<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
STRUCTURAL DYNAMICS RESEARCH CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION
2000 EASTMAN DRIVE
MILFORD, OHIO 45150
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 7, 1998
TO THE SHAREHOLDERS OF STRUCTURAL DYNAMICS RESEARCH CORPORATION:
You are cordially invited to attend the Annual Meeting of the Shareholders
of Structural Dynamics Research Corporation to be held on May 7, 1998 at 2:00
P.M. at the Company's offices, 2000 Eastman Drive, Milford, Ohio 45150, for the
purpose of considering and acting on the following:
1. Election of three Class I directors to serve until the 2000 Annual
Meeting.
2. Approval and adoption of the Structural Dynamics Research Corporation
1998 Long-Term Stock Incentive Plan.
3. Ratification of the appointment of Price Waterhouse LLP as the
independent auditors of the Company for 1998.
4. Transaction of such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on March 18, 1998 will be
entitled to vote at the meeting.
By Order of the Board of Directors
[JOHN A. MONGELLUZZO SIGNATURE]
John A. Mongelluzzo
Secretary
April 1, 1998
IMPORTANT
A PROXY STATEMENT AND PROXY ARE SUBMITTED HEREWITH. AS A SHAREHOLDER, YOU
ARE URGED TO COMPLETE AND MAIL THE PROXY PROMPTLY WHETHER OR NOT YOU PLAN TO
ATTEND THIS ANNUAL MEETING IN PERSON. THE ENCLOSED ENVELOPE FOR RETURN OF PROXY
REQUIRES NO POSTAGE IF MAILED IN THE U.S.A. SHAREHOLDERS ATTENDING THE MEETING
MAY PERSONALLY VOTE ON ALL MATTERS WHICH ARE CONSIDERED IN WHICH EVENT THEIR
SIGNED PROXIES ARE REVOKED. IT IS IMPORTANT THAT YOUR SHARES BE VOTED. IN ORDER
TO AVOID THE ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN MAILING YOUR PROXY PROMPTLY.
<PAGE>
STRUCTURAL DYNAMICS RESEARCH CORPORATION
2000 EASTMAN DRIVE
MILFORD, OHIO 45150
April 1, 1998
PROXY STATEMENT
The enclosed form of proxy is being solicited on behalf of the Board of
Directors of Structural Dynamics Research Corporation (also referred to as
"SDRC" or the "Company") for the Annual Meeting of Shareholders to be held on
May 7, 1998. Each of the 36,018,754 shares of Common Stock, without par value,
outstanding on March 18, 1998, the record date of the meeting, is entitled to
one vote on all matters coming before the meeting. Only shareholders of record
on the books of the Company at the close of business on March 18, 1998 will be
entitled to vote at the meeting either in person or by proxy. The Company has
hired Morrow & Co., Inc. to assist it in soliciting proxies. This Proxy
Statement is being mailed to shareholders on or about April 1, 1998.
The shares represented by all properly executed proxies which are sent to
the Company will be voted as designated and each not designated will be voted
affirmatively. Each person granting a proxy may revoke it by giving notice to
the Company's Secretary in writing or in open meeting at any time before it is
voted. Proxies will be solicited principally by mail, but may also be solicited
by directors, officers and other regular employees of the Company who will
receive no compensation therefor in addition to their regular salaries. Brokers
and others who hold stock in trust will be asked to send proxy materials to the
beneficial owners of the stock, and the Company will reimburse them for their
expenses. The expense of soliciting proxies will be borne by the Company.
The Annual Report of the Company for the fiscal year ended December 31, 1997
is enclosed with this Proxy Statement.
ELECTION OF DIRECTORS
The Company's Board of Directors is comprised of two classes, Class I
consisting of three directors and Class II consisting of four directors, with no
vacancies. At this Annual Meeting, the three directors of Class I are to be
elected to hold office until the 2000 Annual Meeting of Shareholders. It is the
intention of the individuals named in the proxy to vote for the election of only
the three nominees designated for Class I directorships. Only the maximum of
three Class I directors may be elected. The Company is not currently aware of
any potential candidates who may be nominated at or prior to the meeting, and in
no event will the proxies solicited hereby be voted for other than the three
nominees designated for Class I directorships.
The nominees, William P. Conlin, Bannus B. Hudson and Arthur B. Sims, are
currently serving as members of the Board of Directors. While management has no
reason to believe that any of the nominees will, prior to the date of the
meeting, refuse or be unable to accept the nominations, should any nominee so
refuse or become unable to accept, the proxies will be voted for the election of
such substitute nominee, if any, as may be recommended by the Board of
Directors. Nominees receiving the three highest totals of votes cast in the
election will be elected as directors. Proxies in the form solicited hereby
which are returned to the Company will be voted in favor of the three nominees
specified above unless otherwise instructed by the shareholders. Abstentions and
shares not voted by brokers and other
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entities holding shares on behalf of beneficial owners will not be counted and
will have no effect on the outcome of the election.
Information with respect to each of the three nominees is as follows:
CLASS I DIRECTORS
(TERMS EXPIRE IN 1998)
WILLIAM P. CONLIN, Lead Director since October, 1996 and Chairman of the
Board of the Company from February, 1995 to October, 1996. Mr. Conlin served as
President of CalComp, Inc., a subsidiary of Lockheed Corporation, from 1983 to
1993. Mr. Conlin is also a director of Syntellect Incorporated. Mr. Conlin is 64
years of age and has been a director of the Company since April, 1993.
BANNUS B. HUDSON, is currently President and Chief Executive Officer of
Beverages & More, Inc. (the country's second largest beverage retailer) and
formerly served as President and Chief Executive Officer of Equity Enterprises,
Inc., a strategic consulting firm. Prior to that, he served as President and
Chief Executive Officer of The United States Shoe Corporation, having served in
such capacities for more than five years, until May, 1995. Mr. Hudson is also a
director of Ohio National Financial Services and U.S. Biomaterials Corporation.
Mr. Hudson is 52 years of age and has been a director of the Company since June,
1995.
ARTHUR B. SIMS, has served as Chief Executive Officer and Chairman of the
Board of 3D Systems Corporation (developer, manufacturer and marketer of rapid
prototyping systems) since August, 1993 and, since September, 1991, has also
served as Chief Executive Officer of 3D Systems, Inc., a California corporation
which is an indirect, wholly-owned subsidiary of 3D Systems Corporation. From
September, 1990 until September, 1991, Mr. Sims was an independent management
consultant. Mr. Sims is 60 years of age and has been a director of the Company
since July, 1995.
The following sets forth similar information with respect to incumbent
directors in Class II of the Board of Directors who are not nominees for
election at this Annual Meeting of Shareholders:
CLASS II DIRECTORS
(TERMS EXPIRE IN 1999)
WILLIAM J. WEYAND, Chairman of the Board, President and Chief Executive
Officer of the Company since February, 1998. Prior to joining the Company in
June, 1997 as its President and Chief Executive Officer, Mr. Weyand served as
Executive Vice President of Measurex Corporation (a world leader in the process
control industry and Computer Integrated Manufacturing (CIM)). Mr. Weyand
currently serves as a member of the board of directors for the University of
Maine. Mr. Weyand is 53 years of age and has been a director of the Company
since June, 1997.
JAMES W. NETHERCOTT, retired Senior Vice President, chief financial officer
and a director of The Procter & Gamble Company (a diversified consumer products
manufacturer), having served in all three capacities from 1979 until his
retirement in 1991. Mr. Nethercott is also a director of Ohio National Financial
Services. Mr. Nethercott is 70 years of age and has been a director of the
Company since February, 1995.
JOHN E. McDOWELL, of counsel with the Cincinnati law firm of Dinsmore &
Shohl LLP, counsel to the Company since its inception. Mr. McDowell also served
as Secretary of the Company from 1967 until 1983. Mr. McDowell is 70 years of
age and has been a director of the Company since October, 1967.
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GILBERT R. WHITAKER, JR., is currently Dean and H. Joe Nelson, III Professor
of Business Economics, Jesse H. Jones Graduate School of Administration, Rice
University. Prior to that, he served as Professor of Business Economics,
University of Michigan from 1979 until June, 1997 and served as Provost and
Executive Vice President for Academic Affairs, University of Michigan from 1990
to 1995. Dr. Whitaker also served as Dean of the School of Business
Administration, University of Michigan from 1979 to 1990. Dr. Whitaker is also a
director of Johnson Controls, Inc., Lincoln National Corporation and the
Handleman Company. Dr. Whitaker is 66 years of age and has been a director of
the Company since July, 1988.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
In the fiscal year ended December 31, 1997, the Board of Directors met on
eight occasions. Each incumbent director during the last fiscal year attended
75% or more of the aggregate of (i) the total number of meetings of the Board of
Directors (held during the period for which he has been a director) and (ii) the
total number of meetings held by all committees of the Board on which he served
(during the periods that he served).
The Board's committee structure is governed by formal Board of Directors
Guidelines on Corporate Governance Issues (the "Corporate Governance
Guidelines") which include written charters for each committee. Among other
provisions, the Corporate Governance Guidelines specify that only outside
directors may serve on the committees. Information regarding the committees is
set forth below.
The Company has an Audit Committee of the Board of Directors, which held six
meetings during 1997. The Audit Committee recommends to the entire Board of
Directors the independent auditors to be retained by the Company, consults with
the independent auditors with respect to their audit plans, reviews the
independent auditors' audit report and any management letters issued by the
auditors, and consults with the independent auditors with regard to financial
reporting and the adequacy of internal controls. The present members of the
Audit Committee are Messrs. Nethercott (Chairman), McDowell and Conlin.
The Company has a Compensation Committee of the Board of Directors, which
held seven meetings during 1997. The Compensation Committee recommends to the
entire Board of Directors the compensation arrangements for the Chief Executive
Officer, determines the compensation of the corporate officers of the Company,
administers the Company's stock option plans, and reviews proposed changes in
management organization. The present members of the Compensation Committee are
Messrs. Hudson (Chairman) and Conlin, and Dr. Whitaker.
The Board of Directors has a Nominating and Director Affairs Committee,
which held two meetings during 1997. The functions of this Committee are to
recommend corporate governance policies, to lead the annual self-evaluation of
the Board and to periodically seek out qualified candidates for election to the
Board and to make recommendations to the whole Board with respect to nominees.
The Committee also makes recommendations as to exercise of the Board's authority
to determine the number of its members, within the limits provided by the
Company's Amended Code of Regulations. The members of the Nominating and
Director Affairs Committee are Messrs. McDowell (Chairman), Conlin and Sims.
