<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
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 Rule 14a-11(c) or Rule 14a-12
ENGINEERING ANIMATION, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
ENGINEERING ANIMATION, INC.
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[EAI LOGO]
ENGINEERING ANIMATION, INC.
2321 NORTH LOOP DRIVE
AMES, IOWA 50010
April 6, 1999
Dear Fellow Stockholder:
You are cordially invited to attend the Engineering Animation, Inc. Annual
Meeting of Stockholders at the Marriott Hotel, 700 Grand Avenue, Des Moines,
Iowa 50309 on Tuesday, May 11, 1999 at 1:30 P.M.
We are looking forward to discussing our record-setting 1998 performance.
The attached Notice of Annual Meeting and Proxy Statement describes the business
to be transacted at the meeting and provides other information concerning EAI
that you should be aware of when you vote your shares.
The principal business of the Annual Meeting will be to elect two
directors, to amend our employee stock option plan and to ratify the appointment
of our independent auditors.
It is important that your shares are represented at the Annual Meeting,
whether or not you plan to attend. To ensure that you will be represented, we
ask you to sign, date and return the enclosed proxy card or proxy voting
instruction form as soon as possible. If your bank or broker offers telephone or
Internet voting and you choose to use one of those forms of voting, it is not
necessary for you to return your proxy card. In any event, please vote as soon
as possible.
On behalf of the Board of Directors and management, I would like to express
our appreciation for your continued interest in EAI.
Sincerely,
Matthew M. Rizai
Chairman, Chief Executive
Officer, President & Treasurer
<PAGE> 3
ENGINEERING ANIMATION, INC.
2321 NORTH LOOP DRIVE
AMES, IOWA 50010
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
TUESDAY, MAY 11, 1999
1:30 P.M.
MARRIOTT HOTEL
700 GRAND AVENUE
DES MOINES, IOWA 50309
The purpose of our Annual Meeting is to:
1. elect two directors for three-year terms;
2. amend and restate our Stock Option Plan to increase the number of
shares that may be issued under the Plan and to make certain
technical amendments; and
3. ratify the appointment of Ernst & Young LLP as our auditors for
fiscal 1999.
You can vote at the Annual Meeting in person or by proxy if you were a
stockholder of record on March 23, 1999.
Our Annual Report for the fiscal year ended December 31, 1998 is enclosed.
You may revoke your proxy at any time prior to its exercise at the Annual
Meeting.
By Order of the Board of Directors,
Jamie A. Wade
Secretary
April 6, 1999
<PAGE> 4
ENGINEERING ANIMATION, INC.
------------------------------------------------------
PROXY STATEMENT
------------------------------------------------------
APRIL 6, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers....................................... 1
Election of Directors....................................... 4
Meetings and Committees of the Board of Directors........... 6
Director Compensation....................................... 6
Ownership of EAI Common Stock............................... 6
Section 16(a) Beneficial Ownership Reporting Compliance..... 8
Executive Compensation...................................... 9
Report of the Compensation Committee of the Board of
Directors................................................. 11
Company Performance......................................... 13
Employment and Severance Arrangements....................... 14
Executive Officers and Key Employees........................ 15
Proposal to Amend and Restate Stock Option Plan............. 18
Proposal to Ratify the Appointment of Independent Public
Auditors.................................................. 22
</TABLE>
ANNUAL REPORT ON FORM 10-K
YOU MAY OBTAIN A FREE COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1998, INCLUDING SCHEDULES, THAT IS ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). PLEASE CONTACT BARRY FRENCH, DIRECTOR
OF CORPORATE COMMUNICATIONS, AT ENGINEERING ANIMATION, INC., 2321 NORTH LOOP
DRIVE, AMES, IOWA 50010, OR [email protected] BY E-MAIL. YOU CAN ALSO ACCESS OUR SEC
FILED REPORTS THROUGH THE INVESTOR RELATIONS -- FINANCIAL REPORTS PORTION OF OUR
WEB SITE AT WWW.EAI.COM/CORPORATE.
<PAGE> 5
QUESTIONS AND ANSWERS
WHEN AND WHERE IS THIS YEAR'S ANNUAL MEETING OF STOCKHOLDERS BEING HELD?
Engineering Animation, Inc.'s Annual Meeting will take place on Tuesday,
May 11, 1999 at 1:30 P.M. Central time at the Marriott Hotel, 700 Grand Avenue,
Des Moines, Iowa 50309.
WHAT WILL HAPPEN AT THIS YEAR'S ANNUAL MEETING?
We are soliciting your vote on the following items and any other business
that is properly raised at the meeting, if a quorum is present:
- election of two directors for three-year terms;
- amendment and restatement of our Stock Option Plan; and
- ratification of Ernst & Young LLP as our independent public auditors.
WHAT IS A QUORUM?
The presence, in person or by proxy, of the holders of greater than
one-third of the shares entitled to vote at the Annual Meeting constitutes a
quorum. You will be considered part of the quorum if you return a signed and
dated proxy card, if you vote by telephone or Internet or if you attend the
meeting.
Abstentions are counted as "shares present" at the Annual Meeting for
purposes of determining whether a quorum exists. In the election of directors,
abstentions will not affect the outcome of the vote. In the amendment of the
Stock Option Plan and the ratification of our independent public auditors,
abstentions will have the effect of a vote "against" the proposal. Proxies
submitted by brokers that do not indicate a vote for some or all of the
proposals because the brokers do not have voting authority and have not received
voting instructions from you (so-called "broker non-votes") are considered
"shares present" for purposes of determining whether a quorum exists. Broker
non-votes are not considered as shares voted and will not affect the outcome of
the vote.
WHO IS ENTITLED TO VOTE?
Stockholders at the close of business on March 23, 1999 (the record date)
are entitled to vote. On that date, there were 11,813,015 shares of EAI common
stock outstanding and entitled to vote at the Annual Meeting.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS: The two nominees who receive the highest number of
votes will be elected. If you do not want to vote your shares for a particular
nominee, you may indicate that in the space provided on the proxy card or
withhold authority as prompted during telephone or Internet voting.
AMENDMENT AND RESTATEMENT OF STOCK OPTION PLAN: Amendment and restatement
of our Stock Option Plan requires that a majority of the shares present or
represented by proxy at the Annual Meeting vote in its favor.
<PAGE> 6
RATIFICATION OF INDEPENDENT PUBLIC AUDITORS: Although we are not required
to submit the appointment of our auditors to a vote of stockholders, we believe
that it is appropriate to ask you to ratify the appointment. Ratification of
Ernst & Young LLP as our independent public auditors requires the affirmative
vote of a majority of the shares present or represented by proxy at the Annual
Meeting.
