<PAGE>
Prospectus Supplement
(To Prospectus dated March 17, 1998)
960,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
All of the shares of Common Stock (the "Common Stock"), of Engineering
Animation, Inc., a Delaware corporation (the "Company") offered hereby (the
"Shares") are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Selling Stockholders" in the accompanying Prospectus. The
Company will not receive any proceeds from the sale of the Common Stock offered
hereby. The Company will bear the costs relating to the registration of the
Common Stock estimated to be approximately $145,000.
The Common Stock is traded on the Nasdaq Stock Market National Market (the
"NNM") under the symbol "EAII". The last reported price of the Common Stock, as
reported on the NNM on March 18, 1998, was $43.625 per share.
See "Risk Factors" beginning on page 4 of the accompanying Prospectus for
certain information that should be considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Proceeds to
Price Underwriting Selling
to Public Discount (1) Stockholders
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $43.375 $1.520 $41.855
- -------------------------------------------------------------------------------------
Total (2) $41,640,000 $1,459,200 $40,180,800
- -------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Certain of the Selling Stockholders have granted the Underwriter an option
to purchase up to an additional 142,937 shares of Common Stock in the aggregate,
on the same terms as set forth above, solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Selling Stockholders will be $47,839,892, $1,676,464
and $46,163,428, respectively. See "Underwriting."
The shares of Common Stock offered by this Prospectus Supplement are being
offered by the Underwriter, subject to prior sale, when, as and if delivered to
and accepted by the Underwriter, and subject to approval of certain legal
matters by Mayer, Brown & Platt, counsel for the Underwriter, and certain other
conditions. It is expected that delivery of certificates representing the shares
of Common Stock will be made against payment therefor on or about March 24, 1998
at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York.
J.P. Morgan & Co.
March 19, 1998
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK. SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF SUCH ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITING."
No person is authorized to give any information or to make any representation
not contained or incorporated by reference in this Prospectus Supplement or the
accompanying Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company,
the Selling Stockholders or the Underwriter. Neither this Prospectus Supplement
nor the accompanying Prospectus constitutes an offer to sell or a solicitation
of an offer to buy any of the securities in any jurisdiction in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus
Supplement or the accompanying Prospectus nor any sale made hereunder or
thereunder shall, under any circumstances, create any implication that the
information contained herein or therein is correct as of any time subsequent to
the date hereof or thereof.
No action has been or will be taken in any jurisdiction by the Company, the
Selling Stockholders or the Underwriter that would permit a public offering of
the Common Stock or possession or distribution of this Prospectus Supplement and
the accompanying Prospectus in any jurisdiction where action for that purpose is
required, other than the United States. Persons into whose possession this
Prospectus Supplement and the accompanying Prospectus comes are required by the
Company, the Selling Stockholders and the Underwriter to inform themselves about
and to observe any restrictions as to the offering of the Common Stock and the
distribution of this Prospectus Supplement and the accompanying Prospectus.
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Supplement
Underwriting............................................................ S-3
Legal Matters........................................................... S-4
Prospectus
Available Information................................................... 2
Incorporation of Certain Information by Reference....................... 2
<CAPTION>
Page
<S> <C>
The Company............................................................. 3
Risk Factors............................................................ 4
Use of Proceeds......................................................... 8
Selling Stockholders.................................................... 8
Other Information....................................................... 12
Plan of Distribution.................................................... 12
Legal Matters........................................................... 12
Experts................................................................. 12
</TABLE>
S-2
<PAGE>
Underwriting
Under the terms and subject to the conditions set forth in an Underwriting
Agreement (the "Underwriting Agreement") between the Company, the Selling
Stockholders and J.P. Morgan Securities Inc. ("J.P. Morgan" or the
"Underwriter"), the Selling Stockholders have agreed to sell to the Underwriter,
and the Underwriter has agreed to purchase, the Shares.
Under the terms and conditions of the Underwriting Agreement, the Underwriter is
obligated to take and pay for all the Shares, excluding shares covered by the
over-allotment option, if any are taken.
The Underwriter proposes initially to offer the Shares directly to the public at
the public offering price set forth on the cover page of this Prospectus
Supplement and to certain dealers at such price less a concession of $0.90 per
share. The Underwriter may allow, and such dealers may reallow, a concession not
in excess of $0.10 per share to certain other dealers. After the Shares are
released for sale to the public, the offering price and such concessions may be
changed.
Certain of the Selling Stockholders have granted the Underwriter an option,
exercisable within 30 days after the date of this Prospectus Supplement, to
purchase up to an aggregate of 142,937 additional shares of Common Stock,
consisting of 71,468 shares from Matthew M. Rizai, Ph.D. and 71,469 shares from
Martin J. Vanderploeg, Ph.D., at the same price per share to be paid by the
Underwriter for the other shares offered hereby. The Underwriter may exercise
the option only to cover over-allotments, if any, made in connection with the
distribution of Common Stock offered hereby.
The Company and certain executive officers have agreed not to offer, sell or
otherwise dispose of, any Common Stock or any securities convertible into Common
Stock or register for sale under the Securities Act any Common Stock, for a
period of 90 days after the date of this Prospectus Supplement without the prior
written consent of the Underwriter.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriter may be required to
make in respect thereof.
