<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
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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>
[LOGO OF IA CORP]
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 16, 1999
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of IA
Corporation I, a Delaware corporation (the "Company"), will be held on
Wednesday, June 16, 1999, at 9:00 a.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 ratify and approve an amendment to the Company's 1996 Stock Plan (the
"1996 Plan") to increase the number of shares of Common Stock reserved
for issuance under the 1996 Plan by 1,000,000 shares.
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent accountants for the 1999 fiscal year.
4. 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 Friday, April 30,
1999 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, 1999
<PAGE>
IA CORPORATION I
1900 Powell Street, Suite 600
Emeryville, CA 94608
----------------
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 1999
----------------
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 16, 1999 at 9:00 a.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 Company's principal executive offices
located at 1900 Powell Street, Suite 600, Emeryville, CA 94608. The Company's
telephone number is (510) 450-7000.
These proxy solicitation materials and the Annual Report for the year ended
December 31, 1998 were mailed on or about May 14, 1999.
Record Date and Stock Ownership
Only stockholders of record at the close of business on April 30, 1999 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, 9,747,847 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.
1
<PAGE>
Quorum; Abstentions; Broker Non-Votes
The required quorum for the transaction of business at the Annual Meeting
is a majority of the 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.
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 Year 2000 Annual Meeting of Stockholders
must be received by the Company no later than January 13, 2000, in order that
they may be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
Proposals of stockholders of the Company that are intended to be
represented by such stockholders at the Company's 2000 Annual Meeting of
Stockholders, which are not eligible for inclusion in the proxy statement and
form of proxy relating to that meeting, must be received by the Company no
later than March 30, 2000. If such stockholders fail to comply with the
foregoing notice provision, then the proxy holders will be allowed to use
their voting discretionary authority when the proposal is raised at the 2000
Annual Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
A board of seven 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.
2
<PAGE>
The names of and certain information about the nominees of management are
set forth below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- --------
<S> <C> <C> <C>
Kevin D. Moran.......... 43 President, Chief Executive Officer and Chairman of 1998
the Board
Chakravarthi V. Ravi.... 55 Director 1992
Henry Kressel(1)........ 65 Managing Director, E.M. Warburg, Pincus & Co., LLC 1992
Stewart K. P. Gross(2).. 39 Managing Director, E.M. Warburg, Pincus & Co., LLC 1997
John R. Oltman(1)(2).... 54 Board Director of InaCom Corporation 1996
Randy H. Katz(1)(2)..... 43 Chairman of the Electrical Engineering and Computer 1997
Sciences Department at the University of California
at Berkeley
Timothy F. McCarthy..... 47 Founder and Chairman of the Board of AdvisorTech 1999
Corporation
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Mr. Gross has served as a director of the Company since 1997. Mr. Gross, 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 employed by E.M. Warburg, Pincus & Co., LLC since 1987. Mr. Gross is
a Director of BEA Systems, Inc., TSI International Ltd., and several private
companies. Mr. Gross earned an AB from Harvard and an MBA from Columbia
Business School.
Dr. Katz has served as a director of the Company since 1997. Dr. Katz is
the Chairman of the Electrical Engineering and Computer Science Department of
the University of California at Berkeley, and has been a Professor at UC
Berkeley for 17 years. Dr. Katz earned a BA from Cornell University and an MS
and PhD from the University of California at Berkeley.
Dr. Kressel has served as a director of the Company since its inception in
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 employed by E.M. Warburg, Pincus & Co., LLC since
1983.Dr. Kressel serves as a director of Level One Communications, Inc., Covad
Communications Group, Inc., NOVA Corporation, EarthWeb Inc. and several
privately held companies. A graduate of Yeshiva College in Physics, Dr.
Kressel earned an MS from Harvard University, an MBA from the Wharton School
of the University of Pennsylvania and a PhD from the University of
Pennsylvania.
Mr. McCarthy has served as a director of the Company since January 1999.
Mr. McCarthy is the Chairman of the AdvisorTech Corporation, a brokerage
systems company founded by Mr. McCarthy in 1998 and based in Tokyo, San
Francisco and Boston. In 1995 Mr. McCarthy joined Charles Schwab and Company.
When he resigned in 1998, he was President and Chief Operating Officer of
Charles Schwab and Company. From 1994 to 1995, Mr. McCarthy was Chief
Executive Officer of Jardine Fleming Unit Trust Ltd. in Hong Kong.
Mr. McCarthy earned a BA from the University of California at Davis and an MBA
from Harvard University (Baker Scholar).
Mr. Moran has served as President and Chief Executive Officer of the
Company since August 3, 1998 and as the Chairman of the Board since January
25, 1999. From 1997 to 1998, Mr. Moran served as senior vice president of
Charles Schwab and Company, Inc. Prior to 1997, Mr. Moran held numerous
positions over a ten-year career at Fidelity Investments. These positions
included President of National Financial Brokerage Services and Senior Vice
President of Fidelity Investments Institutional Retirement Services. Mr. Moran
earned a BA from College of Holy Cross in Worcester, Massachusetts and an MBA
from Northeastern University. Mr. Moran is a Certified Public Accountant.
3
<PAGE>
Mr. Oltman has served as a director of the Company since 1996. From 1991 to
1995, Mr. Oltman served as the Chairman of the Board and Chief Executive
Officer of SHL Systemhouse Inc., a company that provides client/server
consulting and integration services. From 1970 to 1991, Mr. Oltman served as
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 InaCom Corp., and a privately held company.
Mr. Oltman earned a BS from the University of Illinois and an MBA from
Northwestern University's Kellogg School of Management.
Dr. Ravi was a founder of the Company and has served as a director since its
inception in 1992. From 1990 to 1992, Dr. Ravi was President of Litton
Industries' Integrated Automation Division, the Company's predecessor. From
1978 to 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 high technology systems implementation.
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 earned a B. Tech (Hons.) from the Indian Institute of Technology in
Bombay, India and an MS and PhD from the University of California at Berkeley.
Vote Required; Recommendation of the Board of Directors.
