<PAGE>
SCHEDULE 14A INFORMATION
------------------------
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
IA Corporation I
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(Name of Registrant as Specified In Its Charter)
N/A
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF IA CORPORATION]
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 17, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of IA
Corporation I, a Delaware corporation (the "Company"), will be held on Tuesday,
June 17, 1997, at 12:30 p.m. at 1900 Powell Street, Suite 600, Emeryville, CA
94608, for the following purposes:
1. To elect directors to serve for the following year and until their
successors are duly elected.
2. To approve the amendment to the Company's 1996 Employee Stock Purchase
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 250,000 shares.
3. To approve the amendment of the Company's 1996 Stock Plan, to increase
the number of shares of Common Stock reserved for issuance thereunder by
300,000 shares.
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent accountants for the 1997 fiscal year.
5. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on Wednesday, April 30,
1997 are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
envelope enclosed for that purpose. Any stockholder attending the meeting may
vote in person even if he or she previously returned a Proxy.
Sincerely,
DAVID M. WINKLER
Chief Financial Officer, Vice
President and Secretary
Emeryville, California
May 14, 1997
<PAGE>
1997 ANNUAL MEETING OF STOCKHOLDERS
OF
IA CORPORATION I
TO BE HELD ON JUNE 17, 1997
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of IA
Corporation I, a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on June 17, 1997 at 12:30 p.m., local time,
or at any adjournment or adjournments thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held at the 1900 Powell Street, Suite 600, Emeryville,
CA 94608. The Company's telephone number is (510) 450-7000. It is expected
that this Proxy Statement and the enclosed Proxy will be mailed or delivered
to stockholders on or about May 14, 1997.
RECORD DATE AND STOCK OWNERSHIP
Only stockholders of record at the close of business on April 30, 1997 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, 8,702,866 shares of the Company's Common Stock, $.01 par value,
and 2,417,112 shares of the Company's Class B Common Stock, $.01 par value,
were issued and outstanding. No shares of the Company's Preferred Stock were
outstanding. Holders of Class B Common Stock are not entitled to vote at the
meeting. See "Security Ownership of Certain Beneficial Owners and Management"
below for information regarding security ownership of management and
beneficial owners of more than five percent of the Company's Common Stock.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
On matters to be acted upon at the meeting, including the election of
directors, each share of Common Stock entitles its holder to one vote.
Stockholders do not have the right to cumulate their votes in the election of
directors.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. Original solicitation of proxies by mail may be
supplemented by telephone, telegraph or personal solicitations by directors,
officers or employees of the Company. No additional compensation will be paid
for any such services.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting is
a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR,"
"AGAINST" or "WITHHELD FROM" as a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
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While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of a controlling precedent to the contrary, the Company intends to
treat abstentions in this manner. Accordingly, abstentions will have the same
effect as a vote against the proposal.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that, while broker non-votes should be counted for purposes of
determining the presence or absence of a quorum for the transaction of
business, broker non-votes should not be counted for purposes of determining
the number of Votes Cast with respect to the particular proposal on which the
broker has expressly not voted. Accordingly, the Company intends to treat
broker non-votes in this manner. Thus, a broker non-vote will not have any
effect on the outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting of Stockholders must
be received by the Company no later than January 14, 1998 in order that they
may be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
A board of five directors is to be elected at the Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's nominees named below. In the event
that any nominee of the Company is unable or declines to serve as a director
at the time of the Annual Meeting of Stockholders, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. It is not expected that any nominee will be unable or will
decline to serve as a director. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner as will assure the election of as
many of the nominees listed below as possible, and in such event the specific
nominees to be voted for will be determined by the proxy holders. The term of
office of each person elected as a director will continue until the next
Annual Meeting of Stockholders or until a successor has been elected and
qualified.
The names of and certain information about the nominees of management are
set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITION/PRINCIPAL OCCUPATION SINCE
--------------- --- ------------------------------------------------------------ --------
<S> <C> <C> <C>
Chakravarthi V. Ravi.... 52 President, Chief Executive Officer and Chairman of the Board 1992
Henry Kressel(1)........ 62 Board Director of Level One Communications, Inc., 1992
Zilog, Inc., Maxis, Inc., TresCom International, Inc.,
NOVA Corporation, Inc.
Peter Stalker,
III(1)(2).............. 37 Board Director of Cambridge NeuroScience, Inc. 1995
John Oltman(2).......... 51 Board Director of Vanstar Corporation 1996
Randy Katz(2)........... 41 Chairman of the Electrical Engineering and Computer Sciences 1997
Department at the University of California at Berkeley
</TABLE>
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(1) Member of the Compensation Committee
(2) Member of the Audit Committee
2
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Dr. Ravi was a founder of the Company and has been the Chairman, President
and Chief Executive Officer of the Company since its inception in July 1992.
Dr. Ravi was President of Litton Industries Integrated Automation Division,
the Company's predecessor, from August 1990 to July 1992. From 1978 to July
1990, Dr. Ravi worked for Teknekron Controls Inc. and Integrated Automation in
a number of positions in general management, sales and marketing, strategic
planning, software design and implementation of high technology systems. Prior
to 1978, he was an Assistant Professor in the Electrical Engineering and
Computer Science Department of the University of California at Berkeley
specializing in computer architecture, software and telecommunications. Dr.
Ravi received an M.S. and a Ph.D. in Electrical Engineering and Computer
Science from the University of California at Berkeley and a B.Tech (Hons.) in
Electrical Engineering from the Indian Institute of Technology in Bombay,
India.
