-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ke5NwJ3pz1vIG3zXSojeVShrU7C/dTdq4Lyi5CJeaS3eFLpL8X/0jFRgcRhHmVoQ 0M2Y4z8AgDkvks2J1G73xA== 0000906318-95-000015.txt : 199507120000906318-95-000015.hdr.sgml : 19950711 ACCESSION NUMBER: 0000906318-95-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRUCTURAL DYNAMICS RESEARCH CORP /OH/ CENTRAL INDEX KEY: 0000820235 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 310733928 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16230 FILM NUMBER: 95523665 BUSINESS ADDRESS: STREET 1: 2000 EASTMAN DR CITY: MILFORD STATE: OH ZIP: 45150 BUSINESS PHONE: 5135762400 MAIL ADDRESS: STREET 2: 2000 EASTMAN DRIVE CITY: MILFORD STATE: OH ZIP: 45212 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ FORM 10-K __________________ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number 33-16541 December 31, 1994 STRUCTURAL DYNAMICS RESEARCH CORPORATION An Ohio Corporation I.R.S. Employer Identification No. 31-0733928 2000 Eastman Drive, Milford, Ohio 45150 Telephone Number (513) 576-2400 __________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of class Common Stock without par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __________________ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] __________________ As of March 6, 1995 the latest practicable date, 29,191,175 shares of Common Stock were outstanding. The aggregate market value of Common Stock held by non-affiliates was approximately $205,408,245 at that date. __________________ DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated: Registrant's Annual Report to Shareholders for the year ended December 31, 1994. Part I, Part II and Part IV Registrant's definitive Proxy Statement dated March 20, 1995. Part II, Part III and Part IV Registrant's Form 8-K dated November 2, 1994 and Form 8-K/A dated November 15, 1994 Part II __________________ PART I. Item 1. Business. General Structural Dynamics Research Corporation (the "Company" or "SDRC") is a leading international supplier of mechanical design automation software and engineering services used by manufacturers for the design, analysis, testing and manufacturing of mechanical products. SDRC is also a leader in product data management (PDM) systems, which provide a comprehensive approach to the management and control of engineering information. The Company's products and services significantly reduce product development time and cost, resulting in superior product quality by enabling customers to optimize product designs prior to production. The Company's strategy is to establish acknowledged technological leadership in marketing a highly functional set of mechanical design automation (MDA) and product data management software tools and providing related engineering consulting services. The Company operates in two business segments: software products and services and engineering services. The Company was incorporated under the laws of the State of Ohio in 1967. During the past five years, it has restructured certain aspects of its business. In 1994, the Company and Siemens Nixdorf Informationssysteme AG (SNI) formed a joint venture, SDRC Software and Services GmbH, to supply mechanical CAE/CAD/CAM software and services in Central Europe. In 1992, the Company and Control Data Systems, Inc. established a joint venture company, Metaphase Technology, Inc., to market product data management software. In 1989, the Company and Nissan Motor Co., Ltd. established a Japanese joint venture company, ESTECH Corporation, to provide engineering services in Japan and the Far East. Software Products and Services The Company develops and markets a comprehensive software system called I-DEAS (Integrated Design Engineering Analysis Software) which spans a broad range of applications for mechanical engineering including solid modeling, finite element modeling and analysis, computer-aided testing, drafting and manufacturing. The latest release of the I-DEAS software, which began shipment in mid 1993 is called the I-DEAS Master Series. I-DEAS software allows all members of the product development team to work together to study multiple product concepts and performance characteristics when the cost and complexity of change is minimal. The ability to design and optimize a product concept as a solid model, before a physical product exists, increases effectiveness of a team approach to new product development. SDRC also markets product data management software which helps track and manage data associated with the product throughout the development process. The latest release of product data management software, Metaphase Series 2 was announced in September, 1994. Metaphase Series 2 is based on the product line of Metaphase Technology, Inc. First customer shipments occurred in the fourth quarter of 1994. The Company's software is available on the leading engineering workstations. This hardware platform independence allows the Company's customers to operate in a heterogeneous environment, selecting and adding software modules for a broad range of hardware systems based upon their unique requirements. The productivity benefits of leading-edge capabilities, such as unprecedented ease-of-use, team oriented product development, best-in-class design, integrated simulation and integrated applications, have increased the number of potential users who can utilize these tools. The Company believes its products and services are of great value to companies which must accelerate, improve and streamline design processes in response to increased competition while simultaneously designing and manufacturing mechanical products in accordance with specific quality and cost criteria. A broad range of industries are potential users of these tools, with the highest concentration of users at automotive, electronics, aerospace, and industrial equipment manufacturers. The Company's sales channels include a worldwide direct sales force, distributors, value-added resellers and hardware suppliers. In certain markets where the Company does not maintain a direct sales force, it licenses its products through independent representatives. In 1993 and 1994 one customer, Information Services International-Dentsu Ltd. ("ISID"), accounted for approximately 11% of the Company's consolidated revenues. ISID is an independent distributor of the Company's I-DEAS software in the Japanese market. Seasonality Historically, the Company has tended to realize a disproportionate amount of its total revenue in each quarter during the last month of the quarter, and to realize a disproportionate amount of its total annual revenue during the fourth quarter of each year. Competition The market for the Company's software products is highly competitive and the Company expects competitive pressure to increase in the future. To maintain its position of technological leadership, the Company must continually enhance its existing software products and pursue the development and introduction of new products. There can be no assurance that the Company will be successful in developing or marketing new products. In addition, there can be no assurance that any new products will adequately achieve market acceptance. The Company expects that the adverse publicity relating to the restatement of previously issued financial results will result in increased competitive challenges. There can be no assurances that competition will not have a material adverse effect on the Company's results of operations. The Company competes against products in the CAE/CAD/CAM market including the CADAM and CATIA products marketed by IBM, the CADDS product marketed by Computervision Corporation, the UNIGRAPHICS product marketed by EDS, the I/EMS product marketed by Intergraph Corporation and the Pro/Engineer product marketed by Parametric Technology Corporation. The Company's future success will depend in a large part on its ability to further penetrate its installed customer base as well as the installed customer base of its competitors. The principal competitive factors in the mechanical design market for software are product functionality, product breadth, product performance, hardware platform independence, ease of use, price, customer support, technical reputation and size of installed customer base. Engineering Services Building on its extensive knowledge of mechanical design automation technology and engineering applications, the Company's engineering services division provides consulting services to improve the design of its customers' products, as well as to improve its customers' engineering and manufacturing processes. The segment also serves as a systems integrator providing advanced training and technology transfer to customers to enable them to integrate and optimize their mechanical design automation investment. The division applies advanced computer simulation methods and in-depth application expertise for several types of engineering services including design audits, product design, troubleshooting and engineering process design. The markets for the Company's engineering services are highly competitive and include manufacturers in the automotive, electronics, aerospace and industrial equipment segments. Marketing and sales activities for the Company's engineering services are conducted using a consultative sales strategy on a targeted key account basis. The Company's senior consultants maintain continuing contact with their client counterparts and serve as integral members of the customers' design and engineering teams. The principal competitive factors in the market are technical expertise, applications experience, availability of computer automation tools, price and responsiveness. The Company competes against in-house engineering departments, engineering consulting companies and systems integrators. Other Information Segment and geographic information is included on page 46 of the Company's Annual report to Shareholders for the year ended December 31, 1994, which is incorporated herein by reference. The Company has entered into various marketing, reference selling and similar arrangements with a number of hardware vendors including Digital Equipment Corporation, Hewlett-Packard Company, Sun Microsystems, Inc. and Silicon Graphics, Inc. Under these agreements the Company's software products are generally licensed in conjunction with sales of hardware, either directly by the hardware manufacturers or by the Company in cooperation with the hardware vendors. The Company owns all the standard software products that it licenses with the exception of I-DEAS Documentation System, I-DEAS Drafting, I-DEAS View Markup, I-DEAS GNC, I-DEAS Post Writer, I-DEAS GNC Multi-Axis, I-DEAS Symbols Library, I-DEAS TMG, I-DEAS Wire EDM, DMCS, EDL, Metaphase and portions of I-DEAS Mechanism Design, which it licenses from third parties. Under these license agreements, the Company pays a percentage royalty to the third parties. As is customary throughout the software industry, the Company relies both on copyrights and trade secrecy for proprietary protection of its software products. The duration of such protection is considered to be quite adequate given the constantly changing nature of the business. The Company also utilizes a number of trademarks, both registered and otherwise, with respect to its software products. The proprietary status of its trademarks lasts indefinitely, so long as the trademarks remain in use. Because of the nature of the Company's business, the Company does not believe that backlog is indicative of revenue for any succeeding period. The Company's engineering services business has contracts which vary in length from weeks to multiple years. Engineering services backlog, consisting of future payments under these contracts for work not yet performed, was approximately $8,843,000 at December 31, 1994 compared to approximately $4,300,000 at December 31, 1993 and $3,600,000 at December 31, 1992. The Company expects to complete a majority of the work required under the contracts included in the December 31, 1994 backlog figure. However, these contracts are subject to delays and/or cancellation by the customer and therefore engineering services' backlog at any given date is not necessarily reflective of actual engineering services' revenue for any future period. Research and development expense amounted to approximately $33,560,000, $25,937,000 and $25,369,000 in 1994, 1993 and 1992, respectively. As of December 31, 1994, the Company had 1,162 full-time employees, of whom 270 were engaged in research and development, 633 in sales and marketing, 174 in engineering services and 85 in general management and administration. In addition, the Company employed 8 part-time employees and cooperative students. Special Charge In the fourth quarter of 1994, the Company initiated a plan to cut costs and strengthen its competitive position by reducing its workforce by 87 people. These employees were primarily product development, marketing and administrative personnel. As a result, the Company recognized a charge of $1,247,000 for severance costs and outplacement assistance for employees. In 1994, the Company paid $303,000 to these employees. At December 31, 1994, the Company had accrued severance benefits of $944,000 related to this matter. In February, 1995, the Company further reduced its workforce and will record a related charge to income of approximately $1,000,000. Item 2. Properties. The following table sets forth certain information, as of December 31, 1994, with respect to principal properties in which the Company and its subsidiaries conduct their operations: Space Used In Ownership Operations Location Or (Square Principal Activities Lease Feet) Cincinnati, Lease 221,000 Headquarters Office Ohio (expires Facilities, Technical 2011) Development Center, Marketing, Engineering Consulting and Administration San Diego, Lease 25,000 Consulting Center California (expires 1999) Hitchin, Lease 18,000 European Headquarters England (expires Office Facilities 2068) Hitchin, Lease 15,000 European Headquarters England (expires Office Facilities 2017) Paris, Lease 18,000 Southern Europe France (expires Office Facilities 2002) Frankfurt, Lease 19,000 Central Europe Office Germany (expires Facilities 1999) Tokyo, Lease 8,000 Far East Office Japan (expires Facilities 1995) Management of the Company considers the above properties to be adequate and suitable for present purposes. Item 3. Legal Proceedings. Securities