HOW MANY VOTES DO I HAVE?
Each share of EAI common stock that you own entitles you to one vote.
HOW DO I VOTE?
All stockholders may vote by mail. You also may vote by telephone or over
the Internet if you hold your shares through a bank or broker that offers either
of those options. To vote by mail, please sign, date and mail your proxy in the
postage paid envelope provided.
If you attend the Annual Meeting in person, you may pick up a ballot when
you arrive. If your shares are held in the name of your broker, bank or other
nominee, you need to bring an account statement or letter from them indicating
that you were the beneficial owner of the shares on March 23, 1999, the record
date for voting.
CAN I CHANGE MY VOTE?
You can change your vote by revoking your proxy at any time before it is
exercised in one of four ways.
1. Notify our Secretary in writing before the Annual Meeting that you are
revoking your proxy.
2. Submit another proxy with a later date.
3. Vote by telephone or Internet after your have given your proxy.
4. Vote in person at the Annual Meeting.
WHAT IF I RETURN MY PROXY CARD BUT DON'T MARK IT TO SHOW HOW I AM VOTING?
If you sign, date and return your proxy card but do not indicate how you
want to vote, you give discretionary voting authority to Matthew M. Rizai and
Jamie A. Wade to vote on the items discussed in these proxy materials. In such a
case, your vote will be cast FOR each of the director nominees, FOR the
amendment of the Stock Option Plan and FOR the ratification of our public
auditors.
WHAT IF OTHER ITEMS COME UP AT THE ANNUAL MEETING AND I AM NOT THERE TO VOTE?
When you return a signed and dated proxy card or provide your voting
instructions by telephone or Internet, you give Dr. Rizai and Mr. Wade the
discretionary authority to vote on your behalf on any other matter that is
properly brought at the Annual Meeting.
2
<PAGE> 7
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
Your shares are likely registered differently or are in more than one
account. You should sign and return all proxy cards to guarantee that all of
your shares are voted.
HOW DO I SUBMIT A STOCKHOLDER PROPOSAL FOR NEXT YEAR'S ANNUAL MEETING?
We must receive your proposal for the annual meeting in the year 2000 in
writing after November 7, 1999 but before December 9, 1999. You should send your
proposal to the Secretary at our address on the cover of this proxy statement.
To be properly brought before an annual meeting, our by-laws require that
your proposal give: (1) a brief description of the business you want to bring
before the meeting; (2) your name and address as they appear on our stock
records; (3) the class and number of shares of EAI that you beneficially own;
and (4) any interest you may have in the business you want to bring before the
meeting. In addition, to be included in the proxy statement for the meeting,
your proposal must comply with the proxy rules of the SEC.
HOW DO I NOMINATE A DIRECTOR FOR CONSIDERATION AT NEXT YEAR'S ANNUAL MEETING?
You must submit nominations for directors of EAI for the annual meeting in
the year 2000 in writing after December 12, 1999 but before January 13, 2000.
Our by-laws require that you provide: (1) your name and address and the name and
address of the nominee; (2) a statement that you are a record holder of EAI
entitled to vote at the meeting and that you plan to appear in person or by
proxy at the meeting to make the nomination; (3) a description of all
arrangements or understandings under which you are making the nominations; (4)
any other information that would be required by the SEC for inclusion in a proxy
statement; and (5) the nominee's consent to serve as a director if elected. You
should submit nominations to the Secretary at our address on the cover of this
proxy statement.
WHO PAYS TO PREPARE, MAIL AND SOLICIT THE PROXIES?
We will pay all of the costs of soliciting these proxies. We will ask
brokerage houses and other nominees and fiduciaries to forward the proxy
materials to the beneficial owners of EAI common stock and to obtain the
authority to execute proxies. We will reimburse them for their reasonable
expenses. In addition to mailing proxy materials, our directors, officers and
employees may solicit proxies in person, by telephone or otherwise. These
individuals will not be specially compensated. We have also employed Corporate
Investor Communications, Inc. to solicit proxies on our behalf and will pay them
approximately $5,000 for this service.
3
<PAGE> 8
ELECTION OF DIRECTORS
Five directors serve on EAI's Board of Directors. The directors are divided
into three classes. At this Annual Meeting, you will elect two directors to
serve for a term of three years or until a qualified successor director has been
elected. The nominees, Matthew Rizai and Michael Crow, are currently EAI
directors. The remaining three directors (Martin Vanderploeg, Jamie Wade and
Laurence Kirshbaum) will continue to serve on the Board as described below.
Your shares will be voted as you specify on your proxy card or voting
instruction form. If you do not specify how you want your shares voted, we will
vote them FOR the election of Drs. Rizai and Crow. If unforeseen circumstances
(such as death or disability) make it necessary for the Board of Directors to
substitute another person for either of the nominees, your shares will be voted
FOR that other person. The Board does not anticipate that any nominee will be
unable to serve. The nominees and continuing directors have provided the
following information about themselves.
NOMINEES
- --------------------------------------------------------------------------------
MATTHEW M. RIZAI, PH.D.
Age: 42
Director Since: 1990
Experience: Dr. Rizai has been the Chairman, Chief Executive Officer
and President of EAI since June 1990. He has been
Treasurer since November 1995. Dr. Rizai's prior
experience includes serving as an associate with a
venture capital firm, a senior research engineer with
General Motors Corporation and a 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 M. CROW, PH.D.
Age: 43
Director Since: 1991
Experience: Dr. Crow has been Executive 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.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE ELECTION OF MATTHEW M. RIZAI AND MICHAEL M. CROW AS DIRECTORS.
4
<PAGE> 9
DIRECTOR CONTINUING UNTIL 2000 ANNUAL MEETING
- --------------------------------------------------------------------------------
JAMIE A. WADE
Age: 50
Director Since: 1995
Experience: Mr. Wade has served as Vice President of Administration
and General Counsel to EAI 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.
- --------------------------------------------------------------------------------
DIRECTORS CONTINUING UNTIL 2001 ANNUAL MEETING
- --------------------------------------------------------------------------------
MARTIN J. VANDERPLOEG, PH.D.
Age: 42
Director Since: 1988
Experience: Dr. Vanderploeg co-founded EAI in 1988. He has served as
Executive Vice President since October 1993, as
Secretary from June 1990 until November 1995 and as a
Co-General Manager of the Software Division since
October 1997. His 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
Age: 54
Director Since: 1995
Experience: Mr. Kirshbaum has been Chairman of Time Warner Trade
Publishing since 1997. From 1984 to 1997, he was
President and CEO of Warner Books Inc., a subsidiary of
Time Warner Inc. Mr. Kirshbaum earned a B.A. from the
University of Michigan.
