<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Synopsys, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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> 2
LOGO
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 1, 1999
------------------------
To the Stockholders of Synopsys, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Synopsys,
Inc., a Delaware corporation (the "Company"), will be held on Monday, March 1,
1999, at 4:00 p.m., local time, at the Company's principal executive offices at
700 East Middlefield Road, Mountain View, California 94043, for the following
purposes:
1. To elect nine directors to serve for the ensuing year or until
their successors are elected.
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of shares of Common
Stock that the Company is authorized to issue from 100,000,000 to
200,000,000.
3. To approve an amendment to the Company's Employee Stock Purchase
Plan and International Employee Stock Purchase Plan (the "Plans") to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,500,000 shares.
4. To approve an amendment to the Company's 1994 Non-Employee
Directors Stock Option Plan to increase the number of shares of Common
Stock reserved each year for issuance thereunder to 150,000.
5. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for fiscal year 1999.
6. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on January 5, 1999 are
entitled to notice of and to vote at the meeting. All stockholders are cordially
invited to attend the meeting in person. However, to assure your representation
at the meeting, you are urged to sign and return the enclosed proxy (the
"Proxy") as promptly as possible in the envelope enclosed. Any stockholder
attending the meeting may vote in person even if he or she has previously
returned a Proxy.
Sincerely,
Aart J. de Geus
Chairman of the Board
Chief Executive Officer
Mountain View, California
January [19], 1999
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, AND COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE> 3
LOGO
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 1, 1999
------------------------
GENERAL INFORMATION
The enclosed proxy (the "Proxy") is solicited on behalf of the Board of
Directors of Synopsys, Inc., a Delaware corporation ("Synopsys" or the
"Company"), for use at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held on March 1, 1999 at the Company's principal executive offices, 700
East Middlefield Road, Mountain View, California 94043.
These proxy solicitation materials were mailed on or about January 19, 1999
to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The cost of soliciting Proxies will be borne by the Company. The Company
has retained the services of Beacon Hill Partners, Inc. to assist in the
solicitation of Proxies, for which it will receive a fee from the Company of
approximately $4,500 plus out-of-pocket expenses. 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, telecopy or telegram. Except as
described above, the Company does not presently intend to solicit Proxies other
than by mail.
REVOCABILITY OF PROXIES
Any person giving a Proxy has the power to revoke it at any time before its
use by delivering to the Company's principal executive offices a written notice
of revocation or a duly executed Proxy bearing a later date. The Proxy may also
be revoked by attending the Annual Meeting and voting in person.
RECORD DATE, VOTING AND SHARE OWNERSHIP
Stockholders of record on January 5, 1999 are entitled to notice of and to
vote at the Annual Meeting. As of the record date, 69,967,174 shares of the
Company's common stock, $.01 par value ("Common Stock"), were issued and
outstanding. No shares of the Company's preferred stock were outstanding.
Each stockholder is entitled to one vote for each share of Common Stock
held by such stockholder of record as of the close of business on January 5,
1999. The holders of a majority of the shares issued and outstanding,
represented in person or by Proxy, shall constitute a quorum. All valid Proxies
received before the meeting will be exercised. All shares represented by a Proxy
will be voted, and where a stockholder 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. A stockholder who
abstains on any or all matters will be deemed present at the meeting for
purposes of determining whether a quorum is present and the total number of
votes cast with respect to a proposal (other than votes cast for the election of
directors), but will be deemed not to have voted in favor of the particular
matter (or matters) as to which the stockholder 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
<PAGE> 4
beneficial owner as to how to vote those shares on a proposal and does not have
discretionary authority to vote on such proposal, then the shares held by the
nominee will be deemed present at the meeting for quorum purposes but will not
be deemed to have voted on such proposal.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE -- ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall consist
of not fewer than five and not more than nine persons; within that range, the
Board has set the number of directors at nine persons. At the Annual Meeting,
nine directors are to be elected to serve until the Company's next Annual
Meeting or until their successors are elected and qualified. The Board of
Directors has selected nine nominees, seven of whom are current directors of the
Company. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unavailable to
serve. Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them FOR the nominees named below. The nine candidates receiving the
highest number of affirmative votes of the shares represented and voting on this
proposal at the Annual Meeting will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE FOLLOWING NOMINEES TO SERVE AS DIRECTORS OF THE COMPANY
UNTIL THE NEXT ANNUAL MEETING OR UNTIL THEIR SUCCESSORS HAVE BEEN ELECTED AND
QUALIFIED.
NOMINEES
Set forth below is information regarding the nominees, including
information furnished by them as to principal occupations, certain other
directorships held by them, any arrangements pursuant to which they were
selected as directors or nominees and their ages as of December 31, 1998.
<TABLE>
<CAPTION>
YEAR FIRST
NAME AGE ELECTED DIRECTOR
---- --- ----------------
<S> <C> <C>
Aart J. de Geus........................................... 44 1986
Andy D. Bryant............................................ 48 *
Chi-Foon Chan............................................. 49 1998
Deborah A. Coleman........................................ 46 1995
Harvey C. Jones, Jr....................................... 45 1988
William W. Lattin......................................... 58 1995
A. Richard Newton......................................... 47 1987; 1995
Sasson Somekh............................................. 52 *
Steven C. Walske.......................................... 46 1991
</TABLE>
- ---------------
* Standing for election for the first time at the Annual Meeting.
BACKGROUND OF DIRECTORS
DR. AART J. DE GEUS co-founded Synopsys and currently serves as Chief
Executive Officer and Chairman of the Board of Directors. Since the inception of
Synopsys in December 1986 he has held a variety of positions including Senior
Vice President of Engineering and Senior Vice President of Marketing. From 1986
to 1992 Dr. de Geus served as Chairman of the Board. He served as President from
1992 to 1998. Dr. de Geus has served as Chief Executive Officer since January
1994 and has held the additional title of Chairman of the Board since February
1998. He has served as a Director since 1986. From 1982 to 1986 Dr. de Geus was
employed by General Electric Corporation, where he was the Manager of the
Advanced Computer-Aided Engineering Group. Dr. de Geus holds an M.S.E.E. from
the Swiss Federal Institute of Technology in Lausanne, Switzerland and a Ph.D.
in electrical engineering from Southern Methodist University.
2
<PAGE> 5
ANDY D. BRYANT is Senior Vice President and Chief Financial Officer of
Intel Corporation, with responsibility for financial operations worldwide. Mr.
Bryant joined Intel in 1981 as controller for the Commercial Memory Systems
Operation and in 1983 became Systems Group Controller. In 1987 he was promoted
to Director of Finance for the Corporation and was appointed Vice President and
Director of Finance of the Intel Products Group in 1990. Mr. Bryant became CFO
in February of 1994 and was named a Senior Vice President of the Corporation in
December of 1998. Prior to joining Intel, he held positions in finance at Ford
Motor Company and Chrysler Corporation. Mr. Bryant holds a B.A. in Economics
from the University of Missouri and an M.B.A. in Finance from the University of
Kansas.