Shareholders wishing to communicate with the Nominating and Director Affairs
Committee concerning potential director candidates may do so by corresponding
with the Company's Secretary, John A. Mongelluzzo, and including the name and
biographical data of the individual being suggested.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY
The following table is a summary of certain information concerning the
compensation awarded or paid to, or earned by, the Company's Chief Executive
Officer, each of the Company's other four most highly compensated executive
officers who held office as of the end of 1997, and a certain former executive
officer who held office during 1997 (the "named executives") during each of the
last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) COMPENSATION($)(2)
- ---------------------------------------- ---- --------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
William J. Weyand 1997 200,276 150,000 450,000 shs. 111,657(3)
Chairman of the Board, 1996 -- -- -- --
President and Chief Executive Officer 1995 -- -- -- --
Robert M. Nierman 1997 184,926 90,000 80,000 shs. 936(4)
Executive Vice President and Chief 1996 -- -- -- --
Operating Officer 1995 -- -- -- --
Mark C. Goldstein 1997 173,209 70,000 70,000 shs. 5,397(5)
Vice President, Products Group 1996 -- -- -- --
1995 -- -- -- --
John A. Mongelluzzo 1997 183,429 55,000 50,000 shs. 4,919(6)
Vice President, Secretary and General 1996 147,333 75,000 20,000 shs. 4,658(6)
Counsel 1995 134,000 100,000 15,000 shs. 4,257(6)
Jeffrey J. Vorholt 1997 218,804 90,000 60,000 shs. 5,450(7)
Vice President, Chief Financial 1996 180,000 115,000 25,000 shs. 5,167(7)
Officer and Treasurer 1995 154,568 120,000 15,000 shs. 5,065(7)
Albert F. Peter 1997 365,750 0 100,000 shs. 1,088,961(8)
Former Chairman of the Board and Chief 1996 333,333 325,000 200,000 shs. 2,333(8)
Executive Officer 1995 300,000 350,000 75,000 shs. 2,321(8)
</TABLE>
- ------------------------
(1) Amounts shown consist of cash bonuses earned under the Company's Executive
Incentive Compensation Plan with respect to the Company's performance in the
reported year but which were actually paid out in the subsequent year.
(2) All figures shown include amounts contributed by the Company pursuant to the
Company's Tax Deferred Capital Accumulation (401(k)) Plan, except in the
case of Messrs. Weyand, Peter and
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<PAGE>
Nierman who did not participate. Participants in the Company's 401(k) plan
may elect to reduce their salaries by no less than 1% per month and no
greater than 15% per year and to have such amount contributed to their
accounts in this plan. They may also make other voluntary contributions from
time to time. With respect to any fiscal year, the Company may elect to
partially match employee contributions. Such matching contributions may be
either in cash or in shares of the Company's Common Stock. The Company
elected to make such contributions for all the years shown. The Company's
contributions were made in the form of Common Stock. Amounts in this plan
become available for payout upon termination or retirement only.
(3) Includes, for 1997, $1,166 which was term life insurance premiums paid by
the Company for insurance benefiting the named executive. Also includes, for
1997, $110,491 in payment of costs associated with Mr. Weyand's relocation
to Cincinnati, Ohio from Atlanta, Georgia. See "Executive Compensation --
Employment Agreement."
(4) Includes, for 1997, $936 which was term life insurance premiums paid by the
Company for insurance benefiting the named executive.
(5) Includes, for 1997, $4,750 representing the Company's 401(k) plan
contributions, and $647 which was term life insurance premiums paid by the
Company for insurance benefiting the named executive.
(6) Includes, for 1997, 1996 and 1995, respectively, $4,750, $4,500 and $4,121
representing the Company's 401(k) plan contributions, and $169, $158 and
$136, which were term life insurance premiums paid by the Company for
insurance benefiting the named executive.
(7) Includes, for 1997, 1996 and 1995, respectively, $4,750, $4,500 and $4,500
representing the Company's 401(k) plan contributions, and $700, $667 and
$565, which were term life insurance premiums paid by the Company for
insurance benefiting the named executive.
(8) Includes $3,629 in 1997, $2,333 in 1996 and $2,321 in 1995 which were term
life insurance premiums for insurance benefiting the named executive. Also
includes, for 1997, $1,085,332 in lump sum severance benefits. See
"Executive Compensation -- Employment Agreement."
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STOCK OPTIONS
The following table sets forth information regarding stock options granted
to the named executives during 1997. It should be noted that the Company is in
the process of changing the timing of annual option grants to key employees from
February of each year to December of each year. As a result, the following table
reflects two annual grants to certain individuals, including one which, under
the prior schedule, would have been made in February, 1998. In the future the
Company anticipates that annual stock option grants will be made in December of
each year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN OR BASE OPTION TERM
OPTIONS FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED(#)(1) YEAR(2) ($/SH.) DATE 5%($) 10%($)
- ---------------------------------------- ----------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William J. Weyand 350,000 21.1% 26.3125 6/19/2007 5,791,726 14,677,372
100,000 18.5625 12/9/2007 1,167,386 2,958,384
Robert M. Nierman 20,000 3.8% 22.75 1/29/2007 283,003 717,184
20,000 22.50 2/12/2007 286,147 725,153
40,000 18.125 12/8/2007 455,949 1,155,463
Mark C. Goldstein 30,000 3.3% 22.50 2/12/2007 424,504 1,075,776
40,000 18.125 12/8/2007 455,949 1,155,463
John A. Mongelluzzo 25,000 2.3% 22.50 2/12/2007 353,753 896,480
25,000 18.125 12/8/2007 284,968 722,165
Jeffrey J. Vorholt 25,000 2.8% 22.50 2/12/2007 353,753 896,480
35,000 18.125 12/8/2007 398,955 1,011,030
Albert F. Peter 100,000 4.7% 22.3125 6/1/2000 1,403,221 3,556,038
</TABLE>
- ------------------------
(1) With the exception of the options granted to Mr. Weyand at the time of his
employment, all such options first become exercisable as to 33% of the
shares covered after the end of the first year after the date of grant, as
to 67% of the shares covered after the end of two years, and are exercisable
in full after the end of three years. The option exercise price is not
adjustable over the 10-year term of the options except due to stock splits
and similar occurrences affecting all outstanding stock.
With respect to the options granted to Mr. Weyand at the time of his
employment, the 200,000 share option becomes exercisable in four annual
increments of 50,000 shares each, with the first such increment exercisable
on February 28, 1998 and the remaining three increments becoming exercisable
on the three successive anniversaries of February 28, 1998, and expires on
June 19, 2007. The 150,000 share option becomes exercisable in three annual
increments of 50,000 shares each, with the first such increment becoming
exercisable on February 28, 2002, and the two remaining
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<PAGE>
increments becoming exercisable on the two successive anniversaries of
February 28, 2002, and expires on June 19, 2007.
(2) The percentage shown in the above table reflects the ratio of the total
options granted to the named person during the fiscal year over the total
options granted to all employees during the fiscal year.
The following table sets forth information regarding stock options exercised
by the named executives during 1997 and the value of unexercised in-the-money
options held by the named parties as of December 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT FY-END(#) MONEY OPTIONS AT FY-END($)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ------------- ----------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
William J. Weyand 0 0 0 450,000 0 268,750
Robert M. Nierman 0 0 0 80,000 0 125,000
Mark C. Goldstein 2,000 25,250 78,315 83,185 474,077 171,829
John A. Mongelluzzo 1,000 20,688 94,850 68,350 653,697 152,066
Jeffrey J. Vorholt 10,050 202,256
10,050 212,934 13,200 81,700 79,200 183,316
Albert F. Peter 10,000 58,125 136,250 258,750 909,359 369,703
</TABLE>
COMPENSATION OF DIRECTORS
During the year ended December 31, 1997, the Company's outside directors
(those directors who are not employees of the Company) were compensated for
their services as directors at the rate of $15,000 per year. In addition,
directors received $1,500 for each Board of Directors meeting and $750 for each
committee meeting they attended, and individuals who served as committee
chairmen received an additional $250 per committee meeting attended. For 1998
and thereafter, outside directors who chair a Board committee will receive
compensation of $35,000 per year and all other outside directors will receive
$30,000 per year; all per-meeting fees will be eliminated. In 1997, the Lead
Director, a non-executive position, received an additional $10,000 per month.
The Company does not additionally compensate employee directors. All directors
are reimbursed for all expenses incurred in connection with attendance at
meetings of the Board and the performance of Board duties.
For years commencing with 1998, outside directors are eligible to
participate in the Company's Non-qualified Unfunded Deferred Compensation Plan
for Outside Directors (the "Deferred Compensation Plan"). Participants in the
Deferred Compensation Plan may elect to have payment of up to 100% of their cash
director's compensation (in 25% increments) deferred and held in either a stock
equivalent account which will be valued based on the market price of the
Company's Common Stock or an interest-bearing account which will accrue interest
at a bank prime rate as it may vary from time to time. Elections must be made on
an annual basis in advance and once made are irrevocable.
7
<PAGE>
In addition, outside directors currently receive stock options under the
1996 Directors' Non-Discretionary Stock Plan (the "Directors' Plan"). The
Directors' Plan provides that upon their initial election or appointment,
non-employee directors are automatically issued options to purchase 10,000
shares of the Company's Common Stock and that at every annual organizational
meeting of directors each then-serving director will receive an additional
option to purchase 10,000 shares. All options granted under the Directors' Plan
have a five year term and an exercise price equal to 100% of the fair market
value of the Common Stock on the date of issuance. Options are not exercisable
at all for six months after their issuance, at which time they become
exercisable as to 50% of the shares covered. After 12 months, they become
exercisable in full until expiration.
The Directors' Plan also permits directors, in advance on an annual basis,
to elect to receive all or a specified percentage of their annual cash
compensation in the form of Common Stock rather than cash. During 1997, the
Board of Directors formally adopted director stock ownership guidelines under
which directors are expected to achieve and maintain significant levels of
Common Stock ownership which the Directors' Plan is designed to facilitate.
EMPLOYMENT AGREEMENTS
On June 19, 1997, the Company entered into an employment agreement with
William J. Weyand pursuant to which Mr. Weyand agreed to become employed by the
Company as its President and Chief Executive Officer. The agreement provides for
an annual base salary of at least $400,000 and further provides that Mr. Weyand
is eligible to earn performance-based incentive compensation of up to 120% of
his annual salary in accordance with the Company's Executive Incentive
Compensation Plan. The Company also agreed to pay certain expenses incurred in
connection with Mr. Weyand's relocation to Cincinnati, Ohio from Atlanta,
Georgia.
The initial term of the agreement runs through December 31, 2000 and will be
automatically extended through December 31, 2002 unless either party notifies
the other on or before July 1, 2000 that the agreement will terminate on
December 31, 2000. If the Company exercises its right to terminate the agreement
as of December 31, 2000, Mr. Weyand will be entitled to a termination payment
equal to his then current annual salary plus the amount of his annual bonus for
the fiscal year preceding the year of termination. If the Company terminates the
agreement without cause at any other time, Mr. Weyand will be entitled to a
termination payment equal to the greater of (i) his then current annual salary
plus his annual bonus for the fiscal year preceding the year of termination
multiplied by the number of years or fractional years remaining in the initial
term of the agreement, or (ii) 100% of his then current annual salary plus his
annual bonus for the fiscal year preceding the year of termination. Mr. Weyand
is also a party to the Company's standard severance compensation agreement
(described below) which would provide for certain severance benefits in the
event of termination following a change in control. Any such benefits would be
in lieu of and not in addition to severance payments under the employment
agreement.
