<PAGE> 1
SCHEDULE 14A INFORMATION
------------------------
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
EPIC Design Technology, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as specified in its charter)
EPIC Design Technology, Inc.
- --------------------------------------------------------------------------------
(Name of person(s) filing proxy statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules-011(c)(1)(ii), 14a-6(i)(2) or Item
22(a)(2) of Schedule A
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] 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: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE> 2
PRELIMINARY COPY
FILED DECEMBER 16, 1996
EPIC DESIGN TECHNOLOGY, INC.
-------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 12, 1997
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of EPIC
DESIGN TECHNOLOGY, INC., a California corporation (the "Company"), will be held
on Wednesday, February 12, 1997 at 10:00 a.m. local time, at the Company's
principal executive offices at 310 North Mary Avenue, Sunnyvale, California
94086 for the following purposes:
1. To elect directors to serve until the next Annual Meeting of
Shareholders and until their successors are elected.
2. To approve an amendment to the Company's Restated Articles of
Incorporation for the purpose of increasing the authorized
number of shares of Common Stock reserved for issuance
thereunder by 10,500,000 shares to an aggregate of 31,500,000
shares.
3. To approve an amendment to the 1990 Stock Option Plan to
increase the number of shares of Common Stock reserved for
issuance thereunder by 680,000 shares.
4. To ratify the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending
September 30, 1997.
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only shareholders of record at the close of
business on December 20, 1996 are entitled to notice of and to vote at the
meeting.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he or she has returned a Proxy.
Sincerely,
Tammy S. Liu
Secretary
Sunnyvale, California
January 8, 1997
YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE> 3
PRELIMINARY COPY
FILED DECEMBER 16, 1996
EPIC DESIGN TECHNOLOGY, INC.
------------------
PROXY STATEMENT FOR 1997
ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
EPIC DESIGN TECHNOLOGY, INC., a California corporation (the "Company"), for use
at the Annual Meeting of Shareholders to be held Wednesday, February 12, 1997 at
10:00 a.m. local time, or at any adjournment thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Shareholders. The
Annual Meeting will be held at the Company's principal executive offices at 310
North Mary Avenue, Sunnyvale, California 94086. Its telephone number at that
location is (408) 731-2900.
These proxy solicitation materials and the Annual Report to
Shareholders for the year ended September 30, 1996, including financial
statements, were first mailed on or about January 8, 1997 to all shareholders
entitled to vote at the meeting.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Shareholders of record at the close of business on December 20, 1996
are entitled to notice of and to vote at the meeting. The Company has one series
of Common Shares outstanding, designated Common Stock, no par value. At the
record date, [13,682,207] shares of the Company's Common Stock were issued and
outstanding and held of record by [91] shareholders. No shares of the Company's
Preferred Stock were outstanding.
The following table sets forth certain information regarding the
beneficial ownership of Common Stock of the Company as of December 20, 1996 as
to (i) each person who is known by the Company to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) each director and nominee for
director of the Company, (iii) each of the executive officers named in the
Summary Compensation Table below and (iv) all directors and executive officers
as a group.
<TABLE>
<CAPTION>
Common
Stock Approximate
Five Percent Shareholders, Directors Beneficially Percentage
and Certain Executive Officers Owned Owned(1)
- ---------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Warburg, Pincus Counsellors, Inc (2)............................ 1,312,162 9.5%
466 Lexington Avenue, 10th Floor
New York, NY 10017
T. Rowe Price Associates, Inc.(3)............................... 1,255,300 9.1%
100 East Pratt Street
Baltimore, MD 21202
Investment Advisors Inc.(4)..................................... 751,900 5.5%
3700 First Bank Place
Minneapolis, MN 55440
Sang S. Wang (5)................................................ [614,994] [ 4.5%]
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Common
Stock Approximate
Five Percent Shareholders, Directors Beneficially Percentage
and Certain Executive Officers Owned Owned(1)
- ---------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Bernard Aronson (6)............................................. [123,161] *
Yen-Son Huang, Ph.D. (7)........................................ [126,674] *
Joseph A. Prang (8)............................................. [14,305] *
Glen M. Antle................................................... -- --
Gary A. Larsen (9).............................................. [52,876] *
John A. Yelinek (10)............................................ [125,432] *
All directors and executive officers as a
group (7 persons) (11)....................................... [1,057,442] [ 7.6%]
</TABLE>
- ----------
* Less than 1%
(1) Applicable percentage of ownership is based on [13,682,207] shares of
Common Stock outstanding as of December 20, 1996 together with
applicable options for such shareholder. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission, and includes voting and investment power with respect to
shares. Shares of Common Stock subject to options currently exercisable
or exercisable within 60 days after December 20, 1996 are deemed
outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage of any other person.
(2) Reflects ownership as reported on Schedule 13G dated August 27, 1996
filed with the Securities and Exchange Commission by Warburg Pincus
Counsellors, Inc. ("Warburg"). Warburg has sole dispositive power as to
all these shares and has sole voting power as to 891,875 of such
shares.
(3) Reflects ownership as reported on Schedule 13G dated July 8, 1996 filed
with the Securities and Exchange Commission by T. Rowe Price
Associates, Inc. ("Price"). Price has sole dispositive power as to all
of these shares and has sole voting power as to 55,300 of such shares.
(4) Reflects ownership as reported on Schedule 13G dated July 10, 1996
filed with the Securities and Exchange Commission by Investment
Advisors, Inc. ("Advisors"). Advisors has sole dispositive power as to
653,500 of these shares and has sole voting power as to 653,500 of
these shares.
(5) Includes [106,482] shares of Common Stock which may be acquired upon
exercise of stock options which are presently exercisable or will
become exercisable within 60 days of December 20, 1996, and [73,334]
shares held by Sang S. Wang, Janet Wang and Virginia Chen as
co-trustees of the Wang Family Trust dated May 27, 1994 over which Dr.
