<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 2-7670
ENGINEERING ANIMATION, INC.
[EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER]
DELAWARE 42-1323712
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2321 NORTH LOOP DRIVE
AMES, IOWA 50010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
______________________
(515)296-9908
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
______________________
INDICATE BY CHECK ( X ) WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
(1) YES X NO
----------- ----------
(2) YES X NO
----------- ----------
AS OF AUGUST 7, 1997, THERE WERE 5,724,669 SHARES OF THE REGISTRANT'S $0.01
PAR VALUE COMMON STOCK OUTSTANDING.
<PAGE>
ENGINEERING ANIMATION, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
At June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income
For the three and six months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
---------------------------
June 30, December 31,
1997 1996
------------- ------------
Assets (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 21,209 $ 9,350
Short-term investments 21,484 9,884
Accounts receivable:
Billed 8,220 6,666
Unbilled 4,131 3,334
Deferred income taxes 114 48
Prepaid expenses 1,048 390
------------- ------------
Total current assets 56,206 29,672
Property and equipment, net 7,604 5,192
Other assets:
Note receivable 1,408 1,408
Software development costs, net 1,129 602
Other 808 1,082
------------- ------------
Total assets $ 67,155 $ 37,956
------------- ------------
------------- ------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,550 $ 1,058
Accrued expenses 525 278
Accrued compensation 1,067 1,135
Deferred revenue 287 400
Deferred income taxes 119 119
Current portion of debt and
lease obligations 66 62
Income taxes payable 238 132
------------- ------------
Total current liabilities 3,852 3,184
Debt and lease obligations, long
term portion 674 872
Deferred income taxes 1,050 826
Stockholders' equity 61,579 33,074
------------- ------------
Total liabilities and
stockholders' equity $ 67,155 $ 37,956
------------- ------------
------------- ------------
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
3
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ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
----------------------- -----------------------
Three Months ended Six Months ended
June 30 June 30
1997 1996 1997 1996
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues:
3D visualization software products $ 3,608 $ 1,299 $ 6,657 $ 2,100
Interactive software products 2,774 1,605 4,984 2,437
Custom animation products 2,420 1,632 4,837 3,100
--------- ---------- --------- ----------
Total revenues 8,802 4,536 16,478 7,637
Cost of revenues 2,779 1,564 5,204 2,654
--------- ---------- --------- ----------
Gross profit 6,023 2,972 11,274 4,983
Operating expenses:
Sales and marketing 2,588 1,529 4,957 2,618
General and administrative 970 653 1,895 1,092
Research and development 1,029 384 1,946 638
--------- ---------- --------- ----------
Total operating expenses 4,587 2,566 8,798 4,348
--------- ---------- --------- ----------
Income from operations 1,436 406 2,476 635
Interest income, net 295 328 560 395
--------- ---------- --------- ----------
Income before income taxes 1,731 734 3,036 1,030
Income taxes 690 300 1,210 420
--------- ---------- --------- ----------
Net income $ 1,041 $ 434 $ 1,826 $ 610
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Earnings per share of common stock $ 0.18 $ 0.08 $ 0.32 $ 0.13
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Weighted average number of common and
equivalent shares outstanding 5,763 5,389 5,624 4,843
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
See accompanying notes.
4
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ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
---------------------------
Six Months ended June 30,
1997 1996
------------- ------------
Net cash provided (used) by operating
activities $ 491 $ (689)
Investing activities
Purchase of notes receivable - (658)
Purchases of property and equipment (3,089) (2,247)
Development of software (574) (150)
Other activities - (145)
Purchases of marketable securities (11,600) -
------------- ------------
Net cash used by investing activities (15,263) (3,200)
Financing activities
Proceeds from short-term borrowing - 600
Payments on short-term borrowing - (600)
Decrease in restricted cash 140 -
Payments on long-term debt (194) (1,201)
Net proceeds from issuance of common stock 26,685 29,066
------------- ------------
Net cash provided by financing activities 26,631 27,865
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Net increase in cash and cash equivalents 11,859 23,976
Cash and cash equivalents at beginning of period 9,350 491
------------- ------------
Cash and cash equivalents at end of period $ 21,209 $ 24,467
------------- ------------
------------- ------------
See accompanying notes.