In connection with this Offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriter may over-allot in connection with the Offering,
creating a short position. In addition, the Underwriter may bid for, and
purchase, shares of the Common Stock in the open market to cover short positions
or to stabilize the price of the Common Stock. Finally, the Underwriter may
reclaim selling concessions allowed for distributing the Common Stock in the
Offering, if the Underwriter repurchases previously distributed Common Stock in
transactions to cover short positions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price of
the Common Stock above independent market levels. The Underwriter is not
required to engage in these activities, and may end any of these activities at
any time.
The Underwriter and any dealers may engage in passive market making transactions
in the Common Stock in accordance with Rule 103 of Regulation M promulgated by
the Commission. In general, a passive market maker may not bid for, or purchase,
the Common Stock at a price that exceeds the highest independent bid. In
addition, the net daily purchases made by any passive market maker generally may
not exceed 30% of its average daily trading volume in the Common Stock during a
specified two-month prior period, or 200 shares, whichever is greater. A passive
market maker must identify passive market making bids as such on the Nasdaq
National Market electronic inter-dealer reporting system. Passive market making
may stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriter and any dealers are not required to engage in
passive market making and may end passive market making activities at any time.
J.P. Morgan Securities Inc. has provided financial advisory services to the
Company in the past, for which it has received customary fees.
S-3
<PAGE>
Legal Matters
The validity of the Shares offered hereby will be passed upon for the Company
and the Selling Stockholders by Gardner, Carton & Douglas, Chicago, Illinois.
Mayer, Brown & Platt, Chicago, Illinois has acted as counsel to the Underwriter
in connection with certain legal matters relating to the Shares.
S-4
<PAGE>
Prospectus
1,102,937 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Prospectus relates to 1,102,937 shares of common stock, $.01 par value per
share ("Common Stock"), of Engineering Animation, Inc., a Delaware corporation
(the "Company" or "EAI"), which may be offered from time to time by the selling
stockholders named herein (the "Selling Stockholders"). The Company will not
receive any of the proceeds from the sale of the Common Stock offered hereby.
The Company will bear the costs relating to the registration of the Common Stock
estimated to be approximately $145,000.
In connection with (i) the merger of COHO, Inc., a wholly owned Iowa subsidiary
of EAI, with and into Cimtech, Inc. ("Cimtech"), an Iowa corporation (the
"Cimtech Merger"); (ii) the merger of Technology Company Ventures, L.L.C., an
Oregon limited liability company ("TCV"), with and into Shell Beaver, L.L.C., a
Delaware limited liability company and a wholly-owned subsidiary of EAI (the
"TCV Merger"), (iii) the merger of Transitory Beaver, Inc., a wholly-owned
Delaware subsidiary of EAI with and into Rosetta Technologies, Inc. ("Rosetta"),
an Oregon corporation (the "Rosetta Merger"), (the Coho Merger, the TCV Merger
and the Rosetta Merger are referred to herein collectively as the "Mergers"),
EAI entered into Registration Rights Agreements with the Selling Stockholders
who had been stockholders of Cimtech or Rosetta or members of TCV, pursuant to
which EAI agreed under certain circumstances to register shares of Common Stock
held by those Selling Stockholders. The shares of Common Stock offered hereby
are registered as a result of (i) requests for registration pursuant to those
Registration Rights Agreements and (ii) requests by certain other stockholders
of the Company to include shares of Common Stock in this registration statement.
The shares of Common Stock to which this Prospectus relates may from time to
time be offered and sold by the Selling Stockholders to or through J.P. Morgan
Securities Inc., through one or more agents or dealers or directly to
purchasers. There is no agreement at this time between the Selling Stockholders
and J.P. Morgan Securities Inc. with respect to such shares of Common Stock. The
name of any dealer or agent involved in the offering of any such shares of
Common Stock will be set forth in the accompanying Prospectus Supplement. The
accompanying Prospectus Supplement will also set forth the amounts proposed to
be purchased by J.P. Morgan Securities Inc. or any such dealer or agent, any
applicable fee, commission or discount arrangements with them and the initial
offering price. Unless otherwise specified in the accompanying Prospectus
Supplement, the Selling Stockholders will have the sole right to accept or
reject, in whole or in part, any offer to purchase shares of Common Stock and
reserve the right to withdraw, cancel or modify, without notice, the offer to
sell shares of Common Stock contained in this Prospectus and in any accompanying
Prospectus Supplement. See "Plan of Distribution" for possible indemnification
for the agents and J.P. Morgan Securities Inc. This Prospectus may not be used
in connection with the sale of any Common Stock unless accompanied by the
applicable Prospectus Supplement.
The Common Stock is traded on the Nasdaq Stock Market National Market ("NNM")
under the symbol "EAII". The last reported price of the Common Stock as reported
on the NNM on March 13, 1998 was $44.00 per share.
See "Risk Factors" beginning on page 4 for certain information that should be
considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
J.P. Morgan & Co.
