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 March 31, 2000
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 May 5, 2000, there were 12,040,081 shares of the Registrant's $0.01
par value common stock outstanding.
<PAGE>
ENGINEERING ANIMATION, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
- - ----
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
At March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations
For the three months ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data; unaudited)
March 31, December 31,
2000 1999
------------ -------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 33,949 $ 10,939
Accounts receivable:
Billed 15,141 18,649
Unbilled 1,842 2,308
Deferred income taxes 158 7,758
Income taxes receivable - 693
Prepaid expenses and other assets 3,400 3,091
------------ -------------
Total current assets 54,490 43,438
Property and equipment, net 22,116 22,168
Other assets:
Note receivable 1,408 1,408
Software development costs, net 2,240 2,373
Goodwill and developed technology, net 10,126 10,915
Other 112 262
------------ -------------
Total assets $ 90,492 $ 80,564
============ =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,968 $ 4,165
Accrued compensation and other accrued expenses 8,632 8,531
Accrued restructuring charges 2,383 -
Deferred revenue 4,905 5,204
Bank debt, current portion of long-term debt and lease obligations 5,266 5,273
Income taxes payable 1,707 -
------------ -------------
Total current liabilities 26,861 23,173
Long-term debt and lease obligations due after one year 569 616
Other long-term liabilities - 184
Deferred income taxes - 104
Net liabilities of discontinued operations 1,309 1,296
Stockholders' equity 61,753 55,191
------------ -------------
Total liabilities and stockholders' equity $ 90,492 $ 80,564
============ =============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
Three months ended March 31,
2000 1999
-------------- ---------------
<S> <C> <C>
Revenues $ 17,551 $ 20,348
Cost of revenues 7,912 7,070
-------------- ---------------
Gross profit 9,639 13,278
Operating expenses:
Sales and marketing 6,946 6,666
General and administrative 3,924 2,743
Research and development 6,136 4,716
Goodwill and developed technology amortization 789 651
Restructuring and asset-impairment charges 3,968 -
-------------- ---------------
Total operating expenses 21,763 14,776
-------------- ---------------
Operating loss from continuing operations (12,124) (1,498)
Interest and other income, net 216 344
-------------- ---------------
Loss from continuing operations
before income tax (11,908) (1,154)
Income tax expense (benefit) 14 (191)
-------------- ---------------
Loss from continuing operations
before extraordinary item (11,922) (963)
Extraordinary item:
Gain from sale of subsidiary, net of transaction costs and
income taxes (see note 3) 17,626 -
Discontinued operations:
Income from discontinued operations, net of
income taxes (see note 2) - 463
-------------- ---------------
Net income (loss) $ 5,704 $ (500)
============== ===============
Earnings (loss) per share:
Continuing operations $ (0.99) $ (0.08)
Extraordinary item 1.46 -
Discontinued operations - 0.04
-------------- ---------------
Total $ 0.47 $ (0.04)
============== ===============
Weighted average shares outstanding 12,014 11,792
============== ===============
</TABLE>
<PAGE>
ENGINEERING ANIMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
Operating activities 2000 1999
------------- ---------------
<S> <C> <C>
Net income (loss) $ 5,704 $ (500)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Goodwill and developed technology amortization expense 789 651
Depreciation and other amortization expense 1,478 1,049
Deferred income taxes 7,600 (5)
Gain from sale of subsidiary, net of transaction costs (27,312) -
Non-cash compensation expense 390 -
Loss on disposal of assets 29 -
Changes in operating assets and liabilities
Billed accounts receivable 2,005 6,475
Unbilled accounts receivable 167 (928)
Prepaid expenses (269) (1,019)
Accounts payable (99) (32)
Accrued expenses 3,897 (1,693)
Income taxes 2,437 (496)
Deferred revenue (342) (150)
Cash effect of discontinued operations (992) 956
------------- ---------------
Net cash provided by (used in) operating activities (4,518) 4,308
------------- ---------------
Investing activities
Purchases of property and equipment (565) (2,004)
Change in other assets (21) (3)
Capitalization of software development costs (97) (363)
Maturities of marketable securities - 7,000
Purchases of marketable securities - (8,476)
Proceeds from sale of subsidiary, net of transaction costs paid and cash sold 27,970 -
------------- ---------------
Net cash provided by (used in) investing activities 27,287 (3,846)
------------- ---------------
Financing activities
Net change in short-term borrowing (194) -
Payments on long-term debt and capital lease obligations (54) (225)
Net proceeds from exercise of options and warrants 432 581
------------- ---------------
Net cash provided by financing activities 184 356
------------- ---------------
Net increase in cash and cash equivalents 22,953 818
------------- ---------------
Effect of exchange rates 57 (287)
Cash and cash equivalents at beginning of period 10,939 23,623
------------- ---------------
Cash and cash equivalents at end of period $ 33,949 $ 24,154
============= ===============
</TABLE>
<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 in 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 1999 Annual Report on Form
10-K as filed with the Securities and Exchange Commission. The results of
operations for the three-month period ended March 31, 2000, are not necessarily
indicative of the results that may be expected for any subsequent quarter or for
the fiscal year ending December 31, 2000. The balance sheet as of December 31,
1999, was derived from audited financial statements. The balance sheets as of
March 31, 2000, and December 31, 1999, do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The financial statements include the operations of EAI-DELTA GmbH
(DELTA) up to March 24, 2000, the date of its sale by the Company (see Note 3
for further discussion of the sale).