5
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ENGINEERING ANIMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Engineering
Animation Europe B.V., the Company's wholly-owned subsidiary established in
June 1996. All significant intercompany accounts and transactions have been
eliminated in consolidation. The unaudited condensed consolidated financial
statements included herein reflect all adjustments, consisting only of normal
recurring accruals which in the opinion of management are necessary to fairly
state the Company's financial position, results of operations, and cash flows
for the periods presented. These financial statements should be read in
conjunction with the Company's audited financial statements as included in
the Company's Form 10-K as filed with the Securities and Exchange Commission
on March 31, 1997. The results of operations for the six month period ended
June 30, 1997 are not necessarily indicative of the results that may be
expected for any subsequent quarter or for the fiscal year ending
December 31, 1997. The December 31, 1996 balance sheet was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
2. PUBLIC OFFERINGS
In February 1996, the Company completed its initial public offering and
issued 1,825,000 shares of its common stock. The Company received
approximately $29.0 million of cash, net of underwriting discounts and other
offering costs. In June 1997, the Company completed a follow-on offering of
1,000,000 shares of its common stock. The Company received approximately
$26.6 million of cash, net of underwriting discounts and other offering costs.
3. EARNINGS PER SHARE
Per share earnings are based on the weighted average number of shares of
common stock and common stock equivalents outstanding. The dilutive effect of
outstanding stock options was determined based upon the treasury stock
method. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock equivalents granted at exercise prices less
than the initial public offering price during the twelve months immediately
preceding the initial public offering have been included in the determination
of shares used in the calculation of earnings per share as if they were
outstanding for all periods.
The Company repaid approximately $1,712,000 of bank debt with the
proceeds of the initial public offering. The impact on earnings per share
was not significant.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be adopted on
December 31, 1997. At that time, the
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Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact is expected to result in an
increase in primary earnings per share for the three months ended June 30,
1997 and June 30, 1996 of $0.03 and $0.01 per share, respectively, and an
increase in primary earnings per share for the six months ended June 30, 1997
and June 30, 1996 of $0.06 and $0.02 per share, respectively. The
impact of Statement 128 on the calculation of fully diluted earnings per
share for these quarters is not expected to be material.
7
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ENGINEERING ANIMATION, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
NET REVENUES
The Company's total revenues are derived from sales of three dimensional
("3D") visualization software products, interactive software products and
custom animation products. 3D visualization software products were formerly
referred to as animation software tools. Revenues from sales of 3D
visualization software products are recognized upon delivery of the product
to the customer and satisfaction of significant related obligations, if any.
Revenues from customer support are included in 3D visualization software
products revenue and represent less than 5% of total revenues. Customer
support revenues are deferred and recognized ratably over the period the
customer support services are provided. The Company recognizes revenues from
interactive software products and custom animation products based upon labor
and other costs incurred and progress to completion on contracts.
The Company's total revenues increased 94% to $8.8 million for the three
months ended June 30, 1997 from $4.5 million for the three months ended June
30, 1996, and increased 116% to $16.5 million for the six months ended June
30, 1997 from $7.6 million for the six months ended June 30, 1996. 3D
visualization software products revenue increased 178% to $3.6 million for
the three months ended June 30, 1997 from $1.3 million for the three months
ended June 30, 1996, and increased 217% to $6.7 million for the six months
ended June 30, 1997 from $2.1 million for the six months ended June 30, 1996,
as a result of increased product sales. Interactive software product
revenues increased 73% to $2.8 million for the three months ended June 30,
1997 from $1.6 million for the three months ended June 30, 1996, and
increased 105% to $5.0 million for the six months ended June 30, 1997 from
$2.4 million for the six months ended June 30, 1996, primarily due to
additional projects for interactive software products. Custom animation
products revenue increased 48% to $2.4 million for the three months ended
June 30, 1997 from $1.6 million for the three months ended June 30, 1996, and
increased 56% to $4.8 million for the six months ended June 30, 1997 from
$3.1 million for the six months ended June 30, 1996, primarily due to
additional projects in custom animation products.
COST OF REVENUES
The Company's cost of revenues includes cost of production, packaging and
distribution costs, royalties and amortization of capitalized software costs.