Litigation and Related Matters On September 14, 1994, the Company announced that in the course of an internal examination, it had discovered that a number of purported sales to or through third-party distribution channels apparently did not reflect actual sales and that, as a result, it would be necessary to restate the Company's financial results. The Company also announced that it had terminated its Vice President and General Manager of Far East Operations. The Company issued its restated financial statements for the years ended December 31, 1993, 1992, and 1991 on January 16, 1995. On September 15, 1994, the first of a total of 12 class action lawsuits and two derivative lawsuits was filed. All of these suits were filed in the United States District Court, Southern District of Ohio and alleged a variety of causes of action under the federal securities laws and Ohio corporate law. Two of the class action lawsuits were later voluntarily dismissed. The remaining class action cases were then consolidated into one proceeding. The consolidated class action complaint demands money damages in an unspecified amount. The plaintiffs in the class action case presently consist of 22 individuals who allegedly purchased shares of the Company's Common Stock between February 3, 1992 and September 14, 1994. The defendants include the Company, certain directors and former officers. The consolidated complaint contains allegations intended to support the certification of a class of plaintiffs, and in February 1995 the plaintiffs filed a motion to certify the class. The court has not yet acted on this motion. The shareholder derivative cases are proceeding separately from the class action case. The plaintiffs in these cases consist of two shareholders of the Company who are asserting claims on behalf of the Company against various defendants consisting of certain of the Company's directors and former officers. The Company is a nominal defendant in these cases. The complaints seek unspecified money damages. The Company intends to defend itself vigorously in all such litigation but is unable, at this time, to determine the amount of loss that may result from these matters. In addition, the Securities and Exchange Commission has commenced a formal, private investigation of the Company arising out of the same facts which gave rise to the above-described litigation. The Company is cooperating with this investigation but is unable to determine, at this time, the probable outcome. Other Litigation In December, 1994, Ashlar Incorporated ("Ashlar") filed a lawsuit against the Company in the United States District Court for the Northern District of California alleging that certain computer aided design products made, used or sold by the Company infringe certain patents held by Ashlar. The Company has denied the allegations and filed a counterclaim for a judgment declaring that it has not infringed, induced infringement or otherwise contributed to the infringement of these patents. The counterclaim filed by the Company also seeks to have the court declare that these patents are invalid, void and unenforceable. The Company denies that any of its products infringe the Ashlar patents and intends to vigorously contest the Ashlar allegations. Additional Executive Officers of the Registrant (at March 6, 1995). Item. Name Age Position William P. Conlin* 61 Chairman of the Board Albert F. Peter* 52 President and Chief Executive Officer Albert L. Klosterman 52 Senior Vice President and Chief Scientist Jack W. Martz 49 Senior Vice President - PDM Business Development John A. Mongelluzzo 36 Vice President, Secretary and General Counsel Martin Neads 46 Senior Vice President - SDRC Operations Edward P. Neenan 49 Senior Vice President - Human Resources Jeffrey J. Vorholt 42 Vice President, Chief Financial Officer and Treasurer * Member of Board of Directors Mr. Conlin has served as Chairman of the Board since February, 1995. Prior to that time, Mr. Conlin has served on the Board of Directors since April, 1993. Mr. Conlin is currently a private consultant to CEOs of several advanced technology companies and serves as an active board member of many privately-held corporations. Mr. Conlin has 35 years experience in the computer industry, with the last 20 being executive positions including his election to corporate senior vice president and member of the six-person executive committee at Burroughs. From November, 1983 through November, 1993, Mr. Conlin was president and chief executive officer of CalComp, Inc. Mr. Peter has served as President and Chief Executive Officer since February, 1995. Prior to that time, Mr. Peter had been serving as SDRC's acting Chief Executive Officer since November, 1994. Mr. Peter was a founder of the Company who served in various capacities until his election to the office of Vice President, a position he held until his retirement in December, 1991. Mr. Peter continues to serve on the Company's Board of Directors, a position he has held since July, 1983. Dr. Klosterman has served as Senior Vice President and Chief Scientist since February, 1995. Prior to that time he has served as Technical Director and Manager of Technical Development for the Company since October, 1973. He has been a Vice President since 1979, was appointed Chief Technical Officer in 1983 and was elected Senior Vice President in December, 1986. Mr. Martz has served as Senior Vice President - PDM Business Development since January, 1995. Prior to that time, Mr. Martz served as Vice President and General Manager, Engineering Services Division since October, 1983, and was elected Senior Vice President in December, 1986. From April, 1981 to October, 1983 Mr. Martz was General Manager, Eastern Region Consulting Operations. Mr. Mongelluzzo has served as Vice President, Secretary and General Counsel since October, 1991. From January 1, 1987 he served as Secretary and Counsel for the Company. In May, 1986 he joined the Company as Assistant Counsel, was elected Assistant Secretary in October, 1986 and Secretary in December, 1986. From February, 1985 until May, 1986 Mr. Mongelluzzo was employed as Staff Attorney for the Ohio Department of Commerce. Mr. Neads has served as Senior Vice President - SDRC Operations since November, 1994. Mr. Neads joined the Company in 1976 as a project engineer in our UK Engineering Services Division. In 1981 he transferred to the Software Products Marketing Division as General Manager, UK Operations and two years later was named General Manager, European Operations, SPMD. In 1987 he was promoted to the position of Vice President and General Manager, European Operations, SPMD. Mr. Neenan has served as the Company's Vice President - Human Resources since February, 1987, and was elected Senior Vice President in April, 1991. Prior to accepting his position with the Company he was employed by Unisys Corporation (formerly Burroughs Corporation) since 1969 where he served in a variety of positions, most recently as Vice President Staffing and Human Resources Planning from 1985 to 1986. Mr. Vorholt has served as Vice President, Chief Financial Officer and Treasurer since February, 1995. Prior to that time, Mr. Vorholt was the Vice President and Controller since December, 1994. Prior to accepting his position with the Company, he was employed by Cincinnati Bell Telephone Company as Senior Vice President - Accounting and Information Systems from 1991 - 1994, and by Cincinnati Bell Information Systems, Inc. as Senior Vice President and Director, 1989 - 1991. Mr. Vorholt is a licensed Certified Public Accountant and Attorney- at-Law. PART II. Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. The Company's common stock is listed and traded on the National Association of Securities Dealers, Inc. Automatic Quotation (NASDAQ) National Market System. The high and low bid prices per share for the Company's common stock as reported on the NASDAQ National Market System are contained in the table below. Such quotations reflect inter-dealer prices without retail mark-up, mark-down or commission. The Company paid no dividends in 1994 or 1993 and intends to continue its policy of retaining earnings to finance future growth. There were approximately 1,800 shareholders of record as of December 31, 1994. Three months ended --------------------------------------------------- March 31, June 30, September 30, December 31, 1994 1994 1994 1994 ================================================================== High 17 1/8 13 7/8 10 6 3/4 Low 12 9 1/8 3 5/8 3 3/4 Three months ended --------------------------------------------------- March 31, June 30, September 30, December 31, 1993 1993 1993 1993 ================================================================== High 18 1/4 21 1/2 21 1/2 19 7/8 Low 9 5/8 14 13 3/8 12 1/4 Item 6. Selected Financial Data. The selected financial data for the five years ended December 31, 1994, which appears on page 27 of the Company's Annual Report to Shareholders for the year ended December 31, 1994, is incorporated by reference in this Form 10-K Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Management's Discussion and Analysis of Financial Condition and Results of Operations, which appears on pages 28 to 31 of the Company's Annual Report to Shareholders for the year ended December 31, 1994, is incorporated by reference in this Form 10-K Annual Report. Item 8. Financial Statements and Supplementary Data. The Consolidated Financial Statements and Report of Independent Accountants appearing on pages 32 to 47 of the Company's Annual Report to Shareholders for the year ended December 31, 1994, are incorporated by reference in this Form 10-K Annual Report. With the exception of the aforementioned information and the information incorporated in Items 6 and 7, the 1994 Annual Report to Shareholders is not to be deemed filed as part of this Form 10-K Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Subsequent to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 1993, KPMG Peat Marwick LLP withdrew its opinion with respect to the Company's financial statements for the years ended December 31, 1993, 1992, and 1991 and resigned as the Company's auditors under circumstances which may be deemed to have involved a disagreement. Such matters are described in the Company's Current Report on Form 8-K as filed with the Securities and Exchange Commission on November 2, 1994, as amended by a Form 8- K/A filed with the Securities and Exchange Commission on November 15, 1994, each of which is incorporated herein by reference. PART III. The information required by Item 10. "Directors and Executive Officers of the Registrant," Item 11. "Executive Compensation," Item 12. "Security Ownership of Certain Beneficial Owners and Management," and Item 13. "Certain Relationships and Related Transactions" is incorporated by reference to the Company's definitive Proxy Statement dated March 20, 1995 which relates to its April 18, 1995 Annual Meeting of Shareholders. PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. a.1. Financial Statements The following Consolidated Financial Statements and related notes of Structural Dynamics Research Corporation and subsidiaries, included in the Annual Report to Shareholders for the year ended December 31, 1994, are incorporated by reference in Item 8. of Part II: Report of Independent Accountants. Consolidated Statement of Operations - Years ended December 31, 1994, 1993 and 1992. Consolidated Balance Sheet - December 31, 1994 and 1993. Consolidated Statement of Shareholders' Equity - Years ended December 31, 1994, 1993 and 1992. Consolidated Statement of Cash Flows - Years ended December 31, 1994, 1993 and 1992. Notes to Consolidated Financial Statements. a. 2. Financial Statement Schedules The Report of Independent Accountants on the financial statement schedule of Structural Dynamics Research Corporation and subsidiaries appears immediately prior to the Schedule VIII in this Form 10-K. The following financial statement schedule of Structural Dynamics Research Corporation and subsidiaries is included in this Item 14: Schedule --------- VIII Valuation and qualifying accounts All other schedules have been omitted because the information either has been shown in the Consolidated Financial Statements or notes thereto, or is not applicable or required under the instructions. Financial statements of Metaphase Technology, Inc. and Estech Corporation in which the Company owns equity interests of 50% and 30%, respectively, have been omitted because the registrant's proportionate share of the income or losses from continuing operations before income taxes, and total assets of each such company is less than 20% of the respective consolidated amounts, and the investment in and advances to each company is less than 20% of consolidated total assets. Audited financial statements of SDRC Software and Services, GmbH are included in this Form 10-K as the Registrant's proportionate share of losses from continuing operations before income taxes exceeds 20% of the respective consolidated amounts. a.3. Exhibits: Exhibit Reference 3(a) Amended Articles of Incorporation of Registrant, including subsequent updates Note (h) 3(b) Amended Code of Regulations of Registrant Note (a) 4 Shareholder Rights Plan Note (b) 10(a) Structural Dynamics Research Corporation Tax Deferred Capital Accumulation Plan dated January 1, 1989 Note (f) 10(b) Executive Employment Agreement between Registrant and Ronald J. Friedsam dated February 15, 1993 Note (h) 10(d) Form of Structural Dynamics Research Corporation Director Class A Common Stock Option Agreement Note (a) 10(e) Structural Dynamics Research Corporation 1991 Employee Stock Option Plan Note (e) 10(f) Structural Dynamics Research Corporation Directors' Non-Discretionary Stock Option Plan Note (e) 10(g) Joint Venture Agreement between Structural Dynamics Research Corporation and Nissan Motor Co., Ltd. Note (c) 10(h) Joint Venture Agreement between Structural Dynamics Research Corporation and Vickers, Inc., a Trinova Company Note (d) 10(i) Lease agreement (including amendments #1 and #2) between Park 50 Development Company Limited Partnership and Structural Dynamics Research Corporation Note (f) 10(j) Joint Venture Formation Agreement between Structural Dynamics Research Corporation and Control Data Systems, Inc. Note (g) 10(k) Joint Venture Agreement between Structural Dynamics Research Corporation and Siemens Nixdorf Informationssysteme AG 11 