Dr. Kressel has served as a director of the Company since its inception in
July 1992. Dr. Kressel, a partner of Warburg, Pincus & Co., the general
partner of Warburg, Pincus Investors, L.P., and a managing director of E. M.
Warburg, Pincus & Co., LLC, has been with E. M. Warburg, Pincus & Co., LLC
since 1983. Dr. Kressel serves as a director of Level One Communications,
Inc., Zilog, Inc., Maxis, Inc., TresCom International, Inc., NOVA Corporation,
Inc. and several privately held companies.
Mr. Stalker has served as a director of the Company since April 1995. Mr.
Stalker, a partner of Warburg, Pincus & Co., the general partner of Warburg,
Pincus Investors, L.P., and a managing director of E. M. Warburg, Pincus &
Co., LLC, has been with E. M. Warburg, Pincus & Co., LLC since 1984. He is a
director of Cambridge NeuroScience, Inc. and several privately held companies.
Mr. Oltman has served as a director of the Company since March 1996. Mr.
Oltman is the former Chairman of the Board and Chief Executive Officer of SHL
Systemhouse Inc., a company that provides client/server consulting and
integration services. Mr. Oltman was formerly Worldwide Managing Partner for
Integration Services for Andersen Consulting and a member of Andersen
Consulting's Worldwide Organization Board of Directors. Mr. Oltman serves as a
director of Vanstar Corporation and a privately held company.
Dr. Katz has served as a director of the Company since January 1997. Dr.
Katz is the Chairman of the Electrical Engineering and Computer Science
Department at the University of California, Berkeley, and has been a professor
at UC Berkeley for 17 years. Dr. Katz is responsible for the creation of a
number of multiprocessing features used in the software industry today,
including the design and creation of the revolutionary high performance
storage system RAID ( Redundant Arrays of Inexpensive Disks.)
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS.
The five nominees receiving the highest number of votes shall be elected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES
LISTED ABOVE.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of fifteen meetings
during the fiscal year ended December 31, 1996. The Audit Committee held one
meeting and the Compensation Committee held one meeting during the fiscal year
ended December 31, 1996. Each director attended at least 75% of all Board
Meetings and, where applicable, committee meetings held during fiscal 1996.
Messrs. Katz, Oltman and Stalker currently serve on the Audit Committee. The
purpose of the Audit Committee is to review with the Company's management and
independent auditors the financial statements and internal financial reporting
system and controls of the Company, recommend resolutions for any dispute
between the Company's management and its auditors and review other matters
relating to the relationship of the Company with its auditors.
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Messrs. Kressel and Stalker currently serve on the Compensation Committee.
The purpose of the Compensation Committee is to review and approve the
salaries of the Company's executive officers and certain highly compensated
employees for each fiscal year. The compensation of the President and Chief
Executive Officer of the Company remains subject to approval by the full Board
of Directors.
DIRECTOR COMPENSATION
Except for grants of stock options, directors of the Company generally do
not receive compensation for services provided as a director. Messrs. Katz and
Oltman each received $1,500 for participation in each Board Meeting plus
reimbursement for actual travel expenses. In addition, the Company has granted
Messrs. Katz and Oltman, each a stock option to purchase 21,000 shares of its
Common Stock at an exercise price equal to the fair market value of such
shares on the date the option was granted. The Company has not paid cash or
other compensation to any of its other directors. Going forward, a director
participating in a conference call with all board members present may be
compensated $500 for such participation.
SECURITIES OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth, as of April 30, 1997, certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to own beneficially more than five percent of
the outstanding shares of Common Stock, (ii) each director of the Company,
(iii) each of the executive officers named in the table under "Executive
Compensation--Summary Compensation Table" and (iv) all directors and executive
officers as a group. Except as otherwise indicated in the footnotes to this
table, the persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned, subject to
community property laws, where applicable.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED(1)(2)
-----------------
BENEFICIAL OWNER NUMBER PERCENT
---------------- --------- -------
<S> <C> <C>
Warburg, Pincus Investors, L.P.(2)..................... 4,142,708 49.0%
466 Lexington Avenue
New York, NY 10017
Henry Kressel(3)....................................... 4,142,708 49.0
466 Lexington Avenue
New York, NY 10017
Peter Stalker, III(3).................................. 4,142,708 49.0
466 Lexington Avenue
New York, NY 10017
Chakravarthi V. Ravi(4)................................ 678,024 7.8
Jesse T. Quatse(5)..................................... 263,562 3.0
David M. Winkler(6).................................... 89,267 1.0
Geraldine McGrath(7)................................... 16,739 *
William E. Guthrie(8).................................. 28,930 *
John Oltman(9)......................................... 5,250 *
Randy Katz............................................. -- *
All Named Executive Officers and directors as a group
(9 persons)(10)....................................... 5,224,480 60.3
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of April 30, 1997,
are deemed outstanding. Except as indicated in the footnotes to this table
and as provided pursuant to applicable community property laws, the
stockholders named in the table have sole voting and investment power with
respect to the shares set forth opposite each stockholder's name.
4
<PAGE>
(2) Does not include 2,417,112 shares of non-voting Class B Common Stock
owned by Warburg which represents all outstanding Class B Common Stock.
(3) The sole General Partner of Warburg, Pincus Investors, L.P. ("Warburg")
is Warburg, Pincus & Co., a New York general partnership ("WP"). Lionel
I. Pincus is the Managing Partner of WP and may be deemed to control WP.
E.M. Warburg, Pincus & Company, a New York general partnership ("E.M.