Wang exercises voting and investment powers.
(6) Includes [58,566] shares of Common Stock which may be acquired upon
exercise of stock options which are presently exercisable or will
become exercisable within 60 days of December 20, 1996, and [64,595]
shares held by Bernard and Mindel Aronson, Trustees of the Aronson
Family Trust over which Mr. Aronson exercises voting and investment
powers.
(7) Includes [93,952] shares of Common Stock held by Yen-Son Huang, Trustee
of the Yen-Son Huang and Daisy Ku Huang Revocable Trust and [5,555]
shares of Common Stock which may be acquired upon exercise of stock
options which are presently exercisable or will become exercisable
within 60 days of December 20, 1996.
(8) Includes [6,805] shares of Common Stock which may be acquired upon
exercise of stock options which are presently exercisable or will
become exercisable within 60 days of December 20, 1996.
(9) Includes [22,222] shares of Common Stock held by Gary A. Larsen,
Trustee of the Gary A. Larsen Living Trust over which Mr. Larsen
exercises voting and investment power, and [27,706] shares of Common
Stock which may be
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acquired upon exercise of stock options which are presently exercisable
or will become exercisable within 60 days of December 20, 1996.
(10) Includes [70,650] shares of Common Stock which may be acquired upon
exercise of stock options which are presently exercisable or will
become exercisable within 60 days of December 20, 1996.
(11) Includes [275,764] shares of Common Stock which may be acquired upon
exercise of stock options which are presently exercisable or will
become exercisable within 60 days of December 20, 1996.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each shareholder is entitled to one vote for each share held. Every
shareholder voting for the election of directors (Proposal One) may cumulate
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares that such
shareholder is entitled to vote, or distribute such shareholder's votes on the
same principle among as many candidates as the shareholder may select, provided
that votes cannot be cast for more than five candidates. However, no shareholder
shall be entitled to cumulate votes unless the candidate's name has been placed
in nomination prior to the voting and the shareholder, or any other shareholder,
has given notice at the meeting, prior to the voting, of the intention to
cumulate the shareholder's votes. On all other matters, each share of Common
Stock has one vote. A quorum comprising the holders of the majority of the
outstanding shares of Common Stock on the record date must be present or
represented for the transaction of business at the Annual Meeting. Abstentions
and broker non-votes will be counted in establishing the quorum.
This solicitation of proxies is made by the Company, and all related
costs will be borne by the Company. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation material to such beneficial owners.
Proxies may also be solicited by certain of the Company's directors, officers
and regular employees, without additional compensation, personally or by
telephone or telegram.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be
presented by such shareholders at the Company's 1998 Annual Meeting of
Shareholders must be received by the Company no later than September 10, 1997 in
order that they may be considered for inclusion in the proxy statement and form
of proxy relating to that meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of five directors is to be elected at the Annual Meeting of
Shareholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's five nominees named below, all of
whom are presently directors of the Company, except for Glen M. Antle. In the
event that any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting of Shareholders, the proxies will be
voted for any nominee who shall be designated by the present Board of Directors
to fill the vacancy. The Company is not aware of any nominee who will be unable
or will decline to serve as a director. In the event that additional persons are
nominated for election
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as directors, the proxy holders intend to vote all proxies received by them in
such a manner (in accordance with cumulative voting) as will assure the election
of as many of the nominees listed below as possible, and, in such event, the
specific nominees to be voted for will be determined by the proxy holders. The
term of office for each person elected as a director will continue until the
next Annual Meeting of Shareholders or until a successor has been elected and
qualified.
VOTE REQUIRED
If a quorum is present and voting, the five nominees receiving the highest
number of votes will be elected to the Board of Directors. Abstentions and
"broker non-votes" are not counted in the election of directors.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Position with the Company Since
- ----------------------------------------- ------- -------------------------------------------- --------------
<S> <C> <C> <C>
Sang S. Wang, Ph.D....................... 51 Chief Executive Officer and Chairman of the 1991
Board of Directors
Bernard Aronson.......................... 66 President and Director 1992
Yen-Son Huang, Ph.D...................... 51 Director 1992
Joseph A. Prang.......................... 40 Director 1995
Glen M. Antle............................ [58] -- --
</TABLE>
There is no family relationship between any director or executive
officer of the Company.
Dr. Wang, a co-founder of the Company, has served as Chief Executive
Officer since August 1991 and as Chairman of the Board of Directors since
September 1993. From the Company's inception in October 1986, he served as
President until August 1991 and as Chief Financial Officer until March 1993.
Prior to founding the Company, Dr. Wang was a Manager of Computer Aided Design
at AMD, a manufacturer of integrated circuits, responsible for the development
of AMD's internal bipolar circuit simulation environment.
Mr. Aronson has served as President of the Company since August 1991
and as a Director since March 1992. From March 1990 to August 1991, Mr. Aronson
served as Executive Vice President of Zoran Corporation, a semiconductor
company. From 1987 to January 1990, he served as President of ICI Array
Technology, Inc., a contract assembly company. From 1976 to 1987, Mr. Aronson
served as President of Pico Design, Inc., a semiconductor chip design company
that he founded and which became a wholly-owned subsidiary of Motorola in 1979.
Dr. Huang has served as a Director of the Company since January 1992.
He has served as Executive Vice President, Product Development and a director of
Quickturn Design Systems, Inc., a manufacturer of system level verification
tools ("Quickturn"), since June 1993. From January 1990 to June 1993, he served
as President of PiE Design Systems, Inc. ("PiE"), a company which he co-founded.
From 1982 to January 1990, he served as Executive Vice President of Research and
Development at Cadence Design Systems, Inc., a developer of electronic design
automation software.
Mr. Prang has served as a Director of the Company since April 1995.
