-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Iz5/WtfwZkWwQK0DEK9uG8oGOQRRNsYd3oi9D70cjwKey9EsSGglSehiNKRgWeq1 DoyXsSPclMJKNQfFXZaTgA== 0001001289-97-000003.txt : 19970409 0001001289-97-000003.hdr.sgml : 19970409 ACCESSION NUMBER: 0001001289-97-000003 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970408 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUMISYS INC \DE\ CENTRAL INDEX KEY: 0001001289 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 770133232 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 033-97230 FILM NUMBER: 97576236 BUSINESS ADDRESS: STREET 1: 225 HUMBOLDT CT CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4087336565 MAIL ADDRESS: STREET 1: 238 SANTA ANA COURT CITY: SUNNYVALE STATE: CA ZIP: 94086 DEF 14A 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: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Soliciting Material Pursuant to Schedule 240.14a-11(c) or Schedule 240.14a-12 LUMISYS INCORPORATED ------------------------------------------------ (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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a- 6(j)(2) or Item 22(a)(2) of Schedule 14a. / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1. Title of each class of securities to which transaction applies: --------------------------------------------------------------- 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: --------------------------------------------------------------- LUMISYS 225 Humboldt Court Sunnyvale CA 94089 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 12, 1997 TO THE STOCKHOLDERS OF LUMISYS INCORPORATED NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Lumisys Incorporated, a Delaware corporation (the "Company"), will be held on Monday, May 12, 1997 at 4:00 p.m. local time at the offices of the Company at 225 Humboldt Court, Sunnyvale, California, for the following purposes: 1. To elect one director to hold office until the 2000 Annual Meeting of Stockholders and the election and qualification of his successor. 2. To approve an amendment to the Company's 1995 Stock Option Plan to increase the aggregate number of shares of Common Stock authorized for issuance under such plan by 200,000 shares. 3. To ratify the selection of Price Waterhouse LLP as independent accountants of the Company for its fiscal year ending December 31, 1997. 4. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. The Board of Directors has fixed the close of business on March 26,1997 as the record date for the determination of stockholders entitled to notice of and to vote at this Annual Meeting and at any adjournment or postponement thereof. By Order of the Board of Directors Andrei M. Manoliu Secretary Sunnyvale, California April 8, 1997 ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME. LUMISYS 225 Humboldt Court Sunnyvale, CA 94089 PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS May 12, 1997 INFORMATION CONCERNING SOLICITATION AND VOTING GENERAL The enclosed proxy is solicited on behalf of the Board of Directors of Lumisys Incorporated, a Delaware corporation (the "Company"), for use at the Annual Meeting of Stockholders to be held on May 12, 1997 at 4:00 p.m. local time (the "Annual Meeting"), or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting. The Annual Meeting will be held at the offices of the Company at 225 Humboldt Court, Sunnyvale, California. The Company intends to mail this proxy statement and accompanying proxy card on or about April 8, 1997 to all stockholders entitled to vote at the Annual Meeting. SOLICITATION The Company will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of this proxy statement, the proxy and any additional information furnished to stockholders. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of Common Stock beneficially owned by others to forward to such beneficial owners. The Company may reimburse persons representing beneficial owners of Common Stock for their costs of forwarding solicitation materials to such beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone, telegram or personal solicitation by directors, officers or other regular employees of the Company. No additional compensation will be paid to directors, officers or other regular employees for such services. VOTING RIGHTS AND OUTSTANDING SHARES Only holders of record of Common Stock at the close of business on March 26, 1997 will be entitled to notice of and to vote at the Annual Meeting. At the close of business on March 26, 1997, the Company had outstanding and entitled to vote 6,455,273 shares of Common Stock. Each holder of record of Common Stock on such date will be entitled to one vote for each share held on all matters to be voted upon at the Annual Meeting. All votes will be tabulated by the inspector of election appointed for the meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Abstentions will be counted towards the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether a matter has been approved. REVOCABILITY OF PROXIES Any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. It may be revoked by filing with the Secretary of the Company at the Company's principal executive office, 225 Humboldt Court, Sunnyvale, CA 94089, written notice of revocation or a duly executed proxy bearing a later date, or it may be revoked by attending the meeting and voting in person. Attendance at the meeting will not, by itself, revoke a proxy. SHAREHOLDER PROPOSALS Proposals of stockholders that are intended to be presented at the Company's 1997 Annual Meeting of Stockholders must be received by the Company not later than December 9, 1997 in order to be included in the proxy statement and proxy relating to that Annual Meeting. Stockholders are also advised to review the Company's By-laws, which contain additional requirements with respect to advance notice of stockholder proposals and director nominations. PROPOSAL 1 ELECTION OF DIRECTORS The Company's Restated Certificate of Incorporation and By-laws provide that the Board of Directors shall be divided into three classes, each class consisting, as nearly as possible, of one-third of the total number of directors, with each class having a three-year term. Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors. A director elected by the Board to fill a vacancy (including a vacancy created by an increase in the Board of Directors) shall serve for the remainder of the full term of the class of directors in which the vacancy occurred and until such director's successor is elected and qualified. The Board of Directors is presently composed of four members. There is one director in the class whose term of office expires in 1997. The nominee for election to this class is currently a director of the Company who was previously elected by the stockholders. If elected at the Annual Meeting, the nominee would serve until the 2000 annual meeting and until his successor is elected and has qualified, or until such director's earlier death, resignation or removal. Directors are elected by a plurality of the votes present in person or represented by proxy and entitled to vote at the meeting. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nominee named below. In the event that the nominee should be unavailable for election as a result of an unexpected occurrence, such shares will be voted for the election of such substitute nominee as management may propose. The person nominated for election has agreed to serve if elected, and management has no reason to believe that such nominee will be unable to serve. Set forth below is biographical information for the nominee and each person whose term of office as a director will continue after the Annual Meeting. NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING: STEPHEN J. WEISS Mr. Weiss, 58, has served as a member of the Company's Board of Directors, President and Chief Executive Officer since joining the Company in January 1990. Prior to that time, Mr. Weiss was a founder of Virtual Imaging, a medical imaging company, where he last held the position of President. From 1971 to 1985, Mr. Weiss was an Executive Vice President of ADAC Laboratories, a medical imaging company. MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF MR. WEISS DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING: DOUGLAS G. DEVIVO, PH.D. Dr. DeVivo has been a member of the Company's Board of Directors since April 1989. Dr. DeVivo is a general partner of ALCE Partners, Vanguard Associates and Vanguard Associates II, venture capital investment partnerships, and has been involved in venture capital as a general partner since 1981. Dr. DeVivo is also a director of Gabelli Securities, Inc. MATTHEW D. MILLER, PH.D. Dr. Miller has been a member of the Company's Board of Directors since March 1995. Dr. Miller has been the President of M-Squared Media and Technology, an investment and consulting firm, since August 1994. Previously, Dr. Miller served as Vice President, Technology of General Instrument Corporation, a diversified electronics manufacturer, from August 1988 to July 1994. Prior to joining General Instrument Corporation, Dr. Miller served as Vice President, Technology of Viacom, Inc., a broadcast and cable company, from April 1984 to August 1988. DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING: C. RICHARD KRAMLICH Mr. Kramlich has been a member of the Company's Board of Directors since October 1987. Mr. Kramlich has been the Managing General Partner of New Enterprise Associates, a venture capital firm, since June 1978. Mr. Kramlich is also a director of Ascend Communications, Inc., Chalone Inc., Graphix Zone, Inc., Macromedia, Inc., Neopath, Inc., Silicon Graphics, Inc. and SyQuest Technology, Inc. BOARD COMMITTEES AND MEETINGS During the fiscal year ended December 31, 1996, the Board of Directors held five meetings. The Board has an Audit Committee and a Compensation Committee. The Audit Committee and Compensation Committee each met one time during the year ended 1996. The Audit Committee of the Board of Directors reviews the internal accounting procedures of the Company and consults with and reviews the services provided by the Company's independent accountants. The Audit Committee is composed of two non-employee directors: Messrs. DeVivo and Miller. The Compensation Committee of the Board of Directors reviews and recommends to the Board the compensation and benefits of employees of the Company. The Compensation Committee also administers the issuance of stock options and other awards under the Company's stock option plans. During the year ended December 31, 1997, the Compensation Committee was composed of three non-employee directors: Messrs. Kramlich, Treu and Miller. During the fiscal year ended December 31, 1996, each director attended at least 75% of the aggregate of the meetings of the Board and of the committees on which he served, held during the period for which they were a director or committee member, respectively. PROPOSAL 2 APPROVAL OF AN AMENDMENT TO THE 1995 EMPLOYEE STOCK OPTION PLAN In September 1995, the Company adopted the Company's 1995 Stock Option Plan (the "1995 Plan") under which an aggregate of 350,000 shares of Common Stock have been reserved for issuance upon exercise of options granted to employees, officers and employee-directors of and consultants to the Company. At December 31, 1996, options (net of canceled or expired options) covering an aggregate of 153,625 shares of the Company's Common Stock had been granted under the 1995 Plan, and only 196,375 shares (plus any shares that might in the future be returned to the plans as a result of cancellations or expiration of options) remained available for future grant under the 1995 Plan. During the last fiscal year, under the 1995 Plan, the Company has granted to all current executive officers as a group options to purchase 50,000 shares at an exercise price of $9.88 and to all employees (excluding executive officers) as a group options to purchase 103,225 shares at exercise prices of $8.88 to $11.44 per share. In February 1997, the Board approved an amendment to the 1995 Plan, subject to stockholder approval, to enhance the flexibility of the Board and the Compensation Committee in granting stock options to the Company's employees. The amendment increases the number of shares authorized for issuance under the 1995 Plan from a total of 350,000 shares to 550,000 shares. The Board adopted this amendment to ensure that the Company can continue to grant stock options to employees at levels determined appropriate by the Board and the Compensation Committee. Stockholders are requested in this Proposal 2 to approve the 1995 Plan, as amended. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting will be required to approve the amendment to the 1995 Plan. Abstentions will be counted toward the tabulation of votes cast on proposals presented tot he stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2. The essential features of the 1995 Plan are outlined below: GENERAL The 1995 Plan provides for the grant of both incentive and nonstatutory stock options. Incentive stock options granted under the 1995 Plan are intended to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock options granted under the 1995 Plan are intended not to qualify as incentive stock options under the Code. See "Federal Income Tax Information" for a discussion of the tax treatment of incentive and nonstatutory stock options. PURPOSE The 1995 Plan was adopted to provide a means by which officers and employees of and selected consultants to the Company and its affiliates could be given an opportunity to purchase stock in the Company, to assist in retaining the services of employees, to secure and retain the services of persons capable of filling such positions and to provide incentive for such persons to exert maximum efforts for the success of the Company. All of the Company's approximately 85 employees are eligible to participate in the 1995 Plan. ADMINISTRATION The 1995 Plan is administered by the Board of Directors of the Company. The Board has the power to construe and interpret the 1995 Plan and, subject to the provisions of the 1995 Plan, to determine the persons to whom and the dates of which options will be granted, the number of shares to be subject to each option, the time or times during the term of each option within which all or a portion of such option may be exercised, the exercise price, the type of consideration and other terms of the options. The Board of Directors is authorized to delegate administration of the 1995 Plan to a committee of the Board. The Board of Directors has delegated the administration of the 1995 Plan to the Compensation Committee and has established a Non-Officer Stock Option Committee consisting of Stephen J. Weiss, the Company's President and Chief Executive Officer, with authority to grant stock options to persons who are not at the time of the grant of the options subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). As used herein with respect to the 1995 Plan, the Board of Directors refers to the Compensation Committee and the Non-Officer Stock Option Committee as well as to the Board of Directors itself. ELIGIBILITY Incentive stock options may be granted under the 1995 Plan to all employees (including officers) of the Company and its affiliates. Employees (including officers) and consultants are eligible to receive nonstatutory stock options under the 1995 Plan. Directors who are not salaried employees of or consultants to the Company or to any affiliate of the Company are not eligible to participate in the 1995 Plan. No option may be granted under the 1995 Plan to any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of the Company or any affiliate of the Company, unless the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and the term of the option does not exceed five years from the date of the grant. For incentive stock options granted under the 1995 Plan, the aggregate fair market value, determined at the time of grant, of the shares of Common Stock with respect to which such options are exercisable for the first time by an optionee during any calendar year (under all such plans of the Company and its affiliates) may not exceed $100,000. STOCK SUBJECT TO THE 1995 PLAN If options granted under the 1995 Plan expire or otherwise terminate without being exercised, the Common Stock not purchased pursuant to such options again becomes available for issuance under the 1995 Plan. TERMS OF OPTIONS The following is a description of the permissible terms of options under the 1995 Plan. Individual option grants may be more restrictive as to any or all of the permissible terms described below. Exercise Price; Payment. The exercise price of incentive stock options under the 1995 Plan may not be less than the fair market value of the Common Stock subject to the option on the date of the option grant, and in some cases (see "Eligibility" above), may not be less than 110% of such fair market value. The exercise price of nonstatutory stock options under the 1995 Plan may not be less than 85% of the fair market value of the Common Stock subject to the option on the date of grant. However, if options were granted with exercise prices below market value, deductions for compensation attributable to the exercise of such options could be limited by Section 162(m). See "Federal Income Tax Information." At March 11, 1997, the closing price of the Company's Common Stock as reported on the Nasdaq National Market System was $9.13 per share. In the event of a decline in the value of the Company's Common Stock, the Board has the authority to offer employees the opportunity to replace outstanding higher priced options, whether incentive or nonstatutory, with new lower priced options. The Company has not provided that opportunity to employees in the past. The exercise price of options granted under the 1995 Plan must be paid either: (a) in cash at the time the option is exercised; or (b) at the discretion of the Board, (i) by delivery of other Common Stock of the Company, (ii) pursuant to a deferred payment arrangement or (c) in any other form of legal consideration acceptable to the Board. Option Exercise. Options granted under the 1995 Plan become exercisable in cumulative increments ("vest") as determined by the Board. Shares covered by currently outstanding options under the 1995 Plan typically vest at a rate of 25% of the shares on the first anniversary of the date of grant and 6.25% of the shares each quarter thereafter for the next three years during the optionee's employment or services as a consultant. Shares covered by options granted in the future under the 1995 Plan may be subject to different vesting terms. The