DR. CHI-FOON CHAN joined Synopsys as Vice President of Application
Engineering & Services in May 1990. Since April 1997 he has served as Chief
Operating Officer and since February 1998 he has held the additional title of
President. Dr. Chan also became a Director of the Company in February 1998. From
September 1996 to February 1998 he served as Executive Vice President, Office of
the President. From February 1994 until April 1997 he served as Senior Vice
President, Design Tools Group and from October 1996 until April 1997 as Acting
Senior Vice President, Design Reuse Group. Additionally, he has held the titles
of Vice President, Engineering and General Manager, DesignWare Operations and
Sr. Vice President, Worldwide Field Organization. From March 1987 to May 1990,
Dr. Chan was employed by NEC Electronics, where his last position was General
Manager, Microprocessor Division. From 1977 to 1987, Dr. Chan held a number of
senior engineering positions at Intel Corporation. Dr. Chan holds an M.S. and
Ph.D. in computer engineering from Case Western Reserve University.
DEBORAH A. COLEMAN has been a Director of Synopsys since November 1995. Ms.
Coleman has been Chairman and Chief Executive Officer of Merix Corporation, a
manufacturer of printed circuit boards, since May 1994, when it was spun off
from Tektronix, Inc., and has been President since March 1997. Ms. Coleman
joined Merix from Tektronix, a diversified electronics corporation, where she
served as Vice President of Materials Operations, responsible for worldwide
procurement, distribution, component engineering and component manufacturing
operation. Prior to joining Tektronix in November 1992, Ms. Coleman was with
Apple Computer, Inc. for eleven years, where she held several executive
positions, including Chief Financial Officer, Chief Information Officer and Vice
President of Operations. She is a Director of Applied Materials, a manufacturer
of fabrication equipment.
HARVEY C. JONES, JR. has been a Director of Synopsys since December 1987.
Mr. Jones joined the Company in December 1987 and served as President and Chief
Executive Officer through December 1992. From December 1992 through January 1994
Mr. Jones served as Chairman of the Board and Chief Executive Officer. Mr. Jones
continued as Chairman until his retirement in February 1998. Prior to joining
Synopsys, Mr. Jones served as President and Chief Executive Officer of Daisy
Systems Corporation, a company he co-founded in 1981. Mr. Jones began his career
at Calma, where his last position was Vice President, Business Development.
Jones is a director of Remedy Corporation, an enterprise software company. As an
active venture investor, Jones serves on numerous private boards of directors.
Mr. Jones holds a B.S. in mathematics and computer sciences from Georgetown
University, and an M.S. from MIT's Sloan School of Management.
DR. WILLIAM W. LATTIN is an Executive Vice President of Synopsys and has
been a Director of Synopsys since July 1995. Dr. Lattin joined Synopsys in
February 1994 in connection with Synopsys' merger with Logic Modeling
Corporation ("LMC"). He has served as Executive Vice President since July 1995.
From October 1994 to July 1995 he served as Senior Vice President, Corporate
Marketing, and from February 1994 until October 1994 as Senior Vice President,
Logic Modeling Group. From December 1992 to February 1994, Dr. Lattin served as
President, Chief Executive Officer and Director of LMC, and from May 1992 to
December 1992 he served as Chairman of the Board and Chief Executive Officer of
LMC. From 1986 to 1992, Dr. Lattin served as Chairman of the Board of Directors,
President and Chief Executive Officer of Logic Automation Inc., a predecessor of
LMC. Dr. Lattin holds a B.S.E.E. and an M.S.E.E. from the University of
California at Berkeley, and a Ph.D. in electrical engineering from Arizona State
University. Dr. Lattin is a Director of RadiSys Corporation, a supplier of
embedded computers, as well as a Director of Easy Street Online Services, an
internet service provider and a Trustee of the Oregon Graduate Institute.
3
<PAGE> 6
DR. A. RICHARD NEWTON has been a Director of Synopsys since January 1995.
Previously, Dr. Newton was a Director of Synopsys from January 1987 to June
1991. Dr. Newton has been a Professor of Electrical Engineering and Computer
Sciences at the University of California at Berkeley since 1979. Since 1988 Dr.
Newton has acted as a Venture Partner with Mayfield Fund, a venture capital
partnership, and has contributed to the evaluation and development of over a
dozen new companies. From November 1994 to July 1995 he was acting President and
Chief Executive Officer of Echelle, Inc., a private company which is developing
display systems based on the application of micromachined silicon light-valves.
DR. SASSON SOMEKH has been Senior Vice President of Applied Materials,
Inc., a manufacturer of semiconductor equipment, since December 1993. Dr. Somekh
served as Group Vice President from 1990 to 1993. Prior to that, he was a
divisional Vice President. Dr. Somekh joined Applied Materials in 1980 as a
Project Manager. Dr. Somekh is a director of Scitex Corporation Ltd., which
provides digital imaging products and services for graphics communication.
STEVEN C. WALSKE has been a Director of Synopsys since December 1991. Mr.
Walske has been Chairman, Chief Executive Officer and a Director of Parametric
Technology Corporation, a supplier of software products for mechanical
computer-aided engineering, since August 1994 and served as President and Chief
Executive Officer from December 1986 to August 1994. Mr. Walske is a Director of
Videoserver, Inc., a supplier of network conference servers, and Object Design
Inc., a database software company.
There are no family relationships among any executive officers, directors
or persons chosen or nominated to become executive officers or directors of the
Company.
BOARD COMMITTEES AND MEETINGS
During fiscal year 1998, the Board of Directors held six meetings and acted
by unanimous written consent on three occasions. During such year the Committees
of the Board of Directors included an Audit Committee, a Compensation Committee
and a Nominating and Board Affairs Committee.
During fiscal year 1998, the Audit Committee consisted of two directors,
Ms. Coleman and Mr. Jones. Ms. Coleman served on the Audit Committee for the
entire year; Mr. Jones was appointed at the January 1998 Board meeting. The
Audit Committee is primarily responsible for reviewing the Company's financial
results prior to their release to the public, reviewing reports provided by, and
approving the services performed by, the Company's independent auditors and
reviewing the Company's accounting practices and systems of internal accounting
controls. The Audit Committee held five meetings during fiscal year 1998.
During fiscal year 1998, the Compensation Committee consisted of two
directors, Mr. Walske and Ms. Coleman, each of whom served on the Committee for
the entire fiscal year. The Compensation Committee is primarily responsible for
reviewing and approving the Company's general compensation policies, setting
compensation levels for the Company's executive officers and administering the
Company's stock option, employee stock purchase and 401(k) savings plans. The
Committee held four meetings during fiscal year 1998 and acted by unanimous
written consent on four occasions.
The Nominating and Board Affairs Committee was established in January 1998.
The Committee's charter is to identify and recruit candidates for the Board and
to make recommendations regarding board of directors' best practices. The
Committee consisted of Dr. de Geus and Dr. Lattin. Although the Committee held
no formal meetings during the year, members of the Committee individually met
with potential candidates for director and proposed the nominations for Mr.
Bryant and Mr. Somekh to the full Board. Nominations for election of directors
at the Annual Meeting were made by the full Board of Directors of the Company.
The Committee does not plan to express a view as to any shareholder nominations
for the Board.
During fiscal year 1998, all directors attended at least 85% of the
meetings of the Board of Directors and Committees of the Board on which they
served.