Statement regarding computation of per share earnings 13 Portions of the Annual Report to Shareholders incorporated herein by reference 21 Subsidiaries of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule NOTE REFERENCE: (a) Incorporated by reference to the Company's Registration Statement No. 33-16541, which was originally filed on August 17, 1987 and became effective on September 29, 1987. (b) Incorporated by reference to the Company's report on Form 8-K filed on August 3, 1988. (c) Incorporated by reference to the Company's report on Form 10-Q dated May 12, 1989. (d) Incorporated by reference to an exhibit filed in the Company's Annual Report on Form 10-K for the year ended December 31, 1989. (e) Incorporated by reference to the Company's definitive Proxy Statement dated March 11, 1991. (f) Incorporated by reference to an exhibit filed in the Company's Annual Report on Form 10-K for the year ended December 31, 1990. (g) Incorporated by reference to an exhibit filed in the Company's Annual Report on Form 10-K for the year ended December 31, 1992. (h) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 as originally filed on March 11, 1994. b. Reports on Form 8-K Subsequent to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 1993, KPMG Peat Marwick LLP withdrew its opinion with respect to the Company's financial statements for the years ended December 31, 1993, 1992, and 1991 and resigned as the Company's auditors under circumstances which may be deemed to have involved a disagreement. Such matters are described in the Company's Current Report on Form 8-K as filed with the Securities and Exchange Commission on November 2, 1994, as amended by a Form 8-K/A filed with the Securities and Exchange Commission on November 15, 1994, each of which is incorporated herein by reference. c. Exhibits as required by Item 601 of Regulation S-K None d. Financial statements required by Regulation S-X SDRC Software and Services, GmbH SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STRUCTURAL DYNAMICS RESEARCH CORPORATION _________________, 1995 By /s/Jeffrey J. Vorholt Date Jeffrey J. Vorholt, Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Albert F. Peter March 27, 1995 Albert F. Peter, President, Chief (Date) Executive Officer and Director (Principal Executive Officer) /s/ William P. Conlin March 27, 1995 William P. Conlin, Chairman of (Date) the Board /s/ Jeffrey J. Vorholt March 27, 1995 Jeffrey J. Vorholt, Vice President, (Date) Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) /s/ Robert P. Henderson March 27, 1995 Robert P. Henderson (Date) Director /s/ Ted H. McCourtney March 27, 1995 Ted H. McCourtney (Date) Director /s/ John E. McDowell March 27, 1995 John E. McDowell (Date) Director /s/ James W. Nethercott March 27, 1995 James W. Nethercott Director /s/ Gilbert R. Whitaker, Jr. March 27, 1995 Gilbert R. Whitaker, Jr. (Date) Director Report of Independent Accountants To the Board of Directors of Structural Dynamics Research Corporation Our audits of the consolidated financial statements referred to in our report dated February 15, 1995 appearing on page 32 of the 1994 Annual Report to Shareholders of Structural Dynamics Research Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14 (a) of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Price Waterhouse LLP Cincinnati, Ohio February 15, 1995 SCHEDULE VIII STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (in thousands) Balance Balance at at End Beginning Charged Deductions/ of Description of Period to Income (Recoveries) Period - ----------------------------------------------------------------- Accounts Receivable: Year ended December 31, 1992 $ 740 1,625 668 $1,697 ====== ===== ===== ====== Year ended December $1,697 1,790 1,136 $2,351 31, 1993 ====== ===== ===== ====== Year ended December $2,351 424 (132) $2,907 31, 1994 ====== ===== ===== EX-10 2 Exhibit 10(k) Joint Venture and Shareholders' Agreement This Agreement, dated as of March 15, 1994 by and between Siemens Nixdorf Informationssysteme Aktiengesellschaft, a German corporation, with its registered seat in Paderborn and its principal place of business at Ott-Hahn-Ring 6, 81739 Munchen, Germany (hereinafter referred to as "SNI"), and Structural Dynamics Research Corporation, an Ohio corporation, with its principal place of business at 2000 Eastman Drive, Milford, Ohio, USA 45150 (hereinafter referred to as "Structural Dynamics") and SDRC Software Products Marketing Division, Inc., an Ohio corporation, with its principal place of business at 2000 Eastman Drive, Milford, Ohio, USA 45150 (hereinafter referred to as "SPMD") (Structural Dynamics and SPMD hereinafter referred to collectively as "SDRC"). -2- Contents Preamble 1. Definition I. Formation of the Company 2. The Company 3. Share Participation 4. Capital Contribution 5. Contribution to the Capital Reserve II. Organization of the Company 6. Bodies of the Company 7. Shareholders' Meeting 8. Shareholders' Council 9. Management 10. Staff 11. Organizational Structure 12. - 14. deleted III. Operation of the Company 15. Contracts 16. Business Plans 17. Financing 18. Books and Records, Fiscal Year 19. Guarantee of SNI and SDRC 20. Other Obligations - 3 - IV. Duration and Termination, Default, Dissolution 21. Duration and Termination 22. Events of Default 23. Remedies 24. Dissolution 25. deleted V. Other Provisions 26. Use of Intellectual Property, Confidentiality 27. Representation and Warranties of SNI 28. Representations and Warranties of SDRC 29. Obligations Prior to Closing 30. Conditions to Closing 31. The Closing 32. Other Provisions 33. Miscellaneous 34. Annexes 1-22 35. Representation of SPMD 36. Notices -4- Preamble Whereas A SPMD has been engaged in the marketing and licensing of SDRC's mechanical design automation software known as I-DEAS throughout Central and Eastern Europe; B SPMD is a 100% subsidiary of Structural Dynamics responsible for all marketing activities with regard to SDRC's software; C SNI is engaged in the development, marketing and licensing of software products to its affiliates and to third party end-users and distributors around the world; D SNI is 100% owned by Siemens Aktiengesellschaft with its registered seat in Berlin and Munich; E SDRC and SNI desire to establish a company to be organized under the laws of Germany for the purpose of developing, supporting, marketing and distributing certain products; F SDRC and SNI desire to increase penetration of SDRC's I-DEAS software throughout SNI and Siemens and their affiliated companies utilizing the know-how and technology described above and SNI and SDRC desire to increase penetration of SNI's SIGRAPH-ET and SIGRAPH-DESIGN in the world-market. Now, therefore, in consideration of the mutual covenants and agreements herein contained and intending to legally bound hereby, the parties hereto agree as follows: -5- 1. Definitions The following terms have the following meanings when used in this Agreement, unless otherwise specified herein: 1.1 "Company" shall mean the joint venture company to be incorporated by the signatories to this Agreement. 1.2 "SDRC Software" shall mean the proprietary software of SDRC known as I-DEAS for use in the field of design automation. 1.3 "SNI Software" shall mean the proprietary software of SNI known as SIGRAPH-ET and SIGRAPH-DESIGN. 1.4 "Shareholders" shall mean Structural Dynamics, SPMD and SNI. 1.5 "Initial Term" shall mean the first three years of the Company according to Clause 21.1. 1.6 "Effective Date" shall mean the date on which the Company becomes effective according to Clause 2.7, i.e. March 31st, 1994. 1. Formation of the Company 2. The Company 2.1 SDRC and SNI shall establish a joint venture in the legal form of a "Gesellschaft mit beschrankter Haftung" (company with limited liability) pursuant to the laws of Germany with statutes as set out in Annex 1. -6- The joint venture shall be established by way of - purchasing the bare shell company named "GEL Gesellschaft zur Erforschung von Laserlichtquellen mbH", a German company with its registered seat in Munich, whose capital stock, of DM 50.000,-- is held to 100% by Siemens Aktiengesellschaft; Structural Dynamics will acquire a share of DM 25.100,-- and SNI will acquire a share of DM 24.900,--; - capital contributions of SDRC and SNI to GEL Gesellschaft zur Erforschung von Laserlichtquellen mbH as set out in Section 4 hereof; - resolutions of the Shareholders of GEL Gesellschaft zur Erforschung von Laserlichtquellen mbH, as set out in Annex 2. 2.2 The name of the Company shall be "SDRC Software und Service GmbH". The company shall be allowed to add the following expression to its name: "Ein Gemeinschaftsunternehmen von Structural Dynamics Research Corporation und Siemens Nixdorf Informationssysteme Aktiengesellschaft". 2.3 The Company shall have its registered seat and its administrative headoffice in Frankfurt/Main with its development and service center in Munich. The costs necessary for the movement of former offices within the Munich area within the first year after the Effective Date shall be paid by each Shareholder for its former offices. The Shareholders shall mutually agree upon the terms and location of offices of the Company. 2.4 The object of the Company shall be developing, supporting, marketing and distributing software for the Mechanical Design Automation (MDA) and Electrical CAD (ECAD) market. The object shall be in particular - marketing, sales and services of SDRC Software, SNI Software and software of the Company in the area of concurrent engineering and CAE/CAD/CAM and PDM for the MDA and ECAD market -7- - development of applications for the MDA and the ECAD market especially the continuation of the development of the SIGRAPH-ET, SIGRAPH-DESIGN. The Company may perform all activities related to this object. 2.5 The Company shall have a capital stock of Deutsche Mark 1.000.000,--, divided into one share of Deutsche Mark 499.000,--, one share of Deutsche Mark 251.000,--, and one share of Deutsche Mark 250.000,--. 2.6 If the profit of the Company is to be distributed it shall be distributed among the Shareholders in proportion of their respective shareholding. 2.7 The Company will be formed effective as of March 31st, 1994. 3. Share Participation 3.1 Structural Dynamics, SPMD and SNI shall subscribe for shares of the capital stock of the Company as follows: Structural Dynamics shall subscribe for one share of Deutsche Mark 225.900,-- (= 25,1% of the capital stock after consolidation with the share of DM 25.100,-- to be acquired by Structural Dynamics as described in Clause 2.1 above). SPMD shall subscribe for one share of Deutsche Mark 250.000,-- (= 25,0% of the capital stock). SNI shall subscribe for one share of Deutsche Mark 474.100,--(= 49,9% of the capital stock after consolidation with the share of DM 24.900,-- to be acquired by SNI as described in Clause 2.1 above). 3.2 The capital stock of the Company shall be paid up by way of contribution in cash as set out in Section 4 hereof. -8- 3.3 Restrictions on Stock Transfer 3.3.1 SDRC and SNI (for purposes of this Section 3.3 "the parties") shall not sell, assign, transfer, encumber or otherwise dispose of all or part of its shares in the Company for the first three years after the effective date of this Agreement. Following this three-year-period, the sale of shares by either party hereto to third parties shall be subject to the following provisions: A If either party hereto proposes to sell or assign all or part of its shares in the Company it shall first offer them in writing to the other party hereto. B If within two months from receipt of the offer the other party hereto indicates in writing that it is not interested in purchasing the shares or does not reply to the offer of the offering party shall have the right to offer its shares to third parties. The other party shall also provide the offering party with a list of up to five third party names which the offering party may not sell its shares to under any circumstances. C If within two months from receipt of the offer the other party hereto indicates in writing that it is interested in purchasing the shares, the parties hereto shall seek to agree on a reasonable purchase price. D If the parties hereto fail to agree on the purchase price within 4 months from the time the offer was received, they shall forthwith ask the chartered accountants, Price Waterhouse or any other chartered accountants agreed to by the parties to prepare an opinion of the price to be paid for the shares. This price shall be a reasonable arms' length price on the basis of a willing buyer and a willing seller of the relevant number of shares. Each party hereto shall pay 50% of the cost of the opinion. E The party hereto contemplating sale shall inform the other party hereto within one month from delivery of the opinion whether it is prepared to sell the shares at the price resulting from the opinion. If the party contemplating sale refuses to sell the shares at that price, or if it does not inform the other party hereto within said period, it shall not have the right to sell the shares to third parties. -9- F The other party hereto shall inform the party contemplating sale, within one month after the latter has indicated his willingness to sell pursuant to Clause 3.3.1 E hereof whether it is prepared to purchase the shares at the price given in the opinion. If the other party hereto refuses to purchase the shares at the price or if it does not within the period set inform the party contemplating the sale, the latter shall have the right to offer its shares for sale to third parties. The other party shall also provide the offering party with a list of up to five third party names which the offering party may not sell its shares to under any circumstances. 