<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-27670
ENGINEERING ANIMATION, INC.
[EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER]
DELAWARE 42-1323712
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2321 NORTH LOOP DRIVE
AMES, IOWA 50010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
----------------------
(515) 296-9908
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
---------- -----------
AS OF NOVEMBER 6, 1998, THERE WERE 11,196,812 SHARES OF THE
REGISTRANT'S $0.01 PAR VALUE COMMON STOCK OUTSTANDING.
<PAGE> 2
ENGINEERING ANIMATION, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
At September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE> 3
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
------------------------------------
September 30, December 31,
1998 1997
-------- --------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $17,220 $25,468
Short-term investments 11,889 15,406
Accounts receivable:
Billed 27,068 18,604
Unbilled 11,997 6,891
Deferred income taxes 701 701
Prepaid expenses 2,203 1,649
------- -------
Total current assets 71,078 68,719
Property and equipment, net 18,094 12,598
Other assets:
Notes receivable 1,598 1,524
Software development costs, net 1,826 1,396
Goodwill, net 1,558 1,212
Deferred income taxes 1,665 78
Other 1,720 724
------- -------
Total assets $97,539 $86,251
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,505 $ 3,123
Accrued compensation and other expenses 8,522 5,715
Deferred revenue 2,267 2,965
Bank debt, current portion of long term debt and capital lease obligations 3,252 1,679
Income taxes payable 3,085 292
------- -------
Total current liabilities 21,631 13,774
Long term debt and lease obligations due after one year 1,592 1,569
Stockholders' equity 74,316 70,908
------- -------
Total liabilities and stockholders' equity $97,539 $86,251
======= =======
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
3
<PAGE> 4
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
-------------------------------- -------------------------------
Three months ended September 30, Nine months ended September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues:
Software products $ 20,291 $ 13,638 $ 53,182 $ 33,488
Interactive products 5,797 4,108 17,385 13,929
-------- -------- -------- --------
Total revenues 26,088 17,746 70,567 47,417
Cost of revenues 8,334 5,710 22,927 17,094
-------- -------- -------- --------
Gross profit 17,754 12,036 47,640 30,323
Operating expenses:
Sales and marketing 5,890 4,789 16,233 12,249
General and administrative 2,744 2,340 8,244 6,244
Research and development 4,436 3,068 12,034 7,873
Acquisition and non-recurring charges 5,035 -- 18,364 --
-------- -------- -------- --------
Total operating expenses 18,105 10,197 54,875 26,366
-------- -------- -------- --------
Income (loss) from operations (351) 1,839 (7,235) 3,957
Interest and other income, net 372 581 1,395 1,079
-------- -------- -------- --------
Income (loss) before income taxes 21 2,420 (5,840) 5,036
and minority interest
Income tax expense 1,571 896 2,809 1,828
-------- -------- -------- --------
Net income (loss) before minority interest (1,550) 1,524 (8,649) 3,208
Minority interest -- (51) -- (119)
-------- -------- -------- --------
Net income (loss) $ (1,550) $ 1,473 $ (8,649) $ 3,089
======== ======== ======== ========
Earnings (loss) per share:
Basic $ (0.14) $ 0.15 $ (0.79) $ 0.34
======== ======== ======== ========
Diluted $ (0.14) $ 0.13 $ (0.79) $ 0.29
======== ======== ======== ========
Weighted average shares outstanding 11,166 10,146 10,922 9,216
======== ======== ======== ========
Weighted average shares outstanding
and assumed conversion 11,166 11,663 10,922 10,634
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
-------------------------------
Nine months ended September 30,
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (8,649) $ 3,089
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 3,277 1,604
Deferred income taxes (487) (505)
Income tax benefit of stock options - 552
Write off of purchased in-process
research and development costs 9,080 -
Non-cash compensation expense 1,038 -
Increase in billed accounts receivable (8,487) (4,259)
Increase in unbilled accounts receivable (5,013) (2,897)
Increase in prepaid expenses (521) (968)
Increase in accounts payable 240 799
Increase in accrued expenses 403 1,293
Increase (decrease) in taxes payable 2,793 (594)
Increase (decrease) in deferred revenue (749) 632
Minority interest income - 119
-------- --------
Net cash used in operating activities (7,075) (1,135)
INVESTING ACTIVITIES
Purchases of property and equipment (7,727) (6,905)
Development of software (828) (947)
Maturities of marketable securities 44,951 14,500
Purchases of marketable securities (41,433) (38,704)
Other assets (1,373) -
-------- --------
Net cash used in investing activities (6,410) (32,056)
FINANCING ACTIVITIES
Decrease in restricted cash 69 213
Net increase in short term borrowing 2,473 680
Proceeds from note receivable 116 30
Proceeds from long-term debt 162 362
Payments on long-term debt and capital lease obligations (1,353) (1,002)
Net proceeds from exercise of options and warrants 2,017 375
Net proceeds from issuance of common stock 1,598 29,409
-------- --------
Net cash provided by financing activities 5,082 30,067
-------- --------
Net decrease in cash and cash equivalents (8,403) (3,124)
Foreign currency translation 155 (19)
Cash and cash equivalents at beginning of period 25,468 10,916
-------- --------
Cash and cash equivalents at end of period $ 17,220 $ 7,773
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
ENGINEERING ANIMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of
Engineering Animation, Inc. and the Company's subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments, consisting only of normal recurring accruals which in
the opinion of management are necessary to fairly state the Company's financial
position, results of operations, and cash flows for the periods presented. These
financial statements should be read in conjunction with the Company's audited
financial statements as included in the Company's 1997 Annual Report on Form
10-K as filed with the Securities and Exchange Commission on March 12, 1998. The
results of operations for the nine month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for any subsequent
quarter or for the fiscal year ending December 31, 1998. The December 31, 1997
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The consolidated financial statements are presented giving retroactive
effect to the Company's November 1997 acquisitions of Technology Company
Ventures, L.L.C. ("TCV") and Cimtech, Inc. ("Cimtech") which have been accounted
for as a pooling of interests.