Mr. Weyand's employment agreement also provided for an initial grant to him
under the Company's 1994 Long-Term Stock Incentive Plan of options to purchase
200,000 shares of Common Stock vesting over four years, and a supplemental grant
of options to purchase an additional 150,000 shares, the vesting of which is
conditioned upon Mr. Weyand making open market purchases of at least 20,000
shares of Common Stock within six months of his employment commencement date.
8
<PAGE>
On April 30, 1997, the Company entered into an employment agreement with
Albert F. Peter, who was then the President and Chief Executive Officer of the
Company. Mr. Peter agreed to remain in such position until his successor took
office, which was expected to occur on or about July 1, 1997, and thereafter to
serve in an advisory capacity until May 1, 2000. The Agreement established an
annual salary of $370,000 and, for 1997 only, a bonus of at least $222,000. The
agreement also provided for certain severance benefits payable to Mr. Peter in
the event of his termination under various circumstances. In December, 1997, Mr.
Peter resigned as an employee and as a director of the Company. At that time,
Mr. Peter and the Company entered into a resignation agreement pursuant to which
Mr. Peter was paid a lump sum severance benefit of $1,085,332, an amount equal
to his contractual salary from April 30, 1998 through the end of his employment
agreement, in lieu of his bonus and any other benefits or payments Mr. Peter
would otherwise have been entitled to receive. The resignation agreement also
extended the exercise date of stock options held by Mr. Peter to 30 days
following the original May 1, 2000 expiration date of his employment agreement.
SEVERANCE COMPENSATION AGREEMENTS
In order to minimize distraction in circumstances arising from a change in
control, the Company has entered into severance compensation agreements with
each of the named executives, as well as other executive officers of the
Company, which provide for the payment of severance compensation in the event
the employment of the named executive or other officer is terminated by the
Company within two years following a change in control of the Company other than
due to death or disability or for cause, or if the executive terminates his or
her employment for "good reason." Good reason is defined in detail in the
agreements and generally exists if there is a material change in the terms and
conditions of the executive's employment. The severance benefits payable under
these agreements are equal to 250% of the sum of the prior year's base salary
and annual bonus target.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of the Company has
furnished the following report on executive compensation:
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is comprised of three non-employee directors of the Company. No
member of the Compensation Committee has any insider or interlocking
relationship with the Company, as these terms are defined in applicable rules
and regulations of the Securities and Exchange Commission. The Compensation
Committee is responsible for developing and recommending the Company's executive
compensation principles, policies and programs to the Board of Directors. In
addition, the Compensation Committee recommends to the Board of Directors on an
annual basis the compensation to be paid to the Chief Executive Officer and,
with advice from the Chief Executive Officer, determines the amount paid to each
of the other executive officers of the Company, including the named executives.
The Compensation Committee works with an outside compensation consultant and
supports its compensation decisions by analysis of published surveys and special
studies undertaken periodically.
9
<PAGE>
The Company's compensation programs are designed to provide its executive
officers with market competitive salaries and the opportunity to earn incentive
compensation related to performance expectations identified by the Board. The
objectives of the Company's executive compensation program as developed by the
Compensation Committee are to:
- Provide a direct link between executive officer compensation and the
interests of the Company's shareholders by making a significant portion of
executive officer compensation dependent upon the financial performance of
the Company and the price performance of the Company's Common Stock.
- Support the achievement of the Company's annual and long-term goals and
objectives as determined annually by the Board.
- Establish base salaries targeted at a median level for comparable
positions within a comparison group of companies, with incentive
opportunities designed to pay total compensation well above average for
outstanding Company performance.
- Provide opportunities for equity ownership based on competitive levels,
corporate/segment performance, share price performance, and share dilution
considerations.
- Achieve and maintain desired levels of Common Stock ownership within the
executive officer group; desired levels of Common Stock ownership are
amounts valued at three times the salary level for the Chief Executive
Officer and two times or one time the salary level for other executive
officers of the Company. The Company's 1994 Long-Term Stock Incentive Plan
and if adopted, the 1998 Long-Term Stock Incentive Plan are designed to
provide opportunities for ownership through retention of shares obtained
through the exercise of options.
- Provide compensation plans and arrangements that encourage the retention
of better-performing executives.
The Compensation Committee's executive compensation policies seek to provide
an opportunity for compensation, that varies with performance, which compares
favorably to levels provided to executives within a comparative group of
companies engaged in high technology businesses. These companies are generally
either competitive with or complementary to the Company's business and are
generally of comparable size, business characteristics and complexity (the
"Comparative Group"). All of the companies in the Comparative Group whose shares
are traded on the Nasdaq National Market are included in the Nasdaq Computer and
Data Processing Services Stocks Index (see "Executive Compensation -- Financial
Performance"). The Comparative Group also includes certain companies whose
shares are traded on other exchanges, and are therefore not included in such
index, but are nevertheless considered to be comparable to the Company for this
purpose.
The Compensation Committee developed an executive compensation strategy
which targets total direct compensation (base salary plus annual incentives plus
long-term incentives) at competitive levels compared to the Comparative Group in
a manner which directly links the interests of the Company's executives and its
shareholders and focuses executives on sustainable long-term growth. Individual
compensation levels recommended by the Compensation Committee may vary
significantly among the Company's executive officers and from year to year,
because such levels may also be based in major
10
<PAGE>
part on annual and long-term corporate performance, as well as on individual
performance. The Compensation Committee assigns more weight to long-term
corporate performance for higher level executives and more weight to annual
corporate and individual performance for lower level executives in determining
the compensation level of any individual executive officer.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Company includes (i) base
salary, (ii) annual incentive cash bonuses, and (iii) long-term incentive
compensation currently in the form of stock options. Bonuses and stock options
(collectively, "Incentive Compensation") may represent between one-third and
two-thirds of an executive officer's potential annual compensation, depending
upon the position. In general, the proportion of an executive officer's
compensation that is Incentive Compensation increases with the level of
responsibility of the officer. Executive officers also receive various benefits
generally available to all employees of the Company, such as 401(k) and medical
plans.
BASE SALARIES
The Compensation Committee seeks to set base salaries for the Company's
executive officers at levels which are competitive with median levels for
executives with similar roles and responsibilities within the Comparative Group.
In setting annual salaries for individuals, the Compensation Committee first
considers the compensation paid for similar positions within the Comparative
Group and the executive's experience, level and scope of responsibility as a
benchmark reference. It then considers individual performance of the executive
measured against expectations in developing its salary increase recommendations.
Based on these principles, salary increases were granted to named executives in
1997.
ANNUAL INCENTIVE BONUSES
Working with an outside compensation consultant and analyzing the total
executive compensation components of the Comparative Group, the Compensation
Committee has developed an Executive Incentive Compensation Plan ("EIC Plan").
Under the EIC Plan, the Compensation Committee recommends to the Board of
Directors an aggregate target cash bonus amount for incentive-eligible
executives. A target bonus pool will be established based upon specific
performance measures approved by the Board of Directors, which will include a
test of reasonableness for incentive compensation as a percentage of pre-tax
income of the Company.
Each year the Board establishes three levels of achievement for EIC Plan
performance goals -- threshold, target and outstanding. Generally, at
performance levels below the threshold, no bonuses are payable unless otherwise
approved by the Compensation Committee. The target bonus pool is determined by
the sum of individual participants' awards at target performance levels.
Individual bonuses at target may range from 10% to 60% of base annual salary at
target. Upon reaching the threshold performance goals, a participant will be
eligible for up to 50% of his or her target bonus. Actual bonus payments will be
interpolated between threshold (50%), target (100%) and outstanding (150% -
200%) and will not exceed 200% of the target bonus.
Applying the basic principles of the EIC Plan to 1997 Company and individual
performances, at its February, 1998 meeting the Compensation Committee
recommended, and the Board of Directors subsequently approved, bonuses for the
then-serving named executives and other executive officers
11
<PAGE>
representing a level of performance in 1997 at or slightly below target. See
"Executive Compensation -- Summary Compensation Table."
OPTION GRANTS
The Company's 1994 Long-Term Stock Incentive Plan and, if adopted the 1998
Long-Term Stock Incentive Plan authorize the Compensation Committee to award
stock options and restricted stock to executive officers and other key
employees. Stock option grants are designed to align the long-term interests of
the Company's key employees with those of its shareholders by directly linking
compensation to shareholder interest, as well as enabling key employees to
develop and maintain significant long-term equity ownership positions.
The number of options granted to an executive officer is a function of
grants for similar positions made by the companies within the Comparative Group
and the executive's level of responsibility. Variance from these numbers is
based upon the Compensation Committee's reasoned expectation of the executive's
future contribution to the Company. Generally, the Compensation Committee grants
non-statutory options during each fiscal year at an exercise price equal to the
fair market value of Company Common Stock on the date of grant. Option grants
are designed to enable executive officers to achieve and maintain the stock
ownership guidelines established for executive officers over a five year period
of time.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of the Company's Chief Executive Officer is ordinarily
determined utilizing the same methodology that is applied to all other executive
officers as described above. However, 1997 was an unusual year in that the
Company's prior Chief Executive Officer, Mr. Peter, entered into a programmed
transitional arrangement with the Company through which his compensation for the
year was predetermined, and the Company's current Chief Executive Officer joined
the Company approximately midway through the year pursuant to an employment
agreement that was negotiated at arms' length and provided for a specified
initial compensation level. Mr. Weyand's 1997 incentive compensation was
determined applying the same principles utilized in determining incentive
compensation for other executive officers with Mr. Weyand's bonus award being
commensurate with his partial year of service in 1997.
William P. Conlin Bannus B. Hudson Gilbert R. Whitaker, Jr.
12
<PAGE>
FINANCIAL PERFORMANCE
The following graph summarizes the cumulative return on $100 invested in the
Company's Common Stock, the S&P 500 Stock Index and the Nasdaq Computer and Data
Processing Services Stocks Index over a five year period as calculated by the
Center for Research in Security Prices at the University of Chicago.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SDRC STOCK S&P 500 NASDAQ C&D
<S> <C> <C> <C>
1992 $100.0 $100.0 $100.0
1993 $156.8 $109.8 $105.8
1994 $48.9 $111.3 $128.5
1995 $267.0 $153.1 $195.7
1996 $181.8 $188.8 $241.5
1997 $204.5 $252.0 $296.7
</TABLE>
13
<PAGE>
PROPOSAL TO ADOPT 1998
LONG-TERM STOCK INCENTIVE PLAN
A key factor in the Company's continuing advancement and growth is its
ability to attract, motivate and retain highly qualified employees. The market
for such employees, particularly in the Company's high technology industry, has
always been extremely competitive, and the competition for employees at all
levels is continually growing more intense. The Company has historically relied
heavily on stock options to attract, motivate and retain employees and expects
to continue to do so for a number of reasons:
- Many of the companies with which the Company must compete for employees at
all levels make extensive use of stock incentives, and the most desirable
prospective employees insist upon receiving stock incentives. The Company
believes stock incentives enable the Company to cost-effectively compete
for the services of key employees.
- The Company believes that stock incentives, especially stock options, are
an effective tool which can be used to focus its key employees on the
Company's strategic direction.