- --------------------------------------------------------------------------------
5
<PAGE> 10
MEETINGS AND COMMITTEES OF THE
BOARD OF DIRECTORS
The Board of Directors met eleven times during 1998. In addition to
meetings of the full Board, some directors attended meetings of Board
committees. The Board of Directors has standing audit and compensation
committees. Each director attended or participated by telephone in greater than
75% of the aggregate of the meetings of the Board and of the committees on which
he served.
The Audit Committee recommends the independent auditors to the Board and
oversees the accounting and audit functions of EAI. Matthew Rizai, Michael Crow
and Laurence Kirshbaum are the members of the Audit Committee. The Committee met
two times during the fiscal year.
The Compensation Committee determines executive officers' salaries, bonuses
and other compensation. Michael Crow and Laurence Kirshbaum are the members of
the Compensation Committee. The Committee met two times during the fiscal year.
DIRECTOR COMPENSATION
Directors who are EAI employees receive no fees for their services as
directors. Non-employee "outside" directors receive an annual retainer of
$20,000 as well as a fee of $1,000 and reimbursement of expenses for each Board
and committee meeting they attend.
Outside directors participate in the Non-Employee Directors Stock Option
Plan. The Chairman of the Board, Matthew Rizai, administers this plan. Each
non-employee director receives an initial option to purchase 7,500 shares of EAI
common stock in the year he or she joins the Board and an option to purchase an
additional 7,500 shares for each subsequent year he or she serves. The options
have a ten year term and an exercise price equal to the fair market value of EAI
common stock on the date the option is granted. The initial options granted
under the Plan become exercisable in four equal annual installments. Subsequent
options are exercisable when they are granted. Directors may only transfer the
options by will or by the laws of descent and distribution.
OWNERSHIP OF EAI COMMON STOCK
The following table shows how much EAI common stock the directors, the
named executive officers and all executive officers and directors as a group
beneficially owned as of March 23, 1999. The named executive officers include
the Chief Executive Officer and the four other most highly compensated executive
officers based on compensation earned during 1998. The table also shows all
persons we know to be beneficial owners of more than 5% of EAI common stock.
Beneficial ownership is a technical term broadly defined by the SEC to mean
more than ownership in the usual sense. In general, beneficial ownership
includes any shares a stockholder can vote or transfer and stock options that
are exercisable currently or become exercisable within 60 days. These shares are
considered to be outstanding for the
6
<PAGE> 11
purpose of calculating the percentage of outstanding EAI common stock owned by a
particular stockholder, but are not considered to be outstanding for the purpose
of calculating the percentage ownership of any other person. Except as otherwise
noted, the stockholders named in this table have sole voting and investment
power for all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHARES OF COMMON STOCK PERCENT
BENEFICIALLY OWNED OF CLASS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------------------------
Matthew M. Rizai(1) 722,427 5.99
- --------------------------------------------------------------------------------------------------
Martin J. Vanderploeg(2) 724,003 5.95
- --------------------------------------------------------------------------------------------------
Michael M. Crow(3) 80,298 *
- --------------------------------------------------------------------------------------------------
Michael J. Jablo(4) 52,125 *
- --------------------------------------------------------------------------------------------------
Jamie A. Wade(5) 48,549 *
- --------------------------------------------------------------------------------------------------
Laurence J. Kirshbaum(6) 15,750 *
- --------------------------------------------------------------------------------------------------
Jerome M. Behar(7) 28,901 *
- --------------------------------------------------------------------------------------------------
All directors and executive officers as a group (8
persons)(8) 1,679,178 13.91
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
OTHER 5% STOCKHOLDERS
- --------------------------------------------------------------------------------------------------
Pilgrim Baxter & Associates, Ltd.(9) 1,112,350 9.42
- --------------------------------------------------------------------------------------------------
AMVESCAP plc(10) 1,043,700 8.83
- --------------------------------------------------------------------------------------------------
Janus Capital Corp.(11) 604,700 5.12
- --------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
(1) Consists of 467,638 shares held by the Matthew Rizai Family Limited
Partnership and 254,789 shares issuable upon the 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.
(2) Includes 345,978 shares issuable upon the exercise of vested options and
options that will vest within 60 days, including 1,575 shares issuable upon
the exercise of vested options by his spouse. Dr. Vanderploeg's address is
c/o Engineering Animation, Inc., 2321 North Loop Drive, Ames, Iowa 50010.
(3) Includes 16,350 shares issuable upon the exercise of vested options and
options that will vest within 60 days.
(4) Consists of shares issuable upon exercise of vested options and options
that will vest within 60 days.
(5) Includes 6,249 shares held in Mr. Wade's Individual Retirement Account and
29,800 shares issuable upon the exercise of vested options and options that
will vest within 60 days.
(6) Consists of shares issuable upon the exercise of vested options and options
that will vest within 60 days.
(7) Includes 28,751 shares issuable upon the exercise of vested options and
options that will vest within 60 days.
(8) Includes 750,668 shares issuable upon the exercise of vested options and
options that will vest within 60 days.
(9) This information was provided in a Schedule 13G filed with the SEC on
January 19, 1999. If you wish, you may obtain a copy of this report from
the SEC. Pilgrim has sole voting power with respect to 1,072,350 shares,
shared voting power with respect to 40,000 shares and sole dispositive
power with respect to 1,112,350 shares. This Schedule 13G indicates that
PBHG Growth Fund beneficially
7
<PAGE> 12
owns 833,400 shares of the reported amount and has sole voting and
dispositive power with respect to all of those shares. Pilgrim's address is
825 Duportail Road, Wayne, Pennsylvania 19087.
(10) This information was provided in a Schedule 13G filed with the SEC on
February 10, 1999. If you wish, you may obtain a copy of this report from
the SEC. AMVESCAP has shared voting and dispositive power with respect to
1,043,700 shares. The Schedule 13G indicates that the shares are held by
AVZ, Inc.; AIM Management Group, Inc.; AMVESCAP Group Services, Inc.;
INVESCO, Inc. and INVESCO North American Holdings, Inc., subsidiaries of
AMVESCAP. AMVESCAP's address is Devonshire Square, London EC2M 4YR,
England.