2. 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 following table summarizes revenues and income from
discontinued operations for the three months ended, March 31, 2000, and 1999:
<TABLE>
<CAPTION>
Three months ended
March 31
(in thousands) 2000 1999
-------------- ---------------
<S> <C> <C>
Revenues from discontinued operations $ 393 $ 4,452
============== ===============
Discontinued operations:
Income from discontinued operations $ - $ 747
Income tax expense - 284
-------------- ---------------
Income from discontinued operations, net of income taxes $ - $ 463
============== ===============
</TABLE>
3. SALE OF SUBSIDIARY
The Company announced on March 1, 2000, the signing of a definitive
agreement with Dassault Systemes S.A. for the sale of DELTA for $31 million in
cash. The resulting gain, net of transaction costs, of $27.3 million was
recognized in the first quarter of 2000 as an extraordinary gain on sale of
subsidiary. The Company recorded $9.7 million in U.S. and foreign income tax
expense on the transaction. The transaction closed on March 24, 2000. The
Company had acquired Delta on December 22, 1998, and accounted for it as a
pooling of interests.
<PAGE>
4. RESTRUCTURING AND ASSET-IMPAIRMENT CHARGES
The Company recorded a restructuring charge of $2.7 million and an
asset-impairment charge of $1.3 million in the first quarter of 2000, related to
actions associated with redefining the Company's infrastructure. These charges
include severance costs, fixed asset write-downs, office closings and other
related expenses as detailed below:
<TABLE>
<CAPTION>
(in thousands) Three months ended
March 31, 2000
-------------------
<S> <C>
Severance and other people costs $ 954
Office closings and sublease costs 1,751
Asset-impairment charge 1,262
-------------------
Total $ 3,967
===================
</TABLE>
The severance payments and people costs are primarily attributed to
personnel in the general and administrative support areas involuntarily
terminated on March 24, 2000. Office closings and sublease costs are related to
either offices that will no longer be used by the Company or areas of offices
that will be subleased out to entities not affiliated with the Company. The
asset write-downs relate to fixed assets attributed to these offices. The
Company has paid $0.4 million as of March 31, 2000 for severance and other
people costs. Except for long-term lease payments of $1.4 million, the Company
expects most payments to be made by December 31, 2000.
5. COMPREHENSIVE INCOME (LOSS)
The following table summarizes comprehensive income (loss) for the three
months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended
(in thousands) March 31
2000 1999
--------------- -----------------
<S> <C> <C>
Net income (loss) as reported $ 5,704 $ (500)
Foreign currency translation adjustment 35 (243)
--------------- -----------------
Total comprehensive income (loss) $ 5,739 $ (743)
=============== =================
</TABLE>
<PAGE>
ENGINEERING ANIMATION, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
OVERVIEW
Engineering Animation, Inc. develops and produces Internet-enabled
visual process management, collaboration, communication and analysis solutions
and accompanying services for extended manufacturing enterprises. Major
manufacturers in the automotive, aerospace, industrial/heavy equipment,
electronics, telecommunications and government/defense industries use our
integrated enterprise-wide solutions across corporate intranets and the
Internet.
Our software solutions provide manufacturers and their suppliers and
partners with shared, worldwide access to product and process data. Together
they can analyze, visualize and manipulate the shared data in real time. Our
solutions enable the manufacturing network to realize the competitive advantages
of lowered costs and faster time-to-market through improved product designs,
enhanced product quality and shorter production cycles.
Our software products include: the Open Enterprise Visualization (OEV)
solutions for viewing, distributing and analyzing product design data; and the
virtual factory solutions for enhancing the efficiency and quality of
manufacturing operations and processes. In 1999, we announced the development of
e-Vis.com, our Internet portal for providing enterprise and supplier
collaboration, integration and E-services to manufacturers.
In addition, our Professional Services Group provides customized
systems integration and deployment services in support of our software products
and E-services. Our Litigation Services Group creates software animation
products for the legal community.
We announced, on March 1, 2000, the signing of a definitive agreement
with Dassault Systemes S.A. for the sale of EAI-DELTA GmbH (DELTA) for $31
million in cash. The resulting gain, net of transaction costs, of $27.3 million
was recognized in the first quarter of 2000 as an extraordinary gain on sale of
subsidiary. We recorded $9.7 million in U.S. and foreign income tax expense on
the transaction. The transaction closed on March 24, 2000.
We also recorded restructuring and asset-impairment charges of $4.0
million in the first quarter of 2000 related to actions associated with
redefining our infrastructure. The charges include severance costs, fixed asset
write-downs, office closings and other related expenses.
RESULTS OF OPERATIONS
Revenue Recognition
Our revenues are derived from software licenses, software development
contracts, professional services, customer support and maintenance and
subscription services. We recognize revenue allocated to software licenses when
an arrangement to deliver software does not require significant production,
modification or customization and all four basic criteria in the Statement of
Position (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 collection of the resulting receivable is probable.
For contracts with multiple obligations such as deliverable and undeliverable
software licenses, maintenance or other services, we allocate revenue to each
component of the contract based on vendor-specific objective evidence. We
recognize revenues from software development contracts and professional services
<PAGE>
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. In 1998, the AICPA issued
SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect
to Certain Transactions" to readdress vendor-specific objective evidence. We
adopted SOP 98-9 on January 1, 2000. It is expected that the adoption will not
have a material effect on our financial position, operating results or
liquidity. Subscription services revenue is generated from customers subscribing
to our e-Vis.com service. Our subscription services revenue is derived from
subscribers paying a monthly membership fee and is recognized over the period
that the services are provided. Deferred revenue from our subscription services
consists of prepaid membership fees billed in advance.