4
<PAGE> 7
DIRECTORS' COMPENSATION
During fiscal year 1998, each non-employee Board member was paid an annual
retainer of $8,000, and $1,000 for each Board or Board Committee meeting
attended, plus expenses.
In addition, non-employee Board members receive automatic option grants
under the 1994 Non-Employee Directors Stock Option Plan (the "Directors Plan").
As of the date of this Proxy four non-employee Board members were eligible to
participate in the Directors Plan. For a description of the terms of the
Directors Plan, see Proposal Four in this Proxy Statement, which would increase
the number of shares annually reserved for issuance under the Directors Plan.
During fiscal year 1998, Mr. Walske, Dr. Newton, Mr. Jones and Ms. Coleman
each received automatic grants of options to purchase 10,000 shares of Common
Stock on February 27, 1998, at an exercise price of $34.9375 per share. In
addition, during fiscal year 1998, Messrs. Walske, Newton and Jones each
received options to purchase 5,000 shares of Common Stock and Ms. Coleman
received options to purchase 10,000 shares of Common Stock, for service on Board
Committees, at an exercise price of $34.9375.
During fiscal year 1998, Dr. Newton provided consulting services to the
Company, for which he was paid $120,000. Under the Company's agreement with Dr.
Newton, at the Company's request, Dr. Newton provides advice concerning
long-term technology strategy and assistance in identifying opportunities for
partnerships with academia.
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 1, 1998 by (i)
each person known by the Company to own beneficially more than five percent of
the outstanding shares of Common Stock on that date, (ii) each director and each
person nominated to become a director of the Company, (iii) each of the
executive officers named in the "Executive Compensation -- Summary Compensation
Table" on page 6 (the "Named Executive Officers") and (iv) all directors and
current executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
--------------------------
PERCENTAGE
NAME OF BENEFICIAL OWNER(1) NUMBER OWNERSHIP
--------------------------- ------------ ----------
<S> <C> <C>
Massachusetts Financial Services Company................... 7,679,585(2) 11.25%
500 Boylston Street, 15th Floor
Boston, Massachusetts 02116
T. Rowe Price.............................................. 6,580,764(2) 9.64%
100 East Pratt Street
Baltimore, Maryland 21202
Putnam Investments......................................... 5,312,930(2) 7.78%
One Post Office Square
Boston, Massachusetts 02109
Andy D. Bryant............................................. 0 n/a
Raul Camposano............................................. 62,248(3) *
Chi-Foon Chan.............................................. 161,561(4) *
Deborah A. Coleman......................................... 53,000(5) *
Aart J. de Geus............................................ 578,988(6) *
Harvey C. Jones, Jr........................................ 191,580(7) *
William W. Lattin.......................................... 212,568(8) *
A. Richard Newton.......................................... 43,078(9) *
Robert Russo............................................... 54,009(10) *
Sasson Somekh.............................................. 0 n/a
Steven C. Walske........................................... 43,200(11) *
All directors and executive officers as a group (18
persons)................................................. 1,818,569(12) 2.66%
</TABLE>
- ---------------
* Less than 1%
(1) The persons named in the table above have sole voting and investment power
with respect to all shares of the Company's Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes of this table.
Unless otherwise indicated, the business address of each of the beneficial
owners listed is 700 East Middlefield Road, Mountain View, California
94043.
(2) Based on information that the Company believes to be correct as of
September 1998, but that is not reflected in filings with the Commission.
The Company does not know the extent to which voting or dispositive power
with respect to such shares is shared.
(3) Includes options to purchase 59,652 shares of Synopsys Common Stock
exercisable by Dr. Camposano within 60 days of December 1, 1998.
(4) Includes options to purchase 154,623 shares of Synopsys Common Stock
exercisable by Dr. Chan within 60 days of December 1, 1998.
(5) Includes options to purchase 53,000 shares of Synopsys Common Stock
exercisable by Ms. Coleman within 60 days of December 1, 1998.
(6) Includes options to purchase 282,250 shares of Synopsys Common Stock
exercisable by Dr. de Geus within 60 days of December 1, 1998. Excludes
11,000 shares held by Dr. de Geus' spouse, as to which he disclaims
beneficial ownership.
(7) Includes options to purchase 138,983 shares of Synopsys Common Stock
exercisable by Mr. Jones within 60 days of December 1, 1998.
6
<PAGE> 9
(8) Includes options to purchase 118,016 shares of Synopsys Common Stock
exercisable by Dr. Lattin within 60 days of December 1, 1998.
(9) Includes options to purchase 43,000 shares of Synopsys Common Stock
exercisable by Dr. Newton within 60 days of December 1, 1998.
(10) Includes options to purchase 52,825 shares of Synopsys Common Stock
exercisable by Mr. Russo within 60 days of December 1, 1998.
(11) Includes options to purchase 43,000 shares of Synopsys Common Stock
exercisable by Mr. Walske within 60 days of December 1, 1998.
(12) Includes options to purchase 1,251,050 shares of Synopsys Common Stock
exercisable by directors and executive officers within 60 days of December
1, 1998. Excludes 11,000 shares held by Dr. de Geus' spouse, as to which he
disclaims beneficial ownership.
EXECUTIVE COMPENSATION
Executive Compensation and Other Matters
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the other four most highly compensated
executive officers whose compensation for fiscal year 1998 exceeded $100,000
(the "Named Executive Officers"), for services rendered in all capacities to the
Company during the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION($) COMPENSATION:
---------------------------------- SECURITIES
OTHER ANNUAL AWARDS ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND POSITION YEAR SALARY BONUS(1) (1)(2) OPTIONS(#) ($)(3)
----------------- ---- -------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Aart J. de Geus............... 1998 362,118 391,000 -- 150,000 1,863
Chairman of the Board and 1997 299,231 200,363 -- 200,000 1,870
Chief Executive Officer 1996 260,000 240,000 -- 120,000 2,517
Chi-Foon Chan................. 1998 329,615 363,000 125,000 1,758
President and Chief 1997 281,914 144,441 -- 165,000(4) 2,494
Operating Officer 1996 224,138 153,930 -- 35,000(5) 3,122
Robert Russo.................. 1998 289,662 78,820 366,216 30,000 1,805
Senior Vice President, 1997 191,327 160,188 231,600 82,000(6) 3,144
Worldwide Sales and Services 1996 145,000 98,695 234,659 15,000 2,902
The Americas and Europe
Raul Camposano................ 1998 271,692 136,600 -- 75,000 1,608
Senior Vice President, 1997 199,808 91,086 -- 106,500(7) 2,071
Design Tools Group and Chief 1996 155,769 71,050 -- 14,500(5) 2,033
Technical Officer
William W. Lattin............. 1998 258,993 250,000 -- 40,000 1,976
Executive Vice President 1997 201,717 91,818 -- 60,000 2,361
and Director 1996 109,423 82,902 -- 25,100 3,597
</TABLE>
- ---------------
(1) Includes amounts paid in the subsequent fiscal year in respect of services
rendered (or, in the case of commissions, orders booked) during the fiscal
year for which information is provided.