Certain prior year financial information has been reclassified to
conform to the 1998 financial statement presentation.
2. Acquisitions
On September 22, 1998, the Company completed the acquisition of
Variation Systems Analysis, Inc. ("VSA"), a privately held company based in St.
Clair Shores, Michigan. The Company issued approximately 542,000 shares of
common stock in exchange for all of the outstanding preferred and common stock
of VSA in a transaction valued at approximately $26.0 million. This acquisition
was accounted for as a pooling of interests.
On September 22, 1998, the Company completed the acquisition of Transom
Technologies, Inc. ("Transom"), a privately held company based in Ann Arbor,
Michigan. The Company issued approximately 192,000 shares of common stock in
exchange for all of the outstanding preferred and common stock of Transom in a
transaction valued at approximately $13.0 million. This acquisition was
accounted for as a pooling of interests.
6
<PAGE> 7
In connection with these September 1998 acquisitions, the Company
posted a charge of $5.0 million for acquisition costs.
On June 17, 1998, the Company completed the acquisition of Sense8
Corporation ("Sense8"), a privately-held company in Mill Valley, California.
This acquisition was accounted for using the purchase method. The Company issued
approximately 158,000 shares of its common stock valued at approximately $7.0
million in exchange for all of the outstanding preferred and common stock of
Sense8 and assumed Sense8's net liabilities of approximately $2.4 million. In
connection with this acquisition, the Company posted a non-recurring charge for
purchased technology, which resulted in additional net expense of $9.1 million,
and recorded $586,000 of goodwill, which is being amortized on a straight-line
basis over five years. The following table shows the pro forma consolidated
results of operations as if Sense8 had been acquired as of the beginning of the
periods presented.
<TABLE>
<CAPTION>
--------------------
(in thousands, except per share data) Nine months ended
September 30, 1998
--------------------
<S> <C>
Revenues $ 71,178
Net loss $ (10,752)
Net loss per share $ (0.98)
</TABLE>
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
3. Public Offerings
In June 1997, the Company completed a follow-on offering of 1,000,000
shares of its common stock and received approximately $26.6 million of cash, net
of underwriting discounts and other offering costs. In March 1998, certain
stockholders of the Company sold 966,000 shares of common stock to or through
agents or dealers. The Company did not receive any of the proceeds from the sale
of the common stock.
4. Stock Split
The Company completed a three-for-two stock split in the form of a
stock dividend paid to stockholders effective March 2, 1998. Accordingly, all
share, per share, weighted average share and stock option information have been
restated to reflect the split.
7
<PAGE> 8
5. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share, adjusted for the three-for-two stock split:
<TABLE>
<CAPTION>
-------------------------------- --------------------------------
(in thousands, except per share data) Three months ended September 30, Nine months ended September 30,
1998 1997 1998 1997
-------- ------- --------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (1,550) $ 1,473 $ (8,649) $ 3,089
======== ======= ======== =======
Denominator
Denominator for basic earnings per share-
weighted average shares 11,166 10,146 10,922 9,216
Stock options -- 1,517 -- 1,418
-------- ------- -------- -------
Denominator for diluted earnings per share-
adjusted weighted average shares and
assumed conversion 11,166 11,663 10,922 10,634
======== ======= ======== =======
Basic earnings (loss) per share $ (0.14) $ 0.15 $ (0.79) $ 0.34
======== ======= ======== =======
Diluted earnings (loss) per share $ (0.14) $ 0.13 $ (0.79) $ 0.29
======== ======= ======== =======
</TABLE>
8
<PAGE> 9
ENGINEERING ANIMATION, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
NET REVENUES
The Company's revenues are derived from sales of software products and
interactive products. Revenues from sales of software products are recognized
upon delivery of the software product to the customer and satisfaction of
significant related obligations, if any. Revenues from software development
contracts, professional services, customer support and maintenance are included
in software product revenues. Customer support and maintenance revenues are
deferred and recognized ratably over the period the customer support services
are provided. The Company recognizes revenues from professional services,
software development contracts and interactive products based upon labor and
other costs incurred and progress to completion on contracts.
The Company's total revenues increased 47% to $26.1 million for the three months
ended September 30, 1998 from $17.7 million for the three months ended September
30, 1997, and increased 49% to $70.6 million for the nine months ended September
30, 1998 from $47.4 million for the nine months ended September 30, 1997.
Software products revenues increased 49% to $20.3 million for the three months
ended September 30, 1998 from $13.6 million for the three months ended September
30, 1997, and increased 59% to $53.2 million for the nine months ended September
30, 1998 from $33.5 million for the nine months ended September 30, 1997 as a
result of increased sales of product visualization solutions. Interactive
product revenues increased 41% to $5.8 million for the three months ended
September 30, 1998 from $4.1 million for the three months ended September 30,
1997, and increased 25% to $17.4 million for the nine months ended September 30,
1998 from $13.9 million for the nine months ended September 30, 1997, primarily
due to additional projects for interactive products.
