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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
ENGINEERING ANIMATION, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
ENGINEERING ANIMATION, INC.
2321 NORTH LOOP DRIVE
AMES, IOWA 50010
April 7, 1997
Dear Stockholder:
You are cordially invited to attend the Engineering Animation, Inc. Annual
Meeting of Stockholders to be held at 1:30 P.M., Wednesday, April 30, 1997 at
the Marriott Hotel, 700 Grand Avenue, Des Moines, Iowa 50309.
This will be our first annual meeting as a public company and we are looking
forward to discussing our record-setting 1996 performance. In addition, you will
have an opportunity to discuss each item of business described in the Notice of
Annual Meeting of Stockholders and proxy statement and to ask questions about
the Company and its operations.
It is important that your shares be represented and voted at the Annual
Meeting. Whether or not you plan to attend, please sign and promptly return the
enclosed proxy card, using the envelope provided. If you do attend the Annual
Meeting, you may withdraw your proxy and vote your shares in person.
Sincerely,
Matthew M. Rizai
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER, PRESIDENT & TREASURER
<PAGE>
ENGINEERING ANIMATION, INC.
2321 NORTH LOOP DRIVE
AMES, IOWA 50010
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
The Annual Meeting of Stockholders of Engineering Animation, Inc. will be
held on Wednesday, April 30, 1997 at 1:30 P.M., at the Marriott Hotel, 700 Grand
Avenue, Des Moines, Iowa 50309, for the following purposes:
1. To elect one Director for a three-year term;
2. To consider and act upon a proposal to amend and restate the Engineering
Animation, Inc. Non-Employee Directors Stock Option Plan to, among other
things, decrease the number of shares reserved for issuance under such
plan by 190,000 to 60,000;
3. To consider and act upon a proposal to amend and restate the Engineering
Animation, Inc. Stock Option Plan to, among other things, increase the
number of shares reserved for issuance under such plan by 190,000 to
1,190,000;
4. To ratify the appointment of Ernst & Young LLP as auditors; and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on Thursday, March
20, 1997 as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting of Stockholders.
The Company requests that all stockholders, whether or not you expect to
attend the meeting, sign the enclosed proxy and return it as promptly as
possible in the accompanying stamped envelope. You may revoke your proxy at any
time before it is voted. If you are present at the meeting, you may vote your
shares in person and the proxy will not be used.
You are respectfully urged to read the proxy statement contained in this
booklet for further information concerning the directors, the Company's
Non-Employee Directors Stock Option Plan, the Company's Stock Option Plan, the
reappointment of Ernst & Young LLP as auditors and the use of the proxy.
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1996 accompanies this proxy statement.
By Order of the Board of Directors
Jamie A. Wade
SECRETARY
April 7, 1997
IMPORTANT--PLEASE MAIL YOUR SIGNED PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE
<PAGE>
ENGINEERING ANIMATION, INC.
2321 NORTH LOOP DRIVE
AMES, IOWA 50010
------------------------
PROXY STATEMENT
------------------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 30, 1997
This proxy statement is furnished in connection with the solicitation of
proxies to be voted at the Annual Meeting of Stockholders of Engineering
Animation, Inc., to be held on Wednesday, April 30, 1997. This proxy statement
and the proxy are being mailed to stockholders on or about April 7, 1997.
The enclosed proxy is solicited by the Board of Directors of the Company and
will be voted at the Annual Meeting and any adjournments thereof. Shares
represented by a properly executed proxy in the accompanying form will be voted
at the Annual Meeting in accordance with any instructions specified by the
stockholder. If no instructions are given, the stockholder's shares will be
voted in accordance with the recommendations of the Board of Directors FOR each
of the proposals presented in this proxy statement. Those recommendations are
described later in this proxy statement.
The proxy may be revoked at any time before it is exercised by delivering a
written notice of revocation to the Secretary of the Company. If you attend the
Annual Meeting in person, you may revoke your proxy by either giving notice of
revocation to the inspectors of election at the Annual Meeting or by voting at
the Annual Meeting in person.
The only items of business that the Board of Directors intends to present or
knows will be presented at the Annual Meeting are the items discussed in this
proxy statement. The proxy confers discretionary authority upon the persons
named therein, or their substitutes, to vote on any other items of business that
may properly come before the meeting.
As of March 20, 1997, the record date for the Annual Meeting, the Company
had 4,701,205 shares of Common Stock, par value $.01 per share ("Common Stock"),
issued and outstanding. Each share is entitled to one vote. A majority of the
issued and outstanding shares constitutes a quorum at the meeting.
ELECTION OF DIRECTORS
The Board of Directors of Engineering Animation, Inc. consists of five
directors, divided into three classes. At this Annual Meeting, one nominee is to
be elected to serve for a term of three years or until his successor is duly
elected and qualified. The remaining four directors will continue to serve as
set forth below, with two directors having terms expiring on the date of the
annual meeting to be held in 1998 and two directors having terms expiring on the
date of the annual meeting to be held in 1999. The nominee, Jamie A. Wade, is
currently a director of the Company.
Directors are elected by a plurality of the votes of the shares of Common
Stock present in person or represented by proxy and entitled to vote at the
Annual Meeting. Consequently, any shares not voted (whether by abstention,
broker non-vote or votes withheld) will have no effect on the election of a
director. Unless otherwise directed, proxies will be voted at the Annual Meeting
for the election of Mr. Wade or, in the event of a contingency not presently
foreseen, for a different person as a substitute. The Board of Directors is
recommending the election of Mr. Wade.
The following sets forth with respect to the nominee and each director
continuing to serve, their names, ages, principal occupations and other
information, based upon information received from them.
<PAGE>
NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS FOR A THREE-YEAR TERM
EXPIRING AT THE ANNUAL MEETING TO BE HELD IN 2000
JAMIE A. WADE, 48. (Director since 1995). Mr. Wade has served as Vice
President of Administration and General Counsel to the Company since June 1994
and Secretary since November 1995. From 1983 to 1994, Mr. Wade was a partner
with Davis, Hockenberg, Wine, Brown, Koehn & Shors, P.C., a Des Moines law firm.
Mr. Wade earned a J.D. from Drake University Law School and a B.A. from Drake
University College of Business.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE WITH TERMS
EXPIRING AT THE ANNUAL MEETING TO BE HELD IN 1998
MARTIN J. VANDERPLOEG, PH.D., 40. (Director since 1988). Dr. Vanderploeg
co-founded the Company in 1988. He has served as Executive Vice President since
October 1993 and as the Company's Secretary from June 1990 until November 1995.
Dr. Vanderploeg's prior experience includes serving as a faculty member in
mechanical engineering at Iowa State University and performing contract research
for a number of large corporations. Dr. Vanderploeg earned a Ph.D. in Mechanical
Engineering from Michigan State University and is a licensed Professional
Engineer.
LAURENCE J. KIRSHBAUM, 52. (Director since 1995). Mr. Kirshbaum has been
Chairman of Time Warner Trade Publishing since 1997 and was previously President
and CEO of Warner Books Inc., a subsidiary of Time Warner Inc., since 1984. Mr.
Kirshbaum earned a B.A. from the University of Michigan.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE WITH TERMS
EXPIRING AT THE ANNUAL MEETING TO BE HELD IN 1999
MATTHEW M. RIZAI, PH.D., 40. (Director since 1990). Dr. Rizai has been
Chairman, Chief Executive Officer, President and a director of the Company since
joining the Company in June 1990 and has been Treasurer since November 1995. Dr.
Rizai's prior experience includes serving as: associate with ARCH Development
Corporation, a venture capital firm; senior research engineer with General
Motors Corporation; and development engineer with Ford Motor Company. Dr. Rizai
earned a Ph.D. in Mechanical Engineering from Michigan State University and an
M.B.A. from the University of Chicago.
MICHAEL CROW, PH.D., 41. (Director since 1991). Dr. Crow has been Vice
Provost at Columbia University since August 1991. Dr. Crow served as the
Director of the Institute for Physical Research and Technology and the Office of
Science Policy and Research at Iowa State University from July 1985 to June
1991. Dr. Crow earned a Ph.D. in Public Administration (Science and Technology
Policy) from Syracuse University.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the 1996 fiscal year, there were four meetings of the Board of
Directors. Each Director attended at least 75% of the aggregate total number of
the meetings of the Board of Directors and the meetings of the Board Committees
on which he served.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has standing Audit and Compensation Committees, which
deal with certain specific areas of the Board's responsibility.
The Audit Committee, which met four times during the 1996 fiscal year,
recommends the firm to be appointed as independent public accountants to audit
the Company's financial statements and oversees the
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accounting and audit functions of the Company. The members of the Audit
Committee are Matthew M. Rizai, Michael Crow and Laurence J. Kirshbaum.
The Compensation Committee, which met four times during the 1996 fiscal
year, determines executive officers' salaries, bonuses and other compensation.
The Compensation Committee also administers the Company's Stock Option Plan. The
members of the Compensation Committee are Michael Crow and Laurence J.
Kirshbaum.
DIRECTOR COMPENSATION
Directors who are not currently officers or employees of the Company receive
a yearly retainer fee of $12,000 plus $750 and reimbursement of expenses for
attending each meeting of the Board of Directors and each meeting of any
committee.
The Company's directors who are not employees of the Company are eligible to
participate in the Company's Non-Employee Directors Stock Option Plan (the
"Director Option Plan"). The Director Option Plan is administered by the
Chairman of the Board of Directors along with other employee directors, if any,
selected by the Chairman. Pursuant to the Director Option Plan, non-employee
directors of the Company will receive options to purchase 5,000 shares of Common
Stock in the year that they join the Board and options to purchase an additional
2,500 shares of Common Stock for each subsequent year of service. The exercise
price of such options is the fair market value of the Company's Common Stock on
the date of grant. Stock options granted under the Director Option Plan vest
over four years, have a term of 15 years and may not be transferred other than
by will or by the laws of descent and distribution.
AMENDMENT AND RESTATEMENT OF
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Board of Directors of the Company has adopted, and recommends to
stockholders for approval, the amendment and restatement of the Director Option
Plan to (i) decrease the number of shares reserved for issuance under the
Director Option Plan from 250,000 to 60,000, (ii) provide the Board with the
maximum flexibility in amending the Director Option Plan permitted by the
recently revised securities regulations relating to employee benefit plans,
(iii) clarify the timing of option grants under the Director Option Plan and
(iv) eliminate qualifications in the Director Option Plan that relate to the
Company's then anticipated initial public offering of Common Stock, which has
since been effected. The description of the Director Option Plan set forth below
is qualified in its entirety by reference to the full text of the Amended and
Restated Non-Employee Director Stock Option Plan, which is attached as Appendix
A to this proxy statement.
GENERALLY. The Director Option Plan as adopted by the Board of Directors of
the Company and approved by the Company's stockholders was originally effective
as of January 1, 1996. As soon as practicable following the date an individual
becomes a non-employee director, he or she is granted an option under the
Director Option Plan to purchase up to 5,000 shares of Common Stock (the
"Initial Options"). Thereafter, non-employee directors are granted options to
purchase an additional 2,500 shares of Common Stock for each subsequent year of
service (the "Anniversary Options"). The Director Option Plan may be terminated
by the Board of Directors at any time.
SHARES SUBJECT TO THE PLAN. The Company presently has 250,000 shares of
Common Stock reserved for issuance under the Director Option Plan. A description
of the Board's proposal to decrease the number of reserved shares to 60,000 is
included below under the caption "Proposed Amendment and Restatement of the
Director Option Plan--Decrease Number of Shares Reserved for Issuance." The
number of shares available for issuance under the Director Option Plan and the
number of shares subject to outstanding options are subject to adjustment in the
event of a stock split, stock dividend, recapitalization or other similar event
affecting the number of shares of the Company's outstanding Common Stock.
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<PAGE>
PLAN ADMINISTRATION. The Director Option Plan is administered by the
Chairman of the Board of Directors and other employee members of the Board, if
any, selected by the Chairman (the "Committee"). This Committee has the
authority to interpret the Director Option Plan and to prescribe, amend and
rescind rules and regulations relating to the Director Option Plan and to make
such other determinations as it deems necessary or advisable in carrying out the
administration of the Director Option Plan. Options granted under the Director
Option Plan may be subject to such provisions as the Committee deems advisable
and may be amended by the Committee from time to time, provided that no
amendment may adversely affect the rights of an option holder without his or her
consent. In addition, the Committee determines the treatment of outstanding
non-qualified options upon the occurrence of a Change in Control, as such term
is defined in the Director Option Plan.