Board has teh power to accelerate the time during which an option may be exercised. In addition, options granted under the 1995 Plan may permit exercise prior to vesting, but in such event the optionee may ve required to enter into an early exercise stock purchase agreement that allows the Company to repurchase shares not yet vested at their exercise price should the optionee leave the employ of the Company before vesting. To the extent provided by the terms of an option, an optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of such option by a cash payment upon exercise, by authorizing the Company to withhold a portion of the stock otherwise issuable to the optionee, by delivering already-owned stock of the Company or by a combination of these means. Term. The maximum term of options under the 1995 Plan is 10 years, except that in certain cases (see "Eligibility") the maximum term is five years. Options under the 1995 Plan terminate three months after termination of the optionee's employment or relationship as a consultant or director of the Company or any affiliate of the Company, unless (a) such termination is due to such person's permanent and total disability (as defined in the Code), in which case the option may, but need not, provide that it may be exercised at any time within one year of such termination; (b) the optionee dies while employed by or serving as a consultant or director of the Company or any affiliate of the Company, or within three months after termination of such relationship, in which case the option may, but need not, provide that it may be exercised (to the extent the option was exercisable at the time of the optionee's death) within eighteen months of the optionee's death by the person or persons to whom the rights to such option pass by will or by the laws of decent and distribution; or (c) the option by its terms specifically provides otherwise. Individual options by their terms may provide for exercise within a longer period of time following termination of employment or the consulting relationship. The option term may also be extended in the event that exercise of the option within these periods is prohibited for specific reasons. ADJUSTMENT PROVISIONS If there is any change in the stock subject to the 1995 Plan or subject to any option granted under the 1995 Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the 1995 Plan and options outstanding thereunder will be appropriately adjusted as to the class and the maximum number of shares subject to such plan, and the class, number of shares and price per share of stock subject to such outstanding options. EFFECT OF CERTAIN CORPORATE EVENTS The 1995 Plan provides that, in the event of a dissolution of liquidation of the Company, specified type of merger or other corporate reorganization, to the extent permitted by law, any surviving corporation will be required to assume options outstanding under the 1995 Plan or substitute similar options for those outstanding under such plan, or such outstanding options will continue in full force and effect. In the event that any surviving corporation declines to assume or continue options outstanding under the 1995 Plan, or to substitute similar options, then the time during which such options may be exercised will be accelerated and the options terminated if not exercised during such time. The acceleration of an option in the event of an acquisition or similar corporate event may be viewed as an antitakeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of the Company. DURATION, AMENDMENT AND TERMINATION The Board may suspend or terminate the 1995 Plan without stockholder approval or ratification at any time or from time to time. Unless sooner terminated, the 1995 Plan will terminate in September 2005. The Board may also amend the 1995 Plan at any time or from time to time. However, no amendment will be effective unless approved by the stockholders of the Company within twelve months before or after its adoption by the Board if the amendment would: (a) modify the requirements as to eligibility for participation (to the extent such modification requires stockholder approval in order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the "Exchange Act")); (b) increase the number of shares reserved for issuance upon exercise of options; or (c) change any other provision of the Plan in any other way if such modification requires stockholder approval, including, but not limited to, amendments intended to satisfy the requirements of Section 162(m) of the Code regarding the exclusion of performance-based compensation from the limitation on the deductibility of compensation paid to certain employees. RESTRICTIONS ON TRANSFER Under the 1995 Plan, options are generally nontransferable by the optionee other than by will or by the laws of descent and distribution and during the lifetime of the optionee, may be exercised only by the optionee. In addition, shares subject to repurchase by the Company under an early exercise stock purchase agreement may be subject to restrictions on transfer which the Board deems appropriate. FEDERAL INCOME TAX INFORMATION Incentive Stock Options. Incentive stock options under the 1995 Plan are intended to be eligible for the favorable federal income tax treatment accorded "incentive stock options" under the Code. There generally are no federal income tax consequences to the optionee or the Company by reason of the grant or exercise of an incentive stock option. However, the exercise of an incentive stock option may increase the optionee's alternative minimum tax liability, if any. If an optionee holds stock acquired through exercise of an incentive stock option for at least two years from the date on which the option is granted and at least one year from the date on which the shares are transferred to the optionee upon exercise of the option, any gain or loss on a disposition of such stock will be long-term capital gain or loss. Generally, if the optionee disposes of the stock before the expiration of either of these holding periods (a "disqualifying disposition"), at the time of disposition, the optionee will realize taxable ordinary income equal to the lesser of (a) the excess of the stock's fair market value on the date