March 17, 1998
<PAGE>
Available Information
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information concerning the Company may be inspected without charge and copies
may be obtained (at prescribed rates) at the facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at Seven World
Trade Center, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the materials may be
obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York, and Chicago, Illinois, at prescribed
rates. In addition, electronically filed documents, including reports, proxy and
information statements and other information regarding the Company, can be
obtained from the Commission's Web site at: http://www.sec.gov.
The Company has filed with the Commission a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is made to such Registration Statement, including the
exhibits and schedules thereto, a copy of which may be obtained from the
Commission. The statements contained in this Prospectus as to the contents of
any document filed as an exhibit are of necessity brief descriptions thereof and
are not necessarily complete; each such statement is qualified in its entirety
by reference to such document.
No person has been authorized to give any information or make any
representations not contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, the Selling Stockholders or any underwriter. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, the
Common Stock in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation.
No action has been or will be taken in any jurisdiction by the Company, the
Selling Stockholders or any underwriter that would permit a public offering of
the Common Stock or possession or distribution of this Prospectus in any
jurisdiction where action for that purpose is required, other than in the United
States. Persons into whose possession this Prospectus comes are required by the
Company, the Selling Stockholders and any underwriter to inform themselves about
and to observe any restrictions as to the offering of the Common Stock and the
distribution of this Prospectus.
Incorporation of Certain Information By Reference
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997.
2. The description of the Common Stock of the Company which is contained in
the Company's Registration Statement on Form 8-A dated January 31, 1996
filed pursuant to Section 12(g) of the Exchange Act, including any
amendment or report filed for the purpose of updating such description.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the shares of Common
Stock offered hereby shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof.
EAI hereby undertakes to provide without charge to each person to whom this
Prospectus has been delivered, upon the written or oral request of any such
person, a copy of any and all of the foregoing documents incorporated herein by
reference (other than exhibits to such documents which are not specifically
incorporated by reference into the information that this Prospectus
incorporates). Written or telephone requests should be directed to Jamie A.
Wade, Secretary, Engineering Animation, Inc., 2321 North Loop Drive, Ames, Iowa
50010, telephone (515) 296-9908.
2
<PAGE>
The Company
EAI specializes in developing and applying three-dimensional ("3D") and
two-dimensional ("2D") visualization technology to meet the productivity,
communication, education and entertainment needs of its clients. The Company
utilizes its core technical competencies in high speed, real time graphics,
CAD/CAE/CAM interfaces, distributed databases and Internet/intranet
communications to provide solutions through two interrelated product lines:
enterprise-wide product visualization software (software products) and
interactive multimedia and custom animation products (interative products).
Utilizing its broad base of technology, EAI offers software products that allow
customers to reduce time-to-market and to decrease product development costs.
Utilizing its experience and its extensive library of computer generated
animation assets, EAI offers interactive products with realistic, high-quality
3D animations at reasonable prices within a short time frame.
The Company was incorporated in 1988 in Iowa and, in December 1995,
reincorporated in Delaware. The Company maintains its executive offices at 2321
North Loop Drive, Ames, Iowa 50010. The Company's telephone number is (515)
296-9908; its Internet e-mail address is [email protected]; and its World Wide Web
address is www.eai.com.
3
<PAGE>
Risk Factors
Variability of Operating Results
The Company has experienced and expects to continue to experience fluctuations
in its quarterly results. The Company's revenues are affected by a number of
factors, including the timing of the introduction of new software products and
interactive products by the Company and its competitors, seasonality of certain
customer purchases, product mix, general economic conditions and the Company's
ability to obtain agreements from publishers and distributors to market the
Company's products. The Company's operating results also will vary significantly
depending on changes in pricing, changes in customer budgets and changes in the
volume and timing of orders received during the quarter, which are difficult to
forecast. As a result of the foregoing and other factors, the Company may
experience material fluctuations in future revenues and operating results on a
quarterly or annual basis. Therefore, the Company believes that period to period
comparisons of its revenues and operating results are not necessarily meaningful
and should not be relied upon as indicators of future performance.
Technological Change and Market Acceptance
The Company's success depends on its ability to develop and sell new products,
develop site licensing agreements with major manufacturers in the automotive,
aerospace, heavy equipment and other manufacturing industries, develop its 3D
and 2D software products for new platforms and continue to produce high-quality
interactive products in a timely and cost effective manner. In addition, the
Company must continually anticipate, and adapt its products to, emerging
computer technologies and capabilities, such as enhanced graphics, sound, music,
video and speech generation. The life cycles of the Company's products are
difficult to estimate because the markets that the Company targets are in the
early stages of development and because of uncertainties arising from the effect
of future product enhancements, future developments in hardware and software
technology and future competition. If the Company's products become outdated and
lose market share or if new products or existing product upgrades are not
introduced when demanded by the market or are not accepted by the market, the
Company's revenues and operating results could be materially adversely affected.
There is no assurance that the Company will be able to introduce new products on
a timely basis or that such new products will be accepted in the market.