The seven 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 12 meetings and on
seven occasions acted via unanimous written consent during the fiscal year
ended December 31, 1998. The Audit Committee held one meeting and the
Compensation Committee held one meeting during the fiscal year ended December
31, 1998. Each director attended at least 75% of all Board Meetings and, where
applicable, committee meetings held during fiscal 1998.
Messrs. Katz, Gross and Oltman 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.
Messrs. Katz, Kressel and Oltman currently serve on the Compensation
Committee. The purpose of the Compensation Committee is to review and approve
the compensation 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,
McCarthy, Oltman and Ravi each receive (a) $1,500 for participation in each
Board Meeting plus reimbursement for actual travel expenses and (b) $500 for
participating in a conference call with all board members present. The Company
granted 132,500 stock options to purchase shares of its Common Stock to Mr.
Oltman as a reward for his service to the Company as an outside director. The
Company granted 265,000 stock options to purchase shares of its Common Stock to
Mr. McCarthy as compensation under a consulting agreement.
4
<PAGE>
All stock options were granted at an exercise price equal to the fair market
value of the Company's Common Stock on the date such options were granted. The
Company has not paid cash or other compensation to any of its other directors,
except as described above.
Securities Ownership of Principal Stockholders and Management
The following table sets forth, as of April 30, 1999, 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. Unless otherwise indicated, the
address for each stockholders is: c/o IA Corporation I, 1900 Powell Street,
Suite 600, Emeryville, CA 94608-1840.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned(1)(2)
-----------------
Name and Address of Beneficial Owner Number Percent
------------------------------------ --------- -------
<S> <C> <C>
Warburg, Pincus Investors, L.P.(2)....................... 4,592,708 47.1
466 Lexington Avenue
New York, NY 10017
Henry Kressel(3) 4,592,708 47.1
466 Lexington Avenue
New York, NY 10017
Stewart K. P. Gross(3)................................... 4,592,708 47.1
466 Lexington Avenue
New York, NY 10017
Chakravarthi V. Ravi..................................... 412,018 4.2
Kevin D. Moran(4)........................................ 145,200 1.5
David M. Winkler(5)...................................... 142,653 1.5
William E. Guthrie(6).................................... 54,950 *
William Hipps............................................ 8,000 *
Randy H. Katz(7)......................................... 23,625 *
Timothy F. McCarthy (8).................................. 66,250 *
Geraldine McGrath(9)..................................... 41,000 *
John R. Oltman(10)....................................... 54,125 *
All Named Executive Officers and directors as a group (11
persons)(11)............................................ 5,540,529 54.7
</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, 1999,
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.
(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. Also
does not include 29,370 shares of Class A Common Stock to be transferred
to Warburg from a former employee in connection with the cancellation of
certain indebtedness.
(3) The sole General Partner of Warburg, Pincus Investors, L.P. ("Warburg") is
Warburg, Pincus & Co., a New York general partnership ("WP"). E.M.
Warburg, Pincus & Co., LLC, a New York limited liability
5
<PAGE>
company ("E.M. Warburg"), manages Warburg. The partners of WP and the
members of E.M. Warburg are substantially the same. Lionel I. Pincus is the
Managing Partner of WP and the Managing Member of E.M. Warburg and may be
deemed to control both entities. WP has a 20% interest in the profits of
Warburg, and owns 1.13% of the limited partnership interests in Warburg.
Messrs. Kressel and Gross, directors of the Company, are Managing Directors
and members of E.M. Warburg and General Partners of WP. As such, Messrs.
Kressel and Gross 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 132,500 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1999.
(5) Includes 47,953 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1999.
(6) Includes 46,788 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1999.
(7) Includes 23,625 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1999.
(8) Includes 66,250 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1999.
(9) Includes 32,719 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1999.
(10) Includes 33,125 shares of Common Stock issuable pursuant to options
exercisable within 60 days of April 30, 1999. Mr. Oltman's options are
granted to JRO Consulting, Inc., a company of which he owns 100% of the
capital stock and through which he provides services to the Company solely
in his capacity as Director.
(11) Includes 382,960 shares subject to options exercisable within 60 days of
April 30, 1999.
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, 1998.
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, 1998 consisted of
three independent, non-employee directors. The Compensation Committee was
comprised of Messrs. Randy Katz, Henry Kressel and John Oltman.
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, commissions, 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.
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 comparable
technology companies. 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 solutions.
6
<PAGE>
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.
4. The achievement of personal objectives, which include budgetary
control, establishing a revised strategic direction, achieving milestones
in the Company's development programs, and achieving planned revenues.
Assessment of performance in these regards determines the percentile
position of the individual on the base salary scale and also determines, in
part, the level of cash bonus and stock option awards.
In determining the Chief Executive Officer's compensation, the Compensation
Committee considered all of the above factors relating to executive officer
compensation. Specifically, the Compensation Committee considered the salary of
$265,000 necessary to attract and retain an executive with the experience and
expertise required to successfully lead the Company's transition from a
software development services company to an application software solutions
company.
Section 162(m) of the U.S. Internal Revenue Code limits the tax
deductibility by a corporation of compensation in excess of $1 million paid to
any of its five most highly compensated executive officers. However,
compensation that qualifies as a performance-based is excluded from the $1
million limit if, among other requirements, the compensation is payable only
upon attainment of pre-established, objective performance goals under a plan
approved by the stockholders of such corporation.
The Compensation Committee does not presently expect that total cash
compensation payable for salaries to exceed the $1 million limit for any
individual executive. Having considered the requirements of Section 162(m), the
Compensation Committee believes that stock option grants to date meet the
requirement that such grants be performance-based and are, therefore, exempt
from the limitations on deductibility.
