SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
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Integrated Systems, Inc.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Steven Sipowicz
------------------------------------------------------------------------
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[GRAPHIC "Integrated Systems"]
INTEGRATED SYSTEMS, INC.
3260 JAY STREET
SANTA CLARA, CALIFORNIA 95054-3309
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Integrated Systems, Inc. (the "Company") will be held at The Westin Hotel, 5101
Great America Parkway, Santa Clara, California, 95054 on July 18, 1995 at 2:00
p.m. for the following purposes:
1. To elect six directors of the Company to serve until the next Annual
Meeting of Shareholders and until their respective successors have been
elected and qualified or until such directors' earlier resignation or
removal. The Company's Board of Directors has nominated the following
candidates: Narendra K. Gupta, John C. Bolger, Vinita Gupta, Thomas
Kailath, Richard C. Murphy and David P. St. Charles.
2. To ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants for the Company for the current fiscal year.
3. To transact such other business as may properly come before the
meeting or any adjournments or postponements 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 May 19, 1995
are entitled to notice of and to vote at the meeting and any adjournments or
postponements thereof.
By Order of the Board of Directors
Narendra K. Gupta
Chairman of the Board
Santa Clara, California
May 31, 1995
================================================================================
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN
IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
================================================================================
[GRAPHIC "Integrated Systems"]
INTEGRATED SYSTEMS, INC.
3260 JAY STREET
SANTA CLARA, CALIFORNIA 95054
PROXY STATEMENT
MAY 31, 1995
The accompanying proxy is solicited on behalf of the Board of Directors
of Integrated Systems, Inc., a California corporation (the "Company"), for use
at the Annual Meeting of Shareholders of the Company to be held at The Westin
Hotel, 5101 Great America Parkway, Santa Clara, California, 95054 on July 18,
1995 at 2:00 p.m. (the "Meeting"). Only holders of record of the Company's
Common Stock at the close of business on May 19, 1995 will be entitled to vote
at the Meeting. At the close of business on that date, the Company had 9,559,310
shares of Common Stock outstanding and entitled to vote. Shares will be deemed
to be represented at the meeting both where a shareholder specifically abstains
from voting and where a broker or other nominee holding shares for beneficial
owners is able to vote on certain matters at the Meeting pursuant to
discretionary authority or instruction from beneficial owners but with respect
to other matters may not have received instructions from the beneficial owner
and may not exercise voting power ("broker non-votes"). A majority, or 4,779,656
of these shares, represented in person or by proxy, will constitute a quorum for
the transaction of business. This Proxy Statement and accompanying proxy will
first be mailed to shareholders on or about June 2, 1995.
VOTING RIGHTS; SOLICITATION AND REVOCABILITY OF PROXIES
Holders of Common Stock are entitled to one vote for each share held as
of the above record date. Any person signing a proxy in the form accompanying
this Proxy Statement has the power to revoke it prior to the Meeting or at the
Meeting prior to the vote pursuant to the proxy. A proxy may be revoked by a
writing delivered to the Secretary of the Company stating that the proxy is
revoked, by a subsequent proxy that is signed by the person who signed the
earlier proxy and is presented at the Meeting or by attendance at the Meeting
and voting in person. Please note, however, that if a shareholder's shares are
held of record by a broker, bank or other nominee, and that shareholder wishes
to vote at the Meeting, the shareholder must bring to the Meeting a letter from
the broker, bank or other nominee confirming that shareholder's beneficial
ownership of the shares.
The expenses of soliciting proxies in the form accompanying this Proxy
Statement will be paid by the Company. Following the original mailing of the
proxies and other soliciting materials, the Company will request brokers,
custodians, nominees and other record holders to forward copies of the proxy and
other soliciting materials to persons for whom they hold shares of Common Stock
and to request authority for the exercise of proxies. In such cases, the
Company, upon the request of the record holders, will reimburse such holders for
their reasonable expenses.
-1-
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
At the Meeting, shareholders will elect directors to hold office until
the next Annual Meeting of Shareholders and until their respective successors
have been elected and qualified or until such directors' earlier resignation or
removal. The size of the Company's Board of Directors (the "Board") is currently
set at six members. Shares represented by the accompanying proxy will be voted
for the election of the six nominees recommended by the Board unless the proxy
is marked in such a manner as to withhold authority so to vote. If any nominee
for any reason is unable to serve or for good cause will not serve, the proxies
may be voted for such substitute nominee as the proxy holder may determine. The
Company is not aware of any nominee who will be unable to or for good cause will
not serve as a director. Directors are elected by a plurality of the shares
voting, in person or by proxy, at the Annual Meeting. The six nominees receiving
the highest number of affirmative votes of the shares entitled to be voted for
them will be elected. Votes withheld, abstentions and broker non-votes shall
have no legal effect.