(11) This information was provided in a Schedule 13G filed with the SEC on
February 12, 1999. If you wish, you may obtain a copy of this report from
the SEC. Janus and Thomas H. Bailey, an owner of Janus, have shared voting
and dispositive power with respect to 604,700 shares and disclaim
beneficial ownership as to all of those shares. Janus Venture Fund, a Janus
managed portfolio, owns 575,000 of these shares. Janus' address is 100
Fillmore Street, Denver, Colorado 80206-4923.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that EAI's
executive officers, directors and 10% stockholders file reports of ownership and
changes of ownership of EAI common stock with the SEC and The Nasdaq Stock
Market, Inc. Based on a review of copies of these reports provided to us during
fiscal 1998, we believe that all filing requirements were met.
8
<PAGE> 13
EXECUTIVE COMPENSATION
This table summarizes the before-tax compensation for the Chief Executive
Officer and the other four most highly compensated executive officers of EAI.
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Matthew M. Rizai 1998 $295,000 $200,000 60,000 $8,569(1)
Chief Executive Officer, 1997 235,000 205,000 -- 8,062(1)
President and Treasurer 1996 180,000 28,000 60,000 7,245(1)
- --------------------------------------------------------------------------------------------------------------
Martin J. Vanderploeg 1998 $295,000 $200,000 60,000 $8,483(2)
Executive Vice President 1997 235,000 205,000 -- 8,062(2)
and Co-General Manager of 1996 180,000 28,000 60,000 7,245(2)
Software Division
- --------------------------------------------------------------------------------------------------------------
Michael J. Jablo 1998 $180,000 $ 25,000 10,500 $2,707(4)
Vice President and Co-General 1997 265,767(3) 75,000 -- 2,718(4)
Manager of Software Division 1996 270,530(3) 25,000 18,000 2,486(4)
- --------------------------------------------------------------------------------------------------------------
Jamie A. Wade 1998 $155,000 $ 40,000 6,000 $2,746(5)
Vice President of Administration, 1997 140,000 30,000 -- 2,069(5)
General Counsel and Secretary 1996 123,332 6,000 16,500 1,933(5)
- --------------------------------------------------------------------------------------------------------------
Jerome M. Behar 1998 $150,000 $ 50,000 13,500 $3,658(6)
Vice President of Finance and 1997 78,750 20,000 54,750 3,115(6)
Chief Financial Officer
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists of $3,463, $3,128 and $3,645 of premiums on a life insurance policy
paid in 1998, 1997 and 1996 and $5,106, $4,934 and $3,600 of matching
contributions we made to the Engineering Animation, Inc. Retirement Plan in
1998, 1997 and 1996.
(2) Consists of $3,463, $3,128 and $3,645 of premiums on a life insurance policy
paid in 1998, 1997 and 1996 and $5,020, $4,934 and $3,600 of matching
contributions we made to the Engineering Animation, Inc. Retirement Plan in
1998, 1997 and 1996.
(3) Includes $129,570 and $164,530 in sales commissions in 1997 and 1996.
(4) Consists of $538, $480 and $487 of premiums on a life insurance policy paid
in 1998, 1997 and 1996 and $2,169, $2,238 and $1,999 of matching
contributions we made to the Engineering Animation, Inc. Retirement Plan in
1998, 1997 and 1996.
(5) Consists of $686, $609 and $673 of premiums on a life insurance policy paid
in 1998, 1997 and 1996 and $2,060, $1,460 and $1,260 of matching
contributions we made to the Engineering Animation, Inc. Retirement Plan in
1998, 1997 and 1996.
(6) Consists of $333 and $112 of premiums on a life insurance policy paid in
1998 and 1997, $3,325 and $750 of matching contributions we made to the
Engineering Animation, Inc. Retirement Plan in 1998 and 1997, and $2,253
paid in 1997 for taxable relocation expenses.
9
<PAGE> 14
OPTION GRANTS IN 1998
This table gives information relating to 1998 option grants to the
executive officers listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
FOR OPTION TERM
------------------------------------------------------------------------------------------
PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED 1998 SHARE DATE 5% 10%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Matthew M. Rizai 60,000 6.80 $29.75 1/15/08 $1,122,577 $2,844,830
- -------------------------------------------------------------------------------------------------------------------------
Martin J. Vanderploeg 60,000 6.80 29.75 1/15/08 1,122,577 2,844,830
- -------------------------------------------------------------------------------------------------------------------------
Michael J. Jablo 10,500 1.19 29.75 1/15/08 196,451 497,845
- -------------------------------------------------------------------------------------------------------------------------
Jamie A. Wade 6,000 0.68 29.75 1/15/08 112,258 284,483
- -------------------------------------------------------------------------------------------------------------------------
Jerome M. Behar 13,500 1.53 29.75 1/15/08 252,580 640,087
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION EXERCISES IN 1998 AND FISCAL YEAR-END OPTION VALUES
This table provides information regarding the exercise of options during
fiscal 1998 by the executive officers included in the Summary Compensation
Table. The "value realized" is calculated using the difference between the
option exercise price and the price of EAI common stock on the date of exercise
multiplied by the number of shares subject to the option. The "value of
unexercised in-the-money options at fiscal year end" is calculated using the
difference between the option exercise price and $54.00 (the price of EAI common
stock on December 31, 1998) multiplied by the number of shares underlying the
option. An option is in-the-money if the market value of the common stock
subject to the option is greater than the exercise price.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED VALUE ----------------------------------------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Matthew M. Rizai 179,227 $7,262,636 239,789 94,500 $11,783,935 $2,867,012
- -----------------------------------------------------------------------------------------------------------------------
Martin J. Vanderploeg 89,613 3,631,298 330,978 95,550 16,571,360 2,912,162
- -----------------------------------------------------------------------------------------------------------------------
Michael J. Jablo 4,500 121,599 49,500 30,750 2,489,252 1,185,378
- -----------------------------------------------------------------------------------------------------------------------
Jamie A. Wade 12,500 532,963 26,200 25,800 1,292,570 1,117,103
- -----------------------------------------------------------------------------------------------------------------------
Jerome M. Behar 2,000 53,044 11,688 54,562 451,940 1,915,119
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 15
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 considers the Committee's
recommendations in setting the compensation for EAI's executive officers. The
Committee also approves the terms of executive employment and severance
arrangements, and administers and approves the grant of options under the Stock
Option Plan and the 1997 Non-Qualified Stock Option Plan.
COMPENSATION OBJECTIVES
The Committee's goals are to:
(1) motivate executive officers to create value for EAI's stockholders
through compensation incentives that are tied to EAI's operating and
stock market performance;
(2) reward executives for both individual performance and EAI's
performance;
(3) provide compensation and benefits at levels that enable EAI to attract
and retain high-quality professionals; and
(4) align the interests of EAI's officers and directors with stockholder
interests by using stock options as an element of compensation.