COST OF REVENUES
The Company's cost of revenues includes cost of production, direct labor and
other costs associated with funded development and professional services,
packaging and distribution costs, royalties and amortization of capitalized
software costs. The Company's cost of revenues increased 46% to $8.3 million for
the three months ended September 30, 1998 from $5.7 million for the three months
ended September 30, 1997, and increased 34% to $22.9 million for the nine months
ended September 30, 1998 from $17.1 million for the nine months ended September
30, 1997, primarily due to expanded software product sales, software product
development and professional service contracts and development costs for
interactive products. The Company's cost of revenues as a percentage of revenues
remained at 32% for the three months ended
9
<PAGE> 10
September 30, 1998 and 1997 and decreased to 32% for the nine months ended
September 30, 1998 from 36% for the nine months ended September 30, 1997.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses include personnel costs
related to sales, marketing and customer service activities, as well as facility
costs, advertising, promotional materials, trade shows and other costs. The
Company's sales and marketing expenses increased 23% to $5.9 million for the
three months ended September 30, 1998 from $4.8 million for the three months
ended September 30, 1997, and increased 33% to $16.2 million for the nine months
ended September 30, 1998 from $12.2 million for the nine months ended September
30, 1997, primarily due to costs associated with expansion of the sales force,
increased marketing costs and equipment depreciation. Sales and marketing
expenses decreased to 23% of total revenues for the three months ended September
30, 1998 from 27% for the three months ended September 30, 1997, and decreased
to 23% of total revenues for the nine months ended September 30, 1998 from 26%
for the nine months ended September 30, 1997. The decrease in sales and
marketing expenses as a percentage of revenues was primarily the result of
spreading expenses over higher revenues.
General and Administrative. General and administrative expenses consist
primarily of personnel costs for administrative, executive and accounting
personnel, as well as certain consulting expenses, insurance costs, professional
fees, depreciation and amortization expenses and other costs. The Company's
general and administrative expenses increased 17% to $2.70 million for the three
months ended September 30, 1998 from $2.3 million for the three months ended
September 30, 1997, and increased 32% to $8.2 million for the nine months ended
September 30, 1998 from $6.2 million for the nine months ended September 30,
1997, primarily a result of increased administrative staff. General and
administrative expenses decreased to 11% of total revenues for the three months
ended September 30, 1998 compared to 13% for the three months ended September
30, 1997 and decreased to 12% of total revenues for the nine months ended
September 30, 1998 from 13% for the nine months ended September 30, 1997. The
decrease of general and administrative expenses as a percentage of revenues was
primarily a result of spreading expenses over higher revenues.
Research and Development. The Company's research and development focuses on
product development and consists primarily of personnel costs, related facility
costs, equipment costs and outside consulting fees. The Company's research and
development expenses increased 45% to $4.4 million for the three months ended
September 30, 1998 from $3.1 million for the three months ended September 30,
1997, and increased 53% to $12.0 million for the nine months ended September 30,
1998 from $7.9 million for the nine months ended September 30, 1997. Research
and development expenses remained at 17% of total revenues for the three months
ended September 30, 1998 and 1997, and for the nine months ended September 30,
1998 and 1997.
Acquisition and non-recurring charges. On September 22, 1998, the Company
completed the acquisitions of Variation Systems Analysis, Inc. ("VSA") and
Transom Technologies, Inc. ("Transom").
10
<PAGE> 11
In connection with these September 1998 transactions, the Company posted a $5.0
million charge for acquisition costs and employee related expenses.
On June 17, 1998, the Company completed the acquisition of Sense8 Corporation
("Sense8"). In connection with this acquisition, the Company posted a
non-recurring charge of $9.1 million for in-process purchased technology.
In the first quarter of 1998, the Company formed strategic relationships with
General Electric Corporate Research and Development and Hewlett-Packard Company
to license technology to incorporate into EAI's VisProducts(TM) software. Both
transactions were accounted for as non-recurring charges to purchased technology
expense in the first quarter of 1998 in the aggregate amount of $4.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has satisfied its cash requirements through borrowings,
customer advances, capital lease financing, aggregate net proceeds of
approximately $55.6 million from the Company's initial public offering of common
stock in February 1996, and a follow-on offering of common stock in June 1997.
The Company also received net proceeds of approximately $600,000, $1.2 million
and $3.0 million from private placements of common stock in June 1998, February
1998, and February 1997, respectively. As of September 30, 1998, the Company had
$29.1 million in cash, cash equivalents and short-term investments.
Net cash used in operating activities for the nine months ended September 30,
1998 was $7.1 million. Approximately $6.8 million of cash used in operating
activities was attributed to acquisition and non-recurring charges.
Net cash used by investing activities was $6.4 million for the nine months ended
September 30, 1998. The use of cash was primarily for office facilities and
leasehold improvements, computer equipment and office furniture to accommodate
the increased number of employees and office locations, and partially offset by
net maturities of marketable securities.
Net cash provided by financing activities was $5.1 million for the nine months
ended September 30, 1998. The main financing sources were proceeds from stock
option exercises, issuance of common stock and net increases in short-term
borrowing. A $3.5 million line of credit was put in place during September 1998
replacing an existing $2.5 million line of credit held by VSA of which $1.9
million was utilized at the time of acquisition. As of September 30, 1998, the
Company had drawn down $3.0 million to pay off the old line of credit and fund
operations.
The Company believes its current cash and short-term investment balances will be
sufficient to meet anticipated cash needs for working capital and capital
expenditures for at least the next twelve months. There can be no assurance that
additional capital beyond the amounts currently forecasted by the Company will
not be required nor that any such required additional capital will be available
on reasonable terms, if at all, at such time as required by the Company.
11
<PAGE> 12
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The Company or its representatives may, from time to time, make or may have made
certain forward-looking statements, orally or in writing, including, without
limitations, any such statements made or to be made in Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in its
various SEC filings. The Company wishes to ensure that such statements are
accompanied by meaningful cautionary statements, so as to ensure to the fullest
extent possible the protections of the safe harbor established in the Private
Securities Litigation Reform Act of 1995. Accordingly, such statements are
qualified in their entirety by reference to and are accompanied by the following
discussion of certain important factors that could cause actual results to
differ materially from those projected in such forward-looking statements.
The Company cautions the reader that this list of factors may not be exhaustive.
