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, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-27670
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 ( X ) 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 5, 1999, there were 11,964,625 shares of the
Registrant's $0.01 par value common stock outstanding.
1
<PAGE>
ENGINEERING ANIMATION, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
At September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)
<CAPTION>
-------------------------------
September 30, December 31,
1999 1998
-------------- --------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 18,832 $ 23,623
Short-term investments 995 11,873
Accounts receivable:
Billed 17,444 26,684
Unbilled 4,351 3,595
Deferred income taxes 1,208 1,250
Income taxes receivable 8,005 1,882
Prepaid expenses and other assets 2,504 1,997
-------------- --------------
Total current assets 53,339 70,904
Property and equipment, net 21,624 15,848
Other assets:
Note receivable 1,408 1,408
Software development costs, net 2,433 1,679
Deferred income taxes 776 769
Goodwill and developed technology, net 12,051 10,973
Other 1,232 1,423
Net assets of discontinued operations 2,961 12,586
-------------- --------------
Total assets $ 95,824 $ 115,590
============== ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 5,084 $ 3,340
Accrued compensation and other accrued expenses 9,485 10,135
Deferred revenue 3,605 3,590
Bank debt, current portion of long-term debt and lease obligations 4,808 3,327
-------------- --------------
Total current liabilities 22,982 20,392
Long-term debt and lease obligations due after one year 1,133 1,480
Other long-term liabilities 179 179
Stockholders' equity 71,530 93,539
-------------- --------------
Total liabilities and stockholders' equity $ 95,824 $ 115,590
============== ==============
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<CAPTION>
------------------------------- ------------------------------
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 13,799 $ 23,049 $ 54,267 $ 61,236
Cost of revenues 8,754 5,972 23,634 16,836
-------------- -------------- -------------- --------------
Gross profit 5,045 17,077 30,633 44,400
Operating expenses:
Sales and marketing 7,521 5,490 21,515 14,707
General and administrative 4,701 2,643 11,070 7,887
Research and development 5,490 4,323 14,937 11,330
Acquisition costs and non-recurring expenses 755 5,686 2,056 12,391
-------------- -------------- -------------- --------------
Total operating expenses 18,467 18,142 49,578 46,315
-------------- -------------- -------------- --------------
Loss from operations (13,422) (1,065) (18,945) (1,915)
Other income, net 89 369 715 1,400
-------------- -------------- -------------- --------------
Loss from continuing operations before income tax (13,333) (696) (18,230) (515)
Income tax expense (benefit) (3,719) 1,526 (5,089) 2,551
-------------- -------------- -------------- --------------
Loss from continuing operations (9,614) (2,222) (13,141) (3,066)
Discontinued operations:
Income (loss) from discontinued operations
net of tax (see note 2) - 189 (1,927) 963
Provision for exiting discontinued operations
including operating losses during phase out
period, net of tax (see note 2) - - (8,930) -
-------------- -------------- -------------- --------------
Net loss $ (9,614) $ (2,033) $ (23,998) $ (2,103)
============== ============== ============== ==============
Earnings (loss) per share:
Basic and diluted
Continuing operations $ (0.81) $ (0.19) $ (1.11) $ (0.27)
Discontinued operations - 0.02 (0.91) 0.09
-------------- -------------- -------------- --------------
Total $ (0.81) $ (0.17) $ (2.02) $ (0.18)
============== ============== ============== ==============
Weighted average shares outstanding 11,937 11,723 11,859 11,479
============== ============== ============== ==============
See accompanying notes.
</TABLE>
4
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<TABLE>
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<CAPTION>
--------------------------------
Nine months ended
September 30,
Operating activities 1999 1998
-------------- ---------------
<S> <C> <C>
Net loss $ (23,998) $ (2,103)
Adjustments to reconcile net loss to net cash used in
operating activities
Goodwill and developed technology amortization expense 2,056 1,189
Depreciation and other amortization expense 4,497 3,162
Deferred income taxes (3) (492)
Write-off of purchased in-process research
and development costs - 1,918
Provision for exiting discontinued operations including operating losses
during phase out period 13,750 -
Loss on disposal of assets 144 -
Non-cash compensation expense - 1,248
Changes in operating assets and liabilities
Billed accounts receivable 9,423 (8,480)
Unbilled accounts receivable 2,833 (4,867)
Prepaid expenses (397) (526)
Accounts payable 2,029 92
Accrued expenses (3,852) 790
Income taxes (12,222) 2,793
Deferred revenue 181 (749)
------------ ------------
Net cash used in operating activities (5,559) (6,025)
------------ ------------
Investing activities
Purchases of property and equipment (9,228) (7,916)
Change in other assets (19) (1,449)
Capitalization of software development costs (1,404) (828)
Maturities of marketable securities 20,500 44,951
Purchases of marketable securities (9,622) (41,433)
Cash purchased in acquisitions 481 79
Cash consideration for acquisition of Kx (1,800) -
------------ -------------
Net cash used in investing activities (1,092) (6,596)
------------ -------------
Financing activities
Net change in restricted cash (2) 69
Net change in short-term borrowing 1,426 2,473
Proceeds from note receivable - 116
Proceeds from long-term debt
and capital lease obligations - 432
Payments on long-term debt and capital lease
obligations (365) (1,622)
Dividend distribution - (24)
Net proceeds from exercise of options and warrants 960 2,017
Net proceeds from issuance of stock - 1,598
----------- -------------
Net cash provided by financing activities 2,019 5,059
----------- -------------
Net decrease in cash and cash equivalents (4,632) (7,562)
----------- -------------
Effect of exchange rates (159) 204
Cash and cash equivalents at beginning of period 23,623 25,881
----------- -------------
Cash and cash equivalents at end of period $ 18,832 $ 18,523
=========== =============
See accompanying notes.
</TABLE>
5
<PAGE>
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 on consolidation.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments, consisting 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 1998 Annual Report on Form
10-K as filed with the Securities and Exchange Commission. The results of
operations for the nine month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for any subsequent
quarter or for the fiscal year ending December 31, 1999. The balance sheet as of
December 31, 1998 was derived from audited financial statements but has been
restated to reflect net assets of discontinued operations as a separate line
item in accordance with Accounting Principles Board Opinion 30. The balance
sheets as of September 30, 1999 and December 31, 1998 do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The Company has restated the financial statements to give retroactive
effect to the 1998 acquisitions of Variation Systems Analysis, Inc. ("VSA");
Transom Technologies, Inc. ("Transom"); and EAI-DELTA GmbH ("DELTA"), all of
which were accounted for as pooling of interests. The financial statements also
include the operations of Sense8 Corporation ("Sense8") since June 17, 1998 and
Kx Verksamhetsutveckling AB, ("Kx") since July 27, 1999, the dates of their
acquisition by the Company. The Sense8 and Kx transactions were accounted for as
purchases.
Certain prior year financial information has been reclassified to
conform to the 1999 financial statement presentation.
2. ACQUISITION
On July 27, 1999, the Company acquired Kx, a privately-held company in
Gothenburg, Sweden. The acquisition, including transaction costs and assumed net
liabilities, was valued at approximately $3.1 million. The Company paid cash of
$1.8 million and issued 56,000 shares of common stock in exchange for all of the
outstanding common stock of Kx. Kx provides integrated software solutions,
training and support for manufacturing customers in Scandinavia. The Company has
accounted for the acquisition of Kx as a purchase and all intangibles associated
with this acquisition are being amortized over 5 years using the straight-line
method. There was no in-process research and development charged to operations.
6
<PAGE>
3. DISCONTINUED OPERATIONS
The Company announced on July 6, 1999 that it would exit its
Interactive Games and Science and Technology businesses by the end of the first
quarter of 2000. The Company established a provision for discontinued operations
in the second quarter of 1999 to cover the estimated costs of exiting these
businesses including operating losses during the phase out period.
The following table summarizes revenues from discontinued operations
and net loss for the three and nine months ended, September 30, 1999 and 1998:
<TABLE>
<CAPTION>
------------------------------- --------------------------------
Three months ended September 30, Nine months ended September 30,
(in thousands) 1999 1998 1999 1998
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Revenues from discontinued operations $ 659 $ 4,696 $ 7,640 $ 14,006
============ ============ ============= ===========
Net loss from continuing operations $ (9,614) $ (2,222) $ (13,141) $ (3,066)
Discontinued operations:
Income (loss) from discontinued operations before tax - 304 (3,108) 1,553
Income tax expense (benefit) of income (loss)
from discontinued operations - 115 (1,181) 590
------------ ------------ ------------- -----------
Net income (loss) from discontinued operations - 189 (1,927) 963
------------ ------------ ------------- -----------
Provision for exiting discontinued operations
including operating losses during phase out period before tax - - (13,750) -
Income tax benefit of provision for exiting
discontinued operations including operating
losses during phase out period - - (4,820) -
------------ ------------ ------------- ------------
Provision for exiting discontinued operations, net of tax - - (8,930) -
------------ ------------ ------------- ------------
Net loss $ (9,614) $ (2,033) $ (23,998) $ (2,103)
============ ============ ============= ============
</TABLE>
During the second quarter of 1999, the Company recorded a provision for
exiting discontinued operations including operating losses during the phase out
period, net of tax, of $8.9 million. The provision includes accruals for
severance payments, asset write downs and estimated operating losses during the
phase out period.
