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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. ___)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
[x ] Definitive Proxy Statement the Commission only (as
[ ] Definitive Additional Materials permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
TECHNOLOGY MODELING ASSOCIATES, INC.
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Persons(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x ] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by
exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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TECHNOLOGY MODELING ASSOCIATES, INC.
595 LAWRENCE EXPRESSWAY
SUNNYVALE, CALIFORNIA 94086
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 22, 1997
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
TECHNOLOGY MODELING ASSOCIATES, INC., a California corporation (the "Company"),
will be held on Thursday, May 22, 1997 at 3:00 p.m. local time, at the Sunnyvale
Hilton Inn at 1250 Lakeside Drive, Sunnyvale, CA 94086 for the following
purposes:
1. To elect directors to serve until the next Annual Meeting of
Shareholders and until their successors are elected.
2. To ratify the appointment of Arthur Andersen, LLP as independent
auditors of the Company for the fiscal year ending December 31, 1997.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in
the Proxy Statement accompanying this Notice. Only shareholders of record at
the close of business on March 31, 1997 are entitled to notice of and to vote
at the meeting.
All shareholders are cordially invited to attend the meeting
in person. However, to assure your representation at the meeting, you are
urged to mark, sign, date and return the enclosed Proxy as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
shareholder attending the meeting may vote in person even if he or she has
returned a Proxy.
Sincerely,
John A. DiGirolamo
SECRETARY
Sunnyvale, California
April 11, 1997
YOUR VOTE IS IMPORTANT. IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
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TECHNOLOGY MODELING ASSOCIATES, INC.
PROXY STATEMENT FOR 1997
ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of
Directors of TECHNOLOGY MODELING ASSOCIATES, INC., a California corporation
(the "Company"), for use at the Annual Meeting of Shareholders (the "Annual
Meeting") to be held on Thursday, May 22, 1997 at 3:00 p.m. local time, at
the Sunnyvale Hilton Inn at 1250 Lakeside Drive, Sunnyvale, CA 94086. The
Company's principal executive offices are located at 595 Lawrence Expressway,
Sunnyvale, CA 94086. Its telephone number at that location is (408) 328-0930.
These proxy solicitation materials and the Annual Report to
Shareholders for the year ended December 31, 1996, including financial
statements, were first mailed on or about April 11, 1997 to all shareholders
entitled to vote at the Annual Meeting.
SOLICITATION
The cost of soliciting proxies will be borne by the Company.
In addition, the Company may reimburse brokerage houses and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. The Company will furnish
copies of solicitation material to such brokerage houses and other
representatives. Proxies may also be solicited by certain of the Company's
directors, officers and employees, without additional compensation,
personally or by telephone or by telegram. Except as described above, the
Company does not presently intend to solicit proxies other than by mail.
RECORD DATE AND VOTING
Only shareholders of record at the close of business on March
31, 1997 are entitled to notice of, and to vote at the Annual Meeting. The
Company has one series of Common Shares outstanding, designated Common Stock,
no par value. At the record date, 7,692,669 shares of the Company's Common
Stock were issued and outstanding and held of record by 63 shareholders.
Each shareholder is entitled to one vote for each share held.
A quorum comprising the holders of the majority of the outstanding shares of
Common Stock on the record date must be present or represented for the
transaction of business at the Annual Meeting. All valid proxies received
before the Annual Meeting will be exercised. All shares represented by a
proxy will be voted, and where a shareholder specifies by means of his or her
proxy a choice with respect to any matter to be acted upon, the shares will
be voted in accordance with the specification so made. If no choice is
indicated on the proxy, the shares will be voted in favor of the proposal.
With respect to Proposal No. 1, directors will be elected by a plurality of
the votes of the shares of Common Stock present in person or represented by
proxy at the Annual Meeting and voting on the election of directors.
Proposal No. 2 requires for approval the affirmative vote of a majority of
the shares of Common Stock present in person or represented by proxy at the
Annual Meeting and voting on the proposal. In addition, the affirmative
votes for Proposal No. 2 must constitute at least a majority of the required
quorum. A shareholder who abstains on any or all matters will be deemed
present at the Annual Meeting for quorum purposes, but will not be deemed to
have voted on such matter (or matters) as to which
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the shareholder has abstained. In the event a nominee (such as a brokerage
firm) that is holding shares for a beneficial owner does not receive
instructions from such beneficial owner as to how to vote those shares on
certain matters and does not have discretionary authority to vote on those
matters, then the shares held by the nominee will be deemed present at the
Annual Meeting for quorum purposes but will not be deemed to have voted on
such other matters (a so-called "non-vote").
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy
Statement has the power to revoke it prior to the Annual Meeting or at the
Annual Meeting prior to the vote pursuant to the proxy. A proxy may be
revoked by any of the following methods: (i) a written instrument delivered
to the Company stating that the proxy is revoked; (ii) a subsequent proxy
that is signed by the person who signed the earlier proxy and is presented at
the Annual Meeting; or (iii) attendance at the Annual Meeting and voting in
person. Please note, however, that if a shareholder's shares are held of
record by a broker, bank or other nominee and that shareholder wished to vote
at the Annual Meeting, the shareholder must bring to the Annual Meeting a
letter from the broker, bank or other nominee confirming that shareholder's
beneficial ownership of the shares.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to
be presented by such shareholders at the Company's 1998 Annual Meeting of
Shareholders must be received by the Company no later than December 12, 1997
in order that they may be considered for inclusion in the proxy statement and
form of proxy relating to that meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
A board of five directors is to be elected at the Annual
Meeting of Shareholders. Unless otherwise instructed, the proxy holders will
vote the proxies received by them for the Company's five nominees named
below, all of whom are presently directors of the Company. In the event that
any nominee of the Company is unable or declines to serve as a director at
the time of the Annual Meeting of Shareholders, the proxies will be voted for
any nominee who shall be designated by the present Board of Directors to fill
the vacancy. The Company is not aware of any nominee who will be unable or
will decline to serve as a director. In the event that additional persons
are nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner as will assure the election of as
many of the nominees listed below as possible, and, in such event, the
specific nominees to be voted for will be determined by the proxy holders.
The term of office for each person elected as a director will continue until
the next Annual Meeting of Shareholders or until a successor has been elected
and qualified.
NOMINEES
The names of the nominees and certain information about them
are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ---- --- -------------------- -----
<S> <C> <C> <C>
Roy E. Jewell 42 President, Chief Executive Officer, 1993
and Chairman of the Board of the Company
Louis A. Delmonico (1) (2) 55 Financial Consultant 1995
William E. Drobish (2) 58 Financial Consultant 1988
Robert W. Dutton (1) 53 Professor of Electrical Engineering 1981
Ronald A. Rohrer (1) (2) 57 Semiconductor Industry Consultant 1995
</TABLE>
___________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
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There are no family relationships between any director or
executive officer of the Company.
ROY E. JEWELL has been President and Chief Executive Officer
of the Company since July 1992 and Chairman of the Board of the Company since
May 1993. He began his employment with the Company in June 1988 as a product
marketing engineer, and from May 1991 to July 1992, he was Vice President of
Marketing and Sales of the Company. Mr. Jewell received his B.S. and M.A. in
Physics from the University of South Florida and his M.S. in Management and
Administration Science from the University of Texas, Dallas.