Compensation Committee of the Board
of Directors
Randy Katz
Henry Kressel
John Oltman
7
<PAGE>
REPORT OF THE BOARD OF DIRECTORS ON REPRICING OF STOCK OPTIONS
In August 1998, the Board of Directors of the Company approved a plan to
allow employees holding outstanding stock options whose exercise price was in
excess of the then current market price to elect to have the options repriced
to $1.75 per share, the closing price of the Company's Common Stock on the
Nasdaq National Market on August 17, 1998. The plan provided for a one-month
blackout on the exercise of any repriced stock option, except in the event of
death or disability. The plan was implemented to realign the value of
previously granted options, upon exercisability, with the market value at the
time of the repricing. The expectation was that the opportunity to earn
compensation based on appreciation of the Company's Common Stock from the
repriced level will motivate employees to achieve superior results over the
long term and encourage key employees to remain with the Company. A total of
1,208,378 stock options with exercise prices ranging from $1.81 to $6.00 per
share were repriced under the plan.
Within the past 10 years the following executive officers have had his/her
options repriced:
<TABLE>
<CAPTION>
Length Of
Number of Original Option
Securities Term Remaining
Underlying Market Price Of Exercise Price At
Options Stock At Time At Time Of New Date Of
Date Of Repriced Or of Repricing or Repricing or Exercise Repricing
Name Repricing Amended Amendment Amendment Price Or Amendment
---- --------- ----------- --------------- -------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
William G. Hipps........ 8/17/98 75,000 $1.75 $2.3100 $1.75 9 Years 136 Days
Geraldine McGrath....... 8/17/98 15,000 1.75 3.0000 1.75 8 Years 299 Days
Geraldine McGrath....... 8/17/98 10,000 1.75 2.0000 1.75 9 Years 110 Days
Kevin D. Moran.......... 8/17/98 220,689 1.75 1.8125 1.75 9 Years 345 Days
Kevin D. Moran.......... 8/17/98 309,311 1.75 1.8125 1.75 9 Years 345 Days
Chakravarthi V. Ravi.... 8/17/98 50,000 1.75 2.8750 1.75 8 Years 361 Days
Chakravarthi V. Ravi.... 8/17/98 220,689 1.75 1.8125 1.75 9 Years 345 Days
Chakravarthi V. Ravi.... 8/17/98 129,311 1.75 1.8125 1.75 9 Years 345 Days
David M. Winkler........ 8/17/98 30,000 1.75 2.8750 1.75 8 Years 361 Days
David M. Winkler........ 8/17/98 20,000 1.75 2.0000 1.75 9 Years 110 Days
</TABLE>
PROPOSAL NO. 2
RATIFICATION AND APPROVAL OF AMENDMENT TO THE 1996 STOCK PLAN
General
The 1996 Stock Plan (the "1996 Plan") was adopted by the Board of Directors
in May 1996 and approved by the stockholders in August 1996. A total of
2,100,000 shares of Common Stock have been reserved for issuance under the 1996
Plan. The 1996 Plan provides for the grant of incentive stock options within
the meaning of Section 422 of the Code to employees of the Company and for the
grant of nonstatutory stock options to employees and consultants of the
Company. As of April 30, 1999, options to purchase 3,916,438 shares of Common
Stock had been granted to 115 individuals under the 1996 Plan and 411,937
shares remained available for future grants.
Proposals
Effective April 14, 1999, the Board of Directors ratified an increase to the
number of shares reserved under the 1996 Plan by an additional 1,000,000 shares
of Common Stock, thereby amending the 1996 Plan and increasing the aggregate
number of shares reserved for issuance thereunder to 3,100,000. At the Annual
Meeting, the stockholders are being requested to ratify this amendment.
This amendment to the 1996 Plan is proposed 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
8
<PAGE>
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 ratify and approve the increase in the shares reserved under the
1996 Plan.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THESE
PROPOSALS.
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 Code or nonstatutory stock options.
In addition, stock purchase rights ("SPRs") 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 SPRs may be
granted under the 1996 Plan to employees, directors and consultants of the
Company and any parent or subsidiary of the Company.
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, as
amended, will provide that no employee may be granted, in any fiscal year of
the Company, options to purchase more than 350,000 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
600,000 shares of Common stock.
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 an optionee
who owns more than 10% of the voting power of all classes
9
<PAGE>
of stock at the time of grant 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 generally 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. In December 1998,
the Company's Compensation Committee granted a total of 376,000 options
which become exercisable at a rate whereby 1/3 of the shares shall vest 12
months after the vesting commencement date, 2.5% of the shares shall vest
each month during months 13 through 24, and 3.33% of the shares shall vest
each month during month 25 through 36. After 36 months the shares are 100%
vested. All options have 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).
(h) Nontransferability of Options. Options granted under the 1996 Plan
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.
10
<PAGE>
(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.
Stock Purchase Rights. In the case of stock purchase rights, unless the
Administrator determines otherwise, the Restricted Stock Purchase Agreement
shall grant the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment with the Company for any
reason (including death or disability). The purchase price for shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchase to the Company. The repurchase option shall lapse
at a rate determined by the Administrator.
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.
11
<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.
Stock Purchase Rights. Stock purchase rights will generally be taxed in the
same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code, because the Company my repurchase
the stock when the purchaser ceases to provide services to the Company. As a
result of this substantial risk of forfeiture, the purchase will not recognize
ordinary income at the time of purchase. Instead, the purchaser will recognize
ordinary income on the dates when the stock is no longer subject to a
substantial risk of forfeiture (i.e., when the Company's right of repurchase
lapses). The purchaser's ordinary income is measured as the difference between
the purchase price and the fair market value of the stock is no longer subject
to right of repurchase.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and begin his or her capital gains holding period
by timely filing, (i.e., within thirty days of the purchase), an election
pursuant to Section 83(b) of the Code. In such event, the ordinary income
recognized, if any, is measured as the difference between the purchase price
and the air market value of the stock on the date of purchase, and the capital
gain holding period commences on such date. The ordinary income recognized by a
purchaser who is an employee will be subject to tax withholding by the Company.
Different rules may apply if the purchaser is also an officer, director, or 10%
stockholder of the Company.