DIRECTORS/NOMINEES
The names of the nominees, and certain information about them
(including their respective terms of service), are set forth below:
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- - --------------- --- -------------------- -----
Narendra K. Gupta 46 Chairman of the Board and 1980
Secretary of the Company
David P. St. Charles 46 President and Chief Executive 1993
Officer of the Company
John C. Bolger (1) (2) 48 Private Investor 1993
Vinita Gupta (1) 44 Chairperson of the Board and 1980
Chief Executive Officer,
Digital Link Corporation
Thomas Kailath (1) (2) 59 Professor of Engineering, 1980
Stanford University
Richard C. Murphy (2) 50 Business Consultant 1994
- - ----------------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Dr. Gupta, Mr. St. Charles, Mr. Bolger, Mrs. Gupta and Dr. Kailath were
reelected at the Company's Annual Meeting of Shareholders held on July 6, 1994.
Mr. Murphy was appointed as a director in December 1994 and is standing for
election as a director of the Company for the first time.
Dr. Gupta is a founder of the Company and has been a director of the
Company since its formation in 1980. He has been the Chairman of the Board of
the Company since March 1993, Secretary since September 1989, Chief Executive
Officer from 1988 to May 1994 and President from the Company's formation in 1980
to May 1994. Dr. Gupta was elected a Fellow of the Institute of Electrical and
Electronic Engineers ("IEEE") in November 1991. Dr. Gupta serves on the board of
Digital Link Corporation, a datacommunications and wide-area networking
equipment manufacturer and Simulation Sciences, Inc., a developer of chemical
modeling software. Dr. Gupta holds an M.S. degree from the California Institute
of Technology and a Ph.D. degree from Stanford University, both in Engineering.
Mr. St. Charles joined the Company in August 1993 and was appointed
President and Chief Executive Officer of the Company in May 1994. He has been a
director since he joined the Company in August 1993. He previously served as
President and a director of Wind River Systems, Inc., a real-time software
company, from April 1990 until August 1993. Mr. St. Charles holds a B.A. in
Liberal Arts and an M.A. in International Economics from Carleton University and
an M.S. from the Sloan School of Management at the Massachusetts Institute of
Technology.
Mr. Bolger, a private investor, has been a director of the Company
since July 1993. He served as Vice President, Finance and Administration, and
Secretary of Cisco Systems, Inc., a networking software company, from 1989 until
his retirement in 1992. Mr. Bolger is also a member of the boards of directors
of Integrated Device Technology, Inc., a semiconductor manufacturer, TCSI, a
-2-
communication software company, and Sanmina Corporation, a backplane and
contract assembly manufacturer. Mr. Bolger holds a B.A. degree from the
University of Massachusetts and an M.B.A. from Harvard University.
Mrs. Gupta has been a director of the Company since its formation in
1980. Since May 1985, she has been Chairperson and Chief Executive Officer of
Digital Link Corporation, a datacommunications and wide-area networking
equipment manufacturer. Mrs. Gupta holds an M.S. degree in Electrical
Engineering from the University of California, Los Angeles. She is Narendra K.
Gupta's wife.
Dr. Kailath is a founder of the Company and has been a director of the
Company since its formation in 1980. He was Chairman of the Board of Directors
from April 1980 to January 1990 and was Vice Chairman of the Board of Directors
from January 1990 to March 1993. He is currently the Hitachi America Professor
of Engineering at Stanford University, where he has been on the faculty since
January 1963. Dr. Kailath is a member of the National Academy of Engineering,
the American Academy of Arts and Sciences and a Fellow of the IEEE. Dr. Kailath
holds M.S. and Sc.D. degrees in Electrical Engineering from the Massachusetts
Institute of Technology.
Mr. Murphy has been a director of the Company since December 1994. He
is a self-employed business consultant. Mr. Murphy is a member of the boards of
directors of Objectivity, Inc., an object database software company, Ashlar,
Inc., a personal computer professional engineering software company and IXOS
Software Inc., a distributor of image management software. He holds a B.S.
degree in Mechanical Engineering from the University of Illinois and an M.B.A.
from Northwestern University.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES LISTED ABOVE.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board met four times and acted by unanimous written consent four
times during the year ended February 28, 1995. All directors attended every
meeting of the Board and of the committees of the Board on which he or she
served.