LOUIS A. DELMONICO has served as a director of the Company
since April 1995. Since September 1994, he has been president of his own
management consulting firm. From August 1994 to July 1995, Dr. Delmonico
served as Vice Chairman of The MacNeal-Schwendler Corporation and from May
1987 to August 1994, was Chairman and Chief Executive Officer of PDA
Engineering. He is also a director and advisor to several private companies.
Dr. Delmonico received his B.A. in Economics from St. John's University, his
M.S. in Consumer Behavior from the International Graduate School, University
of Stockholm and his Ph.D. in Marketing from the University of Uppsala,
Sweden.
WILLIAM E. DROBISH has served as a director of the Company
since July 1988. Since 1984, he has been a part-time instructor at the
University of California, Irvine. Dr. Drobish received his B.S., M.S. and
Ph.D. in Electrical Engineering from Purdue University.
ROBERT W. DUTTON was a founder of the Company and has served
as a director since May 1981. Since 1971, Dr. Dutton has been a Professor of
Electrical Engineering at Stanford University. Since 1991, he has also
served as director of Research for the Center for Integrated Systems at
Stanford University. Dr. Dutton received his B.S., M.S. and Ph.D. in
Electrical Engineering from the University of California, Berkeley.
RONALD A. ROHRER has served as a director of the Company since
November 1995. He is a semiconductor industry consultant who has served on
the boards of directors of five other high technology start-up companies. Dr.
Rohrer received his B.S. in Electrical Engineering from the Massachusetts
Institute of Technology and his M.S. and Ph.D. in Electrical Engineering from
the University of California, Berkeley.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of nine
meetings during 1996. No director attended fewer than 75% of the aggregate
of the total number of meetings of the Board of Directors and the total
number of meetings held by all committees of the Board on which such director
served, except Yoshio Nishi, who resigned in February 1997. The Board of
Directors has an Audit Committee and a Compensation Committee. The Board of
Directors has no nominating committee or any committee performing such
functions.
The Audit Committee, which consisted of Messrs. Drobish,
Delmonico and Rohrer during 1996, is responsible for overseeing actions taken
by the Company's independent auditors and reviews the Company's internal
financial controls. The Audit Committee met three times during 1996. Dr.
Drobish is the Chairman of the Audit Committee of the Board.
The Compensation Committee, which consisted of Messrs.
Delmonico, Dutton and Rohrer during 1996, met three times during 1996. The
Compensation Committee is responsible for determining salaries, incentives
and other forms of compensation for executive officers and other employees of
the Company and administers various incentive compensation, equity and
benefit plans. Dr. Delmonico is the Chairman of the Compensation Committee
of the Board.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF
THE NOMINATED DIRECTORS.
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PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP,
independent auditors, to audit the consolidated financial statements of the
Company for the fiscal period ending December 31, 1997, and recommends that
shareholders vote for ratification of such appointment. Notwithstanding the
selection, the Board of Directors, in its discretion, may direct the
appointment of new independent auditors at any time during the year, if the
Board believes that such a change would be in the best interests of the
Company and its shareholders. In the event of a negative vote on
ratification, the Board of Directors will reconsider its selection.
Arthur Andersen LLP has audited the Company's financial
statements since 1995. Representatives of Arthur Andersen LLP are expected
to be present at the Annual Meeting with the opportunity to make a statement
if they desire to do so, and are expected to be available to respond to
appropriate questions.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS.
SUMMARY OF 1996 EQUITY INCENTIVE PLAN, 1996 DIRECTORS STOCK OPTION PLAN AND
1996 EMPLOYEE STOCK PURCHASE PLAN
BELOW IS A SUMMARY OF THE PRINCIPAL PROVISIONS OF THE
COMPANY'S 1996 EQUITY INCENTIVE PLAN, 1996 DIRECTORS STOCK OPTION PLAN AND
1996 EMPLOYEE STOCK PURCHASE PLAN. THERE IS NO NEED FOR SHAREHOLDER APPROVAL
OF THESE PLANS AT THE ANNUAL MEETING, AND NONE IS BEING SOUGHT. THESE
SUMMARIES ARE PROVIDED TO INFORM SHAREHOLDERS OF THE PLANS AND ARE QUALIFIED
IN THEIR ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH PLANS.
SUMMARY OF THE 1996 EQUITY INCENTIVE PLAN
EQUITY INCENTIVE PLAN HISTORY
The Board adopted, and the shareholders approved, the
Company's 1996 Equity Incentive Plan (the "Incentive Plan") in July 1996.
The purpose of the Incentive Plan is to provide incentives to attract, retain
and motivate qualified employees, officers, directors, consultants,
independent contractors and advisors whose present and potential
contributions are important to the success of the Company, by offering them
an opportunity to participate in the Company's future performance through
awards of stock options, restricted stock and stock bonuses.
SHARES SUBJECT TO THE INCENTIVE PLAN
The stock subject to issuance under the Incentive Plan
consists of shares of the Company's authorized but unissued Common Stock.
The number of shares currently reserved for issuance under the Incentive Plan
is 1,500,000 shares. If any option granted pursuant to the Incentive Plan or
the Company's 1989 Stock Option Plan or 1995 Stock Option Plan (both of which
were terminated on September 19, 1996) expires or terminates for any reason
without being exercised in whole or in part, or any award granted pursuant to
the Incentive Plan terminates without shares being issued, or any award is
forfeited or repurchased by the Company at the original purchase price, the
shares released from such award will again become available for grant and
purchase under the Incentive Plan. The number of shares reserved for
issuance under the Incentive Plan is subject to proportional adjustment to
reflect stock splits, stock dividends and other similar events.
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ADMINISTRATION
The Incentive Plan is administered by the Compensation
Committee (the "Committee"), the members of which are appointed by the Board.
The Committee currently consists of directors Delmonico, Dutton and Rohrer,
each of whom are "Non-Employee Directors," as that term is defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
"outside directors," as that term is defined pursuant to Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code").
Subject to the terms of the Incentive Plan, the Committee
determines the persons who are to receive awards, the number of shares
subject to each such award and the terms and conditions of each such award.
The Committee has the authority to construe and interpret any of the
provisions of the Incentive Plan or any awards granted thereunder. Members
of the Compensation Committee are not eligible to receive awards under the
Incentive Plan.
ELIGIBILITY
Employees, officers, directors, consultants, independent
contractors and advisors of the Company (and of any parent or subsidiaries)
are eligible to receive awards under the Incentive Plan. No person who
receives an award under the Incentive Plan (a "Participant") is eligible to
receive more than 500,000 shares of Common Stock in any calendar year under
the Incentive Plan, other than new employees of the Company (including
directors and officers who are also new employees) who are eligible to
receive up to a maximum of 800,000 shares of Common Stock in the calendar
year in which they commence their employment with the Company. As of March
31, 1997, approximately 93 persons were eligible to participate in the
Incentive Plan.
STOCK OPTIONS
The Incentive Plan permits the granting of options that are
intended to qualify either as Incentive Stock Options ("ISOs") or
Nonqualified Stock Options ("NQSOs"). ISOs may be granted only to employees
(including officers and directors who are also employees) of the Company or
any parent or subsidiary of the Company.
The option exercise price for each ISO share must be no less
than 100% of the "fair market value" (as defined in the Incentive Plan) of a
share of Common Stock on the date the ISO is granted. In the case of an ISO
granted to a 10% shareholder, the exercise price for each such ISO share must
be no less than 110% of the fair market value of a share of Common Stock on
the date the ISO is granted. The option exercise price for each NQSO share
must be no less than 85% of the fair market value of a share of Common Stock
on the date of grant. To date, the Company has not granted options under the
Incentive plan at less than fair market value.