<TABLE>
<CAPTION>
NET REVENUES
(in thousands) 2000 Change 1999
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $17,551 (14)% $20,348
===============================================================================================================
</TABLE>
Revenues decreased 14% to $17.6 million for the three months ended March
31, 2000 from $20.3 million for the three months ended March 31, 1999. This
decrease in revenues was primarily due to lower revenues from software
licenses and customer funded development. We attribute our decrease in software
revenues to a number of factors, including the following:
o As we continue to expand our partner program, the ratio of our partners'
sales to our direct sales has increased. Revenues from partner sales are
typically lower because they are royalty-based.
o Fewer large orders were placed by a number of major customers as they
deployed prior purchases of our products across their enterprises.
o Our customers are changing the fundamental way in which they purchase and
deploy software within their organizations. As the Internet becomes the
primary distribution medium, the subscription model or monthly usage fee is
replacing the large, one-time licensing fee we have experienced in the
past.
During the first quarter of 2000, we recognized royalty revenue of $3.5
million related to a sale by one of our partners.
<TABLE>
<CAPTION>
COST OF REVENUES
(in thousands) 2000 Change 1999
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $7,912 12% $7,070
===============================================================================================================
As a percentage
of revenues 45% 35%
</TABLE>
Our cost of revenues is related primarily to direct labor and related
costs associated with our professional services group. Cost of revenues also
includes packaging and distribution costs, royalty fees paid to third parties
under licensing agreements and amortization of capitalized software costs.
Cost of revenues increased 12% to $7.9 million for the three months
ended March 31, 2000, from $7.1 million for the three months ended March 31,
1999, primarily due to higher compensation and related expenses from the
increased number of employees in our professional services group. The increase
in the number of employees was in anticipation of higher volume from our
software business. Our cost of revenues as a percentage of revenues increased to
45% from 35% for the three months ended March 31, 2000 and 1999, primarily due
<PAGE>
to revenues being lower than expected. There were no cost of revenues associated
with the royalty revenue of $3.5 million recognized in the first quarter of 2000
as described above in "Revenues".
For the three months ended March 31, 2000 and 1999, we capitalized
software costs of $97,000 and $363,000. We amortize these costs over an
estimated economic useful life of three years, or on the ratio of current
revenues to total projected product revenues, whichever amortization expense
amount is greater. Amortization expenses reported as cost of revenues for the
three months ended March 31, 2000 and 1999, were $230,000 and $147,000. We
compare unamortized computer software costs with net realizable value on a
product-by-product basis. These estimates are based upon available information,
including life cycles and revenues from similar products, our past history, the
market for the products, our existing customer base, and other factors unique to
the products. Recoverability is subject to changes in our business model and the
demand for the product either because of general market conditions or the
introduction of new products by competitors. We do not intend to capitalize any
new projects under Statement of Financial Accounting Standards No. 86 in the
future. Any future amounts to be capitalized relate to projects commenced prior
to January 1, 2000.
Operating Expenses
<TABLE>
<CAPTION>
SALES AND MARKETING
(in thousands) 2000 Change 1999
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $6,946 4% $6,666
===============================================================================================================
As a percentage
of revenues 40% 33%
</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 4% to $6.9 million for the
three months ended March 31, 2000, from $6.7 million for the three months ended
March 31, 1999.The percentage increase in sales and marketing is lower than past
periods. This is primarily due to fewer new hires of personnel in the sales and
marketing groups as well as lower sales commission expense associated with lower
revenues.Sales and marketing expenses increased to 40% of total revenues for the
three months ended March 31, 2000, from 33% for the three months ended March 31,
1999, primarily due to revenues being lower than expected.
<TABLE>
<CAPTION>
GENERAL AND ADMINISTRATIVE
(in thousands) 2000 Change 1999
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $3,924 43% $2,743
===============================================================================================================
As a percentage
of revenues 22% 13%
</TABLE>
General and administrative expenses consist primarily of personnel and
facility costs for administrative, information 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 43% to $3.9 million for
the three months ended March 31, 2000, from $2.7 million for the three months
ended March 31, 1999. The increase was primarily due to personnel increases a
<PAGE>
compared to the first quarter of 1999 and related expenses and bad debt expense.
General and administrative expenses increased to 22% of total revenues for the
three months ended March 31, 2000, from 13% for the three months ended March 31,
1999, primarily due to the personnel increases and revenues being lower than
expected.
<TABLE>
<CAPTION>
RESEARCH AND DEVELOPMENT
(in thousands) 2000 Change 1999
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $6,136 30% $4,716
===============================================================================================================
As a percentage
of revenues 35% 23%
</TABLE>
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 30% to $6.1 million for the
three months ended March 31, 2000, from $4.7 million for the three months ended
March 31, 1999. The increase was primarily due to personnel increases and
related expenses that included further development of e-Vis.com. Research and
development expenses increased to 35% of total revenues for the three months
ended March 31, 2000, from 23% for the three months ended March 31, 1999,
primarily due to the personnel increases and revenues being lower than expected.