TERMS AND CONDITIONS OF OPTIONS. All options granted under the Director
Option Plan are non-qualified stock options with fifteen-year terms. The
exercise price of each option is the fair market value of the stock underlying
the option on the date of grant. Each Initial Option is 25% vested on the date
it is granted and vests an additional 25% on each of the one-year, two-year and
three-year anniversary of the grant date. Each Anniversary Option is fully
vested on the date it is granted. Stock options granted under the Director
Option Plan may not be transferred other than by will or by the laws of descent
and distribution.
Subject to any required stockholder action, in the event that the Company is
involved in a sale of substantially all of its assets, a merger or a
consolidation, the participant is entitled to the securities to which a holder
of the number of shares of stock subject to the option would have been entitled
immediately prior to the time the sale, merger or consolidation became
effective. However, any unexercised options under the Director Option Plan may
be canceled by the Company as of the effective date of any such sale, merger or
consolidation, provided that certain conditions specified in the Director Option
Plan are met. In the event of a dissolution of the Company, every option
outstanding under the Director Option Plan will terminate, provided that
participants receive written notice 30 days prior to the dissolution and are
permitted to exercise all unexercised options in full (without regard to
installment exercise limitations).
OUTSTANDING OPTIONS. As previously described, each non-employee director of
the Company is granted an option to purchase up to 5,000 shares upon joining the
Board and an option to purchase 2,500 shares for each subsequent year of
service; however, the number of years that such individuals will serve as
directors of the Company is not currently determinable. As of March 20, 1997,
options to purchase 5,000 shares had been granted under the Director Option Plan
to the two current directors who are not executive officers as a group. On March
27, 1997, the last reported sale price of the Common Stock on the Nasdaq
National Market was $22.50 per share.
TAX CONSEQUENCES. Certain federal income tax consequences are associated
with (i) the grant of a stock option under the Director Option Plan, (ii) the
exercise of such option and (iii) the disposition of shares received upon the
exercise of an option. THE FOLLOWING DESCRIPTION OF TAX CONSEQUENCES IS BASED
UPON PRESENT FEDERAL TAX LAWS AND REGULATIONS, BUT DOES NOT PURPORT TO BE A
COMPLETE DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO A
PARTICIPANT UNDER THE DIRECTOR OPTION PLAN. ACCORDINGLY, INFORMATION RELATING TO
TAX CONSEQUENCES IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO CURRENT TAX LAWS.
GRANT AND EXERCISE OF OPTIONS; DISPOSITION OF ACQUIRED SHARES. The grant of
a non-qualified option to a participant is not a taxable event so long as the
option does not have a readily ascertainable fair market value. Options granted
pursuant to the Director Option Plan should not have a readily ascertainable
fair market value because they are not actively traded on an established
securities market, are not transferable, are not immediately exercisable in full
upon grant and have more than a nominal exercise price. Accordingly, the
participant will not be subject to any income tax consequences with respect to
such option unless and until the option is exercised.
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Upon the exercise of a non-qualified stock option, the participant generally
must recognize ordinary compensation income equal to the "spread" between the
exercise price and the fair market value of the Common Stock on the date of
exercise. The amount and character of any gain or loss realized on a subsequent
disposition of Common Stock by the participant generally would depend on, among
other things, whether an election under the Internal Revenue Code of 1986, as
amended (the "Code"), Section 83(b) with respect to such shares had been made
and the length of time such shares had been held.
WITHHOLDING TAXES. The Company may condition the exercise of any option
under the Director Option Plan on the receipt of an amount sufficient to pay,
and will deduct from the compensation of a holder of an option under the
Director Option Plan, the amount of any tax required by any governmental
authority to be withheld and paid over by the Company to such governmental
authority for the account of such person with respect to such options and the
exercise thereof.
COMPENSATION DEDUCTION. To the extent compensation income is recognized by
a participant in connection with the exercise of a non-qualified stock option,
the Company generally will be entitled to a corresponding compensation
deduction, assuming the withholding requirements are satisfied.
PLAN AMENDMENT. The Director Option Plan currently provides that at any
time a majority of the Board of Directors of the Company may, without
stockholder approval, terminate, alter, amend or suspend the Director Option
Plan, provided that the Board may not materially increase the benefits accruing
to participants or the number of shares that may be issued under the Director
Option Plan, materially modify the eligibility requirements for participation in
the Director Option Plan, or take any action that would cause the Director
Option Plan to fail to comply with certain applicable federal tax or securities
laws. In addition, any action taken by the Board may not materially and
adversely affect any options outstanding under the Director Option Plan without
the consent of the participants. Furthermore, the Board currently may not amend
the Director Option Plan with respect to the amount, price and timing of grants
more than once every six months, other than to comport with changes in law. A
discussion of the Board's proposal to increase its flexibility to amend the
Director Option Plan as permitted by the recently revised securities regulations
is included below under the caption "Proposed Amendment and Restatement of the
Director Option Plan--Board of Directors' Ability to Amend."
An increase or decrease in the number of issued shares of stock of the
Company as a result of certain circumstances specified in the Director Option
Plan will permit the Committee to make, without stockholder approval,
appropriate adjustments in the aggregate number of shares of stock that may be
granted under the Director Option Plan, the number of shares subject to each
outstanding option and the exercise price per share for each option. No
adjustment in the number of shares of stock covered by the Director Option Plan
or in the number of shares subject to outstanding options may be made, however,
unless such adjustment, together with all prior adjustments that were not made
as a result of the foregoing, involves a net change of more than 10%.
PROPOSED AMENDMENT AND RESTATEMENT OF THE DIRECTOR OPTION PLAN
DECREASE NUMBER OF SHARES RESERVED FOR ISSUANCE. As of March 20, 1997,
stock options covering 5,000 shares of Common Stock were outstanding under the
Director Option Plan, leaving 245,000 shares available for future awards. The
Board of Directors proposes that the Director Option Plan be amended and
restated to decrease the aggregate number of shares of Common Stock that may be
issued under the Director Option Plan to 60,000. As discussed below, the Board
of Directors is also proposing to increase the aggregate number of shares
available for issuance under the Engineering Animation, Inc. Stock Option Plan
by the same amount.
BOARD OF DIRECTOR'S ABILITY TO AMEND. Recently revised securities
regulations have increased the flexibility of a company's board of directors in
amending employee benefit plans while maintaining the exempt status of option
grants under Section 16(b) of the Securities Exchange Act of 1934, as amended
(the
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"Exchange Act"). The proposed amendment and restatement of the Director Option
Plan would permit the Board of Directors of the Company to materially increase
benefits to participants and to materially modify eligibility requirements
without stockholder consent, so long as the amendments to the Director Option
Plan would not materially adversely affect any outstanding options. Stockholder
approval would still be required, however, to increase the number of shares of
Common Stock subject to the Director Option Plan. In addition, the amendment and
restatement would eliminate the restriction that the Director Option Plan could
only be amended once every six months. Under the Director Option Plan as the
Board proposes it be amended and restated, approval of the participants in the
Director Option Plan would still be required for any amendments that would have
a material adverse effect on outstanding options.
CLARIFICATION OF TIMING OF OPTION GRANTS. The Director Option Plan
currently provides that Anniversary Options shall be granted on each one-year
anniversary of the grant date of the non-employee director's Initial Options.
Initial Options are granted as soon as possible following the date on which
service as a director begins. In the case of non-employee directors who were on
the Board prior to the adoption of the Director Option Plan, the Committee
administering the plan has interpreted the Director Option Plan to require
grants of Anniversary Options on the one-year anniversaries of the dates on
which those directors began service as non-employee directors. The proposed
amendment and restatement would amend the Director Option Plan to formalize this
interpretation.
ELIMINATION OF CERTAIN QUALIFICATIONS. The Director Option Plan currently
contains certain qualifying references to the Company's then anticipated initial
public offering of Common Stock. The offering was consummated in February 1996,
thereby eliminating the need for these qualifications.
REQUIRED VOTE
The proposed amendment and restatement of the Director Option Plan requires
the affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote on the proposal. An
abstention will be counted as a vote against the amendment and restatement since
it is one less vote for approval. Broker non-votes will not affect the outcome
since they are not considered "shares present" for voting purposes.
If the Board's proposal is approved by stockholders, the Director Option
Plan will be amended and restated effective May 1, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THIS PROPOSAL TO AMEND AND RESTATE THE ENGINEERING ANIMATION, INC. NON-EMPLOYEE
DIRECTORS STOCK OPTION PLAN.
AMENDMENT AND RESTATEMENT OF
STOCK OPTION PLAN
The Board of Directors of the Company has adopted, and recommends to
stockholders for approval, the further amendment and restatement of the
Engineering Animation, Inc. Stock Option Plan (the "Option Plan") to (i)
increase the number of shares reserved for issuance under the Option Plan from
1,000,000 to 1,190,000, (ii) provide the Board with the maximum flexibility in
amending the Option Plan permitted by the recently revised securities
regulations relating to employee benefit plans, (iii) conform certain technical
aspects of the Option Plan to these securities regulations and (iv) eliminate
qualifications in the Option Plan that relate to the Company's then anticipated
initial public offering of Common Stock, which has since been effected. The
description of the Option Plan set forth below is qualified in its entirety by
reference to the full text of the Amended and Restated Stock Option Plan, which
is attached as Appendix B to this proxy statement.
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THE OPTION PLAN
GENERALLY. The Option Plan as adopted by the Board of Directors of the
Company and approved by the Company's stockholders was originally effective as
of June 9, 1994 and was amended and restated effective January 1, 1996. The
Option Plan provides for the grant of stock options to employees of the Company
or its subsidiaries, including employees who are officers and/or members of the
Board, and to any non-employee (with the exception of non-employee directors)
who is a consultant or independent contractor to the Company. Unless terminated
sooner by the Board, the Option Plan will terminate in December 2005.
SHARES SUBJECT TO THE PLAN. The Company presently has 1,000,000 shares of
Common Stock reserved for issuance under the Option Plan. A description of the
Board's proposal to increase the number of reserved shares to 1,190,000 is
included below under the caption "Proposed Amendment and Restatement of the
Option Plan--Increase Number of Shares Reserved for Issuance." The number of
shares available for issuance under the Option Plan and the number of shares
subject to outstanding options are subject to adjustment in the event of a stock
split, stock dividend, recapitalization or other similar event affecting the
number of shares of the Company's outstanding Common Stock.
PLAN ADMINISTRATION. The Option Plan is administered by the Compensation
Committee of the Board. The Committee has the authority and discretion, subject
to the provisions of the Option Plan, to select persons to whom options will be
granted, to designate the number of shares to be covered by options, to specify
the type of consideration to be paid to the Company and to establish all other
terms and conditions of each stock option. In addition, the Committee determines
the treatment of outstanding non-qualified options upon the occurrence of a
Change in Control, as such term is defined in the Option Plan.
TERMS AND CONDITIONS OF OPTIONS. The exercise price for a stock option may
not be less than the fair market value of the Company's Common Stock on the date
the stock option is granted. Stock options granted under the Option Plan may not
be transferred other than by will or by the laws of descent and distribution.
Subject to any required stockholder action, in the event that the Company is
involved in a sale of substantially all of its assets, a merger or a
consolidation, the participant is entitled to the securities to which a holder
of the number of shares of stock subject to the option would have been entitled
immediately prior to the time the sale, merger or consolidation became
effective. However, any unexercised options under the Option Plan may be
canceled by the Company as of the effective date of any such sale, merger or
consolidation, provided that certain conditions specified in the Option Plan are
met. In the event of a dissolution of the Company, every option outstanding
under the Option Plan will terminate, provided that participants receive written
notice 30 days prior to the dissolution and are permitted to exercise all
unexercised options in full (without regard to installment exercise
limitations).
NATURE OF OPTIONS. Options granted under the Option Plan may be either
"incentive stock options" ("ISOs"), as defined under the tax laws, or
non-qualified stock options. ISOs may be granted only to employees of the
Company and are subject to certain additional limitations relating to such
things as employment status, minimum exercise price, length of the exercise
period, maximum value of the stock underlying the options and a required holding
period for stock received upon exercise of an ISO.