The exercise price of options granted under the Incentive Plan
may be paid as approved by the Committee at the time of grant: (1) in cash
(by check); (2) by cancellation of indebtedness of the Company to the
Participant; (3) by surrender of shares of the Company's Common Stock (owned
by the Participant for at least six months if such shares were not obtained
by the Participant in the public market) having a fair market value on the
date of surrender equal to the aggregate exercise price of the option; (4) by
tender of a full recourse promissory note; (5) by waiver of compensation due
to or accrued by the Participant for services rendered; (6) by a "same-day
sale" commitment from the Participant and a National Association of
Securities Dealers, Inc. ("NASD") broker; (7) by a "margin" commitment from
the Participant and a NASD broker; or (8) by any combination of the
foregoing.
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TERMINATION OF OPTIONS
Options are generally exercisable for a period of 10 years.
Options granted under the Incentive Plan terminate three months (or such
shorter or longer period as determined by the Committee not exceeding five
years) after the Participant ceases to be employed or retained by the Company
unless the termination of employment is due to disability or death, in which
case the option may, but need not, provide that it may be exercised at any
time within 12 months of termination to the extent the option was exercisable
on the date of termination. If a Participant is determined by the Board to
have committed an act of theft, embezzlement, fraud, dishonesty or breach of
fiduciary duty to the Company (or its Parent or subsidiaries), such
Participant's options will terminate on the date such Participant ceases to
be employed or retained by the Company. In no event will an option be
exercisable after the expiration date of the option.
RESTRICTED STOCK AWARDS
The Committee may grant Participants restricted stock awards
to purchase stock either in addition to, or in tandem with, other awards
under the Incentive Plan, under such terms, conditions and restrictions as
the Committee may determine. The purchase price for such awards must be no
less than 85% of the fair market value of the Company's Common Stock on the
date of the award (and in the case of an award granted to a 10% shareholder,
the purchase price shall be 100% of the fair market value) and can be paid
for in any of the forms of consideration listed in items (1) through (5) in
"Stock Options" above, as are approved by the Committee at the time of grant.
To date, the Company has not granted any restricted stock awards.
STOCK BONUS AWARDS
The Committee may grant Participants stock bonus awards either
in addition to, or in tandem with, other awards under the Incentive Plan,
under such terms, conditions and restrictions as the Committee may determine.
To date, the Company has not granted any stock bonus awards.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL
In the event of a merger, consolidation, dissolution or
liquidation of the Company, the sale of substantially all the assets of the
Company or any other similar corporate transaction, the successor corporation
may assume, convert or replace, or substitute equivalent awards for, awards
granted under the Incentive Plan or provide substantially similar
consideration, shares or other property as was provided to shareholders of
the Company (after taking into account provisions of the awards). In the
event that the successor corporation, if any, does not assume or substitute
the awards awarded, such awards will expire at the time and upon the
conditions as the Board determines.
AMENDMENT OF THE INCENTIVE PLAN
The Board may at any time amend or terminate the Incentive
Plan, including amendment of any form of award agreement or instrument to be
executed pursuant to the Incentive Plan. However, the Board may not amend
the Incentive Plan in any manner that requires shareholder approval pursuant
to the Code or the regulations promulgated thereunder with respect to ISO
plans, or the Exchange Act or Rule 16b-3 (or its successor) promulgated
thereunder.
TERM OF THE INCENTIVE PLAN
Unless terminated earlier as provided in the Incentive Plan,
the Incentive Plan will terminate in July 2006, ten (10) years from the date
the Incentive Plan was adopted by the Board.
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FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS
PROXY STATEMENT OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND
PARTICIPANTS UNDER THE INCENTIVE PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND
THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND
UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN, AND IS,
ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF PARTICIPATION IN THE INCENTIVE PLAN.
INCENTIVE STOCK OPTIONS. A Participant will not recognize
income upon grant of an ISO and will not incur tax on its exercise (unless
the Participant is subject to the alternative minimum tax described below).
If the Participant holds the stock acquired upon exercise of an ISO (the "ISO
Shares") for one year after the date the option was exercised and for two
years after the date the option was granted, the Participant generally will
realize long-term capital gain or loss (rather than ordinary income or loss)
upon disposition of the ISO Shares. This gain or loss will be equal to the
difference between the amount realized upon such disposition and the amount
paid for the ISO shares.
If the Participant disposes of ISO Shares prior to the
expiration of either required holding period (a "disqualifying disposition"),
then gain realized upon such disposition, up to the difference between the
fair market value of the ISO Shares on the date of exercise (or, if less, the
amount realized on a sale of such shares) and the option exercise price,
generally will be treated as ordinary income. Any additional gain will be
long-term or short-term capital gain, depending upon the amount of time the
ISO Shares were held by the Participant.
ALTERNATIVE MINIMUM TAX. The difference between the fair
market value of the ISO shares on the date of exercise and the exercise price
is an adjustment to income for purposes of the alternative minimum tax (the
"AMT"). The AMT (imposed to the extent it exceeds the taxpayer's regular
tax) is 26% of an individual taxpayer's alternative minimum taxable income
(28% in the case of alternative minimum taxable income in excess of
$175,000). Alternative minimum taxable income is determined by adjusting
regular taxable income for certain items, increasing that income by certain
tax preference items (including the difference between the fair market value
of the ISO shares on the date of exercise and the exercise price) and
reducing this amount by the applicable exemption amount ($45,000 in the case
of a joint return, subject to reduction under certain circumstances). If a
disqualifying disposition of the ISO Shares occurs in the same calendar year
as exercise of the ISO, there is no AMT adjustment with respect to those
shares. Also upon a sale of ISO shares that is not a disqualifying
disposition, alternative minimum taxable income is reduced in the year of
sale by the excess of fair market value of the ISO shares at exercise over
the amount paid for the ISO shares. Special rules apply where all or a
portion of the exercise price is paid by tendering shares of Common Stock.
NONQUALIFIED STOCK OPTIONS. A Participant will not recognize
any taxable income at the time a NQSO is granted. However, upon exercise of
a NQSO the Participant will include in income as compensation an amount equal
to the difference between the fair market value of the shares on the date of
exercise and the Participant's exercise price. The included amount will be
treated as ordinary income by the Participant and may be subject to income
tax and FICA withholding by the Company (either by payment in cash or
withholding out of the Participant's salary). Upon resale of the shares by
the Participant, any subsequent appreciation or depreciation in the value of
the shares will be treated as capital gain or loss. Special rules apply
where all or a portion of the exercise price is paid by tendering shares of
Common Stock.
TAX TREATMENT OF THE COMPANY. The Company will be entitled to
a deduction in connection with the exercise of a NQSO by a Participant or the
receipt of restricted stock or stock bonuses by a Participant to the extent
that the Participant recognizes ordinary income and the Company withholds
tax. The
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Company will be entitled to a deduction in connection with the disposition of
ISO Shares only to the extent that the Participant recognizes ordinary income
on a disqualifying disposition of the ISO Shares.
ERISA
The Incentive Plan is not subject to any of the provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA") and is not
qualified under Section 401(a) of the Code.
1996 DIRECTORS STOCK OPTION PLAN
DIRECTORS PLAN HISTORY. The Board, adopted, and the shareholders
approved, the 1996 Directors Stock Option Plan (the "Directors Plan") in July
1996.
SHARES SUBJECT TO THE DIRECTORS PLAN
The shares subject to options under the Directors Plan
consists of shares of the Company's authorized but unissued Common Stock.