3.3.2 Before the transfer of the shares is completed to a third party the non-offering party has the right to require the shares to be sold to it on the same terms and price as offered to the third party. Such right shall be exercisable in writing within a period of six weeks after the party willing to sell has informed the party in writing of the name of the third party and the terms of sale. 3.3.3 The restrictions on transfer contained in Clauses 3.3.1 and 3.3.2 hereof shall not apply to the transfer of shares in the Company - to any other body corporate of which more than 50% of the issued voting share capital is owned directly or indirectly by the selling party or which itself owns directly or indirectly more than 50% of the issued voting share capital of the selling party - to Siemens Aktiengesellschaft or to any other body corporate of which more than 50% of the issued voting share capital is owned directly or indirectly by Siemens Aktiengesellschaft in the case of SNI being the selling party. The sale of share according to Clause 3.3.3 hereof shall be effected under the condition that the selling party procures that the acquiring body corporate shall enter into an agreement to retransfer the shares to the selling party if the holding by the selling party of voting shares in the acquiring body corporate decreases below 50%. - 10 - 3.4 Any shares issued by capital increase shall be offered by the Company to Shareholders of the company exclusively. The Shareholders have the preemptive right to subscribe the shares issued thereby in proportion of their then respective Shareholding. If one Shareholder refuses to accept such offer in whole or in part the other Shareholders are entitled to subscribe to the portion of shares not subscribed to, by the refusing Shareholder, in pro- portion of their respective Shareholding. If the participation of SNI decreases by reasons of increase of capital not subscribed by SNI, SNI shall nevertheless retain all rights and obligations stipulated in this Agreement. The same shall apply in favour of SDRC. 3.5 If SDRC comes under outside control in that 50% or more of SDRC's voting rights are held directly or indirectly by a third party, SNI may require SDRC to buy or SDRC may require SNI to sell all or part of SNl's shares in the Company at a price to be determined in accordance with Clause 3.3 hereof. This price however shall in any case not exceed DM 30 million. The above mentioned right of SNI shall be exercised not later than 3 months from the time SNI learned of the change in control and the above mentioned right of SDRC shall be exercised not later than 3 months from the time SDRC learned of the change in control. Should the conditions as set out above in sentence 1 of this Clause 3.5 have already been existing and have been disclosed in writing at the time this Agreement is concluded, this shall not be deemed to be outside control within the meaning of this provisions. 3.6 SDRC has the option to buy all of the shares of the Company owned by SNI, at any time after the first three years if the Company has decided to discontinue the SIGRAPH development according to Clause 8.4 lit. B. The total purchase price for the SNI shares shall be equal to 50% of the amount of any cumulative Company loss from the Effective Date of the Company to the date of discontinuance attributable to SDRC minus 50% of any cumulative Company loss attributable to the SNI portion of the Company's business as defined in Annex 21 for the same time period, but in no event less than 1 DM. If SDRC exercises this option, this Agreement and all -11- contracts mentioned in Clause 15. shall terminate. SNI shall get a nonexclusive, transferable source-code licence of then current SNI Software as developed, modified or enhanced by the Company and market it under any name. All other software and technology remains with the Company. 3.7 Each party selling shares in accordance with the provision of this Section 3 shall procure that prior to and as a precondition of such transfer the buyer to whom its shares are intended to be sold shall - enter into a Confidentiality Agreement with the selling party prior to any negotiations; - enter into an agreement with the other party on substantially the same terms as are set out in this Agreement (including this Clause) so far as it is appropriate. 4. Capital Contribution 4.1 Structural Dynamics shall contribute DM 225.900,-- in cash to the Company in return for one share of Deutsche Mark 225.900,--. 4.2 SPMD shall contribute DM 250.OOO,-- in cash to the Company in return for one share of Deutsche Mark 250.000,--. 4.3 SNI shall contribute DM 474.100,-- in cash to the Company in return for one share of Deutsche Mark 474.100,--. 5. Contribution to the Capital Reserve 5.1 Structural Dynamics shall contribute to the capital reserve of the Company DM 402.000,-- in accordance with the Capital Reserve Contribution Agreement as per Annex 3. 5.2 SPMD shall contribute to the capital reserve of the Company DM 123.000,-- and the fixed assets as listed in Annex 4. -12- Furthermore SPMD shall transfer to the Company all contracts regarding the Frankfurt/Main office of SPMD for deliveries and services between SPMD and third parties, which are not fulfilled completely at the Effective Date and for which SPMD made or received prepayments. The amounts of such prepayments are specified in Annex 4 and shall be included in the calculation of the total amount to be contributed to the capital reserve. The total amount of all contributions according to this Clause 5.2 is DM 400.000,--. The details of all transactions referred to in this Clause 5.2 shall be as set out in the Capital Reserve Contribution Agreement as per Annex 5 and a list of all contracts mentioned above shall be attached thereto. 5.3 SNI shall contribute to the capital reserve of the Company in the fixed assets listed in Annex 6 in accordance with the Capital Reserve Contribution Agreement as per Annex 7. The total amount of all contributions according to this Clause 5.3 is DM 800.000,--. II. Organization of the Company 6. Bodies of the Company The executive bodies of the company are - the Shareholders' Meeting (Gesellschafterversammlung) - the Shareholders' Council (Gesellschafterdelegation) - the Management (Geschaftsfuhrung) 7. Shareholders' Meeting 7.1 The Shareholders' Meeting shall be chaired by the chairman of the Shareholders' Council or in case of his absence by a person to be elected as chairman by the Shareholders' present or represented. -13- 7.2 The Shareholders' Meeting shall only resolve upon the following matters; all other matters are delegated to the Shareholders' Council as per Clause 8.3: - amendments to the statutes of the Company and to the rules of procedure for the Shareholders' Council; - sale of all or substantially all of the assets of the Company; - dissolution of the Company and disposition of the Company's property in case of its dissolution; - measures of capital increase or decrease; - all other matters if so required by strictly binding law. 7.3 Decisions of the Shareholders' Meeting shall be taken unanimously. 7.4 Rules of procedure for the Shareholders' Meeting shall be as set out in the statutes of the Company in Annex 1. 7.5 Each of the Shareholders agree to vote its stock so as to carry out the provisions of this Agreement, to keep and to increase the welfare of the Company, and to cause its representatives within the Company to do the same. 8. Shareholders' Council 8.1 The Shareholders' Council shall consist of four representatives of the Shareholders. SDRC shall appoint two members and SNI shall appoint two members. 8.2 SDRC shall appoint the chairman of the Shareholders' Council. 8.3 The Shareholders' Council shall exercise all rights and duties of the Shareholders' Meeting except such rights and duties which are assigned by law or this Agreement or its annexes to the Shareholders' Meeting. -14- The Shareholders' Council shall annually adopt a three-year business plan which shall include at least the following items: - budget for the next fiscal year, and financial plan for the following two fiscal years, which includes investment, finance and headcount plans and transfer prices to SDRC; - software products to be developed, together with production objectives; - annual plans for the marketing and sublicensing of software products. 8.4 Decisions of the Shareholders' Council shall be taken by unanimous vote of all its members. If unanimity cannot be reached, the chairman of the Shareholders' Council shall have a casting vote (final decision), except the following matters, which require unanimity in any case: A Changes in the royalty rates between SDRC and the Company; B Start-up of new, changes in and discontinuation of development lines and any changes to the development budget, with the exception of reductions limited to the SIGRAPH development budget if there will be a need to avoid a change in planned profits due to a shortfall of revenue in the SIGRAPH product lines and/or in SNI's sale of I-DEAS. The casting vote may not be exercised however to reduce the SIGRAPH development budget below the sum of - all actual, planned or projected SNI royalties, including guaranteed royalties, to the Company in the relevant budget year, - all actual, planned or projected SDRC SIGRAPH royalties, including guaranteed royalties, to the Company in the relevant budget year, - all actual, planned or projected the Company SIGRAPH revenue in the relevant budget year; C Acquisition and sale of investment in any other enterprise; -15 - D Establishment or winding-up of subsidiaries or affiliates; E Issuance of debt securities exceeding DM 1.000.000,--; F Discontinuation of or changes in the product lines SIGRAPH-ET and SIGRAPH-DESIGN; G Sale or assignment of source code rights and conclusion or termination of agreements regarding proprietary rights or copyrights of SIGRAPH-ET and SIGRAPH-DESIGN; H Fundamental change in the structure, the scope or the character of the Company business; I Determination of the annual balance sheet and allocation of the financial results, in particular the distribution of earnings and dividends. J Termination of former SNI employees, except as provided in Clause B. 8.5 Rules of procedure for the Shareholders' Council shall be as set out in Annex 8. Amendments to these rules of procedure shall by the Shareholders' Meeting. 9. Management 9.1 The principal officers of the Company shall be the two managers ("Geschaftsfuhrer") who legally represent the Company in accordance with the statutes. One manager shall be proposed by SDRC and one manager shall be proposed by SNI, subject to consultations between SDRC and SNI before the respective proposals. The two proposed managers as well as two "Prokurists", one proposed by each party, shall be elected by the Shareholders' Council. 9.2 The manager nominated by SDRC (general manager) will be responsible for all operations of the Company and will jointly with the manager nominated by SNI legally represent the Company. The authority of the managers to -16- represent the Company to third parties and to enter into external commitments and contracts is defined in more detail in the statutes of the Company. 9.3 Decisions of the management shall be taken by the general manager nominated by SDRC. He will keep informed the other manager of all business matters and business decisions. The following transactions of the manager require approval of the Shareholders' Council: A All business plans, including the financial budget, the investment budget and the head count and sales plans and all other plans mentioned in Clause 8.3 above; B Agreements concerning general terms of employment and specifications thereof; C Investments (including capitalized leases) over DM 50.000,--) except the investment of surplus cash for periods of less than one year; D Acquisition and sale of investment in any other enterprises E Establishment of new business sites and change of the administrative head-office; F Establishment or winding-up of subsidiaries or affiliates; G Sale or disposal of fixed assets other than in the ordinary course of business; H Issuance of debt securities exceeding DM 1.000.000,--; I Sale or assignment of source code rights; J Establishment or change of any significant accounting principles and practices; -17- K Startup of new lines, or discontinuation of or changes in active product lines of the Company; L Fundamental change in the structure, the scope or the character of the Company business; M Entering into, modification or termination of employment contracts if the annual salary exceeds DM 200.000,-- or, in case of a termination, if benefits of more than DM 100.000,-- shall be granted; N Termination of former SNI employees; O Making of capital expenditures not contained in the approved business plan; 9.4 The managers shall be bound vis-a-vis the Company to adhere to the restrictions which the laws, the statutes, the rules of procedure for the management or decisions of the Shareholders' Meeting or the Shareholders' Council, may have defined; they have to adhere to instructions given by the Shareholders' Meeting or the Shareholders' Council. 9.5 Rules of procedure for the management shall be as set out in Annex 9. Amendments to this rules of procedure shall be adopted by the Shareholders' Council. 10. Staff 10.1 The Company shall employ former employees of SNI and SDRC as listed in Annex 10. During the Initial Term, SNI and SDRC shall use their best efforts to make members of their staff available to the Company to consult to a reasonable extent on matters including, but not limited to, tax, human resources, payroll, legal and accounting. 10.2 Current terms and conditions of the employment contracts, shall remain as they are at the Effective Date at least for one year except for the SNI bonus plan, SNI pension plans, "Belegschaftsaktien" for SNI employees and for the SNI company loan programs. Regarding the bonus plan, "Belegschafts- -18- aktien" and the company loan programs the stipulations in the SNI letter to its former SNI employees (sample as per Annex 22) shall apply. Regarding the pension plans see Clause 10.4 10.3 Before hiring new employees, the Company shall examine whether employees from SDRC or SNI with the necessary qualifications are available, however the Company in its sole discretion will make the final hiring decision. 10.4 Any pensions liability resulting from the time before the Effective Date shall be borne by the former parent company and each parent company shall insofar indemnify the Company. SNI agrees to continue the pension plan agreements with its former employees. The Company shall make an employer contribution for each former SNI employee to SNI in an amount defined by SNI. The above shall apply until the Company and the former SNI employees agree on an alternative pension plan. 10.5 The former parent company shall be responsible for the portion of annual payments (13th salary, bonus, "Erfolgsbeteiligung") to the employees according to the time of employment with the parent company (further details see Annex 22). 