7
<PAGE>
4. COMPREHENSIVE INCOME
<TABLE>
The following table summarizes comprehensive income for the three and nine months ended September 30, 1999 and
1998:
<CAPTION>
---------------------------------- ---------------------------------
(in thousands) Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net loss as reported $ (9,614) $ (2,033) $ (23,998) $ (2,103)
Foreign currency translation adjustment 152 227 (172) 204
---------------- --------------- --------------- ---------------
Total comprehensive loss $ (9,462) $ (1,806) $ (24,170) $ (1,899)
================ =============== =============== ===============
</TABLE>
8
<PAGE>
ENGINEERING ANIMATION, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
We provide Internet-enabled visual process management, collaboration,
analysis and communication solutions for extended manufacturing enterprises. Our
solutions improve communication among engineering, manufacturing, marketing,
purchasing, sales and support teams and their suppliers, allowing them to work
on their processes concurrently. Traditionally, these processes have involved
sequential steps by separate internal teams that use disparate data creation and
storage systems. Our solutions allow users to view, analyze and communicate data
across extended enterprises without extensive training or expensive computer
hardware. In addition, our solutions provide advanced integrated analysis tools
for improving the efficiency of product engineering and manufacturing. Our
solutions improve product quality while reducing errors, cost and
time-to-market.
We announced on July 6, 1999 that we are exiting our Interactive Games
and Science and Technology businesses by the end of the first quarter of 2000.
We established a provision for discontinued operations in the second quarter of
1999 to cover the estimated costs of exiting these businesses including
operating losses during the phase out period. Our prior financial results have
been restated to reflect the Interactive Games and Science and Technology
businesses as discontinued operations. We have discontinued the use of the EAI
Interactive and Software Division names.
On July 19, 1999, we announced a relationship with Hewlett-Packard
Company (HP). HP agreed to support e-Vis.com, our Internet portal for enterprise
and supplier collaboration, integration and E-services. HP has agreed to provide
hosting services, Web content, marketing funds and support, consulting,
high-performance server platforms and use of HP's secure Internet
infrastructure, all of which has been estimated to have a value exceeding $150
million during the agreement.
On July 27, 1999, we acquired Kx Verksamhetsutveckling AB, ("Kx") a
privately-held company in Gothenburg, Sweden. The acquisition, including
transaction costs and assumed net liabilities, was valued at approximately $3.1
million. We paid cash of $1.8 million and issued 56,000 shares of common stock
in exchange for all the outstanding common stock of Kx. Kx provides integrated
software solutions, training and support for manufacturing customers in
Scandinavia. We have accounted for the acquisition of Kx as a purchase and all
intangibles associated with the purchase are being amortized over 5 years using
the straight-line method. There was no in-process research and development
charged to operations.
We announced in October 1999 that we are aligning our products into
three key areas: E-Services, which includes e-Vis.com for secure Internet
collaboration, Open Enterprise Visualization for viewing, distributing and
analyzing product design data; and Open Virtual Factory for enhancing the
efficiency and quality of manufacturing operations and processes. We plan to
continue to expand our professional services team in response to requirements
for customized systems integration and deployment support. Our management teams
and sales forces in North America and Europe are being realigned for consistency
with the new business structure. This realignment permits each management team
and its sales personnel to focus more intently on their respective product
areas.
9
<PAGE>
Many of the expenses we incur in our operations are of a fixed nature
and are not directly correlated with revenues. We are slowing additional
resource expansion in some areas of our operations until we achieve expected
results.
RESULTS OF OPERATIONS
The results of operations below are from our continuing operations only
and include the operating results of Kx beginning July 27, 1999
Revenues
Our revenues are derived from software licenses, software development
contracts, professional services, customer support and maintenance. We recognize
software license revenues when an arrangement to deliver software does not
require significant production, modification or customization and all four basic
criteria in the Statement of Position 97-2 ("SOP 97-2") as amended, issued by
the American Institute of Certified Public Accountants (AICPA) have been met.
The four basic criteria are: persuasive evidence that an arrangement exists,
delivery has occurred, fee is fixed or determinable and collectibility is
probable. We recognize revenues from software development contracts and
professional services based upon labor costs incurred and progress to completion
on contracts. Revenues from customer support and maintenance are deferred and
recognized ratably over the period these services are provided.
REVENUES
<TABLE>
<CAPTION>
Three months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $13,799 (40)% $23,049
- --------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
Revenues $54,267 (11)% $61,236
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues decreased 40% to $13.8 million for the three months ended
September 30, 1999 from $23.0 million for the three months ended September 30,
1998 and decreased 11% to $54.3 million for the nine months ended September 30,
1999 from $61.2 million for the nine months ended September 30, 1998. The
decreases were primarily attributed to lower sales of software licenses in 1999.
10
<PAGE>
COST OF REVENUES
<TABLE>
<CAPTION>
Three months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $8,754 47% $5,972
- --------------------------------------------------------------------------------------------------------------------------
As a percentage
of revenues 63% 26%
Nine months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
Expense $23,634 40% $16,836
- --------------------------------------------------------------------------------------------------------------------------
As a percentage
of revenues 44% 27%
</TABLE>
Our cost of revenues includes direct labor and other costs associated
with funded software development, customer support and professional services,
packaging and distribution costs, royalties and amortization of capitalized
software costs.
Cost of revenues increased 47% to $8.8 million for the three months
ended September 30, 1999 from $6.0 million for the three months ended September
30, 1998, primarily due to personnel increases and related expenses from the
increased number of employees on our professional services team and royalty
expense. Our cost of revenues as a percentage of revenues increased to 63% from
26% for the three months ended September 30, 1999 and 1998, primarily due to
revenues being lower than expected in the third quarter of 1999.
Cost of revenues increased 40% to $23.6 million for the nine months
ended September 30, 1999 from $16.8 million for the nine months ended September
30, 1998, primarily due to personnel increases and related expenses from the
increased number of employees on our professional services team and royalty
expense. The cost of revenues as a percentage of revenues increased to 44% from
27% for the nine months ended September 30, 1999 and 1998, primarily due to
revenues being lower than expected in 1999.
We capitalize certain software development costs in accordance with the
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." For the quarters
ended September 30, 1999 and 1998, we capitalized software costs of $412,000 and
$358,000. Amortization expenses for the quarters ended September 30, 1999 and
1998 were $204,000 and $126,000. For the nine months ended September 30, 1999
and 1998, we capitalized software costs of $1.3 million and $585,000.
Amortization expenses for the nine months ended September 30, 1999 and 1998 were
$508,000 and $397,000.
11
<PAGE>
Operating Expenses
SALES AND MARKETING
<TABLE>
<CAPTION>
Three months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $7,521 37% $5,490
- --------------------------------------------------------------------------------------------------------------------------
As a percentage
of revenues 55% 24%
Nine months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
Expense $21,515 46% $14,707
- --------------------------------------------------------------------------------------------------------------------------
As a percentage
of revenues 40% 24%
</TABLE>
Sales and marketing expenses include personnel and facility costs
related to sales, marketing and customer service activities, as well as
advertising, promotional materials, trade shows, travel, depreciation and other
costs.
Our sales and marketing expenses increased 37% to $7.5 million for the
three months ended September 30, 1999 from $5.5 million for the three months
ended September 30, 1998, primarily due to personnel increases in the sales and
marketing groups and related expenses and increased marketing expenditures.
Sales and marketing expenses increased to 55% of total revenues for the three
months ended September 30, 1999 from 24% for the three months ended September
30, 1998, primarily due to the personnel increases and revenues being lower than
expected in the third quarter of 1999.
Our sales and marketing expenses increased 46% to $21.5 million for the
nine months ended September 30, 1999 from $14.7 million for the nine months
ended September 30, 1998, primarily due to personnel increases in the sales and
marketing groups and related expenses and increased marketing expenditures.
Sales and marketing expenses increased to 40% of total revenues for the nine
months ended September 30, 1999 from 24% for the nine months ended September 30,
1998, primarily due to the personnel increases and revenues being lower than
expected in 1999.