of exercise over the exercise price, or (b) the optionee's actual gain, if any, on the purchase and sale. The optionee's additional gain, or any loss, upon the disqualifying disposition will be a capital gain or loss, which will be long-term or short-term depending on whether the stock was held for more than one year. Long-term capital gains currently are generally subject to lower tax rates than ordinary income. The maximum capital gains rate for federal income tax purposes is currently 28% while the maximum ordinary income rate is effectively 39.6% at the present time. Slightly different rules may apply to optionees who acquire stock subject to certain repurchase options or who are subject to Section 16(b) of the Exchange Act. To the extent the optionee recognizes ordinary income by reason of a disqualifying disposition, the Company will generally be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to a corresponding business expense deduction in the tax year in which the disqualifying disposition occurs. Nonstatutory Stock Options. Nonstatutory stock options granted under the 1995 Plan generally have the following federal income tax consequences: There are no tax consequences to the optionee or the Company by reason of the grant of a nonstatutory option. Upon exercise of a nonstatutory option, the optionee normally will recognize taxable ordinary income equal to the excess of the stock's fair market value on the date of exercise over the option exercise price. Generally, with respect to employees, the Company is required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, the Company will generally be entitled to a business expense deduction equal to the taxable ordinary income realized by the optionee. Upon disposition of the stock, the optionee will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income upon exercise of the option. Such gain or loss will be long or short-term depending on whether the stock was held for more than one year. Slightly different rules may apply to optionees who acquire stock subject to certain repurchase options or who are subject to Section 16(b) of the Exchange Act. Potential Limitation on Company Deductions. As a part of the Omnibus Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section 162(m), which denies a deduction to any publicly held corporation for compensation paid to certain employees in a taxable year to the extent that compensation exceeds $1,000,000 for a covered employee. It is possible that compensation attributable to stock options, when combined with all other types of compensation received by a covered employee from the Company, may cause this limitation to be exceeded in any particular year. Certain kinds of compensation, including qualified "performance-based compensation," are disregarded for purposes of the deduction limitation. In accordance with Treasury regulations issued under Section 162(m), compensation attributable to stock options will qualify as performance- based compensation, provided that the option is granted by a compensation committee comprised solely of "outside directors" and either: (i) the option plan contains a per-employee limitation on the number of shares for which options may be granted during a specified period, the per-employee limitation is approved by the stockholder, and the exercise price of the option is no less than the fair market value of the stock on the date of grant; or (ii) the option is granted (or exercisable) only upon the achievement (as certified in writing by the compensation committee) of an objective performance goal established in writing by the compensation committee while the outcome is substantially uncertain, and the option is approved by stockholders. PROPOSAL 3 RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS The Board of Directors has selected Price Waterhouse LLP as the Company's independent accountants for the fiscal year ending December 31, 1997, and has further directed that management submit the selection of independent accountants for ratification by the stockholders at the Annual Meeting. Price Waterhouse LLP has audited the Company's financial statements since the fiscal year ended December 31, 1992. A representative of Price Waterhouse LLP is expected to be present at the Annual Meeting, will have an opportunity to make a statement if he so desires and will be available to respond to appropriate questions. Stockholder ratification of the selection of Price Waterhouse LLP as the Company's independent accountants is not required by the Company's By- laws or otherwise. However, the Board is submitting the selection of Price Waterhouse LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee and the Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee and the Board in their discretion may direct the appointment of different independent accountants at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the selection of Price Waterhouse LLP. MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of the Company's Common Stock as of February 3, 1997 by: (i) each director and nominee for director; (ii) each of the executive officers named in the Summary Compensation Table; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than five percent of its Common Stock. Beneficial Ownership (1) ----------------------- Number of Percent of Beneficial Owner Shares Total - ---------------- ---------- ---------- The TCW Group, Inc. . . . . . . . . . 564,300 8.80% 865 South Figueroa Street Los Angeles, CA 90017 Bala S. Manian. . . . . . . . . . . . 369,597 5.76 Biometric Imaging 1025 Terra Bella Avenue Mountain View, CA 94043 C. Richard Kramlich (2) . . . . . . . 214,104 3.33 Stephen J. Weiss (3). . . . . . . . . 175,577 2.72 Craig L. Klosterman (4) . . . . . . . 69,654 1.08 John M. Burgess (5) . . . . . . . . . 70,468 1.09 Linden J. Livoni (6). . . . . . . . . 78,469 1.22 Douglas G. DeVivo, Ph.D. (7). . . . . 50,000 * Matthew D. Miller, Ph.D.. . . . . . . 14,063 * Jesse Treu (8). . . . . . . . . . . . 12,641 * Kuldip K. Ahluwalia . . . . . . . . . 0 * All directors and executive officers as a group (9 persons) (9) . . . . . 684,976 10.46 - ---------------------------------- * Less than one percent. (1) This table is based upon information supplied by officer, directors and principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission (the "SEC"). Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 6,425,578 shares outstanding on February 3, 1997, adjusted as required by rules promulgated by the SEC. (2) Includes 199,736 shares beneficially owned by New Enterprise Associates IV, Limited Partnership, a Delaware limited partnership. Mr. Kramlich is a general partner of NEA Partners IV, Limited Partnership, a Delaware limited partnership, which is the general partner of New Enterprise Associates IV, Limited Partnership, a Delaware limited partnership. Mr. Kramlich shares voting and investment power with respect to such shares and disclaims beneficial ownership of such shares except to the extent of his proportionate partnership interest therein. Also includes 7,031 shares subject to stock options exercisable within 60 days of February 3, 1997. (3) Includes 30,000 shares subject to stock options exercisable within 60 days of February 3, 1997. Includes 24,087 shares subject to stock options exercisable within 60 days of February 3, 1997. (4) Includes 24,218 shares subject to stock options exercisable within 60 days of February 3, 1997. (5) Includes 11,719 shares subject to stock options exercisable within 60 days of February 3, 1997. (6) Includes 25,000 shares subject to stock options exercisable within 60 days of February 3, 1997. (7) Includes 5,859 shares beneficially owned by Domain Associates. Dr. Treu is a general partner of Domain Associates. Dr. Treu shares voting and investment power with respect to such shares and disclaims beneficial ownership of such shares except to the extent of his proportionate partnership interest therein. Also includes 1,172 shares subject to stock options exercisable within 60 days of February 3, 1997. (8) Includes 205,595 shares held by entities affiliated with certain directors and includes 123,227 shares subject to stock options held by directors and officers exercisable within 60 days of February 3, 1997. See footnotes (2)-(8). COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a) Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act") requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by the SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 1996, all Section 16(a) filing requirements applicable to its officer, directors and greater than ten percent beneficial owners were complied with; except that Mr. Thordarson, a former executive officer of the Company, filed one late report covering one transaction occurring after he left the Company. The report was filed once he became aware of the requirement to report certain post-termination transactions. In addition, an initial report of ownership was filed late by Mr. Ahluwalia and one report was filed late by Mr. Kramlich. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS Directors do not currently receive any cash compensation from the Company for their service as members of the Board of Directors, although they are reimbursed for certain expenses in connection with attendance at Board and Committee meetings. Douglas G. DeVivo, Ph.D., Chairman of the Board of the Company, received the amount of $15,000 during 1996 for services rendered to the Company. In August 1995, the Board adopted the 1995 Non-Employee Directors' Stock Option Plan (the "Directors' Plan") to provide for the automatic grant of options to purchase shares of Common Stock to non-employee directors of the Company ("Non-Employee Directors"). The maximum number of shares of Common Stock that may be issued pursuant to options granted under the Directors' Plan is 112,500. Pursuant to the terms of the Directors' Plan, each Non-Employee Director (other than a compensated Chairman of the Board) will automatically be granted an option to purchase 18,750 shares of Common Stock on the date of his or her election to the Board. On the date of adoption of the Directors' Plan, each person who was then a Non-Employee Director of the Company and who had not received within the one-year period prior to adoption of the Directors' Plan either an option grant or the right to purchase shares of Common Stock of the Company, was granted an option to purchase 18,750 shares of Common Stock of the Company under the Directors' Plan. Thereafter each Non-Employee Director will automatically be granted an option to purchase an additional 18,750 shares of Common Stock under the Directors' Plan on the date any and all previous options or stock purchases by such person either under the Directors' Plan or otherwise become fully vested. Outstanding options under the Directors' Plan vest at the rate of 25% of the shares subject to the option on the first anniversary of the date of grant and 6.25% of the shares subject to the option each quarter thereafter for the next three years. The exercise price of options granted under the Directors' Plan must equal the fair market value of the Common Stock on the date of grant. No option granted under the Directors' Plan may be exercised after the expiration of ten years from the date it was granted. Options granted under the Directors' Plan are generally non-transferable. The Directors' Plan will terminate on August 15, 2005, unless earlier terminated by the Board. In the event of a merger or consolidation, or a reverse merger or reorganization in which the Company is not the surviving corporation, options outstanding under the Directors' Plan will automatically become fully vested and will terminate if not exercised prior to such event. During the last fiscal year, the Company did not grant any options under the Directors' Plan. As of February 3, 1997, 5,859 options were exercised under the Directors' Plan. COMPENSATION OF EXECUTIVE OFFICERS The following table shows for the fiscal years ended December 31, 1995 and 1996, compensation awarded or paid to, or earned by, the Company's Chief Executive Officer and the Company's other executive officers who earned more than $100,000 during the year ended December 31, 1996 (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE Long-term Compensation Awards Annual Compensation -------------- ------------------- Securities All Other Name and Salary Bonus Underlying Compensation Principal Position Year ($) ($)(1) Options (#) ($)(2) - ------------------------ ----- --------- --------- ------------- ----------- Stephen J. Weiss . . . 