- The Company believes that stock incentives provide a long-term ownership
stake in the Company and as a result serve to align the economic interests
of its employees with those of its shareholders.
- The Company has recently and expects in the future to make strategic
acquisitions of businesses and technologies which will further its
strategic direction and believes that stock incentives are an important
tool for assimilating and leveraging the talents of the employees of
newly-acquired businesses.
The Company has been using its 1994 Long-Term Stock Incentive Plan (the
"1994 Plan") to provide stock incentives to key employees. However, the Common
Stock which remains available under the 1994 Plan is insufficient to satisfy the
Company's anticipated future compensation requirements. Accordingly, the Company
now believes that it is necessary to adopt the 1998 Long-Term Stock Incentive
Plan (the "1998 Plan"). Although the proposed 1998 Plan is fundamentally similar
to the 1994 Plan, there are some material changes. The 1998 Plan provides a
stated number of shares of Common Stock. In contrast, the 1994 Plan authorized a
variable but increasing number of shares. While the 1994 Plan authorized grants
of stock appreciation rights, stock appreciation rights are not part of the 1998
Plan because, as a device which does not result in the actual issuance of shares
to employees, the Board believes stock appreciation rights are not as effective
as stock options and stock awards in aligning the long-term interests of
employees and shareholders. The Company also believes that it is necessary to
have the flexibility to cancel or suspend incentive compensation awards in order
to protect its trade secrets and confidential processes. The 1998 Plan contains
the authority to determine whether, to what extent and under what circumstances
stock options or restricted stock may be canceled or suspended in the event of
improper actions by employees.
On February 19, 1998, the Board of Directors approved, subject to
shareholder approval, the adoption of the Structural Dynamics Research
Corporation 1998 Long-Term Stock Incentive Plan. The 1998 Plan will be submitted
for shareholder approval at the Annual Meeting. The full text of the 1998 Plan
is attached as Exhibit A to this Proxy Statement, and the following discussion
is qualified in its entirety by reference to Exhibit A and the 1994 Plan.
14
<PAGE>
GENERAL
The Company presently has the 1994 Plan which provides for option grants to
employees. The 1994 Plan provides that the total shares of Common Stock subject
to stock incentives granted under this plan in any calendar year may not exceed
the number of shares equal to 4% of the Company's issued and outstanding Common
Stock as of January 1 of each of the years 1994 through 1998, plus any unused
shares and any forfeited shares. As of March 18, 1998, options covering a total
of 6,172,400 such shares had been granted, leaving 1,078,353 shares available
for future grants, an insufficient number to cover the Company's anticipated
future needs. The 1994 Plan does not provide for the authorization of any
additional shares during the six remaining years of its term.
In approving the 1998 Plan for submission to the Company's shareholders, the
Board of Directors recognized both the Company's anticipated needs for
additional options and the changing environment for the compensation of eligible
employees. To provide a flexible vehicle under which appropriate incentives can
be awarded, the 1998 Plan permits the grant of nonqualified and incentive stock
options and restricted stock awards as is currently provided for under the 1994
Plan. Unlike the 1994 Plan, the 1998 Plan eliminates the use of stock
appreciation rights. In reviewing the Company's overall compensation practices
as well as its corporate goal of increasing the level of outright ownership of
the Company's Common Stock by executive officers and other employees, the Board
of Directors concluded that stock options and stock awards are preferable to
stock appreciation rights, and the 1998 Plan reflects this determination.
Although the Company currently does not have any specific plans to grant any
awards under the 1998 Plan other than options, the Board of Directors feels that
it is desirable that the Company have the ability to grant stock awards,
including restricted stock, in the future should changing conditions so require.
In drafting the 1998 Plan, the Board of Directors was mindful of Section
162(m) of the Internal Revenue Code of 1986, as amended, which limits the
deductibility, for federal income tax purposes, of compensation paid to certain
executive officers in excess of $1 million per year per executive officer. The
limitation excludes "performance-based compensation", however, and the 1998 Plan
was prepared so that stock options and possibly restricted stock granted under
the 1998 Plan will constitute performance-based compensation which is fully tax
deductible by the Company. See "Federal Income Tax Consequences."
The 1998 Plan will become effective as of the day it is approved and adopted
by the shareholders. If it is not approved by the shareholders, the 1998 Plan
will be of no force and effect. If approved, the 1998 Plan will continue in
existence indefinitely until terminated by the Board of Directors, except that
incentive options, described below, may not be granted under the 1998 Plan after
May 7, 2008. The Board of Directors may terminate the 1998 Plan at any time, but
outstanding stock incentives will continue to be exercisable until they expire
or are otherwise terminated in accordance with their terms.
On March 18, 1998, the closing price of the Company's Common Stock on the
Nasdaq National Market was $25.21875.
NATURE OF INCENTIVES; ELIGIBILITY; PURPOSES
Stock incentives which may be issued under the 1998 Plan include stock
options (which for federal income tax purposes may be either "nonqualified"
options or "incentive" options which meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended) and stock awards, as well as any
combination thereof. Stock incentives may be granted to "eligible employees" of
the
15
<PAGE>
Company and its subsidiaries. Eligible employees are defined as employees of the
Company or a subsidiary who in the opinion of the Committee (as defined below)
are deemed to have the capacity to contribute significantly to the growth and
successful operations of the Company. The number of persons who will be eligible
employees are not determinable. The Committee determines those persons who are
eligible employees.
The purposes of the 1998 Plan are: (i) to secure for the Company the
benefits of incentives inherent in ownership of Common Stock by eligible
employees; (ii) to encourage eligible employees to increase their interest in
the future growth and prosperity of the Company; (iii) to further the identity
of interest of those who hold positions of major responsibility in the Company
with the interests of the Company's shareholders; (iv) to induce the employment
or continued employment of eligible employees; and (v) to enable the Company to
compete with other organizations offering similar or other incentives in
obtaining and retaining the services of competent employees.
LIMITATIONS ON AVAILABLE SHARES
Four million two hundred thousand shares of Common Stock are available for
stock incentives granted under the 1998 Plan. If any shares of Common Stock that
are subject to stock incentives are forfeited, such shares shall be available
under the 1998 Plan. For this purpose, "forfeited shares" means any shares that
were issued pursuant to prior grants of stock incentives that expire or
terminate for any reason without having been exercised. In the future, if
another company is acquired by the Company or combines with the Company, any of
the Company's shares covered by or issued as a result of the assumption or
substitution of outstanding grants of the acquired company would not be deemed
issued under the 1998 Plan and would not be subtracted from the shares of Common
Stock available for grant under the 1998 Plan.
Grants of stock incentives under the 1998 Plan are subject to the further
limitation that the maximum number of shares granted to any one person in a
calendar year may not exceed 250,000 shares, except for recipients who are
granted awards at the time of their initial hire by the Company, in which case
such limitation will be 500,000 shares. Additionally, the maximum number of
shares which may be granted under the 1998 Plan as stock awards (as described
below) to all participants may not exceed an aggregate of 420,000 shares of
Common Stock (I.E.,10% of the total number of shares available for stock
incentives under the 1998 Plan).
ADMINISTRATION
The 1998 Plan is to be administered by a committee (the "Committee")
consisting of no fewer than three directors designated by the Board of Directors
of the Company. All members of the Committee must be both "disinterested
persons" within the meaning of Rule 16b-3 promulgated by the Securities and
Exchange Commission and "outside directors" within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder. The Committee determines which employees of the Company
and its subsidiaries are eligible employees who might participate in the 1998
Plan and the form, terms and number of shares covered by each stock incentive
granted to such persons under the 1998 Plan. In making such determinations, the
Committee may consider an employee's present or potential contribution to the
success of the Company or any subsidiary and other factors which it may deem
relevant. Stock incentives may be granted only by the Committee. The Board has
determined that the Committee will initially be comprised of Messrs. Hudson
(Chairman) and Conlin, and Dr. Whitaker.
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<PAGE>
NEW PLAN BENEFITS
No specific determinations have been made or can be made in advance as to
future recipients of awards under the 1998 Plan. If the 1998 Plan had been in
effect for 1997 with respect to typical annual stock option grants, the
annualized benefits for executive officers or other employees in 1997 would have
been approximately as follows (see "Executive Compensation -- Stock Options"):
<TABLE>
<CAPTION>
1998 LONG-TERM STOCK
INCENTIVE PLAN
PRO FORMA 1997(1)
------------------------
SHARES
UNDERLYING
NAME AND POSITION OPTIONS
- ------------------------------------------------------------------- -----------
<S> <C> <C>
William J. Weyand, Chairman of the Board, President and Chief
Executive Officer 100,000
Robert M. Nierman, Executive Vice President and
Chief Operating Officer 40,000
Mark C. Goldstein, Vice President, Products Group 40,000
John A. Mongelluzzo, Vice President, Secretary and General Counsel 25,000
Jeffrey J. Vorholt, Vice President, Chief Financial Officer and
Treasurer 35,000
Executive Group(2)
(as of December 31, 1997) 265,000
Non-Executive Director Group(3)
(as of December 31, 1997) 0
Non-Executive Officer Group(4)
(as of December 31, 1997) 1,089,600
</TABLE>
- ------------------------
(1) The dollar value of the options which would have been granted in 1997 if the
1998 Long-Term Stock Incentive Plan had been in effect is indeterminable.
(2) All current executive officers as a group.
(3) All current directors who are not executive officers as a group.
(4) All employees, including current officers who are not executive officers, as
a group.
STOCK OPTIONS
A stock incentive in the form of a stock option will provide for the
purchase of shares of Common Stock in the future at an option price per share
which will not be less than 100% of the fair market value of the shares covered
thereby on the date the stock option is granted. An incentive option granted to
a person who, on the date of grant, owns 10% or more of the shares of voting
stock of the Company or its subsidiaries must have an option price of not less
than 110% of the fair market value of the Common Stock on the date of grant.
Each option shall be exercisable in full or in part six months after the date
the option is granted, or may become exercisable in one or more installments and
at such later time or times, as the Committee shall determine. Options may be,
but are not required to be, made subject to the attainment of specified
performance objectives. Unless otherwise provided in the option, an option, to
17
<PAGE>
the extent it is or becomes exercisable, may be exercised at any time in whole
or in part until the expiration or termination of the option.
Upon the exercise of an option, the purchase price may be paid in cash or,
unless otherwise provided in the option, in shares of Common Stock (including
shares withheld by the Company from the shares issuable upon exercise of the
option) or in a combination of cash and such shares. The Company may cancel all
or a portion of an option subject to exercise, and pay the holder cash or shares
equal in value to the excess of the fair market value of the shares subject to
the portion of the option so canceled over the option price of such shares.
All stock options granted under the 1998 Plan will expire within ten years
from the date of grant. A stock option is not transferable or assignable by an
optionee otherwise than by will or by the laws of descent and distribution, and
each option is exercisable, during the optionee's lifetime, only by the
optionee. Unexercised options terminate on the sixtieth day following
termination of employment, except that if termination arises from a resignation
with the consent of the Committee, death or disability, the options terminate
eighteen months after an optionee's termination of employment. The exercise of
options after the termination of employment is limited to the extent that the
options could have been exercised as of the date the optionee's employment
terminated. A leave of absence for military or governmental service or for other
purposes, if approved by the Committee, does not constitute a termination of
employment.