Impact of Acquisitions
In November 1997, the Company acquired Rosetta and Cimtech and will continue to
identify and evaluate acquisition opportunities in the future. Any acquisition,
however, involves inherent uncertainties, such as the effect on the acquired
business of integration into a larger organization and the availability of
management resources to oversee the operations of the acquired business. The
Company's ability to integrate the operations of the acquired companies is
important to its future success. There can be no assurance as to the Company's
ability to integrate new businesses nor as to its success in managing the larger
operations resulting therefrom. Even though an acquired business may have
experienced profitability and growth as an independent company prior to its
acquisition by the Company, there can be no assurance that such profitability
and growth will continue thereafter.
Dependence on Emerging Market for Software Products and Customer Concentration
The market for enterprise-wide visualization software products in the
automotive, aerospace, heavy equipment and other manufacturing industries is
emerging and dependent on a number of variables, including customer preferences
and the rate of adoption of new technology. There can be no assurance that this
market will continue to grow or that the Company's software products will be
accepted by the market. The Company's growth is dependent in part on significant
demand for its software products. In addition, as the Company increasingly
markets it 3D and 2D visualization software as an enterprise-wide solution,
there can be no assurance that large customers will be willing to invest in the
Company's products on a company-wide basis or that users outside the design and
engineering areas will accept the Company's products. In 1997, sales of software
products to one customer accounted for 19% of the Company's revenues. There can
be no assurance that EAI will be able to continue to sell software products to
this
4
<PAGE>
customer at 1997 levels or, if it fails to do so, that the Company will be able
to replace this customer with new customers.
Dependence on Emerging Market for Interactive Products
The market for interactive multimedia software products is emerging and
dependent on a number of variables, including consumer preferences, shipments of
multimedia personal computers, the installed base of multimedia personal
computers and the number of other publishers creating interactive software
products. There can be no assurance that this market will continue to grow. The
market for games and educational multimedia software is characterized by rapid
changes in computer hardware and software technology and is highly competitive
with respect to timely product innovation. The Company's near-term growth is
dependent in part on significant demand for its recently released interactive
products and for its products under development. However, the Company does not
typically receive royalty revenues from a product until the publisher achieves a
minimum level of sales of the product, which may not occur immediately after
delivery of the product to the publisher, if at all. There can be no assurance
that the Company's new interactive products will be accepted by the market or
that the Company will be able to respond effectively to the evolving
requirements of the market.
Reliance on Third Parties to Market and Distribute Certain Interactive Products
The Company's strategy has been to rely upon third parties to market and
distribute its interactive products. EAI does not have an exclusive relationship
with any of the current distributors of its interactive products. The Company's
relationships with publishers have involved contracts that address a single
product or title for a specific market area and do not constitute a continuing
marketing and distribution agreement. There can be no assurance that the
Company's relationships with publishers will continue or that the Company will
be able to find other means to market and distribute its interactive products.
Failure to continue such relationships, establish new relationships or develop
independent means of marketing and distributing interactive products could have
a material adverse effect on the Company's revenues and operating results.
Reliance on Third Parties to Market and Distribute Certain Software Products
In addition to marketing the Company's software products directly to end users,
the Company has contractual relationships with Hewlett-Packard to jointly market
and Structural Dynamics Research Corporation (SDRC) to jointly market and
distribute certain of the Company's software products. Although these contracts
represent a significant marketing and distribution opportunity for the Company's
software products, there can be no assurance that these contractual
relationships will be successful in creating significant sales or that these
relationships will be continued beyond their contract terms.
Management of Growth and International Expansion
The Company has experienced and may continue to experience rapid growth which
could place a significant strain on the Company's employees, operating
procedures, financial resources and information systems. The Company plans to
introduce a significant number of new products, increase its production capacity
and development expenditures, expand its sales and marketing initiatives and
hire additional employees. Such activities will require significant managerial
expertise. If the Company is unable to manage its growth effectively, the
Company's revenues, operating results and financial condition could be
materially adversely affected. In addition, in connection with the Company's
plans to increase its sales and marketing presence in Europe and Asia, the
Company will be incurring expenses in advance of revenues. If the Company is
unsuccessful in generating sufficient revenues to recover their expenses or is
unable to hire, train and retain experienced international sales and marketing
personnel, the Company's revenues, operating results and financial condition
could be adversely affected. Increased international activity could expose the
Company to foreign currency fluctuations, foreign labor laws and other
unforeseen problems.
5
<PAGE>
Competition
The Company expects significant competition in each of its two product lines:
SOFTWARE PRODUCTS
Large computer companies or companies competing in the CAD/CAE/CAM and project
data management markets could offer products with the same or similar
functionality as offered by the Company. Such companies, some of which have
substantially greater financial and other resources than the Company, include
Autodesk Inc., Dassault Systems, Division Plc., IBM, Parametric Technology
Corp., SDRC, and Silicon Graphics, Inc. Although the Company believes it has a
technological advantage over potential competitors in these markets, maintaining
its advantage will require continuing investment by the Company in research and
development and sales and marketing. There can be no assurance that the Company
will have sufficient resources to make such investments or that such investments
will be successful.