OUTSTANDING OPTIONS. The number of shares acquirable pursuant to stock
options that will be awarded to the Company's Chief Executive Officer and the
other four most highly compensated executive officers of the Company under the
Option Plan is not currently determinable. On March 27, 1997, the last reported
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sale price of the Common Stock on the Nasdaq National Market was $22.50 per
share. As of March 5, 1997, the following options had been granted under the
Option Plan:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- - ---------------------------------------------------------------------------------------- ---------
<S> <C>
Matthew M. Rizai........................................................................ 55,000
Chief Executive Officer, President and Treasurer
Martin J. Vanderploeg................................................................... 55,000
Executive Vice President
Michael J. Jablo........................................................................ 49,500
Vice President of Software Sales and Marketing
Jamie A. Wade........................................................................... 36,000
Vice President of Administration, General Counsel and Secretary
Michael K. Jewell....................................................................... 47,500
Vice President of Finance and Chief Financial Officer
All current directors who are not executive officers.................................... 7,500
All current executive officers.......................................................... 319,300
All plan participants (other than current executive officers)........................... 494,950
</TABLE>
TAX CONSEQUENCES. Certain federal income tax consequences are associated
with (i) the grant of a stock option under the Option Plan, (ii) the exercise of
such option and (iii) the disposition of shares received upon the exercise of an
option. THE FOLLOWING DESCRIPTION OF TAX CONSEQUENCES IS BASED UPON PRESENT
FEDERAL TAX LAWS AND REGULATIONS, BUT DOES NOT PURPORT TO BE A COMPLETE
DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO A PARTICIPANT
UNDER THE OPTION PLAN. ACCORDINGLY, INFORMATION RELATING TO TAX CONSEQUENCES IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO CURRENT TAX LAWS.
NON-QUALIFIED STOCK OPTIONS. The grant of a non-qualified option (including
any option exceeding any additional limitations on ISOs) to a participant is not
a taxable event so long as the option does not have a readily ascertainable fair
market value. Options granted pursuant to the Option Plan should not have a
readily ascertainable fair market value because they are not actively traded on
an established securities market, are not transferable, are not immediately
exercisable in full upon grant and have more than a nominal exercise price.
Accordingly, the participant is not subject to any income tax consequences with
respect to such option unless and until the option is exercised.
Upon the exercise of a non-qualified stock option, the participant generally
must recognize ordinary compensation income equal to the "spread" between the
exercise price and the fair market value of the Common Stock on the date of
exercise. The amount and character of any gain or loss realized on a subsequent
disposition of Common Stock by the participant generally would depend on, among
other things, whether an election under Code Section 83(b) with respect to such
shares had been made and the length of time such shares had been held.
8
<PAGE>
INCENTIVE STOCK OPTIONS. There are no federal income tax consequences
associated with the grant of an ISO to an employee. In contrast to the exercise
of a non-qualified stock option, the exercise of an ISO does not cause an
employee to recognize taxable income for regular income tax purposes (although
the employee could be subject to an alternative minimum tax liability as
described below). If the employee holds the shares acquired upon exercise of the
ISO for a minimum of two years from the date of the grant of the ISO, and for a
least one year after exercise, any gain realized by the participant on the
subsequent sale or exchange of such shares generally is treated as long-term
capital gain. The amount of this gain generally equals the "spread" between the
sales price and the exercise price of the Common Stock. If the shares are sold
or otherwise disposed of prior to the expiration of such periods (a
"disqualifying disposition"), then a portion of any gain recognized by the
employee that would otherwise be characterized as capital gain is instead
taxable as ordinary compensation income. The amount of such gain that is
characterized as ordinary income will not exceed an amount equal to the excess
of (i) the fair market value of such shares as of the date the option is
exercised over (ii) the amount paid for such shares. Any loss recognized upon a
taxable disposition of the shares generally is characterized as a capital loss.
Upon exercise of an ISO by an employee, the alternative minimum taxable
income of such employee must be determined as if such ISO were a non-qualified
stock option. Accordingly, he or she is required to include as alternative
minimum taxable income the excess, if any, of the value of the shares received
upon exercise as of the date such shares are vested over the amount paid for
such shares. He or she would then be required to pay the greater of his or her
regular or alternative minimum tax liability computed with respect to such year.
WITHHOLDING TAXES. The Company may condition the exercise of any option
under the Option Plan on the receipt of an amount sufficient to pay, and will
deduct from the compensation of a holder of an option under the Option Plan, the
amount of any tax required by any governmental authority to be withheld and paid
over by the Company to such governmental authority for the account of the
participant with respect to such options and the exercise thereof.
COMPENSATION DEDUCTION. To the extent compensation income is recognized by
a participant in connection with the exercise of a non-qualified stock option or
a "disqualifying disposition" of stock obtained upon exercise of an ISO, the
Company generally will be entitled to a corresponding compensation deduction,
assuming the withholding requirements are satisfied.
PLAN AMENDMENT. The Option Plan currently provides that at any time a
majority of the Board of Directors of the Company may, without stockholder
approval, terminate, alter, amend or suspend the Option Plan, provided that the
Board may not materially increase the benefits accruing to participants or the
number of shares that may be issued under the Option Plan, materially modify the
eligibility requirements for participation in the Option Plan, or take any
action that would cause the Option Plan to fail to comply with certain
applicable federal tax or securities laws. In addition, any action taken by the
Board may not materially and adversely affect any options outstanding under the
Option Plan without the consent of the participants. A discussion of the Board's
proposal to increase its flexibility to amend the Option Plan as permitted by
the recently revised securities regulations is included below under the caption
"Proposed Amendment and Restatement of the Option Plan--Board of Directors'
Ability to Amend."
An increase or decrease in the number of issued shares of stock of the
Company as a result of certain circumstances specified in the Option Plan will
permit the Committee to make, without stockholder approval, appropriate
adjustments in the aggregate number of shares of stock that may be granted under
the Option Plan, the number of shares subject to each outstanding option and the
exercise price per share for each option. No adjustment in the number of shares
of stock covered by the Option Plan or in the number of shares subject to
outstanding options may be made, however, unless such adjustment, together with
all prior adjustments that were not made as a result of the foregoing, involves
a net change of more than 10%.
9
<PAGE>
PROPOSED AMENDMENT AND RESTATEMENT OF THE OPTION PLAN
INCREASE NUMBER OF SHARES RESERVED FOR ISSUANCE. As of March 20, 1997,
stock options covering 830,900 shares of Common Stock were outstanding under the
Option Plan, leaving only 169,100 available for future awards. The Board of
Directors proposes that the Option Plan be amended and restated to increase the
number of shares of Common Stock that may be issued under the Option Plan by
190,000 (the same number by which the shares issuable under the Director Option
Plan is proposed to be decreased) to 1,190,000, in order to more appropriately
allocate the total number of shares reserved by the Company pursuant to its
option plans, thereby assuring that sufficient shares are available for future
grants under the Option Plan.
BOARD OF DIRECTORS' ABILITY TO AMEND. The proposed amendment and
restatement of the Option Plan would, in accordance with recently revised
securities regulations, permit the Board of Directors of the Company to
materially increase benefits to participants and to materially modify
eligibility requirements without stockholder consent, so long as the amendments
to the Option Plan would not materially adversely affect any outstanding
options. Stockholder approval would still be required, however, to increase the
number of shares of Common Stock subject to the Option Plan. Under the Option
Plan as the Board proposes it be amended and restated, approval of the
participants in the Option Plan would still be required for any amendments that
would have a material adverse effect on outstanding options.
CONFORMING TECHNICAL CHANGES. The amendments proposed by the Board of
Directors include conforming certain terminology used in the Option Plan to the
recently amended securities regulations.
ELIMINATION OF CERTAIN QUALIFICATIONS. The Option Plan currently contains
certain qualifying references to the Company's then anticipated initial public
offering of Common Stock. The offering was consummated in February 1996, thereby
eliminating the need for these qualifications.
REQUIRED VOTE
The proposed amendment and restatement of the Option Plan requires the
affirmative vote of a majority of the shares present in person or represented by
proxy at the meeting and entitled to vote on the proposal. An abstention will be
counted as a vote against the amendment and restatement since it is one less
vote for approval. Broker non-votes will not affect the outcome since they are
not considered "shares present" for voting purposes.
If the Board's proposal is approved by stockholders, the Option Plan will be
amended and restated effective May 1, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THIS PROPOSAL TO AMEND AND RESTATE THE ENGINEERING ANIMATION, INC. STOCK OPTION
PLAN.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
selected Ernst & Young LLP as the independent auditors to examine the financial
statements of the Company for the fiscal year ending December 31, 1997. Ernst &
Young LLP has been employed to perform this function for the Company since 1990.
One or more representatives of Ernst & Young LLP will be present at the
Annual Meeting and will have the opportunity to make a statement and to respond
to appropriate questions.
Although the appointment of auditors is not required to be submitted to a
vote of stockholders, the Board of Directors believes that it is appropriate as
a matter of policy to request that the stockholders ratify the appointment. If
the stockholders should not ratify the appointment, the Audit Committee will
10
<PAGE>
investigate the reasons for the stockholders' rejection and the Board of
Directors will reconsider the appointment.
REQUIRED VOTE
The affirmative vote of a majority of the shares present in person or by
proxy and entitled to vote is required to ratify the appointment of Ernst &
Young LLP as the Company's independent public auditors. An abstention will be
counted as a vote against the ratification of the appointment since it is one
less vote for approval. Broker non-votes will not affect the outcome since they
are not considered "shares present" for voting purposes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS.
SECURITY OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the shares of the Company's Common Stock as of March 5, 1997 by (i)
each person known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) each director and nominee for director, (iii) the
Chief Executive Officer and the four next most highly compensated executive
officers of the Company (together, the "Named Executive Officers") and (iv) by
all directors, nominees for director and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAMED EXECUTIVE OFFICERS AND DIRECTORS OWNED OWNED (1)
- - ------------------------------------------------------------------------------ ----------- -------------
<S> <C> <C>
Matthew M. Rizai (2).......................................................... 772,278 15.59
Martin J. Vanderploeg (3)..................................................... 772,278 15.59
Jeff D. Trom (4).............................................................. 527,184 11.19
Michael Crow (5).............................................................. 57,932 1.23
Michael K. Jewell (6)......................................................... 20,600 *
Jamie A. Wade (7)............................................................. 18,691 *
Michael J. Jablo (8).......................................................... 17,000 *
Laurence J. Kirshbaum (9)..................................................... 4,000 *
All directors and officers as a group (10 persons)............................ 2,427,279 45.92
5% STOCKHOLDERS
- - ------------------------------------------------------------------------------
A I M Management Group Inc. (10).............................................. 436,900 9.29
RCM Capital Management, L.L.C. (11)........................................... 339,000 7.21
Investment Advisors, Inc. (12)................................................ 265,800 5.65
</TABLE>
- - ------------------------
* Less than one percent.
(1) Except as indicated in the footnotes to this table and subject to
applicable community property laws, the persons named in this table have
sole voting and investment power with respect to all shares beneficially
owned by them. The number of shares shown as owned by, and the voting power
of, individual stockholders include shares that are not currently
outstanding, but that such stockholders are entitled to acquire or will be
entitled to acquire within 60 days. Such shares are deemed to be outstanding
for the purpose of computing the percentage of outstanding Common Stock
owned by the particular stockholder, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
11
<PAGE>
(2) Includes 500,000 shares held by the Matthew Rizai Family Limited
Partnership and 253,344 shares issuable upon exercise of vested options and
options that will vest within 60 days. Dr. Rizai's address is c/o
Engineering Animation, Inc., 2321 North Loop Drive, Ames, Iowa 50010.
(3) Includes 253,344 shares issuable upon exercise of vested options and
options that will vest within 60 days. Dr. Vanderploeg's address is c/o
Engineering Animation, Inc., 2321 North Loop Drive, Ames, Iowa 50010.
(4) Includes 8,250 shares issuable upon exercise of vested options and options
that will vest within 60 days. Dr. Trom's address is c/o Engineering
Animation, Inc., 2321 North Loop Drive, Ames, Iowa 50010.
(5) Includes 8,250 shares issuable upon exercise of vested options and options
that will vest within 60 days. Dr. Shannan's address is c/o Engineering
Animation, Inc., 2321 North Loop Drive, Ames, Iowa 50010.
(6) Consists of shares issuable upon exercise of vested options and options
that will vest within 60 days. Mr. Jewell's address is c/o Engineering
Animation, Inc., 2321 North Loop Drive, Ames, Iowa 50010.
(7) Consists of 4,166 shares owned by Davis, Brown, Koehn 401(k) Plan f/b/o
Jamie A. Wade and 14,525 shares issuable upon exercise of vested options and
options that will vest within 60 days. Mr. Wade's address is c/o Engineering
Animation, Inc., 2321 North Loop Drive, Ames, Iowa 50010.