The Committee shall have full power and authority to determine whether, to
what extent and under what circumstances any stock option shall be canceled or
suspended. In particular, but without limitation, all outstanding stock options
to any participant shall be canceled if the participant, without the consent of
the Committee, while employed by the Company or after termination of such
employment, engages in any activity which is in competition with the Company, as
determined by the Committee.
Exercise of a stock option will be conditioned on an optionee's payment in
full of the purchase price for the shares, in cash or by transfer to the Company
of shares of the Company's Common Stock (including shares withheld by the
Company from the shares issuable upon exercise of the option) at fair market
value on the date of transfer. An optionee shall not be considered a holder of
the shares subject to a stock option until actual delivery of a certificate
representing such shares is made by the Company.
The proceeds of the sale of Common Stock upon the exercise of options issued
under the 1998 Plan constitute general funds of the Company and may be used by
it for any purpose.
STOCK AWARDS
Shares subject to a stock award may be issued when the award is granted or
at a later date, with or without dividend equivalent rights. The number of
shares of Common Stock which may be granted as restricted stock is limited to
420,000 shares (I.E., 10% of the maximum aggregate number of shares of Common
Stock that may be granted to participants in the Plan). A stock award shall be
subject to such terms, conditions and restrictions (including restrictions on
the transfer of the shares issued pursuant to the award) as the Committee may
determine, including specified corporate or personal performance objectives the
attainment of which may, but is not required to be, specified as a condition to
the vesting of the stock award.
18
<PAGE>
The Committee shall have full power and authority to determine whether, to
what extent and under what circumstances any stock award shall be canceled or
suspended. In particular, but without limitation, all outstanding stock awards
to any participant shall be canceled if the participant, without the consent of
the Committee, while employed by the Company or after termination of such
employment, engages in any activity which is in competition with the Company, as
determined by the Committee.
FEDERAL INCOME TAX CONSEQUENCES
No taxable income for federal income tax purposes results from the exercise
of an incentive option at the time of exercise. Any gain realized on the sale of
stock acquired on exercise of an incentive option is considered as capital gain
for federal income tax purposes if the stock has been held at least one year
after it was acquired on exercise of the option and if at least two years have
expired after the grant of the option. Any appreciation is considered as
long-term capital gain to the optionee if the stock was held longer than
eighteen months for stock acquired after July 28, 1997 or one year for stock
acquired before July 29, 1997. Except as hereafter indicated, the Company is not
entitled to any deduction with respect to the grant or exercise of any incentive
option. If the stock is sold or otherwise disposed of within one year after
exercise or within two years after the grant, any appreciation at the date of
exercise above the option price is treated, subject to certain limitations, as
"ordinary" income for federal income tax purposes. Any appreciation after the
date of exercise is considered as long-term capital gain to the optionee if the
stock was held longer than eighteen months for stock acquired after July 28,
1997 or one year for stock acquired before July 29, 1997. The amount of ordinary
income received by the optionee generally is treated as a tax deductible expense
to the Company.
Gain taxable as ordinary income to the optionee is generally deemed to be
realized at the date of exercise of a nonqualified option, the amount of gain on
each share being the difference between the market price on the date of exercise
and the option price. This amount is generally treated as a tax deductible
expense to the Company at the time of exercise. Any appreciation in the value of
the stock after the date of exercise is considered as long or short-term capital
gain, depending on the length of time the stock is held by the optionee prior to
the time of its sale.
With respect to stock awards that are settled either in cash or in Common
Stock that is either transferable or not subject to a substantial risk of
forfeiture, the employee must recognize ordinary income equal to the cash or the
fair market value of the Common Stock and the Company will be entitled to a tax
deduction for the same amount. With respect to stock awards that are settled in
Common Stock that is restricted as to transferability and subject to substantial
risk of forfeiture, the employee must recognize ordinary income equal to the
fair market value of the Common Stock at the first time the Common Stock becomes
transferable or not subject to a substantial risk of forfeiture, whatever occurs
earlier, and the Company will be entitled to a deduction for the same amount.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended,
corporations with a class of securities required to be registered under Section
12 of the Securities Exchange Act of 1934 (I.E., "public companies") are not
permitted to deduct, for income tax purposes, compensation paid to certain
executive officers to the extent such compensation exceeds $1 million in a tax
year. However, certain types of compensation, including generally compensation
which constitutes "performance-based" compensation, are excluded from this
limitation.
The cash compensation paid by the Company to its executive officers does not
currently approach the Section 162(m) limitation. However, in any given year, as
to options exercised by an executive officer,
19
<PAGE>
the difference between the exercise price and the market price on the exercise
date (the "spread") would be included as compensation for Section 162(m)
purposes unless the applicable option plan meets certain requirements contained
in the Treasury regulations under Section 162(m) of the Code (the
"Regulations").
The Regulations provide that in order for the spread realized upon the
exercise of an option to constitute performance-based compensation which is
exempt from the Section 162(m) deduction limitation, the stock option plan under
which the options were granted must, among other requirements, be administered
by a compensation committee comprised solely of two or more "outside directors"
and must contain a specific limit on the number of options which may be granted
to any one employee participant.
The 1998 Plan was drafted with the intention of preserving the Company's
ability to deduct for federal income tax purposes the compensation expense
relating to stock options and other stock incentives granted to executive
officers. Accordingly, only directors who are "outside directors" within the
meaning of Section 162(m) and applicable regulations may serve as members of the
Committee. The number of shares with respect to which stock incentives may be
granted to any one employee in a calendar year is limited to 250,000 shares,
except for recipients who are granted awards at the time of their initial hire
by the Company, in which case such limitation will be 500,000 shares. Also, the
Committee may impose performance standards on any stock incentive granted under
the 1998 Plan.
CHANGE IN CONTROL
Notwithstanding any vesting schedule contained in any stock incentives
granted under the 1998 Plan, if a change in control (as such term is defined in
the 1998 Plan) of the Company occurs, any stock incentives under the 1998 Plan
that have been outstanding for over six months will become immediately
exercisable in full.
PLAN AMENDMENTS
The Board of Directors, upon the recommendation of the Committee, may amend
the 1998 Plan subject, in the case of specified amendments, to shareholder
approval. The 1998 Plan may be discontinued at any time by the Board of
Directors. No amendment or discontinuance of the 1998 Plan shall, without the
consent of the employee, adversely affect any stock incentive held by him or her
under the 1998 Plan.
SHAREHOLDER APPROVAL
The proposal to approve the 1998 Plan as described above is contained in the
following resolution which will be submitted to the shareholders for adoption at
the Annual Meeting. The proposal is being submitted for approval of the
shareholders in accordance with the requirements of the Nasdaq National Market,
Rule 16b-3 of the Securities and Exchange Commission, and Section 162(m) of the
Internal Revenue Code of 1986, as amended. The affirmative vote of the holders
of a majority of the Company's Common Stock present in person or by proxy at the
Annual Meeting and entitled to vote is required to adopt the resolution. Proxies
in the form solicited hereby which are returned to the Company will be voted in
favor of the following resolution unless otherwise instructed by the
shareholders. Abstentions will have the same effect as votes cast against the
proposal, provided such shares are properly present at the meeting in person or
by proxy. Shares not voted by brokers and other entities holding shares on
20
<PAGE>
behalf of beneficial owners will have no effect on the outcome of the proposal.
The Board of Directors recommends the adoption of the resolution.
The resolution states:
RESOLVED, that the Structural Dynamics Research Corporation 1998
Long-Term Stock Incentive Plan be, and it hereby is, adopted in the form
attached as Exhibit A to the Proxy Statement relating to this Annual
Meeting of Shareholders.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
Under Section 13(d) of the Securities Exchange Act of 1934 and the rules
promulgated thereunder, a beneficial owner of a security is any person who
directly or indirectly has or shares voting power or investment power over such
security. Such beneficial owner under this definition need not enjoy the
economic benefit of such securities. The following shareholders are known by the
Company to be the beneficial owners of 5% or more of the Company's Common Stock
as of December 31, 1997:
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------ ----------------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock State of Wisconsin Investment 3,300,000(1) 9.77%
Board
P.O. Box 7842
Madison, WI 53707
Common Stock J. & W. Seligman Co., Inc. 5,252,280(2) 15.55%
100 Park Avenue
New York, NY 10017
</TABLE>
- ------------------------
(1) The information in the above table and in this footnote was obtained from a
Schedule 13G filed by such shareholder. Such shareholder has the sole power
to vote and to direct the disposition of such shares.
(2) The information in the above table and in this footnote was obtained from a
Schedule 13G filed by such shareholder. Such shareholder has the shared
power to vote 5,013,800 of such shares. The voting power held with respect
to the other shares listed above is not specified in the Schedule 13G. Such
shareholder has the shared power to direct the disposition of all such
shares.
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<PAGE>
MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock by its directors, the named executives, and all directors and
executive officers as a group:
<TABLE>
<CAPTION>
TITLE OF AMOUNT AND NATURE OF PERCENT OF
CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- ------------ ------------------------------------ ----------------------- ----------
<S> <C> <C> <C>
Common Stock William J. Weyand 110,477 shs.(3) % .3
Common Stock William P. Conlin 48,900 shs.(4) % .1
Common Stock Bannus B. Hudson 46,473 shs.(5) % .1
Common Stock John E. McDowell 89,185 shs.(6) % .2
Common Stock James W. Nethercott 37,589 shs.(7) % .1
Common Stock Arthur B. Sims 33,480 shs.(8) % .09
Common Stock Gilbert R. Whitaker, Jr. 54,400 shs.(9) % .2
Common Stock Robert M. Nierman 13,200 shs.(10) % .03
Common Stock Mark C. Goldstein 101,428 shs.(11) % .3
Common Stock John A. Mongelluzzo 118,394 shs.(12) % .3
Common Stock Jeffrey J. Vorholt 46,301 shs.(13) % .1
Common Stock Albert F. Peter 361,641 shs.(14) 1.0%
All Directors and Executive Officers
as Group (12 Persons)
Common Stock 732,130 shs.(15) 2.0%
</TABLE>
- ------------------------
(1) All the information in the above table is shown as of March 18, 1998,
except for the information relating to Mr. Peter which is shown as of
December 31, 1997. The persons and entities named in the above table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in other footnotes to this
table. For purposes of this table, except for in the case of Mr. Peter,
stock options are considered to be currently exercisable if by their terms
they may be exercised as of March 18, 1998 or if they become exercisable
within 60 days thereafter. Mr. Peter's stock options are considered to be
currently exercisable if by their terms they could have been exercised as of
December 31, 1997 or if they became exercisable within 60 days thereafter.
(2) These percentages assume the exercise of certain currently exercisable
stock options, which options have not in fact been exercised.
(3) Includes 60,477 shares held of record by Mr. Weyand and 50,000 shares which
are issuable upon the exercise of currently exercisable, but unexercised
stock options.
(4) Includes 8,900 shares held of record or beneficially by Mr. Conlin and
40,000 shares which are issuable upon the exercise of currently exercisable,
but unexercised stock options.