12
<PAGE>
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $4,701 78% $2,643
- --------------------------------------------------------------------------------------------------------------------------
As a percentage
of revenues 34% 11%
Nine months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
Expense $11,070 40% $7,887
- --------------------------------------------------------------------------------------------------------------------------
As a percentage
of revenues 20% 13%
</TABLE>
General and administrative expenses consist primarily of personnel and
facility costs for administrative, systems, legal, executive and accounting
staff, as well as certain consulting expenses, insurance costs, professional
fees, depreciation expense, bad debt expense and other costs.
General and administrative expenses increased 78% to $4.7 million for
the three months ended September 30, 1999 from $2.6 million for the three months
ended September 30, 1998. The increase was primarily due to personnel increases
and related expenses, increased outside professional services and bad debt
expense. General and administrative expenses increased to 34% of total revenues
for the three months ended September 30, 1999 from 11% for the three months
ended September 30, 1998, primarily due to the personnel increases and revenues
being lower than expected in the third quarter of 1999.
General and administrative expenses increased 40% to $11.1 million for
the nine months ended September 30, 1999 from $7.9 million for the nine months
ended September 30, 1998. The increase was primarily due to personnel increases
and related expenses, increased outside professional services and bad debt
expense. General and administrative expenses increased to 20% of total revenues
for the nine months ended September 30, 1999 from 13% for the nine months ended
September 30, 1998, primarily due to the personnel increases and revenues being
lower than expected in 1999.
<TABLE>
<CAPTION>
RESEARCH AND DEVELOPMENT
Three months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $5,490 27% $4,323
- --------------------------------------------------------------------------------------------------------------------------
As a percentage
of revenues 40% 19%
Nine months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
Expense $14,937 32% $11,330
- --------------------------------------------------------------------------------------------------------------------------
As a percentage
of revenues 28% 19%
</TABLE>
13
<PAGE>
Research and development expenses focus on software product development
and consist primarily of personnel costs, related facility costs, equipment
costs, depreciation and amortization expenses and outside consulting fees.
Research and development expenses increased 27% to $5.5 million for the
three months ended September 30, 1999 from $4.3 million for the three months
ended September 30, 1998, primarily due to personnel increases and related
expenses and increased outside consulting expenses. Research and development
expenses increased to 40% of total revenues for the three months ended September
30, 1999 from 19% for the three months ended September 30, 1998, primarily due
to the personnel increases and revenues being lower than expected in the third
quarter of 1999.
Research and development expenses increased 32% to $14.9 million for
the nine months ended September 30, 1999 from $11.3 million for the nine months
ended September 30, 1998, primarily due to personnel increases and related
expenses and increased outside consulting expenses. Research and development
expenses increased to 28% of total revenues for the nine months ended September
30, 1999 from 19% for the nine months ended September 30, 1998, primarily due to
the personnel increases and revenues being lower than expected in 1999.
ACQUISITION COSTS AND NON-RECURRING EXPENSES
<TABLE>
<CAPTION>
Three months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expenses $755 (87)% $5,686
- --------------------------------------------------------------------------------------------------------------------------
As a percentage
of revenues 5% 25%
Nine months ended September 30,
(in thousands) 1999 Change 1998
- -------------------------------------------------------------------------------------------------------------------------
Expenses $2,056 (83)% $12,391
- --------------------------------------------------------------------------------------------------------------------------
As a percentage
of revenues 4% 20%
</TABLE>
Goodwill and developed technology amortization was $755,000 and
$651,000 for the three months ended September 30, 1999 and 1998 and was $2.1
million and $1.2 million for the nine months ended September 30, 1999 and 1998.
In the third quarter of 1998, we incurred acquisition and non-recurring
expenses of $5.0 million in conjunction with the acquisitions of VSA and
Transom, both of which were accounted for as pooling of interests.
In the second quarter of 1998, a charge of $1.9 million was incurred
for in-process research and development related to the acquisition of Sense8,
which was accounted for as a purchase.
14
<PAGE>
In the first quarter of 1998, we formed strategic partnerships with
General Electric Corporate Research and Development and Hewlett-Packard Company
to license technology to incorporate into VisProducts(R) software. Both
agreements are accounted for as non-recurring charges in the first quarter of
1998 in the aggregate amount of $4.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources is for our
combined continuing and discontinued operations.
As of September 30, 1999, we had $19.8 million in cash, cash
equivalents and short-term investments. We consider all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents are carried at cost, which approximates market
value.
Net cash used in operating activities was $5.6 million and $6.0 million
for the nine months ended September 30, 1999 and 1998. The effect of increased
income taxes receivable on net cash provided by operating activities was
partially offset by an increase in accounts payable and a decrease in accounts
receivable. During the second quarter of 1999, $3.1 million of accounts
receivable attributed to software license and deferred maintenance revenue was
sold to a third party finance company on a non-recourse basis. Excluding cash
flows related to acquisition costs, non-recurring expenses and discontinued
operations, net cash used by operating activities during the first nine months
of 1999 was $1.9 million and net cash provided by operating activities during
the first nine months of 1998 were $3.2 million.
Net cash used in investing activities was $1.1 million for the nine
months ended September 30, 1999. This was primarily due to a $9.2 million
increase of property and equipment related to the expansion of our facilities
and purchases of computer equipment, a cash outflow of $1.8 million related to
the purchase of Kx and software development costs of $1.4 million. This was
partially offset by net maturities in our short-term investments of $10.9
million. For the nine months ended September 30, 1998, we used cash of $6.6
million in investing activities. This was primarily due to increasing our
property and equipment $7.9 million related to the expansion of our facilities
and purchases of computer equipment. This was partially offset by net maturities
in our short-term investments of $3.5 million
Net cash provided by financing activities was $2.0 million and $5.1
million for the nine months ended September 30, 1999 and 1998. For the first
nine months of 1999, the main financing sources were proceeds from stock option
exercises and net increases in short-term borrowings. For the first nine months
of 1998, the main financing sources were proceeds from stock option exercises,
issuance of stock and net increases in short-term borrowings.
We believe that our current cash and short-term investment balances
will be sufficient to meet anticipated cash needs for working capital and
capital expenditures through the next twelve months. We have two lines of credit
with commercial banks totaling $4.5 million, both of which were fully utilized
as of September 30, 1999. One of the lines of credit, totaling $1.0 million, is
secured and expires on December 30, 1999. The other line of credit, totaling
$3.5 million, is unsecured and expires on May 31, 2000. We are negotiating to
extend these lines of credit and to secure additional sources of capital. There
can be no assurance that additional capital beyond the amounts currently
forecasted by us will not be required or that any such required additional
capital will be available on reasonable terms, if at all, at such times as we
may require it.
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We have not paid any cash dividends and do not currently anticipate
paying cash dividends in the future. There can be no assurance that we will ever
pay a cash dividend.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This report and statements we or our representatives make contain
forward-looking statements that involve risks and uncertainties. We develop
forward-looking statements by combining currently available information with our
beliefs and assumptions. These statements often contain words like believe,
expect, anticipate, intend, contemplate, seek, plan, estimate or similar
expressions. Forward-looking statements do not guarantee future performance.
Recognize these statements for what they are and do not rely upon them as facts.
Forward-looking statements involve risks, uncertainties and
assumptions, including, but not limited to, those discussed in this report. We
will not update the forward-looking statements, even if they become incorrect or
misleading. We make these statements under the protection afforded them by
Section 21E of the Securities Exchange Act of 1934, as amended. Because we
cannot predict all of the risks and uncertainties that may affect us, or control
the ones we do predict, these risks and uncertainties can cause our results to
differ materially from the results we express in our forward-looking statements.
Variability of Operating Results
We historically have experienced fluctuations in our quarterly revenues
and operating results and we expect to experience fluctuations in the future.
Since our quarterly and annual revenues and operating results vary, we believe
that period-to-period comparisons of results are not necessarily meaningful. You
should not rely on period-to-period comparisons as indicators of our future
performance.
In addition to general economic conditions, the following factors
affect our revenues:
* difficulties in forecasting the volume and timing of customer orders;
* the timing of our introduction of new products relative to our
competitors' introduction of similar products;
* our arrangements with distributors to market our products;
* customer budgets; and
* our ability to competitively price our products and services.
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Year 2000 Readiness
During the third quarter of 1999, we continued evaluating the effect of
Year 2000 issues on our core software products, mission critical facilities,
databases, and hardware and software systems. Under a plan formulated in 1998 to
coordinate our Year 2000 efforts company-wide, the Vice President of
Administration continued to direct a task force comprised of high level managers
that oversees the evaluation of our products, facilities and operations. In
general, the plan called for creating an inventory of current products, mission
critical facilities, databases and systems; analyzing our state of knowledge
regarding their Year 2000 readiness; gathering additional information through
contacts or testing, where needed; assessing whether a risk existed and what to
do about it; and developing and implementing remedies, where needed.