(8) Includes 15,000 shares issuable upon exercise of vested options and options
that will vest within 60 days. Mr. Jablo's address is c/o Engineering
Animation, Inc., 2321 North Loop Drive, Ames, Iowa 50010.
(9) Consists of shares issuable upon exercise of vested options and options
that will vest within 60 days. Mr. Kirshbaum's address is c/o Time Warner
Trade Publishing, Time and Life Building, 1271 Avenue of the Americas, New
York, New York 10020.
(10) Information provided in a Schedule 13G filed on February 12, 1997. Investor
has shared voting and dispositive power with respect to 436,900 shares. The
Schedule 13G indicates that the shares are held by A I M Advisors, Inc. and
A I M Capital Management, Inc., subsidiaries of the Investor. The investor's
address is: A I M Management Group Inc., 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046.
(11) Information provided in a Schedule 13G filed on February 6, 1997 by RCM
Capital Management, L.L.C. ("RCM Capital") and a Schedule 13G filed on
February 13, 1997 by Dresdner Bank AG ("Dresdner"). RCM has sole voting
power with respect to 339,000 shares and sole dispositive power with respect
to 395,000 shares. RCM Limited L.P. ("RCM Limited") is the Managing Agent of
RCM Capital. RCM General Corporation is the General Partner of RCM Limited.
RCM Capital is a wholly-owned subsidiary of Dresdner. RCM Capital's address
is 4 Embarcadero Center, Suite 3000, San Francisco, California 94111.
(12) Information provided in a Schedule 13G filed on February 7, 1997. The
investor has sole voting and dispositive power with respect to 200,200
shares and shared voting and dispositive power with respect to 65,600
shares. The investor's address is 3700 First Bank Place, P.O. Box 357,
Minneapolis, Minnesota 55440.
None of the outstanding shares of Common Stock are currently subject to
registration rights, however, the severance agreements of Dr. Rizai and Dr.
Vanderploeg give each of them the right to require the Company to register all
shares held by him in the event of his termination "without cause" or "for good
reason," as defined in such agreements. See "Employment and Severance
Arrangements."
12
<PAGE>
CERTAIN RELATIONSHIPS
The Company has entered into an agreement with Warner Books Inc., a
subsidiary of Time Warner Inc., pursuant to which the Company has received
approximately $117,722 in funding for the development of an interactive
multimedia CD-ROM, which Warner Books Inc. will market and distribute. The
Company will receive a royalty from Warner Books Inc. on sales of the CD-ROM.
Laurence Kirshbaum, a member of the Company's Board of Directors, is Chairman of
Time Warner Trade Publishing.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by the
Named Executive Officers for the fiscal year ended December 31, 1996 and the
previous fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS COMPENSATION ($)
- - ---------------------------------------------- --------- ------------ ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Matthew M. Rizai 1996 180,000 -- 40,000 5,805(1)
Chief Executive Officer, 1995 150,000 70,000 70,000 14,623(1)
President and Treasurer
Martin J. Vanderploeg 1996 180,000 -- 40,000 5,683(2)
Executive Vice President 1995 150,000 75,000 70,000 3,000(2)
Michael J. Jablo 1996 170,776(3) 25,000 12,000 2,308(4)
Vice President of Software 1995 35,873(3) -- 37,500 --
Sales and Marketing
Jamie A. Wade 1996 120,000 6,000 11,000 1,740(5)
Vice President of Administration, 1995 90,000 25,000 13,000 450(5)
General Counsel and Secretary
Michael K. Jewell 1996 111,739 -- 46,500 165(6)
Vice President of Finance 1995 -- -- -- --
and Chief Financial Officer
</TABLE>
- - ------------------------
(1) Consists of $2,205 of premiums on a life insurance policy paid in 1996,
$11,395 paid in lieu of vacation in 1995 and $3,600 and $3,228 of matching
contributions by the Company to the Engineering Animation, Inc. Retirement
Plan made in 1996 and 1995, respectively.
(2) Consists of $2,083 of premiums on a life insurance policy paid in 1996 and
$3,600 and $3,000 of matching contributions by the Company to the
Engineering Animation, Inc. Retirement Plan made in 1996 and 1995,
respectively.
(3) Includes $64,776 and $15,000 in sales commissions in 1996 and 1995,
respectively.
(4) Consists of $309 of premiums on a life insurance policy paid in 1996 and
$1,999 of matching contributions by the Company to the Engineering
Animation, Inc. Retirement Plan made in 1996.
(5) Consists of $480 of premiums on a life insurance policy paid in 1996 and
$1,260 and $450 of matching contributions by the Company to the Engineering
Animation, Inc. Retirement Plan made in 1996 and 1995, respectively.
(6) Consists of $165 of premiums on a life insurance policy paid in 1996.
13
<PAGE>
OPTION GRANTS IN 1996
The following table shows information with respect to grants of options to
the Named Executive Officers for the fiscal year ended December 31, 1996. The
options were granted under the Option Plan.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM (1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- - ------------------------------------- ------------ --------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Matthew M. Rizai 24,000(2) 4.60 22.25 12/30/06 335,830 851,058
16,000(3) 3.07 22.25 12/30/06 223,886 567,372
Martin J. Vanderploeg 24,000(2) 4.60 22.25 12/30/06 335,830 851,058
16,000(3) 3.07 22.25 12/30/06 223,886 567,372
Michael J. Jablo 10,400(2) 1.99 22.25 12/30/06 145,526 368,792
1,600(3) 0.31 22.25 12/30/06 22,389 56,737
Jamie A. Wade 2,400(2) 0.46 22.25 12/30/06 33,583 85,106
1,600(3) 0.31 22.25 12/30/06 22,389 56,737
7,000(4) 1.34 7.50 1/20/06 33,017 83,671
Michael K. Jewell 2,400(2) 0.46 22.25 12/30/06 33,583 85,106
1,600(3) 0.31 22.25 12/30/06 22,389 56,737
42,500(5) 8.15 7.50 1/26/06 200,460 508,005
</TABLE>
- - ------------------------
(1) Amounts reflect certain assumed rates of appreciation set forth in the
Securities and Exchange Commission's executive compensation disclosure
rules. Actual gains, if any, on stock options exercised, will depend on
future performance of the Common Stock. No assurance can be made that the
amounts reflected in these columns will be achieved.
(2) Options were granted December 30, 1996 and vest in four equal annual
installments beginning December 30, 1997, but only if certain Company
performance goals are met in 1997.
(3) Options were granted December 30, 1996 and vest in four equal annual
installments beginning December 30, 1997.
(4) Options were granted January 20, 1996 and vested in five equal annual
installments beginning January 20, 1996.
(5) Options were granted January 26, 1996 and vested in two annual installments
of 10,000 shares beginning January 26, 1996 and three annual installments of
7,500 shares beginning January 26, 1998.
14
<PAGE>
1996 YEAR-END OPTION VALUES
The following table provides information regarding stock options held by the
Named Executive Officers as of December 31, 1996. None of those individuals
exercised any stock options during the 1996 fiscal year.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END (#) FISCAL YEAR-END ($)(1)
-------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - -------------------------------------------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Matthew M. Rizai.................................. 253,344 49,000 5,196,904 280,250
Martin J. Vanderploeg............................. 253,344 49,000 5,196,904 280,250
Michael J. Jablo.................................. 15,000 34,500 305,250 481,875
Jamie A. Wade..................................... 14,525 24,475 291,681 417,569
Michael K. Jewell................................. 20,400 27,100 343,140 397,085
</TABLE>
- - ------------------------
(1) Value is calculated by subtracting the exercise price per share from the
last reported market price at December 31, 1996 and multiplying the result
by the number of shares subject to the option.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors is composed of two
outside directors. The Board of Directors sets the compensation for the
Company's executive officers, after consideration of the Compensation
Committee's recommendations. The Compensation Committee is also responsible for
approving the terms of executive employment and severance agreements,
administering the Company's Stock Option Plan and approving the grant of options
under that plan, including grants to executive officers of the Company.
COMPENSATION OBJECTIVES
The goals of the Compensation Committee are to (i) motivate executive
officers to create added value for the Company's stockholders through
compensation incentives that are tied to the Company's operating and stock
market performance; (ii) reward executive officers for their individual
performance and the performance of the Company; (iii) provide compensation and
benefits at levels that enable the Company to attract and retain high-quality
professionals; and (iv) align the interests of the Company's officers and
directors with the interests of the Company's stockholders through potential
stock ownership.
EXECUTIVE COMPENSATION PROGRAMS
The Company's executive compensation programs, which contain no special
perquisites, consist of three principle elements: base salary, cash bonus and
stock options. The Company emphasizes incentive compensation in the form of
bonuses and stock option grants, rather than base salary. The Board of Directors
sets the annual base salary for executives, after consideration of the
recommendations of the Compensation Committee and subject to the terms of the
executives' employment agreements. Prior to making its recommendations, the
Compensation Committee reviews historical compensation levels of the executives,
evaluations of past performance of the executives and assessments of expected
future contributions of the executives. In making the determinations regarding
base salaries, the Company considers generally available information regarding
salaries prevailing in the industry but does not utilize any particular indices.
In addition to base salary, the Company pays cash bonuses to its executives
subsequent to the end of each fiscal year. These bonuses are dependent primarily
on the Company's financial performance and
15
<PAGE>
achievement of corporate objectives established by the Board of Directors at the
beginning of each fiscal year. Certain executives, who are involved in the
Company's sales and marketing activities, also receive commissions on sales of
the Company's products and services.
In determining bonuses for the 1996 fiscal year, the Committee considered
individual performance goals, Company net income, revenues and unit sales. These
factors were then weighted for relative importance and used to determine each
executive's bonus. The Board of Directors set various elements of the bonus
calculation formula, after consideration of the Compensation Committee's
recommendation.
In addition to base salary and cash bonus, total compensation for executives
includes long-term incentives offered by stock options. These options are
generally provided through initial stock option grants at the date of hire and
periodic additional stock option grants. It has been the Company's practice to
fix the exercise price of options at 100% of the fair market value on the date
of grant. The Company believes that stock options are an important tool in
aligning the long-term interests of the Company's executives and stockholders
since the executives realize gains only if the stock price increases over the
fair market value at the date of grant and the executives then exercise their
options.
In determining the amount of option grants, the Compensation Committee
evaluates the job level of the executive, responsibilities to be assumed in the
upcoming fiscal year, responsibilities of the executive in prior years and the
size of awards made to each such executive officer in prior years relative to
the Company's overall performance. Options generally become exercisable over a
period of years, beginning on the first anniversary of their issuance. However,
the Company does, from time to time, issue to executive officers options that
are immediately exercisable.
In January 1996, the Company granted options to purchase 7,000 shares of
Common Stock to Mr. Wade and options to purchase 42,500 shares to Mr. Jewell.
These options vest subject to the continued employment by the Company of the
holder. In December 1996, the Company granted options, which vest subject to
both the achievement by the Company of certain performance goals in 1997 and the
continued employment by the Company of the holder, to purchase 24,000 shares to
each of Dr. Rizai and Dr. Vanderploeg, 10,400 shares to Mr. Jablo and 2,400
shares to each of Mr. Wade and Mr. Jewell. In addition, in December 1996, the
Company granted options, which vest subject to the continued employment by the
Company of the holder, to purchase 16,000 shares to each of Dr. Rizai and Dr.
Vanderploeg and 1,600 shares to each of Mr. Jablo, Mr. Wade and Mr. Jewell. No
other options were granted to named executive officers in fiscal 1996.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer's performance was evaluated, and his
compensation was determined, in accordance with the factors described above
applicable to executive officers generally. The Chief Executive Officer did not
receive a bonus in 1996. Prior to the Company's initial public offering in
February 1996, the Company paid performance bonuses to its executive officers
immediately prior to the end of each fiscal year for performance during that
fiscal year. However, following the initial public offering, the Company changed
its bonus procedure for executive officers. Executive officers will now receive
any bonus for performance in a fiscal year following the end of that fiscal
year. In accordance with the change in procedure, the Chief Executive Officer
received a bonus payment in 1997 for his performance in 1996. The Chief
Executive Officer's base salary for fiscal 1996, as reflected in the Summary
Compensation Table, represented a 20% increase over fiscal 1995. This increase
was based on the Chief Executive Officer's increased responsibilities, which
resulted from the Company becoming a public company and from the growth in the
Company's revenues, earnings and number of employees.