We expect to at least maintain the previous levels of investments we have made
in research and development in spite of the recent revenue amounts that were
below expectations.
<TABLE>
<CAPTION>
GOODWILL AND DEVELOPED TECHNOLOGY AMORTIZATION EXPENSE
(in thousands) 2000 Change 1999
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense $789 21% $651
===============================================================================================================
As a percentage
of revenues 4% 3%
</TABLE>
Goodwill and developed technology amortization expense relates to
acquisitions we made in 1999, 1998 and 1997. The increase for the three months
ended March 31, 2000, compared to the three months ended March 31, 1999, is due
to amortization of goodwill created upon the acquisition of Kx
Verksamhetsutveckling AB in July, 1999.
<TABLE>
<CAPTION>
RESTRUCTURING AND ASSET-IMPAIRMENT CHARGES
(in thousands) 2000 Change 1999
- - ---------------------------------------------------------------------------------------------------------------
<S> <C>
Expense $3,968 N/M --
===============================================================================================================
As a percentage
of revenues 23% N/M
</TABLE>
We recorded a restructuring charge of $2.7 million and an
asset-impairment charge of $1.3 million in the first quarter of 2000, related to
actions associated with redefining our infrastructure. These charges include
severance and other people costs, fixed asset write-downs, office closings and
other related expenses. The severance and other people costs are primarily
attributed to personnel in the general and administrative support areas
involuntarily terminated on March 24, 2000. Office closings are related to
<PAGE>
either offices that will no longer be used by us or areas of offices that will
be subleased out to entities not affiliated with us. The asset write-downs
relate to fixed assets attributed to these offices. We have paid $0.4 million as
of March 31, 2000 for severance and other people costs. Except for long-term
lease payments of $1.4 million, we expect most payments to be made by December
31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
We have historically satisfied cash requirements through borrowings,
operations, capital lease financing and aggregate net proceeds from public
offerings of common stock.
As of March 31, 2000, we had $33.9 million in cash and cash
equivalents. 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.
For the three months ended March 31, 2000, net cash used in operating
activities was $4.5 million. We experienced lower revenues and total cash
collections during the quarter compared to the same period last year. Our days
sales outstanding have improved significantly over the last several quarters due
to cash collections being greater than revenue recognized over those same
quarters. We also incurred cash outflows associated with restructuring charges
of $0.4 million, as well as discontinuing our Interactive Games and Science and
Technology businesses. Net cash provided by operating activities was $4.3
million for the three months ended March 31, 1999.
For the three months ended March 31, 2000, net cash provided by
investing activities was $27.3 million. In March 2000, our sale of DELTA
generated cash proceeds, net of transaction costs and cash sold, of $28.0
million, which will be used in current operations. We invested $0.6 million in
property and equipment, which was primarily due to the purchase of computers and
other equipment. For the three months ended March 31, 1999, we used cash of $3.8
million in investing activities. We invested $2.0 million in the expansion of
our facilities and our purchases of computers, furniture and equipment and
increased our short-term investments by $1.5 million.
For the three months ended March 31, 2000 and 1999, net cash provided
by financing activities was $0.2 million and $0.4 million. The main financing
sources for both three-month periods were proceeds from stock option exercises.
We had two lines of credit with commercial banks on March 31, 2000. One
of the lines of credit, totaling $1.0 million, was secured and was paid off on
April 6, 2000. The other line of credit totaling $3.5 million was unsecured and
was paid off on May 2, 2000.
We believe that our current cash and cash equivalent balances will be
sufficient to meet anticipated cash needs for working capital and capital
expenditures for the next twelve months. However, 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.
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 that our representatives or we make, may
contain forward-looking statements that involve risks and uncertainties. We
<PAGE>
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 may 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.
You should carefully consider the risks, uncertainties and other
information described in this report. These are not the only risks and
uncertainties that we face. Additional risks and uncertainties that we do not
know about, or that we currently believe are immaterial, may also harm our
business operations. If any of these risks or uncertainties actually occur, our
business, financial position, operating results or liquidity could be materially
harmed.
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.
If revenues fall below our expectations in a particular quarter, our
business could be harmed. General economic conditions affect our revenue
expectations, as well as the following factors:
o difficulties in forecasting the volume and timing of customer orders;
o the timing of our introduction of new products relative to our
competitors' introduction of similar products;
o our arrangements to market our products;
o customer budgets and willingness to pay for delivered products and
services; and
o our ability to competitively price our products and services.
The revenue flow from our OEV and virtual factory solutions sales and
licensing is uneven within a fiscal quarter. Sales typically occur in the third
month of a quarter, and often in the last week or days of a quarter. Factors
contributing to this pattern include:
o long lead times on customer budgetary approvals, which tend to be given
late in a quarter;
o the tendency of customers to wait until late in a quarter to commit to
purchase in th hope of obtaining more favorable pricing from one or
more competitors seeking their business;
o at times, seasonal influences; and
o the fourth quarter influence of customers spending their remaining
capital budget authorization prior to new udget constraints in the
first quarter of the following year.
Shortfalls from anticipated revenue or revenue recognition delays
result in significant variations in our operating results from quarter to
quarter. On the other hand, our expenses are relatively fixed in the near term,
or they may increase as our research and development efforts increase in
anticipation of new market opportunities or in response to competitive pressure.
We do not anticipate this pattern changing.