1996 $179,432 $40,346 --- $ 500 President and Chief 1995 138,613 65,246 25,000 500 Executive Officer Craig L. Klosterman . . 1996 144,500 30,319 --- 500 Chief Operating and 1995 128,769 40,006 25,000 500 Financial Officer John M. Burgess . . . . 1996 125,000 105,325(3) --- 500 Vice President, Sales 1995 125,000 86,346(4) 12,500 500 Linden J. Livoni . . . 1996 129,717 27,100 --- 500 Vice President, 1995 119,653 31,738 --- 500 Engineering Eystein G. Thordarson. . 1996 132,872 --- --- 500 Former Vice President 1995 134,000(5) 10,000 75,000 500 and President of Imagraph Corporation - -------------------------------- (1) Bonus payments are based on the individuals performance, the individual's salary level and the Company's overall financial performance. Also includes interest forgiven on loans from the Company to Messrs. Weiss, Klosterman, Burgess and Livoni. See "Certain Transactions." (2) Consists of $500 per year in Company matching payments under its 401(k) Plan. (3) Includes a commission payment of $104,643. (4) Includes a commission payment of $82,800. (5) Mr. Thordarson joined the Company in March 1995 when the Company acquired Imagraph Corporation. Includes salary paid to Mr. Thordarson in 1995 prior to the Company's acquisition of Imagraph Corporation. STOCK OPTION GRANTS AND EXERCISES The Company has granted options to its executive officers under its 1987 Stock Option Plan and in the future, intends to grant options under its 1995 Stock Option Plan (the "1995 Plan"). As of February 3, 1997, options to purchase 196,375 shares remained available for grant under the 1995 Plan. In 1996, no options were granted to the Named Executive Officers. The following table shows for the fiscal year ended December 31, 1996, certain information regarding options exercised by and held at year end by the Named Executive Officers: Aggregate Option Exercises in 1996 and December 31, 1996 Option Values Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Options at Options at Acquired December 31, December 31, on Value 1996 (#) 1996 ($)(2) Exercise Realized Exercisable/ Exercisable/ Name (#) ($)(1) Unexercisable Unexercisable - -------- --------- ---------- -------------- ------------------ Stephen J. Weiss . . . --- --- 26,374/31,626 $189,379/184,861 Craig L. Klosterman . . . --- --- 20,493/31,407 139,364/182,938 John M. Burgess . . . . --- --- 21,874/15,626 176,118/110,632 Linden J. Livoni . . . . --- --- 10,547/8,203 92,603/72,022 Eystein G. Thordarson 23,350 $447,553 9,462/--- 77,399/--- - ------------------------------- (1) Value realized is based on the fair market value of the Company's Common Stock on the date of exercise minus the exercise price and does not necessarily indicate that the optionee sold such stock. (2) Fair market value of the Company's Common Stock at December 31, 1996 ($9.38) minus the exercise price of the options multiplied by the number of shares underlying the option. REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION During the year ended December 31, 1996 the Compensation Committee of the Board of Directors (the "Committee") was comprised of Messrs. Kramlich, Miller and Treu, none of whom has been an officer or employee of the Company. The Committee is responsible for establishing the Company's compensation for the executive officers. The goals of the compensation program are to align compensation with business objectives and performance and to enable the Company to attract, retain and reward executive officers and other key employees who contribute to the long-term success of the Company and to motivate them to enhance long-term stockholder value. To meet these goals, the Committee has adopted a mix among the compensation elements of salary, bonus (or commission with respect to Mr. Burgess) and stock options. Base Salary. The Committee meets at least annually to review and approve each executive officer's salary for the ensuing year. When reviewing base salaries, the Committee considers the following factors, in order of importance: competitive pay practices, individual performance, levels of responsibility, breadth of knowledge and prior experience. To provide the Committee with more information for making compensation comparisons, the Company surveys a group of comparable companies that have recently made public offerings or are publicly traded, with a capitalization similar to that of the Company. The companies appearing in this self-selected peer group survey include some companies that are not included in the Nasdaq or Dow Jones Advanced Technology Medical Devices indices as the Company desires to provide the committee with more information for making compensation comparisons. Based upon such survey, the executive officers' salaries are set in the mid-range as compared to comparable companies. Bonus. The bonus program is a variable pay program for executive officers and other key employees of the Company. The Committee meets in January following the year of the awards to be made to determine the amount of the bonuses. The bonus award depends on the extent to which the Company and individual performance objectives are achieved. The Company's objectives consist of operating, strategic and financial goals that are considered to be critical to the Company's fundamental long- term goal of building shareholder value. For fiscal 1996, these goals were (i) identification, successful acquisition and integration of complementary products and technologies (ii) penetration of new geographic markets and gains in market share with newly introduced products, specifically the Lumiscan 20 (iii) increases in revenue and net income over the prior years, and (iv) introduction of new products, including the successful launch of the Lumiscan 110. These goals were partially met and bonuses were awarded, ranging from $10,000 to $36,000. With respect to Mr. Burgess, the Company's Vice President, Sales, no bonus payment is awarded, but rather a commission based solely on a percentage of sales during the fiscal year is made based on sales goals set by the Committee at the beginning of the fiscal year. Stock Options. The Option