COMPENSATION DEDUCTIBILITY
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), imposes a limit on tax deductions for annual compensation in excess of
one million dollars paid by a corporation to its chief
16
<PAGE>
executive officer and the other four most highly compensated executive officers
of the corporation. This provision excludes certain forms of "performance based
compensation" from the compensation taken into account for purposes of the
limit. The Committee believes that it has structured its current compensation
programs in a manner to preserve full deductibility to the Company of executive
compensation under the Code. The Committee will continue to assess the impact of
Section 162(m) of the Code on its compensation practices and determine what
further action, if any, is appropriate.
Compensation Committee
Michael Crow, Ph.D.
Laurence J. Kirshbaum
THE REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS SHALL NOT
BE DEEMED TO BE INCORPORATED INTO ANY FILING UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR THE EXCHANGE ACT, NOTWITHSTANDING ANY
GENERAL STATEMENT CONTAINED IN ANY SUCH FILING INCORPORATING THIS PROXY
STATEMENT BY REFERENCE, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY
INCORPORATES THIS INFORMATION BY REFERENCE.
17
<PAGE>
COMPANY PERFORMANCE
The following graph compares the cumulative total stockholder return on the
Common Stock of Engineering Animation, Inc. from February 29, 1996 (the date the
Common Stock was first offered to the public at an initial public offering price
of $18.00 per share) through December 31, 1996 with the cumulative total return
on the Nasdaq Stock Market-U.S. and the cumulative total return on the stock of
a group of public companies in the H&Q Computer Software Index. The Company did
not pay any dividends during this period. The Nasdaq Stock Market-U.S. and the
H&Q Computer Software indices are published daily.
The graph assumes an investment of $100 in each of Engineering Animation,
Inc., the Nasdaq Stock Market-U.S. and the H&Q Computer Software Index on
February 29, 1996. The comparison also assumes that all dividends are
reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ENGINEERING ANIMATION,
INC. NASDAQ STOCK MARKET - U.S. H&Q COMPUTER SOFTWARE INDEX
<S> <C> <C> <C>
02/29/96 100 100 100
03/31/96 116 100 105
06/30/96 111 109 114
09/30/96 133 112 117
12/31/96 135 118 117
</TABLE>
THE COMPARISONS IN THIS TABLE ARE REQUIRED BY THE SECURITIES AND EXCHANGE
COMMISSION AND ARE NOT INTENDED TO FORECAST OR BE INDICATIVE OF POSSIBLE FUTURE
PERFORMANCE OF THE COMPANY'S COMMON STOCK. THE STOCK PRICE PERFORMANCE GRAPH
SHALL NOT BE DEEMED TO BE INCORPORATED INTO ANY FILING UNDER THE SECURITIES ACT
OR THE EXCHANGE ACT, NOTWITHSTANDING ANY GENERAL STATEMENT CONTAINED IN ANY SUCH
FILING INCORPORATING THIS PROXY STATEMENT BY REFERENCE, EXCEPT TO THE EXTENT
THAT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE.
18
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EMPLOYMENT AND SEVERANCE ARRANGEMENTS
The Company entered into employment agreements with Dr. Rizai, Dr.
Vanderploeg and Mr. Wade as of January 1, 1996, and with Mr. Jewell as of
January 26, 1996, each of which expire on December 31, 1999. Dr. Rizai's
agreement provides that he will be employed as the Company's Chairman, Chief
Executive Officer and President at an annual salary of $180,000. Dr.
Vanderploeg's agreement provides that he will be employed as the Company's
Executive Vice President at an annual salary of $180,000. Mr. Wade's agreement
provides that he will be employed as the Company's Vice President of
Administration, General Counsel and Secretary at an annual salary of $120,000.
Mr. Jewell's agreement provides that he will be employed as the Company's Vice
President of Finance and Chief Financial Officer at an annual salary of
$120,000. Each of the agreements provides that the base salary will be reviewed
annually and that the executive will receive an annual performance bonus as
determined by the Board of Directors and, for Dr. Rizai and Dr. Vanderploeg, a
car allowance. The employment agreements also include certain non-competition
and confidentiality provisions.
The Company has also entered into severance agreements with each of Dr.
Rizai, Dr. Vanderploeg, Mr. Wade and Mr. Jewell, each dated as of the effective
date of the respective officer's employment agreement. The severance agreements
provide for payment of a lump sum equal to two times the sum of the employee's
base salary and the bonus paid to the employee in the prior year for Dr. Rizai
and Dr. Vanderploeg (one times that sum for Mr. Wade and Mr. Jewell) and
continuation of benefits for two years (one year in the case of Mr. Wade and Mr.
Jewell) upon (i) termination of employment by the Company without cause, (ii)
termination of employment by the employee for good reason (including change in
control of the Company), (iii) death or (iv) permanent disability. The Company
may terminate the employment of the executive at any time for cause without the
payment of severance. The agreements with Dr. Rizai and Dr. Vanderploeg also
provide that, upon termination by the Company without cause or by the executive
for good reason, the Company upon demand by the executive would be required to
file a registration statement for all shares of Common Stock that the executive
then owned or had the right to acquire upon exercise of options then held and
would be required to include any such shares in any other registration statement
filed by the Company.
The Company entered into an employment agreement with Mr. Jablo as of
September 18, 1995 that terminates (i) by mutual agreement of the Company and
Mr. Jablo, (ii) upon Mr. Jablo's death or disability, (iii) at the option of the
Company for cause or (iv) upon the dissolution or bankruptcy of the Company.
This agreement provides that Mr. Jablo will be employed as the Company's Vice
President of Sales and Marketing at an annual salary of $106,000 per year with a
$25,000 signing bonus and a car allowance. In addition to base salary, the
agreement provides for the payment of commissions through 1996 to Mr. Jablo of
3.25% of the first $3.0 million of sales of VisLab and related 3D animation
software and all consulting services related to such software and 3.5% of such
sales in excess of $3.0 million. Commissions paid after 1996 are to be
established by the Company's President. The agreement also contains certain
non-competition and confidentiality provisions. Mr. Jablo's employment agreement
contains severance provisions that require the payment by the Company to Mr.
Jablo of (i) an amount equal to the total compensation paid to Mr. Jablo during
the first year of the agreement if the agreement were terminated following a
merger, sale or change of control of the Company and (ii) an amount equal to
one-half of the total compensation paid to Mr. Jablo during the first year of
the agreement if the agreement were terminated for cause (as defined in the
agreement) by the Company after the first anniversary of the agreement.
19
<PAGE>
EXECUTIVE OFFICERS
Following is certain information concerning the executive officers of
Engineering Animation, Inc., based on information furnished by them.
MATTHEW M. RIZAI, PH.D., 40
Chairman, Chief Executive Officer, President and Treasurer
Dr. Rizai has been Chairman, Chief Executive Officer, President and a
director of the Company since joining the Company in June 1990 and has been
Treasurer since November 1995. Dr. Rizai's prior experience includes serving as:
associate with ARCH Development Corporation, a venture capital firm; senior
research engineer with General Motors Corporation; and development engineer with
Ford Motor Company. Dr. Rizai earned a Ph.D. in Mechanical Engineering from
Michigan State University and an M.B.A. from the University of Chicago.
MARTIN J. VANDERPLOEG, PH.D., 40
Executive Vice President and Director
Dr. Vanderploeg has served as a director since co-founding the Company in
1988, as Executive Vice President since October 1993 and as the Company's
Secretary from June 1990 until November 1995. Dr. Vanderploeg's prior experience
includes serving as a faculty member in mechanical engineering at Iowa State
University and performing contract research for a number of large corporations.
Dr. Vanderploeg earned a Ph.D. in Mechanical Engineering from Michigan State
University and is a licensed Professional Engineer.
JAMIE A. WADE, 48
Vice President of Administration, General Counsel, Secretary and Director
Mr. Wade has served as Vice President of Administration and General Counsel
to the Company since June 1994 and Secretary since November 1995. From 1983 to
1994, Mr. Wade was a partner with Davis, Hockenberg, Wine, Brown, Koehn & Shors,
P.C., a Des Moines law firm. Mr. Wade earned a J.D. from Drake University Law
School and a B.A. from Drake University College of Business.
MICHAEL K. JEWELL, 39
Vice President of Finance and Chief Financial Officer
Mr. Jewell has served as Vice President of Finance and Chief Financial
Officer since January 1996. He has been a consultant specializing in finance and
accounting issues for emerging technology companies since 1991 and has served as
a finance and accounting consultant to the Company since 1992. Mr. Jewell earned
an M.B.A. from the University of Southern California in 1983 and a B.A. in
business from San Jose State University in 1981.
JAY E. SHANNAN, PH.D., 34
Vice President of Operations
Dr. Shannan is a co-founder of the Company and has served as Vice President
of Operations since June 1990. Dr. Shannan earned a Ph.D. in Mechanical
Engineering from Iowa State University.
JEFF D. TROM, PH.D., 36
Vice President of Software Development
Dr. Trom is a co-founder of the Company and has served as Vice President of
Software Development since June 1990. Dr. Trom served as the Company's Treasurer
from June 1990 to November 1995. Dr. Trom earned a Ph.D. in Mechanical
Engineering from Iowa State University.
20
<PAGE>
MICHAEL J. JABLO, 44
Vice President of Software Sales and Marketing
Mr. Jablo has served as Vice President of Software Sales and Marketing since
joining the Company in October 1995. From January 1990 to October 1995 Mr. Jablo
was employed by Mentor Graphics Corporation where he ultimately served as North
Central area sales manager. Mr. Jablo earned an M.B.A. from the University of
Detroit as well as a B.S. in Mechanical Engineering and a B.S. in Business
Management from Bradley University.
ADRIAN SANNIER, 35
Vice President of Interactive Production
Mr. Sannier has served as Vice President of Interactive Production since
February 1997 and prior to that served as the Company's Vice President of New
Product Development since February 1996. From 1990 until joining the Company,
Mr. Sannier was employed in a variety of positions by CIMLINC Incorporated, a
provider of business process execution software to the aerospace industry and
heavy equipment manufacturers, most recently as Vice President, Product
Development. Mr. Sannier earned a Ph.D. and a B.S. in Electrical Engineering and
Systems Science from Michigan State University.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that the Company's executive
officers, directors and beneficial owners of 10% or more of the Company's Common
Stock file initial reports of ownership and of changes of ownership with the
Securities and Exchange Commission and the Nasdaq Stock Market. Executive
officers, directors and 10% beneficial owners are required by securities
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that all filing requirements were met during
fiscal year 1996 except that a Form 3 with respect to Adrian Sannier, Vice
President of Interactive Production, reporting ownership of options to purchase
27,900 shares granted under the Option Plan, was inadvertently filed after the
date on which such form was required to be filed with the Securities and
Exchange Commission.
DEADLINE FOR STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the Company's proxy
statement relating to the 1998 Annual Meeting must be received at the Company's
offices, addressed to the attention of the Secretary, not less than 120 days nor
more than 150 days prior to the 1998 Annual Meeting (E.G., assuming that the
1998 Annual Meeting is held on the last Wednesday in April, stockholder
proposals must be received by the Secretary of the Company after November 30,
1997 and prior to December 30, 1997). The Company's by-laws require that a
stockholder's notice set forth as to each matter the stockholder proposes to
bring before the Annual Meeting (i) a brief description of the business desired
to be brought before the Annual Meeting, (ii) the name and address of the
stockholder proposing such business, as they appear on the Company's
stockholders records, (iii) the class and number of shares of the Company that
are beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business. In addition, any stockholder proposal must comply
with Rule 14a-8 of Regulation 14A of the proxy rules of the Securities and
Exchange Commission.
21
<PAGE>
ADDITIONAL INFORMATION
The expenses in connection with the solicitation of proxies will be borne by
the Company. Solicitation will be made by mail, but may also be made by
telephone or personal call by officers, directors or employees of the Company
who will not be specially compensated for such solicitation. The Company may
request brokerage houses and other nominees or fiduciaries to forward copies of
the Company's proxy statement and Annual Report to Stockholders to beneficial
owners of stock held in their names and the Company may reimburse them for
reasonable out-of-pocket expenses incurred in doing so.
By Order of the Board of Directors
Jamie A. Wade
SECRETARY
22
<PAGE>
APPENDIX A
ENGINEERING ANIMATION, INC.
NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
1. PURPOSE. The purpose of Engineering Animation, Inc. Non-Employee
Directors Stock Option Plan (the "Plan"), as hereinafter set forth, is to enable
Engineering Animation, Inc., a Delaware corporation (the "Company"), to attract,
retain and reward qualified outside directors, by offering them an opportunity
to have a greater proprietary interest in and closer identity with the Company
and with its financial success.