The Company's cost of revenues increased 78% to $2.8 million for the three
months ended June 30, 1997 from $1.6 million for the three months ended June
30, 1996, and increased 96% to $5.2 million for the six months ended June 30,
1997 from $2.7 million for the six months ended June 30, 1996, primarily due
to expenses associated with new development contracts in 3D visualization
software products and
8
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increased development costs for interactive software projects. The Company's
cost of revenues as a percentage of revenues decreased to 32% for the three
months ended June 30, 1997 from 34% for the three months ended June 30, 1996
and decreased to 32% for the six months ended June 30, 1997 compared to 35%
for the six months ended June 30, 1996. The decrease in cost of revenues as
a percentage of revenues was primarily the result of spreading expenses over
higher revenues.
OPERATING EXPENSES
SALES AND MARKETING. The Company's sales and marketing expenses include
personnel costs related to sales, marketing and customer service activities,
as well as costs attributable to promotional materials, mail campaigns, trade
shows and advertising. The Company's sales and marketing expenses increased
69% to $2.6 million for the three months ended June 30, 1997 from $1.5
million for the three months ended June 30, 1996, and increased 89% to $5.0
million for the six months ended June 30, 1997 from $2.6 million for the six
months ended June 30, 1996, primarily due to costs associated with expansion
of sales force and increased marketing costs. Sales and marketing expenses
decreased to 29% of total revenues for the three months ended June 30, 1997
from 34% for the three months ended June 30, 1996, and decreased to 30% of
total revenues for the six months ended June 30, 1997 from 34% for the six
months ended June 30, 1996. The decrease in sales and marketing expenses as a
percentage of revenues was primarily the result of spreading expenses over
higher revenues.
GENERAL AND ADMINISTRATIVE. The Company's general and administrative
expenses consist of salaries and facility costs for administrative, executive
and accounting personnel, as well as consulting expenses, insurance costs,
professional fees and other costs. The Company's general and administrative
expenses increased 49% to $970,000 for the three months ended June 30, 1997
from $653,000 for the three months ended June 30, 1996, and increased 74% to
$1.9 million for the six months ended June 30, 1997 from $1.1 million for the
six months ended June 30, 1996, primarily a result of increased
administrative staff and related costs. General and administrative expenses
decreased to 11% of total revenues for the three months ended June 30, 1997
from 14% for the three months ended June 30, 1996, and decreased to 12% of
total revenues for the six months ended June 30, 1997 from 14% for the six
months ended June 30, 1996. The decrease of general and administrative
expenses as a percentage of revenues was primarily a result of spreading
expenses over higher revenues.
RESEARCH AND DEVELOPMENT. The Company's research and development expenses
consists of salaries, related facility costs, equipment costs and outside
consulting fees. The Company's research and development expenses increased
168% to $1.0 million for the three months ended June 30, 1997 from $384,000
for the three months ended June 30, 1996, and increased 205% to $1.9 million
for the six months ended June 30, 1997 from $638,000 for the six months ended
June 30, 1996. Research and development expenses increased to 12% of total
revenues for the three months ended June 30, 1997 from 8% for the three
months ended June 30, 1996, and increased to 12% of total revenues for the
six months ended June 30, 1997 from 8% for the six months ended June 30,
1996. The increase in research and development expenses was primarily
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due to additional personnel and related costs required to meet the
increased demand for 3D visualization software and interactive software
products.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has satisfied its cash requirements through
borrowings, customer advances, capital lease financing and net proceeds of
approximately $29.0 million from the Company's initial public offering of
Common Stock in February 1996 and approximately $26.6 million from the
Company's follow-on offering of Common Stock in June 1997. As of June 30,
1997, the Company had $21.2 million in cash and cash equivalents and $21.5
million in short-term investments.
Net cash provided by operating activities was $491,000 for the six months
ended June 30, 1997, primarily due to net income, depreciation and an
increase in accounts payable, offset by an increase in accounts receivables.
Accounts receivable at June 30, 1997 increased approximately $1.5 million to
$8.2 million from $6.7 million at December 31, 1996. The increase in
accounts receivable was due to increased revenues and increased size of the
Company's contracts, which historically have taken a longer period to collect
than smaller contracts. The Company's accounts receivable balance will vary
from quarter to quarter, depending on the number and size of client projects
and on the timing of completion of the projects.
The Company believes its current cash and short-term investment balances will
be sufficient to meet anticipated cash needs for working capital and capital
expenditures for at least the next twelve months. There can be no assurance
that additional capital beyond the amounts currently forecasted by the
Company will not be required nor that any such required additional capital
will be available on reasonable terms, if at all, at such time as required by
the Company.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The Company or its representatives from time to time may make or may have
made certain forward-looking statements, orally or in writing, including
without limitations any such statements made or to be made in the
Management's Discussion and Analysis contained in its various SEC filings.