Since May 1994, Mr. Prang has been President and a Director of Aspect
Development, Inc., a developer of component information systems. From January
1992 to May 1994, he served as President of the Systems Division of Cadence
Design Systems, Inc. From 1988 to December
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<PAGE> 7
1991, he served as President of Marketing of Valid Logic Systems, Incorporated,
a developer of electronic design automation software.
Mr. Antle has served as Chairman of the Board of Directors of Quickturn
since June 1993. From 1990 to 1993, Mr. Antle served as Chairman of PiE and from
September 1992 to June 1993, he served as Chief Executive Officer of PiE. He
served as Chairman, from 1982 to 1988, as Co-Chairman, from 1988 to 1989, and
Chief Executive Officer, from 1982 to 1988, of Cadence Design Systems, Inc. Mr.
Antle is also currently a director of Trident Microsystems, Inc.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four (4) meetings
during fiscal 1996. No director attended fewer than 75% of the meetings of the
Board of Directors and committees thereof, if any, upon which such director
served. The Board of Directors has an Audit Committee and a Compensation
Committee. The Board of Directors has no nominating committee or any committee
performing such functions.
The Audit Committee, which consisted of Messrs. Huang and Jarrat during
fiscal 1996, is responsible for overseeing actions taken by the Company's
independent auditors and reviews the Company's internal financial controls. The
Audit Committee met one time during fiscal 1996. Mr. Jarrat is not standing for
re-election as a director of the Company.
The Compensation Committee, which consisted of Messrs. Huang and Prang
during fiscal 1996, met one time during fiscal 1996. The Compensation Committee
is responsible for determining salaries, incentives and other forms of
compensation for executive officers and other employees of the Company and
administers various incentive compensation and benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Huang and Prang.
PROPOSAL TWO
APPROVAL OF AMENDMENT TO ARTICLES OF
INCORPORATION TO INCREASE AUTHORIZED SHARES
OF COMMON STOCK
GENERAL
The Company's Restated Articles of Incorporation, as amended, as
currently in effect (the "Articles"), provide that the Company is authorized to
issue two classes of stock, consisting of 20,000,000 shares designated Common
Stock, no par value per share, and 5,000,000 shares designated Preferred Stock,
no par value per share.
On September 18, 1996, the Board of Directors of the Company authorized
an amendment to the Articles (the "Articles Amendment"), subject to shareholder
approval, to increase the authorized number of shares of Common Stock by
10,500,000 shares to a total of 31,500,000 shares. Under the proposed amendment,
subparagraphs (A) and (B) of Article Third of the Articles would be amended to
read as follows:
"Third:(A) This corporation is authorized to issue
36,500,000 shares of its capital stock, which shall be divided into two
classes known as "Common Stock" and "Preferred Stock."
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<PAGE> 8
(B) The total number of Common Stock which this
corporation is authorized to issue is 30,500,000 and the total number
of Preferred Stock which this corporation is authorized to issue is
5,000,000."
The shareholders are being asked to approve such Articles Amendment.
The authorized but unissued shares of Common Stock would be available for
issuance from time to time for such purposes and for such consideration as the
Board of Directors may determine to be appropriate without further action by the
shareholders, except for those instances in which applicable law or Nasdaq
National Market rules require shareholder approval.
Of the 20,000,000 currently authorized shares of Common Stock,
[13,682,207] shares were issued and outstanding as of December 20, 1996 and an
aggregate of approximately [3,228,491] shares of Common Stock were reserved for
issuance as follows: approximately [2,138,879] shares were reserved for issuance
upon exercise of outstanding options; approximately [759,969] shares were
reserved for future grant under the 1990 Plan (including the 680,000 shares
subject to shareholder approval at this Annual Meeting); [146,668] shares were
reserved for future grant under the Directors' Plan; and [182,975] shares were
reserved for future issuance under the Employee Stock Purchase Plan.
PURPOSE AND EFFECT OF THE AMENDMENT
The Board of Directors believes that it is in the Company's best
interests to increase the number of authorized shares of Common Stock in order
to have additional authorized but unissued shares available for issuance to meet
business needs as they arise without the expense and delay of a special meeting
of shareholders. The Board of Directors believes that the availability of such
shares will provide the Company with the flexibility to issue Common Stock for
proper corporate purposes which may be identified by the Board of Directors in
the future. For example, such shares may be issued in the event the Board of
Directors determines that it is necessary or appropriate to permit a future
stock dividend or stock split, to raise additional capital, to acquire another
corporation or its business or assets, to establish a strategic relationship
with a corporate partner or to issue shares under management incentive or
employee benefit plans. The Board does not intend to authorize the issuance of
any such shares except upon terms the Board deems to be in the best interests of
the Company.
The Board of Directors has not authorized or taken any action with
respect to the issuance of any such shares and has no present agreement,
arrangement or understanding with respect to the issuance of any such shares.
If the Articles Amendment is approved by the shareholders, the Board of
Directors does not intend to solicit further shareholder approval prior to the
issuance of any additional shares of Common Stock, except as may be required by
applicable law or Nasdaq National Market rules. The increase in authorized
Common Stock will not have any immediate effect on the rights of existing
shareholders. To the extent that the additional authorized shares are issued in
the future, they will decrease the existing shareholders' percentage equity
ownership and, depending on the price at which they are issued, could be
dilutive to the existing shareholders. Holders of the Company's securities have
no statutory preemptive rights with respect to issuances of Common Stock.
The Company last increased its authorized Common Stock from 10,000,000
shares to 20,000,000 shares in December 1991.
The Company intends to apply to the Nasdaq National Market for the
listing of any additional shares of Common Stock if and when such shares are
issued.
POTENTIAL ANTI-TAKEOVER EFFECT
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change-in-control of the Company without further action by the
shareholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions that
would make a change-in-control of the Company more difficult, and therefore less
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<PAGE> 9
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock, and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of the Company. The Company
has previously adopted certain measures that may have the effect of helping to
resist an unsolicited takeover attempt, including (i) provisions in the 1990
Plan providing for the acceleration of exercisability of outstanding options in
the event of a sale of assets or merger, if such options are not assumed by the
acquiring company; (ii) provisions in the Company's bylaws regarding cumulative
voting; and (iii) provisions of the Articles authorizing the Board to issue up
to 5,000,000 shares of Preferred Stock with terms, provision and rights fixed by
the Board.
