directors which provide, among other things, that the Company will
indemnify such officer or director, under the circumstances and to the
extent provided for therein, for expenses, damages, judgments, fines and
settlements he may be required to pay in actions or proceedings which he
is or may be made a party by reason of his position as a director,
officer or other agent of the Company, and otherwise to the full extent
permitted under Delaware law and the Company's By-laws.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are
properly brought before the meeting, it is the intention of the persons
named in the accompanying proxy to vote on such matters in accordance
with their best judgment.
By Order of the Board of Directors
Andrei M. Manoliu
Secretary
April 8, 1997
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