INTERACTIVE PRODUCTS
The interactive software publishing industry is intensely competitive. The
Company's sales to the educational and consumer markets may be adversely
affected by the increasing number of competitive products. The Company's
interactive products will compete directly against other educational and
consumer software products including multi-player Internet games. The Company's
competitors in this area include a large number of companies, some of which have
substantially greater financial, technical, marketing and other resources than
the Company, such as Broderbund Software Inc., Condent Corporation
International, Digital Domain Inc., GT Interactive Software Corp., and SoftKey
International Inc. Moreover, large corporations, such as Microsoft Corporation
and The Walt Disney Company, which have substantial bases of intellectual
property content and substantial financial resources, have entered or announced
their intention to enter the market for consumer software.
While the Company believes that most special effects firms target the feature
film and advertising markets, these firms could refocus their efforts in the
commercial markets, an area in which the Company derives a portion of its
interactive product revenue. These special effects firms, some of which have
substantially greater financial, technical, marketing and other resources than
the Company, include Dreamworks SKG, Industrial Light and Magic (a division of
Lucasfilm Limited), and Pixar. In addition, a large number of small companies
provide custom animations to commercial markets as a complement to their primary
business of studio film production, engineering consulting and communications
consulting.
Year 2000 Computer Conversion
The Company has developed and implemented a plan to upgrade its information
technology in order to prepare for the year 2000 and has completed conversion of
all critical data processing systems. All of the Company's systems and
applications are 2000 compliant. The company has also initiated communications
with its significant vendors to determine the extent to which the Company's
systems may be vulnerable to third parties' failure to remediate their own 2000
issues. Management currently does not anticipate such a failure to be an issue.
However, operating results could be impacted if the systems of other companies
with whom the Company transacts business are not compliant in a timely manner.
Protection of Proprietary Rights
The Company's success and ability to compete is dependent in part upon its
extensive proprietary technology and databases. The Company relies primarily on
a combination of copyright, trademark and trade secret laws, employee and third
party non-disclosure and non-competition agreements and other methods to protect
its proprietary rights. There can be no assurance that these measures will
prevent the Company's competitors from obtaining or using the Company's
proprietary technology and databases. Certain of the Company's products include
mechanisms intended to prevent or inhibit unauthorized copying. In addition, the
Company packages its software products with license agreements, which prohibit
unauthorized copying of such products. Unauthorized copying does, however, occur
in the
6
<PAGE>
software industry, and if a significant amount of unauthorized copying of the
Company's products were to occur, the Company's revenues and operating results
could be adversely affected. The laws of certain countries in which the
Company's products are or may be distributed do not protect the Company's
products and proprietary rights to the same extent as do the laws of the United
States. Furthermore, as the number of software products in the industry
increases and the functionality of these products further overlaps, software
developers may increasingly become subject to infringement claims. There can be
no assurance that third parties will not assert infringement claims against the
Company in the future with respect to current or future products, or that any
such assertion will not require the Company to enter into royalty arrangements
or result in costly litigation.
Dependence on Key Personnel
The Company's future success depends in large part on the continued service of
its key technical, marketing, sales and management personnel and on its ability
to continue to attract, motivate and retain highly qualified employees. The
Company's key employees may voluntarily terminate their employment with the
Company at any time. Competition for such employees is intense and the process
of locating key technical and management personnel with the combination of
skills and attributes required to execute the Company's strategy can be lengthy.
Accordingly, the loss of the services of key personnel could have a material
adverse effect on the Company's revenues, operating results and financial
condition. The Company maintains key person insurance covering certain of its
executive officers. However, the amount of insurance may not be sufficient to
offset the Company's loss of the services of any of its executive officers.
Risk of Liability Claims by Customers
Although the Company has not experienced product liability claims by customers,
the Company could experience such claims in the future. The Company's
interactive software products carry a disclaimer that the products should not be
used for diagnostic or treatment purposes and are only for educational and
medical reference purposes. The Company has general liability insurance and
insurance for errors and omissions in the content of its products. If a
liability claim were to be made, there can be no assurance that the Company
would be successful in defending against the claim or, if unsuccessful, that the
amount of insurance coverage, if any, would be sufficient to pay the claim.
Share Price Volatility
The trading price of the Common Stock could be subject to wide fluctuations in
response to quarter to quarter variations in operating results, changes in
earnings estimates by analysts, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the
software and computer industries and other events or factors. In addition, in
recent years the stock market in general, and the shares of technology companies
in particular, have experienced extreme price fluctuations. This volatility has
had a substantial effect on the market prices of securities issued by many
companies for reasons unrelated to the operating performance of the specific
companies. These broad market fluctuations may adversely affect the market price
of the Common Stock.