Warburg") that has the same general partners as WP, manages Warburg. WP
has a 20% interest in the profits of Warburg, and through its wholly
owned subsidiary E.M. Warburg, Pincus & Co., Inc., E.M. Warburg owns
1.13% of the limited partnership interests in Warburg. Messrs. Kressel
and Stalker, directors of the Company, are Managing Directors of E.M.
Warburg, Pincus & Co., Inc. and General Partners of WP and E.M. Warburg.
As such, Messrs. Kressel and Stalker may be deemed to have an indirect
pecuniary interest (within the meaning of Rule 16a-1 under the Securities
Exchange Act of 1934, as amended) in an indeterminate portion of the
shares beneficially owned by Warburg, E.M. Warburg and WP.
(4) Includes 98,280 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1997.
(5) Includes 40,950 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1997. Effective in February 1997,
Dr. Quatse resigned his position of Chief Operating Officer and Vice
President of the Company.
(6) Includes 16,759 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1997.
(7) Includes 8,458 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1997.
(8) Includes 20,768 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1997.
(9) Includes 5,250 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1997.
(10) Includes 190,465 shares subject to options exercisable within 60 days of
April 30, 1997.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The following is the Report of the Compensation Committee of the Company,
describing the compensation policies and rationale applicable to the Company's
executive officers with respect to the compensation earned by such executive
officers for the year ended December 31, 1996.
The Compensation Committee of the Board of Directors of IA Corporation I
establishes the general compensation policies of the Company as well as the
compensation plans and specific compensation levels for executive officers.
The Compensation Committee during the year ended December 31, 1996 consisted
of two independent, non-employee directors, Messrs. Henry Kressel and Peter
Stalker.
The Company's compensation philosophy is to provide a total compensation
package that will enable the Company to attract and retain top executive
talent, while emphasizing the linkage of compensation to corporate, team and
individual performance.
The compensation program for the executive officers is identical to that for
all employees and consists of base salary, incentive stock options and bonus.
Other benefits, such as medical insurance, a defined contribution pension
plan, an employee stock purchase plan and supplemental severance benefits, are
also available to all eligible employees.
5
<PAGE>
The Compensation Committee establishes the compensation of the Chief
Executive Officer and the other executive officers based on several criteria
that affect the Company's performance:
1. Salaries of executive officers in similar positions of comparably sized
technology companies that have been in business for as long as the
Company has and that have earned a reputation in the marketplace
similar to that of the Company. Selecting comparable companies is
difficult due to the unique nature of the Company, which engages in the
development and sales of very large scale, highly sophisticated
enterprise application software products.
2. The Company's performance for the prior year, including the ability to
meet revenue and profit targets, to manage agreed-upon budgets,
progress in the Company's development program and the successful
negotiation and execution of collaborative marketing agreements.
3. The achievement of corporate objectives, which includes focusing and
accelerating development towards commercialization, entering business
areas where there is the potential for a large return balanced with
commensurate risks and other objectives that are designated to maximize
stockholder value.
In determining the CEO's compensation, the Committee also considered
achievement of certain individual objectives related to the CEO's area of
responsibility. The current CEO, Dr. Chakravarthi Ravi, was appointed by the
Board in July 1992. Based on the factors discussed above, the CEO's salary was
increased by 3% to $206,000, effective January 1, 1996 and he was awarded a
bonus of $103,000 which was paid in December of 1996.
The Company intends to take the necessary steps to comply with the $1
million compensation deduction limitation pursuant to section 162(m) of the
Omnibus Budget Reconciliation Act of 1993. The non-equity based compensation
paid to the Named Officers in fiscal 1994, 1995 and 1996 did not exceed $1
million for any individual.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO THE 1996 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The 1996 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors on May 28, 1996 and approved by the stockholders in
August 1996. A total of 150,000 shares of Common Stock has been reserved for
issuance under the Purchase Plan. The Purchase Plan, which is intended to
qualify under Section 423 of the Code, permits eligible employees to purchase
Common Stock through payroll deductions at a price equal to 85% of the fair
market value of the Common Stock at the beginning or at the end of each
offering period, whichever is lower. Employees are eligible to participate
after three consecutive months of employment if they are regularly employed by
the Company for at least 20 hours per week and more than five months per
calendar year. As of April 30, 1997, a total of 39,449 shares of Common Stock
had been purchased under the Purchase Plan, and 111 employees were
participating under the Purchase Plan.
PROPOSAL
Effective April 1, 1997, the Board of Directors approved an amendment to the
Purchase Plan to increase the number of shares reserved thereunder by an
additional 250,000 shares of Common Stock, for an aggregate of 400,000 shares
reserved for issuance thereunder. At the Annual Meeting, the stockholders are
being requested to approve this amendment.
REQUIRED VOTE; RECOMMENDATION OF BOARD OF DIRECTORS
Affirmative votes constituting a majority of the Votes Cast will be required
to approve and ratify the increase in the shares reserved under the Purchase
Plan.
6
<PAGE>
The continued success of the Company depends upon its ability to attract and
retain highly qualified and competent employees. The Purchase Plan enhances
that ability and provides additional incentive to such personnel to advance
the interests of the Company and its stockholders.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS
PROPOSAL.
SUMMARY OF PURCHASE PLAN
Purpose. The purpose of the Purchase Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Purchase Plan, accordingly, shall be construed
so as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
Administration. The Purchase Plan is administered by the Board of Directors
or a committee appointed by the Board (the "Administrator"). The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Purchase Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Purchase Plan. Every
finding, decision and determination by the Administrator shall, to the full
extent permitted by law, be final and binding upon all parties.