Options granted under this Plan ("Options") shall be non-qualified. Proceeds
of cash or Company Stock received by the Company from the sale of Common Stock
of the Company pursuant to Options granted under the Plan will be used for
general corporate purposes.
2. ADMINISTRATION. The Plan shall be administered by the Chairman of the
Board of Directors and such other employee members of the Board of Directors, if
any, who he may select (collectively, the "Committee"). Subject to the express
provisions of the Plan, the Committee may interpret the Plan, prescribe, amend
and rescind rules and regulations relating to it, determine the terms and
provisions of the respective Participants' agreements and make such other
determinations as it deems necessary or advisable for the administration of the
Plan. The decisions of the Committee on matters within its jurisdiction under
the Plan shall be conclusive and binding. No member of the Board of Directors or
the Committee shall be liable for any action taken or determination made in good
faith.
3. DEFINITIONS. Whenever used in this Agreement, the following terms shall
have the meanings set forth below:
(a) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 1-d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934.
(b) "Change in Control" of the Company shall be deemed to have occurred
if the conditions set forth in any one or more of the following paragraphs
shall have been satisfied:
(i) Any Person other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or a
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of
Shares of the Company, or other than a Person whose stock ownership is
approved by a vote of two-thirds (2/3) of the Directors who are not
affiliated with such Person), becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities; or
(ii) During any period of two consecutive fiscal years, individuals
who at the beginning of such period constitute the Board of Directors
(and any new director, whose election the Board of Directors was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election was previously so approved), cease for any reason to constitute
a majority thereof; or
(iii) The stockholders of the Company approve (a) a plan of complete
liquidation of the Company; or (b) an agreement for the sale or
disposition of all or substantially all the Company's assets; or (c) a
merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), at least 50%
of the combined voting securities of the Company (or such surviving
entity) outstanding immediately after such merger or consolidation;
(iv) The Board of Directors agrees by a two-thirds (2/3) vote, that a
Change in Control of the Company has occurred.
<PAGE>
However, in no event shall a Change in Control be deemed to have occurred,
with respect to a Participant, if that Participant is part of a purchasing
group which consummates the Change in Control transaction. A Participant
shall be deemed "part of a purchasing group" for purposes of the preceding
sentence if the Participant is an equity participant or has agreed to become
an equity participant in the purchasing company or group (except for (i)
passive ownership of less than 3% of the Shares of the purchasing company;
or (ii) ownership or equity participation in the purchasing company or group
which is otherwise not deemed to be significant, as determined prior to the
Change in Control by a majority of the disinterested directors of the
Company).
(c) "Common Stock" shall mean the Company's $0.01 par value common
stock.
(d) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d)
and 14(d) thereof, including a group defined in Section 13(d).
4. ELIGIBILITY. Options shall be granted under this Plan to all
non-employee directors of the Company ("Participants").
5. COMMON STOCK. Options may be granted for a number of shares not to
exceed, in the aggregate, 60,000 shares of Common Stock, except as such number
of shares shall be adjusted in accordance with the provisions of Section 10 of
this Plan.
In the event that any Option granted under the Plan expires unexercised, is
surrendered by a Participant for cancellation or is terminated or ceases to be
exercisable for any other reason without having been fully exercised prior to
the end of the period during which Options may be granted under the Plan, the
shares subject to such Option, or to the unexercised portion thereof, shall
again become available for new Options to be granted under the Plan to any
eligible Participant (including the holder of such former Option) at an Option
price determined in accordance with Section 6(b) hereof, as appropriate, which
price may then be greater or less than the Option price of such former Option.
Any shares of Common Stock that are surrendered or withheld in payment of the
exercise price of an Option or that are surrendered or withheld in satisfaction
of any tax liabilities resulting from the exercise of an Option will be added to
the aggregate number of shares of Common Stock available for new Option grants
hereunder.
6. REQUIRED TERMS AND CONDITIONS OF OPTIONS. As soon as practicable
following the date an individual becomes a non-employee member of the Board of
Directors of the Company and a Participant hereunder, such Participant shall be
granted an Option under the Plan (the "Initial Option"). As long as such
Participant remains a non-employee member of the Board of Directors, on each
one-year anniversary of the date of membership on the Board of Directors, he or
she shall be granted additional Options under the Plan (the "Anniversary
Options"). These Options shall be granted in such form and upon such terms and
conditions, including provisions as to the treatment of outstanding Options upon
the occurrence of a Change in Control, as the Board of Directors shall from time
to time determine, subject to the general provisions of the Plan and to the
following specific rules:
(A) NUMBER OF SHARES UNDERLYING OPTIONS. The Initial Option shall
represent the right to purchase up to a total of 5,000 shares of Common
Stock, or such other number of shares as the Board of Directors shall
determine at the time of grant. Each Anniversary Option shall represent a
right to purchase up to a total of 2,500 shares of Common Stock, or such
other number of shares as the Board of Directors shall determine at the time
of grant. These Options shall vest as provided in subsection (d) below.
(B) OPTION PRICE. The option price of each Option to purchase Common
Stock shall be 100% of the Fair Market Value per share of Common Stock at
the date the option is granted.
(C) MAXIMUM TERM. No Option shall be exercisable after the expiration
of fifteen (15) years from the date it is granted, except as provided in
Section 8(b), (c), (d) or (e).
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(D) VESTING OF OPTIONS. A Participant shall become vested in 25% of the
Initial Option on the date such Initial Option is granted (the "Initial
Option Grant Date"). The remainder of the Initial Option shall become vested
as follows:
(i) 25% of the Initial Option on the one-year anniversary of the
Initial Option Grant Date;
(ii) 25% of the Initial Option on the two-year anniversary of the
Initial Option Grant Date; and
(iii) 25% of the Initial Option on the three-year anniversary of the
Initial Option Grant Date.
Each Anniversary Option shall be fully vested on the date it is granted.
(E) TIME OF EXERCISE. Options granted under the Plan shall become
exercisable, in whole or in part, on or after the date that such Options
become vested; provided, however, that no Option granted under the Plan may
become exercisable prior to six (6) months following the date it is granted
or six (6) months after stockholders approve the Plan, whichever date is
later.
7. FAIR MARKET VALUE. "Fair Market Value" shall be the amount determined
by the Committee from time to time, using such good faith valuation methods as
it deems appropriate, except that as long as the Common Stock is traded on
NASDAQ or a recognized stock exchange, it shall mean the average of the highest
and lowest quoted selling prices for the Shares on the relevant date, or (if
there were no sales on such date) the weighted average of the means between the
highest and the lowest quoted selling prices on the nearest day before and the
nearest day after the relevant date, as prescribed by Treasury Regulation
20.2031-2(b)(2), as reported in the Wall Street Journal or a similar publication
selected by the Committee.
8. EXPIRATION OF OPTION.
(A) GENERAL RULE. Except with respect to Options expiring pursuant to
Section 8(b), (c), (d) or (e), each Option shall expire on the first to
occur of: (i) the 15th anniversary of the date of grant thereof, or (ii) the
expiration date or dates set forth in the applicable Option agreement.
(B) EXPIRATION UPON TERMINATION OF DIRECTORSHIP. Except with respect to
Options expiring pursuant to Section 8(c), (d) or (e), an Option shall
expire on the first to occur of the applicable date or dates determined
pursuant to Section 8(a) or the date that the Participant ceases to be a
member of the Board of Directors of the Company. Notwithstanding the
preceding provisions of this Section 8(b), the Committee, in its sole
discretion, may permit such a Participant to exercise an Option, to the
extent it is vested as of the date he or she ceases to be a member of the
Board of Directors, during a period following the termination of his or her
Board of Directors membership, which period shall not exceed three months.
In no event, however, may the Committee permit such Participant to exercise
an Option under this Section 8(b) after the expiration date computed under
Section 8(a).
(C) EXPIRATION UPON DISABILITY OR DEATH. If the membership on the Board
of Directors of a Participant terminates by reason of disability (as
determined in the discretion of the Committee) or by reason of death, his or
her Options, to the extent they are vested as of the date of his or her
death or disability, shall remain exercisable until the first to occur of
the expiration date computed under Section 8(a) or the one-year anniversary
of termination of his or her membership on the Board of Directors by reason
of disability or death.
(D) EXPIRATION UPON RETIREMENT. If the membership on the Board of
Directors of a Participant terminates due to "retirement," as defined below,
with the consent of the Committee, his or her Options, to the extent they
are vested as of the date of his or her retirement, shall expire on the
first to occur of the applicable date or dates determined pursuant to
Section 8(b). If a Participant who has so retired dies prior to exercising
in full an Option which has not expired pursuant to the preceding sentence,
then notwithstanding the preceding sentence, his or her Options, to the
extent they are
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vested as of the date of his or her retirement, shall expire after the first
to occur of the expiration date computed under Section 8(a) or the one-year
anniversary of the date of the Participant's death. Retirement for purposes
of this Plan shall mean the termination of the Board of Directors membership
of a Participant on or after the date a Participant attains age 65.
(E) EXPIRATION UPON TERMINATION FOR CAUSE. If the membership on the
Board of Directors of a Participant is terminated by the Company for
substantial cause, the Participant's right to exercise his or her Options
shall terminate at the time notice of termination of such membership is
given by the Company to such Participant. For purposes of this provision,
substantial cause shall include:
(i) The commission of an action against or in derogation of the
interests of the Company which, if proven in a court of law, would
constitute a violation of a criminal code or similar law;
(ii) Divulging the Company's confidential information; or
(iii) The performance of any similar action that the Committee, in
its sole discretion, may deem to be sufficiently injurious to the
interest of the Company to constitute substantial cause for termination.
9. METHOD OF EXERCISE. Options may be exercised by giving written notice
to the Corporate Secretary of the Company, stating the number of shares of
Common Stock with respect to which the Option is being exercised and tendering
payment therefor. The exercise price of an Option shall be paid in full at the
time that the Option, or any part thereof, is exercised. Subject to the approval
of the Committee, payment may be made (i) in cash, (ii) through the surrender of
previously acquired shares of Common Stock having a Fair Market Value equal to
the exercise price of the Option or the withholding of shares of Common Stock
having a Fair Market Value equal to the exercise price of the Option, or (iii) a
combination of (i) and (ii).
10. ADJUSTMENTS.
(a) The aggregate number of shares of Common Stock with respect to which
Options may be granted hereunder, the number of shares of Common Stock
subject to each outstanding Option and the Option price per share for each
such Option may all be appropriately adjusted, as the Committee may
determine, for any increase or decrease in the number of shares of issued
Common Stock of the Company resulting from a subdivision or consolidation of
shares whether through reorganization, payment of a share dividend or other
increase or decrease in the number of such shares outstanding effected
without receipt of consideration by the Company, distribution of assets to
stockholders, or the assumption and conversion of outstanding options in an
acquisition of the Company; provided, however, that no adjustment in the
number of shares with respect to which Options may be granted under the Plan
or in the number of shares subject to outstanding Options shall be made
except in the event that such adjustment, together with all respective prior
adjustments which were not made as a result of this provision, involve a net
change of more than 10%.
(b) Subject to any required action by the stockholders, if the Company
shall be a party to a transaction involving a sale of substantially all its
assets, a merger or a consolidation, any Option granted hereunder shall
pertain to and apply to the securities to which a holder of the number of
shares of Common Stock subject to the Option would have been entitled if the
Participant actually owned the stock subject to the Option immediately prior
to the time any such transaction became effective; provided, however, that
all unexercised Options under the Plan may be canceled by the Company as of
the effective date of any such transaction by giving notice to the holders
thereof of its intention to do so and by permitting the exercise, during the
30-day period preceding the effective date of such transaction, of all
partly or wholly unexercised Options in full (without regard to installment
exercise limitations). This provision shall apply provided that the
Participant is not terminated for cause.
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<PAGE>
(c) In the case of dissolution of the Company, every Option outstanding
hereunder shall terminate; provided, however, that each Participant shall
have 30 days' prior written notice of such event, during which time the
holder shall have a right to exercise the partly or wholly unexercised
Option (without regard to installment exercise limitations).
(d) On the basis of information known to the Company, the Committee
shall make all determinations under this Section 10, including whether a
transaction involves a sale of substantially all the Company's assets, and
all such determinations shall be conclusive and binding.
11. OPTION AGREEMENTS. Each Participant shall agree to such terms and
conditions in connection with the exercise of an Option, including restrictions
on the disposition of the Common Stock acquired upon the exercise thereof, as
the Committee may deem appropriate. Option agreements need not be identical. The
certificates evidencing the shares of Common Stock acquired upon exercise of an
Option may bear a legend referring to the terms and conditions contained in the
respective Option agreement and the Plan, and the Company may place a stop
transfer order with its transfer agent against the transfer of such shares. If
requested to do so by the Committee at the time of exercise of an Option, each
Participant shall execute a certificate indicating that he or she is purchasing
the Common Stock under such Option for investment and not with any present
intention to sell the same.