10.6 Upon dissolution of the Company or termination of employment from the Company, all costs relative to terminated employees will be divided proportionately between the time the employee with the Company and the time spent with SNI or SDRC and will be paid proportionately by the Company and SNI or SDRC. This shall only apply within the first three years after the Effective Date. Upon termination of employment from the Company exceeding more than five people, all costs relative to office space will be divided proportionately between the former SNI employee and the former SDRC employee and will be paid in this proportion by SNI or SDRC. This shall only apply within the first three years after the Effective Date. -19- 10.7 The parties agree, that - until all former SNI employees listed in Annex 10 have moved into the offices of the Company - the Company shall pay to SNI as remuneration for the office rent costs including infrastructure related to the former SNI employees who have not relocated a lump sum of DM 500,- per employee per month starting from the Effective Date. 11. Organizational Structure The Company shall have the organizational structure as set out in Annex 11. Amendments to the organizational structure shall be adopted by the Shareholders' Council. 12.-14. deleted III. Operation of the Company 15. Contracts 15.1 SPMD shall assign all of its rights and obligations under the contracts listed in Annex 12 to the Company. 15.2 SPMD shall assign all of its rights and obligations under the real property leases described in Annex 13 to the Company. 15.3 SNI shall assign all of its rights and obligations under the contracts listed in Annex 14 to the Company. 15.4 SPMD and SNI respectively and the Company shall inform without delay the other contracting parties of the contracts listed in Annex 12, 13 and 14 that the Company will be entering into such contracts. SPMD, SNI and the Company shall use best efforts to get any necessary consent of the other contracting parties. -20- For as long as and insofar as any required consents of third parties to the assignment of the contractual rights and liabilities shall not have been obtained, the parties hereto shall in internal relations act as if the assignment had become effective as of the Effective Date. 15.5 SPMD and the Company shall enter into a distributor licence agreement (the "SPMD Distribution Agreement") in the form appended hereto as Annex 16 pursuant to which SPMD shall grant to the Company the right to distribute the SDRC Software in the defined territory upon the terms and conditions stated therein. To the extent this right is exclusive there will be an exception for Japan, existing contracts and for the International Business Machines Corp. (IBM) The SPMD Distribution Agreement shall be coterminous with this Agreement, however if SNI acquires SDRC's shares in the Company pursuant to Clause 21.5 hereof, the SPMD Distribution Agreement shall continue for a three (3) years period on a non-exclusive basis. 15.6 SPMD and the Company shall enter into a subdistribution agreement (the "License Agreement SPMD") pursuant to which SPMD shall be authorized to subdistribute the software of the Company in the territory defined in the License Agreement SPMD which shall be in the form as set forth in Annex 17 attached hereto. 15.7 SNI and the Company shall enter into a license agreement (the "SNI Source Code License Agreement") pursuant to which SNI shall licence the SNI Software in source code form to the Company. Such licence will be exclusive to the Company and will continue in effect until the dissolution of the Company. The SNI Source Code Licence Agreement shall be in the form as set forth in Annex 18 attached hereto. 15.8 SNI and the Company shall enter into a subdistribution agreement (the "License Agreement SNI") pursuant to which SNI shall be authorized to subdistribute the SNI Software, SDRC Software and the software of the Company in the territory defined in the License Agreement SNI and throughout SNI and Siemens on a world-wide basis. The License Agreement SNI shall be in the form as set fort in Annex 19 attached hereto. -21- 15.9 SNI is entitled to fulfill existing sales contracts throughout the world by licensing SIGRAPH-ET and SIGRAPH-Design. SNI will use its best efforts either to transfer those contracts to the Company or to terminate those contracts as soon as possible. The same shall apply to SDRC. 15.10 SNI and the Company shall enter into an agreement regarding the permission to use in a reference tag line the name "Siemens Nixdorf" (Reference Tag Line Agreement) as set forth in Annex 20 A attached hereto. Structural Dynamics and the Company shall enter into an agreement regarding the permission to use in a reference tag line the name "Structural Dynamics Research Corporation" and to use in the Company name the abbreviation "SDRC" attached hereto as set forth in Annex 20 B). 15.11 All contracts mentioned in this Clause 15 shall terminate if this Agreement terminates, otherwise agreed upon in this Agreement or its Annexes. 16. Business Plans The initial business plans of the Company shall be as set out in Annex 21. 17. Financing At the closing, SNI and Structural Dynamics will each lend DM 1.625.000,-- to the Company. The capital loan will be evidenced by promissory notes acceptable to SNI and Structural Dynamics, will bear interest at the same rate and, subject to Clause 24.3 b) hereof, will provide for repayment on identical terms. Beyond the initial capital loans described herein, neither party shall be obligated by virtue of this Agreement to make any additional loans or contributions to the Company. To the extent either party makes additional loans in the future, such loans shall not be senior to the initial capital loans hereunder. -22- 18. Books and Records, Fiscal Year Full and accurate books of account and financial records shall be kept at the principal office of the Company, showing the condition of the business and finances of the Company and the share ownership of each Shareholder. Each Shareholder, or its designated representatives, shall have access to and may inspect and copy any part thereof. In addition, the Company shall forward monthly financial reports to each Shareholder, which reports shall be presented in such format and shall contain such information as the parties hereto shall agree. The fiscal year of the Company shall be the calendar year. At the end of each fiscal year, an audit of the Company's financial statements shall be performed by an independent accounting firm designated by the Shareholders' Meeting. 19. Guarantee of SNI and SDRC 19.1 SNI guarantees that the Company shall receive the following minimum royalties due to licences sold by SNI: DM 9.375.000,-- in 1994 and DM 12.500.000, in each of the following two calendar years and DM 3.125.000,-- in 1997. Details regarding such guarantee are stipulated in Annex 19. This provision shall not apply if SDRC's annual software revenue in the MDA-software-world-market decreases below the 10th position according to International Data Corporation or any similar report. 19.2 SDRC guarantees that the Company shall receive the following minimum royalties due to SIGRAPH licenses sold by SDRC: DM 1.600.000,- in 1994 and DM 1.600.000,- in each of the following two calendar years. Details regarding such guarantee are stipulated in Annex 17. 19.3 If the pre-tax loss in either Shareholder's part of the business as defined in Annex 21 exceeds DM 400.000,--, in 1994, such Shareholder shall pay to the Company the amount in excess of DM 400.000,--. -23- 20. Other Obligations 20.1 SNI shall not develop, own, have any ownership interest in or actively promote any mechanical three dimensional solid modelling product for the Mechanical Design Automation market, except as provided herein. 20.2 Three months before expiry of the Initial Term SNI shall give an actual status to SDRC of all actual and planned revenues for the Company of SIGRAPH-ET and SIGRAPH-DESIGN distributed by SNI. 20.3 Should Siemens AG notify SNI of its intent to purchase any software products or services which are competitive with any software products or services of the Company, SNI will use reasonable efforts to persuade Siemens AG to reconsider its decision and purchase the Company's products and services. IV. Duration and Termination, Default, Dissolution 21 Duration and Termination 21.1 This Agreement and the rights and obligations of the parties hereto shall continue for an initial term of three years from the Effective Date (the "Initial Term"), unless previously terminated by written agreement of the parties or in accordance with the terms hereof, and shall be automatically renewed for successive one year periods thereafter unless written notice of termination is given by one party to the other at least six months in advance of the conclusion of the Initial Term, and at least six months in advance of the conclusion of each one year renewal period. Notwithstanding the termination of this Agreement, the rights and obligations of the parties hereto under Clause 26 hereof shall continue for a period of five years after the date of termination. - 24 - 21.2 SDRC or SNI shall have the right to terminate this Agreement at any time during the Initial Term or any renewal period: - upon the occurrence of an event of default of the other Shareholder pursuant to Clause 22 hereof; - if the Company becomes bankrupt, insolvent or shall have a substantial part of its properties confiscated by the action of any government. 21.3 Upon any termination of this Agreement the Company shall be dissolved, unless otherwise provided herein, and therefore the parties shall vote their respective shares and cause the Shareholders' Meeting and Shareholders' Council to take such actions as are necessary to dissolve the Company in accordance with the provisions of Clause 24 herein and applicable laws. During dissolution the provisions of this Agreement shall remain in effect. 21.4 Within 30 days after receipt of notice of termination during any renewal period the non-terminating party has the option to notify the terminating party of its intent to purchase all of the terminating party's Shares of the Company. The price for the shares shall be calculated according to the procedure described in Clause 23.2 herein. If the non-terminating party does not notify the terminating party of its intent to purchase the shares, the Company has to be dissolved according to Clause 24. 21.5 SNI and SDRC shall both use their best efforts to encourage the employees listed in Annex 10 to join the Company. If within two (2) months from the Effective Date of the Company, any SNl or SDRC key personnel as defined in Annex 10 do not accept employment of the Company, SNI or SDRC may terminate this Agreement by providing the other party with four (4) weeks prior written notice. -25- 22. Events of Default 22.1 Any of the following events or circumstances shall constitute an event of default under this Agreement: a) Subject to Clause (e) below, if either Shareholder fails to observe or per form any term or provision of this Agreement and such failure is not remedied within fifteen days (sixty days in the case of failure to make a required capital contribution) or such other time period agreed to by the parties after notice of such failure is given to the Shareholder responsible for such failure by the other Shareholder; provided, however, if the failure cannot be corrected within the fifteen day period, the time for remedy shall be extended if it is possible to correct such failure and corrective action is instituted by the defaulting party within said fifteen day period and diligently pursued until the failure is corrected. b) If SDRC defaults under any written agreement between SDRC and the Company, duly executed by the proper officers of SDRC and the Company, respectively. c) If SNI defaults under any written agreement between SNI and the Company, duly executed by the proper officers of SNI and the Company, respectively. d) If either Shareholder, voluntarily or involuntarily, sells, pledges, assigns, transfers, or hypothecates its shares in the Company otherwise, than as provided in this Agreement. e) The insolvency or bankruptcy of a Shareholder or the admission by a Shareholder or its inability to pay its debts generally as they become due or if a liquidator trustee in bankruptcy, receiver or any other officer with similar powers shall be appointed with respect to either Shareholder or any of its assets; or -26- f) The default by either Shareholder of the provisions of Section 26 (Intellectual Property and Confidentiality) hereof by reason of its own actions or those of its employees, parent or affiliates. 22.2 Upon the occurrence of an event of default by one of the Shareholders hereunder the non-defaulting Shareholder shall have remedies set forth in Section 23 (Remedies) of this Agreement, in addition to its other remedies at law. 23. Remedies 23.1 If an event of default of or relating to a Shareholder (for purposes of this Section 23, the "Defaulting Shareholder") occurs under this Agreement at any time, then the other Shareholder (for purposes of this Section 23, the "Non-Defaulting Shareholder") may, at its option, in addition to its other remedies at law, by written notice to the Defaulting Shareholder, purchase all of the shares held by the Defaulting Shareholder at the price and on the terms set forth in Section 23.2 below. 