The Company operates in a continually changing business environment, and new
risk factors emerge from time to time. Management cannot predict such risk
factors, nor can it assess the impact, if any, of such risk factors on the
Company's business or the extent to which any factors, or combination of
factors, may cause actual results to differ materially from those projected in
any forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results.
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
directly from its customers, as well as its 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, 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.
Year 2000. The Company is in the process of assessing its readiness in respect
to Year 2000 issues. It has begun to identify and evaluate its critical data
processing systems and has completed conversions where needed. It has also begun
to identify its critical vendors and has initiated communication with some
vendors initially identified as critical regarding the readiness of their
systems in respect to Year 2000 issues.
12
<PAGE> 13
The Company is currently evaluating a plan to be implemented by the end of 1998
or early 1999 that would coordinate its Year 2000 efforts Company-wide. This
plan will supplement the Y2K efforts the Company has undertaken to date, and
will encompass the Company's recent acquisitions. The plan calls for the Company
to continue its identification of its Year 2000 issues and assess the risks
these issues pose to IT and non-IT systems, including systems potentially
containing embedded chips. The plan also calls for the further identification
and assessment of third-party relationships. Based on these assessments, the
Company will develop and implement actions to address newly identified risks if
any, which are considered business critical.
The Company currently anticipates that its identification, assessment and action
activities will continue into mid 1999. Once these activities are being
coordinated under the plan, the Company will be in a better position to identify
reasonably likely worst case scenarios given particular Year 2000 issues,
develop contingency plans, if warranted, and identify additional costs
associated with its efforts to address Year 2000 issues. The Company anticipates
completing any contingency planning activities by December 1999.
The Company has not tracked the costs associated with its Year 2000 efforts to
date, but believes that these costs have not been material. The funds used to
address Year 2000 efforts have been expensed as incurred. The Company
anticipates the majority of costs associated with Year 2000 efforts will be
incurred in 1999. The Company intends to initiate a process to track these costs
going forward. No IT projects have been deferred due to Year 2000 efforts.
The Company does not currently anticipate using vendors to assist it in its Year
2000 efforts, or for independent verification or validation of its Year 2000
efforts. The Company has cooperated with customers in their assessments of the
Year 2000 readiness of the Company's products.
Until the analysis of business critical risks is completed under the plan, the
Company will not be in a position to assess if the transition to Year 2000 will
materially adversely impact the Company, its systems, operations and financial
results. Even then, though, an unanticipated or inadequately addressed issue, as
well as third party readiness and contracting issues, may result in material
adverse impacts on the Company, its systems, operations and financial results.
For a more complete discussion of other risk factors affecting the Company, see
the Company's 1997 Annual Report on Form 10-K.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Index to Exhibits.
(b) Reports on Form 8-K.
June 17, 1998 (filed July 1, 1998 and amended July
31, 1998) - Item 2. Acquisition or Disposition of
Assets. Re: Acquisition of Sense8 Corporation
pursuant to a merger.
September 22, 1998 (filed September 25, 1998) - Item
2. Acquisition or Disposition of Assets. Re:
Acquisition of Transom Technologies, Inc. pursuant to
a merger and acquisition of Variation Systems
Analysis, Inc. pursuant to a merger.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 16, 1998 ENGINEERING ANIMATION, INC.
--------------------------------- (Registrant)
By: /s/ Jerome M. Behar
-------------------------------
Jerome M. Behar
Vice President of Finance and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
15
<PAGE> 16
INDEX TO EXHIBITS
Exhibit Description
- - ------- -----------
2.5 Amended and Restated Agreement and Plan of Merger between the
Company and Transom Technologies, Inc., dated as of August 19, 1998
(incorporated herein by reference from the Company's Registration
Statement on Form S-4, SEC File No. 333-61567)
2.6 Amended and Restated Agreement and Plan of Merger among the
Company, EAI Victory, Inc. and Variation Systems Analysis, Inc.,
dated as of August 19, 1998 (incorporated herein by reference from
the Company's Registration Statement on Form S-4, SEC File No.
333-61569)
3.1 Certificate of Incorporation, as amended
27. Financial Data Schedule
16
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
EAI, INC.
FIRST. The name of the corporation is EAI, INC.
SECOND. The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is the Corporation Trust Company.
THIRD. The nature of the business and the objects and purposes to be
conducted or promoted by the Corporation are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH.
1. Authorized Shares. The total number of shares of stock of all
classes which the Corporation shall have authority to issue is forty million
(40,000,000), of which twenty million (20,000,000) shall be shares of Preferred
Stock of the par value of $0.01 per share, and twenty million (20,000,000) shall
be shares of Common Stock of the par value of $0.01 per share.
2. Preferred Stock.
(a) The Preferred Stock shall be issuable in series, and in connection
with the issuance of any series of Preferred Stock and to the extent now or
hereafter permitted by the laws of the State of Delaware, the Board of Directors
is authorized to fix by resolution the designation of each series, the stated
value of the shares of each series, the dividend rate or rates of each series
(which rate or rates may be expressed in terms of a formula or other method by
which such rate or rates shall be calculated from time to time) and the date or
dates and other provisions respecting the payment of dividends, the provisions,
if any, for a sinking fund for the shares of each series, the preferences of the
shares of each series in the event of the liquidation or dissolution of the
Corporation, the provisions, if any, respecting the redemption of the shares of
each series and, subject to requirements of the laws of the State of Delaware,
the voting rights (except that such shares shall not have more than one vote per
share), the terms, if any, upon which the shares of each series shall be
convertible into or exchangeable for any other shares of stock of the
Corporation and any other relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of each series.
(b) Preferred Stock of any series redeemed, converted, exchanged,
purchased, or otherwise acquired by the Corporation shall constitute authorized
but unissued Preferred Stock.