Eligibility. Employees are eligible to participate if they are regularly
employed by the Company for at least 20 hours per week and more than five
months per calendar year. Participation in the Purchase Plan ends
automatically on termination of employment with the Company. Eligible
employees may become a participant by completing a subscription agreement
authorizing payroll deductions and filing it with the Company's payroll office
at least ten business days prior to the applicable enrollment date.
Offering Periods. The Purchase Plan is implemented by consecutive twenty-
four month offering periods commencing on or after August 1 and February 1 of
each year.
Purchase Price. The purchase price per share of the shares offered under the
Purchase Plan in a given offering period shall be the lower of 85% of the fair
market value of the Common Stock on the enrollment date or 85% of the fair
market value of the Common Stock on the exercise date, whichever is lower. The
fair market value of the Common Stock on a given date shall be the closing
sale price of the Common Stock for such date as reported by the Nasdaq
National Market.
Payroll Deductions. The purchase price for the shares is accumulated by
payroll deductions during the offering period. The deductions may not exceed
10% of a participant's eligible compensation, which is defined in the Purchase
Plan to include all regular straight time earnings and any payments for
overtime, shift premiums, all bonuses, and commissions (but excluding
incentive compensation, incentive payments, regular bonuses and other
compensation) for a given offering period. A participate may discontinue his
or her participation in the Purchase Plan at any time during the offering
period.
Grant and Exercise of Option. The maximum number of shares placed under
option to a participant in an offering is that number determined by dividing
twenty-five thousand dollars ($25,000) by the fair market value of a share of
the Company's Common Stock on the enrollment date. Unless a participant
withdraws from the Purchase Plan, such participant's option for the purchase
of shares will be exercised automatically on each exercise date for the
maximum number of whole shares at the applicable price.
Notwithstanding the foregoing, no employee will be permitted to subscribe
for shares under the Purchase Plan if, immediately after the grant of the
option, the employee would own 5% or more of the voting power of value of all
classes of stock of the Company or of any of its subsidiaries (including stock
which may be purchased under the Purchase Plan or pursuant to any other
options), nor shall any employee be granted an option
7
<PAGE>
which would permit the employee to buy under all employee stock purchase plans
of the Company more than $25,000 worth of stock (determined at the fair market
value of the shares at the time the option is granted) in any calendar year.
Withdrawal; Termination of Employment. Employees may end their participation
in the offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company. A participant may
withdraw all, but not less than all, of the payroll deductions credited to
such participant's account and not yet used by giving written notice to the
Company.
Transferability. No rights or accumulated payroll deductions of a
participant under the Purchase Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or pursuant to the Purchase Plan) and any such attempt may be
treated by the Company as an election to withdraw from the Purchase Plan.
Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset Sale
or Change of Control. Subject to any required action by the stockholders of
the Company, the shares reserved under the Purchase Plan as well as the price
per share of Common Stock covered by each option under the Purchase Plan which
has not yet been exercised, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected with receipt of
consideration". Such adjustment shall be made by the Board of Directors, whose
determination in that respect shall be final, binding and conclusive. In the
event of the proposed dissolution or liquidation of the Company, the offering
period will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board of Directors. In the event of a
proposed sale of all or substantially all the assets of the Company or a
merger of the Company with or into another corporation, the Purchase Plan
provides that each option under the plan be assumed or an equivalent option be
substituted by the successor or purchaser corporation, unless the Board of
Directors determines to shorten the offering period.
Amendment and Termination. The Board of Directors of the Company may at any
time and for any reason terminate or amend the Purchase Plan. Except as
provided in the Purchase Plan, no such termination can affect options
previously granted, provided that an offering period may be terminated by the
Board of Directors on any exercise date if the Board of Directors determines
that the termination of the Purchase Plan is in the best interests of the
Company and its stockholders. Except as provided in the Purchase Plan, no
amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended,
or under Section 423 of the Code (or any successor rule or provision or any
other applicable law or regulation), the Company shall obtain stockholder
approval in such manner and to such a degree as required.
Unless terminated sooner, the Purchase Plan will terminate 10 years from its
effective date.
FEDERAL TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and
423 of the Code. Under these provisions, no income will be taxable to a
participant until the shares purchased under the Purchase Plan are sold or
otherwise disposed of. Upon sale or other disposition of the shares, the
participant will generally be subject to tax and the amount of the tax will
depend upon the holding period. If the shares are sold or otherwise disposed
of more than two years from the first day of the offering period, the
participant will recognize ordinary income measured as the lesser of (i) the
excess of the fair market value of the shares at the time of such sale or
disposition over the purchase price, or (ii) an amount equal to 15% of the
fair market value of the shares as of the first day of the offering period.
Any additional gain will be treated as long-term capital gain. If the shares
are sold or otherwise disposed of before
8
<PAGE>
the expiration of this holding period, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term
capital gain or loss, depending on the holding period. The Company is not
entitled to a deduction for amounts taxed and ordinary income or capital gain
to a participant except to the extent of ordinary income recognized by
participants upon a sale or disposition of shares prior to the expiration of
the holding period(s) described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased
under the Purchase Plan. Reference should be made to the applicable provisions
of the Code. In addition, the summary does not discuss the tax consequences of
a participant's death or the income tax laws of any state or foreign country
in which the participant may reside.