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing a similar function.
Mr. Bolger, Dr. Kailath and Mr. Murphy are currently the members of the
Audit Committee. The Audit Committee met twice during fiscal 1995. The Audit
Committee meets with the Company's independent accountants to review the
adequacy of the Company's internal control systems and financial reporting
procedures, reviews the general scope of the Company's annual audit and the fees
charged by the independent accountants and reviews and monitors the performance
of non-audit services by the Company's independent accountants.
Mr. Bolger, Mrs. Gupta and Dr. Kailath are currently the members of the
Company's Compensation Committee. The Compensation Committee met 17 times and
acted by unanimous written consent once during fiscal 1995. The Compensation
Committee administers the Company's 1988 Stock Option Plan and 1990 Employee
Stock Purchase Plan and determines salaries and other compensation for officers
and employees.
The Company paid Mr. Bolger $16,000, Mrs. Gupta $4,000, Dr. Kailath
$4,000 and Mr. Murphy $4,000 in directors' fees for activities performed on
behalf of the Company during fiscal 1995.
In March 1994 the Board adopted the 1994 Directors Stock Option Plan
(the "Directors Plan") and reserved a total of 200,000 shares of the Company's
Common Stock for issuance thereunder. The shareholders approved the adoption of
the Directors Plan in July 1994. The Directors Plan provides for the automatic
grant of a nonqualified stock option to purchase 15,000 shares of the Company's
Common Stock to each nonemployee director who was serving on the Board at the
time of the Board's adoption of the Directors Plan or who becomes a member of
the Board for the first time after the effective date of the Directors Plan. In
addition, the Directors Plan provides for automatic annual grants of
nonqualified options to purchase 5,000 shares of the Company's Common Stock to
each nonemployee director on the anniversary of such director joining the Board,
as long as the optionee remains a member of the Board. In accordance with the
Directors Plan, the following options were granted during fiscal 1995: John C.
Bolger was granted an option to purchase 5,000 shares of Common Stock at an
exercise price of $9.00 per share, Vinita Gupta and Thomas Kailath were each
granted an option to purchase 15,000 shares of Common Stock at an exercise price
of $11.50 per share, Richard C. Murphy was granted an option to purchase 15,000
shares of Common Stock at an exercise price of $14.50 per share and Vinita Gupta
and Thomas Kailath were each granted an option to purchase 5,000 shares of
Common Stock at an exercise price of $22.50 per share. As of May 19, 1995,
options to purchase 60,000 shares had been granted, no options had been
exercised and 140,000 shares were available for future grants pursuant to the
Directors Plan.
-3-
PROPOSAL NO. 2 - RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Company has selected Coopers & Lybrand L.L.P. as its principal
independent accountants to perform the audit of the Company's financial
statements for the current fiscal year, and the shareholders are being asked to
ratify this selection. Coopers & Lybrand L.L.P. has audited the Company's
financial statements for the past nine fiscal years. Representatives of Coopers
& Lybrand L.L.P. will be present at the Meeting, will be given an opportunity to
make a statement at the Meeting if they desire to do so and will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND L.L.P.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 19, 1995,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each shareholder known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock, (ii) each director and nominee, (iii) each
executive officer named in the Summary Compensation Table below and (iv) all
officers and directors as a group.
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
- - ------------------- ------------------------ ----------------
Narendra K. and Vinita
Gupta (2)(3)(4) 3,088,999 32.3%
Nevis Capital Management, Inc. (5) 915,900 9.6%
FMR Corporation (6) 492,900 5.1%
Thomas Kailath (4)(7) 463,299 4.8%
David P. St. Charles (4) 89,164 *
Joseph Addiego (4) 40,028 *
Robert M. Dressler (4) 20,809 *
Moses Joseph (4) 20,133 *
John C. Bolger (4) 7,250 *
Richard C. Murphy (4) 2,187 *
All officers and directors as
a group (12 persons) (4) 3,765,930 39.4%
- - ----------------------------------
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws.
(2) The address of this shareholder is c/o Integrated Systems, Inc., 3260
Jay Street, Santa Clara, CA, 95054.