23.2 Upon notice from the Non-Defaulting Shareholder to the Defaulting Shareholder under Section 23.1 above, the purchase price of the shares to be sold shall be determined by Price Waterhouse or any other chartered accountants agreed to by the parties as appraiser on the basis of the fair market value of the shares involved, valuing the Company on a going concern basis. The cost of such appraisal shall be paid by the Company. The price which the Non-Defaulting Shareholder shall pay the Defaulting Shareholder shall be equal to such appraised value and shall be paid to the Defaulting Shareholder by certified or cashier's check within thirty days of the receipt of such appraisal. At the time such purchase price is paid, the Defaulting Shareholder shall undertake all necessary action to transfer ownership of its shares to the Non-Defaulting Shareholder. -27- 24. Dissolution 24.1 Dissolution due to termination within the Initial Term or at the end of the Initial Term: Following the dissolution of the Company the following shall apply: a) All versions of the source code of the SNI Software including all Documentation have to be returned to SNI. SNI shall be granted for no charge all rights to the SNI Software in source and object code form on an exclusive basis. b) SNI shall enter into a non-exclusive distribution agreement with SPMD regarding the SNI Software in object code form. The conditions and the territory of this distribution agreement shall be the same as in the License Agreement SPMD as per Annex 19. The initial term shall be not less than three (3) years and the royalties shall be 40%. c) SPMD shall enter into a non-exclusive distribution agreement with SNI regarding the SDRC Software in object code form. The conditions and the territory of this distribution agreement shall be the same as in the SPMD Distribution Agreement as per Annex 16. The initial term shall be not less than three (3) years and the royalties shall be 40%. d) Regarding the costs relative to the termination of employment from the Company Clause 10.6 shall apply, if the Company is dissolved due to termination of this Agreement within the Initial Term. In case of termination at the end of the Initial Term each party shall bear all costs relative to termination of employment for its former employees; this includes also the time the employees spent with the Company. -28- 24.2 Dissolution due to termination in any renewal period: Following the dissolution of the Company the following shall apply: a) SPMD and SNI shall be granted a perpetual non-exclusive transferable source code license to the SNI Software for no charge as stipulated in the relevant license agreements as per Annex 17 and 19. b) SPMD shall enter into a non-exclusive distribution agreement with SNI regarding the SDRC Software in object code form. The conditions and the territory shall be the same as in the SPMD Distribution Agreement as per Annex 16. The initial term shall be not less than three (3) years and the royalties shall not increase more than 5% per year. 24.3 Dissolution due to any termination Following any dissolution of the Company the following shall apply: a) With regard to the software and technology developed, acquired and owned by the Company and all intellectual property rights thereof, the parties shall, following any dissolution of the Company, become equal owners of the software for no charge. The stipulations of Clause 24.2 a) shall apply accordingly. b) The parties hereby agree that all assets legally available for the distribution to the parties, after payment in full of all third party claims, shall be distributed in the following order of priority: - Payment to Structural Dynamics and SNI of all outstanding loans made pursuant to Clause 17 hereof. - Payment to each of the parties of the remaining outstanding balance, if any, of any other loans or outstanding indebtedness of the Company to the parties, in proportion to their respective equity interests. - 29- Distribution of the remaining available assets in proportion to the respective equity interests of the parties. The parties agree to include appropriate provisions in the Statutes of the Company, if necessary, in order to give effect to these provisions. c) All license and maintenance contracts between the Company and its customers shall be transferred to SPMD, except such contracts regarding SNI Software which are defined by SNI to be transferred to SNI. If any customer opposes any transfer of any of its contracts with the Company, the parties hereto will use all efforts to come to an agreement with such customer. 25. deleted V. Other Provisions 26. Use of Intellectual Property, Confidentiality 26.1 While this Agreement is in effect and for a period of five years after termination of this Agreement, without the other Shareholder's written consent, neither Shareholder shall use for purposes other than as contemplated in this Agreement or disclose to any person or entity (other than a parent or affiliate of such Shareholder), any know-how or trade secret, kept in the other Shareholder's or the Company's written records which was obtained from the other Shareholder or the Company as a result of such Shareholder's ownership of common stock; provided, however, that a Shareholder may disclose to any other person or entity or use any know-how or trade secret obtained from the other Shareholder or the Company which was (i) known prior to the date of the Confidentiality Agreement between SDRC and SNI to such Shareholder as evidenced by dated or dateable written or printed records at the time of its disclosure to such Shareholder by the other Shareholder or by the Company, as the case may be; (ii) was in the public domain prior to its disclosure hereunder, or after disclosures hereunder becomes part of the public domain through publication or otherwise through no fault of such Shareholder; (iii) becomes lawfully -30- available to such Shareholders from a third party which has not acquired it directly or indirectly from the other Shareholder or the Company, and which third party has not required such Shareholder to hold it in confidence; or (iv) is independently developed or acquired by such Shareholder without the use of, or reference to, the know-how or trade secrets of the other Shareholder or the Company. 26.2 Each Shareholder shall inform its employees and/or its parent or any affiliate, to whom it has disclosed know-how or trade secrets of the Company or the other Shareholder, of the confidential nature of such information and shall be responsible for any disclosure of such information to a third party by its employees, parent or affiliates in violation of the provisions of this Agreement. 27. Representations and Warranties of SNI 27.1 SNI hereby represents and warrants to SDRC that the following statements are true and correct: - SNI has full corporate power and authority to enter this Agreement without the consent of any other person, organization or entity, and this Agreement represents the valid and binding agreement of SNI enforceable in accordance with its terms. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement will not, with respect to SNI or its subsidiaries; (a) violate any provision of their certificates of incorporation or by-laws (or equivalent governing corporate documents); (b) violate terms of the material agreement, law, regulation, order, arbitration, award judgment or decree or other restrictions of any other kind or character to or by which they are subject or bound or to which any of their assets or stock is subject; (c) constitute an event which would permit any party to terminate any agreement or to accelerate the maturity of any indebtedness or obligations of its business; or (d) result in the creation or imposition of any lien, charge, or encumbrance on any of the assets transferred pursuant to this Agreement for the benefit of a third party. -31- - -The execution and delivery of this Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of SNI. - SNI is the sole owner of the fixed assets to be transferred to the Company pursuant to this Agreement free and clear of any mortgage, lien, security interest, encumbrance or restriction of any kind and SNI shall convey good and marketable title to such assets to the Company at the closing. - - SNI has complied in all material respects with all national, regional and local laws in connection with the execution and delivery of this Agreement and the completion of the transactions contemplated hereby. SNI has obtained the approval of all national, regional and local authorities necessary for this Agreement to become effective and to give effect to the transactions contemplated hereby. 28. Representations and Warranties of SDRC 28.1 SDRC hereby represents and warrants to SNI that the following statements and true and correct: - SDRC has full corporate power and authority to enter into this Agreement without the consent of any other person, organization or entity, and this Agreement represents the valid and binding agreement of SDRC enforceable in accordance with its terms. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement will not, with respect to SDRC or its subsidiaries; (a) violate any provisions of their certificates of incorporation or by-laws (or equivalent governing corporate documents); (b) violate terms of the material agreement, law, regulation, order, arbitration award judgment or decree or other restrictions of any other kind or character to or by which they are subject or bound or to which any of their assets or stock is subject; (c) constitute an event which would permit any party to terminate any agreement or to accelerate the maturity of any -32- indebtedness or obligation of its business; or (d) result in the creation or imposition of any lien, charge, or encumbrance on any of the assets transferred pursuant to this Agreement for the benefit of a third party. - The execution and delivery of this Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of SDRC. - SDRC is the sole owner of the fixed assets to be transferred to the Company pursuant to this Agreement free and clear of any mortgage, lien, security interest, encumbrance or restriction of any kind and SDRC shall convey good and marketable title to such assets to the Company at the closing. - SDRC has complied in all material respects with all national, regional and local laws in connection with the execution and delivery of this Agreement and the completion of the transactions contemplated hereby. SDRC has obtained the approval of all national, regional and local authorities necessary for this Agreement to become effective and to give effect to the transactions contemplated hereby. 29. Obligations Prior to Closing 29.1 SDRC and SNI shall each comply promptly with the notice and reporting requirements of any applicable laws with respect to the transactions. 29.2 Each party shall use its best efforts and cooperate with the other in good faith to the extent reasonably required in order to satisfy the conditions set forth in Section 30 (Conditions to Closing) and fully to accomplish the transaction in an expeditious fashion. Neither party shall take or fail to take any action within such party's reasonable control, the effect of which would be to prevent or unreasonably delay the satisfaction of any condition to its or the other party's obligations contained in Section 30 (Conditions to Closing) or the consummation of the transaction in accordance with this Agreement. -33- 30. Conditions to Closing 30.1 The obligation of SNI to complete the transaction is subject to the satisfaction (or waiver by SNI) of all of the following conditions: - The representations and warranties of SDRC contained in Section 28 shall be true and correct in all material respects as of and at the Closing Date with the same effect as though made on the Closing Date, except for changes permitted or contemplated by this Agreement and except to the extent that any representation or warranty is made herein as of such specified date, in which case such representation or warranty shall be true in all material respects as of such specified date. - - SDRC shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed by it at or prior to the Closing Date. - - SDRC shall have delivered to SNI duly executed copies of all agreements, instruments and other items described in or deliverable pursuant to this Agreement. - - To the best of SDRC's knowledge no statute, ordinance, regulation, order or injunction of any court or governmental agency of competent jurisdiction shall be in effect that restrains or prohibits SDRC from carrying out the transaction contemplated by this Agreement. - - There shall be no action or proceeding pending or threatened by or before any court or governmental authority challenging the transaction or any transaction related thereto or seeking to restrain, prevent, or change the transaction or seeking damages in conjunction with, or by reason of, the transaction. -34- 30.2 The obligation of SDRC to complete the transaction is subject to the satisfaction (or waiver by SDRC) of all the following conditions: - The representations and warranties of SNI contained in Section 27 shall be true and correct in all material respects as of and at the Closing Date with the same effect as though made on the Closing Date, except for changes permitted or contemplated by this Agreement and except to the extent that any representation or warranty is made herein as of such specified date, in which case such representation or warranty shall be true in all material respects as of such specified date. - - SNI shall have performed or complied in all material respects with all agreements and covenants required by the Agreement to be performed by it at or prior to the Closing Date. - - SNI shall have delivered to SDRC duly executed copies of all agreements, instruments and other items described in or deliverable pursuant to this Agreement. - To the best of SNI's knowledge no statute, ordinance or regulations, order or injunction of any court or Governmental agency of competent jurisdiction shall be in effect which restrains or prohibits SNI from carrying out the transaction contemplated by this Agreement. - There shall be no action or proceeding pending or threatened by or before any court or governmental authority challenging the transaction or any transaction related thereto or seeking to restrain, prevent, or change the transaction or seeking damages in conjunction with, or by reason of, the transaction. -35- 31. The Closing 31.1 The transactions contemplated by this Agreement shall close and all deliveries to be made at the closing shall take place on March 15th, 1994 (Closing Date) at the offices of SNI, or at such other time, date or place as the parties may agree. All actions taken at the closing shall be deemed to occur simultaneously and the closing shall be effective as of the close of business on the Closing Date. 31.2 At Closing, SNI shall execute and/or deliver to SDRC, against execution and/or delivery by SDRC of the items specified in Section 31.3: - Certified copies, dated as of the Closing Date, of resolutions of Management (Vorstand) of SNI and/or Siemens AG authorizing the transaction; - The agreements described in Section 15, together with the payments and other items provided for in such agreements; and - All other certificates, Schedules, Exhibits, and attachments, in completed form, which are required by the provisions of this Agreement, unless such obligations are waived at or prior to the closing by SDRC. 31.3 At the closing, SDRC shall execute and/or deliver to SNI, against execution and/or delivery by SNI of the items specified in Section 31.2 - Certified copies of, dates as of the Closing Date, of resolutions of the Board of Directors of SDRC authorizing the Transaction; - The agreements described in Section 15, together with the payments and other items provided for in such agreements; and - All other certificates, Schedules, Exhibits, and attachments, in completed form, which are required by the provisions of this Agreement, unless such obligations are waived at or prior to the closing by SNI. -36- 31.4 All instruments delivered at closing shall be dated as of the Closing Date and shall be reasonably satisfactory to the party receiving the benefit thereof. 