Plans maintained by the Company have been established to provide all employees of the Company with an opportunity to share, along with stockholders of the Company, in the long-term performance of the Company. Initial grants of stock options are generally made to all eligible employees upon commencement of employment, with additional grants being made to certain employees periodically or following a significant change in the job responsibilities, scope or title of such employment. Stock options under the Options Plans generally vest over a four-year period and expire ten years from the date of grant. The exercise price of such options is usually 100% of the fair market value of the underlying stock on the date of grant. Guidelines for the number of stock options for each participant under the Option Plans are generally determined by a formula established by the Committee whereby several factors are applied to the salary and performance level of each participant and then related to the approximate market price of the stock at the time of grant. In awarding stock options, the Committee considers individual performance, overall contribution to the Company, officer retention, the number of unvested stock options held by the officer and the total number of stock options to be awarded. During fiscal 1996, after considering the criteria relating to awarding stock options, the Committee determined that no grants be made to the Named Executive Officers of the Company. A grant of 50,000 shares was made to Kuldip Ahluwalia, the Company's Vice President, Marketing and Business Development, upon his hire date in November 1996. Section 162(m) of the Internal Revenue Code (the "Code") limits the Company to a deduction for federal income tax purposes of no more than $1 million of compensation paid to certain Named Executive Officers in a taxable year. Compensation above $1 million may be deducted if it is "performance-based compensation." The Compensation Committee has determined that stock options granted under the Company's 1995 Plan with an exercise price at least equal to the fair market value of the Company's Common Stock on the date of grant shall be treated as "performance-based compensation" and any compensation recognized by a Named Executive Officer as a result of the grant of such a stock options is deductible by the Company. CEO Compensation. The Committee uses the same procedures described above in setting the annual salary, bonus and stock option awards for the CEO. The CEO's salary is determined based on comparisons with recently public comparable companies. Mr. Weiss' 1996 salary of 179,432 was lower than the average for such comparable companies. As described above, since the Company partially met its corporate and financial objectives, the Committee rated Mr. Weiss' performance as average and awarded him a bonus of $36,000. Summary. Through the plans described above, a significant portion of the Company's compensation program for its executive officers (including the CEO) is contingent upon the Company's performance, and realization of benefits by the CEO and the other executive officers is closely linked to increases in long-term shareholder value. The Company remains committed to this philosophy of pay for performance, recognizing that the competitive market for talented executives and the volatility of the Company's business may result in highly variable compensation during any given annual period. COMPENSATION COMMITTEE C. Richard Kramlich Matthew D. Miller, Ph.D. Jesse I. Treu, Ph.D. PERFORMANCE MEASUREMENT COMPARISON (1) The following graph shows the total stockholder return of an investment of $100 in cash on November 15, 1995 for (i) the Company's Common Stock, (ii) the Nasdaq Stock Market Index ("Nasdaq") and (iii) the Dow Jones Advanced Technology Medical Devices Index ("Dow Jones ATMD"). All values assume reinvestment of the full amount of all dividends and are calculated as of December 31 of each year. Although the Securities and Exchange Commission regulations generally require the graph to cover a five-year period, the graph below covers the period between the commencement of public trading of the Company's stock on November 15, 1995 and December 31, 1996. The comparisons in the graph are required by the Securities and Exchange Commission and are not intended to forecast or to be indicative of possible future performance of the Company's Common Stock. 11/15/95 12/31/95 12/31/96 -------- -------- -------- Lumisys Incorporated 100.00 155.17 126.72 Industry Index 100.00 109.35 118.12 Broad Market 100.00 99.63 123.81 - -------------------------------- (1) This Section is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended or the 1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. CERTAIN TRANSACTIONS In May 1994, the Company loaned the following directors and officers of the Company the amounts set forth below in connection with such person's exercise of certain outstanding stock options. Each loan was made pursuant to a promissory note secured by the underlying stock, bears interest at the rate of 4.94% per year and becomes due and payable on May 31, 1997. Name Amount ---- ------- Stephen J. Weiss. . . . . . . . . . . . $65,250 John M. Burgess . . . . . . . . . . . . --- Linden J. Livoni. . . . . . . . . . . . 12,225 Craig L. Klosterman . . . . . . . . . . 22,050 Douglas G. DeVivo, Ph.D.. . . . . . . . 15,000 The Company believes that the foregoing transactions were in its best interests and were on terms no less favorable to the Company than could be obtained from unaffiliated third parties. The Company has entered into indemnity agreements with certain officers and directors which provide, among other things, that the Company will indemnify such officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he may be required to pay in actions or proceedings which he is or may be made a party by reason of his position as a director, officer or other agent of the Company, and otherwise to the full extent permitted under Delaware law and the Company's By-laws. OTHER MATTERS The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment. By Order of the Board of Directors Andrei M. Manoliu Secretary April 8, 1997 1 2 -----END PRIVACY-ENHANCED MESSAGE-----