<PAGE>
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 [_] 1
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
[_] 2 Definitive Additional Materials
[_] 3 Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
IKOS Systems, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] 4 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:
<PAGE>
[LOGO OF IKOS SYSTEMS, INC. APPEARS HERE]
19050 Pruneridge Avenue
Cupertino, California 95014
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 19, 2000
----------------
Dear Stockholder:
You are invited to attend the Annual Meeting of the Stockholders of IKOS
Systems, Inc. (the "Company"), which will be held Wednesday, January 19, 2000,
at 11:00 a.m. Pacific Standard Time, at the Hilton Inn, Cupertino, California
for the following purposes:
1. To elect six directors of the Company to serve for the ensuing year.
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending September 30, 2000.
3. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on December 17, 1999 are
entitled to notice of, and to vote at, this meeting and any continuations or
adjournments thereof. For ten days prior to the meeting, a complete list of
stockholders entitled to vote at the meeting will be available for examination
by any stockholder for any purpose germane to the meeting during ordinary
business hours at the principal executive offices of IKOS Systems, Inc. 19050
Pruneridge Avenue, Cupertino, California 95014.
By Order of the Board of Directors,
/s/ JOSEPH W. ROCKOM
Joseph W. Rockom, Secretary
Cupertino, California
December 20, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN ENVELOPE SO THAT
YOUR STOCK MAY BE REPRESENTED AT THE MEETING.
<PAGE>
IKOS SYSTEMS, INC.
19050 Pruneridge Avenue
Cupertino, California 95014
(408) 255-4567
----------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
----------------
The accompanying proxy is solicited by the Board of Directors of IKOS
Systems, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held Wednesday, January 19, 2000 (the "Annual
Meeting"), or any adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. The date of this Proxy
Statement is December 20, 1999, the approximate date on which this Proxy
Statement and the accompanying form of proxy were first sent or given to
stockholders.
GENERAL INFORMATION
Annual Report. An annual report for the fiscal year ended October 2, 1999
is enclosed with this Proxy Statement.
Voting Securities. Only stockholders of record as of the close of business
on December 17, 1999 will be entitled to vote at the meeting and any
adjournment thereof. As of that date, there were 8,434,683 shares of Common
Stock of the Company, par value $0.01 per share, issued and outstanding.
Stockholders may vote in person or by proxy. Each holder of shares of Common
Stock is entitled to one (1) vote for each share of stock held on the
proposals presented in this Proxy Statement. The Company's Bylaws provide that
a majority of all of the shares of stock entitled to vote, whether present in
person or represented by proxy, shall constitute a quorum for the transaction
of business at the meeting.
Solicitation of Proxies. The cost of soliciting proxies will be borne by
the Company. In addition, the Company will solicit stockholders by mail
through its regular employees, and will request banks and brokers and other
custodians, nominees and fiduciaries to solicit their customers who have stock
of the Company registered in the names of such persons and will reimburse them
for their reasonable, out-of-pocket costs. The Company may use the services of
its officers, directors and others to solicit proxies, personally or by
telephone, without additional compensation.
Voting of Proxies. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a
stockholder specifies by means of the 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. A stockholder giving a proxy has the power
to revoke his or her proxy, at any time prior to the time it is voted, by
delivery to the Secretary of the Company of a written instrument revoking the
proxy or a duly executed proxy with a later date, or by attending the meeting
and voting in person.
1
<PAGE>
Security Ownership of Certain Beneficial Owners and Management. The
following table contains information as of October 31, 1999 regarding the
ownership of the Common Stock of the Company by all persons who, to the
knowledge of the Company, were (i) the beneficial owners of 5% or more of the
outstanding shares of Common Stock of the Company, (ii) each director and
director nominee of the Company, (iii) the Chief Executive Officer and the
four other most highly compensated executive officers of the Company as of
October 2, 1999 whose salary and bonus for the fiscal year ended October 2,
1999 exceeded $100,000 and (iv) all current executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned(2)
----------------------
Name of Beneficial Owner(1) Number Percentage
--------------------------- ------- ----------
<S> <C> <C>
Dimensional Fund Advisors Inc.......................... 520,500(3) 5.95%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Barry Rubenstein....................................... 535,000(4) 6.10%
68 Wheatley Road
Brookville, NY 11545
Ramon A. Nunez......................................... 288,372(5) 3.33%
Gerald S. Casilli...................................... 197,258(6) 2.34%
Thomas Gardner......................................... 25,500(7) *
Robert Hum............................................. 72,917(8) *
Lawrence A. Melling.................................... 80,080(9) *
William Stevens........................................ 2,500(10) *
Glenn E. Penisten...................................... 18,115(11) *
Nader Fathi............................................ 49,825(12) *
James R. Oyler......................................... 17,300(13) *
Jackson Hu............................................. 2,500(14) *
All Directors and Executive Officers as a Group (13
persons).............................................. 988,698(15) 10.93%
</TABLE>
- --------
*Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner is
c/o the Company, 19050 Pruneridge Avenue, Cupertino, California 95014.