(2) "Other Annual Compensation" includes the following: (i) commissions of
$358,740, $224,677 and $227,182 earned by Mr. Russo for fiscal years 1998,
1997 and 1996, respectively, and (ii) car allowances of $7,477, $6,923 and
$7,477 provided to Mr. Russo for fiscal years 1998, 1997 and 1996,
respectively.
(3) Amounts in this column reflect premiums paid for group term life insurance
and Synopsys 401(k) contributions.
(4) Includes options to purchase 75,000 shares which were granted in fiscal
years 1996 and 1997 and canceled and regranted in fiscal year 1997 in
connection with an option repricing.
(5) Options granted in fiscal year 1996 were canceled and regranted in fiscal
year 1997 in connection with an option repricing.
(6) Includes options to purchase 12,000 shares which were granted in fiscal year
1997 in connection with an option repricing.
(7) Includes options to purchase 36,500 shares which were granted in fiscal
years 1996 and 1997 and canceled and regranted in fiscal year 1997 in
connection with an option repricing.
7
<PAGE> 10
Stock Option Grants
The following table sets forth further information regarding individual
grants of options for Synopsys' Common Stock during fiscal 1998 for each of the
Named Executive Officers. All grants for each of the Named Executive Officers
were made pursuant to Synopsys' 1992 Stock Option Plan (the "1992 Plan"). In
accordance with the rules of the Securities and Exchange Commission, the table
sets forth the hypothetical gains or "option spreads" that would exist for the
options at the end of their respective ten-year terms based on assumed
annualized rates of compound stock price appreciation of 0%, 5%, and 10% from
the dates the options were granted to the end of the respective option terms.
Actual gains, if any, on option exercises are dependent on the future
performance of Synopsys Common Stock and overall market conditions. There can be
no assurance that the potential realizable values shown in this table will be
achieved. No stock appreciation rights were granted to such officers during
fiscal 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE APPRECIATION
SECURITIES OPTIONS GRANTED EXERCISE OR FOR OPTION TERM ($)
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION ------------------------------
NAME OPTIONS GRANTED(1) FISCAL 1998(2) ($/SHARE) DATE 0% 5% 10%
---- ------------------ ---------------- ----------- ---------- ---- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Aart J. de Geus.......... 150,000 3.80 38.25 7/24/08 0 3,608,283 9,144,097
Chi-Foon Chan............ 125,000 3.17 38.25 7/24/08 0 3,006,902 7,620,081
Robert Russo............. 30,000 0.76 38.25 7/24/08 0 721,657 1,828,819
Raul Camposano........... 25,000 0.63 35.75 12/24/07 0 562,075 1,424,407
50,000 1.27 38.25 7/24/08 0 1,202,761 3,048,032
William W. Lattin........ 40,000 1.01 38.25 7/24/08 0 962,209 2,438,426
</TABLE>
- ---------------
(1) These options become exercisable ratably in a series of monthly installments
over a four-year period from the grant date, assuming continued service to
Synopsys, subject to acceleration under certain circumstances involving a
change in control of Synopsys. Each option has a maximum term of 10 years,
subject to earlier termination upon the optionee's cessation of service.
(2) Based on aggregate options to acquire 3,946,469 shares of Synopsys Common
Stock granted in fiscal 1998.
Option Exercises and Year-End Values
The following table sets forth, for each of the Named Executive Officers,
each exercise of stock options during fiscal year 1998 and the year-end value of
unexercised options.
No stock appreciation rights were exercised during such fiscal year by the
Named Executive Officers, and no stock appreciation rights were outstanding at
the end of the fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF IN-THE-MONEY
SHARES VALUE OPTIONS AT FY-END OPTIONS AT FY-END ($)(2)
ACQUIRED REALIZED --------------------------- ---------------------------
NAME ON EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Aart J. de Geus............... -- -- 234,958 321,042 1,120,688 -0-
Chi-Foon Chan................. -- -- 136,935 240,565 1,296,508 161,255
Robert Russo.................. -- -- 40,928 93,337 99,511 27,237
Raul Camposano................ 8,000 127,766 40,860 147,265 47,057 85,111
William W. Lattin............. 13,024 400,328 102,612 93,836 925,677 77,994
</TABLE>
- ---------------
(1) Market value at exercise less exercise price.
(2) Market value of underlying securities at October 2, 1998 ($31.1875) minus
the exercise price.
8
<PAGE> 11
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE OF
CONTROL AGREEMENTS
Under the 1992 Plan, in the event of certain changes in the ownership or
control of the Company involving a "Corporate Transaction," which includes an
acquisition of the Company by merger or asset sale, all outstanding options
under the 1992 Plan will automatically become exercisable, unless the option is
assumed by the successor corporation (or parent thereof) or replaced by a
comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof).
In addition, in the event of a successful hostile tender offer for more
than 50% of the Company's outstanding Common Stock or a change in the majority
of the Board as a result of one or more contested elections for Board
membership, the Compensation Committee has the authority to provide for the
acceleration of vesting of the shares of Common Stock subject to outstanding
options under the 1992 Plan.
Synopsys has entered into Employment Agreements, effective October 1, 1997,
with its Chief Executive Officer, President and Chief Financial Officer. Each
Employment Agreement provides that if the executive is terminated involuntarily
other than for cause within 24 months of a change of control, (a) the executive
will be paid an amount equal to two times the sum of the executive's annual base
pay plus target cash incentive, plus the cash value of the executive's health
benefits for the next 18 months and (b) all stock options held by the executive
will immediately vest in full. If the executive is terminated involuntarily
other than for cause in any other situation, the executive will receive a cash
payment equal to the sum of the executive's annual base pay for one year plus
target cash incentive for such year, plus the cash value of the executive's
health benefits for twelve months. The terms "involuntary termination," "cause"
and "change of control" are defined in each Employment Agreement.
REPORT OF THE COMPENSATION COMMITTEE
The following is the report of the Compensation Committee of the Board of
Directors describing the compensation policies, and the rationale therefor, with
respect to the compensation paid to the Company's executive officers for fiscal
year 1998.
Executive Compensation
Purpose of the Compensation Committee
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for determining compensation levels for the executive officers for
each fiscal year based upon a consistent set of policies and procedures.
Committee Structure
During fiscal year 1998 the Committee was made up of two independent,
non-employee members of the Board of Directors, Steven C. Walske and Deborah
Coleman, each of whom served as members of the Committee for the full year. The
Committee met during the fourth quarter of fiscal year 1997 to set executive
officer compensation plans.
Objectives of the Compensation Plan
The objectives of the compensation program as established by the Committee
are: (1) to provide a means for the Company to attract and retain high-quality
executives; (2) to tie executive compensation directly to the Company's business
and performance objectives; and (3) to reward outstanding individual performance
that contributes to the long-term success of the Company.
Elements of Compensation
Each executive officer's compensation package is comprised of three
elements: (1) base compensation, which reflects individual performance and is
designed primarily to be competitive with salary levels in a comparative group;
(2) variable compensation payable based on the achievement of financial
performance
9
<PAGE> 12
goals and individual performance; and (3) long-term stock-based incentive
compensation, which rewards Company growth and increased stockholder value.