(5) Includes 12,500 shares held of record by Mr. Hudson and 33,973 shares which
are issuable upon the exercise of currently exercisable, but unexercised
stock options.
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<PAGE>
(6) Includes 16,985 shares held of record by Mr. McDowell; 32,200 shares held
of record by Mr. McDowell's wife (including 1,600 shares held in trust for
the benefit of their grandchildren); and 40,000 shares which are issuable
upon the exercise of currently exercisable, but unexercised stock options.
(7) Includes 5,000 shares held of record by Mr. Nethercott and 32,589 which are
issuable upon the exercise of currently exercisable, but unexercised stock
options.
(8) Includes 33,480 shares which are issuable upon the exercise of currently
exercisable, but unexercised stock options held by Mr. Sims.
(9) Includes 14,400 shares held of record by Dr. Whitaker and 40,000 shares
which are issuable upon the exercise of currently exercisable, but
unexercised stock options.
(10) Includes total of 13,200 shares which are issuable upon the exercise of
currently exercisable, but unexercised stock options held by Mr. Nierman.
(11) Includes a total of 4,978 shares held of record or beneficially by Mr.
Goldstein and 96,450 shares which are issuable upon the exercise of
currently exercisable, but unexercised stock options.
(12) Includes 3,536 shares held of record or beneficially by Mr. Mongelluzzo, 8
shares held in trust for his children and 114,850 shares which are issuable
upon the exercise of currently exercisable, but unexercised stock options.
(13) Includes 11,401 shares held of record or beneficially by Mr. Vorholt and
34,900 shares which are issuable upon the exercise of currently exercisable,
but unexercised stock options.
(14) Includes a total of 133,305 shares held of record by Mr. Peter; 29,680
shares held of record by Mr. Peter's wife; 4,656 shares held of record by
Mr. Peter's wife as joint tenant with other members of her family; and
194,000 shares which are issuable upon the exercise of currently
exercisable, but unexercised stock options.
(15) Includes a total of 561,142 shares which are issuable upon the exercise of
currently exercisable, but unexercised stock options.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Mr. Vorholt failed to report two transactions on his Form 4 statement for
October, 1997, which was otherwise timely filed. In November, 1997, Mr. Vorholt
filed an amended Form 4 statement for October, 1997 which reported all
transactions for the period, including the two previously unreported
transactions.
ELECTION OF AUDITORS
The accounting firm of Price Waterhouse LLP is presently serving as the
Company's independent accounting firm as recommended by the Audit Committee.
Price Waterhouse LLP also served as the Company's independent auditors with
respect to the Company's financial statements for the fiscal year ended December
31, 1997. Representatives of Price Waterhouse LLP are expected to be present at
the Annual Meeting. They will have an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions. The
affirmative vote of a majority of the Company's Common Stock present in person
or by proxy at the Annual Meeting and entitled to vote is required to adopt the
resolution. Action by shareholders is not required by law in the appointment of
independent auditors, but their appointment is submitted by the Board of
Directors in order to give the shareholders a voice in the selection of
auditors. If the resolution is rejected by the shareholders, the Board of
Directors will reconsider its choice of Price Waterhouse LLP as the Company's
independent auditors. Proxies in
23
<PAGE>
the form solicited hereby which are returned to the Company will be voted in
favor of the resolution unless otherwise instructed by the shareholders.
Abstentions will have the same effect as votes cast against the resolution,
provided such shares are properly present at the meeting in person or by proxy.
Shares not voted by brokers and other entities holding shares on behalf of
beneficial owners will have no effect on the outcome of the proposal. The Board
of Directors recommends the adoption of the resolution.
The resolution states:
RESOLVED, that shareholders of the Company hereby ratify the action of
the Board of Directors in retaining Price Waterhouse LLP as the
independent auditors of the Company for 1998.
1999 SHAREHOLDER PROPOSALS
In order for any shareholder proposals for the 1999 Annual Meeting of
Shareholders to be eligible for inclusion at the meeting, they must be received
by the Secretary of the Company at 2000 Eastman Drive, Milford, Ohio 45150,
prior to November 18, 1998.
OTHER MATTERS
The Company has retained Morrow & Co., Inc., a professional solicitation
firm, to assist in soliciting proxies for a fee estimated at $7,200. Morrow &
Co., Inc. will use approximately 30 people to solicit proxies on behalf of the
Company.
The Board of Directors does not know of any other business to be presented
to the meeting and does not intend to bring other matters before the meeting.
However, if other matters properly come before the meeting, it is intended that
the persons named in the accompanying proxy will vote thereon according to their
best judgment in the interests of the Company.
By Order of the Board of Directors
[SIGNATURE]
John A. Mongelluzzo
Secretary
24
<PAGE>
EXHIBIT A
STRUCTURAL DYNAMICS RESEARCH CORPORATION
1998 LONG-TERM STOCK INCENTIVE PLAN
1. PURPOSES: The purposes of this Plan are: (i) to secure for the Company
the benefits of incentives inherent in ownership of Common Stock by Eligible
Employees; (ii) to encourage Eligible Employees to increase their interest in
the future growth and prosperity of the Company; (iii) to further the identity
of interest of those who hold positions of major responsibility in the Company
with the interests of the Company's shareholders; (iv) to induce the employment
or continued employment of Eligible Employees; and (v) to enable the Company to
compete with other organizations offering similar or other incentives in
obtaining and retaining the services of competent employees.
2. DEFINITIONS: Unless otherwise required by the context, the following
terms when used in this Plan shall have the meanings set forth in this Section
2.
BOARD OF DIRECTORS: The Board of Directors of the Company.
CHANGE IN CONTROL: The event which shall be deemed to have occurred if
either: (i) after the date this Plan is adopted by the Company's shareholders,
without prior approval of the Board, any "person" becomes a beneficial owner,
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding securities; or (ii)
without prior approval of the Board, as a result of, or in connection with, or
within two years following, a tender or exchange offer for the voting stock of
the Company, a merger or other business combination to which the Company is a
party, the sale or other disposition of all or substantially all of the assets
of the Company, a reorganization of the Company, or a proxy contest in
connection with the election of members of the Board of Directors, the persons
who were directors of the Company immediately prior to any of such transactions
cease to constitute a majority of the Board of Directors or of the board of
directors of any successor to the Company (except for resignations due to death,
disability or normal retirement). For purposes of this definition, a person
shall be deemed the "beneficial owner" of any securities: (i) which such person
or any of its Affiliates or Associates beneficially owns, directly or
indirectly; or (ii) which such person or any of its Affiliates or Associates,
has directly or indirectly, (1) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (2) the right to
vote pursuant to any agreement, arrangement or understanding; or (iii) which are
beneficially owned, directly or indirectly, by any other person with which such
person or any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
securities. For purposes of this definition, a "person" shall mean any
individual, firm, company, partnership, other entity or group, and the terms
"Affiliate" or "Associate" shall have the respective meanings ascribed to such
terms in Rule 12b-2 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
in effect on the date the Plan is approved by the shareholders of the Company
and becomes effective.
CODE: The Internal Revenue Code of 1986, as amended.
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<PAGE>
COMMITTEE: The Committee of the Board of Directors designated to administer
this Plan pursuant to the provisions of Section 11.
COMMON STOCK: The Common Stock of the Company, without par value.
COMPANY: Structural Dynamics Research Corporation, an Ohio corporation.
ELIGIBLE EMPLOYEE: An employee of the Company or of a Subsidiary who in the
opinion of the Committee can contribute significantly to the growth and
successful operations of the Company or a Subsidiary. The recommendation of the
grant of a Stock Incentive to an employee by the Committee shall be deemed a
determination by the Committee that such employee is an Eligible Employee.
FAIR MARKET VALUE: As applied to any date, the mean of the highest and
lowest quoted selling prices of a share of Common Stock on the composite tape of
the Nasdaq National Market (or any stock exchange on which the Company's Common
Stock may be listed in the future) on the date specified, or if the Common Stock
was not traded on such system on such date, on the next preceding date on which
the Common Stock was traded; provided, however, that, if the Common Stock is not
so quoted, Fair Market Value shall be determined in accordance with the method
approved by the Board of Directors, and, provided further, if any of the
foregoing methods of determining Fair Market Value shall not be consistent with
the regulations of the Secretary of the Treasury or his delegate at the time
applicable to a Stock Incentive of the type involved, Fair Market Value in the
case of such Stock Incentive shall be determined in accordance with such
regulations and shall mean the value as so determined.
INCENTIVE COMPENSATION: Bonuses, extra and other compensation payable in
addition to a salary or other base amount, whether contingent or discretionary
or required to be paid pursuant to an agreement, resolution or arrangement, and
whether payable currently, or on a deferred basis, in cash, Common Stock or
other property, awarded by the Company or a Subsidiary prior or subsequent to
the date of the approval and adoption of this Plan by the shareholders of the
Company.
INCENTIVE OPTION: An option granted under this Plan which is designated to
be an incentive stock option under the provisions of Section 422 of the Code;
and any provisions elsewhere in this Plan or in any such Incentive Option which
would prevent such option from being an incentive stock option may be deleted
and/or voided retroactively to the date of the granting of such option, by
action of the Committee.
NONQUALIFIED OPTION: An option granted under this Plan which is not an
incentive stock option under the provisions of Section 422 of the Code; and
which is exercisable even though there is outstanding an Incentive Option which
was granted before the granting of the Nonqualified Option to the same
participant. Such Nonqualified Option shall not be affected by any actions taken
retroactively as provided above with respect to Incentive Options.
OPTION: An option to purchase shares of Common Stock.
PERFORMANCE OBJECTIVES: Stated criteria which may, but need not be set
forth in a Stock Incentive at the discretion of the Committee, the successful
attainment of which is specified in the Stock Incentive as a condition precedent
to the issuance, transfer or retention of some or all of the shares of Common
Stock covered by the Stock Incentive. Performance Objectives may be personal
and/or corporate in nature and shall include, but shall not be limited to,
objectives determined by reference to or changes in (a) the Fair Market Value,
book value or earnings per share of Common Stock, or (b) sales and revenues,
income, profits and losses, return on capital employed, or net worth of the
Company (on a consolidated
A-2
<PAGE>
or unconsolidated basis) or of any or more of its groups, divisions,
Subsidiaries or departments, or (c) a combination of two or more of the
foregoing or other factors.
PLAN: The 1998 Long-Term Stock Incentive Plan herein set forth as the same
may from time to time be amended.
STOCK AWARD: An issuance or transfer of shares of Common Stock at the time
the Stock Incentive is granted or as soon thereafter as practicable, or an
undertaking to issue or transfer such shares in the future.
STOCK INCENTIVE: A stock incentive granted under this Plan in one of the
forms provided for in Section 3.
SUBSIDIARY: A company or other entity designated by the Committee in which
the Company has a significant equity interest, except that, with respect to
grants of Incentive Options, the term "Subsidiary" shall be deemed to mean a
company or other form of business association of which shares (or other
ownership interests) having 50% or more of the voting power are owned or
controlled, directly or indirectly, by the Company.