(2) This table is based on information supplied by officers, directors and
principal stockholders. Except as otherwise indicated in the footnotes to
the above table, the Company believes that the persons named in the table
have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable.
(3) According to a Schedule 13G filed by the stockholder with the Securities
and Exchange Commission in February 1999, Dimension Fund Advisors
("Dimension") may be deemed to beneficially own an aggregate 520,500
shares of the Company's Common Stock.
(4) According to a Schedule 13G filed by the stockholder with the Securities
and Exchange Commission in January 1999, Mr. Barry Rubenstein may be
deemed to beneficially own an aggregate 535,000 shares of the Company's
Common Stock. Includes (i) 161,297 shares of Common Stock held by
Wheatley Partners, L.P., of which Mr. Rubenstein is a general partner,
(ii) 13,703 shares of Common Stock held by Wheatley Foreign Partners,
L.P., of which Mr. Rubenstein is a general partner, (iii) 25,000 shares
of Common Stock held by Woodland Partners, of which Mr. Rubenstein is a
general partner, (iv) 150,000 shares of Common Stock, one-half of which
is held by each of the Woodland Venture Fund and Seneca Ventures, each of
which Mr. Rubenstein is a general partner, (v) 50,000 shares of Common
Stock held by The Marilyn and Barry Rubenstein Family Foundation, of
which Mr. Rubenstein is a trustee, and (vi) 100,000 shares of
2
<PAGE>
Common Stock held by the Brookwood Limited Partnership, of which Mr.
Rubenstein is a general partner. Mr. Rubenstein disclaims beneficial
ownership of these securities, except to the extent of his respective
equity interest therein.
(5) Includes 256,325 shares subject to options exercisable within 60 days of
October 31, 1999.
(6) Includes 12,375 shares subject to options exercisable within 60 days of
October 31, 1999.
(7) Includes 25,500 shares subject to options exercisable within 60 days of
October 31, 1999.
(8) Includes 72,917 shares subject to options exercisable within 60 days of
October 31, 1999.
(9) Includes 65,633 shares subject to options exercisable within 60 days of
October 31, 1999.
(10) Includes 2,500 shares subject to options exercisable within 60 days of
October 31, 1999.
(11) Includes 10,000 shares subject to options exercisable within 60 days of
October 31, 1999.
(12) Includes 42,225 shares subject to options exercisable within 60 days of
October 31, 1999.
(13) Includes 10,000 shares subject to options exercisable within 60 days of
October 31, 1999.
(14) Includes 2,500 shares subject to options exercisable within 60 days of
October 31, 1999.
(15) Includes 635,707 shares subject to options exercisable within 60 days of
October 31, 1999.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Management's nominees for election to the Board of Directors (the "Board")
at the Annual Meeting are Gerald S. Casilli, Ramon A. Nunez, James R. Oyler,
Glenn E. Penisten, William Stevens, and Jackson Hu. If elected, each nominee
will hold office until the next annual meeting of stockholders or until his
successor is elected and qualified unless he shall resign or his office
becomes vacant by death, removal, or other cause in accordance with the Bylaws
of the Company. If a quorum is present and voting, the nominees for director
receiving the highest number of votes will be elected as directors.
Abstentions and shares held by brokers that are present, but not voted because
the brokers were prohibited from exercising discretionary authority, i.e.,
"broker non-votes," will be counted as present in determining if a quorum is
present.