REQUIRED VOTE
The adoption of the Articles Amendment requires the affirmative vote of
not less than a majority of the votes entitled to be cast by all shares of
Common Stock issued and outstanding on the record date. The effect of
abstentions and broker non-votes, if any, will be the same as that of a vote
against the proposal. If the Articles Amendment is not so approved, the
Company's authorized capital stock will not change.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK.
PROPOSAL THREE
AMENDMENT TO 1990 STOCK OPTION PLAN TO INCREASE
THE NUMBER OF SHARES RESERVED FOR GRANT THEREUNDER
At the Annual Meeting, the shareholders are being asked to approve an
amendment of the Company's 1990 Stock Option Plan (the "Plan") to increase the
number of shares of Common Stock reserved for issuance thereunder by 680,000
shares. The adoption of the Plan was approved by the Board of Directors in
October 1990 and the shareholders in October 1991. As of December 20, 1996,
options to purchase an aggregate of [1,992,047] shares of the Company's Common
Stock were outstanding with a weighted average exercise price of $[1.77] per
share, and [79,969] shares (excluding the 680,000 shares subject to shareholder
approval at this Annual Meeting) were available for future grant. In addition,
[1,927,984] shares have been purchased pursuant to exercise of stock options
under the Plan. The Plan authorizes the Board of Directors to grant incentive
and nonstatutory stock options to eligible employees and consultants of the
Company. The Board of Directors believes that the remaining shares available for
grant under the Plan are insufficient to accomplish these purposes.
The Plan is structured to allow the Board of Directors broad discretion
in creating equity incentives in order to assist the Company in attracting,
retaining and motivating the best available personnel for the successful conduct
of the Company's business.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required
to approve the amendment to the Plan. For this purpose, the "Votes Cast" are
defined to be the shares of the Company's Common Stock represented and "voting"
at the Annual Meeting. In addition, the affirmative votes must constitute at
least a majority of the required quorum, which quorum is a majority of the
shares outstanding at the Record Date. Votes that are cast against the proposal
will be counted for purposes of determining both (i) the presence or absence of
a quorum and (ii) the total number of Votes Cast with respect to the proposal.
Abstentions will be counted for purposes of determining both (i) the presence or
absence of a quorum and (ii) the total number of Votes Cast with respect to the
proposal. Accordingly, abstentions will have the same effect as a vote against
the proposal. Broker non-votes will be counted for purposes of determining the
presence or absence
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<PAGE> 10
of a quorum for the transaction of business, but will not be counted for
purposes of determining the number of Votes Cast with respect to this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
AMENDMENT TO THE PLAN.
The essential terms of the Plan are summarized as follows:
PURPOSE
The purposes of the Plan are to attract, retain and motivate the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company and to promote
the success of the Company's business.
ADMINISTRATION
The Plan provides for administration by the Board of Directors of the
Company or by a Committee of the Board. The Plan is currently being administered
by the Board of Directors. The Board or the committee appointed to administer
the Plan are referred to in this description as the "Administrator." The
Administrator determines the terms of options granted, including the exercise
price, number of shares subject to the option and the exercisability thereof.
All questions of interpretation are determined by the Administrator and its
decisions are final and binding upon all participants. Members of the Board
receive no additional compensation for their services in connection with the
administration of the Plan.
ELIGIBILITY
The Plan provides that either incentive or nonstatutory stock options
may be granted to employees (including officers and employee directors) of the
Company or any of its designated subsidiaries. In addition, the Plan provides
that nonstatutory stock options may be granted to consultants of the Company or
any of its designated subsidiaries. The Administrator selects the optionees and
determines the number of shares to be subject to each option. In making such
determination, there are taken into account the duties and responsibilities of
the optionee, the value of the optionee's services, the optionee's present and
potential contribution to the success of the Company and other relevant factors.
The Plan provides a limit of $100,000 on the aggregate fair market value of
shares subject to all incentive options which are exercisable for the first time
in any one calendar year. The Plan provides that a maximum of 200,000 shares may
be granted to any one employee during any fiscal year of the Company. The Plan
does not provide for a minimum number of option shares which may be granted to
any one employee. There is a limit on the aggregate fair market value of shares
subject to all incentive options which are exercisable for the first time in any
one calendar year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the
Company and the optionee to whom such option is granted and is subject to the
following additional terms and conditions:
(1) EXERCISE OF THE OPTION: The Administrator determines when options
granted under the Plan may be exercised. An option is exercised by giving
written notice of exercise to the Company, specifying the number of shares of
Common Stock to be purchased and tendering payment to the Company of the
purchase price. Payment for shares issued upon exercise of an option may consist
of cash, check, promissory note, delivery of already-owned shares of the
Company's Common Stock subject to certain conditions, pursuant to a cashless
exercise procedure under which the optionee provides irrevocable instructions to
a brokerage firm to sell the purchased shares and to remit to the Company, out
of the sale proceeds, an amount equal to the exercise price plus all applicable
withholding taxes or such other consideration as deter mined by the
Administrator and as permitted by the California Corporations Code.
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<PAGE> 11
Options may be exercised at any time on or following the date
the options are first exercisable. An Option may not be exercised for a fraction
of a share.
(2) OPTION PRICE: The option price of all incentive stock options
and nonstatutory stock options under the Plan is determined by the
Administrator, but in no event shall the option price of an incentive stock
option be less than the fair market value of the Common Stock on the day
immediately preceding the date the option is granted. For purposes of the Plan,
fair market value is defined as the closing price per share of the Common Stock
on the date of grant as reported on the Nasdaq National Market. In the case of
an option granted to an optionee who at the time of grant owns stock
representing more than 10% of the voting power of all classes of stock of the
Company, the option price must be not less than 110% of the fair market value on
the date immediately preceding the date of grant. The closing sale price of the
Company's Common Stock on December 20, 1996 was $[25.00].