17
<PAGE> 2
(c) All shares of any series of Preferred Stock, as between
themselves, shall rank equally and be identical (except that such shares may
have different dividend provisions); and all series of Preferred Stock, as
between themselves, shall rank equally and be identical except as set forth in
resolutions of the Board of Directors authorizing the issuance of such series.
3. Common Stock.
(a) After dividends to which the holders of Preferred Stock may then
be entitled under the resolutions creating any series thereof have been declared
and after the Corporation shall have set apart the amounts required pursuant to
such resolutions for the purchase or redemption of any series of Preferred
Stock, the holders of Common Stock shall be entitled to have dividends declared
in cash, property, or other securities of the Corporation out of any net profits
or net assets of the Corporation legally available therefor.
(b) In the event of the liquidation or dissolution of the
Corporation's business and after the holders of Preferred Stock shall have
received amounts to which they are entitled under the resolutions creating such
series, the holders of Common Stock shall be entitled to receive ratably the
balance of the Corporation's net assets available for distribution.
(c) Each share of Common Stock shall be entitled to one vote upon all
matters upon which stockholders have the right to vote, but shall not be
entitled to vote for the election of any directors who may be elected by vote of
the Preferred Stock voting as a class if so provided in the resolution creating
such Preferred Stock pursuant to Section 2(a) of this Article FOURTH.
4. Preemptive Rights. No holder of any shares of the Corporation
shall have any preemptive right to subscribe for or to acquire any additional
shares of the Corporation of the same or of any other class whether now or
hereafter authorized or any options or warrants giving the right to purchase any
such shares, or any bonds, notes, debentures or other obligations convertible
into any such shares.
FIFTH. The name and mailing address of the incorporator is as
follows:
NAME MAILING ADDRESS
- - ---- ---------------
Jamie A. Wade Des Moines, Iowa
SIXTH. The Corporation is to have perpetual existence.
SEVENTH. The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatever.
EIGHTH. Except as may otherwise be fixed by resolution of the Board
of Directors pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of
18
<PAGE> 3
Preferred Stock to elect directors as a class, the number of directors of the
Corporation shall be fixed from time to time by or pursuant to the By-Laws of
the Corporation. The directors, other than those who may be elected by the
holders of Preferred Stock, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible. The first class shall be initially elected for a term expiring at
the next ensuing annual meeting, the second class shall be initially elected for
a term expiring one year thereafter, and the third class shall be elected for a
term expiring two years thereafter, with each member of each class to hold
office until his successor is elected and qualified. At each annual meeting of
the stockholders of the Corporation held after the initial classification and
election of directors, the successors of the class of directors whose term
expires at that meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election.
Advance notice of stockholder nominations for the election of directors
shall be given in the manner provided in the By-Laws of the Corporation.
Except as may otherwise be fixed by resolution of the Board of
Directors pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of Preferred Stock to elect directors as a class, newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or any other cause shall be filled by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum of the Board of Directors. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the class of directors in which the new directorship was created (subject to the
requirements of this Article EIGHTH that all classes be as nearly equal in
number as possible) or in which the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of an
incumbent director.
Subject to the rights of the holders of Preferred Stock to elect
directors as a class, a director may be removed only for cause and only by the
affirmative vote of the holders of 80% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
1. To adopt, amend and repeal the By-Laws of the Corporation. Any
By-Laws adopted by the directors under the powers conferred hereby may be
amended or repealed by the directors or by the stockholders. Notwithstanding the
foregoing or any other provision in this Certificate of Incorporation or the
By-Laws of the Corporation to the contrary, Article II, Sections 3 and 7 and
Article III, Sections 1, 2 and 3 of the By-Laws shall not be amended or repealed
and no provision inconsistent therewith shall be adopted without the affirmative
vote of the holders of at least 80% of the voting power of all the shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
19
<PAGE> 4
2. To fix and determine, and to vary the amount of, the working
capital of the Corporation, and to determine the use or investment of any assets
of the Corporation, to set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve or reserves.
3. To authorize the purchase or other acquisition of shares of stock
of the Corporation or any of its bonds, debentures, notes, scrip, warrants or
other securities or evidence of indebtedness.
4. Except as otherwise provided by law, to determine the places
within or without the State of Delaware, where any or all of the books of the
Corporation shall be kept.
5. To authorize the sale, lease or other disposition of any part or
parts of the properties of the Corporation and to cease to conduct the business
connected therewith or again to resume the same, as it may deem best.
6. To authorize the borrowing of money, the issuance of bonds,
debentures and other obligations or evidences of indebtedness of the
Corporation, secured or unsecured, and the inclusion of provisions as to
redeemability and convertibility into shares of stock of the Corporation or
otherwise; and the mortgaging or pledging, as security for money borrowed or
bonds, notes, debentures or other obligations issued by the Corporation, of any
property of the Corporation, real or personal, then owned or thereafter acquired
by the Corporation.
7. To authorize the negotiation and execution on behalf of the
Corporation of agreements with officers and other employees of the corporation
relating to the payment of severance compensation to such officers or employees.
In addition to the powers and authorities herein or by statute
expressly conferred upon it, the Board of Directors may exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
of this Certificate of Incorporation and of the By-Laws of the Corporation.
Subject to any limitation in the By-Laws, the members of the Board of
Directors shall be entitled to reasonable fees, salaries, or other compensation
for their services, as determined from time to time by the Board of Directors,
and to reimbursement for their expenses as such members. Nothing herein
contained shall preclude any director from serving the Corporation or its
subsidiaries or affiliates in any other capacity and receiving compensation
therefor.
Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 80% of the
voting power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
alter, amend, adopt any provision inconsistent with or repeal this Article
EIGHTH.
20
<PAGE> 5
NINTH. Both stockholders and directors shall have power, if the
By-Laws so provide, to hold their meetings and to have one or more offices
within or without the State of Delaware.