It is intended that votes pursuant to the Proxies will be cast for the
named nominees. The persons named in the accompanying form of proxy will vote
the shares represented thereby for the named nominees. Management knows of no
reason why any of the named nominees should be unable or unwilling to serve.
However, if any named nominee(s) should for any reason be unable or unwilling
to serve, the Proxies will be voted for the election of such other person(s)
for the office of director as management may recommend in the place of such
nominee(s).
At the Annual Meeting, six (6) directors of the Company are to be elected
for the ensuing year and until their successors are elected and qualified.
Proxies cannot be voted for a greater number of persons than the number of
nominees named. The nominees for election to the office of director and
certain information with respect to their age and background are set forth
below. Messrs. Casilli, Nunez, Oyler, Penisten, Stevens and Hu each was
elected to his present term of office at the 1998 Annual Meeting of
Stockholders of the Company.
<TABLE>
<CAPTION>
Nominee Positions with the Company Age Director Since
------- -------------------------- --- --------------
<S> <C> <C> <C>
Gerald S.
Casilli Chairman of the Board 60 1986
Ramon A.
Nunez Chief Executive Officer, President and Director 45 1994
James R.
Oyler Director 53 1991
Glenn E.
Penisten Director 68 1985
William
Stevens Director 58 1998
Jackson Hu Director 40 1998
</TABLE>
Mr. Casilli has served as Chairman of the Board since July 1989 and served
as Chief Executive Officer from April 1989 to August 1995. He has served as a
director since 1986. Mr. Casilli is also a Director for Evans & Sutherland
Computer Corporation. From January 1986 to December 1989, he was a general
partner of Trinity Ventures, Ltd., a venture capital firm and a former
investor in the Company. Mr. Casilli was a general partner of Genesis Capital,
a venture capital firm, from February 1982 to 1990. Mr. Casilli founded
Millennium Systems, a manufacturer of microprocessor development systems, in
1973 and served as its President and Chief Executive Officer until 1982.
Mr. Nunez was appointed Chief Executive Officer in August 1995. Mr. Nunez
had been President, Chief Operating Officer and Director of the Company since
October 1994. He had served as Vice President of Worldwide Sales since July
1993. Mr. Nunez joined the Company in April 1990 as Vice President of North
American Sales after five years in sales management with Zycad Corporation.
Earlier he was branch sales manager for Cadnetix (now part of Intergraph) in
Southern California.
Mr. Oyler has served as a member of the Board since October 1991. He is
presently President, Chief Executive Officer and Director of Evans &
Sutherland Computer Corporation. Evans & Sutherland develops, manufactures and
markets high performance systems for various applications with demanding
graphics requirements. Prior to his position with Evans & Sutherland, Mr.
Oyler was President of AMG, Inc., a process machine design company. From 1976
to 1990, Mr. Oyler worked at Harris Corporation, most recently as Senior Vice
President and Sector Executive, where he was responsible for nine operating
divisions. Prior to that time, he held positions as consultant and associate
with Booz, Allen & Hamilton in New York.
4
<PAGE>
Mr. Penisten has been a member of the Board since September 1985. Since
September 1985, he has been a general partner of Alpha Partners, a venture
capital firm and former investor in the Company. From January 1985 to August
1985, he was a general partner of P&C Venture Partners, a venture capital
firm. From 1982 to 1985, he was a Senior Vice President at Gould/AMI. From
1976 to 1982, Mr. Penisten served as Chief Executive Officer of AMI, a
semiconductor manufacturer. Mr. Penisten is also a director of Bell
Microproducts, Inc. and Pinnacle Systems, Inc. and is Chairman of the Board of
Network Peripherals, Inc. and Superconductor Technologies.
Mr. Stevens joined the Company's Board in December 1998. He was a founder
of the Triad Systems Corporation and was President and Chairman of the Board
from 1972 to 1985 and Chairman from 1985 to 1996. Prior to founding Triad, he
was employed from 1961 to 1971 by Data Disc, Inc., a manufacturer of computer
peripherals, where he served in various technical management positions
including President. Mr. Stevens has served on numerous boards of both private
and public companies.