12
<PAGE>
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, 1998 to (i) the
Company's "Named Executive 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 to
Options Average Price Per
Name of Individual or Identity of Group Granted(1)(2) Share (1)(2)
--------------------------------------- ----------------- -----------------
<S> <C> <C>
William E. Guthrie........................ 10,000 $0.56
William G. Hipps.......................... 75,000 1.75
Geraldine McGrath......................... 15,000 0.56
Kevin D. Moran............................ 530,000 1.75
Chakravarthi V. Ravi...................... 350,000 1.75
David M. Winkler.......................... 5,000 0.56
All executive officers as a group (7
persons)................................. 985,000 1.71
All Directors who are not executive
officers as a group (4 persons).......... 397,500 1.79
All other employees (excluding executive
officers and directors) as a group....... 912,122 1.50
</TABLE>
- --------
(1) Excludes options repriced during the fiscal year ended December 31, 1998.
Average price per share takes into account the effect of the August 1998
repricing.
(2) During the fiscal year ended December 31, 1998, the Company granted an
aggregate of 1,382,500 options to directors and executive officers of the
Company at a weighted average exercise price of $1.74 per share.
PROPOSAL NO. 3
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, 1999 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
Transactions with Management
In July 1998 the Company entered into a severance and non-compete agreement
with Dr. Ravi (the "Severance Agreement"). The Severance Agreement supersedes
and replaces the agreement dated July 31, 1992 between the Company and Dr.
Ravi. Pursuant to the Severance Agreement, if the Company terminates Dr. Ravi's
13
<PAGE>
employment other than for Cause, or if Dr. Ravi resigns as a result of a
Constructive Termination, Change of Control or if Dr. Ravi's employment is
terminated due to disability, death or mutual agreement (each as defined in
the Severance Agreement), the Company agreed to continue to provide health and
welfare benefits to Dr. Ravi and to pay Dr. Ravi his then-effective salary and
car allowance for 18 months after such termination (the "Severance Period").
Pursuant to the Severance Agreement, Dr. Ravi also agreed not to maintain or
enter into any employment position or consulting relationship with a Direct
Competitor (as defined in the Severance Agreement). In addition In July 1998,
the Company granted Dr. Ravi 350,000 options to purchase the Company's Common
Stock, the vesting of which accelerated in the event of termination of Dr.
Ravi's employment for other than Cause, by mutual agreement, or if Dr. Ravi
resigns as a result of Constructive Termination or Change of Control (as
defined in the Stock Option Agreement) such options become immediately
exercisable. In January 1999, Dr. Ravi's employment as President and Chief
Executive Officer of the Company was terminated by mutual agreement. As a
result, all options to purchase shares of the Company's Common Stock held by
Dr. Ravi, became immediately exercisable pursuant to the terms of the Stock
Option Agreement.
In July 1998 the Company entered into an employment agreement with Mr.
Moran (the "Employment Agreement"). Pursuant to the Employment Agreement Mr.
Moran is guaranteed a salary for the first 12 months of employment equal to
$265,000 and a bonus of $250,000 to be paid in quarterly installments. Mr.
Moran was also granted options to purchase 530,000 shares of the Company's
Common Stock. These stock options vest 25% at the end of one year, and 1/48th
of the total vests each month thereafter until fully vested after four years.
If a Change of Control (as defined in the Employment Agreement) occurs during
the first two years of Mr. Moran's employment and if Mr. Moran is not offered
an equivalent position in the Combined Entity (as defined in the Employment
Agreement), the vesting of such stock options shall become accelerated such
that 50% of such stock options shall become immediately exercisable even as to
stock options which are otherwise unvested. If a Change of Control occurs
during the third or fourth years of Mr. Moran's employment, the vesting of
such stock options shall become accelerated such that 100% of such stock
options shall become immediately exercisable even as to stock options which
are otherwise unvested. Mr. Moran is eligible to receive additional stock
options at the discretion of the Board of Directors. The Employment Agreement
also calls for payment of up to 12 months' base salary as severance in the
event Mr. Moran's employment is terminated for any reason other than Cause (as
defined in the Employment Agreement).
In July 1998 the Company entered into a consulting agreement with Mr.
McCarthy pursuant to which the Company granted Mr. McCarthy options to
purchase 265,000 shares of the Company's Common Stock in exchange for
consulting services (the "Consulting Agreement"). Pursuant to the terms of
this Consulting Agreement, if a Change of Control (as defined in the
Consulting Agreement) occurs during the first two years of Mr. McCarthy's
employment as a consultant and if equivalent services are not required of Mr.
McCarthy by the Combined Entity (as defined in the Consulting Agreement), the
vesting of such stock options shall become accelerated such that 50% of such
stock options shall become immediately exercisable even as to stock options
which are otherwise unvested. If a Change of Control occurs during the third
or fourth years of Mr. McCarthy's employment as a consultant, the vesting of
such stock options shall become accelerated such that 100% of such stock
options shall become immediately exercisable even as to stock options which
are otherwise unvested.
In August 1998 the Company granted Mr. Oltman options to purchase 132,500
shares of the Company's Common Stock as a reward for his service on the Board
of Directors. These stock options vest 25% at the end of one year, and 1/48th
of the total vests each month thereafter until fully vested after four years.
If a Change of Control (as defined in the Unanimous Written Consent of the
Board of Directors dated August 14, 1998) occurs during the first two years of
the vesting period, the vesting of such stock options shall become accelerated
such that 50% of such stock options shall become immediately exercisable even
as to stock options which are otherwise unvested. If a Change of Control
occurs during the third or fourth year of the vesting period, the vesting of
such stock options shall become accelerated such that 100% of such stock
options shall become immediately exercisable even as to stock options which
are otherwise unvested.