The Company wishes to ensure that such statements are accompanied by
meaningful cautionary statements, so as to ensure to the fullest extent
possible the protections of the safe harbor established in the Private
Securities Litigation Reform Act of 1995. Accordingly, such statements are
qualified in their entirety by reference to and are accompanied by the
following discussion of certain important factors that could cause actual
results to differ materially from those projected in such forward-looking
statements.
The Company cautions the reader that this list of factors may not be
exhaustive. The Company operates in a continually changing business
environment, and new risk factors emerge from time to time. Management
cannot predict such risk factors, nor can it assess the impact, if any, of
such risk factors on the Company's business or the extent to which any
factors, or combination
10
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of factors, may cause actual results to differ materially from those
projected in any forward-looking statements. Accordingly, forward-looking
statements should not be relied upon as a prediction of actual results.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company may experience material fluctuations in future revenues and
operating results on a quarterly or annual basis resulting from a number of
factors, including: the time of the introduction of new visualization
software and interactive software products by the Company and by its
competitors; seasonality of certain customer purchases of interactive
software products; product mix; general economic conditions; and the
Company's ability to obtain agreements from publishers and distributors to
market the Company's interactive software products. The Company's products
are sold in markets which change rapidly and the Company must continually
anticipate and adapt its products to emerging computer technologies and
capabilities. The market for the Company's three-dimensional visualization
software products is emerging and dependent upon a number of a variables,
including consumer preferences and the rate of adoption of new technology.
There is a risk that these markets will not continue to grow and that the
Company's three-dimensional visualization software products will not be
accepted by the markets. The market for the Company's interactive software
products is emerging and dependent upon a number of variables, including
consumer preferences, shipments of, and the installed base of, multimedia
personal computers, and the number of developers creating interactive
software products. There is risk that the Company's interactive software
products will not be accepted by the market or that the Company will be
unable to respond to evolving requirements of the market.
For a more complete discussion of these risk factors, see the Company's Form
10-K, filed March 31, 1997.
11
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on April 30, 1997,
the stockholders of the Company (1) elected Jamie A. Wade as director of the
Company to hold office until the 2000 annual meeting of stockholders (subject
to the election and qualification of his successor and to his earlier death,
resignation or removal); (2) approved the amendment and restatement of the
Company's Non-Employee Directors Stock Option Plan, decreasing the number of
shares reserved for issuance under such plan by 190,000 to 60,000; (3)
approved the amendment and restatement of the Company's Employee Stock Option
Plan, increasing the number of shares reserved for issuance under such plan
by 190,000 to 1,190,000; and (4) ratified the appointment of Ernst & Young
LLP as auditors. The votes were as follows:
<TABLE>
<CAPTION>
Votes for Votes withheld Abstain
<S> <C> <C> <C>
(1) Election of director:
Jamie A. Wade 4,351,791
(2) Approval of Amendment and
Restatement of Non-Employee
Directors Stock Option Plan 4,299,673 25,852 6,814
(3) Approval of Amendment and
Restatement of Employee Stock
Option Plan 2,765,546 1,562,785 4,008
(4) Ratification of the appointment
of Ernst & Young LLP as auditors 4,350,696 4,759 491
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Index to Exhibits
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended June
30, 1997.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 8, 1997_______________ ENGINEERING ANIMATION, INC.
(Registrant)
By: /s/ Michael K. Jewell
-----------------------------
Michael K. Jewell
Vice President of Finance and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
13
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INDEX TO EXHIBITS
Exhibit Description
- - ------- -----------
10.1 Amended and Restated 1994 Stock Option Plan
10.2 Amended and Restated Non-Employee Directors Stock Option Plan
27. Financial Data Schedule
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EXHIBIT 10.1
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 13d-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,
<PAGE>
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.
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.
2
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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 Plan; provided, however, that no Option granted under this Plan may
become exercisable prior to six (6) months following the date it is
granted.
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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;
(ii) Divulging the Company's confidential information; or
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(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 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
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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 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
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EXHIBIT 10.2
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 13d-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;
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(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 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.
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(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).
(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.
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(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 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
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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 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.
5
<PAGE>
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.
6
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