Our business has continued to change since the implementation of the
plan. We have taken that into consideration as we have applied the plan. To keep
the public informed of our progress, we have developed a location within our
Internet Web site for communicating our Year 2000 readiness disclosure
information.
Products: We consider a product Year 2000 ready if it is capable of
correctly processing, providing and receiving date data within and between the
20th and 21st centuries, and during 1999, 2000 and leap year calculations. This
assumes that our product is used in accordance with its associated documentation
and all other hardware and software products used with our software properly
exchange accurate date data with it. As we test our software, we coincidentally
test third party software included in our products.
We have completed the inventory, testing and evaluation of our core
software products. Additional testing efforts will continue throughout the
remainder of the year. In some situations, our customers have tested and are
continuing to test our products. Collectively, we have identified only a few
Year 2000 issues associated with some of our products. We have offered our
customers a patch or an upgrade for these products. Our Web site sets forth the
Year 2000 readiness status of these products. We estimate the total cost of our
having evaluated and tested our current products at less than $20,000.
Facilities: We lease offices in about 30 locations throughout the
world. Of these offices, we have identified our mission critical facilities. We
consider an office to be mission critical if it supports approximately 15 or
more employees or if it supports a critical function or contract.
We have prepared an inventory of the mission critical information
technology ("IT") and non-IT systems for the mission critical facilities.
Generally, we consider a location's telecommunications, utilities, HVAC and
security systems as mission critical systems. We have continued our efforts to
gather Year 2000 information on these systems from landlords and suppliers. For
some of the suppliers, we are depending upon their Web site disclosures for
their Year 2000 assurances; for others, we have written to them or spoken with
them directly. We will continue to gather and review the information through
1999 as it is updated by the landlords and suppliers to assess whether
contingency planning is needed. The costs associated with these activities to
date have been nominal.
Systems: Our business utilizes Unix, database and personal computer
(PC) software/hardware systems. Management of these systems is centralized in
our corporate headquarters. We evaluated these systems and determined that most
required software upgrades (patches) to address Year 2000 issues. Generally,
systems manufacturers have made patches available for free over the Internet. We
install these patches as they are made available by the manufacturers. Where
patches are not available, we have implemented alternative actions such as
internal testing, or phase-out or replacement of equipment.
17
<PAGE>
We have either patched or will phase out by the end of 1999 our Unix
systems due to obsolescence. We estimate the total cost to install the Unix
system patches at less than $10,000.
Our centralized databases include the accounting, human resources and
payroll systems. Although we have done some database testing, we are primarily
relying on the statements of the suppliers of these systems regarding their Year
2000 readiness.
Nearly every employee is dependent upon a PC for the performance of his
or her daily work. Most, if not all of these PCs, needed to be patched. Over 98%
of these PCs have been patched. We estimate the total cost for the PC upgrading
at less than $25,000.
Contingency Plan: Our products are based on software that is relatively
new. This, plus the relatively few Year 2000 issues that have been identified to
date through internal and external testing of our products, leads us to believe
that the most reasonably likely worst case scenario for us does not involve our
products. Instead, a worst case scenario is more likely to arise from the
failure of externally supplied services, such as utilities or
telecommunications, over which we have no control.
We have developed a model contingency planning guideline for Year 2000
issues, which our facilities will be implementing during the fourth quarter of
1999.
We can not ensure that we have identified and assessed all Year 2000
issues that may affect us. We also can not ensure that we have adequately
addressed the Year 2000 issues that we have identified. Any of these failures or
oversights could materially adversely affect our business operations or
financial statements.
For a more complete discussion of other risk factors affecting the
Company, see the Company's 1998 Annual Report on Form 10-K.
18
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Rates
Our revenues originating outside the U.S. for the first nine months of
1999 and 1998 were 32% and 23% of total revenues. International sales are made
mostly from our foreign subsidiaries in local currency. Certain international
sales are denominated in U.S. dollars. Our subsidiaries incur most of their
expenses in local currency.
Our international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions and foreign currency volatility. Our largest
foreign currency exposure is from the German Deutsche Mark. Our future results
could be adversely impacted by changes in these or other factors.
Interest Rates
We invest our cash in a variety of financial instruments, including
bank time deposits and fixed rate obligations of governmental entities and
agencies. These investments are denominated in U.S. dollars. Cash balances in
foreign currencies overseas are operating balances and are invested in
short-term time deposits of the local operating bank.
Investments in fixed rate interest earning instruments carry a degree
of interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, our future investment income may fall short of expectations due to
changes in interest rates or we may suffer losses in principal if forced to sell
securities that have seen a decline in market value due to changes in interest
rates. Interest rate risk is mitigated by the short-term nature of our
investments. Our investment securities are held for purposes other than trading.
19
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Beginning in February, 1999, actions were filed in the United States
District Court for the Southern District of Iowa which named the Company and
certain of its executive officers as defendants. The actions have been
consolidated and are a purported class action of all persons who purchased our
common stock between February 19, 1998 and April 6, 1999. The complaints allege
various violations of federal securities laws and seek unspecified damages. We
believe that the allegations are totally without merit and we intend to oppose
the actions vigorously.
On October 15, 1999, and October 29, 1999, actions were filed in the
United States District Court for the Southern District of Iowa which named the
Company and certain of its executive officers as defendants. The actions are
purported class actions of all persons who purchased our common stock between
July 29, 1999 and October 1, 1999. The complaints allege various violations of
federal securities laws and seek unspecified damages. We believe that the
allegations are not supportable and we will defend vigorously.
Item 2. Changes in Securities and Use of Proceeds
On July 27, 1999, the Company issued 56,000 shares of common stock to
acquire Kx Verksamhetsutveckling AB ("Kx"), a privately-held company in
Gothenburg, Sweden, in a transaction, including transaction costs and assumed
net liabilities, valued at approximately $3.1 million, including $1.8 million in
cash. Our acquisition of Kx has been accounted for as a purchase. We issued
common stock to the Kx stockholders using the registration exemption under Rule
903 of Regulation S of the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits-See index to exhibits.
(b) Reports on Form 8-K
Form 8-K filed July 9, 1999, relating to the Company's
announcement July 6, 1999 of its exit from the Interactive
Games and Science and Technology businesses.
20
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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 12, 1999 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)
21
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INDEX TO EXHIBITS
10.2 Addendum To Employment Agreement with Jerome M. Behar, dated
August 2, 1999.+
10.3 Employment Agreement with Robert Nierman, dated April 21, 1999.+
27.1 Financial Data Schedule
27.2 Financial Data Schedule
--------------------
+ Denotes compensatory agreement.
22
Exhibit 10.2
ADDENDUM TO EMPLOYMENT AGREEMENT
THIS ADDENDUM TO EMPLOYMENT AGREEMENT ("Agreement") is entered into
as of August 2, 1999 by and between Jerome M. Behar ("Employee") and Engineering
Animation, Inc. ("EAI"), a Delaware corporation.
RECITALS
WHEREAS, EAI is in the business of providing enterprise-wide process
management, collaboration, communication and analysis solutions, producing
interactive multimedia products for various markets, and conducting various
other activities associated therewith (the "Business"); and
WHEREAS, EAI has employed Employee as Vice President and Chief
Financial Officer and Employee agreed to be so employed by EAI.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Termination Other Than for Cause or Good Reason.
(a) EAI may terminate Employee's employment at any time for any or no
reason, and Employee may terminate employment with EAI at any time for any or no
reason. If Employee's employment is terminated by EAI other than for Cause (as
defined in Section 4 hereof) or Employee terminates employment with EAI for Good
Reason (as defined in Section 1(b) hereof) (the date of any such termination is
referred to herein as the "Termination Date"), Employee shall, subject to
Section 1(b)-(d) hereof, be entitled to receive compensation, payable in a
single payment not later than thirty (30) days following the Termination Date,
in an amount equal to the sum of (i) and (ii) below, in lieu of any compensation
other than as stated in this Agreement:
(i) an amount equal to Employee's total base salary received
for the twelve (12) calendar months immediately preceding the
Termination Date; and
(ii) an amount equal to the annual bonus paid to Employee in
respect of the last calendar year for which Employee received a bonus
prior to the Termination Date.