In August 1998 the Board of Directors of the Company approved a plan to
allow employees, including executive officers, holding outstanding stock
options whose exercise price was in excess of the then current
14
<PAGE>
market price to elect to have the options repriced to $1.75 per share. See
"REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION--REPORT OF THE BOARD OF DIRECTORS ON REPRICING OF STOCK OPTIONS"
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership on Form 3 and changes in
ownership on Form 4 or Form 5 with the Securities and Exchange Commission (the
"SEC"). Such officers, directors and 10% stockholders are also required by SEC
rules to furnish the Company with copies of all Section 16(a) reports they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that Forms 5 have been
filed for such persons as required, the Company believes that, during the year
ended December 31, 1998, all reporting persons complied with Section 16(a)
filing requirements applicable to them, except for Forms 5 which were filed
late by William Hipps and John Oltman, a Form 4 which was filed late by Kevin
Moran and a Form 3 which was filed late by Timothy McCarthy,
15
<PAGE>
EXECUTIVE OFFICER COMPENSATION
Executive Compensation
The following table sets forth information concerning the compensation paid
by the Company during the year ended December 31, 1998 to the two individuals
who served as Chief Executive Officer of the Company and each of the Company's
four other most highly compensated executive officers (collectively, the
"Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation Securities
---------------------------------------- Underlying
Name and Principal Options/
Position Year Salary($) Bonus($) Other($) SAR's(#)
------------------ ---- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Kevin D. Moran(1)....... 1998 107,019 125,000(5) B 530,000
President, Chief
Executive Officer and
Chairman of the Board
Chakravarthi V.
Ravi(2)................ 1998 258,609(4) -- -- 350,000
Former Chief 1997 226,446 30,000 -- 50,000
Executive Officer 1996 217,783(4) 103,000 -- --
David M. Winkler........ 1998 161,120 10,000(5) -- 5,000
Vice President and 1997 155,070(4) 20,000 -- 50,000
Chief Financial Officer 1996 130,679(4) 61,800 -- 36,659
Geraldine McGrath....... 1998 135,527(4) 5,000(5) -- 15,000
Vice President and 1997 129,454(4) 5,000 -- 25,000
General Counsel 1996 102,456(4) 25,000 -- 17,500
William E. Guthrie...... 1998 129,227(4) 54,114(6) -- 10,000
Vice President, Sales 1997 120,275 91,356 -- --
1996 124,610(4) 144,784 -- --
William G. Hipps(3)..... 1998 121,162 55,000(5)(7) $88,772(7) 75,000
Vice President,
Product Marketing
</TABLE>
- --------
(1) Mr. Moran joined the Company in August 1998 as President and Chief
Executive Officer. In January 1999, Mr. Moran was appointed Chairman of
the Board.
(2) Dr. Ravi resigned from his position as Chief Executive Officer in August
1998. He resigned from his position as Chairman of the Board and Chief
Strategy Officer in January 1999. He retained a seat on the Board of
Directors.
(3) Mr. Hipps joined the Company in March 1998 and resigned in February 1999.
(4) Includes income from pay in lieu of vacation time as follows: (a) 1998:
Dr. Ravi, $9,604; Ms. McGrath, $9,694; and Mr. Guthrie, $9,230; (b) 1997:
Mr. Winkler, $5,770 and Ms. McGrath $9,624; and (c) 1996: Dr. Ravi,
$11,885; Mr. Winkler, $7,132; Ms. McGrath, $2,734; and Mr. Guthrie $4,615.
(5) A portion or all of these bonuses were earned in 1998 but paid in 1999.
Amounts paid in 1999 were as follows: Mr. Moran, $62,500; Mr. Winkler,
$10,000; Ms. McGrath, $5,000 and Mr. Hipps, $5,000.
(6) Entire amount represents sales commission payments.
(7) Includes bonus of $50,000 paid in connection with Mr. Hipps' initial
employment and reimbursement for relocation expenses in the amount of
$88,772.
16
<PAGE>
Option Grants During Fiscal 1998
The following table sets forth, as to the Named Executive Officers,
information concerning stock options granted during the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
Individual Grants(1)
------------------------------------------------
Potential
Realizable Value at
Assumed Annual
Number of % of Total Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Average for Option Term (5)
Options Employees in Exercise Expiration -------------------
Name Granted(1)(2) Fiscal Year(3) Price(4) Date 5% 10%
---- ------------- -------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kevin D. Moran (6)...... 530,000 22.6% $1.75 7/27/08 $579,266 $1,465,665
Chakravarthi V. Ravi
(7).................... 350,000 14.9% 1.75 8/17/08 385,198 976,167
David M. Winkler........ 5,000 0.2% 0.56 12/28/08 1,769 4,482
Geraldine McGrath....... 15,000 0.6% 0.56 12/28/08 5,306 13,447
William E. Guthrie...... 10,000 0.4% 0.56 12/28/08 3,538 8,965
William G. Hipps........ 75,000 3.2% 1.75 2/01/08 76,986 192,109
</TABLE>
- --------
(1) Excludes stock options that were repriced in August 1998. A total of
1,208,378 stock options with exercise prices ranging from $6.00 to$1.81
per share were repriced to $1.75. Mr. Moran repriced 530,000 stock options
with an exercise price of $1.81. Mr. Winkler repriced 50,000 stock options
with exercise prices ranging from $2.88 to $2.00. Ms. McGrath repriced
25,000 stock options from prices ranging from $3.00 to $2.00. Dr. Ravi
repriced 400,000 stock options with exercise prices ranging from $2.88 to
$1.81. Mr. Hipps repriced 75,000 stock options with an exercise price of
$2.31.
(2) Options granted under the 1996 Stock Plan generally become exercisable at
a rate of 25% of the shares subject to the option at the end of the first
year and 1/48th of the shares subject to the option at the end of each
month thereafter, as long as the individual is employed by the Company. In
December 1998, the Company granted a total of 376,000 options with revised
vesting. These options become exercisable at a rate whereby 1/3 of the
shares shall vest 12 months after the vesting commencement date, 2.5% of
the shares shall vest each month during months 13 through 24, and 3.33% of
the shares shall vest each month during months 25 through 36. Of these
376,000 options, 30,000 options were granted to Named Executive Officers
as follows: Mr. Winkler, 5,000 options; Mr. Guthrie, 10,000 options; and
Ms. McGrath, 15,000 options. All options were granted at an exercise price
equal to the fair market value of the Company's Common Stock as determined
by the Nasdaq National Market closing price per share on the date of
grant.
(3) The Company granted options to purchase 2,344,622 shares of Common Stock
during 1998, which excludes 1,208,378 repriced options.
(4) Reflects average exercise price after the August 1998 repricing.
(5) 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.