Except as may otherwise be fixed by resolution of the Board of
Directors pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of Preferred Stock, any action required or permitted to be
taken by the stockholders of the Corporation may be effected by a written
consent of the stockholders, provided that upon a Public Offering, any such
action must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders. A
"Public Offering" means a public offering and sale of Common Stock pursuant to
an effective registration statement under the Securities Act of 1933, as
amended. Except as otherwise required by law and subject to the rights of the
holders of Preferred Stock, special meetings of stockholders may be called only
by the Chairman, if any, on his own initiative, the President on his own
initiative or by the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal this Article NINTH.
TENTH. Except as otherwise provided in this Certificate of
Incorporation, the Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH.
(a) A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware, or any other applicable law, is amended to authorize corporation
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, or any other applicable law, as so amended. Any repeal or modification
of this Section (a) by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
(b) (1) Each person who has or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director or officer of the Corporation or is
21
<PAGE> 6
or was serving at the request of the Corporation as a director, officer or
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is an alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
General Corporation Law of the State of Delaware, or any other applicable law,
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that except as provided in paragraph (2) of this Section (b)
with respect to proceedings seeking to enforce rights to indemnification, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section (b)
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that if the General Corporation Law of
the State of Delaware, or any other applicable law, requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding shall be made only upon delivery to the Corporation
of an undertaking by or on behalf of such director or officer to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section (b) or otherwise.
(2) If a claim under paragraph (1) of this Section (b) is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standard of conduct which make it permissible under the
General Corporation Law of the State of Delaware, or any other applicable law,
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, stockholders or
independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, or any other
applicable law, nor an actual determination by the Corporation (including its
Board of Directors, stockholders or independent legal counsel) that the
22
<PAGE> 7
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
(3) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Section (b) shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of this Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
(4) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware, or any other
applicable law.
(5) The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to be paid
by the Corporation the expenses incurred in defending any proceeding in advance
of its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Section (b) with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(6) Any repeal or modification of this Section (b) by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director, officer, employee or agent of the Corporation existing at the time of
such repeal or modification.
TWELFTH. In determining whether an "Acquisition Proposal" is in the
best interests of the Corporation and its stockholders, the Board of Directors
shall consider all factors it deems relevant including, without limitation, the
following:
(a) The consideration being offered in the Acquisition Proposal, not
only in relation to the then current market price, but also in relation to the
then current value of the Corporation in a freely negotiated transaction and in
relation to the Board of Directors' estimate of the future value of the
Corporation as an independent entity; and
(b) Such other factors the Board of Directors determines to be
relevant, including among others the social, legal and economic effects upon
employees, suppliers, customers and the communities in which the Corporation is
located, as well as on the long term business prospects of the Corporation.
"Acquisition Proposal" means any proposal of any person (i) for a
tender offer, exchange offer or any other method of acquiring any equity
securities of the Corporation with a view to acquiring control of the
Corporation, (ii) to merge or consolidate the Corporation with another
corporation, or (iii) to purchase or otherwise acquire all or substantially all
of the properties and assets of the Corporation.
23
<PAGE> 8
This Article TWELFTH shall not be interpreted to create any rights on
behalf of third persons, such as employees, suppliers, or customers.
THE UNDERSIGNED, being the sole incorporator hereinafter named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate, hereby declaring and certifying
that this is his act and deed and the facts herein stated are true, and
accordingly has set his hand this 12th day of December, 1995.
/s/ Jamie A. Wade
---------------------------
Jamie A. Wade, Incorporator
24
<PAGE> 9
CERTIFICATE OF OWNERSHIP AND MERGER
of
Engineering Animation, Inc.
(an Iowa corporation)
into
EAI, Inc.
(a Delaware corporation)
It is hereby certified that:
1. Engineering Animation, Inc. (the "Corporation") is a
corporation of the State of Iowa, the laws of which permit a merger of a
corporation of that jurisdiction with a corporation of another jurisdiction.
2. The Corporation, as the owner of all of the outstanding
shares of common stock of EAI, Inc., hereby merges itself into EAI, Inc., a
corporation of the State of Delaware ("EAI").
3. The following is a copy of the resolutions adopted on the
18th day of December, 1995, by the Board of Directors of the Corporation to
merge the Corporation into EAI:
RESOLVED, that this Corporation be reincorporated in the
State of Delaware by merging itself into EAI pursuant to the
laws of the State of Iowa and the State of Delaware as
hereinafter provided, so that the separate existence of this
Corporation shall cease as soon as the merger shall become
effective, and thereupon this Corporation and EAI will become
a single corporation, which shall continue to exist under,
and be governed by, the laws of the State of Delaware.
RESOLVED that the terms and conditions of the proposed merger
are as follows:
(a) From and after the effective time of the merger, all of the estate,
property, rights, privileges, powers, and franchises of this
Corporation shall become vested in and be held by EAI as fully and
entirely and without change or diminution as the same were before held
and enjoyed by this Corporation and EAI shall assume all of the
obligations of this
<PAGE> 10
Corporation pursuant to Section 253 of the General Corporation Law of
the State of Delaware.
(b) Each share of capital stock of this Corporation which shall be
issued and outstanding immediately prior to the effective time of the
merger shall be converted into one issued and outstanding share of
common stock, $0.01 par value, of EAI, and, from and after the
effective time of the merger, the holders of all of said issued and
outstanding shares of capital stock of this Corporation shall
automatically be and become holders of shares of EAI upon the basis
above specified, whether or not certificates representing said shares
are then issued and delivered.
(c) After the effective time of the merger, each holder of record of
any outstanding certificate or certificates theretofore representing
capital stock of this Corporation may surrender the same to EAI at its
office in Ames, Iowa and such holder shall be entitled upon such
surrender to receive in exchange therefor a certificate or certificates
representing an equal number of shares of common stock of EAI.