Base Compensation. The base compensation for each executive officer is
determined based on consideration of the following factors: (1) salary levels
for comparable positions in software and related companies similar in size and
business that compete with Synopsys in the recruitment and retention of senior
personnel; (2) each executive's past performance relative to corporate, business
group (if applicable) and individual objectives; (3) each executive's
responsibility level and objectives for the subsequent year; and (4)
compensation relative to other executives in the Company.
Information regarding competitive salary ranges was obtained from an
independent compensation survey firm. Some of the companies the Committee
surveyed as part of the peer group for comparative compensation purposes are
included in the S&P Technology Sector Index, which the Company has selected as
the industry index for purposes of the stock price performance graph that
appears earlier in this Proxy Statement. However, the S&P Technology Sector
Index also includes a significant number of companies that are of greater size
than the Company, participate in different industries than the Company or are
located in different regions from the Company, and use of index companies alone
would have incorrectly affected compensation comparisons. In selecting companies
for compensation comparison purposes, the Committee selected companies that
actually compete with the Company in seeking executive talent. Consequently,
some companies included in the compensation comparison survey are not
necessarily included in the S&P Technology Sector Index.
The Company believes that the total cash compensation for the executive
officers of the Company for fiscal year 1998 was competitive with the total cash
compensation for executive officers at companies with which the Company competes
for executives.
Variable Compensation. The Company's fiscal year 1998 bonus plan provided
for incentive bonus compensation to executive officers based on the achievement
of specific performance targets relating to accepted orders, revenue and
operating margin for the Company as a whole and, for officers and employees in
business groups, contribution margin. An executive officer may receive
additional compensation based on a qualitative assessment of his or her
performance by the Chairman of the Board/Chief Executive Officer and
President/Chief Operating Officer, in consultation with the Board of Directors.
For fiscal year 1998, a bonus formula was established such that achievement of
planned levels of accepted orders, revenue, operating margin and, where
applicable, contribution margin would result in a specified bonus level. For
performance levels over or under plan, the bonus compensation amount would
increase or decrease proportionately. For fiscal year 1998, accepted orders,
revenue and operating margin all were below the established targets, and
contribution margin varied by business unit. Bonus compensation (except for the
qualitative component) was determined according to the compensation formula and,
except for the business unit component for certain business units, was below the
target amount. Total Bonus Compensation for the Named Executive Officers is
shown in the Summary Compensation Table on page 6. The Committee believes that
these levels of compensation are a fair reflection of the performance of the
named individuals.
The Company's incentive bonus compensation structure for executive officers
was reviewed for fiscal year 1999 and includes specific corporate performance
targets relating to accepted orders, revenue, individual performance and
operating margin.
Long-Term Incentive Compensation. Long-term compensation provided to the
Company's executives has been in the form of stock options. The Committee
believes that equity-based compensation closely aligns the interests of
executive officers with those of stockholders by providing an incentive to
manage the Company with a focus on long-term strategic objectives set by the
Board of Directors relating to growth and stockholder value. Stock options are
granted under the 1992 Plan according to guidelines that take into account the
executive's responsibility level, comparison with comparable awards to
individuals in similar positions in the industry, the Company's long-term
objectives for maintaining and expanding technological leadership through
product development and growth, expected Company performance, and the
executive's existing holdings of unvested stock options. However, the Committee
does not strictly adhere to these factors in all cases and will vary the size of
the grant made to each executive officer as the particular circumstances
warrant. Each grant
10
<PAGE> 13
allows the officer to acquire shares of the Company's Common Stock at the fair
market value in effect on the date of grant.
The options vest in a series of installments over a four-year period,
contingent upon the executive's continued employment with the Company.
Accordingly, the option will provide a return to the executive only if he or she
remains in the Company's employ, and then only if the market price of the Common
Stock appreciates over the option term. Subsequent grants may be made to
officers when the Committee believes that the officer has demonstrated greater
potential, achieved more than originally expected, or assumed expanded
responsibilities. Additionally, subsequent grants may be made to remain
competitive with similar companies.
The Committee evaluated the performance of the executive officers against
the strategic objectives for fiscal year 1998 set by the Board and concluded
that such performance warrants the level of long-term compensation awarded them
as set forth in the Summary Compensation Table on page 6. The Committee
typically reexamines long-term compensation levels each year.
Chairman of the Board/Chief Executive Officer's Compensation
Compensation for the Chairman/CEO is determined by a process similar to
that discussed above for executive officers. Dr. de Geus' base compensation for
fiscal year 1998 was established by the Committee in September 1997. Dr. de
Geus' base compensation is competitive with base compensation levels for chief
executive officers of the companies with which the Company competes for
executives.
The Committee also established Dr. de Geus' individual bonus plan for the
fiscal year by establishing a formula based on accepted orders, revenue and
operating margin. For performance levels over or under plan, the bonus
compensation amount would increase or decrease proportionately. Dr. de Geus was
also eligible for an additional bonus based on a qualitative assessment of his
performance by the Board of Directors. For fiscal year 1998, accepted orders,
revenue and operating margin all were below the established target and operating
margin was above the target. Bonus compensation (except for the qualitative
component) was determined according to the compensation formula established at
the beginning of the year. Dr. de Geus' total bonus compensation is shown in the
Summary Compensation Table on page 6. In determining the amount of long term
compensation to grant to Dr. de Geus the Committee considered publicly-available
data relating to companies in the Company's industry.
The Committee believes that the overall level of compensation is a fair
reflection of Dr. de Geus' performance for the year.
Tax Deductibility of Executive Compensation
The cash compensation to be paid to the Company's executive officers for
fiscal year 1998 is not expected to exceed the $1 million limit per officer on
the tax deductibility of such compensation under the Internal Revenue Code.
Under the 1992 Plan, compensation deemed paid to an executive officer when he or
she exercises an outstanding option under the Plan will qualify as
performance-based compensation which will not be subject to the $1 million
limitation.
COMPENSATION COMMITTEE
Steven C. Walske
Deborah A. Coleman
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee was at any time during
the 1998 fiscal year or at any other time an officer or employee of the Company.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as members of the Company's Board of Directors or the
Compensation Committee.
11
<PAGE> 14
PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders of
the Company's Common Stock from September 30, 1993 through October 2, 1998 to
the cumulative total return of (1) the S&P 500 Index and (2) the S&P Technology
Sector Index over the same period (assuming the investment of $100 in the
Company's Common Stock and in each of the other indexes, and reinvestment of all
dividends).
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG SYNOPSYS, INC., THE S&P 500 INDEX
AND THE S&P TECHNOLOGY SECTOR INDEX
<TABLE>
<CAPTION>
S&P TECHNOLOGY
'SYNOPSYS, INC.' S&P 500 SECTOR
---------------- ------- --------------
<S> <C> <C> <C>
Sep-93 100 100 100
Sep-94 95.23 103.69 116.42
Sep-95 129.74 134.53 183.66
Sep-96 194.21 161.89 225.63
Sep-97 187.95 227.37 366.43
Sep-98 140.26 247.26 414.86
</TABLE>
* $100 INVESTED ON 9/30/93 IN STOCK OR INDEX --
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
12
<PAGE> 15
PROPOSAL TWO -- AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors is requesting stockholder approval of an amendment
to the Company's Amended and Restated Certificate of Incorporation to increase
the number of shares of Common Stock authorized for issuance from 100,000,000 to
200,000,000 (and a concomitant increase in the total number of shares authorized
for issuance from 102,000,000 to 202,000,000).