(6) Options granted to Mr. Moran are subject to accelerated vesting under
change of control provisions contained in an employment agreement between
Mr. Moran and the Company.
(7) On January 25, 1999, Dr. Ravi's employment terminated by reason of mutual
agreement between Dr. Ravi and the Company's Board of Directors. Pursuant
to a severance agreement between Dr. Ravi and the Company, such
termination caused the vesting on these options to accelerate in full. On
April 23, 1999, Dr. Ravi exercised 85,713 of these options. The remaining
264,287 options expired and have been canceled.
17
<PAGE>
Option Exercises During Fiscal 1998
The following table sets forth information concerning option holdings for
the fiscal year ended December 31, 1998, 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
Shares Underlying Unexercised In-the-Money
Acquired Options at 12/31/98 Options at 12/31/98(1)
on Value ------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin D. Moran.......... -- -- -- 530,000 -- --
Chakravarthi V. Ravi.... -- -- 212,185 384,375 $120,042 --
David M. Winkler(2)..... 13,142 $26,096 43,585 60,622 5,526 $2,450
Geraldine McGrath....... -- -- 26,444 40,275 8,338 4,168
William E. Guthrie...... -- -- 40,488 31,350 14,182 7,869
William G. Hipps........ -- -- 18,750 56,250 -- --
</TABLE>
- --------
(1) Based on the fair market value of the Company's Common Stock Price on
December 31, 1998, $0.62 per share, as reported on the Nasdaq National
Market less the exercise price payable for such shares.
(2) Based on the fair market value of the Company's Common Stock Price on
January 8, 1998, $2.00 per share, as reported on the Nasdaq National
Market, less the exercise price payable for such shares.
Employment Agreements and Change-in Control Arrangements
Mr. Moran has an employment agreement with the Company that, under certain
circumstances, allows for a severance payment of up to 12 months' salary.
Please see "Transactions with Management" for details of Mr. Moran's
employment agreement.
Prior to 1998 Dr. Ravi had a severance agreement with the Company that,
under certain circumstances, allowed for a severance payment of up to 12
months' salary. In July 1998, the Company's Board of Directors terminated this
agreement and entered into a new severance agreement with Dr. Ravi. Please see
"Transactions with Management" for details of Dr. Ravi's severance agreement.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Company's Board of Directors, formed in
January 1994, currently consists of Messrs. Katz, Kressel and Oltman. None of
these individuals were at any time during fiscal 1998, 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.
18
<PAGE>
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 Composite 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 26 MONTH CUMULATIVE TOTAL RETURN*
AMONG IA CORPORATION I, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
11/8/96 12/31/96 12/31/97 12/31/98
------- -------- -------- --------
<S> <C> <C> <C> <C>
H & Q Technology Index...................... $100.00 $101.89 $135.90 $187.00
Nasdaq Composite Index...................... $100.00 $102.67 $124.88 $178.00
IA Corporation Index........................ $100.00 $ 85.45 $ 28.18 $ 9.00
</TABLE>
- --------
* $100 invested on 11/08/96 in stock or index-including reinvestment of
dividends.
Fiscal Year ending December 31.
19
<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, 1999
20
<PAGE>
IA CORPORATION I
1996 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility;
. to provide additional incentive to Employees and Consultants; and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options or Stock Purchase Rights are, or
will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a Committee appointed by the Board in accordance
---------
with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means IA Corporation I, a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by the
----------
Company or a Parent or Subsidiary to render services and who is compensated for
such services. The term "Consultant" shall not include Directors who are paid
only a director's fee by the Company or who are not compensated by the Company
for their services as Directors.
(i) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any
<PAGE>
leave of absence approved by the Company or (ii) transfers between locations
of the Company or between the Company, its Parent, any Subsidiary, or any
successor. A leave of absence approved by the Company shall include sick
leave, military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no
such leave may exceed ninety (90) days, unless reemployment upon expiration of
such leave is guaranteed by statute or contract. If reemployment upon
expiration of a leave of absence approved by the Company is not so guaranteed,
on the one hundred eighty-first (181st) day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
(j) "Director" means a member of the Board.
--------
(k) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day prior to the time of determination, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
-2-
<PAGE>
(p) "Nonstatutory Stock Option" means an Option not intended to qualify
-------------------------
as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing certain terms
---------------
and conditions of an individual Option or Stock Purchase Right grant. The
Notice of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
------
(t) "Option Agreement" means a written agreement between the Company
----------------
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(u) "Option Exchange Program" means a program whereby outstanding
-----------------------
options are surrendered in exchange for options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(w) "Optionee" means an Employee or Consultant who holds an outstanding
--------
Option or Stock Purchase Right.
(x) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1996 Stock Plan.
----
(z) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 below.
(aa) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
----------
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(cc) "Section 16(b)" means Section 16(b) of the Securities Exchange Act
-------------
of 1934, as amended.
-3-
<PAGE>
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is three million one hundred thousand (3,100,000) Shares. The
Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated).
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
the Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.
(ii) Administration With Respect to Directors and Officers
-----------------------------------------------------
Subject to Section 16(b). With respect to Option or Stock Purchase Right
- ------------------------
grants made to Employees who are also Officers or Directors subject to Section
16(b) of the Exchange Act, the Plan shall be administered by (A) the Board, if
the Board may administer the Plan in a manner complying with the rules under
Rule 16b-3 relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards of
equity securities are to be made, or (B) a committee designated by the Board
to administer the Plan, which committee shall be constituted to comply with
the rules under Rule 16b-3 relating to the disinterested administration of
employee benefit plans under which Section 16(b) exempt discretionary grants
and awards of equity securities are to be made. Once appointed, such Committee
shall continue to serve in its designated capacity until otherwise directed by
the Board. From time to time the Board may increase the size of the Committee
and appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all
members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section
16(b) exempt discretionary grants and awards of equity securities are to be
made.