EXECUTIVE COMPENSATION PROGRAMS
Executive officer compensation is composed of base salary, a cash bonus and
stock options. The Committee believes that EAI's stockholders are best served by
emphasizing the cash bonus and stock option elements of compensation since doing
so aligns the executive officers' interests with stockholder interests.
Base Salary. The Board of Directors considers the Committee's
recommendations as well as the terms of executive employment agreements in
setting annual base salaries for executives. In making its recommendations, the
Committee reviews historical compensation levels of the executives as well as
past performance and potential future performance. In determining base salaries,
the Committee considers compensation information of comparable companies in the
industry, but does not use any particular indices.
Cash Bonus. Executives may receive cash bonuses after the end of the second
quarter and after the end of each fiscal year. These bonuses depend primarily on
EAI's financial performance and the achievement of corporate objectives
established by the Committee at the beginning of each fiscal year. Executives
involved in sales and marketing activities may also receive commissions on sales
of EAI's products and services. In determining bonuses for the 1998 fiscal year,
the Committee considered individual performance goals as well as EAI's net
income, revenues and business unit sales. The Committee considers compensation
information of comparable companies in the industry to establish appropriate
bonuses but does not use any particular indices.
11
<PAGE> 16
Stock Options. Executive compensation also includes stock options.
Executives generally receive stock options through initial option grants at the
time of hire and periodic additional option grants. EAI's practice has been to
set the exercise price of stock options at the fair market value of EAI common
stock on the date the option is granted and to provide vesting provisions based
upon EAI's financial performance, performance of the business unit and, if such
performance provisions are met, vesting over a period of years. The Committee
believes that stock options effectively align the long-term interests of
executives and stockholders since the executives realize gains on option
exercises only if the performance and longevity provisions are met and only if
EAI's stock price increases over the fair market value at the date of grant.
In determining the amount of option grants, the Committee evaluates the
executive's job level, responsibilities for the upcoming fiscal year,
responsibilities for prior years and the size of awards received in prior years
relative to EAI's overall performance. Options generally become exercisable over
a period of four years, beginning on the first anniversary of issuance. From
time to time, EAI issues options to executives that are immediately exercisable.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee evaluates the CEO's performance and determines his
compensation in accordance with the factors that apply to executive officers
generally. The CEO's base salary for fiscal 1998, as shown in the Summary
Compensation Table, represented a 26% increase over fiscal 1997. This increase
was based on a comparison with compensation of CEOs in comparable companies in
the industry and upon the financial performance of EAI during 1998.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Internal Revenue Code Section 162(m) limits the deductibility by EAI of
compensation in excess of $1,000,000 paid to each of the CEO and the other four
most highly compensated executive officers. Certain "performance based
compensation" is not included in compensation counted for purposes of the limit.
The Committee has attempted to structure EAI's compensation programs to preserve
full deductibility and will continue to assess the impact of Section 162(m) on
its compensation practices.
Compensation Committee
Michael M. Crow
Laurence J. Kirshbaum
12
<PAGE> 17
COMPANY PERFORMANCE
This graph shows a comparison of cumulative total returns for EAI, The
Nasdaq Stock Market, Inc.-U.S. and a group of public companies in the H&Q
Computer Software Index from February 29, 1996 (the date EAI common stock was
first offered to the public) through December 31, 1998. The graph assumes an
initial investment of $100 and the reinvestment of dividends.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
THE NASDAQ STOCK MARKET, H&Q COMPUTER SOFTWARE
ENGINEERING ANIMATION, INC. INC. - U.S. INDEX
--------------------------- ------------------------ ---------------------
<S> <C> <C> <C>
2/29/96 100.00 100.00 100.00
12/31/96 135.00 118.00 117.00
12/31/97 256.00 144.00 141.00
12/31/98 450.00 204.00 184.00
</TABLE>
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
2/29/96 12/31/96 12/31/97 12/31/98
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Engineering Animation, Inc. $100 $135 $256 $450
- -------------------------------------------------------------------------------------------------------
The Nasdaq Stock Market, Inc. - U.S. 100 118 144 204
- -------------------------------------------------------------------------------------------------------
H&Q Computer Software Index 100 117 141 184
- -------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 18
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
We entered into employment agreements with Dr. Rizai, Dr. Vanderploeg and
Mr. Wade as of January 1, 1996. These agreements expire on December 31, 1999.
Dr. Rizai's agreement provides that he will be employed as EAI'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 EAI's Executive
Vice President at an annual salary of $180,000. Mr. Wade's agreement provides
that he will be employed as EAI's Vice President of Administration, General
Counsel and Secretary 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.
We also have entered into severance agreements with each of Dr. Rizai, Dr.
Vanderploeg and Mr. Wade. These agreements are 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 continuation of benefits
for two years (one year in the case of Mr. Wade) upon (i) termination of
employment by us without cause, (ii) termination of employment by the employee
for good reason (including change in control of EAI), (iii) death or (iv)
permanent disability. We may terminate the executive's employment at any time
for cause without the payment of severance. The agreements with Dr. Rizai and
Dr. Vanderploeg also provide that, upon termination by us without cause or by
the executive for good reason, the executive may require us to file a
registration statement for all shares of EAI common stock that he then owned or
had the right to acquire upon exercise of options then held and, further, may
require that we include any such shares in any other registration statement
filed by us.
We entered into an employment agreement with Mr. Jablo as of September 18,
1995 that terminates (i) by mutual agreement of us and Mr. Jablo, (ii) upon Mr.
Jablo's death or disability, (iii) at our option for cause or (iv) upon our
dissolution or bankruptcy. This agreement provides that Mr. Jablo will be
employed as EAI's Vice President of Sales and Marketing at an initial annual
salary of $106,000 and a car allowance. In addition to base salary, the
agreement provides for the payment of commissions on sales of our 3D
visualization software products to Mr. Jablo at rates established by EAI's
President. The agreement also contains certain non-competition and
confidentiality provisions. Mr. Jablo's employment agreement contains severance
provisions that require us to pay him (i) an amount equal to the total
compensation paid to him during the first year of the agreement if the agreement
is terminated following a merger, sale or change in control of EAI and (ii) an
amount equal to one-half of the total compensation paid to him during the first
year of the agreement if the agreement is terminated for cause (as defined in
the agreement) by us after September 18, 1996.