Anti-Takeover Provisions
The Company's Certificate of Incorporation and By-laws and Delaware law contain
provisions that may have the effect of delaying, deferring or preventing a
non-negotiated merger or other business combination involving the Company. These
provisions are intended to encourage any person interested in acquiring the
Company to negotiate with and obtain the approval of the Board of Directors in
connection with the transaction. Certain of these provisions may, however,
discourage a future acquisition of the Company not approved by the Board of
Directors in which stockholders might receive an attractive value for their
shares or that a substantial number or even a majority of the Company's
stockholders might believe to be in their best interest. As a result,
stockholders who desire to participate in such a transaction may not have the
opportunity to do so. Such provisions could also discourage bids for the shares
of Common Stock at a premium, as well as create a depressive effect on the
market price of the shares of Common Stock. In addition to the Common Stock, the
Company's Certificate of Incorporation authorizes the issuance
7
<PAGE>
of up to 20,000,000 shares of preferred stock. The Company has no current plans
to issue any shares of preferred stock. However, because the rights and
preferences for any series of preferred stock may be set by the Board of
Directors in its sole discretion, the Company may issue preferred stock that has
rights and preferences superior to the rights of holders of shares of the Common
Stock and thus may adversely affect the rights of holders of shares of the
Common Stock. In addition, the Board of Directors has adopted a Stockholders
Rights Plan that may have an anti-takeover effect and may discourage or prevent
takeover attempts not first approved by the Board of Directors (including
takeovers that certain stockholders may deem to be in their best interests).
Dividends
The Company has not paid any dividends and does not currently anticipate paying
cash dividends in the future. There can be no assurance that the Company will
ever pay a cash dividend.
Use of Proceeds
EAI will not receive any proceeds from the sale of the Common Stock offered
hereby, nor will such proceeds be available for EAI's use or benefit.
Selling Stockholders
The shares of Common Stock covered by this Prospectus are being registered for
reoffers and resales by Selling Stockholders of the Company. The Selling
Stockholders named on the following table may resell all, a portion, or none of
the Common Stock covered by this Prospectus.
The following table sets forth information with respect to the number of shares
of Common Stock beneficially owned by each of the Selling Stockholders as of
March 17, 1998.
<TABLE>
<CAPTION>
--------------------------------------------------
<S> <C> <C> <C>
Number of Shares
Beneficially
Number of Owned
Shares After the Sale of
Number of Shares Covered By Shares Covered by
Name of Selling Stockholder and Beneficially This this
Position with the Company Owned(1) Prospectus Prospectus(2)
---------------- ------------- -----------------
FORMER CIMTECH STOCKHOLDERS(3)
Clark S. Gaff(4)......................... 14,230 5,000 9,230
James Gordon............................. 4,252 4,252 0
Trustees of Grinnell College............. 10,479 10,479 0
Iowa Seed Capital Corporation............ 7,276 7,276 0
James D. Kilts........................... 5,773 273 5,500
Mid America Development Company.......... 3,477 3,477 0
David Sly................................ 38,671 9,667 29,004
-------------
Subtotal............................... 40,424
FORMER ROSETTA SHAREHOLDERS AND TCV
MEMBERS(5)
Thomas Aldrich........................... 14,605 4,605 10,000
Craig W. Barry........................... 465 465 0
Michael N. Barry, Vice President,
Co-General Manager Software
Division(6)............................. 188,912 26,000 162,912
Michelle J. Barry........................ 465 465 0
Terry Beyer and Anna Richardson.......... 3,568 2,400 1,168
Bryce Bollwahn........................... 621 621 0
Jane and Robert Chew(7).................. 184 76 108
Gary J. Collins.......................... 1,561 1,561 0
Cronus, Inc.............................. 17,452 9,452 8,000
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------
Number of Shares
Beneficially
Number of Owned
Shares After the Sale of
Number of Shares Covered By Shares Covered by
Name of Selling Stockholder and Beneficially This this
Position with the Company Owned(1) Prospectus Prospectus(2)
---------------- ------------- -----------------
<S> <C> <C> <C>
Claire E. Crowe(8)....................... 16,403 5,493 3,000
John P. Crowe............................ 190,915 45,915 145,000
Joseph M. Crowe(9)....................... 16,403 7,910 3,000
Joseph M. Crowe, Jr...................... 10,450 2,450 8,000
Martin C. Crowe.......................... 5,449 1,000 4,449
James Galloway........................... 154 154 0
First Trust Corporation as Trustee for
Lawrence Guevel I.R.A.(10).............. 3,250 1,500 1,650
Mary H. Guevel(11)....................... 3,250 100 1,650
Kenneth Hammer........................... 76 76 0
Con R. Hanger and Molly McCoy............ 507 307 200
Mary Patricia Hanger..................... 2,868 268 2,600
First Trust Corporation as Trustee for
William J. Harte I.R.A.(12)............. 9,466 6,312 3,154
Dennis M. Karchon(13).................... 18,988 512 9,024
James Karchon(14)........................ 158,638 70,186 79,000
Jeffrey Michael Katz..................... 23,995 6,000 17,995
Thomas E. Keller......................... 7,303 1,093 6,210
Joseph T. Kelly.......................... 9,390 390 9,000
John J. Kiely............................ 1,042 521 521
Kathryn K. Koslowsky..................... 8,866 3,866 5,000
Kenneth Lango............................ 2,988 1,988 1,000
John Mark Legg........................... 8,346 2,346 6,000
Carl Machover............................ 82 82 0
Kenneth and Catherine Martens............ 256 100 156
Richard Plourde(15)...................... 5,593 2,329 3,264
Joe E. Poskin............................ 3,130 1,130 2,000
David Ramahi(16)......................... 173,117 31,041 142,076
Frederick A. Rice, Jr. Trust (UTA
7/28/89), Frederick A. Rice, Jr.