Mr. Hu joined the Company's Board in December 1998. He has 20 years of
experience in the semiconductor industry, including all phases of development,
marketing and management. Most recently, he was senior vice president and
general manager at S3, Inc., where he helped to grow the company from a
start-up to a company with revenues of approximately $450 million. In addition
to architecting and managing the development of S3's venerable 2D GUI
accelerator families, he established the company's analog and COT design
capabilities. He also created an operations and quality infrastructure for
very high volume production. Mr. Hu started and managed the audio and
communications business unit at S3. Before S3, he held positions at Western
Digital as Director of Graphics Engineering, Verticom as Director of
Engineering, and Zilog as project leader. Mr. Hu holds a Ph.D in computer
science from the University of Illinois, Urbana and an MBA from the University
of Santa Clara.
Board Meetings. During the fiscal year ended October 2, 1999, the Board
held four meetings and took action by unanimous written consent one time. No
director serving on the Board in fiscal year 1999 attended fewer than 75% of
such meetings of the Board and the Committees on which he serves.
Committees of the Board. The Company has an Audit Committee and a
Compensation Committee. The Audit Committee's function is to review with the
Company's independent accountants and management the annual financial
statements and independent accountants' opinion, review the scope and results
of the examination of the Company's financial statements by the independent
accountants, approve all professional services and related fees performed by
the independent accountants, recommend the retention of the independent
accountants to the Board, subject to ratification by the stockholders, and
periodically review the Company's accounting policies and internal accounting
and financial controls. The members of the Audit Committee during the fiscal
year ended October 2, 1999 were Messrs. Stevens, Oyler and Penisten. During
the fiscal year ended October 2, 1999, the Audit Committee held four meetings
and took action by unanimous written consent zero times.
The Compensation Committee's function is to review and recommend salary and
bonus levels for executive officers and certain other management employees and
to recommend stock option grants. The members of the Compensation Committee
during the fiscal year ended October 2, 1999 were Messrs. Stevens, Hu and
Penisten. During the fiscal year ended October 2, 1999, the Compensation
Committee held five meetings and took action by unanimous written consent two
times. For additional information concerning the Compensation Committee, see
"REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION."
Compensation of Directors
The Company pays each of its outside directors $4,000 per quarter for their
services as members of the Board. The Chairman of the Board receives an
additional $100,000 per year and, as an employee of the Company, is eligible
to receive options to purchase the Company's Common Stock under the Company's
1995 Stock Option Plan. In addition, all directors who were not members of
management during the fiscal year
5
<PAGE>
ended October 2, 1999 received stock options to purchase 6,000 shares of
Common Stock pursuant to the 1995 Outside Directors Stock Option Plan upon the
date of the 1999 annual meeting of stockholders. The two newly elected outside
directors received an initial option grant of 10,000 shares and an option
grant for 740 shares, representing their pro-rata share of the annual grant
under the plan. At the 1999 annual meeting of stockholders, the current
outside directors received a special option for 10,500 shares to vest in three
annual installments of 33-1/3% on the dates immediately preceding the date of
each of the annual meetings of stockholders in 2000, 2001 and 2002.
The following table provides the specified information concerning all
compensation paid to persons who were directors of the Company during the
fiscal year ended October 2, 1999 who are not named in the Summary
Compensation Table.
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
<TABLE>
<CAPTION>
Cash Compensation Security Grants
-------------------- ---------------------
Number of Securities
Name Annual Retainer Fees Underlying Options (#)
---- -------------------- ---------------------
<S> <C> <C>
Gerald S. Casilli................... $101,425(1) 66,000
James R. Oyler...................... 16,000 16,500
Glenn E. Penisten................... 16,000 16,500
William Stevens(2).................. 16,000 21,240
Jackson Hu(2)....................... 16,000 21,240
</TABLE>
- --------
(1) Includes $100,000 paid to Mr. Casilli in compensation for his service to
the Company as Chairman of the Board.
(2) Messrs. Stevens and Hu were each appointed as directors of the Company in
December 1998.