In addition, Employee shall be entitled to receive:
(iii) all unpaid amounts, as of the Termination Date, in
respect of any bonus for any calendar year ending on or prior to the
Termination Date which would have been payable had Employee remained in
employment until the date such amount would otherwise have been paid
and, with respect to the calendar year in which such Termination Date
occurs, an amount equal to (X) the annual bonus paid to Employee in
respect of the last calendar year for which Employee received a bonus
prior to the Termination Date, multiplied by (Y) a fraction, the
numerator of which is the number of days between January 1 of the
calendar year in which the Termination Date occurs and the Termination
Date and the denominator of which is 365, payable in a single payment
concurrent with the payment of the amounts due under Section 1(a)(i)
and (ii) hereof;
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(iv) any payment deferred by Employee, together with any
applicable interest or other accruals thereon, payable in a single
payment concurrent with the payment of the amounts due under Section
1(a)(i) and (ii) hereof;
(v) employee benefit plans and programs (including without
limitation, profit sharing, cafeteria and health insurance plans, as
maintained from time to time for EAI employees to the extent that
Employee's position, tenure, compensation, age, health and other
qualifications make Employee eligible to participate) that were paid to
Employee during the twelve (12) months immediately preceding the
Termination Date shall continue to be paid out in accordance with their
terms for twelve (12) months following the Termination Date; provided,
however, if Employee is provided with similar coverage by a successor
employer, any such coverage by EAI shall be reduced, with respect to
amounts payable hereunder, by the benefits actually provided to
Employee under any similar plan or coverage by any unaffiliated
successor employer; and
(vi) automobile allowance payments, if any, in the amount of
such payments payable to Employee as of the Termination Date shall
continue to be paid for twelve (12) months following the Termination
Date.
If subsequent to a termination of employment under this Section 1(a)
Employee shall die or suffer a Permanent Disability (as herein defined), such
death or Permanent Disability shall not diminish the rights of Employee or the
Employee's beneficiaries or successors to the payments and benefits of this
Section 1(a).
(b) For purposes of this Agreement, "Good Reason" shall mean any of the
following (without Employee's express prior written consent):
(i) the assignment to Employee by EAI of duties individually
or in the aggregate, materially inconsistent with Employee's position,
title or office immediately prior to such assignment, or any material
reduction by EAI of such duties or responsibilities or any removal of
Employee from or any failure to elect or re-elect Employee to any such
positions, except in connection with Employee's promotion to a higher
position, or the termination of Employee's employment for Cause or by
Employee other than for Good Reason;
(ii) a reduction by EAI in Employee's salary, a material
reduction or elimination of Employee's perquisites of office (other
than a reduction or elimination of such perquisites generally available
to senior management employees of EAI) or a substantial reduction or
elimination of Employee's aggregate employee benefits as in effect at
the time this Agreement is entered into or as the same may be increased
from time to time during the term of this Agreement;
(iii) a change in the location by more than 50 miles
at which Employee's services are to be performed;
(iv) any material breach by EAI of any provision of an
employment agreement, if any, with Employee;
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(v) a "Change of Control" shall occur. For this purpose a
"Change of Control" shall be deemed to have occurred if: (A) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than a trustee or other fiduciary holding securities under an
employee benefit plan of EAI, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of EAI representing 25% or more of the combined voting
power of EAI's then outstanding securities; or (B) during any period of
twenty-four consecutive months (not including any period prior to the
execution of this Agreement), individuals who at the beginning of such
period constitute the Board of Directors of EAI and any new director
(other than a director designated by a person who has entered into an
agreement with EAI to effect a transaction described in clauses (A) or
(C) of this subsection) whose election by the Board of Directors of EAI
or nomination for election by EAI's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or (C) the stockholders of EAI
approve a merger or consolidation of EAI with any other corporation,
other than a merger or consolidation which would result in the voting
securities of EAI outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 70% of the combined
voting power of the voting securities of EAI or such surviving entity
outstanding immediately after such merger or consolidation, the
stockholders of EAI approve a plan of complete liquidation of EAI or
the stockholders of EAI approve an agreement for the sale or
disposition by EAI of all or substantially all of EAI's assets.
(c) Employee's Termination Date must occur no later than sixty (60)
days after the occurrence of an event defined as Good Reason under Section
1(b)(i)-(iv) of this section or no later than twelve (12) months after the
occurrence of an event defined as Good Reason under Section 1(b)(v) of this
Section.
(d) If any payments under this Agreement, after taking into account all
other payments to which Employee is entitled from EAI, are more likely than not
to result in a loss of a deduction to EAI by reason of Section 280G of the
Internal Revenue Code of 1986 or any successor provision to that section, such
payments shall be reduced to the extent required to avoid such loss of
deduction. Employee shall be entitled to select the order in which payments are
to be reduced in accordance with the preceding sentence. If requested by
Employee, EAI shall provide complete compensation and tax data on a timely basis
to Employee and to an accounting or law firm designated by Employee in order to
enable Employee to determine the extent to which payments from EAI may result in
a loss of a deduction, and EAI shall reimburse Employee for any reasonable fees
and expenses incurred by Employee for such purpose. If Employee and EAI shall
disagree as to whether a payment under this Agreement is more likely than not to
result in the loss of a deduction, the matter shall be resolved by an opinion of
tax counsel chosen by EAI's independent auditors. EAI shall pay the fees and
expenses of such counsel and shall make available such information as may be
reasonably requested by such counsel to prepare the opinion. If, by reason of
the limitations of this subsection, the maximum amount payable to Employee
cannot be determined prior to the due date for such payment, EAI shall pay on
the due date the minimum amount which it in good faith determines to be payable
and shall pay the remaining amount, with interest at a rate, compounded
semi-annually, equal to 120% of the applicable federal rate determined under
Section 1274(d) of the Internal Revenue Code of 1986, as soon as such remaining
amount is determined in accordance with this subsection.
(e) Employee shall not be required to mitigate damages or the amount of
any payment provided for under this Agreement by seeking employment with any
other employer (whether as an employee of or independent contractor for such
other employer) after Employee's termination of employment.
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2. Permanent Disability.
(a) If Employee becomes totally and permanently disabled (determined as
provided below) during Employee's employment, employee's employment shall
terminate as of the date such permanent disability is determined ("Permanent
Disability"). Employee shall be considered permanently disabled for purposes of
this Agreement if Employee is unable by reason of accident or illness (including
mental illness) to perform the material duties of Employee's regular position
with EAI and not expected to recover from Employee's disability within a period
of three (3) months from the commencement of the disability. If at any time
Employee claims or is claimed to be permanently disabled, a physician acceptable
to both Employee and EAI (which acceptances shall not be unreasonably withheld)
shall be retained by EAI and shall examine Employee. Employee shall cooperate
fully with the physician. If the physician determines that Employee is
permanently disabled, the physician shall deliver to EAI a certificate
certifying both that Employee is permanently disabled and the date upon which
the condition Permanent Disability commenced. The determination of the physician
shall be conclusive.
(b) Upon the occurrence of a Permanent Disability, Employee shall be
entitled to receive compensation, benefits and other consideration as described
in Section 1(a)(i) through 1(a)(vi), provided that such compensation benefits
and other consideration shall be reduced in an amount equal to payments and
benefits received under any disability plan of EAI then in place.
3. Death. In the event of Employee's death during Employee's employment,
Employee's estate or designated beneficiary shall receive payments and other
consideration equal to those described in Section 1(a)(i) through 1(a)(vi).
4. Voluntary Resignation; Discharge for Cause.
(a) If Employee resigns voluntarily, other than for Good Reason or
Permanent Disability, or EAI terminates the employment of Employee at any time
for Cause, EAI shall have no obligation under this Agreement to make any
payments to Employee except with respect to any previously deferred amounts and
any accrued but unpaid salary or bonus.
(b) The term "Cause" shall be limited to:
(i) any action by Employee involving willful or gross
misconduct having a material adverse effect on EAI;
(ii) Employee being convicted of (a) a felony under United
States' federal or state law, or (b) a felony under the laws of any
other country or political subdivision thereof involving moral
turpitude.
5. Term. This Agreement shall be effective upon signature by both Employee and
EAI and thereafter shall be without term and shall continue in full force and
effect as long as the terms hereof are applicable.
6. Miscellaneous.
(a) All notices hereunder shall be in writing and shall be deemed
given when delivered in person or when telecopied with hard copy to follow, or
three (3) business days after being deposited in the United States mail, postage
prepaid, registered or certified mail, or two (2) business days after delivery
to a nationally recognized express courier, expenses prepaid, addressed as
follows:
If to Employee, at the address of Employee shown in EAI's records.
If to EAI: Vice President of Human Resources
Engineering Animation, Inc.