(3) Represents 2,580,100 shares of Common Stock held of record by Dr. and
Mrs. Gupta, 500,000 shares held of record by them, together with a
third party, as trustees for their children, and 3,900 shares held by
Dr. Gupta as custodian for his daughter under the Uniform Gifts to
Minors Act.
(4) Includes 4,999 shares for Mrs. Gupta, 4,999 shares for Dr. Kailath,
88,125 shares for Mr. St. Charles, 34,200 shares for Mr. Addiego,
19,000 shares for Dr. Dressler, 15,166 shares for Dr. Joseph, 5,250
shares for Mr. Bolger, 2,187 shares for Mr. Murphy and 205,092 shares
for all directors and officers as a group that are subject to options
exercisable within 60 days after May 19, 1995.
(5) The address of this shareholder is Nevis Capital Management, Inc., 1119
St. Paul Street, Baltimore, Maryland 21202. As of May 18, 1995, Nevis
Capital Management ("Nevis") reported on Schedule 13G filed with the
SEC that it beneficially owned 915,900 shares of the Company's Common
Stock. Nevis has since orally informed the Company that, as of May 19,
1995, it owned beneficially the same number of shares of the Company's
Common Stock.
(6) The address of this shareholder is FMR Corporation, 82 Devonshire
Street, Boston, Massachusetts 02109. As of February 13, 1995, FMR
Corporation ("FMR") reported on a Schedule 13G filed with the SEC that
it beneficially owned 701,000 shares of the Company's Common Stock. FMR
has since orally informed the Company that, as of May 19, 1995, it
owned beneficially 492,900 shares of the Company's Common Stock.
However, the Company has not yet received a copy of an amended Schedule
13G or 13D filed with the SEC concerning FMR's beneficial ownership.
(7) Represents 250,300 shares of Common Stock held of record by Dr. Kailath
and his wife as trustees of a revocable trust, 191,000 shares held of
record by them, together with a third party, as trustees for their
three children and 17,000 shares held by Dr. Kailath as custodian for
their son under the Uniform Gifts to Minors Act.
-4-
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded, earned or paid
for services rendered in all capacities to the Company and its subsidiaries
during each of fiscal 1993, 1994 and 1995 to the Company's Chief Executive
Officer and the Company's four most highly compensated executive officers, other
than the Chief Executive Officer, who were serving as executive officers at the
end of fiscal 1995. This information includes the dollar values of base
salaries, bonus awards, the number of stock options granted and certain other
compensation, if any, whether paid or deferred. The Company does not grant stock
appreciation rights ("SARs") and has no long-term compensation benefits other
than options.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- ------------
SECURITIES ALL OTHER
UNDERLYING COMPENSA-
NAME AND SALARY (1) BONUS (2) OPTIONS TION (3)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- - ------------------ ---- ---------- -------- ----------- -----------
David P. St. Charles FY95 $184,631 $58,586 25,000 $2,353
President and CEO FY94(4) $87,506 $59,784 200,000 --
FY93 -- -- -- --
Narendra K. Gupta FY95 $159,438 $40,278 -- $2,356
Chairman and Secretary FY94(4) $144,633 $39,856 -- $2,383
FY93 $134,816 $20,000 -- $1,829
Joseph Addiego FY95 $214,504 $10,000 15,000 $2,395
Vice President, FY94 $170,274 $10,000 30,000 $1,860
North American Sales FY93 $152,756 $5,000 36,000(5) $193
Robert Dressler FY95 $124,816 $25,631 10,000 $2,374
Vice President, FY94 $119,708 $23,914 15,000 $2,313
Advanced Systems Group FY93 $111,738 $16,550 21,000(5) $1,759
Moses Joseph FY95 $140,620 $29,293 20,000 $2,167
Vice President, Marketing FY94(6) $28,463 -- 40,000 --
FY93 -- -- -- --
<FN>
(1) Includes commissions and deferrals for 401(k) and Section 125 Plans.
(2) Represents bonuses earned for services rendered during the fiscal year
listed, but does not include bonuses paid during the fiscal year listed
for services rendered during a prior fiscal year.
(3) Represents employer matching contributions to 401(k) Plan accounts.
(4) During fiscal 1994, Dr. Gupta was Chairman, President and Chief
Executive Officer of the Company. Mr. St. Charles was appointed
President and Chief Executive Officer during fiscal 1995.
(5) Includes 35,000 and 20,000 options for Mr. Addiego and Dr. Dressler,
respectively, repriced and reissued on January 25, 1993. Original
options were granted in previous fiscal years.