Trustee................................. 6,259 2,500 3,759
Thomas Shuart............................ 2,082 1,082 1,000
Smith, Moore & Co. Profit Sharing Trust
A/C..................................... 8,236 3,000 5,236
William Swank............................ 21,889 11,000 10,889
Robert Templin........................... 3,091 3,091 0
Arthur J. Temske, Jr. and Nancy Temske... 19,273 4,500 14,773
Kenneth Vartanian, Vice President of
North American Sales, and Karen
Vartanian(17)........................... 177,525 18,331 159,194
Kenneth Young............................ 745 745 0
-------------
Subtotal............................... 282,963
OTHER SELLING STOCKHOLDERS
Jerome M. Behar, Vice President of
Finance and Chief Financial
Officer(18)............................. 13,837 2,000 11,837
Michael J. Jablo, Vice President,
Co-General Manager Software
Division(19)............................ 41,250 7,500 33,750
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------
Number of Shares
Beneficially
Number of Owned
Shares After the Sale of
Number of Shares Covered By Shares Covered by
Name of Selling Stockholder and Beneficially This this
Position with the Company Owned(1) Prospectus Prospectus(2)
---------------- ------------- -----------------
<S> <C> <C> <C>
Patricia F. Johnson, Vice President of
Human Resources(20)..................... 6,000 6,000 0
Laurence J. Kirshbaum, Director(21)...... 8,625 1,500 7,125
Guido T. Persch, Vice President of
Engineering Software(22)................ 147,298 4,660 142,638
Matthew M. Rizai, Ph.D., Chairman, Chief
Executive Officer, President, Treasurer
and Director(23)........................ 867,154 250,695 616,459
James L. Ryan, Vice President of
Marketing(24)........................... 9,322 3,000 6,322
Adrian Sannier, Ph.D., Vice President and
General Manager Interactive
Division(25)............................ 16,800 7,500 9,300
Jay E. Shannan, Ph.D., Vice President of
Operations(26).......................... 290,724 77,556 213,168
Jeff D. Trom, Ph.D., Vice President of
Software Development(27)................ 652,776 168,444 484,332
Martin J. Vanderploeg, Ph.D., Executive
Vice President and Director(28)......... 867,154 250,695 616,459
-------------
Subtotal............................... 779,550
-------------
Total.................................. 1,102,937
-------------
-------------
</TABLE>
- ------------------------
(1) Includes shares of Common Stock subject to options which vest within 60
days of the date hereof, which are deemed to be "beneficially owned" within the
meaning of Section 13(d) of the Exchange Act.
(2) There were 9,873,475 shares of Common Stock outstanding as of March 9,
1998. Assuming, in the case of each Selling Stockholder, that all shares of
Common Stock covered by this Prospectus are sold and that no additional shares
are purchased or sold by any Selling Stockholder, after the sale of all shares
covered by this Prospectus no Selling Stockholder will own in excess of 1% of
the outstanding shares of Common Stock other than Michael N. Barry, John P.
Crowe, David Ramahi, Kenneth Vartanian, Guido T. Persch, Matthew M. Rizai, Jay
Shannan, Jeff Trom and Martin Vanderploeg, who will own 1.58%, 1.41%, 1.38%,
1.55%, 1.38%, 5.91%, 2.07%, 4.69%, and 5.84%, respectively.
(3) Includes former employees and officers of Cimtech, some of whom are
currently employees of the Company.
(4) Includes 48 shares issuable upon the exercise of options that will vest
within 60 days, none of which are offered hereby, and 75 shares owned by Mr.
Gaff's wife, none of which are offered hereby.
(5) Includes (i) former employees and officers of Rosetta (some of whom are
currently employees of the Company), (ii) former managers of TCV, and (iii)
assignees of former TCV members.
(6) Includes 139,282 shares held by Miken, Inc., of which Mr. Barry is an
officer and director, none of which are offered hereby.
(7) Includes 108 shares owned by Mrs. Chew individually, none of which are
offered hereby.
(8) Includes 9,910 shares owned by Mrs. Crowe's husband, 7,910 of which are
offered hereby.
(9) Includes 6,493 shares owned by Mr. Crowe's wife, 5,493 of which are offered
hereby.
10
<PAGE>
(10) Includes 946 shares owned by Mr. Guevel's wife, 100 of which are offered
hereby.
(11) Includes 2,304 shares owned by Mrs. Guevel's husband, 1,500 of which are
offered hereby.
(12) Includes 3,154 shares owned by Mr. Harte's wife, none of which are offered
hereby.
(13) Includes 17,452 shares held by Cronus, Inc., of which Mr. Karchon is an
officer, 9,452 of which are offered hereby.
(14) Includes 17,452 shares held by Cronus Inc., of which Mr. Karchon is
President, 9,452 of which are offered hereby.
(15) Includes 3,264 shares issuable upon the exercise of options that will vest
within 60 days, none of which are offered hereby.
(16) Includes 2,794 shares issuable upon the exercise of options that will vest
within 60 days, none of which are offered hereby, and 139,282 shares held by
Miken, Inc., of which Mr. Ramahi is a beneficial owner, none of which are
offered hereby.