2321 North Loop Drive
Ames, IA 50010
26
<PAGE>
and/or at or to such other addresses as may be designated by notice given in
accordance with the provisions hereof.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors and permitted assigns,
No party shall assign this Agreement or its rights hereunder without the prior
written consent of the other party hereto; provided, however, that EAI may
assign this Agreement to any person or entity acquiring all or substantially all
of the Business of EAI (whether by sale of stock, sale or assets, merger,
consolidation or otherwise).
(c) This Agreement contains all of the agreements between the parties
with respect to the subject matter hereof and this Agreement supersedes all
other agreements, oral or written, between the parties hereto with respect to
the subject matter hereof.
(d) No change or modification of this Agreement shall be valid unless
the same shall be in writing and signed by the parties hereto. No waiver of any
provisions of this Agreement shall be valid unless in writing and signed by the
waiving party. No waiver of any of the provision of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver, unless so provided
in the waiver.
(e) If any provision of this Agreement (or portion thereof) shall, for
any reason, be deemed invalid or unenforceable by any court of competent
jurisdiction, such provisions (or portions thereof) shall be ineffective only to
the extent of such invalidity or unenforceability, and the remaining provision
of this Agreement (or portions hereof) shall nevertheless be valid, enforceable
and of full force and effect. EAI's rights under this Agreement shall not be
exclusive and shall be in addition to all other rights and remedies available at
law or in equity.
(f) The section or paragraph headings or titles herein are for
convenience of reference only and shall not be deemed a part of this Agreement.
(g) This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which when taken together
shall constitute a single instrument.
(h) This Agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects by
the laws of the State of Iowa applicable to contracts made in that State, (other
than any conflict of laws rule which might result in the application of the laws
of any other jurisdiction).
(i) Except as otherwise expressly set forth herein, any and all
disputes arising directly or indirectly out of or relating in any way to this
Agreement that cannot be satisfactorily resolved by the parties shall be
submitted to binding arbitration pursuant to the rules then in effect of the
American Arbitration Association (AAA). Arbitration shall be held in Chicago,
Illinois. The arbitrator(s), who shall be attorneys experienced in employment,
tax or benefit law, shall decide the matters submitted to them based upon the
evidence presented and the terms of this Agreement. The arbitrator(s) shall
issue a written award that shall state the basis of the award, the findings of
fact and the conclusions of law. The arbitration award shall be final,
non-appealable and binding upon the parties. Judgment upon the award may be
entered in any court having jurisdiction thereof.
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<PAGE>
(j) Employee hereby expressly submits and consents in advance to the
personal jurisdiction of the federal and state courts of the State of Iowa for
all purposes in connection with any action or proceeding arising out of or
relating to this Agreement that is not otherwise subject to arbitration.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
Engineering Animation, Inc. Jerome M. Behar, Employee
-------------------------
By: /s/ Matthew M. Rizai /s/ Jerome M. Behar
----------------------
Name: Matthew M. Rizai
Its: Chairman, Chief Executive Officer, and President
28
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of April 21,
1999, by and between Robert Nierman, a resident of Minnesota ("Employee") and
ENGINEERING ANIMATION, INC., a Delaware corporation with its principal offices
in Ames, Iowa ("EAI" or "Company").
RECITALS
A. EAI is in the business of producing enterprise product and process
management software, interactive and custom animation products, and conducting
various other activities associated therewith (the "Business").
B. EAI desires to employ Employee and Employee desires to be employed
by EAI on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Employment Term. Subject to the terms and conditions set forth
herein, EAI will employ Employee for a term commencing as of April 21, 1999 (the
"Effective Date") and ending on the second anniversary of the Effective Date, or
such earlier date as may occur pursuant to the terms of this Agreement (the
"Employment Term"). This Agreement may be extended by mutual agreement of the
parties.
2. Employment Duties. During the term of this Agreement, Employee will
serve EAI as the Chief Operating Officer and Executive Vice President and shall
be responsible for all operations of EAI and other duties which are assigned by
the Chief Executive Officer. Employee will, during the term of this Agreement,
serve the Company faithfully, diligently and competently and will perform
assigned duties on a full-time basis to the best of Employee's ability.
3. Compensation. During the term of employment, EAI will pay to
Employee for services rendered by Employee under this Agreement, the following:
(a) Salary. From the Effective Date of this Agreement through the
first anniversary of the Effective Date, a salary at a rate of
$300,000. per annum, payable in arrears monthly, in accordance
with the EAI's ordinary payroll practices; and
(b) Bonus. Employee shall receive during 1999, an annual bonus
equal to his annual salary, paid quarterly in the third and
fourth quarters of 1999. Employee's 1999 annual bonus shall be
prorated according to the date of commencement of employment;
and
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(c) Car Allowance. Employee shall receive a car allowance of $750
per month as additional compensation and in lieu of
reimbursement for personal auto mileage expenses. Normal
payroll taxes shall apply to this payment.
4. Stock Options. EAI shall grant Employee a stock option representing
the right to purchase 225,000 shares of EAI common stock pursuant to the terms
and conditions contained in EAI's standard stock option agreement. Such option
shall provide for vesting at the rate of twenty-five percent (25%) on each of
the first four anniversaries of the date of grant and shall provide for an total
term of ten (10) years. The exercise price for such option shall be the market
price on the day of grant as determined by the average of the high and low sales
quotes as shown on Nasdaq on the day of issue.
5. Severance Provisions. In the event that there is a termination of
employment for good reason as defined in paragraph 10 or in the event that there
is a Change of Control of EAI, as defined in EAI's stock option plan, and
employment is terminated within 18 months of the date of this Agreement, then
Employee shall receive a severance benefit equal to three times the total of
Employee's current annual salary and Employee's current annual bonus, if
determinable, and if such bonus is not determinable, three times the total of
Employee's current annual salary and Employee's bonus during the previous 12
months. In the event that Employee's employment relationship is terminated
following a Change of Control after the expiration of 18 months from the date of
this Agreement, Employee shall be entitled to a severance payment equal to two
times the total of Employee's current salary and current annual bonus, if
determinable, and if such bonus is not determinable two times the total of
Employee's current annual salary and Employee's bonus for the 12 months prior to
termination.
6. Benefits.
(a) Employee shall be entitled during the Employment Term to
participate in such employee benefit plans and programs,
including, without limitation, health, dental, and life
insurance plans, as are maintained from time to time for
employees of EAI to the extent that his position, tenure,
compensation, age, health and other qualifications make him
eligible to participate. EAI does not promise the adoption or
continuance of any particular plan or program during the
employment term and employee's (and his dependents')
participation in any such plan or program shall be subject to
the provisions, rules, regulations and laws applicable from
time to time thereto.
(b) During the Employment Term, Employee shall be entitled to paid
time off at EAI's maximum accrual rate of twenty-seven (27)
days per year. In addition, Employee shall be entitled to paid
time off on such holidays as are observed by EAI from time to
time. Accrued, unused vacation may be carried over from one
year to the next in accordance with EAI policies.
(c) Employee shall be permitted, upon the Effective Date to
participate in the EAI 401(k) savings plan which permits
employee contributions of up to eighteen percent (18%) of
total annual compensation and provides that EAI will match
one-half of Employee's contribution up to a total match amount
of two percent (2%) of Employee's total compensation. EAI's
contribution to the Plan vests according to the terms of the
Plan.
30
<PAGE>
7. Reimbursement of Expenses. To the extent consistent with the general
expense reimbursement policies maintained by EAI from time to time, Employee
shall be entitled to reimbursement for ordinary, necessary and reasonable
out-of-pocket trade or business expenses which Employee incurs in connection
with performing his duties under this Agreement, including reasonable travel and
meal expenses. The reimbursement of all such expenses shall be made upon
presentation of evidence reasonably satisfactory to EAI of the amounts and
nature of such expenses and shall be subject to the prior approval of EAI.
8. Employee Proprietary Information Agreement. Employee recognizes that
as a result of employment by EAI, he will come into possession of confidential
information and as a condition of employment, agrees to execute and abide by the
terms of the Employee Proprietary Information Agreement attached hereto as
Exhibit A.
9. Key Employee Non-competition Agreement. Employee agrees to be bound
by the terms of the Key Employee Non-competition Agreement as attached hereto as
Exhibit B.
10. Termination. This Agreement may be terminated by EAI for cause,
which shall be defined as: (i) any action by Employee involving willful gross
misconduct having a material adverse effect on the Company; (ii) Employee being
convicted of a felony under the laws of state of the United States or any state
or under the laws of any other country or political subdivision thereof. This
Agreement may be terminated for good reason by Employee under the following
circumstances: (a) Employee's duties are reduced to a non-executive level, (b)
the failure of a successor to the Company to assume the obligations of this
Agreement, (c) breach of this Agreement by the Company, (d) a Change in Control
of EAI. In the event of termination of this Agreement by expiration of its term,
or according to the terms of this paragraph 10, the provisions of paragraphs 5,
8, 9, 11 and 12 shall continue in full force and effect.