12. WITHHOLDING OF TAXES. Upon the exercise of an Option, the Company may
deduct any Federal, state or local taxes required by law to be withheld with
respect to such exercise. Any holder of an Option may elect to surrender shares
of Common Stock previously acquired by the holder or to have the Company
withhold shares that would have otherwise been issued to the holder pursuant to
the exercise of an Option, the number of such withheld or surrendered shares to
be sufficient to satisfy all or a portion of the income tax liability that
arises upon such exercise.
13. LEGAL AND OTHER REQUIREMENTS. The obligation of the Company to sell and
deliver Common Stock under Options granted under the Plan shall be subject to
all applicable federal and state laws, regulations, rules and approvals. A
Participant shall have no rights as a stockholder with respect to any shares
covered by an Option granted to or exercised by him or her until the date of
delivery of a stock certificate to him or her for such shares. No adjustment
other than pursuant to Section 10 hereof shall be made for dividends or other
rights for which the record date is prior to the date such stock certificate is
delivered.
14. NONTRANSFERABILITY. During the lifetime of a Participant, any Option
granted to him or her shall be exercisable only by him or her or by his or her
guardian or legal representative. No Option shall be assignable or transferable,
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code or
the Employee Retirement Income Security Act. The granting of an Option shall
impose no obligation upon the Participant to exercise such Option.
15. INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as members of the Board of Directors or as
members of the Committee, the members of the Committee shall be indemnified by
the Company against the reasonable expenses, including attorneys' fees actually
and necessarily incurred in connection with the defense of any action, suit or
proceeding (or in connection with any appeal therein), to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding that such
Committee member is liable for gross negligence or misconduct in the performance
of his or her duties; provided, that within 60 days after institution of any
such action, suit or proceeding, Committee members shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
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16. NO CONTRACT. Neither the adoption of this Plan nor the grant of any
Option shall be deemed to obligate the Company to continue to retain any
Participant as a director for any particular period, nor shall the granting of
an Option constitute a request or consent to postpone the retirement date of any
Participant.
17. TERMINATION AND AMENDMENT OF PLAN. The Board of Directors, acting by a
majority of its members, without further action on the part of the stockholders,
may from time to time alter, amend or suspend the Plan or any Option granted
hereunder or may at any time terminate the Plan; provided, however, the Board of
Directors may not materially increase the number of shares of Common Stock
subject to the Plan (except as provided in Section 10 hereof); and provided
further that no such action shall materially and adversely affect any
outstanding Options without the consent of the respective Participants.
18. EFFECTIVE DATE OF PLAN. The Plan as adopted by the Board of Directors
and approved by stockholders was effective as of January 1, 1996. The Plan is
hereby amended and restated effective May 1, 1997 (the "Effective Date"),
subject to approval by the holders of the Common Stock of the Company.
A-6
<PAGE>
APPENDIX B
ENGINEERING ANIMATION, INC.
STOCK OPTION PLAN
1. PURPOSE. The purpose of Engineering Animation, Inc. Stock Option Plan
(the "Plan"), as hereinafter set forth, is to enable Engineering Animation,
Inc., a Delaware corporation (the "Company"), to attract, retain and reward
corporate officers and managerial and other significant employees, and non-
employees (other than non-employee directors) who have an ongoing consultant or
independent contractor relationship with the Company, by offering them an
opportunity to have a greater proprietary interest in and closer identity with
the Company and with its financial success.
Options granted under this Plan may be incentive or non-qualified
(collectively referred to as "Options"). Proceeds of cash or Company Stock
received by the Company from the sale of Common Stock of the Company pursuant to
Options granted under the Plan will be used for general corporate purposes.
2. ADMINISTRATION. The Plan shall be administered by a Committee
consisting of two or more members of the Board of Directors of the Company who
are appointed from time to time by said Board of Directors (the "Committee").
Subject to the express provisions of the Plan, the Committee shall have the
power to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of
Participants' individual option agreements (which need not be identical) and to
make such other determinations as it deems necessary or advisable in carrying
out the administration of the Plan. All decisions of the Committee on matters
within its jurisdiction shall be conclusive and binding. To the extent required
to comply with the relevant provisions of Rule 16b-3 under the Securities
Exchange Act of 1934, each member of the Committee shall qualify as a
"non-employee director," as defined in Rule 16b-3 or in any successor definition
adopted by the Securities and Exchange Commission. No member of the Board of
Directors or the Committee shall be liable for any action taken or determination
made in good faith.
3. DEFINITIONS. Whenever used in this Agreement, the following terms shall
have the meanings set forth below:
(a) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 1-d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934.
(b) "Change in Control" of the Company shall be deemed to have occurred
if the conditions set forth in any one or more of the following paragraphs
shall have been satisfied:
(i) Any Person other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or a
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of
Shares of the Company, or other than a Person whose stock ownership is
approved by a vote of two-thirds (2/3) of the Directors who are not
affiliated with such Person), becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities; or
(ii) During any period of two consecutive fiscal years, individuals
who at the beginning of such period constitute the Board of Directors
(and any new Director, whose election the Board of Directors was approved
by a vote of at least two-thirds (2/3) of the Directors then still in
office who either were Directors at the beginning of the period or whose
election was previously so approved), cease for any reason to constitute
a majority thereof; or
(iii) The stockholders of the Company approve (a) a plan of complete
liquidation of the Company; or (b) an agreement for the sale or
disposition of all or substantially all the Company's assets; or (c) a
merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), at least 50%
of the combined voting
<PAGE>
securities of the Company (or such surviving entity) outstanding
immediately after such merger or consolidation;
(iv) The Board of Directors agrees by a two-thirds (2/3) vote, that a
Change in Control of the Company has occurred.
However, in no event shall a Change in Control be deemed to have occurred,
with respect to a Participant, if that Participant is part of a purchasing
group which consummates the Change in Control transaction. A Participant
shall be deemed "part of a purchasing group" for purposes of the preceding
sentence if the Participant is an equity participant or has agreed to become
an equity participant in the purchasing company or group (except for (i)
passive ownership of less than 3% of the shares of the purchasing company;
or (ii) ownership or equity participation in the purchasing company or group
which is otherwise not deemed to be significant, as determined prior to the
Change in Control by a majority of the disinterested Directors of the
Company).
(c) "Common Stock" shall mean the Company's $0.01 par value common
stock.
(d) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d)
and 14(d) thereof, including a group defined in Section 13(d).
4. ELIGIBILITY. Options may be granted under this Plan to any employee of
the Company or its subsidiaries whose participation the Committee determines is
in the best interest of the Company, including employees who are officers and/or
members of the Board of Directors, and to any nonemployee who is a consultant or
independent contractor to the Company whose participation the Committee
determines is in the best interests of the Company ("Participants"); provided,
however, that no incentive options shall be granted to anyone who is not an
employee of the Company and no non-employee member of the Board of Directors
shall be eligible to receive any new Option grant hereunder. The Committee shall
have absolute discretion to determine, within the limits of the express
provisions of the Plan, those Participants to whom and the time or times at
which Options shall be granted. The Committee shall also determine the number of
shares to be subject to each Option, the duration of each Option, the exercise
price (Option price) under each Option, the time or times within which (during
the term of the Option) all or portions of each Option may be exercised, and
whether cash or Common Stock may be accepted in full or partial payment upon
exercise of an Option. In making such determination, the Committee may take into
account the nature of the services rendered by the Participant, his or her
present and potential contributions to the Company's success and such other
factors as the Committee in its discretion shall deem relevant; provided,
however, that no Option granted under this Plan may become exercisable prior to
six (6) months following the date it is granted.
5. COMMON STOCK. Options may be granted for a number of shares not to
exceed, in the aggregate, 1,190,000 shares of Common Stock, except as such
number of shares shall be adjusted in accordance with the provisions of Section
12 of this Plan.
In the event that any Option granted under the Plan expires unexercised, is
surrendered by a Participant for cancellation or is terminated or ceases to be
exercisable for any other reason without having been fully exercised prior to
the end of the period during which Options may be granted under the Plan, the
shares subject to such Option, or to the unexercised portion thereof, shall
again become available for new Options to be granted under the Plan to any
eligible Participant (including the holder of such former Option) at an Option
price determined in accordance with Section 6(a) or Section 7(a) hereof, as
appropriate, which price may then be greater or less than the Option price of
such former Option. Any shares of Common Stock that are surrendered or withheld
in payment of the exercise price of an Option or that are surrendered or
withheld in satisfaction of any tax liabilities resulting from the exercise of
an Option will be added to the aggregate number of shares of Common Stock
available for new Option grants hereunder.
B-2
<PAGE>
6. REQUIRED TERMS AND CONDITIONS OF INCENTIVE OPTIONS. The incentive
options granted under this Plan are intended to be "incentive stock options"
within the meaning of that term in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and the provisions of each incentive option
granted shall be interpreted in a manner consistent with Section 422 and with
all valid regulations issued thereunder. Such incentive options shall be granted
in such form and upon such terms and conditions, including provisions as to the
treatment of outstanding incentive options upon the occurrence of a Change in
Control, as the Committee shall from time to time determine, subject to the
general provisions of the Plan, and the following specific rules:
(A) OPTION PRICE. The purchase price per share of Common Stock subject
to an incentive option shall be fixed by the Committee, but shall not be
less than 100% of the Fair Market Value per share of Common Stock at the
time the incentive option is granted. However, if an eligible Participant on
the date that an option is granted owns, directly or indirectly, within the
meaning of Section 424(d) of the Code, stock representing more than 10% of
the voting power of all classes of stock of the Company, then the purchase
price per share shall in no instance be less than 110% of the Fair Market
Value per share of Common Stock at the time the incentive option is granted;
provided further, however, that the incentive option price shall in no event
be less than the par value of the Common Stock subject to such incentive
option. See Section 8 below for determination of "Fair Market Value."
(B) MAXIMUM TERM. Notwithstanding anything herein to the contrary, no
incentive option shall be exercisable after the expiration of ten years from
the date it is granted and no incentive option shall be exercisable after
the expiration of five years in the case a Participant who at the time of
grant owns (directly or indirectly, including the shares purchasable under
such incentive option) stock of the Company possessing more than 10% of the
total combined voting power of all classes of stock of the Company.
(C) TIME OF EXERCISE. The Committee shall determine the duration of
each incentive option and the time or times within which (during the term of
the incentive option) all or portions of each incentive option may be
exercised, except to the extent that other terms of exercise are
specifically provided by other provisions of the Plan.
(D) VALUE OF SHARES. The aggregate Fair Market Value (determined at the
date of grant) of the incentive options exercisable for the first time by a
Participant during any calendar year shall not exceed $100,000 or any other
limit imposed by the Code.
(E) LIMITATIONS ON DISPOSITIONS. To retain incentive option tax
treatment, stock received upon exercise of an incentive option may not be
disposed of prior to the later of two years from the date the incentive
option was granted or one year from the date the shares are transferred to
the Participant upon exercise of the incentive option.
7. REQUIRED TERMS AND CONDITIONS OF NONQUALIFIED OPTIONS. The nonqualified
options granted under the Plan shall be in such form and upon such terms and
conditions, including provisions as to the treatment of outstanding nonqualified
options upon the occurrence of a Change in Control, as the Committee shall from
time to time determine, subject to the general provisions of the Plan, and the
following specific rules:
(A) OPTION PRICE. The option price of each option to purchase Common
Stock shall be 100% of the Fair Market Value per share of Common Stock at
the date the option is granted.
(B) MAXIMUM TERM. No option shall be exercisable after the expiration
of fifteen (15) years from the date it is granted, except as provided in
Section 10(b), (c), (d) or (e).
(C) TIME OF EXERCISE. The Committee shall determine the duration of
each Option and the time or times within which (during the term of Option)
all or portions of each Option may be exercised, except to the extent that
other terms of exercise are specifically provided by other provisions of the
B-3
<PAGE>
Plan; provided, however, that no Option granted under this Plan may become
exercisable prior to six (6) months following the date it is granted.