(3) TERMINATION OF EMPLOYMENT: The Plan provides that if the
optionee's employment by the Company is terminated for any reason, other than
death or disability, options may be exercised within three months (unless such
options terminate or expire sooner by their terms) after such termination and
may be exercised only to the extent the options were exercisable on the date of
termination.
(4) DEATH: If an optionee should die while an employee or a
consultant of the Company (or during such period of time not exceeding three
months, as determined by the Administrator) following termination of the
optionee's employment or consultancy, options may be exercised at any time
within twelve months from the date of such termination but only to the extent
that the options were exercisable on the date of death or termination of
employment.
(5) DISABILITY: If an optionee's employment is terminated due to a
disability, options may be exercised at any time within twelve months from the
date of such termination, but only to the extent that the options were
exercisable on the date of termination of employment and in no event later than
the expiration of the term of such option as set forth in the Notice of Grant.
(6) TERMINATION OF OPTIONS: Options granted under the Plan expire
ten years from the date of grant. However, incentive stock options granted to an
optionee who, immediately before the grant of such option, owned more than 10%
of the total combined voting power of all classes of stock of the Company or a
parent or subsidiary corporation, may not have a term of more than five years.
No option may be exercised by any person after such expiration.
(7) NONTRANSFERABILITY OF OPTIONS: An option is nontransferable by
the optionee, other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime or, in the event of
death, by a person who acquires the right to exercise the option by bequest or
inheritance or by reason of the death of the optionee.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in
the Company's capitalization which results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration by
the Company, an appropriate adjustment shall be made in the option price and in
the number of shares subject to each option. In the event of the proposed
dissolution or liquidation of the Company, or a merger of the Company with or
into another corporation or sale of substantially all of the assets of the
Company, all outstanding options shall either be assumed by the surviving entity
or, each optionee shall receive 15 days' notice of the merger or consolidation
and be given the opportunity to exercise all currently outstanding options. All
options not so exercised within the 15-day notice period will expire.
AMENDMENT AND TERMINATION
The Board of Directors may amend the Plan at any time or from time to
time or may terminate it without approval of the shareholders, provided,
however, that shareholder approval is required for any amendment which increases
the
-9-
<PAGE> 12
number of shares which may be issued under the Plan, materially changes the
standards of eligibility or materially increases the benefits which may accrue
to participants under the Plan. However, no action by the Board of Directors or
shareholders may alter or impair any option previously granted under the Plan
without the consent of the optionee. In any event, the Plan will terminate in
October 2000.
TAX INFORMATION
Options granted under the Plan may be either "incentive stock options,"
as defined in Section 422 of the Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% shareholder of the Company. Generally, the Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain or loss recognized on such a premature disposition of the
shares in excess of the amount treated as ordinary income will be characterized
as long-term or short-term capital gain or loss, depending on the holding
period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize ordinary income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sales price and the optionee's purchase price, to the
extent not recognized as taxable income as described above, will be treated as
long-term or short-term capital gain or loss, depending on the holding period.
Generally, the Company will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the optionee with respect to shares
acquired upon exercise of a nonstatutory option.
The foregoing is only a summary of the effect of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of options under the Plan, does not purport to be complete, and does
not discuss the tax consequences of the optionee's death or the income tax laws
of any municipality, state or foreign country in which an optionee may reside.
PARTICIPATION IN THE PLAN
The grant of options under the Plan to executive officers, including
the officers named in the Summary Compensation Table below, is subject to the
discretion of the Administrator. As of the date of this proxy statement, there
has been no determination by the Administrator with respect to future awards
under the Plan. Accordingly, future awards are not determinable. The table of
option grants under "Executive Compensation and Other Matters--Option Grants in
Last Fiscal Year" provides information with respect to the grant of options to
the named executive officers during fiscal 1996. Information regarding options
granted to non-employee Directors during fiscal 1996 is set forth under the
heading "Executive Compensation and Other Matters--Compensation of Directors."
During fiscal 1996, all current executive officers as a group and all other
employees as a group were granted options to purchase [304,000] shares and
[1,117,580] shares, respectively, pursuant to the Plan.
-10-
<PAGE> 13
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal period ending September 30, 1997, and recommends that shareholders vote
for ratification of such appointment. Notwithstanding the selection, the Board
of Directors, in its discretion, may direct the appointment of new independent
auditors at any time during the year, if the Board feels that such a change
would be in the best interests of the Company and its shareholders. In the event
of a negative vote on ratification, the Board of Directors will reconsider its
selection.
Deloitte & Touche LLP has audited the Company's financial statements
since 1994. Representatives of Deloitte & Touche LLP are expected to be present
at the meeting with the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS.
-11-
<PAGE> 14
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table sets forth total compensation for the fiscal years
ended September 30, 1996, 1995 and 1994 for the Chief Executive Officer and each
of the next four most highly compensated executive officers (the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION (1) NUMBER OF
----------------------------------- SECURITIES ALL OTHER
FISCAL OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (2)
- ------------------------------ --------- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sang S. Wang, Ph.D........... 1996 $ 218,898 $ 20,900 $ -- 140,000(3) $ 3,600
Chief Executive Officer and 1995 182,748 50,700 -- 50,000 3,600
Chairman of the Board of 1994 156,594 -- -- -- 3,600
Directors
Bernard Aronson.............. 1996 217,800 20,800 -- 140,000(3) 3,600
President and Director 1995 181,500 50,250 -- 50,000 3,600
1994 155,188 -- -- -- --
Gary A. Larsen(4)............ 1996 268,056 6,961 -- 12,000 6,000
Vice President, Worldwide 1995 251,085 17,250 -- -- 6,000
Sales 1994 35,641 -- -- -- 750
Simon G. Napper(5)........... 1996 124,108 -- -- 29,000 5,000
Vice President, Marketing 1995 131,972 39,020 -- -- 6,000
1994 122,000 -- -- -- 6,000
John A. Yelinek.............. 1996 256,896 1,000 -- 40,000(6) 6,000
Vice President, North 1995 222,287 9,750 -- -- 6,000
American Sales 1994 153,599 35,500 -- -- 6,000
</TABLE>
- ----------
(1) Other than salary and bonus described herein, the Company did not pay
the persons name in the Summary Compensation Table any compensation,
including incidental personal benefits, in excess of 10% of such
executive officer's salary.