Until so surrendered, each outstanding certificate which prior to the
effective time of the merger represented one or more shares of capital
stock of this Corporation shall be deemed for all corporate purposes to
evidence ownership of an equal number of shares of common stock of EAI.
(d) From and after the effective time of the merger, the name of EAI
shall be amended to "Engineering Animation, Inc."
(e) From and after the effective time of the merger, the Certificate of
Incorporation and the By-Laws of EAI, Inc. shall be the Certificate of
Incorporation and the By-Laws of EAI as in effect immediately prior to
such effective time, except that the name of EAI shall be amended to be
"Engineering Animation, Inc.," and such Certificate of Incorporation
and By-laws shall continue in full force and effect until amended and
changed in the manner prescribed by the provisions of such documents
and the General Corporation Law of the State of Delaware.
2
<PAGE> 11
(f) The officers of EAI shall be the corresponding officers of the
Corporation immediately before the effective time of the merger and the
members of the Board of Directors shall be as follows, which directors
are to serve in office until the annual meeting of stockholders in the
year indicated below, or until their successors shall have been elected
and qualified:
Name of Director Expiration of Term
---------------- ------------------
Laurence J. Kirshbaum 1997
Michael Crow 1998
Jamie A. Wade 1996
Matthew Rizai 1998
Martin Vanderploeg 1997
RESOLVED that, in the event that the proposed merger shall
not be terminated, the proper officers of this Corporation be
and they hereby are authorized and directed to make and
execute a Certificate of Ownership and Merger setting forth a
copy of these resolutions to merge itself into EAI and the
date of adoption thereof, and to cause the same to be filed
and recorded as provided by law, and to do all acts and
things whatsoever, within the State of Iowa and Delaware in
any other appropriate jurisdiction, necessary or proper to
effect this merger.
4. The proposed merger herein certified has been adopted,
approved, certified, executed, and acknowledged by this Corporation in
accordance with the laws of the State of Iowa.
Signed on December 18, 1995
Engineering Animation, Inc.,
an Iowa corporation
By: /s/ Matthew M. Rizai
-------------------------
Name: Matthew M. Rizai
-----------------------
Its: President
------------------------
Attested:
By: /s/ Jamie A. Wade
-------------------
Name: Jamie A. Wade
-------------------
Its: Secretary
-------------------
3
<PAGE> 12
ENGINEERING ANIMATION, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
ENGINEERING ANIMATION, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), pursuant to Section 242
of The General Corporation Law of the State of Delaware (the "Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Certificate of Incorporation be amended to add the
following as ARTICLE THIRTEENTH:
"THIRTEENTH. Simultaneously with the effective date of this amendment
(the "Effective Date"), each share of Common Stock, par value $.01 per
share, issued and outstanding immediately prior to the Effective Date
(the "Old Common Stock") shall automatically and without any action on
the part of the holder thereof be reclassified and changed into
one-half of a share of the Corporation's Common Stock, par value $.01
per share (the "New Common Stock"), subject to the treatment of
fractional share interests as described below. Each holder of a
certificate or certificates which immediately prior to the Effective
Date represented outstanding shares of Old Common Stock (the "Old
Certificates") shall be entitled to receive upon surrender of such Old
Certificates to the Corporation's transfer agent for cancellation a
certificate or certificates (the "New Certificates") representing such
number of whole shares of the New Common Stock into which and for which
the shares of the Old Common Stock formerly represented by such Old
Certificates so surrendered are reclassified under the terms hereof.
From and after the Effective Date, Old Certificates shall represent
only the right to receive New Certificates pursuant to the provisions
hereof. No certificates or scrip representing fractional share
interests in New Common Stock will be issued by the Corporation as a
result of the reverse stock split contemplated hereby. In lieu thereof,
each stockholder whose shares of Old Common Stock are not evenly
divisible by two will receive one additional share of New Common Stock
for the fractional share that such stockholder would otherwise be
entitled to as a result of such reverse stock split. If more than one
Old Certificate shall be surrendered at one time for the account of the
same stockholder, the number of full shares of New Common Stock for
which new certificates shall be issued shall be computed on the basis
of the aggregate number of shares represented by the Old Certificates
so surrendered. In the event that the Corporation's transfer agent
determines that a holder of Old Certificates has not tendered all his
certificates for exchange, the transfer agent shall carry forward any
fractional share until all certificates of that holder have been
presented for exchange. If any New Certificate is to be issued in the
name
<PAGE> 13
other than that in which the Old Certificates surrender for exchange
are issued, the Old Certificates so surrendered shall be properly
endorsed and otherwise in proper form for transfer, and the person or
persons requesting such exchange shall affix any requisite stock
transfer tax stamps to the Old Certificates surrendered, or provide
funds for their purchase, or establish to the satisfaction of the
transfer agent that such taxes are not payable. From and after the
Effective Date, the amount of capital represented by the shares of the
New Common Stock into which and for which the shares of the Old Common
Stock are reclassified under the terms hereof shall be the same as the
amount of capital represented by the shares of Old Common Stock so
reclassified, until thereafter reduced or increased in accordance with
applicable law."
SECOND: That the foregoing amendment to the Certificate of
Incorporation of the Corporation was duly approved and adopted by written
consent of the shareholders of the Corporation dated February 16, 1996, pursuant
to the provisions of Sections 228 and 242 of the Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by its President and attested by its Secretary on the 20th day of
February, 1996.
ENGINEERING ANIMATION, INC.