6
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
Compensation of Executive Officers
The following table sets forth information concerning the compensation
during the fiscal years ended October 2, 1999, October 3, 1998 and September
27, 1997 of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company as of October 2, 1999 whose
salary and bonus for the fiscal year ended October 2, 1999 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
----------------------------- -------------
Other Annual Awards Option
Name and Principal Position Year Salary Bonus Compensation Shares
--------------------------- ---- -------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Ramon A. Nunez............... 1999 $255,193 $25,000 (4) 60,000
Chief Executive Officer, 1998 240,492 32,000 (4) 30,000
President and Director 1997 228,418 90,400 (4) 41,700
Robert Hum (1)............... 1999 212,404 -- (4) 55,000
Vice President of 1998 180,951 29,836 (4) 10,000
Engineering and Operations 1997 58,990 -- (4) 90,000
Lawrence A. Melling.......... 1999 207,976 -- (4) 50,000
Vice President of 1998 198,463 22,982 (4) 30,000
Business Development 1997 158,357 65,000 (4) --
Thomas Gardner (2)........... 1999 126,590 -- 107,121(5) 25,000
Vice President of Domestic 1998 96,813 -- 75,158(5) 15,000
Sales 1997 -- -- --
Nader Fathi (3).............. 1999 166,402 137,779 20,000
Vice President of 1998 159,156 -- 78,628(6) 41,250
International Sales 1997 -- -- -- --
</TABLE>
- --------
(1) Mr. Hum joined the Company in May of 1997.
(2) Mr. Gardner was appointed Vice President of Domestic Sales on June 5,
1998.
(3) Mr. Fathi was appointed Vice President of International Sales June 5,
1998.
(4) Total amount of personal benefits paid to this executive officer during
the fiscal year was less than the lesser of (i) $50,000 or (ii) 10% of
such executive officer's total reported salary and bonus.
(5) Represents amounts paid to Mr. Gardner as sales commissions.
(6) Represents amounts paid to Mr. Fathi as sales commissions.
7
<PAGE>
Stock Options Granted During Fiscal 1999
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year
ended October 2, 1999 to the persons named in the Summary Compensation Table.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants in Fiscal 1999 Option Term(3)
------------------------------------------- ----------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price(2) Expiration
Name Granted(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ---------- ------------ -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Ramon A. Nunez.......... 50,000 7.3% $1.88 10/29/2008 $58,959 $149,413
30,000 4.4% $4.50 2/8/2009 $84,901 $215,155
Thomas Gardner.......... 25,000 3.7% $1.88 10/29/2008 $29,479 $ 74,707
Robert Hum.............. 40,000 5.9% $1.88 10/29/2008 $47,166 $119,530
15,000 2.2% $4.50 2/8/2009 $42,450 $107,577
Lawrence A. Melling..... 40,000 5.9% $1.88 10/29/2008 $46,806 $119,530
10,000 1.5% $4.50 2/8/2009 $28,300 $ 71,718
Nader Fathi............. 20,000 3.0% $1.88 10/29/2008 $23,583 $ 59,765
</TABLE>
- --------
(1) Options granted in fiscal 1999 under the Company's 1995 Stock Option Plan
(the "Option Plan") generally vest 12.5% six months after commencement of
employment or grant and continue to vest thereafter in equal monthly
increments over three and one-half years, conditioned upon continued
employment with the Company. Under the Option Plan, the Board retains
discretion to modify the terms, including the price of outstanding
options. See "EXECUTIVE COMPENSATION AND OTHER MATTERS-Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements."
(2) All options were granted at fair market value on the date of grant.
(3) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent certain assumed rates of
appreciation only, in accordance with the Securities and Exchange
Commission's rules. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock, overall market
conditions and the option holders' continued employment through the
vesting period. The amounts reflected in this table may not necessarily be
achieved. One share of stock purchased at $1.88 in fiscal 1999 would yield
profits of approximately $3.05 per share at 5% appreciation over ten
years, or approximately $4.86 per share at 10% appreciation over the same
period. One share of stock purchased at $4.50 in fiscal 1999 would yield
profits of approximately $7.33 per share at 5% appreciation over ten
years, or approximately $11.67 per share at 10% appreciation over the same
period.