3. GRANTS OF STOCK INCENTIVES:
(a) Subject to the provisions of this Plan, the Committee may at any time,
or from time to time, grant Stock Incentives under this Plan to, and only to,
Eligible Employees.
(b) Stock Incentives may be granted in the following forms:
(i) an Option; or
(ii) a Stock Award; or
(iii) a combination of an Option and a Stock Award.
(c) Stock Incentives contingently granted prior to the approval of this Plan
by the Company's shareholders but subject to such approval shall be deemed to be
granted hereunder as of the date of such shareholder approval.
4. STOCK SUBJECT TO THIS PLAN:
(a) Four million two hundred thousand shares of Common Stock are available
for Stock Incentives granted under the Plan; provided, that if another company
is acquired by the Company or combines with the Company, any of the Company's
shares covered by or issued as a result of the assumption or substitution of
outstanding grants of the acquired company would not be deemed issued under the
Plan and would not be subtracted from the shares of Common Stock available for
grant under the Plan; and provided further, that if any shares of Common Stock
that are subject to Stock Incentives are forfeited, such shares shall again
become available under the Plan. For purposes of the preceding sentence:
(i) "Forfeited shares" means any shares issued pursuant to grants of
Stock Incentives which expire or terminate for any reason in a calendar year
without ever having been exercised or as to which the recipient did not
receive any benefits of ownership (other than voting rights).
A-3
<PAGE>
(ii) Shares of Common Stock subject to Stock Incentives granted under
this Plan may be either authorized but unissued shares or shares held in the
Company's treasury, or any combination thereof, in the discretion of the
Committee.
(b) The maximum amount of Common Stock with respect to which Stock
Incentives may be granted to any person during any calendar year shall be
250,000 shares; provided, however, that in the event of a grant made to a
recipient upon the recipient's initial hiring by the Company, such limitation
shall be increased to 500,000 shares.
5. OPTIONS: Stock Incentives in the form of Options shall be subject to
the following provisions:
(a) Upon the exercise of an Option, the purchase price shall be paid in cash
by means reasonably acceptable to the Company or, unless otherwise provided by
the Committee (and subject to such terms and conditions as are specified in the
Option or by the Committee), in shares of Common Stock delivered to the Company
by the optionee or by the withholding of shares issuable upon exercise of the
Option or in a combination of such payment methods. Shares of Common Stock thus
delivered or withheld shall be valued at their Fair Market Value on the date of
the exercise. The purchase price per share shall be not less than 100% of the
Fair Market Value of a share of Common Stock on the date the Option is granted.
(b) Each Option shall be exercisable in full or in part not less than six
months after the date the Option is granted, or may become exercisable in one or
more installments at such later time or times as the Committee shall determine.
Unless otherwise provided in the Option, an Option, to the extent it is or
becomes exercisable, may be exercised at any time in whole or in part until the
expiration or termination of the Option. Any term or provision in any
outstanding Option specifying that the Option not be immediately exercisable or
that it be exercisable in installments may be modified at any time during the
life of the Option by the Committee, provided, however, no such modifications of
an outstanding Option shall, without the consent of the optionee, adversely
affect any Option theretofore granted to the optionee.
(c) Each Option shall be exercisable during the life of the optionee only by
the optionee and, after the optionee's death, only by the optionee's estate or
by a person who acquired the right to exercise the Option by will or the laws of
descent and distribution. An Option, to the extent that it shall not have been
exercised, shall terminate at the close of business on the sixtieth day
following the date the optionee ceases to be an employee of the Company or a
Subsidiary, unless the optionee ceases to be an employee because of resignation
with the consent of the Committee (which consent may be given before or after
resignation), or by reason of death or incapacity, in which case any unexercised
Option or portion thereof held by such person shall terminate 18 months after
such resignation, death or incapacity, or at the Option's stated expiration
date, whichever is earlier. Any Option that is exercisable hereunder after the
date an optionee ceases to be an employee of the Company for any reason may be
exercised only to the extent it could have been exercised as of the date the
optionee ceases to be an employee. A leave of absence for military or
governmental service or for other purposes shall not, if approved by the
Committee, be deemed a termination of employment within the meaning of this
paragraph (c). Notwithstanding the foregoing provisions of this paragraph (c) or
any other provisions of this Plan, no Option shall be exercisable after
expiration of the term for which the Option was granted, which shall in no event
exceed ten years.
(d) Options shall be granted for such lawful consideration as the Committee
shall determine.
A-4
<PAGE>
(e) No Option nor any right thereunder may be assigned or transferred by the
optionee except by will or the laws of descent and distribution. If so provided
in the Option or if so authorized by the Committee and subject to such terms and
conditions as are specified in the Option or by the Committee, the Company shall
have the right, upon or without the request of the holder of the Option and at
any time or from time to time, to cancel all or a portion of the Option then
subject to exercise and either: (i) pay the holder an amount of money equal to
the excess, if any, of the Fair Market Value, at such time or times, of the
shares subject to the portion of the Option so canceled over the aggregate
purchase price of such shares; or (ii) issue or transfer shares of Common Stock
to the holder with a Fair Market Value, at such time or times, equal to such
excess.
(f) Each Option shall be evidenced by a written instrument, which shall
contain such terms and conditions (including, without limitation, Performance
Objectives), and shall be in such form, as the Committee may determine, provided
the Option is consistent with this Plan and incorporates it by reference.
Notwithstanding the preceding sentence, an Option if so recommended by the
Committee, may include restrictions and limitations in addition to those
provided for in this Plan.
(g) Any federal, state or local withholding taxes payable by an optionee
upon the exercise of an Option shall be paid in cash or, unless otherwise
provided by the Committee, by the surrender of shares of Common Stock or the
withholding of shares of Common Stock to be issued to the optionee, or in any
combination thereof, or in such other form as the Committee may authorize from
time to time. All such shares so surrendered or withheld shall be valued at Fair
Market Value on the date they are surrendered to the Company or authorized to be
withheld.
(h) Options may be either Incentive Options or Nonqualified Options at the
discretion of the Committee. Options not otherwise designated shall be
Nonqualified Options. Notwithstanding any other provisions herein, the following
provisions shall apply to Incentive Options: (i) the exercise price of any
Incentive Option granted to any person who on the date of grant owns (within the
meaning of Section 425(d) of the Code) stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any
Subsidiary shall not be less than 110% of the Fair Market Value of the stock on
the date of grant; (ii) the maximum term of any Incentive Option granted
hereunder shall be ten years, except that the maximum term of any Incentive
Option granted to a person described in Section 5(h)(i) above shall be five
years; (iii) no Incentive Option may be granted subsequent to the tenth
anniversary of the date of shareholder approval of this Plan; (iv) Incentive
Options may only be granted to persons who are employees of the Company or any
Subsidiary within the meaning of the Code; and (v) the aggregate Fair Market
Value, determined as of the time of the grant, of the shares of Common Stock
with respect to which Incentive Stock Options held by any Eligible Employee
which are exercisable for the first time by such Eligible Employee during any
calendar year under the Plan and under any other benefit plans of the Company
shall not exceed $100,000, or if different, the maximum limitation in effect at
the time of grant under Section 422 of the Code, or any successor provision, and
any regulations promulgated thereunder.
6. STOCK AWARDS: Stock Incentives in the form of Stock Awards shall be
subject to the following provisions:
(a) A Stock Award shall be granted only in payment of Incentive Compensation
that has been earned or as Incentive Compensation to be earned, including,
without limitation, Incentive Compensation awarded concurrently with or prior to
the grant of the Stock Award.
A-5
<PAGE>
(b) For the purposes of this Plan, in determining the value of a Stock
Award, all shares of Common Stock subject to such Stock Award shall be valued at
not less than 100% of the Fair Market Value of such shares on the date such
Stock Award is granted, regardless of whether or when such shares are issued or
transferred to the Eligible Employee and whether or not such shares are subject
to restrictions which affect their value.
(c) The number of shares of Common Stock which may be granted under the Plan
as Stock Awards shall not exceed 420,000 shares of Common Stock (i.e.,10% of the
maximum aggregate number of shares of Common Stock that may be granted to
participants in the Plan).
(d) Shares of Common Stock subject to a Stock Award may be issued or
transferred to the Eligible Employee at the time the Stock Award is granted, or
at any time subsequent thereto, or in installments from time to time, as the
Committee shall determine. In the event that any such issuance or transfer shall
not be made to the Eligible Employee at the time the Stock Award is granted, the
Committee may provide for payment to such Eligible Employee, either in cash or
in shares of Common Stock from time to time or at the time or times such shares
shall be issued or transferred to such Eligible Employee, of amounts not
exceeding the dividends which would have been payable to such Eligible Employee
in respect of such shares (as adjusted under Section 8) if they had been issued
or transferred to such Eligible Employee at the time such Stock Award was
granted. Any amount payable in shares of Common Stock under the terms of a Stock
Award may, at the discretion of the Company, be paid in cash, on each date on
which delivery of shares would otherwise have been made, in an amount equal to
the Fair Market Value on such date, of the shares which would otherwise have
been delivered.
(e) A Stock Award shall be subject to such terms and conditions, including,
without limitation, restrictions on sale or other disposition of the Stock Award
or of the shares issued or transferred pursuant to such Stock Award, as the
Committee shall determine; provided, however, that upon the issuance or transfer
of shares pursuant to a Stock Award, the recipient shall, with respect to such
shares, be and become a shareholder of the Company fully entitled to receive
dividends, to vote and to exercise all other rights of a shareholder except to
the extent otherwise provided in the Stock Award. The Committee may, in its sole
discretion, but shall not be required to, specify in any Stock Award that the
issuance, transfer and/or retention of some or all of the shares of Common Stock
covered by the Stock Award shall be subject to the attainment of Performance
Objectives. Each Stock Award shall be evidenced by a written instrument in such
form as the Committee shall determine, provided such written instrument is
consistent with this Plan and incorporates it by reference.
(f) In the event the holder of shares of Common Stock subject to a Stock
Award dies prior to the time such shares are no longer subject to forfeiture
pursuant to the terms of the Stock Award, the estate of such holder may retain
such shares subject to the restrictions set forth in the Stock Award.
7. COMBINATIONS OF OPTIONS AND STOCK AWARDS: Stock Incentives authorized
by paragraph (b)(iii) of Section 3 in the form of combinations of Options and
Stock Awards, shall be subject to the following provisions:
(a) A Stock Incentive may be a combination of any form of Option with any
form of Stock Award; provided, however, that the terms and conditions of such
Stock Incentive pertaining to an Option are consistent with Section 5 and the
terms and conditions of such Stock Incentive pertaining to a Stock Award are
consistent with Section 6.
A-6
<PAGE>
(b) Such combination Stock Incentive shall be subject to such other terms
and conditions as the Committee may determine, including, without limitation, a
provision terminating in whole or in part a portion thereof upon the exercise in
whole or in part of another portion thereof. Such combination Stock Incentive
shall be evidenced by a written instrument in such form as the Committee shall
determine, provided it is consistent with this Plan and incorporates it by
reference.