11. Arbitration. Any and all disputes arising directly or indirectly
out of or relating in any way to this Agreement that cannot be satisfactorily
resolved by the parties shall be submitted to binding arbitration pursuant to
the rules then in effect of the American Arbitration Association (AAA).
Arbitration shall be held in Chicago, Illinois. The arbitrator(s), who shall be
attorneys experienced in employment law, shall decide the matters submitted to
them based upon the evidence presented and the terms of this Agreement. The
arbitrator(s) shall issue a written award that shall state the basis of the
award, the findings of fact and the conclusions of law. The arbitration award
shall be final, non-appealable and binding upon the parties. Judgment upon the
award may be entered in any court having jurisdiction thereof.
31
<PAGE>
12. Miscellaneous.
(a) All notices hereunder shall be in writing and shall be deemed
given when delivered in person or when sent by email or
telecopier followed by hard copy; or following three (3)
business days after being deposited in the United States mail,
postage prepaid, registered or certified mail, or two (2) days
after delivery to a nationally recognized express courier,
expenses prepaid, addressed as follows:
If to Employee: Addressed to the last address on
the payroll records of EAI.
If to EAI: Engineering Animation, Inc.
2321 North Loop Drive
Ames, Iowa 50010
Attention: Jamie A. Wade, General Counsel
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, successors
and permitted assigns
(c) This Agreement contains all of the agreements between the
parties with respect to the subject matter hereof and this
Agreement supersedes all other agreements, oral or written,
between the parties hereto with respect to the subject matter
hereof.
(d) No change or modification of this Agreement shall be valid
unless the same shall be in writing and signed by the parties
hereto. No waiver of any provisions of this Agreement shall be
valid unless in writing and signed by the waiving party.
(e) If any provisions of this Agreement (or portions thereof)
shall, for any reason, be deemed invalid or unenforceable by
any court of competent jurisdiction, such provisions (or
portions thereof) shall be ineffective only to the extent of
such invalidity or enforceability, and the remaining
provisions of this Agreement (or portions thereof) shall
nevertheless be valid, enforceable and of full force and
effect. EAI's rights under this Agreement shall not be
exclusive and shall be in addition to all other rights and
remedies available at law or in equity.
(f) This Agreement may be executed in multiple counterparts, each
of which shall be deemed to be an original and all of which,
when taken together, shall constitute a single instrument.
(g) This Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect
and in all other respects by the laws of the State of Iowa
applicable to contracts made in Iowa (other than any conflict
of laws rule which might result in the application of the laws
of any other jurisdiction).
32
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on this
first day of November, 1999.
ENGINEERING ANIMATION, INC. ROBERT NIERMAN
--------------
By:/s/Matthew M. Rizai /s/ Robert Nierman
--------------------
Name:Matthew M. Rizai
Title:Chairman, Chief Executive Office and
President
33
<PAGE>
Exhibit A
PROPRIETARY INFORMATION, INVENTION AND
BUSINESS OPPORTUNITIES AGREEMENT
I,______________________, agree to the following terms and conditions
regarding the Company's Proprietary Information, Inventions and Business
Opportunities in consideration of my employment or continuing employment with
the Company.
1) Definitions. The following definitions apply to this Agreement.
a) "Company" means Engineering Animation, Inc. and its
subsidiaries, divisions, affiliates and assignees.
b) "Proprietary Information" means information that is of value to the
Company, or information that the Company does not disclose to others
on an unrestricted basis. Proprietary Information includes but is not
limited to the following kinds of information, whether verbal or
written, originals or copies, concerning the Company, the Company's
operations, or the Company's clients, customers, consultants or
licensees: trade secrets, patents, copyrights, techniques, know how or
inventions (whether patentable or not), Inventions (as defined below),
designs, configurations, tooling, documentation, recorded data,
schematics, products, test data, source code, object code, master
works, master databases, algorithms, flow charts, formulae, circuits,
works of authorship, mechanisms, research, manufacture, improvements,
processes, assembly, installation, business, marketing,forecasts,
strategies, pricing, customers, the salaries, duties, qualifications,
performance levels, and terms of compensation of other employees, or
cost or other financial data. Proprietary Information also means
information provided by a third party to the Company that the Company
has a duty to protect from unauthorized use or disclosure. Proprietary
information shall not include general knowledge and experience, as
would be commonly known or comparable to that of other persons in the
same field as the Employee.
c) "Invention" includes but is not limited to an idea, improvement,
design or discovery, whether patentable or reduced to practice, made or
conceived by me alone or jointly with others during my employment with the
Company that relates in any manner to the actual or demonstrably anticipated
business, work, or research and development of the Company, or results from or
is suggested by any task assigned to me or any work performed by me for, or on
behalf of, the Company.
d) "Business Opportunities" means all opportunities for contractual
arrangements which will produce revenue for the Company and, provided that, such
Business Opportunities are similar to opportunities which have resulted in
contractual arrangements with customers that are responsible for current revenue
of the Company.
34
<PAGE>
2) Proprietary Information and Other Company Material and Property.
a) I acknowledge and agree that the Company owns the Proprietary
Information. At all times during and after my employment with the Company,
I will keep the Proprietary Information in confidence and trust and guard
it against unauthorized disclosure and use. I will not disclose or use the
Proprietary Information without the prior written consent of a Company
officer, except as may be necessary in the ordinary course of performing my
job duties for the Company. I hereby assign to the Company any rights I may
have or acquire in and to the Proprietary Information. Notwithstanding the
foregoing, my obligations shall not apply with respect to any Proprietary
Information which is lawfully obtained by me outside of the scope of my
employment by the Company or which hereafter becomes public for any reason
other than a violation of this Agreement on my part.
b) During my employment with the Company, I will not remove the
Proprietary Information or any other Company related material or property from
the Company's premises, except as I am required to do so in connection with
performing my job duties for the Company. I will return to the Company the
Proprietary Information or any other Company related material or property as and
when requested by the Company. Even if the Company does not so request, I will
return the Proprietary Information or any other Company related material or
property upon termination of my employment. The only information that I will
have access to after my employment with the Company ends will be: (i) my
personal copies of records relating to my compensation; (ii) my personal copies
of any materials previously distributed generally to stockholders of the
Company; (iii) my copy of this Agreement; and (iv) any other information that I
am granted access to by law.
3) Inventions.
a) I acknowledge and agree that the Company owns the Inventions. I will
promptly disclose to the Company and preserve as Proprietary Information any and
all Inventions. I hereby assign to the Company any right, title and interest I
may have or acquire in and to the Inventions.
b) During my employment, I will perform all acts necessary or desirable
by the Company to permit and assist it, at the Company's expense, in obtaining,
maintaining, defending and enforcing letters patent, copyrights or other rights
in Inventions and improvements in any and all countries, to protect the
interests of the Company or its nominee in the Inventions, and to vest title to
Inventions in the Company or its nominee. These acts may include, but are not
limited to, execution of documents and assistance or cooperation in legal
proceedings. If the Company is unable after diligent attempt to secure my
signature to any document reasonably necessary or appropriate for any of these
purposes (including renewals, extensions, continuations, divisions or
continuations in part), I hereby irrevocably designate and appoint the Company
and its duly authorized officers and agents, as my agents and attorneys-in-fact
to act for and on my behalf and instead of me. This designation and appointment,
however, is limited to the purposes of executing and filing these documents and
doing all other lawfully permitted acts to accomplish the foregoing acts with
the same legal force and effect as if executed by me.
c) All inventions, if any, patented or unpatented, which I made prior to my
employment with the Company, are excluded from this Agreement. To preclude
any possible uncertainty, I have listed on Exhibit A to this Agreement all
of my prior inventions, including numbers of all patents and patent
applications, and a brief description of all unpatented inventions that are
not the property of a previous employer. I represent and covenant that the
list is complete. If there are no items on Exhibit A, I have no prior
inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company that appears to
threaten or conflict with proprietary rights I claim in an invention. In
the event of my failure to give this notice, I will make no claim against
the Company with respect to any such invention.
