-----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, DaKpvJtKCGHgyc74V2BXC9OyB9T1O7fKe9CJwV7W0s0rQt6zc+U0nhqaXea26MXy hEEkal6Ipe6Ea9jaqWRAqw== 0000891618-96-003075.txt : 19961217 0000891618-96-003075.hdr.sgml : 19961217 ACCESSION NUMBER: 0000891618-96-003075 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970108 FILED AS OF DATE: 19961216 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EPIC DESIGN TECHNOLOGY INC /CA/ CENTRAL INDEX KEY: 0000929457 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 770135608 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-24756 FILM NUMBER: 96681414 BUSINESS ADDRESS: STREET 1: 310 N MARY AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4087338080 PRE 14A 1 NOTICE & PROXY STATEMENT 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 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. 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.
Common Stock Approximate Five Percent Shareholders, Directors Beneficially Percentage and Certain Executive Officers Owned Owned(1) - ---------------------------------------------------------------- ------------- ----------- 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%]
4
Common Stock Approximate Five Percent Shareholders, Directors Beneficially Percentage and Certain Executive Officers Owned Owned(1) - ---------------------------------------------------------------- ------------- ----------- 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%]
- ---------- * 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 -2- 5 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 -3- 6 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:
Director Name of Nominee Age Position with the Company Since - ----------------------------------------- ------- -------------------------------------------- -------------- 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] -- --
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 -4- 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." -5- 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 -6- 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 -7- 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. -8- 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- 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- 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- 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
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) - ------------------------------ --------- ---------- --------- ------------ ------------ ------------ 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
- ---------- (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- 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:
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% - ----------------------------- ---------- ------------ ---------- ---------- --------- ----------- 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
- ---------- * 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- 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.
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 - ---------------------------- -------- ------------ ----------- ------------- ------------ ------------- 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
- ---------- (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.
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 - ------------------------- -------- ------------ ------------- ------------- --------- ------------ 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
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- 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- 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- 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
10/26/94 9/95 9/96 EPIC DESIGN TECHNOLOGY, INC. $100 $373 $385 NASDAQ STOCK MARKET-US $100 $138 $164 S & P COMPUTERS (SOFTWARE & SERVICES) $100 $146 $211
*$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- 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- 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.) -----END PRIVACY-ENHANCED MESSAGE-----