8
<PAGE>
Option Exercises and Fiscal 1999 Year-End Values
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in the fiscal year ended
October 2, 1999 and unexercised options held as of October 2, 1999 by the
persons named in the Summary Compensation Table. A portion of the shares
subject to these options may not yet be vested and may be subject to
repurchase by the Company at a price equal to the option exercise price, if
the corresponding options were exercised before such shares had vested.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value in Dollars of
Underlying Unexercised Unexercised In-the-Money
Options at 10/2/99 Options at 10/2/99
---------------------------------- -------------------------------
Shares
Acquired on Value
Name Exercise Realized($) Exercisable(1)(2) Unexercisable(3) Exercisable(2) Unexercisable(4)
---- ----------- ----------- ----------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Ramon A. Nunez.......... -- -- 201,138 106,061 $589,090 $391,834
Robert Hum.............. -- -- 28,229 86,770 $ 47,852 $322,772
Lawrence A. Melling..... -- -- 22,946 97,103 $ 50,078 $466,807
Thomas Gardner.......... -- -- 437 59,562 $ 820 $343,490
Nader Fathi............. -- -- 18,900 55,550 $ 49,792 $218,199
</TABLE>
- --------
(1) Options granted in fiscal 1999 under the Option Plan generally vest 12.5%
six months after commencement of employment or grant and continue to vest
thereafter in equal monthly increments over three and one-half years,
conditioned upon continued employment with the Company.
(2) Represents shares which are immediately exercisable and/or vested. Based
on the closing price of $7.625, as reported on the Nasdaq National Market
on October 1, 1999, less the exercise price.
(3) Represents shares which are unvested and/or not immediately exercisable.
(4) Based on the closing price of $7.625, as reported on the Nasdaq National
Market on October 1, 1999, less the exercise price.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has an employment agreement with Ramon A. Nunez, the Company's
Chief Executive Officer, President and Director. Mr. Nunez's employment
agreement provides that Mr. Nunez shall receive an annual salary of $235,950,
subject to annual review, and other benefits on the same basis as other
members of senior management. Mr. Nunez participates in a Management Incentive
Plan whereby he and other members of senior management are entitled to a
performance bonus for attaining certain earnings objectives as outlined by the
Compensation Committee. In addition, Mr. Nunez and other executives are
granted options to purchase shares of Common Stock at the discretion and
recommendation of the Chairman of the Board and approved by the Compensation
Committee. Mr. Nunez's employment pursuant to his employment agreement may be
terminated by the Company at any time, with or without cause; provided,
however, if Mr. Nunez's employment is terminated by the Company for any reason
other than cause (as defined in the employment agreement) he shall be entitled
to the following severance benefits: (i) payment over a nine (9) month period
of a monthly amount equal to his average monthly salary for the twelve (12)
months prior to his termination; (ii) continued vesting of stock options
granted pursuant to his employment agreement; and (iii) continued provision of
employee benefits for the nine (9) month period following termination.
The Company has entered into severance agreements with each of its current
executive officers. In general, such agreements provide that if within one
year of a transfer of control of the Company, as defined in the agreement, an
executive officer's employment is terminated by the Company without cause, the
executive
9
<PAGE>
officer terminates his employment with the Company as a result of being
required to relocate, as defined in the agreement, or the executive officer's
base salary immediately prior to the transfer of control is reduced, he shall
continue to receive his base salary and benefits for a period of one (1) year
after his date of termination. In addition, such agreements provide that any
unvested stock options held by an executive officer on his date of termination
shall become fully vested.
Options granted under the Company's Option Plan contain provisions pursuant
to which, under certain circumstances, all outstanding options and shares
granted under such plan will become fully vested and immediately exercisable
upon a "transfer of control" as defined in such plan.
10
<PAGE>
COMPARISON OF STOCKHOLDER RETURN(1)
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on the Company's Common Stock with the CRSP Total
Return Index for the Nasdaq Stock Market (U.S. Companies) and the Nasdaq
Computer and Data Processing Stocks (SIC 7370-7379 US & Foreign) for the
period commencing September 30, 1994 and ending October 1, 1999.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
9/30/94 9/29/95 9/27/96 9/26/97 10/02/98 10/01/99
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
. IKOS Systems, Inc......... 100.0 279.4 467.6 294.1 33.8 179.4
H Nasdaq Stock Market (US
Companies)................ 100.0 138.1 164.3 224.5 218.1 370.5
s Nasdaq Computer and Data
Processing Stocks
(SIC 7370-7379 US &
Foreign).................. 100.0 160.2 200.6 270.9 323.4 581.1
</TABLE>
- -------
(1) Assumes that $100.00 was invested September 30, 1994 in the Company's
Common Stock and in each index, and that all dividends were reinvested.
Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
11
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee is comprised of three outside directors of the
Board and is responsible for setting and monitoring policies governing
compensation of executive officers. The Compensation Committee reviews the
performance and compensation levels for executive officers and sets salary and
bonus levels and option grants under the Option Plan. The objectives of the
Committee are to correlate executive compensation with the Company's business
objectives and performance, and to enable the Company to attract, retain and
reward executive officers who contribute to the long-term success of the
Company.
Salary
The Compensation Committee annually assesses the performance and sets the
salary of the Company's President and Chief Executive Officer, Ramon A. Nunez.
In turn, Mr. Nunez annually assesses the performance of all other executive
officers and recommends salary increases which are reviewed and approved by
the Compensation Committee.
In particular, Mr. Nunez's compensation as the Company's President and
Chief Executive Officer is based on compensation levels of President/Chief
Executive Officers of comparable size companies. In addition, the Compensation
Committee considers certain incentive objectives based on the Company's
performance as it relates to revenue levels and earnings per share levels.
In determining executive officer salaries, the Compensation Committee
reviews recommendations from Mr. Nunez which include information from salary
surveys, performance evaluations and the financial condition of the Company.
The Compensation Committee also establishes both financial and operational
based objectives and goals in determining executive officer salaries. These
goals and objectives include sales and spending forecasts for the upcoming
year and published executive compensation literature for comparable sized
companies.
For more information regarding the compensation and employment arrangements
of Mr. Nunez and other executive officers of the Company, see "EXECUTIVE
COMPENSATION AND OTHER MATTERS--Compensation of Executive Officers and
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements."
Bonuses
The Compensation Committee administers a bonus plan to provide additional
incentives to executives who meet established performance goals for the
Company. In consultation with the Chief Executive Officer, the Compensation
Committee annually determines the total amount of cash bonuses available for
executive officers and certain other management employees. In fiscal 1999,
awards under this bonus plan were contingent upon the Company's attainment of
revenue and operating profit targets, recommended by the Chief Executive
Officer and approved by the Compensation Committee. The target amount of the
bonus for the Chief Executive Officer and more senior executive officers was
set by the Compensation Committee; the amounts of individual bonuses for the
remaining executive officers and other management were proposed by the Chief
Executive Officer, subject to approval by the Compensation Committee. Awards
are weighted so that proportionately higher awards are received when the
Company's performance reaches maximum targets, proportionately smaller awards
are received when the Company's performance reaches minimum targets and no
awards are received when the Company does not meet minimum performance
targets.
Stock Options
The Compensation Committee believes that employee equity ownership provides
significant motivation to executive officers to maximize value for the
Company's stockholders and, therefore, periodically grants stock options under
the Option Plan. Stock options are granted at the current market price and
will only have value if the Company's stock price increases over the exercise
price.
12
<PAGE>
The Compensation Committee determines the size and frequency of option
grants for executive officers, after consideration of recommendations from the
Chairman of the Board. Recommendations for options are based upon the relative
position and responsibilities of each executive officer, previous and expected
contributions of each officer to the Company and previous option grants to
such executive officers. Generally, option grants vest 12.5% six months after
commencement of employment or six months after the date of grant and continue
to vest thereafter in equal monthly installments over three and one-half
years, conditioned upon continued employment with the Company.
COMPENSATION COMMITTEE
Jackson Hu
William Stevens
Glenn E. Penisten
13
<PAGE>
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of the Company has appointed Ernst & Young LLP to serve as
independent auditors to audit the financial statements of the Company for the
fiscal year ending September 30, 2000. Ernst & Young LLP has acted in such
capacity since its appointment for fiscal 1986. A representative of Ernst &
Young LLP will be present at the Annual Meeting, will be given the opportunity
to make a statement if the representative desires and will be available to
respond to appropriate questions.
In the event that ratification by the stockholders of the appointment of
Ernst & Young LLP as the Company's independent auditors is not obtained, the
Board will reconsider said appointment.