-4-
<PAGE>
(iii) Administration With Respect to Other Persons. With respect to
--------------------------------------------
Option or Stock Purchase Right grants made to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a committee designated by the Board, which committee shall
be constituted to satisfy Applicable Laws. Once appointed, such Committee shall
serve in its designated capacity until otherwise directed by the Board. The
Board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
---------------------------
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options or Stock Purchase Rights may be exercised (which may be based
on performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have declined
since the date the Option or Stock Purchase Right was granted;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
-5-
<PAGE>
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority
to extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase
Right previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. If otherwise eligible, an Employee or Consultant who has
been granted an Option or Stock Purchase Right may be granted additional Options
or Stock Purchase Rights.
6. Limitations.
-----------
(a) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds one hundred
thousand dollars ($100,000), such Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 6(a), Incentive Stock Options shall be
taken into account in the order in which they were granted. The Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted. If an Option is granted hereunder that is part
Incentive Stock Option and part Nonstatutory Stock Option due to becoming first
exercisable in any calendar year in excess of one hundred thousand dollars
($100,000), the Incentive Stock Option portion of such Option shall become
exercisable first in such calendar year, and the Nonstatutory Stock Option
portion shall commence becoming exercisable once the one hundred thousand
dollars ($100,000) limit has been reached.
(b) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon an Optionee any right with respect to continuing the Optionee's employment
or consulting relationship with
-6-
<PAGE>
the Company, nor shall they interfere in any way with the Optionee's right or
the Company's right to terminate such employment or consulting relationship at
any time, with or without cause.
(c) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than three hundred fifty thousand (350,000)
Shares.
(ii) In connection with his or her initial employment, an Employee
may be granted Options to purchase up to an additional six hundred thousand
(600,000) Shares which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the canceled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon the earlier to occur of its adoption by the Board or its approval
by the shareholders of the Company as described in Section 19 of the Plan. It
shall continue in effect for a term of ten (10) years unless terminated earlier
under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Notice
--------------
of Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock
-7-
<PAGE>
of the Company or any Parent or Subsidiary, the per Share exercise price shall
be no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price
shall be no less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash; or
(ii) check; or
(iii) promissory note; or
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised; or
(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
or
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement; or
(vii) any combination of the foregoing methods of payment; or
-8-
<PAGE>
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 13 of the
Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
----------------------------------------------------
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option within such period of time as is specified in the Notice of
Grant, up to a maximum of three (3) months from the date of termination, to the
extent that he or she is entitled to exercise it on the date of termination (but
in no event later than the expiration of the term of such Option as set forth in
the Notice of Grant). In the absence of a specified time in the Notice of
Grant, the Option shall remain exercisable for three (3) months following the
Optionee's termination. If, on the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's change in
status from Consultant to Employee or Employee to Consultant, the Optionee's
Continuous Status as an Employee or Consultant shall not automatically terminate
solely as a result of such change in status. In such event, an Incentive
-9-
<PAGE>
Stock Option held by the Optionee shall cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option three months and one day following such change of status.
(c) Disability of Optionee. Upon termination of an Optionee's
----------------------
Continuous Status as an Employee or Consultant as a result of the Optionee's
Disability, the Optionee may exercise his or her Option at any time within
twelve (12) months from the date of termination, but only to the extent that the
Optionee is entitled to exercise it on the date of termination (and in no event
later than the expiration of the term of the Option as set forth in the Notice
of Grant). If, on the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. Upon the death of an Optionee, the Option shall
-----------------
become one hundred percent (100%) vested and may be exercised at any time within
twelve (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 Notice of Grant), by
the Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance. If the Optionee's estate or the person who
acquires the right to exercise the Option by bequest or inheritance does not
exercise the Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
(f) Rule 16b-3. Options granted to individuals subject to Section 16 of
----------
the Exchange Act ("Insiders") must comply with the applicable provisions of Rule
16b-3 and shall contain such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing, by means of a Notice of Grant, of the terms, conditions and
restrictions related to the offer, including the number of Shares that the
offeree shall be entitled to purchase, the price to be paid, and the time within
which the offeree must accept such offer, which shall in no event exceed six (6)
months from the date upon which the Administrator made the determination to
grant the Stock Purchase Right. The offer shall be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the Administrator.
-10-
<PAGE>
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Rule 16b-3. Stock Purchase Rights granted to Insiders, and Shares
----------
purchased by Insiders in connection with Stock Purchase Rights, shall be subject
to any restrictions applicable thereto in compliance with Rule 16b-3. An
Insider may only purchase Shares pursuant to the grant of a Stock Purchase
Right, and may only sell Shares purchased pursuant to the grant of a Stock
Purchase Right, during such time or times as are permitted by Rule 16b-3.
(d) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(e) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Stock Purchase Right is exercised, except as provided
in Section 13 of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. An Option or
--------------------------------------------------------
Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
------------------------------------------------------------------------
Sale.
- ----
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, 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 issued 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
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination
-11-
<PAGE>
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. 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, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall have the right to exercise the Option or
Stock Purchase Right as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option or Stock Purchase
Right is exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option or Stock Purchase Right shall be fully exercisable and vested for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. In the
event an Option or Stock Purchase right becomes fully exercisable and vested
pursuant to the preceding sentence, such Option or Stock Purchase Right shall
only be exercisable in full; no fractional exercise shall be permitted. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
-12-
<PAGE>
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with Rule
16b-3 or with Section 422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of any exchange
or quotation system on which the Common Stock is listed or quoted). Such
shareholder approval, if required, shall be obtained in such a manner and to
such a degree as is required by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, Applicable Laws, and the requirements of any stock
exchange or quotation system upon which the Shares may then be listed or quoted,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Liability of Company.
--------------------
(a) Inability to Obtain Authority. The inability of the Company to
-----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any
-13-
<PAGE>
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by
--------------------------------
an Option or Stock Purchase Right exceeds, as of the date of grant, the number
of Shares which may be issued under the Plan without additional shareholder
approval, such Option or Stock Purchase Right shall be void with respect to such
excess Optioned Stock, unless shareholder approval of an amendment sufficiently
increasing the number of Shares subject to the Plan is timely obtained in
accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. Continuance of the Plan shall be subject
--------------------
to approval by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such shareholder approval shall be
obtained in the manner and to the degree required under Applicable Laws and the
rules of any stock exchange upon which the Common Stock is listed.