As a result of the share issuances resulting from corporate acquisitions,
exercises of options by employees and purchases from the Company's employee
stock purchase plans, as of December 1, 1998, 68,253,070 of the Company's
100,000,000 authorized shares of Common Stock were issued and outstanding. The
Board of Directors considers it advisable to have additional shares available
for issuance under the Company's employee benefit plans, for possible future
stock dividends or stock splits and for other corporate purposes. The Company
has no present plans which would result in the issuance of a material number of
new shares of Common Stock, except through the Company's employee benefit plans.
If this amendment is adopted, the additional shares of Common Stock may be
issued by direction of the Board of Directors at such times, in such amounts and
upon such terms as the Board of Directors may determine, without further
approval of the stockholders unless, in any specific instances, such approval is
expressly required by regulatory agencies or otherwise. The issuance of
additional shares of Common Stock would dilute the existing stockholders' equity
interest in the Company.
Stockholders of the Company have no preemptive rights to purchase
additional shares. The adoption of the amendment will not of itself cause any
change in the capital accounts of the Company.
The affirmative vote of a majority of the shares of Common Stock entitled
to vote on this proposal at the 1999 Annual Meeting of Stockholders is required
for approval of the amendment.
RECOMMENDATION
The Board of Directors recommends that stockholders vote FOR approval of
the amendment to the Company's Amended and Restated Certificate of
Incorporation.
PROPOSAL THREE -- AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLANS
PROPOSED AMENDMENT
At the Annual Meeting, the Company's stockholders will be asked to approve
an increase in the total number of shares authorized under the Employee Stock
Purchase Plan and International Employee Stock Purchase Plan (the "Plans") by
1,500,000 shares.
EXPLANATION
The Plans permit employees of the Company and its subsidiaries to purchase
the Company's Common Stock at a discounted price. The Plans are designed to
encourage and assist a broad spectrum of employees of the Company and its
subsidiaries to acquire an equity interest in the Company through the purchase
of Common Stock. The Plans also are intended to provide to United States
employees participating in the Plans the tax benefits available under Section
421 of the Internal Revenue Code. As of November 30, 1998, approximately 1,880
of approximately 2,700 eligible employees were participants in the Plans.
A summary of the principal provisions of the Plans is set forth below.
Management believes that maintaining a competitive employee stock purchase
program is an important element in recruiting and retaining employees. The
Company's Plans are designed to more closely align the interests of employees
and shareholders by encouraging employees to invest in the Company's securities,
and
13
<PAGE> 16
to help employees share in the Company's success. Employee stock purchase plan
gains have become an important part of overall compensation of employees.
The Company is requesting authorization of additional shares under the
Plans in order to preserve the current benefits of the Plan for employees and
favorable accounting treatment for the Company. The Plans currently provide for
an enrollment period of 24 months as described under "Description of Plans."
Under current accounting rules, if (i) at the start of an enrollment period, the
shares reserved for issuance under an employee stock purchase plan are
insufficient to cover all shares issuable throughout that period, (ii) any
shares sold during an enrollment period are authorized after the commencement of
the enrollment period and (iii) on the authorization date the fair market value
of the Common Stock is higher than the fair market value at the beginning of the
enrollment period, then the Company would be required to record a charge to
earnings, which could be significant, to reflect the perceived compensatory
element of the difference in fair market value.
The Company estimates, based on certain assumptions it considers
reasonable, that enough shares are available under the Plans to cover purchases
under the Plans by all current participants in all current offering periods. The
Company estimates that it will need no more than 1,500,000 additional shares to
cover purchases under the Plans by all participants who may enroll in offering
periods to commence on May 1, 1999 and November 1, 1999. Consequently, the Board
of Directors has adopted, subject to stockholder approval, an amendment to the
Plans to increase the aggregate number of shares issuable under the Plans by
1,500,000 shares. The Company's projection of shares to be purchased under the
Plans was based on assumptions concerning several matters that cannot be
precisely predicted, including the future number of the Company's employees, the
future price of the Company's Common Stock, the Company's overall salary levels
and the participation rate in the Plans.
Approval of the amendment requires the affirmative vote of a majority of
the votes cast at a duly held stockholders meeting at which there is a quorum.
RECOMMENDATION
The Board of Directors believes that the proposed amendment is in the best
interests of the Company, its stockholders, and its employees. ACCORDINGLY, THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE INCREASE IN SHARES
ISSUABLE UNDER THE PLANS.
DESCRIPTION OF PLANS
The following is a summary of the principal features of the Plans. The
summary, however, does not purport to be a complete description of all of the
provisions of the Plans. Any stockholder who wishes to obtain a copy of the
actual plan documents may do so by written request to the Company's Secretary at
the Company's executive offices.
All regular employees, including executive officers and directors who are
employees, customarily employed more than 20 hours per week and more than five
months per year by the Company or a participating subsidiary, are eligible to
participate in the Plans as of the first enrollment date following employment.
Participants may elect to make contributions up to a maximum of 10% of base
earnings. On the last trading date of each semi-annual purchase period, the
Company applies the funds then in each participant's account to the purchase of
shares. The purchase dates are the last trading day of April and October. The
cost of each share purchased is 85% of the lower of the closing prices for the
Company's Common Stock on (i) the first trading day in the enrollment period in
which the purchase is made and (ii) the purchase date. (The closing price of the
Company's Common Stock as reported by the Nasdaq Stock Market on October 30,
1998, the most recent purchase date under the Plans, was $45.25 per share.) The
length of the enrollment period may not exceed 24 months. A new 24-month
enrollment period commences each May 1 and November 1. Enrollment dates are the
first business day of May and November. Under the Plans, the maximum amount of
payroll deductions by a participant during any semi-annual purchase period is
$7,500, and no participant's right to acquire shares may accrue at a rate
exceeding $25,000 of fair market value of Common Stock
14
<PAGE> 17
(determined as of the first business day in an enrollment period) in any
calendar year. No single participant may acquire more than 2,000 shares, and all
participants may not acquire more than 500,000 shares in the aggregate, on any
semi-annual purchase date.
The Plans are administered by the Compensation Committee, but routine
matters are delegated to management committees. The Board of Directors may amend
or terminate the Plans at any time and may provide for an adjustment in the
purchase price and the number and kind of securities available under the Plans
in the event of a reorganization, recapitalization, stock split, or other
similar event. Amendments that would increase the number of shares reserved for
purchase, materially increase the benefits to participants, or materially modify
the requirements for participation under the Plans also require stockholder
approval. Shares available under the Plans may be either outstanding shares
repurchased by the Company or newly issued shares.
FEDERAL INCOME TAX CONSEQUENCES
In general, participants who are citizens or residents of the United States
("U.S. Participants") will not have taxable income or loss under the Plans until
they sell or otherwise dispose of shares acquired under the Plans (or die
holding such shares). If the shares are held, as of the date of sale or
disposition, for longer than both (i) two years after the beginning of the
enrollment period during which the shares were purchased, and (ii) one year
following purchase, a U.S. Participant will have taxable ordinary income equal
to 15% of the fair market value of the shares on the first day of the enrollment
period (but not in excess of the gain on the sale). Any additional gain from the
sale will be long-term capital gain. The Company is not entitled to an income
tax deduction if the holding periods are satisfied.