<PAGE>
Additionally, we find it difficult to forecast quarterly licensing
revenue. Our sales cycle, from initial evaluation to delivery of software, is
lengthy and varies substantially from customer to customer, particularly in the
cases of customized business solutions. Even though we intend to decrease our
involvement with customized business solutions, we do not anticipate that this
change will improve our ability to forecast quarterly revenue.
We anticipate our e-Vis.com sales will be primarily subscription-based.
We will recognize revenue from these sales ratably over the life of the
subscription. The degree to which these sales will have any leveling effect on
our revenue flow depends particularly upon how quickly we grow this area of our
business. However, we have no prior experience with a subscription-based
business. We cannot assure you that these sales will have any effect on our
results.
For a more complete discussion of other risk factors affecting the
Company, see the Company's 1999 Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Rates
Our revenues originating outside the U.S. for the first three months of
2000 and 1999 were 23% and 28% 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 future results
could be adversely impacted by changes in these or other factors.
Interest Rates
Our long-term debt at March 31, 2000 included two lines of credit with
commercial banks. Both lines of credit, one totaling $3.5 million and the other
totaling $1.0 million, had floating rates of interest. All other long-term debt
had fixed rates of interest ranging from 0% to 6%. Both lines of credit have
been paid off subsequent to March 31, 2000.
PART II. OTHER INFORMATION
Item 1. Legal proceedings
In February 1999, actions were filed against us and certain of our
current and former executive officers in the United States District Court for
the Southern District of Iowa. These actions allege that we violated Sections
10(b) and 20(a) of, and Rule 10b-5 under, the Securities Exchange Act of 1934.
They allege that we made false or misleading statements of material fact about
our accounting for in-process research and development in connection with the
Rosetta Technologies, Inc. and Sense8 Corporation acquisitions and our 1999
business prospects. They seek unspecified damages. These claims are now
consolidated into one class action purporting to include individuals who
purchased our common stock between February 19, 1998 and April 6, 1999. The
court has appointed lead plaintiffs and co-lead counsel in the action. The court
has granted in part and dismissed in part the motion we filed to dismiss the
plaintiffs' amended complaint. We intend to oppose the action vigorously.
<PAGE>
In October 1999, actions were filed against us and certain of our
current and former executive officers in the United States District Court for
the Southern District of Iowa. These actions allege that we violated Sections
10(b) and 20(a) of, and Rule 10b-5 under, the Securities Exchange Act of 1934.
They allege that we made false or misleading statements of material fact about
our financial results for the second quarter of 1999. These claims are now
consolidated into one class action purporting to include individuals who
purchased our common stock between July 29, 1999, and October 1, 1999. The court
has appointed lead plaintiffs and lead counsel in the action. We intend to
oppose the action vigorously.
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 March 3, 2000, relating to Ernst & Young LLP
resigning as the Company's independent auditor on February 29,
2000. KPMG LLP was retained as the Company's independent
auditor effective March 1, 2000.
<PAGE>
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: May 15, 2000 ENGINEERING ANIMATION, INC.
------------- (Registrant)
By:/s/ Michael K. O'Gara
-------------------------------
Michael K. O'Gara
Vice President of Finance and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
2 Purchase and Sale Agreement with Dassault Systemes, S.A., dated as of
February 29, 2000; incorporated herein by reference from our Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
10.1 Amendment No. 1 to Employment Agreement with Matthew M. Rizai, dated
January 1, 2000 *
10.2 Amendment No. 1 to Employment Agreement with Martin J. Vanderploeg,
dated January 1, 2000 *
10.3 Amendment No. 1 to Employment Agreement with Jamie A. Wade, dated
January 1, 2000 *
10.4 Amendment No. 1 to Employment Agreement with Jeff D. Trom, dated
January 1, 2000 *
10.5 Employment Agreement with Robert L. Cyr, dated January 1, 2000 *
10.6 Employment Agreement with Michael K. O'Gara, dated February 28, 2000 *
27 Financial Data Schedule
* Management Contract
Exhibit 10.1
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT ("Amendment") is entered into
as of January 1, 2000, by and between Matthew M. Rizai ("Employee") and
Engineering Animation, Inc., a Delaware corporation (the "Company").
WHEREAS, the parties entered into an employment agreement (Employment
Agreement) as of January 1, 1996, whereby Employee was employed by the Company
as its Chairman, Chief Executive Officer and President, for an Employment Term
(as such term is defined in the Employment Agreement) ending December 31, 1999;
WHEREAS, the parties desire to extend the Employment Term until
December 31, 2003, with Employee serving in the capacity of Chairman, Chief
Executive Officer and Treasurer of the Company;
NOW, THEREFORE, for good and valuable consideration, including the
benefits under the Severance Agreement (as such term is defined in the
Employment Agreement), the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Section 1 of the Employment Agreement is amended to read as follows:
"Employment Terms. Subject to the terms and conditions set forth herein,
including Section 13, the Company will employ Employee for a term commencing as
of January 1, 1996 (the "Effective Date") and ending on December 31, 2003 or
such earlier date as may occur pursuant to Section 13 of this Agreement (the
"Employment Term")."
2. The first sentence of Section 2 of the Employment Agreement is
amended as follows: "Employment Duties. From January 1, 2000 until December
31,2003, Employee will serve as the Chairman, Chief Executive Officer and
Treasurer of the Company, and shall perform such duties as shall be assigned
from time to time by the Board of Directors of the Company, subject to the terms
of this Agreement and the direction and control of the Board of Directors of the
Company."