-14-
<PAGE>
IA Corporation I
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
You have been granted an option to purchase Common Stock of the Company as
stated on the Notice of Grant of Stock Options and Option Agreement attached
hereto ("Notice of Grant"), subject to the terms and conditions of the Plan and
this Option Agreement.
Vesting Schedule:
----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
Twenty-five percent (25%) of the Shares subject to the Option shall vest
twelve (12) months after the Vesting Commencement Date, and 1/48 of the Shares
subject to the Option shall vest each month thereafter.
Termination Period:
------------------
This Option may be exercised for three (3) months after termination of the
Optionee's Continuous Status as an Employee or Consultant with the Company.
Upon the death or Disability of the Optionee, this Option may be exercised for
such longer period as provided in the Plan. In no event shall this Option be
exercised later than the Term/Expiration Date as stated on the Notice of Grant.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants to
---------------
the Optionee named in the Notice of Grant (the "Optionee") an option (the
"Option") to purchase the number of Shares, as set forth in the Notice of Grant,
at the exercise price per share set forth in the Notice of Grant (the "Exercise
Price"), subject to the terms and conditions of the Plan, which is incorporated
herein by reference. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Option Agreement, the terms and conditions of the Plan shall
prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the one hundred thousand dollars
($100,000) rule of Code Section 422(d) it shall be treated as a Nonstatutory
Stock Option ("NSO").
<PAGE>
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date
the Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash; or
(b) check; or
(c) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
4. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of
-2-
<PAGE>
Optionee, only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal and California tax consequences
----------------
relating to this Option, as of the date of this Option, are set forth below.
THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
---------------------
(i) Nonstatutory Stock Option. The Optionee may incur regular
-------------------------
federal income tax and California income tax liability upon exercise of a NSO.
The Optionee will be treated as having received compensation income (taxable
at ordinary income tax rates) equal to the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price. If the Optionee is an Employee or a former Employee, the
Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an ISO,
----------------------
the Optionee will have no regular federal income tax or California income tax
liability upon its exercise, although the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to alternative minimum taxable
income for federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise. In the event that the Optionee undergoes a
change of status from Employee to Consultant, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the ninety-first (91st) day following such change of status.
(b) Disposition of Shares.
---------------------
(i) NSO. If the Optionee holds NSO Shares for at least one (1)
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one (1)
---
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one
-3-
<PAGE>
year after exercise or two (2) years after the grant date, any gain realized
on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the excess, if any, of the lesser of
(A) the difference between the Fair Market Value of the Shares acquired on the
date of exercise and the aggregate Exercise Price, or (B) the difference
between the sale price of such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee
-------------------------------------------------
sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on
or before the later of (i) two (2) years after the grant date, or (ii) one year
after the exercise date, the Optionee shall immediately notify the Company in
writing of such disposition. The Optionee agrees that he or she may be subject
to income tax withholding by the Company on the compensation income recognized
from such early disposition of ISO Shares by payment in cash or out of the
current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
8. NO GUARANTEE OF EMPLOYMENT. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE
--------------------------
VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY (AND
NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN
EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative on the
Notice of Option Grant, you and the Company agree that this Option is granted
under and governed by the terms and conditions of the Plan and this Option
Agreement. Optionee has reviewed the Plan and this Option Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option Agreement and fully understands all provisions of the Plan
and Option Agreement. Optionee
-4-
<PAGE>
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
-5-
<PAGE>
EXHIBIT A
---------
IA Corporation I
1996 STOCK PLAN
EXERCISE NOTICE
IA Corporation I
1900 Powell Street, Suite 600
Emeryville, CA 94608-1840
Attention: Secretary
1. Exercise of Option. Effective as of today, ________________, _____, the
------------------
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of IA Corporation I (the "Company") under and
pursuant to the 1996 Stock Plan (the "Plan") and the Stock Option Agreement
dated _____________, 19___ (the "Option Agreement"). The purchase price for the
Shares shall be $_______________________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
----------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 13 of
the Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof,
<PAGE>
and may not be modified adversely to the Purchaser's interest except by means
of a writing signed by the Company and Purchaser. This agreement is governed
by California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
PURCHASER: IA Corporation I
__________________________________ By: _________________________________
Signature
__________________________________ Its: ________________________________
Print Name
Address: Address:
- ------- -------
___________________________ 1900 Powell St., Suite 600
Emeryville, CA 94608-1840
___________________________
-2-
<PAGE>
This Proxy is solicited on behalf of the Board of Directors
IA CORPORATION I
1999 ANNUAL MEETING OF STOCKHOLDERS
June 16, 1999
The undersigned stockholder of IA Corporation I, a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders
and Proxy Statement, each dated May 14, 1999, and hereby appoints David
Winkler and Geraldine McGrath and each of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1999 Annual Meeting of
Stockholders of IA Corporation I to be held on Wednesday, June 16, 1999 at
9:00 a.m. local time, at the Company's headquarters, 1900 Powell Street, Suite
600, Emeryville, California 94068, and at any adjournment or adjournments
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote if then and there personally present, on the matters set
forth below:
(1) ELECTION OF DIRECTORS
[_] FOR all nominees listed below [_] WITHHOLD
(except as indicated)
If you wish to withhold authority to vote for any individual
nominee, strike a line through that nominee's name in the list below:
<TABLE>
<S> <C>
Kevin Moran Chakravarthi V. Ravi Henry Kressel Stewart Gross John Oltman Randy Katz Timothy McCarthy
</TABLE>
(2) PROPOSAL TO RATIFY AND APPROVE AN AMENDMENT TO THE COMPANY'S 1996 STOCK
OPTION PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UNDER THE 1996 PLAN BY 1,000,000 SHARES:
[_] FOR [_] AGAINST [_] ABSTAIN
(3) PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR 1999:
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT TO THE 1996 STOCK
PLAN AND FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated ___________________, 1999
_______________________________
Signature
_______________________________
Signature
(This proxy should be marked, dated, and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