8. FAIR MARKET VALUE. "Fair Market Value" shall be the amount determined
by the Committee from time to time, using such good faith valuation methods as
it deems appropriate, except that as long as the Common Stock is traded on
NASDAQ or a recognized stock exchange, it shall mean the average of the highest
and lowest quoted selling prices for the Shares on the relevant date, or (if
there were no sales on such date) the weighted average of the means between the
highest and the lowest quoted selling prices on the nearest day before and the
nearest day after the relevant date, as prescribed by Treasury Regulation
20.2031-2(b)(2), as reported in the Wall Street Journal or a similar publication
selected by the Committee.
9. CONVERSION AND MODIFICATION. The Company retains the right to convert
incentive options to nonqualified options. The Company may modify grants of
options to Participants who are foreign nationals or employed outside the United
States to fulfill Plan purposes and recognize differences in local law, tax
policy and custom.
10. EXPIRATION OF OPTION.
(A) GENERAL RULE. Except with respect to Options expiring pursuant to
Section 10(b), (c), (d) or (e), each Option shall expire on the first to
occur of: (i) the tenth anniversary in the case of incentive Options, or the
fifteenth anniversary in the case of nonqualified Options, of the date of
grant thereof, or (ii) the expiration date or dates set forth in the
applicable Option agreement.
(B) EXPIRATION UPON TERMINATION OF EMPLOYMENT. Except with respect to
Options expiring pursuant to Section 10(c), (d) or (e), an Option shall
expire on the first to occur of the applicable date or dates determined
pursuant to Section 10(a) or the date that the employment or relationship of
the Participant with the Company terminates. Notwithstanding the preceding
provisions of this Section 10(b), the Committee, in its sole discretion, may
permit such a Participant to exercise an Option during a period following
his or her termination of employment, which period shall not exceed three
months. In no event, however, may the Committee permit such Participant to
exercise an Option under this Section 10(b) after the expiration date
computed under Section 10(a).
(C) EXPIRATION UPON DISABILITY OR DEATH. If the employment or
relationship of a Participant with the Company terminates by reason of
disability (as determined in the discretion of the Committee) or by reason
of death, his or her Options, if any, shall expire after the first to occur
of the expiration date computed under Section 10(a) or the one-year
anniversary of termination of employment or relationship by reason of
disability or death.
(D) EXPIRATION UPON RETIREMENT. If the employment of a Participant with
the Company terminates due to "retirement," as defined below, with the
consent of the Committee, his or her Options, if any, shall expire on the
first to occur of the applicable date or dates determined pursuant to
Section 10(b). If a Participant who has so retired dies prior to exercising
in full an Option which has not expired pursuant to the preceding sentence,
then, notwithstanding the preceding sentence, his or her Options shall
expire after the first to occur of the expiration date computed under
Section 10(a) or the one-year anniversary of the date of the Participant's
death. "Retirement" for purposes of this Plan shall mean the termination of
employment of a Participant with the Company on or after the date a
Participant attains age 65.
(E) EXPIRATION UPON TERMINATION FOR CAUSE. If the employment or
relationship of a Participant is terminated by the Company for substantial
cause, the Participant's right to exercise his or her Options shall
terminate at the time notice of termination of employment, or cancellation
of relationship, is given by the Company to such Participant. For purposes
of this provision, substantial cause shall include:
(i) The commission of an action against or in derogation of the
interests of the Company which, if proven in a court of law, would
constitute a violation of a criminal code or similar law;
B-4
<PAGE>
(ii) Divulging the Company's confidential information; or
(iii) The performance of any similar action that the Committee, in
its sole discretion, may deem to be sufficiently injurious to the
interest of the Company to constitute substantial cause for termination.
11. METHOD OF EXERCISE. Options may be exercised by giving written notice
to the Corporate Secretary of the Company, stating the number of shares of
Common Stock with respect to which the Option is being exercised and tendering
payment therefor. The exercise price of an Option shall be paid in full at the
time that the Option, or any part thereof, is exercised. Subject to the approval
of the Committee, payment may be made (i) in cash, (ii) through the surrender of
previously acquired shares of Common Stock having a Fair Market Value equal to
the exercise price of the Option or the withholding of shares of Common Stock
having a Fair Market Value equal to the exercise price of the Option, or (iii) a
combination of (i) and (ii).
12. ADJUSTMENTS.
(a) The aggregate number of shares of Common Stock with respect to which
Options may be granted hereunder, the number of shares of Common Stock
subject to each outstanding Option and the Option price per share for each
such Option may all be appropriately adjusted, as the Committee may
determine, for any increase or decrease in the number of shares of issued
Common Stock of the Company resulting from a subdivision or consolidation of
shares whether through reorganization, payment of a share dividend or other
increase or decrease in the number of such shares outstanding effected
without receipt of consideration by the Company, distribution of assets to
stockholders, or the assumption and conversion of outstanding options in an
acquisition of the Company; provided, however, that no adjustment in the
number of shares with respect to which Options may be granted under the Plan
or in the number of shares subject to outstanding Options shall be made
except in the event that such adjustment, together with all respective prior
adjustments which were not made as a result of this provision, involve a net
change of more than 10%.
(b) Subject to any required action by the stockholders, if the Company
shall be a party to a transaction involving a sale of substantially all its
assets, a merger or a consolidation, any Option granted hereunder shall
pertain to and apply to the securities to which a holder of the number of
shares of Common Stock subject to the Option would have been entitled if the
Participant actually owned the stock subject to the Option immediately prior
to the time any such transaction became effective; provided, however, that
all unexercised Options under the Plan may be canceled by the Company as of
the effective date of any such transaction by giving notice to the holders
thereof of its intention to do so and by permitting the exercise, during the
30-day period preceding the effective date of such transaction, of all
partly or wholly unexercised Options in full (without regard to installment
exercise limitations). This provision shall apply provided that the
Participant is not terminated for cause.
(c) In the case of dissolution of the Company, every Option outstanding
hereunder shall terminate; provided, however, that each Participant shall
have 30 days' prior written notice of such event, during which time the
holder shall have a right to exercise the partly or wholly unexercised
Option (without regard to installment exercise limitations).
(d) On the basis of information known to the Company, the Committee
shall make all determinations under this Section 12, including whether a
transaction involves a sale of substantially all the Company's assets, and
all such determinations shall be conclusive and binding.
13. OPTION AGREEMENTS. Each Participant shall agree to such terms and
conditions in connection with the exercise of an Option, including restrictions
on the disposition of the Common Stock acquired upon the exercise thereof, as
the Committee may deem appropriate. Option agreements need not be identical. The
certificates evidencing the shares of Common Stock acquired upon exercise of an
Option may bear a
B-5
<PAGE>
legend referring to the terms and conditions contained in the respective Option
agreement and the Plan, and the Company may place a stop transfer order with its
transfer agent against the transfer of such shares. If requested to do so by the
Committee at the time of exercise of an Option, each Participant shall execute a
certificate indicating that he or she is purchasing the Common Stock under such
Option for investment and not with any present intention to sell the same.
14. WITHHOLDING OF TAXES. Upon the exercise of an Option, the Company may
deduct any Federal, state or local taxes required by law to be withheld with
respect to such exercise. Any holder of an Option may elect to surrender shares
of Common Stock previously acquired by the holder or to have the Company
withhold shares that would have otherwise been issued to the holder pursuant to
the exercise of an Option, the number of such withheld or surrendered shares to
be sufficient to satisfy all or a portion of the income tax liability that
arises upon such exercise.
15. LEGAL AND OTHER REQUIREMENTS. The obligation of the Company to sell and
deliver Common Stock under Options granted under the Plan shall be subject to
all applicable federal and state laws, regulations, rules and approvals. A
Participant shall have no rights as a stockholder with respect to any shares
covered by an Option granted to or exercised by him or her until the date of
delivery of a stock certificate to him or her for such shares. No adjustment
other than pursuant to Section 12 hereof shall be made for dividends or other
rights for which the record date is prior to the date such stock certificate is
delivered.
16. NONTRANSFERABILITY. During the lifetime of a Participant, any Option
granted to him or her shall be exercisable only by him or her or by his or her
guardian or legal representative. No Option shall be assignable or transferable,
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code or
the Employee Retirement Income Security Act. The granting of an Option shall
impose no obligation upon the Participant to exercise such Option.
17. INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as members of the Board of Directors or as
members of the Committee, the members of the Committee shall be indemnified by
the Company against the reasonable expenses, including attorneys' fees actually
and necessarily incurred in connection with the defense of any action, suit or
proceeding (or in connection with any appeal therein), to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding that such
Committee member is liable for gross negligence or misconduct in the performance
of his or her duties; provided, that within 60 days after institution of any
such action, suit or proceeding, Committee members shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
18. NO CONTRACT OF EMPLOYMENT. Neither the adoption of this Plan nor the
grant of any Option shall be deemed to obligate the Company to continue the
employment or relationship of any Participant for any particular period, nor
shall the granting of an Option constitute a request or consent to postpone the
retirement date of any Participant.
19. TERMINATION AND AMENDMENT OF PLAN. No Incentive Options shall be
granted under the Plan more than ten years after the date the Plan was adopted
by the Board of Directors. The Board of Directors, acting by a majority of its
members, without further action on the part of the stockholders, may from time
to time alter, amend or suspend the Plan or any Option granted hereunder or may
at any time terminate the Plan; provided, however, the Board of Directors may
not materially increase the number of shares of Common Stock subject to the Plan
(except as provided in Section 12 hereof), and provided
B-6
<PAGE>
further that no such action shall materially and adversely affect any
outstanding Options without the consent of the respective Participants.
20. EFFECTIVE DATE OF PLAN. The Plan as adopted by the Board of Directors
and approved by stockholders was originally effective as of June 9, 1994 and was
amended and restated as of January 1, 1996. The Plan is hereby further amended
and restated effective May 1, 1997, subject to approval by the holders of the
Common Stock of the Company.
B-7
<PAGE>
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ENGINEERING ANIMATION, INC.
PROXY CARD
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 30, 1997.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
P
R The undersigned hereby constitutes and appoints Matthew M. Rizai and Jamie
O A. Wade, and each of them, true and lawful agents and proxies of the
X undersigned, with full power of substitution, to represent the undersigned
Y and to vote all shares of stock which the undersigned is entitled to vote
at the Annual Meeting of Stockholders of Engineering Animation, Inc. to be
held on April 30, 1997, and at any and all adjournments and postponements
thereof, on all matters before such meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. HOWEVER, IF NO
VOTE IS SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE NOMINEE FOR DIRECTOR;
"FOR" THE PROPOSAL TO AMEND AND RESTATE THE STOCK OPTION PLAN; "FOR" THE
PROPOSAL TO AMEND AND RESTATE THE NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN;
AND "FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT ACCOUNTANTS; ALL OF WHICH MATTERS ARE MORE FULLY DESCRIBED IN
THE PROXY STATEMENT OF WHICH THE UNDERSIGNED STOCKHOLDER ACKNOWLEDGES
RECEIPT.
THIS PROXY GRANTS DISCRETIONARY AUTHORITY TO VOTE IN ACCORDANCE WITH THE
BEST JUDGMENT OF THE NAMED PROXIES ON OTHER MATTERS THAT MAY COME BEFORE
THE MEETING.
---------------------------------------------------------------------------
PLEASE VOTE, SIGN AND DATE THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE
---------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
______________________________ _________________________________
______________________________ _________________________________
______________________________ _________________________________
- - -------------------------------------------------------------------------------
FOLD AND DETACH HERE
- - -------------------------------------------------------------------------------
<PAGE>
- - -------------------------------------------------------------------------------
/x/ PLEASE MARK YOUR 7517
VOTES AS IN THIS
EXAMPLE.
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR each
proposal The Board of Directors recommends a vote FOR all proposals.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approval. Amendment and Restatement / / / / / /
Director. of the Non-Employee Directors Stock
Nominee: Jamie A. Wade Option Plan.
_______________________________ 3. Approval. Amendment and Restatement / / / / / /
of the Stock Option Plan.
4. Ratification of the appointment of / / / / / /
Ernst & Young LLP as independent
accountants.
5. In the discretion of the proxies
named herein, the proxies are authorized
to vote upon other matters as are
properly brought before the meeting.
The signer hereby revokes all proxies heretofore given by the
signer to vote at said meeting or any adjournments thereof.
YES NO
I PLAN TO ATTEND / / / /
THE MEETING
</TABLE>
SIGNATURE(S)____________________________________ DATE___________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
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FOLD AND DETACH HERE
[EAI LOGO]
ENGINEERING ANIMATION, INC.
ANNUAL MEETING OF STOCKHOLDERS
APRIL 30, 1997
1:30 P.M.
MARRIOTT HOTEL
700 GRAND AVE.
DES MOINES, IOWA 50309
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