(2) Represents car allowance paid during fiscal 1994, 1995 and 1996 to each
of the named executive officers.
(3) Includes options to purchase 70,000 shares of Common Stock granted in
March 1996 that were canceled upon the simultaneous grant of an option
to purchase a like number of shares in July 1996.
(4) Mr. Larsen joined the Company in August 1994.
(5) Mr. Napper resigned in August 1996.
(6) Includes options to purchase 15,000 shares of Common Stock granted in
March 1996 that were canceled upon the simultaneous grant of an option
to purchase a like number of shares in July 1996.
-12-
<PAGE> 15
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning each grant of
options to purchase the Company's Common Stock made during the fiscal year ended
September 30, 1996 to the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------ MINUS EXERCISE PRICE AT
NUMBER OF % OF TOTAL EXERCISE ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS PRICE STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO PER SHARE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN ($/SH) EXPIRATION --------------------------
NAME GRANTED(#) FISCAL YEAR (2)(3)(4) DATE 5% 10%
- ----------------------------- ---------- ------------ ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sang S. Wang, Ph.D........... 70,000(5) 4.6% $ 33.00 03/14/2006 $ -- $ --
70,000 4.6% 19.50 07/18/2006 858,442 2,175,458
Bernard Aronson.............. 70,000(5) 4.6% 33.00 03/14/2006 -- --
70,000 4.6% 19.50 07/18/2006 858,442 2,175,458
Gary A. Larsen............... 12,000 * 22.50 09/18/2006 169,802 430,310
Simon G. Napper.............. 14,000 * 22.75 10/15/2005 200,303 507,607
15,000 * 33.00 03/14/2006 311,303 788,902
John A. Yelinek.............. 10,000 * 22.75 10/15/2005 143,074 362,576
15,000(5) * 33.00 03/14/2006 -- --
15,000 * 19.50 07/18/2006 183,952 466,170
</TABLE>
- ----------
* Less than 1%.
(1) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the 10 year
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not
reflect the Company's estimate of future stock price growth.
(2) All options shown granted in fiscal 1996 become exercisable as to
1/12th of 15% of the shares subject to the option exercisable per month
during the first year, 1/12th of 20% of the shares subject to the
option exercisable per month during the second year, 1/12th of 30% of
shares subject to the option exercisable per month during the third
year and 1/12th of 35% of the shares subject to the option exercisable
per month during the fourth year. Under the 1990 Stock Option Plan, the
Board of Directors retains the discretion to modify the terms,
including the price, of outstanding options.
(3) Options were granted at an exercise price equal to the fair market
value of the Company's Common Stock, as determined by reference to the
closing sale price of the Common Stock on the Nasdaq National Market on
the day immediately preceding the date of grant.
(4) Exercise price may be paid in cash, promissory note, by delivery of
already-owned shares subject to certain conditions, or pursuant to a
cashless exercise procedure under which the optionee provides
irrevocable instructions to a brokerage firm to sell the purchased
shares and to remit to the Company, out of the sale proceeds, an amount
equal to the exercise price plus all applicable withholding taxes.
(5) This option was canceled upon the simultaneous grant of an option to
purchase a like number of shares in July 1996.
-13-
<PAGE> 16
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the
exercise of stock options by the Named Executive Officers in the fiscal year
ended September 30, 1996 and the value of stock options held as of September 30,
1996 by such individuals.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE SEPTEMBER 30, 1996(#) SEPTEMBER 30, 1996($)(1)
EXERCISE REALIZED -------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- -------- ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Sang S. Wang, Ph.D.......... -- $ -- 96,749 109,363 $ 2,222,336 $ 918,714
Bernard Aronson............. 229,471 4,501,332 48,137 110,058 1,016,307 936,016
Gary A. Larsen.............. 35,414 973,465 18,738 57,848 384,129 969,884
Simon G. Napper............. 66,672 1,597,019 2,324 -- 3,544 --
John A. Yelinek............. -- -- 69,249 23,251 1,681,513 99,849
</TABLE>
- ----------
(1) Fair market value of the Common Stock as of the date of exercise or
September 30, 1996, as the case may be, minus the exercise price.
TEN YEAR OPTION REPRICINGS
The following table identifies stock options to purchase shares of the
Company's Common Stock held by the Named Executive Officers which were granted
at a lower exercise price during the last fiscal year, pursuant to the July
Repricing, in exchange for options previously granted to the Named Executive
Officers. The Board Compensation Committee Report on Repricing of Options on
page 15 sets forth the basis for these exchanges.
<TABLE>
<CAPTION>
Length of
Number of Original
Securities Market Price Exercise Option Term
Underlying of Stock at Price at New Remaining at
Options Time of Time of Exercise Date of
Name Date Repriced (#) Repricing ($) Repricing ($) Price ($) Repricing
- ------------------------- -------- ------------ ------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sang S. Wang............. 03/14/96 70,000 $ 19.50 $ 33.00 $ 19.50 116 months
Bernard Aronson.......... 03/14/96 70,000 19.50 33.00 19.50 116 months
Gary A. Larson........... -- -- -- -- -- --
Simon G. Napper.......... -- -- -- -- -- --
John A. Yelinek.......... 03/14/96 15,000 19.50 33.00 19.50 116 months
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company currently has no employment contracts with any of the Named
Executive Officers, and the Company has no compensatory plan or arrangement with
such Named Executive Officers where the amounts to be paid exceed $100,000 and
which are activated upon resignation, termination or retirement of any such
executive officer upon a change in control of the Company.