14
<PAGE> 19
We entered into an employment agreement with Mr. Behar as of May 2, 1997
for a one-year term that may be extended by mutual agreement. The agreement can
be terminated for cause. Mr. Behar's duties are assigned to him by the Chief
Executive Officer. The agreement calls for a salary of $135,000 through its
first anniversary, a minimum bonus of $10,000 in 1997 and eligibility for annual
performance bonuses thereafter at our discretion. The agreement also contains
certain non-competition and confidentiality provisions. The agreement provided
that Mr. Behar be granted up to 54,750 incentive stock options within 30 days
after its effective date, vesting in quarterly increments over four years. The
severance provisions of the agreement require us to pay Mr. Behar up to the
first year's base salary if his employment were terminated within the first year
for any reason other than conviction of a criminal act. In the year following
the first anniversary of the agreement, Mr. Behar would receive, following a
merger, sale, change in control, or termination of employment for cause, the
amount of total compensation paid to him during the first year of his
employment.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
Following is certain information concerning our executive officers (other
than Dr. Rizai, Dr. Vanderploeg and Mr. Wade, whose information appears above)
and certain other key employees, based on information furnished by them.
OTHER EXECUTIVE OFFICERS
JEROME M. BEHAR, 41
Vice President of Finance and Chief Financial Officer
Mr. Behar has served as Vice President of Finance and Chief Financial
Officer since August 1997, after serving as the Executive Director of Finance
since joining EAI in May 1997. Prior to that, Mr. Behar had served since April
1996 as director of finance at MagiNet Corporation. Mr. Behar's prior experience
includes serving as vice president of finance and administration at Western
Lodging Corporation from September 1994 to April 1996 and as controller of
Matrix Pharmaceutical, Inc. from March 1992 to September 1994. He also held
executive and management positions at International Risk Control, Inc. and the
Cooper Companies, Inc. Mr. Behar is a Certified Public Accountant. He earned an
M.B.A. from Stanford University and a B.A. in business administration from
Michigan State University.
MICHAEL J. JABLO, 46
Vice President and Co-General Manager -- Software Division
Mr. Jablo has served in his current capacity as Vice President and
Co-General Manager of the Software Division since October 1997. Prior to that he
had been Vice President of Software Sales and Marketing since joining EAI in
October 1995. From January 1990 to October 1995, Mr. Jablo was employed by
Mentor Graphics Corporation where he ultimately served as the 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.
15
<PAGE> 20
PATRICIA F. JOHNSON, 47
Vice President of Human Resources
Ms. Johnson has served as Vice President of Human Resources since December
1997, after serving as the Executive Director of Human Resources since joining
EAI in January 1997. Prior to that, Ms. Johnson worked at Disney Feature
Animation, where she was Director of Human Resources for three years. Ms.
Johnson has also served as Director of Human Resources for NBC Entertainment and
worked twelve years for Digital Equipment Corporation in various human resources
management roles. She earned a B.A. from the University of Northern Colorado,
Greeley.
CERTAIN OTHER KEY EMPLOYEES
WILLIAM L. ANDERSON, 46
Vice President of North American Sales -- Software Division
Mr. Anderson has served as the Vice President of North American Sales for
the Software Division since November 1998. Prior to that he served as EAI's
Executive Director of National Accounts since joining EAI in March 1996. From
1995 until joining EAI, Mr. Anderson was employed by Mentor Graphics as the
Account Manager. From 1986 until 1995, he was the Worldwide Account Manager for
Digital Equipment Corporation. Mr. Anderson earned a B.A. in Business
Administration and an M.B.A. from the University of Michigan.
MARK CRAIG, 42
Vice President of Professional Services -- Software Division
Mr. Craig has served as Vice President of Professional Services for the
Software Division since November 1998. Prior to that Mr. Craig served as the
President and Chief Executive Officer of Variation Systems Analysis, Inc. (VSA),
the company he founded in 1982. EAI acquired VSA in September 1998. Mr. Craig
earned a B.S. in Mechanical Engineering from Michigan State University.
RAIMUND MENGES, PH.D., 38
Vice President of Process Engineering Products -- Software Division and Managing
Director of DELTA Industrie Informatik GmbH
Dr. Menges has served as Vice President of Process Engineering Products for
the Software Division and Managing Director of DELTA since February 1999. Since
1989 when he co-founded DELTA, he has served as its Managing Director. EAI
acquired DELTA in December 1998. Dr. Menges earned an undergraduate degree in
aeronautical engineering and a doctorate in engineering from the University of
Stuttgart.
16
<PAGE> 21
GUIDO T. PERSCH, PH.D., 44
Vice President of Engineering -- Software Division
Dr. Persch has served as Vice President of Engineering for the Software
Division since EAI's acquisition of Rosetta Technologies, Inc. in November 1997.
Dr. Persch had been Vice President of Engineering and led the Rosetta product
development organizations since January 1994. Dr. Persch has also held senior
development management positions at Cadre Technologies from January 1993 to
December 1993 and prior to that at Software AG and Siemens/Intel. Dr. Persch
earned a Ph.D. in Computer Science from University of Karlsruhe, Germany.
JAMES L. RYAN, 43
Vice President of Marketing and Business Development -- Software Division
Mr. Ryan has served as Vice President of Marketing and Business Development
for the Software Division since November 1998. He had been the Vice President of
Marketing and Professional Services since joining EAI in November 1997 upon
EAI's acquisition of Rosetta Technologies, Inc. Mr. Ryan had served as the Vice
President of Business Development of Rosetta since July 1997. Mr. Ryan also
served as director of IBM's Worldwide Product Data Management Solutions from
January 1993 to September 1997.
ADRIAN V. SANNIER, PH.D., 37
Vice President and General Manager -- Interactive Division
Dr. Sannier has served as Vice President and General Manager of the
Interactive Division since February 1997 and prior to that served as EAI's Vice
President of New Product Development since February 1996. From 1990 until
joining EAI, Dr. 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. Dr. Sannier earned a Ph.D. and a B.S. in Electrical
Engineering and Systems Science from Michigan State University.
JAY E. SHANNAN, PH.D., 36
Vice President of Operations
Dr. Shannan is a co-founder of EAI and has served as Vice President of
Operations since June 1990. Dr. Shannan earned a Ph.D. in Mechanical Engineering
from Iowa State University.
17
<PAGE> 22
DAVID P. SLY, 35
Vice President of Factory Products -- Software Division
Mr. Sly has served as the Vice President of Factory Products for the
Software Division since November 1998. Prior to that he was the Executive
Director of Factory Products since November 1997, when the Company acquired
Cimtech, Inc., the company he founded and served as president. Mr. Sly earned
B.S. and M.S. degrees in Industrial Engineering, and an M.B.A. from Iowa State
University.