8. ADJUSTMENT PROVISIONS: In the event that any recapitalization,
reclassification, forward or reverse split of shares of Common Stock, or any
similar transaction shall be effected, or the outstanding shares of Common Stock
are, in connection with a merger or consolidation of the Company or a sale by
the Company of all or a part of its assets, exchanged for a different number of
class of shares of stock or other securities of the Company or for shares of the
stock or other securities of any other company, or a record date for
determination of holders of Common Stock entitled to receive a dividend payable
in Common Stock shall occur, (a) the number and class of shares or other
securities that may be issued or transferred pursuant to Stock Incentives or
with respect to which a cash payment pursuant to the Stock Incentive is
determinable, (b) the number and class of shares or other securities which have
not been issued or transferred under outstanding Stock Incentives, (c) the
purchase price to be paid per share or other security under outstanding Options,
and (d) the price to be paid by the Company or a Subsidiary for shares or other
securities issued or transferred pursuant to Stock Incentives which are subject
to a right of the Company or a Subsidiary to reacquire such shares or other
securities, shall in each case be equitably adjusted.
9. ACCELERATION: In the event of a Change in Control, any Stock Incentives
which have then been outstanding hereunder for at least six months shall be
immediately exercisable (without regard to any limitation imposed by the Plan or
the Committee at the time the Stock Incentive was granted, which permits all or
any part of the Stock Incentive to be exercised only after the lapse of time or
the attainment of Performance Objectives or other conditions to exercise), and
will remain exercisable until the expiration of the Stock Incentive.
10. TERM: This Plan shall be deemed adopted and shall become effective on
the date it is approved and adopted by the shareholders of the Company. This
Plan shall remain in effect until such time as it is terminated by the Board of
Directors; provided, however, that no Incentive Options may be granted hereunder
after May 7, 2008.
11. ADMINISTRATION:
(a) The Plan shall be administered by the Committee, which shall consist of
not less than three directors of the Company designated by the Board of
Directors in accordance with the Code of Regulations of the Company; provided,
however, that no director shall be designated as or continue to be a member of
the Committee unless such director shall at the time of designation and service
be both (i) a "disinterested person" within the meaning of Rule 16b-3 of the
Securities and Exchange Commission (or any successor provision at the time in
effect) and (ii) an "outside director" within the meaning of Section 162(m) of
the Code and any regulations promulgated thereunder by the Department of the
Treasury. Grants of Stock Incentives may be recommended by the Committee either
with or without consultation with employees, but, anything in this Plan to the
contrary notwithstanding, the Committee shall have full authority to act in the
matter of selection of all Eligible Employees and in recommending Stock
Incentives to be granted to them.
A-7
<PAGE>
(b) The Committee may establish such rules and regulations, not inconsistent
with the provisions of this Plan, as it deems necessary to determine eligibility
to participate in this Plan and for the proper administration of this Plan, and
may amend or revoke any rule or regulation so established. The Committee may
make such determinations and interpretations under or in connection with this
Plan as it deems necessary or advisable. All such rules, regulations,
determinations and interpretations shall be binding and conclusive upon the
Company, its Subsidiaries, its shareholders and all employees, and upon their
respective legal representatives, beneficiaries, successors and assigns and upon
all other persons claiming under or through any of them.
(c) Members of the Board of Directors and members of the Committee acting
under this Plan shall be fully protected in relying in good faith upon the
advice of counsel and shall incur no liability except for gross negligence or
willful misconduct in the performance of their duties.
12. ACQUISITIONS: Notwithstanding Section 4(a), if the Company or any
Subsidiary should merge or consolidate with, or purchase stock or assets or
otherwise acquire the whole or part of the business of, another company, the
Company in connection therewith, upon the recommendation of the Committee and
the approval of the Board of Directors, (a) may assume, in whole or in part and
with or without modifications or conditions, any stock options granted by the
acquired company to its employees, in their capacity as such, or (b) may grant
new Options in substitution therefore; provided that the granting of an Option
with the terms and conditions of the assumed or substitute options is
permissible under either this Plan or a plan approved by the shareholders of the
acquired company. For the purposes of the preceding sentence, the permissibility
of the granting of an option under a plan shall be determined as of the date of
grant of the original option by the acquired company and not as of the date of
assumption or substitution by the Company.
13. GENERAL PROVISIONS:
(a) Nothing in this Plan nor in any instrument executed pursuant hereto
shall confer upon any employee any right to continue in the employ of the
Company or a Subsidiary, or shall affect the right of the Company or of a
Subsidiary to terminate the employment of any employee with or without cause.
(b) No shares of Common Stock shall be issued or transferred pursuant to a
Stock Incentive unless and until all legal requirements applicable to the
issuance or transfer of such shares, in the opinion of counsel to the Company,
have been complied with. In connection with any such issuance or transfer the
person acquiring the shares shall, if requested by the Company, give assurances,
satisfactory to counsel to the Company, that the shares are being acquired for
investment and not with a view to resale or distribution thereof and assurances
in respect of such other matters as the Company or a Subsidiary may deem
desirable to assure compliance with all applicable legal requirements. No
employee (individually or as a member of a group), and no beneficiary or other
person claiming under or through him, shall have any right, title or interest in
or to any shares of Common Stock allocated or reserved for the purposes of this
Plan or subject to any Stock Incentive except as to shares of Common Stock, if
any, as shall have been issued or transferred to him.
(c) The Company or a Subsidiary may, with the approval of the Committee,
enter into an agreement or other commitment to grant a Stock Incentive in the
future to a person who is or will be an Eligible Employee at the time of grant,
and, notwithstanding any other provision of this Plan, any such agreement or
commitment shall not be deemed the grant of a Stock Incentive until the date on
which the Company takes action to implement such agreement or commitment.
A-8
<PAGE>
(d) In the case of a grant of a Stock Incentive to an employee of a
Subsidiary, such grant may, if the Committee so directs, be implemented by the
Company issuing or transferring the shares, if any, covered by the Stock
Incentive to the Subsidiary, for such lawful consideration as the Committee may
specify, upon the condition or understanding that the Subsidiary will transfer
the shares to the employee in accordance with the terms of the Stock Incentive
specified by the Committee pursuant to the provisions of this Plan.
Notwithstanding any other provision hereof, such Stock Incentive may be issued
by and in the name of the Subsidiary and shall be deemed granted on the date it
is approved by the Committee, on the date it is delivered by the Subsidiary, or
on such other date between said two dates, as the Committee shall specify.
(e) The Committee shall have full power and authority to determine whether,
to what extent and under what circumstances any Stock Incentive shall be
canceled or suspended by the Company. In particular, but without limitation, all
outstanding Stock Incentives to any Eligible Employee may be canceled if the
Eligible Employee, without the consent of the Committee, while employed by the
Company or after termination of such employment, engages in any activity which
is in competition with the Company, including but not limited to an activity
whereby the Company's or its Subsidiary's trade secrets or confidential
information may conceivably be divulged, or is otherwise detrimental to the
Company's best interest, as determined by the Committee.
(f) The Company or a Subsidiary may make such provisions as it may deem
appropriate for the withholding of any taxes which the Company or a Subsidiary
determines it is required to withhold in connection with any Stock Incentive.
(g) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or fringe benefits to employees
generally, or to any class or group of employees, which the Company or any
Subsidiary or other affiliate now has or may hereafter lawfully put into effect,
including, without limitation, any retirement, pension, group insurance, stock
purchase, stock bonus or stock option plan.
(h) The Plan and any rules and regulations relating to the Plan shall be
determined in accordance with the laws of the State of Ohio and applicable
Federal law.
(i) If any provision of the Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any stock option or Stock Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan, it
shall be stricken and the remainder of the Plan shall remain in full force and
effect.
(j) Stock options or Stock Awards may be granted to Eligible Employees who
are foreign nationals or employed outside the United States, or both, on such
terms and conditions different from those specified in the Plan as may, in the
judgment of the Committee, be necessary or desirable in order to recognize
differences in local law or tax policy. The Committee also may impose conditions
on the exercise or vesting of stock options or Stock Awards in order to minimize
the Company's obligation with respect to tax equalization for Eligible Employees
on assignments outside their home country.
14. AMENDMENTS AND DISCONTINUANCE:
(a) This Plan may be amended by the Board of Directors upon the
recommendation of the Committee, provided that, without the approval of the
shareholders of the Company, no amendment
A-9
<PAGE>
shall be made which: (i) increases the maximum aggregate number of shares of
Common Stock that may be issued or transferred pursuant to Stock Incentives as
provided in Section 4; (ii) withdraws the administration of this Plan from the
Committee or amends the provisions of paragraph (a) of Section 11 with respect
to eligibility and disinterest of members of the Committee; (iii) permits any
person who is not at the time an Eligible Employee of the Company or of a
Subsidiary to be granted a Stock Incentive; (iv) permits any Option to be
exercised more than ten years after the date it is granted; (v) amends Section
10 to extend the date set forth therein; or (vi) amends this Section 14.
(b) The Board of Directors may by resolution adopted by a majority of the
entire Board of Directors discontinue this Plan.
(c) No amendment or discontinuance of this Plan by the Board of Directors or
the shareholders of the Company shall, without the consent of the employee,
adversely affect any Stock Incentive theretofore granted to him.
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<PAGE>
[LOGO]
-------------------------------------------
NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
----------------------------
1998
ANNUAL MEETING
OF SHAREHOLDERS
MAY 7, 1998
<PAGE>
PROXY STRUCTURAL DYNAMICS RESEARCH CORPORATION
2000 Eastman Drive
Milford, Ohio 45150
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William J. Weyand, John A. Mongelluzzo and
Jeffrey J. Vorholt, and each of them, with full power of substitution, as
proxies to vote, as designated below, for and in the name of the undersigned all
shares of stock of Structural Dynamics Research Corporation which the
undersigned is entitled to vote at the Annual Meeting of the Shareholders of
said Company scheduled to be held on May 7, 1998 at 2:00 p.m. at the Company's
offices, 2000 Eastman Drive, Milford, Ohio 45150 or at any adjournment or recess
thereof.
Please mark X in the appropriate box. The Board of Directors recommends a
FOR vote on each proposal.
1. ELECTION OF CLASS I DIRECTORS.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary below)
WILLIAM P. CONLIN, BANNUS B. HUDSON, ARTHUR B. SIMS
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
the nominee's name on the space provided below)
- --------------------------------------------------------------------------------
2. Approval and adoption of the Structural Dynamics Research Corporation 1998
Long-Term Stock Incentive Plan.
/ / FOR / / ABSTAIN / / AGAINST
<PAGE>
3. Ratification of the appointment of Price Waterhouse LLP as the independent
auditors of the Company for 1998.
/ / FOR / / ABSTAIN / / AGAINST
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR the election of Directors and FOR the proposals in paragraphs 2 and
3.
ALL FORMER PROXIES ARE HEREBY REVOKED.
NUMBER OF SHARES .............
------------------------------
(Signature of Shareholder)
------------------------------
(Signature of Shareholder)
(Please sign exactly as your
name appears hereon. All joint
owners should sign. When
signing in a fiduciary
capacity or as a corporate
officer, please give your full
title as such)
Dated: ............... , 1998