PURCHASE PLAN ACTIVITY
To date (without taking into account the proposed amendment to the Purchase
Plan), the Company has issued and sold an aggregate of 39,449 shares of Common
Stock pursuant to the Purchase Plan and 110,551 shares of Common Stock remain
available for future issuance under the Purchase Plan. Participation in the
Purchase Plan is voluntary and is dependent on each eligible employee's
election to participate and his or her determination as to the level of
payroll deductions. Accordingly, future purchase under the Purchase Plan are
not determinable. The following table sets forth certain information regarding
shares purchased under the Purchase Plan during the year ended December 31,
1996 by each of the Named Officers, all current executive officers as a group
and all non-executive officer employees as a group:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF INDIVIDUAL OR DOLLAR SHARES
IDENTITY OF GROUP VALUE PURCHASED
--------------------- ------ ---------
<S> <C> <C>
Chakravarthi V. Ravi.... -- --
Jesse T. Quatse......... -- --
David M. Winkler........ -- --
William E. Guthrie...... -- --
Geraldine McGrath....... -- --
All executive officers
as a group (5 persons). -- --
All other employees
(excluding executive
officers) as a group... -- --
</TABLE>
- --------
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO THE 1996 STOCK PLAN
GENERAL
The 1996 Stock Plan (the "1996 Plan") was adopted by the Board of Directors
on May 28, 1996 and approved by the stockholders in August 1996. A total of
400,000 shares of Common Stock have been reserved for issuance under the 1996
Plan. The 1996 Plan provides for the granting to employees of the Company of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and for granting of nonstatutory
stock options to employees and consultants of the Company. As of April 30,
1997, options to purchase 121,660 shares of Common Stock had been granted to
60 individuals under the 1996 Plan and 278,340 shares remained available for
future grants (without taking into account the proposed amendment to the 1996
Plan).
PROPOSAL
Effective April 1, 1997, the Board of Directors approved an amendment to the
1996 Plan to increase the number of shares reserved thereunder by an
additional 300,000 shares of Common Stock, for an aggregate of 700,000 shares
reserved for issuance thereunder. At the Annual Meeting, the stockholders are
being requested to
9
<PAGE>
approve this amendment. The amendment to the 1996 Plan is proposed in order to
give the Board of Directors flexibility to grant stock options. The Company
believes that grants of stock options motivate high levels of performance and
provide an effective means of recognizing employee contributions to the
success of the Company. At present, all newly hired full-time employees are
eligible to receive stock option grants. The Company believes that this policy
is of great value in recruiting and retaining highly qualified technical and
other key personnel who are in great demand. The Board of Directors believes
that the ability to grant options will be important to the future success of
the Company by allowing it to remain competitive in attracting and retaining
such key personnel.
REQUIRED VOTE; RECOMMENDATION OF BOARD OF DIRECTORS
Affirmative votes constituting a majority of the Votes Cast will be required
to approve and ratify the increase in the shares reserved under the 1996 Plan.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS
PROPOSAL.
SUMMARY OF THE 1996 PLAN
General. The purpose of the 1996 Plan is to attract and retain the best
available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the employees, directors and
consultants of the Company and to promote the success of the Company's
business. Options granted under the 1996 Plan may be either "incentive stock
options", as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonstatutory stock options. In addition, shares of
the Company's Common Stock may be granted under the 1996 Plan.
Administration. The 1996 Plan may generally be administered by the Board of
Directors or a committee appointed by the Board of Directors (the
"Administrator"). Subject to the other provisions of the 1996 Plan, the Board
of Directors has the authority to (i) interpret the 1996 Plan and apply its
provisions; (ii) prescribe, amend or rescind rules and regulations relating to
the 1996 Plan; (iii) select the persons to whom options are to be granted;
(iv) determine the number of shares to be made subject to each option; (v)
reduce the exercise price of any option to the then current fair market value;
(vi) prescribe the terms and conditions of each option (including the exercise
price, whether an option will be classified as an incentive stock option or a
nonstatutory stock option and the provisions of the stock option agreement to
be entered into between the Company and the grantee; (vii) amend any
outstanding option subject to applicable legal and 1996 Plan restrictions;
(viii) authorize any person to execute, on behalf of the Company, any
instrument required to effect the grant of an option; and (ix) take any other
actions deemed necessary or advisable for the administration of the 1996 Plan.
All decisions, interpretations and other actions of the Administrator shall be
final and binding on all holders of options and on all persons deriving their
rights therefrom.
Eligibility; Limitations. Nonstatutory stock options and shares of the
Company's Common Stock may be granted under the 1996 Plan to employees,
directors and consultants of the Company and any parent or subsidiary of the
Company. Incentive stock options may be granted only to employees. Any
optionee who owns more than 10% of the combined voting power of all classes of
outstanding stock of the Company is not eligible for the grant of an incentive
stock option unless the exercise price of the option is at least 110% of the
fair market value of the Common Stock on the date of grant and the term of the
option is no longer than five years.
Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options granted to such persons, the 1996 Plan provides
that no employee may be granted, in any fiscal year of the Company, options to
purchase more than 200,000 shares of Common Stock. Notwithstanding this limit,
however, in connection with an employee's initial employment, he or she may be
granted options to purchase up to an additional 150,000 shares of Common
Stock.