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to vote at the Annual Meeting, at which a quorum
representing a majority of all outstanding shares of Common Stock of the
Company is present and voting, either in person or by proxy, is required for
approval of this proposal. Abstentions and broker non-votes will each be
counted as present for purposes of determining the presence of a quorum.
Abstentions will have the same effect as a negative vote on this proposal.
Broker non-votes will have no effect on the outcome of the vote on this
proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF ERNST & YOUNG
LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING
SEPTEMBER 30, 2000.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
The Company has an advance notice provision under its bylaws for
stockholder business to be presented at meetings of stockholders. Such
provision states that in order for stockholder business to be properly brought
before a meeting by a stockholder, such stockholder must have given timely
notice thereof in writing to the Secretary of the Company. A stockholder
proposal, to be timely, must be received at the Company's principal executive
offices not less than 120 calendar days in advance of the one year anniversary
of the date the Company's proxy statement was released to stockholders in
connection with the previous year's annual meeting of stockholders; except
that (i) if no annual meeting was held in the previous year, (ii) if the date
of the annual meeting has been changed by more than thirty calendar days from
the date contemplated at the time of the previous year's proxy statement, or
(iii) in the event of a special meeting, then notice must be received not
later than the close of business on the tenth day following the day on which
notice of the date of the meeting was mailed or public disclosure of the
meeting date was made.
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders of the Company (i) must be received by the Company at
its offices at 19050 Pruneridge Avenue, Cupertino, California 95014 no later
than August 18, 2000 and (ii) must satisfy the conditions established by the
Securities and Exchange Commission for stockholder proposals to be included in
the Company's proxy statement for that meeting.
14
<PAGE>
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the Board knows of no other business
that will be conducted at the 2000 Annual Meeting, other than as described in
this Proxy Statement. If any other matter or matters are properly brought
before the meeting, or any adjournment thereof, it is the intention of the
persons named in the accompanying form of Proxy to vote the Proxy on such
matters in accordance with their best judgment.
By Order of the Board of Directors,
/s/ JOSEPH W. ROCKOM
Joseph W. Rockom, Secretary
December 20, 1999
15
<PAGE>
3920-PS-00
<PAGE>
IKOS SYSTEMS, INC.
Proxy for Annual Meeting of Stockholders
Solicited by the Board of Directors
The undersigned hereby appoints Ramon A. Nuez and Joseph W. Rockom, and each
of them, with full power of substitution to represent the undersigned and to
vote all of the shares of stock in IKOS Systems, Inc. (the "Company") which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of said
Company to be held at the Hilton Inn, Cupertino, California on Wednesday,
January 19, 2000 at 11:00 a.m. Pacific Standard Time, and at any adjournment
thereof (1) as hereinafter specified upon the proposals listed below and as more
particularly described in the Company's Proxy Statement, receipt of which is
hereby acknowledged and (2) in their discretion upon such other matters as may
properly come before the meeting.
A vote FOR the following proposals is recommended by the Board of Directors:
1. Election of directors listed below.
Nominees: Gerald S. Casilli, Ramon A. Nunez, James R. Oyler, Glenn E.
Penisten, William Stevens, and Jackson Hu.
[_] FOR [_] WITHHELD
_____________________________________________________________________
[_] INSTRUCTION: To withhold authority to vote for any nominee, mark
the above box and list the name(s) of the nominee(s) in the space
provided.
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending September 30, 2000.
[ ] FOR [ ] WITHHELD [ ] ABSTAIN
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The shares represented hereby shall be voted as specified. If no specification
is made, such shares shall be voted FOR proposals 1, 2 and 3.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
<PAGE>
Dated _______________________
(Be sure to date Proxy)
__________________________________________
Signatures(s)
__________________________________________
Print Name(s)
Sign exactly as your name(s) appears on your stock certificate. If shares
of stock stand on record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the above Proxy. If shares of stock are held of record by
a corporation, the Proxy should be executed by the President or Vice President
and the Secretary or Assistant Secretary, and the corporate seal should be
affixed thereto. Executors or administrators or other fiduciaries who execute
the above Proxy for a deceased stockholder should give their full title.
Please date the Proxy.
Even if you are planning to attend the meeting in person, you are urged to
sign and mail the Proxy in the return envelope so that your stock may be
represented at the meeting.