-14-
<PAGE> 17
COMPENSATION OF DIRECTORS
Directors currently receive no cash fees for serving as directors. The
Company's 1994 Director Option Plan provides for the non-discretionary automatic
grant of options to each non-employee director of the Company who does not
represent shareholders holding more than 1% of the Company's outstanding Common
Stock ("Outside Director"). Each new Outside Director is automatically granted
an option to purchase 20,000 shares upon the date on which such person first
becomes a director which vests at a rate of 25% on the first anniversary of the
date of grant and at a rate of 1/48th of the shares per month thereafter.
Subsequently, each Outside Director is granted an additional option to purchase
6,666 shares of Common Stock at the next meeting of the Board of Directors
following the Annual Meeting of Shareholders if, on such date, he or she has
served as a director for at least six months, which vests at a rate of 1/12th of
the shares per month from the date of grant. The exercise price of options
granted to Outside Directors must be 100% of the fair market value of the
Company's Common Stock on the date of grant. On February 15, 1996, Henri A.
Jarrat was granted an option to purchase 20,000 shares of the Company's Common
Stock at an exercise price of $36.00 per share. On March 14, 1996, Messrs.
Yen-Son Huang and Joseph A. Prang were each granted an option to purchase 6,666
shares of the Company's Common Stock at an exercise price of $33.00 per share.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") of the Board of Directors
reviews and approves the Company's executive compensation policies. The
following is the report of the Committee describing the compensation policies
and rationales applicable to the Company's executive officers with respect to
the compensation paid to such executive officers for the fiscal year ended
September 30, 1996.
Compensation Philosophy
The Company's philosophy in setting its compensation policies for
executive officers is to maximize shareholder value over time. The primary goal
of the Company's executive compensation program is therefore to closely align
the interests of the executive officers with those of the Company's
shareholders. To achieve this goal, the Company attempts to (i) offer
compensation opportunities that attract and retain executives whose abilities
are critical to the long-term success of the Company, and motivate individuals
to perform at their highest level and reward outstanding achievement, (ii)
maintain a portion of the executive's total compensation at risk, tied to
achievement of financial, organizational and management performance goals, and
(iii) encourage executives to manage from the perspective of owners with an
equity stake in the Company. The Committee currently uses salary, annual
incentive bonuses and stock options to meet these goals.
Base Salary
The base salary component of the total compensation is primarily
designed to attract, motivate, reward and retain highly skilled executives and
to compensate executives competitively within the industry and the marketplace.
The Committee reviewed and approved fiscal 1996 base salaries for the Chief
Executive Officer and other executive officers at the beginning of the fiscal
year. In establishing base salaries of executive officers, the Committee
evaluates each executive's salary history, scope of responsibility at the
Company, prior experience, past performance for the Company and recommendations
from management. The Committee also takes into account the salaries for similar
positions at comparable companies, based on each individual Committee member's
industry experience. In reviewing base salaries, the Committee focused
significantly on each executive's historical salary level, which in most
instances was established upon the executive's original employment with the
Company, the prior performance with the Company and the expected contribution to
the Company's future success. In making its salary decisions, the Committee
exercised its discretion and judgment based upon these factors. No specific
formula was applied to determine the weight of each factor.
Annual Incentive Bonuses
Each executive officer's bonus is based on qualitative and quantitative
factors and is intended to motivate and reward executive officers by directly
linking the amount of the bonus to specific Company-based performance targets.
In addition, annual incentive bonuses for executive officers are intended to
reflect the Committee's belief that a portion of the compensation of each
executive officer should be contingent upon the overall performance of the
Company. To carry out this philosophy, the Board
-15-
<PAGE> 18
of Directors reviews and approves the financial budget for the fiscal year. The
Committee then establishes specific Company-based performance bonus targets
based upon such budget which accelerates if the actual financial results exceed
the original budget. The Company-based performance goals are tied to different
indicators of Company performance, such as achievement of specific levels of
orders, revenues and pre-tax profits, and are competitively sensitive to the
Company's business and operations. The Committee evaluates the overall
performance of the Company in the completion of these performance goals, and
approves a performance bonus relative to the goals so completed. This scoring is
influenced by the Committee's perception of the importance of the various
corporate goals. The Committee believes that the bonus arrangement provides an
excellent link between the Company's earnings performance and the incentives
paid to executives.
Stock Options
The Company provides long-term incentives through its 1990 Stock Option
Plan (the "Plan"). The purpose of the Plan is to attract and retain its best
employee talent available and to create a direct link between compensation and
the long-term performance of the Company. The Committee believes that stock
options directly motivate an executive to maximize long-term shareholder value.
The options also utilize vesting periods that encourage key executives to
continue in the employ of the Company. All options granted to executive officers
to date have been granted at the fair market value of the Company's Common Stock
on the date of grant. The Board considers the grant of each option subjectively,
considering factors such as the individual performance of the executive officer
and the anticipated contribution of the executive officer to the attainment of
the Company's long-term strategic performance goals. The Committee views stock
option grants as an important component of its long-term, performance-based
compensation philosophy.
CEO Salary
The compensation of Dr. Wang, Chief Executive Officer of the Company,
consists of base salary, an annual bonus and stock options. The Board of
Directors periodically reviews Dr. Wang's base salary and bonus and revises his
compensation based on the Board's overall evaluation of his performance toward
the achievement of the Company's financial, strategic and other goals, with
consideration given to his length of service and to competitive chief executive
officer compensation information. The Compensation Committee believes that the
Company's success is dependent in part upon the efforts of its Chief Executive
Officer. In fiscal 1996, Dr. Wang earned a base salary of $218,898 as set by the
Compensation Committee and earned a bonus of $20,900 which was based on the
Company achieving certain levels of operating profit and performance objectives.