JEFF D. TROM, PH.D., 39
Vice President of Product Development -- Software Division
Dr. Trom is a co-founder of EAI and has served as Vice President of Product
Development for the Software Division since June 1990. Dr. Trom served as EAI's
Treasurer from June 1990 to November 1995. Dr. Trom earned a Ph.D. in Mechanical
Engineering from Iowa State University.
PROPOSAL TO AMEND AND RESTATE STOCK OPTION PLAN
The Board of Directors has approved the amendment and restatement of our
Stock Option Plan effective February 10, 1999 to increase the number of shares
reserved for issuance under the Plan from 1,785,000 to 2,335,000 and to make a
technical amendment. The Board recommends that you approve this amendment and
restatement. The following summary of the Plan is not complete and, therefore,
you should not rely solely on it. You can find the full text of the Plan in
Appendix A to this proxy statement.
THE STOCK OPTION PLAN GENERALLY
The Board originally adopted, and the stockholders approved, the Plan
effective as of June 9, 1994. The Plan was amended and restated effective
January 1, 1996 and later amended and restated effective May 1, 1997. The Plan
provides for the grant of stock options to employees, including employees who
are officers and members of the Board, and to any non-employee consultant or
independent contractor to EAI. We currently have approximately 940 employees who
are eligible to participate in the Plan. Non-employee directors may not receive
options under the Plan. We presently have 1,785,000 shares of common stock
reserved for issuance under the Plan. The number of shares that can be issued
and the number of shares subject to outstanding options may be adjusted in the
event of a stock split, stock dividend, recapitalization or other similar event
affecting the number of shares of EAI's outstanding common stock.
PROPOSED AMENDMENTS TO THE PLAN
INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK UNDER THE PLAN: During
1998, we employed an option plan consultant to analyze our stock option plans
for the purpose of comparing consumption rates and option terms to industry
norms and to recommend the number of shares to add to the Plan. As of March 23,
1999, there were 8,343 shares remaining for issuance under the Plan. As a result
of the consultant's recommendations, the Board proposes to amend the Plan to
increase the number of shares that can be
18
<PAGE> 23
issued to 2,335,000. This increase will ensure that enough shares are available
for future grants under the Plan to attract and hire new employees and to
compensate current employees.
TECHNICAL AMENDMENT: Consistent with our attempts to structure the Plan to
preserve full deductibility under Section 162(m) of the Internal Revenue Code,
the Board proposes an amendment to provide that no individual may receive
options in any calendar year for more than 500,000 shares.
PLAN ADMINISTRATION
The Compensation Committee administers the Plan. Subject to the specific
provisions of the Plan, the Committee decides to whom options will be granted,
designates the number of shares to be covered by options, specifies the type of
consideration to be paid upon exercise of options and establishes all other
terms and conditions of each stock option. The Committee also determines how
outstanding non-qualified options will be treated upon a Change in Control, as
that term is defined in the Plan.
TERMS AND CONDITIONS OF OPTIONS
The exercise price for an option under the Plan may not be less that the
fair market value of EAI common stock on the date the option is granted. The
holder of Plan options may only transfer those options by will or by the laws of
descent and distribution.
If EAI is involved in a sale of substantially all of its assets, a merger
or a consolidation, the holder of Plan options generally is entitled to receive
the securities that he or she would have received had he or she held the number
of shares of stock subject to his or her options immediately prior to the
effective time of the sale, merger or consolidation. Under certain
circumstances, however, we may cancel any unexercised options under the Plan as
of the effective date of a sale, merger or consolidation. In the event of a
dissolution of EAI, all outstanding options under the Plan will terminate,
provided that participants receive written notice 30 days prior to the
dissolution and are permitted to exercise all of the unexercised options that
they hold.
NATURE OF OPTIONS
Options under the Plan may be either "incentive stock options," as defined
under the tax laws, or non-qualified stock options. Only employees may receive
grants of incentive stock options. Incentive stock options are subject to
additional limitations relating to such things as employment status, minimum
exercise price, length of exercise period, maximum value of the stock underlying
the options and a required holding period for stock received upon exercise of
the option. No incentive stock options may be granted under the Plan more than
ten years after the Plan was adopted by the Board.
19
<PAGE> 24
OUTSTANDING OPTIONS
We cannot determine the number of shares that may be acquired under stock
options that will be awarded under the Plan to the CEO and other four most
highly compensated executive officers. On March 23, 1999, the closing price of
EAI common stock on The Nasdaq Stock Market, Inc. was $41.00 per share. As of
March 23, 1999, the following options had been granted under the Plan:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
NAME NUMBER OF SHARES
- ----------------------------------------------------------------------------------------
<S> <C>
Matthew M. Rizai
Chief Executive Officer, President, Treasurer and Director
Nominee 262,500
- ----------------------------------------------------------------------------------------
Martin J. Vanderploeg*
Executive Vice President and Co-General Manager of
Software Division 265,125
- ----------------------------------------------------------------------------------------
Michael J. Jablo
Vice President and Co-General Manager of Software Division 94,750
- ----------------------------------------------------------------------------------------
Jamie A. Wade
Vice President of Administration, General Counsel and
Secretary 68,000
- ----------------------------------------------------------------------------------------
Jerome M. Behar
Vice President of Finance and Chief Financial Officer 76,250
- ----------------------------------------------------------------------------------------
Michael M. Crow
Director Nominee 6,750
- ----------------------------------------------------------------------------------------
All current directors who are not executive officers 11,250
- ----------------------------------------------------------------------------------------
All current executive officers 803,500
- ----------------------------------------------------------------------------------------
All plan participants (other than current executive
officers) 1,320,078
- ----------------------------------------------------------------------------------------
</TABLE>
* Includes 2,625 options granted to his spouse.
TAX CONSEQUENCES
The holder of an option granted under the Plan may be affected by certain
federal income tax consequences associated with the grant of the option, the
exercise of the option, and the disposition of shares received on exercise of
the option. The following discussion is based on current federal tax laws and
regulations and you should not consider it to be a complete description of the
federal income tax consequences that apply to Plan participants. Accordingly,
information relating to tax consequences is qualified by reference to current
tax laws.
Non-Qualified Stock Options. The grant of a non-qualified stock option is
not a taxable event for the recipient so long as the option does not have a
readily determinable fair market value. The fair market value of options granted
under the Plan should not be readily determinable since the options are not
actively traded on an established securities market, are not transferable, are
not exercisable in full immediately upon grant and have more than a nominal
exercise price. Therefore, the holder of an option under the Plan is not subject
to any income tax consequences with respect to the option unless and until the
option is exercised.