If the shares are disposed of within either of the foregoing holding
periods (a "disqualifying disposition"), a U.S. Participant will have taxable
ordinary income equal to the excess of the fair market value of the shares on
the purchase date over the purchase price. In addition, the U.S. Participant
will have taxable capital gain (or loss) measured by the difference between the
sale price and the U.S. Participant's purchase price plus the amount of ordinary
income recognized, which gain (or loss) will be long-term if the shares have
been held, as of the date of sales, for more than one year. The Company is
entitled to an income tax deduction equal to the amount of ordinary income
taxable to a U.S. Participant in a disqualifying disposition.
Special rules apply to U.S. Participants who are directors or officers. The
consequences to non-U.S. Participants are governed by foreign laws, which
typically do not offer the same tax advantages as United States law.
PROPOSAL FOUR -- AMENDMENT TO THE 1994
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
PROPOSED AMENDMENT
The Board of Directors is requesting stockholder approval of an amendment
to raise the automatic annual increase in shares reserved for issuance under the
Directors Plan to 150,000.
EXPLANATION
The Directors Plan is designed to serve as an equity incentive program to
attract and retain highly-qualified individuals with substantial experience in
relevant industries to serve as non-employee members of the Board. In general,
the Company currently offers a lower level of cash compensation to its
non-employee directors than is offered by companies with whom it competes for
outside directors. The Board has decided that the best way to attract and retain
qualified non-employee directors is through equity-based compensation rather
than cash compensation. In that way, non-employee directors share in the success
of the Company and their financial interests are be more closely aligned with
that of the Company's stockholders.
15
<PAGE> 18
As of December 1, 1998, options in respect of 149,000 shares were
outstanding under the Directors Plan and options in respect of 116,000 shares
were available for issuance. The number of shares available for issuance under
the Directors Plan increases by 25,000 on the first trading day of each calendar
year.
Because of the increase in the number of directors, increases in the number
of directors serving on committees, and additional annual option grants and
committee-service grants approved by the Company's stockholders at the 1998
Annual Meeting, the annual automatic increase of 25,000 shares under the
Directors Plan is no longer adequate. To ensure that sufficient shares are
available to attract and retain qualified non-employee directors, the Board
considers it advisable to raise the annual increase in reserved shares to
150,000. If this amendment is approved, the number of shares reserved for
issuance under the Directors Plan would increase by 150,000 on the first trading
day of each calendar year, commencing January 2, 2000.
Approval of the amendments requires the affirmative vote of a majority of
the votes cast at a duly held stockholders meeting at which there is a quorum.
RECOMMENDATION
The Board of Directors believes that the proposed amendment is in the best
interests of the Company, its stockholders and its employees. ACCORDINGLY, THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE
DIRECTORS PLAN.
DESCRIPTION OF DIRECTORS PLAN
The following is a summary of the principal features of the Directors Plan.
The summary, however, does not purport to be a complete description of all of
the provisions of the Directors Plan. Any stockholder who wishes to obtain a
copy of the actual plan document may do so by written request to the Company's
Secretary at the Company's executive offices.
Plan Administration
The terms and conditions of each option grant (including the timing and
pricing of the option grant) will be governed by the express terms and
conditions of the Directors Plan, and neither the Board nor any Committee of the
Board will exercise any discretionary functions with respect to such option
grants (except for determination of the Board committees with respect to which a
director may receive a committee service grant).
Issuable Shares
Upon expiration or termination of an outstanding option for any reason
prior to exercise in full, the shares subject to the portion of each option not
so exercised will be available for subsequent option grants. Shares issued under
the Directors Plan, whether or not such shares are subsequently repurchased by
the Company, and shares subject to any option or portion thereof surrendered in
accordance with the cash-out provisions of the Directors Plan, will reduce on a
share-for-share basis the number of shares of Common Stock available for
subsequent option grants.
In the event of any change in the Common Stock issuable under the Directors
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Company's receipt of consideration, then, in order
to prevent the dilution or enlargement of the rights and benefits under each
option, appropriate adjustments will be made to (i) the maximum number and/or
class of securities issuable under the Directors Plan, (ii) the number and/or
class of securities by which the share reserve is to increase automatically each
calendar year, (iii) the number and/or class of securities for which automatic
option grants are to be subsequently made to each newly-elected or continuing
non-employee Board member and (iv) the number and/or class of securities and
exercise price per share under each outstanding option.
16
<PAGE> 19
Eligibility for Grants
Under the Directors Plan, grants are made to non-employee directors. A
non-employee Board member who has previously been an employee of the Company
will not be eligible to receive an automatic option grant upon his or her
initial election or appointment to the Board, but will be eligible to receive
annual option grants and committee-service grants. As of January 5, 1999, four
non-employee Board members were eligible to participate in the Directors Plan.
Option Grants
Upon the initial election of a non-employee Board member, such member is
automatically granted an option to purchase 20,000 shares of Common Stock,
unless such Board member has previously been an employee of the Company.
In addition, under the terms of the Directors Plan, on the date of each
annual stockholders meeting, each non-employee re-elected as a non-employee
Board member at the annual meeting and each individual first elected to the
Board of Directors at that Annual Meeting or first appointed to the Board of
Directors by the Board itself to fill a vacancy or a newly-created board seat in
the preceding year is automatically granted an option to purchase 10,000 shares
of Common Stock. There is no limit on the number of such annual option grants
that any one non-employee Board member may receive over his or her period of
continued Board service. In addition, non-employee Board members who serve on
selected Board committees are annually granted an option to purchase 5,000
shares of Common Stock, subject to a limit of two committee-service grants per
non-employee director per year.
Price, Vesting and Exercisability
The exercise price per share of Common Stock subject to each option grant
issued under the Directors Plan is equal to 100% of the fair market value per
share of the Common Stock on the grant date, which is deemed to be equal to the
closing selling price per share of Common Stock on the grant date, as reported
on the Nasdaq Stock Market. On December 1, 1998 the fair market value per share
was $46.8125.
Each automatic grant is immediately exercisable for any or all of the
option shares. Any shares purchased under such options are subject to repurchase
by the Company, at the exercise price paid per share, upon the optionee's
cessation of Board service prior to vesting of those shares.
Upon exercise of the option, the option price for the purchased shares is
immediately payable in cash or in shares of Common Stock valued at fair market
value on the date of exercise. For vested shares the option may also be
exercised through a cashless exercise procedure pursuant to which the optionee
provides irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and to remit to the Company,
out of the sale proceeds, an amount equal to the aggregate option price payable
for the purchased shares plus all applicable withholding taxes.
The initial automatic grant of 20,000 shares vests in a series of four
successive equal installments on the date immediately prior to each of the first
four annual stockholders meetings following the grant date of that option,
provided the optionee continues in Board service through that vesting date. Each
annual grant, and each committee-service grant, vests in full on the date
immediately prior to the first Annual Meeting following the date of the grant,
provided the optionee continues in Board service through that vesting date.