32. Other Provisions 32.1 Federal Cartel Office This Agreement shall not become effective unless the Federal Cartel Office has informed one party in writing that the notified merger plan is not prohibited by the terms of Section 24 (a) (1) of the German Antitrust Law or if: - no such clearance in writing is received, the Federal Cartel Office does not within one month of acknowledgement by it of receipt of the complete notification by the parties give notice that it intends to begin or has begun an examination of the notified merger plan, or - the Federal Cartel Office does not prohibit the notified merger plan within a four month period after receipt of the complete notification or within the extended period as assented to by the parties, or - a prohibition notification by the Federal Cartel Office is validly overruled. 32.2 Applicable Law The substantive law applicable to this agreement and its annexes is the law in force in Germany. 32.3 Arbitration a) Any differences or disputes arising from this Agreement or from agreements regarding its performance shall be settled by an amicable effort on the part of the parties to this Agreement. An attempt to arrive at a settlement shall be deemed to have failed as soon as one of the parties hereto so notifies the other party in writing. -37- b) If an attempt at settlement has failed, the disputes shall be finally settled under the rules of conciliation and arbitration of the International Chamber of Commerce in Paris (Rules) by three arbitrators appointed in accordance with the rules. c) The place of arbitration shall be Frankfurt/Main, Germany. The procedural law of this place shall apply where the Rules are silent. The arbitration shall be conducted in the English language. d) The arbitral award shall be substantiated in writing. The arbitral tribunal shall decide on the matter of costs, of the arbitration. 33. Miscellaneous 33.1 This Agreement constitutes the entire agreement and understanding between the Shareholders pertaining to the matters referred to herein, and supersedes all prior negotiations, commitments, understandings, agreements, representations, and warranties, whether oral or written, previously entered into by them with respect thereto. 33.2 SNI and SDRC agree that the Distributor Agreement signed between SNI and SDRC concerning the SIGRAPH product dated March 19th, 1993 shall forthwith terminate in its entirety. Furthermore SNI and SDRC agree that the Distributor Agreement between SDRC and SNI concerning the IDEAS product shall automatically terminate when SDRC has delivered to SNI all updated copies of IDEAS for the $3.0 million shipment in 1993. SNI and SDRC agree that SDRC will provide the updated copies for a value of $1.0 million (SNI purchase price) per year. 33.3 No amendment or other modification to this Agreement shall be valid or binding upon the Shareholders unless such amendment or modification is in writing and signed by both Shareholders. 33.4 No waiver by a Shareholder of any breach, failure or default in performance by the other Shareholder and no failure, refusal or neglect by a Shareholder to exercise any right hereunder or to insist upon strict compliance with or performance of the other Shareholder's obligations hereunder, shall con- -38- stitute a waiver by such Shareholder of the provisions of the Agreement with respect to any subsequent breach, failure or default and shall not constitute a waiver by such Shareholder of its right any time or thereafter to require strict compliance with the provisions hereof. 33.5 This Agreement shall inure to the benefit of and be binding upon the parties hereto and their permitted successors and assigns. 33.6. This Agreement has been jointly prepared by the parties and the provisions of this Agreement shall not be construed more strictly against either party hereto as a result of its participation in such preparation. 33.7 Except after consultation and agreement with the other party of this Agreement, neither SDRC nor SNI shall, and each of the parties shall use its best efforts to assure that none of its officers, directors, employees, agents or advisers of the Company shall, publicize, advertise, announce or describe to any governmental authority or other third person, the terms of this Agreement, the parties hereto or the transactions contemplated hereby, except as required by law or as required pursuant to this Agreement. Further, each party agrees not to publicly disclose to any third party for any reason the financial performance or prospects of the Company (except as may be required by law) without the consent of the other party. 33.8 Should any provision of this Agreement be invalid or unenforceable, then such provision shall be given no effect and shall be deemed not to be included within the terms of this Agreement, but without invalidating any of the remaining terms of this Agreement. The parties hereto shall then endeavour to replace the invalid or unenforceable provision by a clause which is closest to the intent of the invalid or unenforceable provision as may be required to make the provision valid and enforceable. In the event that any question is raised by any governmental agency as to any one or more of the provisions, or a portion of any such provision of this Agreement, the parties hereto agree to use their best efforts to find an appropriate solution to such question that is as close as possible to the parties original intentions. - 39 - 33.9 This Agreement may be executed in any number of counterparts, each one of which shall be an original and all of which shall constitute one and the same document. 33.10 Unless otherwise provided in this Agreement SNI and SDRC shall each bear their own fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby (including without limitation all fees and expenses of counsel). 34. The following Annexes are an integral part of this agreement. In case of a contradiction between any Annex and this Agreement, this Agreement shall prevail: Annex 1: Statutes of the Company in German language. The English translation is for convenience only. Annex 2: Resolutions of the Shareholders of GEL Gesellschaft zur Erforschung von Laserlichtquellen mbH (bare shell company) Annex 3: Capital Reserve Contribution Contract of Structural Dynamics Annex 4: Assets and liabilities contributed by SPMD Annex 5: Capital Reserve Contribution Contract of SPMD Annex 6: Assets contributed by SNI Annex 7: Capital Reserve Contribution Contract of SNI Annex 8: Rules of procedure for the Shareholders' Council Annex 9: Rules of procedure for the Management Annex 10: List of employees Annex 11: Org-chart Annex 12: List of SPMD contracts Annex 13: List of SPMD real property leases Annex 14: List of SNI contracts Annex 15: deleted Annex 16: SPMD Distribution Agreement Annex 17: License Agreement SPMD Annex 18: SNI Source Code License Agreement Annex 19: License Agreement SNI - 40 - Annex 20 A: Reference Tag Line Agreement Annex 20 B: SDRC Name Agreement Annex 21: Business plans Annex 22: Sample Employment Conditions 35. Representation of SPMD All rights of Structural Dynamics and SPMD under this agreement and its Annexes can only be executed jointly by Structural Dynamics and SPMD. The same applies to all actions whatsoever, in particular to the voting in the bodies of the Company. SPMD will be represented in any case by Structural Dynamics. 36. Notices All notices permitted or required to be given by either Shareholder in accordance with the provisions of this Agreement shall be in writing and shall be deemed duly given if (i) delivered by hand; (ii) sent via overnight mail; or (iii) transmitted by telex, fax or other wire service and confirmed by prepaid registered or certified letter, properly addressed to the Shareholder to whom notice is to be given, at its address as listed below: For Structural Dynamics and SPMD: Structural Dynamics Research Corporation 2000 Eastman Drive Milford, Ohio 45150 Attention: Vice President, General Counsel - 41 - For SNI: Siemens Nixdorf Informationssysteme AG Otto-Hahn-Ring 6 81739 Munchen Attention: BU ES KL Any notice so given or made shall be deemed to have been given or made and received on the date of hand delivery, on the fifth business day following the date of mailing of the same, on the date of transmission by telex, fax or other wire service of the same, or on the second business day after mailing if sent via overnight mail, as the case may be. Any party may, from time to time by notice in writing given pursuant to the terms hereof, change its address for the purpose of this Agreement. In witness whereof, the parties hereto have duly executed this Agreement. (place) (date) Siemens Nixdorf Informationssysteme AG Structural Dynamics Research Corporation /S/ SDRC Software Products Marketing Division Inc. /S/ EX-11 3 EXHIBIT 11 STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (in thousands, except share data) 1994 1993 1992 ----------------------------- PRIMARY Average shares outstanding 28,844 28,491 27,899 Net effect of dilutive stock options -- based on the treasury stock method using average market price -- 1,385 2,194 ----------------------------- Total 28,844 29,876 30,093 ============================= Income (loss) before cumulative effect of accounting change $(9,001) $(11,732) $ 8,775 Cumulative effect of accounting change (3,896) -- 700 ----------------------------- Net income (loss) $(12,897) $(11,732) $ 9,475 ============================= Primary per share amount: Before cumulative effect of accounting change $ (.31) $ (.39) $ .29 Cumulative effect of accounting change (.14) -- .02 ----------------------------- Net income (loss) per share $ (.45) $ (.39) $ .31 ============================= FULLY DILUTED Average shares outstanding 28,844 28,491 27,899 Net effect of dilutive stock options -- based on the treasury stock method using the year-end market price, if higher than average market price -- 1,600 2,194 ----------------------------- Total 28,844 30,091 30,093 ============================= Income (loss) before cumulative effect of accounting change $(9,001) $(11,732) $ 8,775 Cumulative effect of accounting change (3,896) -- 700 ----------------------------- Net income (loss) $(12,897) $(11,732) $ 9,475 Fully diluted per share amount: Before cumulative effect of accounting change $ (.31) $ (.39) $ .29 Cumulative effect of accounting change (.14) -- .02 ----------------------------- Net income (loss) per share $ (.45) $ (.39) $ .31 ============================= This computation is required by Regulation S-K Item 601 and is filed as an exhibit under Item 14a(3) of Form 10-K. SEC Release No. 33-5133 requires ". . . when per share earnings are disclosed, . . . the information with respect to the computation of per share earnings on both primary and fully diluted bases, presented by exhibit or otherwise, must be furnished even though the amounts of per share earnings on the fully diluted basis are not required to be stated under the provisions of Accounting Principles Board Opinion No. 15." EX-13 4 SUMMARY OF SELECTED FINANCIAL DATA Structural Dynamics Research Corporation
Year ended December 31, (in thousands except per share data) 1994 1993 1992 1991 1990 Statement of operations data: Net revenue $167,547 $147,605 $149,041 $129,932 $114,269 Income (loss) before income taxes and cumulative effect of accounting changes (5,168) (7,356) 13,907 14,525 16,378 Income (loss) before cumulative effect of accounting changes (9,001) (11,732) 8,775 9,279 8,913 Net income (loss) (12,897) (11,732) 9,475 9,279 8,913 Earnings (loss) per share: Before cumulative effect of accounting changes (.31) (.39) .29 .31 .32 Net income (loss) (.45) (.39) .31 .31 .32 Common and common equivalent shares 28,844 29,876 30,093 29,817 27,618 Balance sheet data: Working capital $27,590 $27,474 $48,440 $45,207 $41,483 Total assets 142,699 134,549 136,130 119,339 99,167 Long-term liabilities 10,219 326 -- -- 2,604 Total shareholders' equity 72,152 84,581 92,447 80,359 60,332