(17) Includes 139,282 shares held by Miken, Inc., of which Mr. Vartanian is an
officer and director, none of which are offered hereby.
(18) Includes 13,687 shares issuable upon the exercise of options that will
vest within 60 days, 2,000 of which are offered hereby.
(19) Includes 38,250 shares issuable upon the exercise of options that will
vest within 60 days, 4,500 of which are offered hereby.
(20) Consists of shares issuable upon the exercise of options that will vest
within 60 days, all of which are offered hereby.
(21) Consists of shares issuable upon the exercise of options that will vest
within 60 days, 1,500 of which are offered hereby.
(22) Includes 8,016 shares issuable upon the exercise of options that will vest
within 60 days, 4,660 of which are offered hereby, and 139,282 shares held by
Miken, Inc., of which Mr. Persch is a beneficial owner, none of which are
offered hereby.
(23) Includes 399,516 shares issuable upon exercise of options that will vest
within 60 days, of which 250,695 shares are offered hereby, and 467,638 shares
held by the Matthew Rizai Family Limited Partnership.
(24) Consists of shares issuable upon the exercise of options that will vest
within 60 days, 3,000 of which are offered hereby.
(25) Consists of shares issuable upon the exercise of options that will vest
within 60 days, 7,500 of which are offered hereby.
(26) Includes 18,375 shares issuable upon the exercise of options that will
vest within 60 days, none of which are offered hereby.
(27) Includes 18,375 shares issuable upon the exercise of options that will
vest within 60 days, none of which are offered hereby.
(28) Includes 399,516 shares issuable upon exercise of options that will vest
within 60 days, 150,417 of which are offered hereby.
11
<PAGE>
Other Information
On February 2, 1998, the Board of Directors of the Company declared a
three-for-two stock split in the form of a stock dividend. This dividend was
paid on February 27, 1998, to stockholders of record on February 12, 1998. All
of the share amounts in this Prospectus reflect the stock split.
At the Annual Meeting of the Company's stockholders scheduled for May 1, 1998,
the Company intends to seek stockholder approval of an amendment to the
Company's Certificate of Incorporation. The proposed amendment would increase
the number of shares of Common Stock of the Company authorized for issuance from
20,000,000 to 60,000,000.
Plan of Distribution
All of the shares of Common Stock are being offered by Selling Stockholders, and
the Company will not receive any proceeds from any sale of Common Stock covered
by this Prospectus.
The Selling Stockholders may sell the Common Stock being offered hereby: (i)
directly to purchasers, (ii) through agents, (iii) through J.P. Morgan
Securities Inc., (iv) through dealers, or (v) through a combination of any such
methods of sale. The distribution of the Common Stock offered hereby may be
effected from time to time in one or more transactions either: (i) at a fixed
price or prices, which may be changed, (ii) at market prices prevailing at the
time of sale, (iii) at prices related to such prevailing market prices, or (iv)
at negotiated prices.
Offers to purchase Common Stock may be solicited directly by the Selling
Stockholders or by agents designated by the Selling Stockholders from time to
time. Any such agent, which may be deemed to be an underwriter as that term is
defined in the Securities Act, involved in the offer or sale of the Common Stock
in respect of which this Prospectus is delivered will be named, and any
commissions payable by the Selling Stockholders to such agent will be set forth,
in one or more prospectus supplements (each a "Prospectus Supplement"). Unless
otherwise indicated in such a Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment (ordinarily
five business days or less).
If J.P. Morgan Securities Inc. is utilized in the sale, the Company and the
Selling Stockholders will execute an underwriting agreement with J.P. Morgan
Securities Inc. at the time of sale to them, and the names of the underwriters
and the terms of the transactions will be set forth in a Prospectus Supplement,
which will be used by J.P. Morgan Securities Inc. to make resales of the Common
Stock covered by this Prospectus. There is no agreement at this time between the
Selling Stockholders and J.P. Morgan Securities Inc. with respect to such shares
of Common Stock.
If a dealer is utilized in the sale of the Common Stock covered by this
Prospectus, the Company will sell such Common Stock to the dealer, as principal.
The dealer may then resell such Common Stock to the public at varying prices to
be determined by such dealer at the time of resale.
J.P. Morgan Securities Inc., dealers and agents may be customers of, engage in
transactions with, or perform services for, the Company in the ordinary course
of business. Also, J.P. Morgan Securities Inc., dealers, agents and other
persons may be entitled under agreements which may be entered into with the
Company and the Selling Stockholders, to indemnification against, or
contribution with respect to, certain civil liabilities, including liabilities
under the Securities Act.
Legal Matters
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Gardner, Carton & Douglas, Chicago,
Illinois.
Experts
The consolidated financial statements of EAI included in EAI's Annual Report
(Form 10-K) for the year ended December 31, 1997, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report
12
<PAGE>
thereon included therein and incorporated herein by reference which, as to the
year 1996, is based in part on the report of Arthur Andersen LLP, independent
public accountants. The financial statements referred to above are incorporated
by reference in reliance upon such reports given upon authority of such firms as
experts in accounting and auditing.
13
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