(6) Amounts listed are for a partial fiscal year from the time Dr. Joseph
became an executive officer of the Company on November 30, 1993 through
the end of the fiscal year.
</FN>
-5-
The following table sets forth further information regarding individual grants
of options for the Company's Common Stock during fiscal 1995 to each of the
executive officers named in the Summary Compensation Table above. All such
grants were made pursuant to the Company's 1988 Stock Option Plan. In accordance
with the rules of the SEC, the table sets forth the hypothetical gains or
"option spreads" that would exist for the options at the end of their respective
ten-year terms based on assumed annualized rates of compound stock price
appreciation of 5% and 10% from the dates the options were granted to the end of
the respective option terms. Actual gains, if any, on option exercises are
dependent on the future performance of the Company's Common Stock and overall
market conditions. There can be no assurance that the potential realizable
values shown in this table will be achieved.
OPTION GRANTS IN FISCAL 1995
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (2)
------------------------------------------------- ---------------------------
NUMBER % OF
OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE
OPTIONS IN OR BASE EXPIRA-
GRANTED FISCAL PRICE TION
NAME (1) (#) 1995 $/SHARE DATE 5% ($) 10% ($)
--------------------- ----------- -------- --------- ----- -------- ---------
David P. St. Charles 25,000 7.1306 $11.0000 4/1/04 $172,946 $438,279
Narendra K. Gupta -- -- -- -- -- --
Joseph Addiego 15,000 4.2783 $15.2500 12/14/04 $143,860 $364,569
Robert M. Dressler 10,000 2.8522 $15.2500 12/14/04 $95,906 $243,046
Moses Joseph 10,000 2.8522 $11.0000 3/23/04 $69,178 $175,312
10,000 2.8522 $15.2500 12/14/04 $95,906 $243,046
<FN>
(1) Stock options are granted with an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant. Under
the 1988 Plan, options are permitted to be exercised for up to ten
years, except that an ISO granted to a 10% shareholder of the Company
can only be exercised for five years. Options generally become
exercisable over a period of five years, at a rate of 20% on the first
anniversary date after the date of grant and then 1/60th of the shares
granted at the end of each month thereafter.
(2) The 5% and 10% assumed rates of annual compound stock price
appreciation are mandated by the rules of the SEC and do not represent
the Company's estimate or projection of future Common Stock prices.
</FN>
-6-
The following table sets forth certain information concerning the exercise of
stock options during fiscal 1995 by each of the executive officers named in the
Summary Compensation Table above and the number and value at February 28, 1995
of unexercised options held by said individuals:
AGGREGATED OPTION EXERCISES IN FISCAL 1995
AND FEBRUARY 28, 1995 OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS
AT 2/28/95 (#) AT 2/28/95 ($)
----------------------- -----------------------------
SHARES
ACQUIRED VALUE
ON REALIZED EXER- UNEXER- EXER- UNEXER-
NAME EXERCISE ($) CISABLE CISABLE CISABLE CISABLE
- - --------------------- -------- -------- ------- -------- ------- --------
David P. St. Charles 25,000 $325,000 81,250 118,750 $1,137,500 $1,575,000
Narendra K. Gupta -- -- -- -- -- --
Joseph Addiego 2,000 $39,600 32,700 49,500 $511,263 $629,812
Robert M. Dressler 1,000 $9,875 17,750 27,250 $277,594 $330,531
Moses Joseph -- -- 9,333 50,667 $105,000 $512,500
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board makes all decisions involving
the compensation of executive officers of the Company. Through July 15, 1994,
the Compensation Committee consisted of (1) Narendra K. Gupta, who served as the
Chairman of the Board and Secretary during fiscal 1994, (2) Vinita Gupta, Dr.
Gupta's spouse and (3) Thomas Kailath. From July 16, 1994 through the end of
fiscal 1995, John C. Bolger replaced Dr. Gupta as the Chairman of the
Compensation Committee.
During fiscal 1995, Dr. Gupta served as a member of the Board of
Directors of Digital Link Corporation, of which Mrs. Gupta serves as Chairperson
of the Board and Chief Executive Officer.