The aggregate number of shares that may be issued pursuant to the Directors
Plan is 150,000 shares of Common Stock. In the event that any outstanding
option under the Directors Plan expires or is terminated for any reason, the
shares of Common Stock allocable to the unexercised portion of such option
may again be available for the grant of options under the Directors Plan.
This number of shares is subject to proportional adjustment to reflect stock
splits, stock dividends and other similar events.
ADMINISTRATION
The Directors Plan is presently administered by the
Board. The interpretation by the Board of any of the provisions of the
Directors Plan or any option granted under the Directors Plan will be final
and conclusive.
ELIGIBILITY
Under the Directors Plan, the Company automatically
grants options to each director of the Company who is not an employee of the
Company (or of any parent, subsidiary or affiliate of the Company).
Directors who are consultants or independent contractors of the Company are
eligible to participate in the Directors Plan. As of March 31, 1997, four
(4) persons were eligible to receive options under the Directors Plan.
FORMULA FOR OPTION GRANTS
Each non-employee director who first becomes a member of
the Board after September 19, 1996, the effective date of the Company's
initial public offering of its Common Stock (the "Effective Date"), will be
automatically granted an option to purchase 15,000 shares of Common Stock
under the Directors Plan (the "Initial Grant"). Also, at each annual meeting
of shareholders of the Company, each non-employee director will be
automatically granted an additional option to purchase 5,000 shares of Common
Stock under the Directors Plan (the "Succeeding Grant"), so long as he or she
has served continuously as a member of the Board since the date of the prior
annual meeting.
TERMS OF OPTION GRANTS
The Directors Plan permits the granting of options that
are intended to qualify as NQSOs. Each Initial Grant and Succeeding Grant
will have a term of ten (10) years, unless terminated earlier due to the
non-employee director's termination as a director and consultant of the
Company. Each Initial Grant or Succeeding Grant will vest as to 25% of the
shares subject to such grant upon the first anniversary of the
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applicable grant date and as to 2.08% of the shares on the last date of each
month following such first anniversary, so long as the non-employee director
continuously remains a director or a consultant of the Company.
The option exercise price will be the "fair market value"
(as defined in the Directors Plan) of the Common Stock of the Company as of
the date of the grant of the option. The option exercise price will be
payable in cash (by check) and in a number of other forms of consideration,
including fully paid shares of Common Stock owned by the non-employee
director for more than six (6) months, by waiver of compensation due or
accrued to the non-employee director for services rendered, through a "same
day sale," through a "margin commitment," or through any combination of the
foregoing.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL
In the event of a merger or consolidation in which there
is a substantial change in the shareholders of the Company, dissolution or
liquidation of the Company or any other similar corporate transaction, the
vesting of all options granted pursuant to the Directors Plan will accelerate
so that all outstanding options will become vested and exercisable in full
prior to the consummation of such transaction, and if such options are not
exercised prior to the consummation of such event, such options will
terminate.
AMENDMENT OF THE DIRECTORS PLAN
The Board, to the extent permitted by law, and with
respect to any shares at the time not subject to options, may terminate or
amend the Directors Plan; provided, however, that the Board may not, without
shareholder approval, increase the total number of shares of Common Stock
available for issuance under the Directors Plan or change the class of
persons eligible to receive options; and provided further that no amendment
may be made to the eligibility and award formula or terms and conditions of
options sections of the Directors Plan more than once every six months, other
than to comport with changes in the Code, ERISA or the rules thereunder. In
any case, no amendment of the Directors Plan may adversely affect any then
outstanding options or any unexercised portions thereof without the written
consent of the applicable non-employee director.
TERM OF THE DIRECTORS PLAN
Unless terminated earlier in accordance with the
provisions of the Directors Plan, the Directors Plan will terminate in July
2006, ten (10) years from the date the Directors Plan was adopted by the
Board.
FEDERAL INCOME TAX INFORMATION
For the federal income tax implications to the
non-employee directors and the Company of options granted under the Directors
Plan, please refer to the discussion of the tax implications of nonqualified
stock options in "Federal Income Tax Information" in the discussion of the
Incentive Plan above.
ERISA AND SECTION 401(a)
The Directors Plan is not subject to any of the
provisions of ERISA and is not qualified under Section 401(a) of the Code.
9
<PAGE>
1996 EMPLOYEE STOCK PURCHASE PLAN
STOCK PURCHASE PLAN HISTORY
The Board adopted, and the shareholders approved, the
Company's 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan") in
July 1996. In January 1997, the Board made certain technical amendments to
the Stock Purchase Plan. Shareholder approval for these amendments was not
necessary. The purpose of Stock Purchase Plan is to provide employees of the
Company designated by the Board as eligible to participate ("Participating
Employees") with a convenient means of acquiring an equity interest in the
Company through payroll deductions and to provide an incentive for continued
employment.
SHARES SUBJECT TO STOCK PURCHASE PLAN
An aggregate of 200,000 shares of the Company's Common
Stock has been reserved by the Board for issuance under the Stock Purchase
Plan.
ADMINISTRATION
The Stock Purchase Plan is administered by the Committee. The
interpretation or construction by the Committee of any provisions of the
Stock Purchase Plan or of any option granted under it will be final and
binding on all Participating Employees.
ELIGIBILITY
All employees of the Company, or of any of its subsidiaries,
are eligible to participate in an Offering Period (as hereinafter defined)
under the Stock Purchase Plan except the following:
(a) employees who are not employed by the Company, or any of
its subsidiaries, fifteen days before the beginning of
such Offering Period;
(b) employees who are customarily employed for less than
twenty (20) hours per week;
(c) employees who are customarily employed for less than five
(5) months in a calendar year; or
(d) employees who, together with any other person whose stock
would be attributed to such employee pursuant to section
424(d) of the Code, own stock or hold options to purchase
stock or who, as a result of participation in the Stock
Purchase Plan, would own stock or hold options to
purchase stock possessing 5% or more of the total
combined voting power or value of all classes of stock of
the Company or any of its subsidiaries.
(e) individuals who provide services to the Company as
independent contractors whether or not reclassified as
common law employees, unless the Company withholds or is
required to withhold U.S. Federal employment taxes for
such individuals pursuant to Section 3402 of the Code.
As of March 31, 1997, approximately 85 persons were eligible
to participate in the Stock Purchase Plan and no shares had been issued
pursuant to the Stock Purchase Plan.
Each offering of Common Stock under the Stock Purchase Plan is
generally for a period of 24 months (the "Offering Period") presently
commencing on February 1 and August 1 of each year and ending on July 31 and
January 31 of each year. The initial Offering Period commenced on September
20, 1997 and will end on July 31, 1998. Each Offering Period shall consist
of four six-month purchase periods (individually, a "Purchase Period") during
which payroll deductions of the Participating Employees are
10
<PAGE>
accumulated under the Stock Purchase Plan. The first day of each Offering
Period is the "Offering Date" for such Offering Period and the last business
day of each Purchase Period is the "Purchase Date" for such Purchase Period.
A Participating Employee cannot participate simultaneously in more than one
Offering Period. The Board has the power to change the duration of Offering
Periods or Purchase Periods without shareholder approval provided that the
change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period or Purchase Period to be affected.