10
<PAGE>
Terms and Conditions of Options. Each option granted under the 1996 Plan is
evidenced by a written stock option agreement between the Company and the
optionee, and is subject to the following additional terms and conditions:
(a)Exercise Price. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an
incentive stock option may not be less than 100% of the fair market value of
the Common Stock on the date such option is granted; provided, however, the
exercise price of an incentive stock option granted to a 10% stockholder may
not be less than 110% of the fair market value of the Common Stock on the date
such option is granted. The fair market value of the Common Stock is generally
determined with reference to the closing sale price for the Common Stock (or
the closing bid if no sales were reported) on the last market trading day
prior to the date the option is granted. The exercise price of a nonstatutory
stock option may be determined by the Administrator; provided, however, the
exercise price of a nonstatutory stock option intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code may not be less than 100% of the fair market value of the Common Stock on
the date of grant.
(b)Exercise of Option. Each stock option agreement will specify the term of
the option and the date when the option is to become exercisable. The vesting
terms of such options are to be determined by the Administrator. Options
granted under the 1996 Plan to date become exercisable at a rate whereby 25%
of the shares subject to the option shall vest 12 months after the vesting
commencement date, and 1/48 of the Shares subject to the option shall vest
each month thereafter. The option has a 10 year term, except in the case of an
optionee who owns more than 10% of the voting power of all classes of stock at
the time of grant, in which case the term of an incentive stock option will be
five years. An option is exercised by giving written notice of exercise to the
Company, specifying the number of full shares of Common Stock to be purchased
and by tendering full payment of the purchase price to the Company.
(c)Form of Consideration. The means of payment for shares issued upon
exercise of an option is specified in each option agreement. The 1996 Plan
permits payment to be made by cash, check, promissory note, other shares of
Common Stock of the Company (with some restrictions), cashless exercise, a
reduction in the amount of any Company liability to the optionee, any other
form of consideration permitted by applicable law, or any combination thereof.
(d)Term of Option. The term of an incentive stock option may be no more than
10 years from the date of grant; provided that in the case of an incentive
stock option granted to a 10% stockholder, the term of the option may be no
more than five years from the date of grant. No option may be exercised after
the expiration of its term.
(e)Termination of Employment. In the event an optionee's continuous status
as an employee or consultant terminates for any reason (other than upon the
optionee's death or disability), the optionee may exercise his or her option,
but only within such period of time not to exceed three months from the date
of such termination, as is determined by the Administrator (with such
determination being made at the time of grant and not exceeding 90 days in the
case of an incentive stock option) and only to the extent that the optionee
was entitled to exercise it at the date of such termination (but in no event
later than the expiration of the term of such option as set forth in the
option agreement).
(f)Permanent Disability. In the event an optionee's continuous status as an
employee or consultant terminates as a result of permanent and total
disability (as defined in Section 22(e)(3) of the Code), the optionee may
exercise his or her option, but only within 12 months from the date of such
termination, and only to the extent that the optionee was entitled to exercise
it at the date of such termination (but in no event later than the expiration
of the term of such option as set forth in the option agreement).
(g)Death. In the event of an optionee's death, the Options shall become 100%
vested and the optionee's estate or a person who acquired the right to
exercise the deceased optionee's option by bequest or inheritance may exercise
the option, but only within 12 months following the date of death (but in no
event later than the expiration of the term of such option as set forth in the
option agreement).
11
<PAGE>
(h)Nontransferability of Options. Options granted under the 1996 Plan
generally are not transferable other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by the
optionee. However, the Administrator may, in its discretion, provide for the
transfer of options to any member of the optionee's immediate family or to
certain trusts and partnerships. Following such transfer, any such options
will continue to be subject to the same terms and conditions as were
applicable immediately prior to the transfer.
(i) Value Limitation. If the aggregate fair market value of all shares of
Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000, the
excess options will be treated as nonstatutory stock options.
(j)Other Provisions. The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the 1996 Plan as may be
determined by the Administrator.
Other Common Stock Programs. The Administrator may adopt one or more
incentive compensation arrangements for employees, consultants and directors.
Such arrangements will allow employees, consultants and directors to acquire
shares of Common Stock, whether by purchase, outright grant or otherwise. Any
such arrangements will be subject to the general provisions of the 1996 Plan.
Adjustments Upon Changes in Capitalization. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments will be made in the number and class of shares of
stock subject to the 1996 Plan, the number and class of shares of stock
subject to any option outstanding under the 1996 Plan, and the exercise price
of any such outstanding option.
In the event of a liquidation or dissolution, any unexercised options will
terminate. The Administrator may, in its discretion, provide that each
optionee will have the right to exercise all of the optionee's options,
including those not otherwise exercisable, until the date 10 days prior to the
consummation of the liquidation or dissolution.
Notwithstanding the above, in the event of a merger of the Company with or
into another corporation or the sale of substantially all of the assets of the
Company, the 1996 Plan requires that each outstanding option be assumed or an
equivalent option be substituted by the successor corporation; provided,
however, if such successor or purchaser refuses to assume the then outstanding
options, the 1996 Plan provides for the full acceleration of the
exercisability of all outstanding options for a period of fifteen days from
the date of notice of acceleration to the optionee, with the option
terminating upon expiration of such period.
Amendment and Termination of the 1996 Plan. The Board of Directors may
amend, alter, suspend or terminate the 1996 Plan, or any part thereof, at any
time and for any reason. However, the Company will obtain stockholder approval
for any amendment to the 1996 Plan to the extent necessary to comply with
Section 162(m) and Section 422 of the Code, or any similar rule or statute. No
such action by the Board of Directors or stockholders may alter or impair any
option previously granted under the 1996 Plan without the written consent of
the optionee. Unless terminated earlier, the 1996 Plan will terminate 10 years
from the date of its approval by the stockholders or the Board of Directors,
whichever is earlier.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain
or loss is treated as long-term capital gain or loss. If these holding periods
are not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower
of (i) the fair market value of the shares at the date of the option exercise
or (ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% stockholder of the Company. The Company is entitled
to a deduction in the same amount as the ordinary income recognized by the
optionee.