-7-
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee Report on Executive Compensation shall not
be deemed to be incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any filing under the Securities Act of
1933 or under the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
From July 16, 1994 through the end of fiscal 1995, the Compensation
Committee of the Board was comprised of three non-management directors of the
Company, John Bolger, Vinita Gupta and Thomas Kailath. Mr. David P. St. Charles,
President and Chief Executive Officer evaluated the performance of all executive
officers and recommended salary adjustments which were reviewed and approved by
the Compensation Committee. Performance evaluations for individual executive
officers are based on predetermined individual goals. For the Company's Chief
Executive Officer and Chairman of the Board, these goals are set by the
Compensation Committee, and for all other officers, these goals are recommended
by the Chief Executive Officer and reviewed and approved by the Compensation
Committee. Mr. St. Charles and Dr. Gupta did not participate in any discussions
regarding recommended salary adjustments for themselves.
The Compensation Committee is responsible for setting and administering
the policies governing annual compensation of the executive officers and the
Chairman of the Board of the Company. These policies are based upon the
philosophy that the Company's long-term success in its marketplace is best
achieved through recruitment and retention of the best people in the industry.
The Compensation Committee applies this philosophy in determining compensation
for Company executive officers in three areas: salary, bonuses and stock
options. The Compensation Committee believes that the compensation of the Chief
Executive Officer, the Chairman of the Board and the Company's other executive
officers should be greatly influenced by the Company's performance. Consistent
with this philosophy, a designated portion of the compensation of each executive
is contingent upon corporate performance and adjusted where appropriate, based
on an executive's performance against personal performance objectives. Each
executive officer's performance for the last fiscal year and objectives for the
subsequent year are reviewed, together with the executive's responsibility level
and the Company's fiscal performance versus objectives and potential performance
targets for the subsequent year. The Compensation Committee administers the
Company's equity plans, including the 1988 Stock Option Plan and the 1990
Employee Stock Purchase Plan.
SALARY
The Company strives to offer salaries to its executive officers that
are competitive in its industry for similar positions requiring similar
qualifications. In determining executive officers salaries, the Compensation
Committee considers information provided by the Human Resources Director whose
recommendations are based upon salary surveys specific to the Company's
industry, size and geographic location. Such surveys are prepared by an
independent organization using information provided from over 300 companies.
These surveys summarize information from companies that closely match the
Company in terms of such things as product or industry, geography and revenue
levels. To this end, the Compensation Committee attempted to compare the
compensation of the Company's executive officers with the compensation practices
of the survey companies to determine base salary, target bonuses and target
total cash compensation. In preparing the performance graph for this Proxy
Statement, the Company used the Hambrecht & Quist Technology Index as its
published line of business index. The compensation practices of most of the
companies in the Hambrecht & Quist Technology Index were not reviewed in detail
by the Company when the Compensation Committee reviewed the compensation
information discussed above because such companies were determined not to be
directly competitive with the Company for executive talent. In addition to their
base salaries, the Company's executive officers, including the Chief Executive
Officer and Chairman of the Board, are each eligible to receive a cash bonus and
are entitled to participate in the 1988 Stock Option Plan. The bonus for the
Chief Executive Officer, Chairman of the Board and for other executives is based
primarily on Company performance.
The foregoing information was presented to the Compensation Committee
in March 1995. The Compensation Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
to be effective March 1, 1995 for each executive officer, including the Chief
Executive Officer and Chairman of the Board. In addition to considering the
results of the performance evaluations and information concerning competitive
salaries, the Compensation Committee and Chief Executive Officer place primary
weight on the financial condition of the Company in considering salary
adjustments.
BONUSES
The Company seeks to provide additional incentives and rewards to
executives who make contributions of outstanding value to the Company. For this
reason, the Compensation Committee administers a bonus plan, which can comprise
a substantial portion of the total compensation of executive officers when
earned and paid.
-8-
The Compensation Committee determines annually the total amount of cash
bonuses available for executive officers. Awards under the plan are contingent
upon the performance of the Company as a whole, based upon the Company's
attaining certain revenue and operating profit goals set by the Board annually
in consultation with the Chief Executive Officer. The target amounts of bonuses
available to each executive officer are set annually by the Compensation
Committee in its discretion with regard to the Chief Executive Officer and
Chairman of the Board and by the Chief Executive Officer, subject to review and
approval by the Compensation Committee, with regard to executive officers other
than himself. In all cases, the relative target amounts for individual officers
are based upon the total dollars available for bonuses, and historical and
expected future contributions by the individual executive officer. In fiscal
1995, the objectives used by the Company as the basis for incentive compensation
were based primarily on Company performance. Executive officers earn a
percentage of the target amounts under the bonus plan relating to the
achievement of the performance goals under the plan by the Company, as
determined by the Committee annually in its discretion. Awards are weighted so
that proportionately higher awards are received when the Company's performance
exceeds targets and proportionately smaller or no awards are made when the
Company does not meet targets.