3. Subsection (a) of Section 3 of the Employment Agreement is amended
as follows: "(a) from the Effective Date until December 31, 2003, a salary as
established by the compensation committee of the Board of Directors of the
Company, payable in arrears not less frequently than monthly, but otherwise in
accordance with the Company's ordinary payroll practices; and".
4. All other terms and conditions of the Employment Agreement shall
remain unchanged. Capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to them in the Employment Agreement. In the event of a
dispute between the terms of this Amendment and the Employment Agreement, the
terms of this Amendment shall control.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first written above.
ENGINEERING ANIMATION, INC. Employee:
By: /s/ Jamie A. Wade /s/ Matthew M.Rizai
----------------------- ---------------------
Name: Jamie A. Wade Matthew M. Rizai
Its: Corporate Secretary
Exhibit 10.2
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT ("Amendment") is entered into
as of January 1, 2000, by and between Martin J. Vanderploeg ("Employee") and
Engineering Animation, Inc., a Delaware corporation (the "Company").
WHEREAS, the parties entered into an employment agreement (Employment
Agreement) as of January 1, 1996, whereby Employee was employed by the Company
as its Executive Vice President for an Employment Term (as such term is defined
in the Employment Agreement) ending December 31, 1999;
WHEREAS, the parties desire to extend the Employment Term until
December 31, 2003, with Employee serving in the capacity of Executive Vice
President of the Company;
NOW, THEREFORE, for good and valuable consideration, including the
benefits under the Severance Agreement (as such term is defined in the
Employment Agreement), the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Section 1 of the Employment Agreement is amended to read as follows:
"Employment Terms. Subject to the terms and conditions set forth herein,
including Section 13, the Company will employ Employee for a term commencing as
of January 1, 1996 (the "Effective Date") and ending on December 31, 2003 or
such earlier date as may occur pursuant to Section 13 of this Agreement (the
"Employment Term")."
2. The first sentence of Section 2 of the Employment Agreement is
amended as follows: "Employment Duties. From January 1, 2000 until December
31,2003, Employee will serve as the Executive Vice President of the Company, and
shall perform such duties as shall be assigned from time to time by the Board of
Directors of the Company, subject to the terms of this Agreement and the
direction and control of the Board of Directors of the Company."
3. Subsection (a) of Section 3 of the Employment Agreement is amended
as follows: "(a) from the Effective Date until December 31, 2003, a salary as
established by the compensation committee of the Board of Directors of the
Company, payable in arrears not less frequently than monthly, but otherwise in
accordance with the Company's ordinary payroll practices; and".
4. All other terms and conditions of the Employment Agreement shall
remain unchanged. Capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to them in the Employment Agreement. In the event of a
dispute between the terms of this Amendment and the Employment Agreement, the
terms of this Amendment shall control.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first written above.
ENGINEERING ANIMATION, INC. Employee:
By:/s/ Robert M. Nierman /s/ M. Vanderploeg
--------------------------- ------------------
Name: Robert M. Nierman Martin J. Vanderploeg
Its: President and
Chief Operating Officer
Exhibit 10.3
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT ("Amendment") is entered into
as of January 1, 2000, by and between Jamie A. Wade ("Employee") and Engineering
Animation, Inc., a Delaware corporation (the "Company").
WHEREAS, the parties entered into an employment agreement (Employment
Agreement) as of January 1, 1996, whereby Employee was employed by the Company
as its Vice President of Administration and General Counsel for an Employment
Term (as such term is defined in the Employment Agreement) ending December 31,
1999;
WHEREAS, the parties desire to extend the Employment Term until
December 31, 2003, with Employee serving in the capacity of Vice President of
Administration, General Counsel and Secretary of the Company;
NOW, THEREFORE, for good and valuable consideration, including the
benefits under the Severance Agreement (as such term is defined in the
Employment Agreement), the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Section 1 of the Employment Agreement is amended to read as follows:
"Employment Terms. Subject to the terms and conditions set forth herein,
including Section 13, the Company will employ Employee for a term commencing as
of January 1, 1996 (the "Effective Date") and ending on December 31, 2003 or
such earlier date as may occur pursuant to Section 13 of this Agreement (the
"Employment Term")."
2. The first sentence of Section 2 of the Employment Agreement is
amended as follows: "Employment Duties. From January 1, 2000 until December
31,2003, Employee will serve as the Vice President of Administration, General
Counsel and Secretary of the Company, and shall perform such duties as shall be
assigned from time to time by the Board of Directors of the Company, subject to
the terms of this Agreement and the direction and control of the Board of
Directors of the Company."
3. Subsection (a) of Section 3 of the Employment Agreement is amended
as follows: "(a) from the Effective Date until December 31, 2003, a salary as
established by the compensation committee of the Board of Directors of the
Company, payable in arrears not less frequently than monthly, but otherwise in
accordance with the Company's ordinary payroll practices; and".
4. All other terms and conditions of the Employment Agreement shall
remain unchanged. Capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to them in the Employment Agreement. In the event of a
dispute between the terms of this Amendment and the Employment Agreement, the
terms of this Amendment shall control.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first written above.