12
<PAGE>
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price.
Any taxable income recognized in connection with an option exercise by an
employee of the Company is subject to tax withholding by the Company. The
Company is entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Upon a disposition of such shares by the optionee,
any difference between the sale price and the optionee's exercise price, to
the extent not recognized as taxable income as provided above, is treated as
long-term or short-term capital gain or loss, depending on the holding period.
The foregoing is only a summary of the effect of federal income taxation
upon optionees and the Company with respect to the grant and exercise of
options under the 1996 Plan. It does not purport to be complete, and does not
discuss the tax consequences of the employee's or consultant's death or the
provisions of the income tax laws of any municipality, state or foreign
country in which the employee or consultant may reside.
1996 PLAN ACTIVITY
As of the date of this proxy statement, there has been no determination by
the Board of Directors or the Stock Plan Committee with respect to future
awards under the 1996 Plan. Accordingly, future awards are not determinable.
The following table sets forth information with respect to options granted
under the 1996 Plan during the fiscal year ended December 31, 1996 to (i) the
Company's "Named Officers", (ii) all current executive officers as a group,
(iii) all current directors who are not executive officers as a group and (iv)
all employees, including all current officers who are not executive officers,
as a group. The term of all options outstanding under the 1996 Plan is 10
years from the date of grant.
<TABLE>
<CAPTION>
SHARES
SUBJECT AVERAGE
TO PRICE
OPTIONS PER
NAME OF INDIVIDUAL OR IDENTITY OF GROUP GRANTED SHARE
--------------------------------------- ------- -------
<S> <C> <C>
Chakravarthi V. Ravi............................................ -- --
Jesse T. Quatse................................................. -- --
David M. Winkler................................................ -- --
William E. Guthrie.............................................. -- --
Geraldine McGrath............................................... -- --
All executive officers as a group (5 persons)................... -- --
All other employees (excluding executive officers) as a group... 66,160 $6.00
</TABLE>
- --------
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The reappointment of Ernst & Young LLP as independent auditors of the
Company for the fiscal year ending December 31, 1997 has been approved by the
Board of Directors, subject to ratification by the stockholders.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
Although not required to be submitted for stockholder approval, the Board of
Directors has conditioned its appointment of auditors upon the receipt of the
affirmative vote of the holders of a majority of the shares of Common Stock
represented, in person or by proxy, and voting at the Annual Meeting. In the
event the stockholders do not approve the selection of Ernst & Young LLP, the
appointment of independent auditors will be reconsidered by the Board of
Directors.
13
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
OTHER INFORMATION
TRANSACTIONS WITH MANAGEMENT
Since January 1, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of the Common Stock of
the Company had or will have a direct or indirect material interest other than
(i) the agreements that are described where required in "Management" and (ii)
the transactions described below.
Effective upon the closing of the Company's initial public offering, the
holders of the Company's Series A Preferred Stock entered into a Share
Exchange Agreement with the Company, pursuant to which all of the issued and
outstanding shares of Series A Preferred Stock and accrued dividends were
exchanged for approximately 2,973,117 shares of Common Stock, including
approximately 2,417,112 shares of non-voting Class B Common Stock (the "Share
Exchange Agreement"). Pursuant to the terms of the Share Exchange Agreement
the Series A Preferred Stock was, simultaneously with the closing of the
initial public offering, exchanged for shares of Common Stock and Class B
Common Stock at a rate equal to the quotient of (i) the redemption price of
the Series A Preferred Stock ($100 per share), divided by (ii) the initial
public offering price of the Common Stock, net of underwriting discounts and
commissions. The accrued dividends related to Series A Preferred Stock were
also exchanged for that number of shares of Common Stock obtained by dividing
the accrued dividends by the initial public offering price, less underwriting
discounts and commissions. Immediately prior to the closing of the initial
public offering the executive officers, directors and five percent
stockholders who owned Series A Preferred Stock were as follows:
<TABLE>
<CAPTION>
SERIES A
PREFERRED
NAME STOCK HELD
---- --------------
<S> <C>
Warburg, Pincus Investors, L.P................................... 116,300 shares
Chakravarthi V. Ravi, President & Chief Executive Officer........ 1,250 shares
Charles Malka.................................................... 1,000 shares
David M. Winkler, Chief Financial Officer and Vice President..... 500 shares
Jesse T. Quatse, Chief Operating Officer and Vice President...... 250 shares
</TABLE>
Of the Series A Preferred Stockholders, only Warburg, Pincus Investors, L.P.
received any of the non-voting Class B Common Stock issued pursuant to the
Share Exchange Agreement.
The Company believes that all transactions with affiliates described above
were made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership on Form 3 and changes in
ownership on Form 4 or Form 5 with the Securities and Exchange Commission (the
"SEC"). Such officers, directors and ten percent stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
reports they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that Forms 5 have been
filed for such persons as required, the Company believes that, during the year
ended December 31, 1996, all reporting persons complied with Section 16(a)
filing requirements applicable to them.