Dr. Wang also received an option to purchase 70,000 shares of Common Stock of
the Company (with an exercise price of 100% of market value of the Common Stock
on the date of grant). (See Report on Repricing of Options below). This stock
option grant was primarily based on the performance of the Company and Dr.
Wang's significant contribution to that performance in terms of both leadership
and strategic vision.
Impact of Section 162(m) of the Internal Revenue Code
The Committee has considered the potential impact of Section 162(m) of
the Internal Revenue Code on the compensation paid to the Company's executive
officers. Section 162(m) disallows a tax deduction for any publicly held
corporation for individual compensation exceeding $1.0 million in any taxable
year for any of the executive officers named in the proxy statement, unless
compensation is performance-based. In general, it is the Company's policy to
qualify, to the maximum extent possible, its executives' compensation for
deductibility under applicable tax laws. As a result, at a Special Meeting of
Shareholders in August 1994, the shareholders approved certain amendments to the
Plan intended to preserve the Company's ability to deduct the compensation
expense relating to stock options granted under the Plan. In approving the
amount and form of compensation for the Company's executive officers, the
Committee will continue to consider all elements of the cost to the Company of
providing such compensation, including the potential impact of Section 162(m).
Report on Repricing of Options
On July 18, 1996, all employees of the Company, including the Chief
Executive Officer and Named Executive Officers, were given the opportunity to
exchange existing, higher priced options granted under the 1990 Plan, for new
options with an exercise price of $19.50 per share, which price was equal to the
closing price of the Company's Common Stock on that date. Vesting was restarted
as of the date of the repricing.
-16-
<PAGE> 19
The Company believes that given the disparity, on July 18, 1996,
between the trading price of its Common Stock and the exercise price of certain
existing stock options, such repricings were desirable in order to incentivize
the Company's employees to work towards the future growth of the Company and to
retain key personnel. In exchange for the reduction in the exercise price, the
vesting commencement date of each exchanged option was restarted to commence
with the date of the repriced option.
Respectfully submitted by:
COMPENSATION COMMITTEE
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change
in the cumulative return to the shareholders of the Company's Common Stock with
the cumulative return of the Nasdaq Stock Market-US Index and of the S&P
Computer Software and Services Index for the period commencing October 26, 1994
(the date the Company became subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended) and ending on September 30, 1996.
Returns for the indices are weighted based on market capitalization at the
beginning of each fiscal year.
COMPARISON OF 23 MONTH CUMULATIVE TOTAL RETURN*
AMONG EPIC DESIGN TECHNOLOGY, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE S & P COMPUTERS (SOFTWARE & SERVICES) INDEX
<TABLE>
<CAPTION>
10/26/94 9/95 9/96
<S> <C> <C> <C>
EPIC DESIGN TECHNOLOGY, INC. $100 $373 $385
NASDAQ STOCK MARKET-US $100 $138 $164
S & P COMPUTERS (SOFTWARE & SERVICES) $100 $146 $211
</TABLE>
*$100 INVESTED ON 10/26/94 IN STOCK OR ON 9/30/94 IN INDEX - INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING SEPTEMBER 30.
-17-
<PAGE> 20
- ----------
(1) The graph assumes that $100 was invested on October 26, 1994 (the date the
Company first became subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended) in the Company's Common Stock
and in the Nasdaq Stock Market-US Index and in the S&P Computer Software
and Services Index and that all dividends were reinvested. No dividends
have been declared or paid on the Company's Common Stock. Shareholder
returns over the indicated period should not be considered indicative of
future shareholder returns.
The information contained above under the captions "Report of the
Compensation Committee of the Board of Directors" and "Performance Graph" shall
not be deemed to be "soliciting material" or to be "filed" with the Securities
and Exchange Commission, nor shall such information be incorporated by reference
into any future filing under the Securities Act or Exchange Act, except to the
extent that the Company specifically incorporates it by reference into such
filing.
CERTAIN TRANSACTIONS WITH MANAGEMENT
None
SECTION 16(a) REPORTING DELINQUENCIES
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that, during fiscal 1996, all Section 16 filing requirements were met.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed form of Proxy to vote the shares they
represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: January 8, 1997
-18-
<PAGE> 21
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
EPIC DESIGN TECHNOLOGY, INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 12, 1997
The undersigned shareholder of EPIC DESIGN TECHNOLOGY, INC., a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated January 8, 1997, and
hereby appoints Sang S. Wang and Tammy S. Liu, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1997 Annual Meeting
of Shareholders of EPIC DESIGN TECHNOLOGY, INC. to be held on February 12, 1997
at 10:00 a.m. local time, at the Company's principal executive offices at 310
North Mary Avenue, Sunnyvale, California 94086 and at any adjournment or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below:
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below [ ] WITHHOLD
(except as indicated)
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST
BELOW:
Sang S. Wang, Ph.D., Bernard Aronson, Yen-Son Huang, Ph.D.,
Joseph A. Prang, Glen M. Antle
2. AMENDMENT OF RESTATED ARTICLES OF INCORPORATION TO INCREASE
THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENT OF 1990 STOCK OPTION PLAN TO INCREASE THE NUMBER OF
SHARES RESERVED FOR GRANT THEREUNDER:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL
PERIOD ENDING SEPTEMBER 30, 1997:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE INCREASE IN THE AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK, FOR THE AMENDMENTS OF THE 1990 STOCK OPTION
PLAN, FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS
INDEPENDENT AUDITORS AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING.
Dated: __________________, 1997
_______________________________________
Signature
_______________________________________
Signature
(This Proxy should be marked, dated and signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