ENGINEERING ANIMATION, INC. Employee:
By: /s/ Matthew Rizai /s/ Jamie A. Wade
--------------------------- -------------------
Name: Matthew M. Rizai Jamie A. Wade
Its: Chariman and
Chief Executive Officer
Exhibit 10.4
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT ("Amendment") is entered into
as of January 1, 2000, by and between Jeff D. Trom ("Employee") and Engineering
Animation, Inc., a Delaware corporation (the "Company").
WHEREAS, the parties entered into an employment agreement (Employment
Agreement) as of January 1, 1996, whereby Employee was employed by the Company
as its Vice President of Software Development for an Employment Term (as such
term is defined in the Employment Agreement) ending December 31, 1999;
WHEREAS, the parties desire to extend the Employment Term until
December 31, 2003, with Employee serving in the capacity of Vice President and
Chief Technology Officer of the Company;
NOW, THEREFORE, for good and valuable consideration, including the
benefits under the Severance Agreement (as such term is defined in the
Employment Agreement), the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Section 1 of the Employment Agreement is amended to read as follows:
"Employment Terms. Subject to the terms and conditions set forth herein,
including Section 13, the Company will employ Employee for a term commencing as
of January 1, 1996 (the "Effective Date") and ending on December 31, 2003 or
such earlier date as may occur pursuant to Section 13 of this Agreement (the
"Employment Term")."
2. The first sentence of Section 2 of the Employment Agreement is
amended as follows: "Employment Duties. From January 1, 2000 until December
31,2003, Employee will serve as the Vice President and Chief Technology Officer
of the Company, and shall perform such duties as shall be assigned from time to
time by the Board of Directors of the Company, subject to the terms of this
Agreement and the direction and control of the Board of Directors of the
Company."
3. Subsection (a) of Section 3 of the Employment Agreement is amended
as follows: "(a) from the Effective Date until December 31, 2003, a salary as
established by the compensation committee of the Board of Directors of the
Company, payable in arrears not less frequently than monthly, but otherwise in
accordance with the Company's ordinary payroll practices; and".
4. All other terms and conditions of the Employment Agreement shall
remain unchanged. Capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to them in the Employment Agreement. In the event of a
dispute between the terms of this Amendment and the Employment Agreement, the
terms of this Amendment shall control.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first written above.
ENGINEERING ANIMATION, INC. Employee:
By: /s/ Robert M. Nierman /s/ Jeff D. Trom
------------------------- ------------------
Name: Robert M. Nierman Jeff D. Trom
Its: President and
Chief Operating Officer
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this 1st
day of January, 2000, by and between Robert Cyr, a resident of Georgia
("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 3D visualization software products
and conducting various other activities associated therewith.
B. EAI desires to employ Employee and Employee desires to be employed by
EAI on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Employment Terms. Subject to the terms and conditions set forth
herein, EAI will employ Employee for a term commencing as of January 1, 2000
(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 Vice President, Worldwide Sales and Marketing. Employee's duties
shall include those duties as assigned from time to time by the President of
EAI, subject to the terms of this Agreement. 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, thefollowing:
(a) From the Effective Date of this Agreement through the second
anniversary of the Effective Date, a salary at a rate of
$230,000 per annum ($19,166.67 per month) payable in arrears
monthly, in accordance with the EAI's ordinary payroll
practices; and
(b) During the last quarter of each fiscal year Employee will
participate in the planning process which results in the
establishment of goals and budgets for the following fiscal
year. After the end of each fiscal year of the Company, during
the Employment Term, Employee shall be eligible for an annual
performance bonus, the nature and amount of which shall be
determined by and in the discretion of the Company after
reviewing Employee's performance and the Company's results of
operations during and for such fiscal year and such other
considerations deemed appropriate by the Company.
Notwithstanding anything else in this Agreement, the
declaration and payment an the amount of any performance
bonus to Employee shall be in the discretion of the Company
and Employee shall have no absolute right to a performance
bonus in any year.
Payments made pursuant to this section while Employee is employed by shall be
treated as wages for withholding and employment tax purposes.
4. Severance Provisions. In the event that Employee is terminated
during the term of this Agreement for any reason whatsoever (including
termination for Good Reason), except for cause as defined in Paragraph 8,
Employee shall receive a lump sum severance payment in an amount equal to
Employee's annual total compensation at plan at the time of termination and an
amount equal to the cost of health insurance benefits for twelve months.
5. Benefits.
(b) Employee shall be entitled during the Employment Term to
participate in such employee benefit plans and programs,
including, without limitation, 401(k) plan, cafeteria, health
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. The Company 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, regulation and laws applicable from
time to time thereto.
(c) During the Employment Term, Employee shall be entitled to paid
time off in accordance with the policies of the Company which
provide for fifteen (15) days paid time off during the first
year of employment, eighteen (18) days during the second year
of employment, and twenty-one (21) days during the third year
of employment. In addition, Employee shall be entitled to paid
time off on such holidays as are observed by the Company from
time to time. Accrued, unused vacation may be carried over
from one year to the next in accordance with Company policies.
6. 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.
7. Employee Proprietary Information, Invention and Business\Opportunity
Agreement. Employee agrees to be bound by the terms of the Employee Proprietary
Information, Invention and Business Opportunity Agreement which is attached
hereto as Exhibit A.
8. Termination. This Agreement may be terminated for Cause or for Good
Reason. Cause 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.
Good Reason shall be defined as: (a) a reduction in the salary, or in the
benefits or perquisites provided the Employee; (b) a substantial reduction in
the Employee's responsibilities, authorities or functions.