STOCK OPTIONS
The Compensation Committee believes that employee equity ownership
provides significant additional motivation to executive officers to maximize
value for the Company's shareholders, and therefore recommends to the Board
periodic grants of stock options under the Company's 1988 Stock Option Plan.
Stock options are granted by the Compensation Committee in its discretion at the
prevailing market price and will have value only if the Company's stock price
increases over the exercise price. Therefore, the Compensation Committee
believes that stock options serve to align the interest of executive officers
closely with other shareholders because of the direct benefit executive officers
receive through improved stock performance.
The Compensation Committee makes option grants in its discretion after
consideration of recommendations from Mr. St. Charles and other members of the
Board. Recommendations for options are based upon relative positions and
responsibilities of executive officers, historical and expected contributions of
each executive officer to the Company, and previous option grants to such
executive officers. Options are recommended with a goal of providing equity
compensation for executive officers competitive with that of executive officers
of similar rank in other companies in the Company's industry, geographic
location and size. Stock options typically have been granted to executive
officers when the executive first joins the Company, in connection with a
significant change in responsibilities, and, occasionally, to achieve equity
within a peer group. The Committee in its discretion may, however, grant
additional stock options to executives for other reasons. The number of shares
subject to each stock option granted is based on anticipated future contribution
and ability to impact corporate results, past performance or consistency within
the executive's peer group. In fiscal 1995, the Committee considered these
factors, as well as the number of options held by such executive officers as of
the date of grant that remained unvested. Option grants for fiscal 1995 are set
forth in the table above entitled "Option Grants in Fiscal 1995".
FISCAL 1995 CHIEF EXECUTIVE OFFICER COMPENSATION
In March 1994, the Committee established a base salary for Mr. St.
Charles for fiscal 1995. This base salary represented an increase over Mr. St.
Charles' fiscal 1994 base salary. The Compensation Committee also established a
target bonus for Mr. St. Charles under the fiscal 1995 bonus plan. The fiscal
1995 base salary level and target bonus were based upon a number of factors,
including (a) the Compensation Committee's assessment of the fiscal 1994
performance of the Company and Mr. St. Charles, (b) fiscal 1995 Company
performance objectives and individual performance objectives and
responsibilities for Mr. St. Charles established in March 1994, and (c) the
market compensation data for companies in the same industry and geographic
location and similar in size to the Company in terms of revenue. These
objectives included satisfactorily managing the Company's overall corporate
business plan, such as meeting the Company's profitability projections and the
Company's sales targets, and strengthening the Company's financial position.
In fiscal 1995, the Compensation Committee granted Mr. St. Charles a
new stock option to purchase 25,000 shares. The number of shares granted was
based on Mr. St. Charles' position, fiscal 1995 performance and expected
performance in fiscal 1996 and beyond.
The Compensation Committee has concluded that Mr. St. Charles'
performance in fiscal 1995 warrants the compensation for fiscal 1995 as
reflected in the Summary Compensation Table.
-9-
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986.
The Company intends to comply with the requirements of Section 162(m)
of the Internal Revenue Code of 1986 for 1995. The Company does not expect cash
compensation for 1995 to be in excess of $1,000,000 or consequently affected by
the requirements of Section 162(m).
COMPENSATION COMMITTEE
John C. Bolger
Vinita Gupta
Thomas Kailath
Narendra K. Gupta (participating through July 15, 1994)
-10-
COMPANY STOCK PRICE PERFORMANCE GRAPH
The stock price performance graph below shall not be deemed
incorporated by reference to any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the
extent the Company specifically incorporates this information by reference, and
shall not otherwise be deemed soliciting material or filed under such Acts.
The graph below compares the cumulative total shareholder return of the
Common Stock of the Company from March 6, 1990, the date of the Company's
initial public offering, to February 28, 1995.
Federal regulation requires that each company's proxy statement
relating to the annual election of directors include a line graph comparing
cumulative total shareholder return on the Company's Common Stock with the
cumulative total return of (1) a broad equity market stock index and (2) a
published industry or line-of-business index (assuming the investment of $100 in
the Company's Common Stock and in each of the other indices on March 6, 1990,
and reinvestment of all dividends). The Board has approved the use of the Nasdaq
Composite Index and the Hambrecht & Quist Technology Index for these
requirements. The performance comparison appears below.