The options have a maximum term of ten years, measured from the grant date.
Termination of Board Service
Should the optionee cease to serve as a Board member for any reason (other
than death or disability) while holding one or more automatic option grants,
then that individual would have a six-month period following the date of such
cessation of Board service in which to exercise each such option for any or all
of the option shares in which he or she is vested at the time of cessation of
Board service.
17
<PAGE> 20
Special Acceleration Events
In the event the Company is acquired by a merger or asset sale, the shares
of Common Stock at the time subject to each outstanding automatic grant but not
otherwise vested will vest in full so that each such option will, immediately
prior to the specified effective date for such acquisition, become exercisable
for fully-vested shares. Immediately following the consummation of the
acquisition, each automatic option grant will terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
In connection with any hostile takeover of the Company, whether effected by
a tender offer for securities possessing more than 50% of the Company's
outstanding voting power or by a change in the majority of the Board resulting
from one or more contested elections for Board membership, the shares of Common
Stock at the time subject to each outstanding automatic grant but not otherwise
vested will vest in full so that each such option will, immediately prior to the
specified effective date for such takeover, become exercisable for fully-vested
shares. Each such option will remain so exercisable until the expiration or
earlier termination of the option term.
Upon the successful completion of a hostile tender offer for securities
possessing more than 50% of the Company's outstanding voting power, each
optionee will have a thirty-day period in which to surrender to the Company each
automatic option grant held by him or her for a period of at least six months.
The optionee will in return be entitled to a cash distribution from the Company
in an amount per surrendered option share equal to the highest price paid per
share of Common Stock in the tender offer, less the exercise price payable per
share under the surrendered option.
The automatic option grants in no way affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets. However, the acceleration of vesting of
the option shares upon an acquisition of the Company by merger or asset sale or
upon a hostile takeover may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other effort
to gain control of the Company.
Amendment and Termination
The Board of Directors may amend or modify the Directors Plan in any or all
respects whatsoever. However, the provisions of the Directors Plan, together
with the option grants outstanding thereunder, may not be amended at intervals
more frequently than once every six months, other than to the extent necessary
to comply with applicable Federal income tax laws and regulations. In addition,
without the approval of the Company's stockholders, the Board may not (i)
materially increase the maximum number of shares issuable under the Directors
Plan, (ii) materially modify the eligibility requirements for participation, or
(iii) otherwise materially increase the benefits accruing to participants under
the Directors Plan.
The Directors Plan will terminate upon the earlier of (i) October 26, 2004
or (ii) the date on which all shares available for issuance under the Directors
Plan are issued or canceled pursuant to the exercise or cash-out of the granted
options. Each stock option outstanding at the time of a termination pursuant to
clause (i) will remain in force in accordance with the provision of the
instruments evidencing such grant.
Tax Information
Options granted under the Directors Plan will be non-statutory options that
are not intended to meet the requirements of Section 422 of the Internal Revenue
Code. No taxable income is recognized by an optionee upon the grant of a
non-statutory option. The optionee will in general recognize ordinary income, in
the year in which the option is exercised, equal to the excess of the fair
market value of the purchased shares on the date of exercise over the exercise
price paid for such shares, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
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Special provisions of the Internal Revenue Code apply to the acquisition of
unvested shares of Common Stock under a non-statutory option. These special
provisions may be summarized as follows:
If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original option exercise price in
the event of the optionee's termination of Board service prior to vesting in
those shares, then the optionee will not recognize any taxable income at the
time of exercise but will have to report as ordinary income, as the optionee
vests in the shares, an amount equal to the excess of (i) the fair market value
of those shares on the vesting date over (ii) the option exercise price paid for
such shares.
The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
non-statutory option an amount equal to the excess of (i) the fair market value
of the purchased shares on the exercise date over (ii) the option exercise price
paid for such shares. If the Section 83(b) election is made, the optionee will
not recognize any additional income as and when he or she vests in such shares.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option for the taxable year of the Company in which such ordinary
income is recognized by the optionee.
PROPOSAL FIVE -- RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of KPMG Peat Marwick LLP,
independent auditors, to audit the financial statements of the Company for
fiscal year 1999. KPMG Peat Marwick LLP has audited the Company's consolidated
financial statements since fiscal year 1992.
A representative of KPMG Peat Marwick LLP is expected to be present at the
Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Ratification of the appointment of KPMG
Peat Marwick LLP requires the affirmative vote of a majority of the votes cast
at a duly held stockholders meeting at which there is a quorum.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP TO SERVE AS THE COMPANY'S
INDEPENDENT AUDITORS FOR FISCAL YEAR 1999.
ADDITIONAL INFORMATION
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, officers and greater than ten percent beneficial owners of its stock
to file reports of ownership and changes in ownership with the Commission.
Directors, officers and greater than ten percent stockholders are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of the Forms 3, 4 and 5 received
by the Company and/or written representations from certain reporting persons
that no Form 5 reports were required for such persons, the Company believes that
each of its directors, officers and greater than ten percent beneficial owners
of its stock during the fiscal year ended October 3, 1998 have complied with all
filing requirements applicable to such persons, except that the Form 3 Gary
Larsen filed on August 8, 1997 incorrectly stated that the number of shares of
Common Stock he beneficially owned was 37,940. On June 9, 1998, Mr. Larsen filed
an amended Form 3 which stated that the number of shares he owned was 40,633
shares.
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ANNUAL REPORT
A copy of the Annual Report of the Company for fiscal year 1998 has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material.
FORM 10-K
The Company has filed an Annual Report on Form 10-K with the Securities and
Exchange Commission. Stockholders may obtain a copy of this report, without
charge, by writing to Paul Lippe, Secretary, at the Company.
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
The Company knows of no other matters that will be presented for
consideration 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
Proxy to vote the shares they represent as the Board of Directors may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
Stockholders of the Company that intend to present one or more proposals at
the Company's 2000 Annual Meeting, including nominations to the Board of
Directors of persons other than those nominated by the Board, must notify the
Company no later than September 22, 1999 in order that they may be timely under
the Company's By-Laws and may be included in the proxy statement and proxy
relating to that meeting; provided that in the event the date of the Company's
Annual Meeting is changed by more than 30 days, such notice must be delivered to
the Company a reasonable time before the solicitation is made. A stockholder's
notice to the Company must include, with respect to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
matter and the reasons for conducting such business at the annual meeting, (ii)
the name and address of the stockholder, as they appear on the Company's books,
(iii) the number of shares beneficially owned by the stockholder, (iv) any
material interest of the stockholder in the proposal and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934 (the "1934 Act").
Nominations of persons to the Board of Directors must include, with respect to
each nomination and the nominating stockholder, (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the Company
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for elections of directors, or is otherwise required under the 1934 Act.
Notwithstanding the foregoing, the stockholder must also provide notice as
required by the 1934 Act and the applicable regulations thereunder. The chairman
of the annual meeting may determine, if the facts warrant, that a matter has not
been properly brought before the meeting and, therefore, may not be considered
at the meeting.
THE BOARD OF DIRECTORS
Dated: January 19, 1999
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