14
<PAGE>
EXECUTIVE OFFICER COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company during the year ended December 31, 1996, to the Company's Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------
ANNUAL
COMPENSATION AWARDS
--------------------- ----------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS/SAR'S(#)
--------------------------- --------- -------- ----------------
<S> <C> <C> <C>
Chakravarthi V. Ravi................... $217,783(2) $103,000 --
President, Chief Executive Officer and
Chairman of the Board
Jesse T. Quatse(1)..................... 189,533(2) 88,900 --
Chief Operating Officer and Vice
President
David M. Winkler....................... 130,679(2) 61,800 36,659
Chief Financial Officer and Vice
President
William E. Guthrie..................... 124,610(2) 144,784(3) --
Vice President, Sales
Geraldine McGrath...................... 102,456(2) 25,000 17,500
General Counsel
</TABLE>
- --------
(1) Effective February, 1997, Dr. Quatse resigned his position of Chief
Operating Officer and Vice President of the Company.
(2) Includes income from pay in lieu of vacation time as follows: Dr. Ravi
$11,885; Dr. Quatse $11,959; Mr. Winkler, $7,132; Mr. Guthrie, $4,615; and
Ms. McGrath, $2,734.
(3) Entire amount represents sales commission payments.
15
<PAGE>
OPTION GRANTS DURING FISCAL 1996
The following table sets forth, as to the Named Executive Officers,
information concerning stock options granted during the fiscal year ended
December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
--------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE(2) DATE 5% 10%
---- ---------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Chakravarthi V. Ravi.... -- -- -- -- -- --
Jesse T. Quatse......... -- -- -- -- -- --
David M. Winkler........ 36,659 8.1% $1.43 3/25/03 $ 21,263 $ 49,857
William E. Guthrie...... -- -- -- -- -- --
Geraldine McGrath....... 17,500 3.8% .28 1/11/03 1,925 4,725
</TABLE>
- --------
(1) Options granted under the 1992 Stock Plan generally become exercisable at
a rate of 20% of the shares subject to the option at the end of the first
year and 1/20th of the shares subject to the option at the end of each
quarter thereafter, so long as the individual is employed by the Company.
All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock as determined by the Company's Board
of Directors on the date of grant.
(2) The Company granted options to purchase 455,199 shares of Common Stock
during 1996.
(3) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of future Common Stock
prices.
OPTION EXERCISES DURING FISCAL 1996
The following table sets forth information concerning option holdings for
the fiscal year ended December 31, 1996, with respect to each of the Named
Executive Officers. No options were exercised by any of the other Named
Executive Officers during such fiscal year. No stock appreciation rights were
granted during such year.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/96 OPTIONS AT 12/31/96(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Chakravarthi V. Ravi.... -- -- -- 196,560 -- $1,152,038
Jesse T. Quatse......... -- -- -- 81,900 -- 480,016
David M. Winkler(2)..... 12,250 $17,325 5,250 62,349 $30,770 313,568
William E. Guthrie(3)... 2,800 9,200 13,650 48,188 76,290 269,768
Geraldine McGrath(4).... 5,600 9,420 4,900 21,819 27,767 124,073
</TABLE>
- --------
(1) Based on the fair market value of the Company's Common Stock Price on
December 31, 1996, $5.88 per share, as reported by NASDAQ less the
exercise price payable for such shares
(2) Based on the fair market value of the Company's Common Stock Price on
April 1, 1996, $1.43 per share, as determined by the Board of Directors,
less the exercise price payable for such shares
(3) Based on the fair market value of the Company's Common Stock Price on
August 25, 1996, $3.57 per share, as determined by the Board of Directors,
less the exercise price payable for such shares
(4) Based on the fair market value of the Company's Common Stock Price on
April 3, 1996, $1.43 per share, with respect to 4,900 shares, and on
August 13, 1996, $3.57 per share, with respect to 700 shares. Both as
determined by the Board of Directors, less the exercise price payable for
such shares.
16
<PAGE>
EMPLOYMENT AGREEMENTS AND CHANGE-IN CONTROL ARRANGEMENTS
Dr. Ravi has a severance agreement with the Company that, under certain
circumstances, allows for a severance payment of up to 12 months' salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors, formed in
January 1994, currently consists of Messrs. Kressel and Stalker. None of these
individuals were at any time during fiscal 1996, or at any other time, an
officer or employee of the Company. No executive officer of the Company serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
STOCK PERFORMANCE GRAPH
In accordance with Exchange Act regulations, the following performance graph
compares the cumulative total stockholder return on the Company's Common Stock
to the cumulative total return on the Nasdaq Index and on the Hambrecht &
Quist Technologies Index over the same period. The graph assumes the value of
the investment in the Company's Common Stock and each index was $100 at
November 8, 1996 (the date of the Company's initial public offering) and that
all dividends were reinvested. The information contained in the performance
graphs shall not be deemed to be "soliciting material" or to be "filed" with
the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
COMPARISON OF 2-MONTH CUMULATIVE TOTAL RETURN*
AMONG IA COROPRATION I, THE NASDAQ STOCK MARKET-US INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
IA NASDAQ H&Q
CORPORATION COMPOSITE TECHNOLOGY
Measurement Period INDEX INDEX INDEX
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-11/08/1996 $100.00 $100.00 $100.00
11/29/1996 $ 80.43 $102.75 $104.21
12/31/1996 $ 84.00 $102.63 $101.89
</TABLE>
* $100 INVESTED ON 11/08/96 IN STOCK OR INDEX -- INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
17
<PAGE>
OTHER MATTERS
The Company does not currently intend to bring before the Annual Meeting any
matters other than those set forth herein, and has no present knowledge that
any other matters will or may be brought before the meeting by others.
However, if any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed form of proxy to vote the
proxies in accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS
DAVID M. WINKLER
Chief Financial Officer, Vice
President and Secretary
Emeryville, California
May 14, 1997
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