9. 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.
10. 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, IA 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 unenforceability, 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).
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
ENGINEERING ANIMATION, INC. ROBERT CYR
By: /s/ Robert M. Nierman /s/ Robert L. Cyr
--------------------------------------- --------------------------
Name: Robert M. Nierman
Title: President amd
Chief Operating Officer
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this 28th
day of February, 2000, by and between Michael K. O'Gara, 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 3D visualization software
products and conducting various other activities associated therewith.
B. EAI desires to employ Employee and Employee desires to be
employed by EAI on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
4. Employment Terms. Subject to the terms and conditions set forth
herein, EAI will employ Employee for a term commencing as of February 28, 2000
(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.
5. Employment Duties. During the term of this Agreement, Employee will
serve EAI as Vice President and Chief Financial Officer. Employee's duties shall
include those duties as assigned from time to time by the President of EAI,
subject to the terms of this Agreement. 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.
6. Compensation. During the term of employment, EAI will pay to
Employee for services rendered by Employee under this Agreement, the following:
(a) From the Effective Date of this Agreement through the second
anniversary of the Effective Date, a salary at a rate of
$200,000 per annum ($16,666.66 per month) payable in arrears
monthly, in accordance with the EAI's ordinary payroll
practices; and
(b) From the Effective Date of this Agreement through the first
anniversary of the Effective Date, Employee shall receive a
fixed bonus of $40,000, paid quarterly in arrears, and shall
be eligible to receive an additional bonus of up to $40,000
provided that certain performance goals, as established by
agreement between Employee and the President, are met.
(c) 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.
(d) During the last quarter of each fiscal year Employee will
participate in the planning process which results in the
establishment of goals and budgets for the following fiscal
year. After the end of each fiscal year of the Company, during
the Employment Term, Employee shall be eligible for an annual
performance bonus, the nature and amount of which shall be
determined by and in the discretion of the Company after
reviewing Employee's performance and the Company's results of
operations during and for such fiscal year and such other
considerations deemed appropriate by the Company.
Notwithstanding anything else in this Agreement, the
declaration and payment and the amount of any performance
bonus to Employee shall be in the discretion of the Company
and Employee shall have no absolute right to a performance
bonus in any year.
Payments made pursuant to this section while Employee is employed by shall be
treated as wages for withholding and employment tax purposes.
4. Severance Provisions. In the event that Employee is terminated
during the first twelve months of this Agreement for any reason whatsoever
(including termination for Good Reason), except for cause as defined in
Paragraph 8, Employee shall receive a lump sum severance payment in an amount
equal to two hundred percent (200%) of the Employee's total compensation at plan
for the first twelve months pursuant to this agreement. In the event that
Employee is terminated at any time after the first twelve months of this
Agreement, and before the second anniversary of this agreement, for any reason
whatsoever (including termination for Good Reason), except for cause as defined
in Paragraph 8, Employee shall receive a lump sum severance payment in an amount
equal to one hundred fifty percent (150%) of the Employee's total compensation
at plan at the time of termination.
5. Benefits.
(b) Employee shall be entitled durin the Employment Term to
participate in such employee benefit plans and programs,
including, without limitation, 401(k) plan, cafeteria, health
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. The Company 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.
(c) During the Employment Term, Employee shall be entitled to paid
time off in accordance with the policies of the Company which
provide for fifteen (15) days paid time off during the first
year of employment, eighteen (18) days during the second year
of employment, and twenty-one (21) days during the third year
of employment. In addition, Employee shall be entitled to paid
time off on such holidays as are observed by the Company from
time to time. Accrued, unused vacation may be carried over
from one year to the next in accordance with Company policies.
6. 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.
7. Employee Proprietary Information, Invention and Busines
Opportunity Agreement. Employee agrees to be bound by the terms of the Employee
Proprietary Information, Invention and Business Opportunity Agreement which is
attached hereto as Exhibit A.
8. Termination. This Agreement may be terminated for Cause or for Good
Reason. Cause 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.
Good Reason shall be defined as: (a) relocation of the principal place at which
the Employee's duties are to be performed; (b) a reduction in the salary, or in
the benefits or perquisites provided the Employee; (c) a substantial reduction
in the Employee's responsibilities, authorities or functions (d) a Change of
Control of EAI.
9. 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.
10. 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, IA 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 unenforceability, 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).
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
ENGINEERING ANIMATION, INC. MICHAEL K. O'GARA, EMPLOYEE
By: /s/ Robert M. Nierman /s/ Michael K. O'Gara
-------------------------------- ---------------------
Name: Robert M. Nierman
Title: President and
Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 33,949
<SECURITIES> 0
<RECEIVABLES> 16,983
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 54,490
<PP&E> 22,116
<DEPRECIATION> 0
<TOTAL-ASSETS> 90,492
<CURRENT-LIABILITIES> 26,861
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 61,753
<SALES> 17,551
<TOTAL-REVENUES> 17,551
<CGS> 7,912
<TOTAL-COSTS> 7,912
<OTHER-EXPENSES> 21,763
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (216)
<INCOME-PRETAX> (11,908)
<INCOME-TAX> 14
<INCOME-CONTINUING> (11,922)
<DISCONTINUED> 0
<EXTRAORDINARY> 17,626
<CHANGES> 0
<NET-INCOME> 5,704
<EPS-BASIC> 0.47
<EPS-DILUTED> 0.47
</TABLE>