Participating Employees participate in the Stock Purchase Plan
during each Offering Period through payroll deductions. A Participating
Employee sets the rate of such payroll deductions, which may not be less than
2% nor more than 15% of the Participating Employee's W-2 compensation,
including, but not limited to, base salary, wages, commissions, overtime,
shift premiums, bonuses and draws, unreduced by the amount by which the
Participating Employee's salary is reduced pursuant to Sections 125 or 401(k)
of the Code, not to exceed $21,250 per any calendar year or such other lower
limit as set by the Committee.
Participating Employees may elect to participate in any
Offering Period by enrolling as provided under the terms of the Stock
Purchase Plan. Once enrolled, a Participating Employee will automatically
participate in each succeeding Offering Period unless the Participating
Employee withdraws from the Offering Period or the Stock Purchase Plan is
terminated. After the rate of payroll deductions for an Offering Period has
been set by a Participating Employee, that rate continues to be effective for
the remainder of the Offering Period (and for all subsequent Offering Periods
in which the Participating Employee is automatically enrolled) unless
otherwise changed by the Participating Employee. The Participating Employee
may increase or lower the rate of payroll deductions for any subsequent
Offering Period, but may only lower the rate of payroll deductions for an
ongoing Offering Period. Not more than one change may be made during a
single Offering Period.
PURCHASE PRICE
The purchase price of shares that may be acquired in any
Purchase Period under the Stock Purchase Plan will be 85% of the lesser of:
(i) the fair market value of the shares on the Offering Date; or (ii) the
fair market value of the shares on the Purchase Date. The fair market value
of a share of the Company's Common Stock is the closing price of the
Company's Common Stock on the Nasdaq National Market on the date of
determination as reported in THE WALL STREET JOURNAL, except that the fair
market value of a share of the Company's Common Stock on the Offering Date of
the first Offering Period was the price per share at which shares of the
Company's Common Stock were offered for sale to the public in the Company's
initial public offering of shares of its Common Stock pursuant to a
registration statement filed with the SEC under the Securities Act.
PURCHASE OF STOCK UNDER THE STOCK PURCHASE PLAN
On each Purchase Date, the number of whole shares a
Participating Employee will be able to purchase will be determined by
dividing the total amount then held in the Participating Employee's account
pursuant to the Stock Purchase Plan by the purchase price for each share
determined as described above. No more than twice the number of shares an
employee would have been eligible to purchase at 85% of the fair market value
of a share on the Offering Date may be purchased by an employee if the fair
market value of a share on the Purchase Date drops to less than one-half of
the fair market value on the Offering Date. At any time at least to thirty
days prior to the commencement of an Offering Period, the Board may set a
maximum number of shares which may be purchased by any employee participating
in the Stock Purchase Plan on any Purchase Date.
WITHDRAWAL
A Participating Employee may withdraw from any Offering
Period. Upon withdrawal, the accumulated payroll deductions will be returned
to the withdrawn Participating Employee, without interest. No further
payroll deductions for the purchase of shares will be made for the succeeding
Offering Period
11
<PAGE>
unless the Participating Employee enrolls in the new Offering Period in the
same manner as for initial participation in the Stock Purchase Plan.
AMENDMENT OF THE STOCK PURCHASE PLAN
The Board may at any time amend, terminate or extend the term
of the Stock Purchase Plan, except that any such termination cannot affect
the terms of options previously granted under the Stock Purchase Plan, nor
may any amendment make any change in the terms of options previously granted
which would adversely affect the right of any participant, nor may any
amendment be made without shareholder approval if such amendment would: (a)
increase the number of shares that may be issued under the Stock Purchase
Plan; or (b) change the designation of the employees (or class of employees)
eligible for participation in the Stock Purchase Plan.
TERM OF THE STOCK PURCHASE PLAN
The Stock Purchase Plan will terminate upon the earlier to
occur of (a) termination of the Stock Purchase Plan by the Board, (b)
issuance of all the shares of Common Stock reserved for issuance thereunder,
or (c) ten (10) years from the adoption of the Stock Purchase Plan by the
Board.
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS
PROXY STATEMENT OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND
EMPLOYEES PARTICIPATING IN THE STOCK PURCHASE PLAN. THE FEDERAL TAX LAWS MAY
CHANGE AND THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY
PARTICIPATING EMPLOYEE WILL DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES.
EACH PARTICIPATING EMPLOYEE IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED
TAX ADVISOR REGARDING THE TAX CONSEQUENCES FOR PARTICIPATION IN THE STOCK
PURCHASE PLAN.
The Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Code.
TAX TREATMENT OF THE PARTICIPATING EMPLOYEE. Participating
employees will not recognize income for federal income tax purposes either
upon enrollment in the Stock Purchase Plan or upon the purchase of shares.
All tax consequences are deferred until a Participating Employee sells the
shares, disposes of the shares by gift or dies.
If shares are held for more than one year after the date of
purchase and more than two years from the beginning of the applicable
Offering Period, or if the Participating Employee dies while owning the
shares, the Participating Employee realizes ordinary income on a sale (or a
disposition by way of gift or upon death) to the extent of the lesser of (i)
15% of the fair market value of the shares at the beginning of the Offering
Period or (ii) the actual gain (the amount by which the market value of the
shares on the date of sale, gift or death exceeds the purchase price). All
additional gain upon the sale of the shares is treated as long-term capital
gain. If the shares are sold and the sale price is less than the purchase
price, there is no ordinary income and the Participating Employee has a
long-term capital loss for the difference between the sale price and the
purchase price.
If the shares are sold or are otherwise disposed of including
by way of gift (but not death, bequest or inheritance) (in any case a
"disqualifying disposition") within either the one year or the two year
holding periods described above, the Participating Employee realizes ordinary
income at the time of sale or other disposition taxable to the extent that
the fair market value of the shares at the date of purchase is greater than
the purchase price. This excess will constitute ordinary income (currently
not subject to withholding) in the year of the sale or other disposition even
if no gain is realized on the sale or if a gratuitous transfer is
12
<PAGE>
made. The difference, if any, between the proceeds of the sale and the
fair market value of the shares at the date of purchase is a capital gain or
loss. Capital gains continue to be offset by capital losses and up to $3,000
of capital losses may be used annually against ordinary income.
TAX TREATMENT OF THE COMPANY. The Company will be entitled to
a deduction in connection with the disposition of shares acquired under the
Stock Purchase Plan only to the extent that the Participating Employee
recognizes ordinary income on a disqualifying disposition of the shares. The
Company will treat any transfer of record ownership of shares as a
disposition, unless it is notified to the contrary. In order to enable the
Company to learn of disqualifying dispositions and ascertain the amount of
the deductions to which it is entitled, Participating Employees will be
required to notify the Company in writing of the date and terms of any
disposition of shares purchased under the Stock Purchase Plan.
ERISA AND SECTION 401(a)
The Stock Purchase Plan is not subject to any of the
provisions of ERISA and is not qualified under Section 401(a) of the Code.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
the beneficial ownership of Common Stock of the Company as of March 31, 1997
as to (i) each person who is known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, (ii) each director and
nominee for director of the Company, (iii) each of the Named Executive
Officers (as defined below) and (iv) all directors and executive officers as
a group.