The Board and the Compensation Committee recognize that the market
price of the Company's Common Stock is influenced by many factors, only one of
which is Company performance. The Common Stock price performance shown on the
graph is not necessarily indicative of future price performance.
HAMBRECHT
NASDAQ & QUIST INTEGRATED
COMPOSITE TECHNOLOGY SYSTEMS,
INDEX INDEX INC.
---------- ---------- -----------
3/6/90............. 100 100 100
8/31/90............ 88 89 124
2/28/91............ 105 111 153
8/31/91............ 122 119 144
2/28/92............ 147 144 124
8/31/92............ 130 124 78
2/28/93............ 155 145 72
8/31/93............ 172 150 97
2/28/94............ 181 172 133
8/31/94............ 200 197 144
2/28/95............ 175 179 239
CERTAIN TRANSACTIONS
From March 1, 1994 to the present, there have been no transactions
involving more than $60,000 between the Company and any executive officer,
director, 5% beneficial owner of the Company's Common Stock or member of the
immediate family of any of the foregoing persons, in which one of the foregoing
individuals or entities had a material interest, except as indicated in
"Executive Compensation" above.
-11-
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's Common Stock, to file with the SEC initial reports of beneficial
ownership and reports of changes in beneficial ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than 10%
shareholders are required by SEC regulations 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 fiscal 1995 all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10% shareholders were
complied with except as follows: Dr. Moses Joseph, Vice President, Marketing,
filed late one report covering one transaction relating to a purchase of shares.
SHAREHOLDER PROPOSALS
Shareholder proposals for inclusion in the Company's Proxy Statement
and form of proxy relating to the Company's 1996 Annual Meeting of Shareholders
must be received by February 1, 1996.
OTHER BUSINESS
The Board does not presently intend to bring any other business before
the Meeting and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the notice of the Meeting. As to any
business that may properly come before the Meeting, however, it is intended that
proxies in the form accompanying this Proxy Statement will be voted in respect
thereof in accordance with the judgment of the persons voting such proxies.
By Order of the Board of Directors
Narendra K. Gupta
Chairman of the Board
================================================================================
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND DATE THE
ACCOMPANYING PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. THANK YOU FOR YOUR PROMPT ATTENTION TO THIS MATTER.
================================================================================
-12-
INTEGRATED SYSTEMS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
JULY 18, 1995
The undersigned hereby appoints Narendra K. Gupta and Steven Sipowicz,
or either of them, as proxies and attorneys in fact, each with full power of
substitution, to represent the undersigned at the Annual Meeting of Shareholders
of Integrated Systems, Inc. (the "Company") to be held at The Westin Hotel, 5101
Great America Parkway, Santa Clara, California, 95054 on July 18, 1995 at 2:00
p.m., and any adjournments or postponements thereof, and to vote the number of
shares the undersigned would be entitled to vote if personally present at the
meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2 AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH. In their discretion, the proxies
are authorized to vote upon such other business as may properly come before the
meeting or any adjournment thereof to the extent authorized by Rule 14a-4(c)
promulgated by the Securities and Exchange Commission.
(Continued and to be signed on the other side.)
MANAGEMENT RECOMMENDS A VOTE FOR ALL THE NOMINEES FOR DIRECTOR LISTED BELOW AND
A VOTE FOR PROPOSAL 2.
PROPOSAL 1: To elect directors to hold office until the next Annual Meeting of
Shareholders and until their successors are elected.
FOR all nominees WITHHOLD Nominees: Narendra K. Gupta, John
listed at right AUTHORITY C. Bolger, Vinita Gupta, Thomas
(except as marked to vote FOR ALL Kailath, Richard C. Murphy and
to the contrary). nominees listed at right. David P. St. Charles
To withhold authority to vote for
any nominee(s), write such
nominee(s)' name(s) below:
[ ] [ ] ---------------------------------
PROPOSAL 2: To ratify the selection of Coopers & Lybrand as the Company's
independent public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock stand of record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the above Proxy. If shares of stock are held of record by a
corporation, the Proxy should be executed by the President or Vice President and
the Secretary or Assistant Secretary. Executors or administrators or other
fiduciaries who execute the above Proxy for a deceased Shareholder should give
their full title. Please date the Proxy.
Signature:
--------------------------------------
Signature:
--------------------------------------
Date:
--------------------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY BE
REPRESENTED AT THE MEETING.