By: /s/ Matthew M. Rizai
---------------------------
Matthew M. Rizai, President
ATTEST:
/s/ Jamie A. Wade
- - -------------------------
Jamie A. Wade, Secretary
2
<PAGE> 14
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
ENGINEERING ANIMATION, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
------------------------------
Engineering Animation, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law by unanimous written consent dated December 18, 1995:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1 Designation and Amount. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 200,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of Shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of
any series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference
<PAGE> 15
to the holders of Common Stock, par value $0.01 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends
2
<PAGE> 16
paid on the shares of Series A Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than
60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
3
<PAGE> 17
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except dividends
paid ratably on the Series A Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion
to the total amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A Preferred
Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith
will result in fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Required Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock
4
<PAGE> 18
shall have received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, provided that the holders of shares of Series A Preferred Stock
shall be entitled to receive an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the aggregate
amount to be distributed per share to holders of shares of Common Stock, or (2)
to the holders of shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of assets, junior
to all series of any other class of the Corporation's Preferred Stock.
5
<PAGE> 19
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its President and attested by its Secretary this
20th day of February, 1996.
ENGINEERING ANIMATION, INC.
/s/ Matthew M. Rizai
-------------------------------
Name: Matthew M. Rizai
Title: President
Attest:
/s/ Jamie A. Wade
- - ---------------------------
Name: Jamie A. Wade
Title: Secretary
6
<PAGE> 20
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ENGINEERING ANIMATION, INC.
FIRST: That by unanimous written consent, dated February 11, 1998, in accordance
with Section 141(f) of the General Corporation Law of the State of Delaware, the
Board of Directors of Engineering Animation, Inc. (the "Corporation") duly
adopted resolutions setting forth a proposed amendment of the Certificate of
Incorporation of said Corporation, declaring said amendment to be advisable and
submitting such amendment to the stockholders of said Corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this Corporation be amended
by changing Section 1 of Article Fourth thereof so that, as amended, said
Section shall be and read as follows:
"1. Authorized Shares. The total number of shares
of stock of all classes which the Corporation shall have
authority to issue is eighty million (80,000,000), of which
twenty million (20,000,000) shall be shares of Preferred
Stock of the par value of $0.01 per share, and sixty million
(60,000,000) shall be shares of Common Stock of the par value
of $0.01 per share."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
majority of the holders of Common Stock of said Corporation, by action of such
stockholders at the annual meeting of the stockholders of the corporation, on
May 1, 1998 in accordance with Section 242 of the General Corporation Law of the
State of Delaware, voted as follows: of the 9,890,949 shares of outstanding
Common Stock entitled to vote thereon, (1) the holders of 6,155,394 shares of
the outstanding stock voted in favor of the approval of said amendment; (2) the
holders of 1,322,084 shares of the outstanding stock entitled to vote thereon
voted against the approval of said amendment and (3) the holders of 11,589
shares of the outstanding stock did not vote on said amendment.
There were no shares of outstanding Preferred Stock entitled to vote thereon.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Board of Directors has caused this certificate to be
signed by Jamie A. Wade, its Vice President, this eleventh day of May, 1998.
By: /s/ Jamie A. Wade
-----------------------
Vice President
<PAGE> 21
CERTIFICATE OF MERGER
OF
SENSE8 CORPORATION
INTO
ENGINEERING ANIMATION, INC.
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
Name State of Incorporation
---- ----------------------
Sense8 Corporation California
Engineering Animation, Inc. Delaware
SECOND: That an agreement and plan of merger between the parties to
the merger has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with the requirements of
Section 252 of the General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Engineering Animation, Inc.
FOURTH: That the certificate of incorporation of Engineering
Animation, Inc., a Delaware corporation, the surviving corporation, shall be its
certificate of incorporation.
FIFTH: That the authorized stock for the non-surviving corporation
is Ten Million (10,000,000) shares of common stock with no par value.
SIXTH: That the executed agreement and plan of merger is on file at
the principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is 2321 North Loop
Drive, Ames, Iowa 50010.
SEVENTH: That a copy of the agreement and plan of merger will be
furnished by the surviving corporation, on request and without cost to any
stockholder of any constituent corporation.
ENGINEERING ANIMATION, INC.
DATED: June 8, 1998 BY: /s/ Jamie Wade
----------------------------------
Jamie Wade
ITS:Vice President and General Counsel
<PAGE> 22
CERTIFICATE OF MERGER
OF TRANSOM TECHNOLOGIES, INC.
WITH AND INTO
ENGINEERING ANIMATION, INC.
The undersigned corporation, being organized and existing under and by
virtue of the Delaware General Corporation Law, does hereby certify that:
1. The name and state of incorporation of each of the constituent
corporations to the merger are as follows:
(a) Transom Technologies, Inc., which is incorporated under the laws
of the State of Delaware; and
(b) Engineering Animation, Inc., which is incorporated under the laws
of the State of Delaware.
2. An Amended and Restated Agreement and Plan of Merger ("Merger
Agreement") has been approved, adopted, certified, executed, and acknowledged by
each of the constituent corporations to the merger in accordance with the
provisions of Section 251 of the General Corporation Law of the State of
Delaware.
3. The name of the surviving corporation in the merger is Engineering
Animation, Inc., which corporation will continue its existence as the surviving
corporation under its present name, Engineering Animation, Inc.
4. The Certificate of Incorporation of Engineering Animation, Inc.,
as now in force and effect, shall continue to be the Certificate of
Incorporation of the surviving corporation until amended and changed pursuant to
the provisions of the General Corporation Law of the State of Delaware.
5. The executed Merger Agreement between the constituent corporations
is on file at the principal place of business of the surviving corporation, the
address of which is as follows: Attention: General Counsel, 2321 North Loop
Drive, Ames, Iowa 50010.
6. A copy of the Merger Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of the constituent
corporations.
<PAGE> 23
DATED: September 22, 1998
ENGINEERING ANIMATION, INC.
By: /s/ Jamie A. Wade
------------------------------------
Jamie A. Wade
Its: Vice President of Administration and
General Counsel, Secretary
2
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