DIRECTORS, NAMED EXECUTIVE OFFICERS AND SHARES BENEFICIALLY OWNED (1)(2)
GREATER THAN 5% SHAREHOLDERS NUMBER PERCENT
- ---------------------------- ---------- -------------
Roy E. Jewell (3) 840,777 10.9%
Robert W. Dutton (4) 800,000 10.4
William E. Drobish
Star Ventures, L.P. (5) 800,000 10.4
Van Wagoner Funds, Inc. (6) 607,200 7.9
Chancellor LGT Asset Management, Inc. (7) 455,500 5.9
Joseph Masarich (8) 187,500 2.4
Jue-Hsien Chern (9) 163,844 2.1
David M. Lee (10) 69,200 *
Lung Chu (11) 53,051 *
Louis A. Delmonico (12) 35,000 *
Ronald A. Rohrer (13) 27,500 *
All executive officers and directors as a group
(11 persons) (14) 3,087,057 39.7
___________
* Less than 1%
(1) Applicable percentage of ownership is based on 7,692,669 shares of
Common Stock outstanding as of March 31, 1997 together with
applicable options for such shareholder. Beneficial ownership is
determined in accordance with the rules of the Securities and
Exchange Commission (the "SEC"), and includes voting and investment
power with respect to shares. Shares of Common Stock subject to
options currently exercisable or exercisable within 60 days after
March 31, 1997 are deemed outstanding for computing the percentage
ownership of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.
13
<PAGE>
(2) This table is based upon information supplied by officers,
directors and principal shareholders and Schedules 13G filed with
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 shareholders named in this table
has sole voting and investment power with respect to the shares
indicated as beneficially owned.
(3) Mr. Jewell is President, Chief Executive Officer and Chairman of
the Board of the Company. Mr. Jewell's address is c/o Technology
Modeling Associates, 595 Lawrence Expressway, Sunnyvale, CA 94086.
(4) Includes 72,860 shares held by trust of which Mr. Dutton has
beneficial control. Dr. Dutton is a director of the Company. His
address is c/o Technology Modeling Associates, 595 Lawrence
Expressway, Sunnyvale, CA 94086.
(5) Dr. Drobish, a director of the Company, is a General Partner of
Star Ventures, L.P. ("Star"), the record owner of the shares. Dr.
Drobish's wife is the other General Partner of Star. The address
of Dr. and Mrs. Drobish and Star is c/o Technology Modeling
Associates, 595 Lawrence Expressway, Sunnyvale, CA 94086.
(6) Based on the Schedule 13G filed by Van Wagoner Funds, Inc. on
February 12, 1997. The address of Van Wagoner Funds, Inc. is 207
East Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202
(7) Based on the Schedule 13G filed by Chancellor LGT Asset Management,
Inc. ("Chancellor") on February 7, 1997. The address of
Chancellor. is 50 California Street, 27th Floor, San Francisco,
California 94111
(8) Includes 140,625 shares subject to the Company's right of first
refusal and right of repurchase at the original purchase price as
of March 31, 1997. Mr. Masarich is the Company's Vice President,
Worldwide Sales.
(9) Includes 76,967 shares subject to the Company's right of first
refusal and right of repurchase at the original purchase price as
of March 31, 1997 and 25,000 shares subject to options exercisable
within 60 days of March 31, 1997. Dr. Chern is the Company's Vice
President, Engineering and Chief Technical Officer.
(10) Includes 2,600 shares subject to options exercisable within 60 days
of March 31, 1997. Mr. Lee is the Company's Vice President,
Operations.
(11) Includes 21,039 shares subject to the Company's right of first
refusal and right of repurchase at the original purchase price as
of March 31, 1997 and 25,000 shares subject to options exercisable
within 60 days of March 31, 1997. Mr. Chu is the Company's Vice
President, Strategic Alliances and Business Development.
(12) Includes 15,000 shares subject to the Company's right of first
refusal and right of repurchase at the original purchase price as
of March 31, 1997 and 15,000 shares subject to options exercisable
within 60 days of March 31, 1997. Dr. Delmonico is a director of
the Company.
(13) Includes 15,000 shares subject to the Company's right of first
refusal and right of repurchase at the original purchase price as
of March 31, 1997 and 7,500 shares subject to options exercisable
within 60 days of March 31, 1997. Dr. Rohrer is a director of the
Company.
(14) Includes an additional 108,935 shares of which 47,964 shares are
subject to the Company's right of first refusal and right of
repurchase at the original purchase price as of March 31, 1997 and
1,250 shares subject to options exercisable within 60 days of March
31, 1997, held by executive officers not otherwise listed in this
table.
14
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth total compensation for the
fiscal years ended December 31, 1996, and 1995 for the Chief Executive
Officer and each of the next four most highly compensated executive officers
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ -------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION OPTIONS (#)
- ---------------------------- ------- -------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Roy E. Jewell 1996 $137,501 $126,921 $3,600 (2) -
President and Chief Executive Officer 1995 127,506 71,119 3,600 (2) -
Joseph G. Masarich 1996 123,182 204,115(3) 4,000 (2) -
Vice President, Worldwide Sales 1995 - - - -
Lung Chu 1996 120,000 67,324 - 100,000
Vice President, Strategic Alliances 1995 - - - -
and Business Development
Jue-Hsien Chern 1996 133,752 45,703 - 20,000
Vice President, Engineering and 1995 132,506 38,143 - -
Chief Technical Officer
David M. Lee 1996 105,450 18,976 - 10,400
Vice President, Engineering 1995 90,902 6,398 3,002 (4) -
</TABLE>
___________
(1) 1996 amounts include payments made during 1997 under the Company's
1996 Profit Sharing Plan as follows: Mr. Jewell--$6,921; Mr.
Masarich--$8,795; Mr. Chu--$5,130; Dr. Chern--$5,703 and Mr.
Lee--$3,976. 1995 amounts include payments made in 1996 under the
Company's 1995 Profit Sharing Plan as follows: Mr.
Jewell--$11,419; Dr. Chern--$8,143 and Mr. Lee--$6,198. In April
1996, Dr. Chern applied the cash from his profit-sharing
distribution toward the purchase of 10,178 shares of Common Stock
under the Company's 1995 Stock Purchase Plan at a purchase price of
$0.80 per share. These shares are subject to the Company's right of
repurchase at the original purchase price, which right lapses over
four years.
(2) Represents automobile allowances.
(3) Includes sales commissions of $117,820 earned in 1996.
(4) Represents 401(k) plan contributions from the Company.
15
<PAGE>
The following table sets forth certain
information with respect to stock options granted to
each of the Named Executive Officers during 1996:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATE
SECURITIES OPTIONS FAIR OF STOCK APPRECIATION
UNDERLYING GRANTED EXERCISE OR MARKET FOR OPTION TERM (1) (2)
OPTIONS TO EMPLOYEES BASE PRICE VALUE (2) EXPIRATION -----------------------
NAME GRANTED (#) IN 1996 ($ PER SHARE) ($ PER SHARE) DATE 5% 10%
- ---- ----------- ------- -------------- -------------- ---- --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Roy Jewell - - - - - -
Joseph Masarich - - - - - -
Lung Chu - - - - - -
Jue-Hsien Chern 20,000 4.7% $0.80 $3.00 3/15/2001 $76,577 $96,631
David Lee 10,400 2.4 0.80 3.00 3/15/2001 39,820 50,248
</TABLE>
___________
(1) Potential realizable value is based on the assumption that the
Common Stock of the Company appreciates at the annual rate shown
(compounded annually) from the date of grant until the expiration
of the five-year option term. The numbers are calculated based on
the requirements promulgated by the SEC and do not reflect the
Company's estimate of future stock price growth.