35
<PAGE>
4) Protecting Business Opportunities.
a) During my employment with the Company and for one year after the
termination of my employment, I agree not to encourage or solicit any
employees of the Company to leave the Company for any reason. I also agree
not to solicit Business Opportunities for myself or anyone other than the
Company, and not to divert any Business Opportunities from the Company
during these time periods.
b) MY AGEEMENT NOT TO COMPETE FOR THE COMPANY'S BUSINESS OPPORTUNITIES: In
exchange for good and valuable consideration, receipt of which I hereby
acknowledge, I agree that during my employment with the Company and for one
year after the termination of my employment, I will not engage in any
employment, business or activity that competes with the Company in
geographic areas and for opportunities substantially similar to Business
Opportunities that I contributed to, or participated directly in, while an
employee of the Company. However, it is understood that this section is not
intended to prevent me, upon termination of my employment with the Company,
from finding reasonable employment in educational institutions, non-profit
research organizations, governmental entities, or non-profit end-user
organizations any of which may be involved in research, development,
customization, or application of technology similar to the technology that
I contributed to or participated directly in while an employee of the
Company. Further, it is understood that, upon termination of my employment
with the Company, I may become employed by a company which may produce a
number of products or services, some of which compete with those of the
Company, provided that my activities with such competing company do not
assist such competing company in designing, programming, producing, or
selling products or services which utilize technology similar to the
technology that I contributed to or participated directly in while an
employee of the Company.
c) I agree that these time periods, geographical areas and business
restrictions are fair and reasonably required for the protection of the
proprietary interests of the Company. In the event that any of these
restrictions are declared by a court of competent jurisdiction to exceed the
maximum that the court deems reasonable and enforceable, then the restriction
determined by the court as reasonable and enforceable shall apply.
d) So that the Company may be aware of the extent of any other demands
upon my time and attention, I will disclose to the Company the nature and scope
of any other business activity in which I am or become engaged during my
employment with the Company.
e) I represent that my execution of this Agreement, my employment with
the Company and my performance of my duties for the Company will not violate any
obligations I may have to any former employer or any other third party,
including any obligations to keep confidential any proprietary or confidential
information. In the course of performing my duties for the Company, I will not
utilize any proprietary or confidential information of any former employer or
any other third party.
36
<PAGE>
5) General Provisions.
a) I agree that this Agreement does not constitute an employment
agreement and that, unless otherwise specifically provided in a written contract
signed by both an officer of the Company and me, my employment with the Company
is "at will" and I have the right to resign my employment and the Company has
the right to terminate my employment at any time, with or without cause, for any
or no reason.
b) I agree that this Agreement does not set forth all of the terms and
conditions of my employment, and that as an employee of the Company, I have
obligations to the Company which are not set forth in this Agreement.
c) I agree that my obligations under this Agreement shall continue in
effect after termination of my employment, regardless of the reason or reasons
for termination, and whether such termination is voluntary or involuntary on my
part, and that the Company is entitled to communicate my obligations under this
Agreement to any future employer or potential employer of mine.
d) Except as otherwise provided for in this Agreement, I agree that if
one or more provisions of this Agreement are held to be unenforceable, such
provision shall be excluded from this Agreement and the balance of the Agreement
shall be interpreted as if the provision were excluded. The Agreement shall then
be enforceable in accordance with its remaining terms.
e) Any and all disputes arising directly or indirectly out of or
relating in any way to this Agreement, which cannot be satisfactorily
resolved by the parties, shall be submitted to binding arbitration pursuant
to the Rules then in effect of the American Arbitration Association (AAA)
and shall be held in Chicago, Illinois. The arbitrator(s) shall decide the
matters submitted to them based upon the evidence presented and the terms
of this Agreement and the arbitrator(s) shall issue a written award which
shall state the basis of the award and include findings of fact and
conclusions of law. The award of the arbitration shall be final,
non-appealable and binding upon the parties. Judgment upon the award may be
entered in any court having the jurisdiction thereof.
f) This Agreement shall be effective as of the first day of my
employment by the Company, shall be binding upon me, my heirs, executors,
assigns and administrators, and shall inure to the benefit of the Company, its
successors and assigns.
g) This Agreement may not be changed, modified, released, discharged,
abandoned, or otherwise amended, in whole or in part, except by an instrument in
writing, signed by the Company and me. I agree that any subsequent change or
changes in my duties, salary or compensation shall not affect the validity or
scope of this Agreement.
37
<PAGE>
h) I acknowledge receipt of this Agreement, and agree that with respect to
its subject matter, it is my entire agreement with the Company, superseding
any previous oral or written communications, representations,
understandings, or agreements with the Company or any of its officers or
representatives.
i) I warrant and represent that I have the continuing right, power and
authority to enter into and perform this Agreement in accordance with its
terms, without violating any other agreement, obligation or undertaking.
j) When my employment with the company terminates, I agree to sign and
deliver to the Company the "Resignation/Termination Certificate" attached to
this Agreement as Exhibit B.
k) I agree that a remedy at law for my breach of this Agreement is
inadequate and that if I breach or threaten to breach this Agreement, the
Company shall be entitled to an injunction to restrain me from beaching the
Agreement. In addition, I agree that if I violate this Agreement, the Company
will be entitled to an accounting and repayment of all profits, compensation,
commissions, or benefits that I, directly or indirectly, have or may realize.
These remedies are cumulative and do not limit the remedies the Company may be
entitled to at law, in equity or under this Agreement.
Dated:________________________
_________________________
(employee signature)
________________________
(printed name)
38
<PAGE>
Exhibit A
List of Prior Inventions
TITLE DATE BRIEF DESCRIPTION OF INVENTIONS
1.
- --------------------------------------------------------------------------------
2.
- --------------------------------------------------------------------------------
3.
- --------------------------------------------------------------------------------
4.
- --------------------------------------------------------------------------------
5.
- --------------------------------------------------------------------------------
6.
- --------------------------------------------------------------------------------
7.
- --------------------------------------------------------------------------------
8.
- --------------------------------------------------------------------------------
9.
- --------------------------------------------------------------------------------
10.
- --------------------------------------------------------------------------------
11.
- --------------------------------------------------------------------------------
12.
- --------------------------------------------------------------------------------
13.
- --------------------------------------------------------------------------------
14.
- --------------------------------------------------------------------------------
39
<PAGE>
Exhibit B
Resignation/Termination Certificate
This is to certify that I do not have in my possession, nor have I
failed to return, any Proprietary Information or any other Company related
material.
I further certify that I have complied with and will continue to
comply with all the terms of the Proprietary Information, Invention and Business
Opportunities Agreement signed by me with the Company including, without
limitation:
a) the reporting of any Inventions; and
b) the preservation of Proprietary Information and Business
Opportunities.
___________________________
Employee Signature Date:
___________________________
Employee Name (please print) Social Security Number:
40
<PAGE>
Exhibit B
Key Employee Non-competition Agreement
This Key Employee Non-Competition Agreement ("Agreement") by
and between Engineering Animation, Inc. ("Company") and the undersigned
Employee ("Employee") is effective as of the date shown below. The terms
of this Agreement are as follows:
A. Employee acknowledges that Employee's services are of a special and
unusual character which have a unique value to Company and that confidential
information will be obtained by or disclosed to Employee as a result of
employment. As a material inducement to Company to employ Employee and in
consideration of compensation to be paid to Employee for services, Employee
covenants and agrees as follows:
During Employee's employment by Company and for a period of one (1)
year after Employee ceases to be employed by Company, Employee shall
not, directly or indirectly, as principal or agent, or in any other
capacity:
(a) solicit or divert business from any client, account or
location of Company.
(b) own, manage, operate, participate in or be employed by or
otherwise be interested in, or connected in any manner with,
any person, firm, corporation or other enterprise which
directly competes with the business of the Company anywhere in
the world. Nothing herein contained shall be construed as
denying Employee the right to own publicly-traded securities
of any corporation which competes with the business of the
Company, up to an aggregate of two percent (2%) of the
outstanding shares thereof.
(c) solicit for employment or employ any employee of the Company.
B. Employee acknowledges having carefully read and considered the
provisions of this Agreement and agrees that the restrictions set forth in
Paragraph A including, but not limited to, the time period of restriction and
the geographical area restriction are fair and reasonably required for the
protection of the interests of Company, its officers, directors and other
employees. Employee agrees that if any part of the covenants set forth above
shall be held to be invalid or unenforceable, the remaining parts of this
Agreement shall nevertheless continue to be valid and enforceable as though the
invalid or unenforceable parts had not been included therein. In the event that
any provision of Paragraph A hereof relating to time period and/or area of
restriction shall be declared by a court of competent jurisdiction to exceed the
maximum time period or area such court deems reasonable and enforceable, said
time period and/or area or restriction shall be deemed to become and thereafter
be the maximum time period and/or area which such court deems reasonable and
enforceable.
This Agreement is dated this _____ day of __________________, 1999.
Employee Name: ____________________
Employee Signature:_________________
41
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