20
<PAGE> 25
Upon the exercise of a non-qualified stock option, the option holder
generally must recognize ordinary compensation income equal to the "spread"
between the exercise price and the fair market value of EAI common stock on the
date of exercise. The amount and character of any gain or loss realized on a
subsequent disposition of the common stock would depend on, among other things,
whether the holder had made an election under Section 83(b) of the Internal
Revenue Code with respect to the shares and the length of time the shares had
been held.
Incentive Stock Options. There are no federal income tax consequences
associated with the grant of an incentive stock option to an employee. In
contrast to the exercise of a non-qualified stock options, the option holder
does not recognize taxable income for regular income tax purposes upon the
exercise of an incentive stock option. The holder could, however, be subject to
an alternative minimum tax liability as described below. If the employee holds
the shares acquired upon exercise of the incentive stock option for at least two
years from the date the option was granted, and for at least one year after he
or she exercised the option, any gain realized on the subsequent sale or
exchange of the shares generally is treated as a long-term capital gain. The
amount of this gain generally equals the "spread" between the exercise price and
sales price of the common stock. If the holder disposes of the shares before the
expiration of the above periods, a "disqualifying disposition," then a portion
of any gain recognized by the holder that otherwise is considered a capital gain
would be taxed as ordinary compensation income. The amount of the gain
considered ordinary income will not be more than an amount equal to the fair
market value of the shares as of the date the option is exercised less the
amount paid for the shares. Any loss that a holder recognizes on a taxable
disposition of the shares generally is considered a capital loss.
When an employee exercises an incentive stock option, his or her
alternative minimum taxable income must be determined as if the incentive stock
option were a non-qualified stock option. Accordingly, he or she must include as
alternative minimum taxable income the amount, if any, equal to the value of the
shares received upon exercise determined as of the date the shares are vested
less the amount paid for the shares. He or she would then be required to pay the
greater of the regular or alternative minimum tax liability computed with
respect to that year.
Withholding Taxes. We may condition the exercise of an option under the
Plan on the receipt of an amount sufficient to pay any tax required by any
governmental authority to be withheld and paid over by us for the account of the
option holder with respect to the options and their exercise. We may deduct this
amount from the holder's compensation.
Compensation Deduction. To the extent an option holder under the Plan
recognizes compensation income on the exercise of a non-qualified stock option
or a disqualifying disposition of stock obtained upon exercise of an incentive
stock option, we generally are entitled to a corresponding compensation
deduction, assuming the withholding requirements are met.
21
<PAGE> 26
PLAN AMENDMENT
Generally, the Board of Directors may alter, amend or suspend the Plan or
any option granted under the Plan, or terminate the Plan, without stockholder
approval. The Board may not, however, materially increase the number of shares
of EAI common stock subject to the Plan. Further, if any action that the Board
proposes to take will have a significant adverse effect on any options
outstanding under the Plan, then the affected option holders must consent to the
action.
------------------------------------------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE AMENDMENT AND RESTATEMENT OF THE STOCK OPTION PLAN.
------------------------------------------------------------------
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT PUBLIC AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors
appointed Ernst & Young LLP as the independent public auditors to examine EAI's
financial statements for the fiscal year ending December 31, 1999. Ernst & Young
LLP has been employed to perform this function since 1990.
Representatives of Ernst & Young will be present at the annual meeting,
will be given the opportunity to make a statement and will respond to
appropriate questions.
Although we are not required to do so, we believe that it is appropriate to
request that stockholders ratify the appointment of our auditors. If
stockholders do not ratify the appointment, the Audit Committee will investigate
the reasons for the stockholders' rejection and the Board will reconsider the
appointment.
------------------------------------------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP.
------------------------------------------------------------------
By Order of the Board of Directors,
Jamie A. Wade
Secretary
22
<PAGE> 27
APPENDIX A
ENGINEERING ANIMATION, INC.
STOCK OPTION PLAN
(AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 10, 1999)
1. PURPOSE. The purpose of the 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
A-1
<PAGE> 28
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; or
(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
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<PAGE> 29
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. The number of shares of Common Stock with respect to which
Options may be granted under the Plan shall not exceed, in the aggregate,
2,335,000 shares, subject to adjustment in accordance with the provisions of
Section 12 of the Plan; provided, however, the maximum number of shares of
Common Stock with respect to which Options may be granted to any one individual
in any calendar year may not exceed 500,000 shares.
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.
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
A-3
<PAGE> 30
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.
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<PAGE> 31
(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.
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
A-5
<PAGE> 32
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
(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
A-6
<PAGE> 33
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 she is purchasing
the Common Stock under such Option for investment and not with any present
intention to sell the same.
A-7
<PAGE> 34
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
A-8
<PAGE> 35
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 and May 1, 1997. This amendment and
restatement of the Plan is effective February 10, 1999, subject to the approval
of the Company's stockholders.
A-9
<PAGE> 36
[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>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of Nominees: Matthew M. Rizai 2. Approval of Amendment and
Directors. [ ] [ ] Michael M. Crow Restatement of Stock Option [ ] [ ] [ ]
Plan.
For, except vote withheld from the following nominee(s) 3. Ratification of the appointment
of Ernst & Young LLP as
independent accountants. [ ] [ ] [ ]
- ---------------------------------------------------------
4. In the discretion of the proxies
named herein, the proxies are
authorized to vote upon other
matters as are properly brought
before the meeting.
YES NO
I PLAN TO ATTEND THE MEETING [ ] [ ]
Change of Address/ [ ]
Comments on Reverse Side.
SIGNATURE(S) DATE
----------------------------------------------- -----------
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD The signer hereby revokes all proxies heretofore given
EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, by the signer to vote at said meeting or any
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. adjournments thereof.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- FOLD AND DETACH HERE -
E A I
[LOGO]
ENGINEERING ANIMATION, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 1999
1:30 P.M.
MARRIOTT HOTEL
700 GRAND AVENUE
DES MOINES, IOWA 50309
ENGINEERING ANIMATION, INC.
PROXY CARD
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 11, 1999.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints Matthew M. Rizai and
P Jamie A. Wade, and each of them, true and lawful agents and proxies of
the undersigned, with full power of substitution, to represent the
R undersigned and to vote all shares of stock which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of Engineering
O Animation, Inc. to be held on May 11, 1999, and at any and all
adjournments and postponements thereof, on all matters before such
X meeting.
Y
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. HOWEVER, IF
NO VOTE IS SPECIFIED, THIS PROXY WILL BE VOTED "FOR" EACH NOMINEE FOR
DIRECTOR, "FOR" THE PROPOSAL TO AMEND AND RESTATE THE 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 -