(2) The fair market value of the shares above were subsequently
determined to be $3.00 per share. This amount was used as the
basis of the potential realizable value.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information regarding
the exercise of stock options by the Named Executive Officers in the fiscal
year ended December 31, 1996 and the value of stock options held as of
December 31, 1996 by such individuals. Also reported are values of
"in-the-money" options, which represent the positive spread between
respective exercise prices of outstanding stock options and the fair market
value of the Company's Common Stock as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END (1) AT FISCAL YEAR END (2)
ACQUIRED ON VALUE ------------------------------ -----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------- --------------- -------------- ----------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Roy Jewell - - - - - -
Joseph Masarich - - - - - -
Lung Chu - - 25,000 75,000 $316,250 $948,750
Jue-Hsien Chern 20,000 $172,500 20,000 60,000 257,500 764,000
David Lee 20,000 13,750 - 10,400 - 134,680
</TABLE>
___________
(1) Value realized is based upon the fair market value of the Company's
Common Stock on the date of exercise less the exercise price and does
not necessarily indicate that the optionee sold such stock.
(2) The fair market value of the Company's Common Stock as of December 31,
1996 was $13.25, as traded on the Nasdaq National Market.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company currently has no employment contracts with any of
the Named Executive Officers. The Company also has no compensatory plans or
arrangements with such Named Executive Officers where the amounts to be paid
exceed $100,000 and which are activated upon resignation, termination,
retirement or upon a change in control of the Company, except with Mr.
Masarich. If employment with Mr. Masarich is terminated due to a merger or
acquisition, or due to a material reduction in stature or responsibilities,
and not for cause, Mr. Masarich shall receive a lump sum payment of $125,000
and purchased restricted stock shall additionally vest as to one-half the
months remaining in the vesting period.
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee reviews and approves compensation
and benefits for the Company's key executive officers, administers the
Company's stock option plans and the employee stock purchase plan and makes
recommendations to the Board regarding such matters. The Compensation
Committee of the Board consists of directors Dutton, Delmonico and Rohrer.
Dr. Delmonico is the Chairman of the Compensation Committee of the Board.
COMPENSATION OF DIRECTORS
Directors of the Company receive $1,500 of cash compensation
for each meeting of the Board that they attend, and are reimbursed for their
reasonable expenses in attending meetings of the Board.
In July 1996, the Board adopted the 1996 Directors Stock
Option Plan (the "Directors Plan") and reserved a total of 150,000 shares of
the Company's Common Stock for issuance thereunder. The Company's
shareholders approved the Directors Plan in July 1996. Members of the Board
who are not employees of the Company, or any parent, subsidiary or affiliate
of the Company, are eligible to participate in the Directors Plan. For
details, see "Summary of 1996 Equity Incentive Plan, 1996 Directors Stock
Option Plan, and 1996 Employee Stock Purchase Plan."
17
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") of the Board of
Directors reviews and approves compensation and benefits for the Company's
key executive officers, administers the Company's stock option plans and the
Employee Stock Purchase Plan and makes recommendations to the Board regarding
such matters. The Committee, consisting of directors Dutton, Delmonico and
Rohrer, met three times during 1996. No cash compensation is paid to
Committee members. Dr. Delmonico is the Chairman of the Compensation
Committee. The following is the report of the Committee describing the
compensation policies and rationale applicable to the Company's executive
officers with respect to the compensation paid to such executive officers for
the fiscal year ended December 31, 1996.
COMPENSATION PHILOSOPHY
The Company's philosophy in setting its compensation policies
for executive officers is to maximize shareholder value over time. The
primary goal of the Company's executive compensation program is therefore to
closely align the interests of the executive officers with those of the
Company's shareholders. To achieve this goal, the Company attempts to (i)
offer compensation opportunities that attract and retain executives whose
abilities are critical to the long-term success of the Company, and motivate
individuals to perform at their highest level and reward outstanding
achievement, (ii) maintain a portion of the executive's total compensation at
risk, tied to achievement of financial, organizational and management
performance goals, and (iii) encourage executives to manage from the
perspective of owners with an equity stake in the Company. The Committee
currently uses salary, annual incentive bonuses and stock options to meet
these goals.
BASE SALARY
The base salary component of the total compensation is
primarily designed to attract, motivate, reward and retain highly skilled
executives and to compensate executives competitively within the industry and
the marketplace. The Committee reviewed and approved fiscal 1996 base
salaries for the Chief Executive Officer and other executive officers at the
beginning of the fiscal year. In establishing base salaries of executive
officers, the Committee evaluates each executive's salary history, scope of
responsibility at the Company, prior experience, past performance for the
Company and recommendations from management. The Committee also takes into
account the salaries for similar positions at comparable companies, based on
each individual Committee member's industry experience. In reviewing base
salaries, the Committee focused significantly on each executive's historical
salary level, which in most instances was established upon the executive's
original employment with the Company, the prior performance with the Company
and the expected contribution to the Company's future success. In making its
salary decisions, the Committee exercised its discretion and judgment based
upon these factors. No specific formula was applied to determine the weight
of each factor.
ANNUAL INCENTIVE BONUSES
Annual incentive bonuses for executive officers are intended
to reflect the Committee's belief that a portion of the compensation of each
executive officer should be contingent upon the overall performance of the
Company. Each executive officer's bonus is based on qualitative and
quantitative factors and is intended to motivate and reward executive
officers by directly linking the amount of the bonus to specific
Company-based performance targets. In 1996, bonuses were earned by executive
officers based on the achievement of individual objectives set and approved
by the Committee. For 1997, all executive officers as a group, except the
CEO, will receive the same incentive bonus if an annual incentive bonus is
awarded. To carry out this philosophy, the Board of Directors reviews and
approves the financial budget and strategic and operating objectives for the
fiscal year. The Committee then establishes specific Company performance
bonus targets based upon achieving those strategic and operating objectives
and financial results. The Company-based performance goals are tied to
different financial indicators of Company performance, such as achievement of
specific levels of revenue and pre-tax profits, and are competitively
sensitive to the Company's business and operations. The Committee evaluates
the overall performance of the Company in the completion of these performance
goals, and approves a performance bonus relative to the goals so completed.
This evaluation is influenced by the Committee's perception of the importance
of the various
18
<PAGE>
corporate goals. The Committee believes that the bonus
arrangement provides an excellent link between the Company's revenue growth,
earnings performance and the incentives paid to executives.
EQUITY INCENTIVE PLANS
The Company provides long-term incentives through its stock
option and employee stock purchase plans (the "Equity Plans"). The purpose
of the Equity Plans is to attract and retain the best employee talent
available and to create a direct link between compensation and the long-term
performance of the Company. The Committee believes that having equity in the
Company directly motivates an executive to maximize long-term shareholder
value. The Equity Plans also utilize vesting periods that encourage key
executives to continue in the employment of the Company. All equity
incentives granted to executive officers to date have been granted at the
fair market value of the Company's Common Stock on the date of grant. The
Committee considers equity incentives subjectively, considering factors such
as the recommendations of the CEO, individual performance of the executive
officer, the value of unvested equity awards currently outstanding and the
anticipated contribution of the executive officer to the attainment of the
Company's long-term strategic performance goals. The Committee views equity
incentives as an important component of its long-term, performance-based
compensation philosophy.
CEO SALARY
The compensation of Roy E. Jewell, Chief Executive Officer of
the Company, consists of base salary and an annual bonus. The Committee
periodically reviews Mr. Jewell's base salary and bonus and revises his
compensation based on the Committee's overall evaluation of his performance
toward the achievement of the Company's financial, strategic and other goals,
and increased value of the Company. Consideration is given to Mr. Jewell's
length of service and to competitive chief executive officer compensation
information. The Compensation Committee believes that the Company's success
is dependent in part upon the efforts of its Chief Executive Officer. In
fiscal 1996, Mr. Jewell earned a base salary of $140,000 as set by the
Compensation Committee and earned a bonus of $120,000 (paid in 1997) which
was based on the Company achieving certain levels of operating profit and
performance objectives.
IMPACT OF SECTION 162(m) OF THE INTERNAL REVENUE CODE
The Committee has considered the potential impact of Section
162(m) of the Internal Revenue Code on the compensation paid to the Company's
executive officers. Section 162(m) disallows a tax deduction for any
publicly held corporation for individual compensation exceeding $1.0 million
in any taxable year for any of the executive officers named in the proxy
statement, unless compensation is performance-based. In general, it is the
Company's policy to qualify, to the maximum extent possible, its executives'
compensation for deductibility under applicable tax laws. The Company's
Equity Incentive Plan complies with the requirements of Section 162(m) and
all awards made under such plan to date qualify for deductibility.
Respectfully submitted by:
COMPENSATION COMMITTEE
Louis A. Delmonico, Chairman
Robert W. Dutton
Ronald A. Rohrer
19
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PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual
percentage change in the cumulative return to the shareholders of the
Company's Common Stock with the cumulative return of the Nasdaq Stock
Market-US Index and of the Nasdaq Computer and Data Processing Services Index
for the period commencing September 20, 1996 (the date the Company became
subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended) and ending on December 31, 1996. Returns for the indices are
weighted based on market capitalization at the beginning of each fiscal year.
COMPARISON OF THE CUMULATIVE TOTAL RETURN* AMONG
TECHNOLOGY MODELING ASSOCIATES, INC.
NASDAQ STOCK MARKET-US INDEX
NASDAQ COMPUTER & DATA PROCESSING SERVICES INDEX
[CHART]
*$100 INVESTED ON SEPTEMBER 20, 1996, INCLUDING REINVESTMENT OF DIVIDENDS.
Sep. 20 Sep. 30 Oct. 31 Nov. 30 Dec. 31
------- ------- ------- ------- -------
Technology Modeling Associates $100.00 $108.33 $89.06 $ 93.75 $110.42
NASDAQ Stock Market-US 100.00 100.60 99.50 105.67 105.55
NASDAQ Computer & Data
Processing Services Index 100.00 98.91 97.18 104.20 102.91
The graph assumes that $100 was invested on September 20, 1996
(the date the Company first became subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended) in the Company's Common
Stock, in the Nasdaq Stock Market-US Index, and in the Nasdaq Computer and
Data Processing Services Index and that all dividends were reinvested. No
dividends have been declared or paid on the Company's Common Stock.
Shareholder returns over the indicated period should not be considered
indicative of future shareholder returns.
THE INFORMATION CONTAINED ABOVE UNDER THE CAPTIONS "REPORT OF
THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS" AND "PERFORMANCE GRAPH"
SHALL NOT BE DEEMED TO BE "SOLICITING MATERIAL" OR TO BE "FILED" WITH THE
SECURITIES AND EXCHANGE COMMISSION, NOR SHALL SUCH INFORMATION BE
INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OR
EXCHANGE ACT, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES
IT BY REFERENCE INTO SUCH FILING.
20
<PAGE>
CERTAIN TRANSACTIONS WITH MANAGEMENT
Since January 1, 1996, there has not been, nor is there
currently proposed, any transaction or series of similar transactions to
which the Company was, or is, to be a party in which the amount involved
exceeds $60,000 and which any director, executive officer or holder of more
than 5% of the Common Stock of the Company had, or will have, a direct or
indirect material interest other than (i) compensation arrangements, which
are described where required elsewhere in this Proxy Statement, and (ii) the
transactions described below.
In June 1995, the Company issued 840,000 shares of Common
Stock under the Company's 1994 Stock Purchase Plan to Roy E. Jewell, the
Company's President and Chief Executive Officer, in exchange for a note
receivable in the amounts of $504,000. The note bears interest at a rate of
6.83% per year. In a related agreement, 25% of the principal balance is to
be forgiven by the Company on each anniversary date of such note as long as
Mr. Jewell is still actively employed by the Company. The first year's
forgiveness was guaranteed. The Company recorded an aggregate compensation
expense of $108,000 during 1995 and $126,000 during 1996 in connection with
the forgiveness of these notes.
In January 1996, the Company issued 137,500 shares of Common
Stock to Joseph G. Masarich the Company's Vice President, Worldwide Sales in
exchange for a note receivable in the amount of $110,000. This note bears
interest at a rate of 5.73% per year. Payment of the principal amount and
accrued interest is due on January 20, 2000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock to file initial reports of ownership and
reports of changes of ownership with the SEC. Such persons are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
that they file.
Based solely on its review of the copies of such forms
received by it, and written representations from the executive officers,
directors and greater than 10% shareholders, the Company believes that,
during fiscal 1996, all Section 16 filing requirements were met.
OTHER MATTERS
The Company knows of no other matters to be submitted at the
Annual Meeting. If any other matters properly come before the Annual
Meeting, it is the intention of the persons named in the enclosed form of
Proxy to vote the shares they represent as the Board of Directors may
recommend.
By order of the Board of Directors
John A. DiGirolamo
SECRETARY
Dated: April 11, 1997
21
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DETACH HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TECHNOLOGY MODELING ASSOCIATES, INC.
P
R
O
X
Y 1997 ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 1997
The undersigned shareholder of Technology Modeling Associates,
Inc. hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, dated April 11, 1997, and hereby appoints
Roy E. Jewell, proxy and attorney-in-fact, with full power of substitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the 1997 Annual Meeting of Shareholders of Technology Modeling Associates,
Inc., to be held on May 22, 1997 at 3:00 p.m. (PST), local time, at the
Sunnyvale Hilton Inn at 1250 Lakeside Drive, Sunnyvale, California, and at
any adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present,
on the matters set forth on the reverse side.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED.
IF NO DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY
WILL BE VOTED FOR SUCH PROPOSAL AT THE ANNUAL MEETING OR ANY ADJOURNMENT
THEREOF. WITH RESPECT TO ANY OTHER MATTERS WHICH MAY ARISE, THIS PROXY WILL
BE VOTED IN THE DISCRETION OF THE PERSON NAMED ABOVE AT THE ANNUAL MEETING OR
ANY ADJOURNMENT THEREOF.
SEE REVERSE SIDE PLEASE MARK, DATE, SIGN, AND RETURN THIS
PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
------------
SEE REVERSE
SIDE
------------
<PAGE>
DETACH HERE
/ X / Please mark
votes as in
this example.
The Board of Directors recommends a vote "FOR all nominees" in Item 1,
and "FOR" Item 2.
1. Election of Directors
NOMINEES: Roy E. Jewell, William E. Drobish,
Ronald A. Rohrer, Louis A. Delmonico,
Robert W. Dutton
FOR WITHHELD FOR ALL
/ / / /
/ / _________________________________
For all nominees except as noted above
2. Ratify the appointment of Arthur Andersen LLP as
independent public accountants.
FOR AGAINST ABSTAIN
/ / / / / /
Please sign exactly as name appears hereon. Joint owners
should each sign. Executors, administrators, trustees, guardians or other
fiduciaries should give full title as such. If signing for a corporation,
please sign in full corporate name by a duly authorized officer.
Signature: ____________________________ Date: ___________
Signature: ____________________________ Date: ___________