Management's Discussion and Analysis of Financial Condition and Results of Operations Structural Dynamics Research Corporation (in thousands) The Company operates in two segments: software products and services, and engineering services. Revenue in the software products and services segment consists primarily of revenue from software licenses, software maintenance contracts and customer training. Revenue in the engineering services segment consists of consulting activities which are undertaken on either a time and materials or a fixed fee contract basis. Software Products and Services The software products and services segment accounted for approximately 89%, 86% and 85% of SDRC's consolidated revenue for the years ended December 31, 1994, 1993 and 1992, respectively, and approximately (108)%, (103)% and 99% of consolidated operating income (loss) for the same periods. Software segment revenue in 1994 increased $20,977 or 16% over 1993. This growth comparison excludes $8,485 of revenue generated by the SDRC Software and Services GmbH joint venture established in the first quarter of 1994 and accounted for under the equity method. Maintenance revenue derived from annual software maintenance contracts increased 10% primarily due to license increases in prior years. Revenue was negatively impacted by a 25% decline from an OEM customer, whose software marketing agreement was terminated in December 1994. Additionally, revenue was impacted by difficult market conditions in Europe. Software segment revenue outside of North America accounted for 62%, 63% and 69% of software revenue in 1994, 1993 and 1992, respectively. The Company expects the international market to continue to account for a significant portion of total software segment revenue. The software segment incurred operating losses of $2,247 in 1994 and $8,657 in 1993. This improvement was due primarily to increased revenues partially offset by increased expenses. Software segment revenue in 1993 was level with 1992. Management's expectation was that 1993 revenue would increase more than the performance ultimately achieved. The license revenue in 1993 suffered in part from technical problems associated with the I-DEAS Master Series initial product release in June 1993. As a result of the technical problems, a number of customers deferred large purchase decisions until completion of their benchmark testing of the I-DEAS Master Series software after the Company had addressed the unforeseen problems. Additionally, revenue was impacted by difficult economic conditions in Europe and Japan and by a 42% decline from an OEM customer. Maintenance revenue derived from annual software maintenance contracts increased 9% primarily due to license increases in prior years. The software segment incurred an operating loss of $8,657 in 1993 compared to operating income of $12,084 in 1992 resulting from significant increases in cost of revenue and selling, general and administrative expenses as described below. Engineering Services In 1994, 1993 and 1992, the engineering services segment represented 11%, 14% and 15%, respectively, of the Company's consolidated revenue and 8%, 3% and 1% of consolidated operating income (loss) for the same periods. In 1994, 1993 and 1992, the engineering services segment revenue decreased 5%, 11% and 15%, respectively. The revenue reduction was due to downsizing portions of the consulting business not considered synergistic with the software segment. The Company has continued to align the engineering services cost structure with the anticipated revenue stream. Cost and Expenses Cost of Revenue. Cost of revenue consists principally of the amortization of capitalized software construction costs, external commissions associated with indirect marketing channels and the cost of distributing software products and providing engineering consulting services. Cost of revenue includes $7,137, $9,539 and $3,667 for amortization of software construction costs in 1994, 1993 and 1992, respectively. Cost of revenue for 1994 decreased 6% from 1993 primarily due to the charge in 1993 of approximately $3,311 relating to software construction costs determined to be non-recoverable upon the release of the I-DEAS Master Series product. Engineering services consulting costs also declined 5% which is consistent with the decline in engineering services revenue. These reductions are partially offset by a full year of amortization of software construction costs for the I-DEAS Master Series product which was initially released in June 1993 and an increase in the software segment's variable costs directly associated with the product licensing and distribution. Cost of revenue in 1993 increased 13% over 1992 due to the commencement of amortization of software construction costs for the I-DEAS Master Series product upon its initial release in June 1993, and approximately $3,311 relating to software construction costs determined to be non-recoverable upon the release of the I-DEAS Master Series product. In addition, variable costs directly associated with software product licensing and distribution increased. Research and Development Expenses. Research and development expenses consist primarily of expenses for development of software products. These expenses cannot be capitalized in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed". Research and development expenses exclude capitalized software development costs of $9,312, $11,282 and $9,365 in 1994, 1993 and 1992, respectively. Research and development expenses amounted to $33,560, $25,937 and $25,369 in 1994, 1993 and 1992, respectively. During 1994, research and development expenses increased significantly in line with the Company's commitment to the technological advancement of its product line. Specifically, the product development staff focused on modifications to I-DEAS Master Series 1.0 and early product development activities associated with I-DEAS Master Series 3.0. Royalty fees paid to third parties under licensing agreements, another component of research and development expenses, increased significantly in each of the last three years. Third party royalty expenses increased 53% in 1994 over 1993 primarily due to fees associated with product data management (PDM) software developed by a joint venture investee. Selling, General and Administrative Expenses. Selling, general and administrative expenses consist principally of costs incurred in the software products and services segment and corporate staff. Selling, general and administrative expenses increased 9%, 18% and 26% in 1994, 1993 and 1992, respectively. During 1994 and 1993, the Company incurred significant expenses from increased headcount in the sales and technical support organizations to promote direct sales and support new and existing customers. The primary focus was to assist the Company's customers in their transitioning efforts to the I-DEAS Master Series product introduced in June 1993. The Company anticipated higher revenue growth to offset the incremental headcount costs from sales and support activities. In the fourth quarter of 1994, the Company initiated a plan to cut costs and strengthen its competitive position by reducing its workforce by 87 people. These employees were primarily product development, marketing and administrative personnel. As a result, the Company recognized a charge of $1,247 for severance costs and outplacement assistance for employees. In 1994, the Company paid $303 to these employees. At December 31, 1994, the Company had accrued severance benefits of $944 related to this matter. In February, 1995, the Company further reduced its workforce and will record a related charge to income of approximately $1,000. Additionally, in 1994, the Company incurred severance costs of $1,919 due to the termination of its former Chief Financial Officer and the other managers and the resignation of its former Chief Executive Officer. The former Chief Executive Officer was employed pursuant to an employment agreement with the Company which provided for specified severance benefits. In 1993, the Company recognized expense of $4,200 for the settlement of a claim by a significant OEM customer. Certain discretionary employee benefits were reduced in 1993 to offset the lower than expected revenue growth as a result of technical issues associated with the initial introduction of I-DEAS Master Series. Equity in Losses of Affiliates During 1992, the Company formed a joint venture with Control Data Systems, Inc., Metaphase Technology, Inc. Metaphase is involved in developing and marketing product data management software. During 1994, the Company formed a joint venture with Siemens Nixdorf Informationssysteme AG, SDRC Software and Services, GmbH (SDRC GmbH) to market the Company's software products in Central Europe. The Company's equity in the losses of affiliates represents its share of Metaphase and SDRC GmbH losses, the majority of which resulted from the SDRC GmbH joint venture. Other Income Other income consists principally of interest income. Increasing interest rates in 1994 resulted in higher interest income. In 1994 the Company also received interest on an income tax refund. Income Taxes During 1994 and 1993, the Company recorded tax expense of $3,833 and $4,376 on pretax losses of $5,168 and $7,356, respectively. Although the Company incurred losses in 1994 and 1993, there were provisions for income taxes in both years consisting primarily of income taxes currently payable to foreign jurisdictions and foreign withholding taxes incurred on the Company's software licensing revenue. These withholding taxes can be credited against the Company's U.S. income tax liability. Due to U.S. tax net operating losses (NOLs), the Company is not currently in a position to utilize these foreign tax credits (FTCs). The FTCs and NOLs are available to offset future U.S. income tax liabilities, subject to various restrictions. No tax benefit was currently recognized for these FTCs and NOLs as their realization is not assured. Effective January 1, 1992, the Company adopted SFAS No. 109, "Accounting for Income Taxes". The cumulative effect (for periods prior to January 1, 1992) of applying this statement was to increase net income by $700 or $.02 per share for the year ended December 31, 1992. In 1994, the Company received a tax refund of $1,754 for research and experimentation credits not previously recorded. Postemployment Benefits Effective January 1, 1994, the Company adopted the provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits". This statement requires that companies providing postemployment benefits to their employees accrue the cost of benefits, if attributable to employees' service already rendered. The Company provides severance benefits for involuntarily terminated employees. The cumulative effect of adopting SFAS 112 reduced 1994 income by $3,896. The annual incremental charge for future periods is not anticipated to be material. Liquidity and Capital Resources As of December 31, 1994, the Company had $46,240 in cash, cash equivalents and investments. The Company's working capital was $27,590. As of March 1, 1995, the Company also has an unsecured bank line of credit of $15,000. During 1994, 1993 and 1992 the Company generated cash flows from operations of $6,176, $19,467 and $21,855, respectively. In 1994, the sources of net cash provided by operating activities were significantly reduced by the $16,158 increase in accounts receivable. The 1994 growth in accounts receivable over 1993 was due to the higher level of revenue in the 1994 fourth quarter, primarily in North American and Far East operations. The Company had no borrowings in 1994. The Company's sources of liquidity and funds anticipated to be generated from operations are expected to be adequate for the Company's cash requirements in the foreseeable future. The Company paid no dividends during the period 1992 through 1994 and intends to continue its policy of retaining earnings to finance future growth. The Company has no current commitments for material capital expenditures. See Note 9 to the consolidated financial statements for additional commitments and contingencies. The Company does not expect inflation to have a material impact on its future operations. Report of Management Responsibility for the integrity and objectivity of the financial information presented in this Annual Report rests with Structural Dynamics Research Corporation's management. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, applying certain estimates and judgments as required. Financial information contained elsewhere in this Annual Report is consistent with that in the financial statements. The management of the Company is responsible for establishing and maintaining a system of internal accounting control that is designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded. This system is supported by written policies and procedures, organizational structures that provide an appropriate division of responsibility, internal reviews, and the careful selection and training of qualified personnel. Our independent accountants, Price Waterhouse LLP, audit the financial statements in accordance with generally accepted auditing standards, which includes the consideration of the system of internal control to the extent they deem necessary to express an opinion on the financial statements. The Board of Directors, through its Audit Committee, composed of outside directors, meets regularly with the Company's independent accountants and management to review the adequacy of internal accounting controls, financial reporting and the extent and results of the audit effort. Albert F. Peter President and Chief Executive Officer Jeffrey J. Vorholt Vice President, Chief Financial Officer and Treasurer Report of Independent Accountants To the Board of Directors and Shareholders of Structural Dynamics Research Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Structural Dynamics Research Corporation and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As described in Note 5, in 1994 the Company changed its method of accounting for postemployment benefits. Price Waterhouse LLP Cincinnati, Ohio February 15, 1995 CONSOLIDATED STATEMENT OF OPERATIONS Structural Dynamics Research Corporation Year ended December 31 (in thousands, except per share data) 1994 1993 1992 Revenue: Software products and services $111,349 $ 93,591 $ 95,494 Maintenance 37,101 33,882 31,023 Engineering services 19,097 20,132 22,524 Net revenue 167,547 147,605 149,041 Cost and expenses: Cost of revenue 35,354 37,503 33,141 Research and development expenses 33,560 25,937 25,369 Selling, general and administrative expenses 100,715 92,549 78,318 Total cost and expenses 169,629 155,989 136,828 Operating income (loss) (2,082) (8,384) 12,213 Equity in losses of affiliates (5,329) (614) (410) Other income, principally interest 2,243 1,642 2,104 Income (loss) before income taxes and cumulative effect of accounting changes (5,168) (7,356) 13,907 Income tax expense 3,833 4,376 5,132 Income (loss) before cumulative effect of accounting changes (9,001) (11,732) 8,775 Cumulative effect of accounting changes (3,896) -- 700 Net income (loss) $(12,897) $(11,732) $ 9,475 Earnings (loss) per share: Before cumulative effect of accounting changes $ (.31) $ (.39) $ .29 Cumulative effect of accounting changes (.14) -- .02 Net income (loss) per share $ (.45) $ (.39) $ .31 Common and common equivalent shares 28,844 29,876 30,093 See accompanying notes to consolidated financial statements. CONSOLIDATED BALANCE SHEET Structural Dynamics Research Corporation December 31, (in thousands) 1994 1993 Assets Current assets: Cash and cash equivalents $ 21,885 $ 34,783 Short-term investments 17,296 10,720 Trade accounts receivable, net 35,867 20,567 Other accounts receivable 6,760 5,902 Prepaid expenses 6,110 5,144 Total current assets 87,918 77,116 Long-term investments 7,059 10,547 Property and equipment, at cost: Computer and other equipment 36,259 36,055 Office furniture and equipment 9,258 9,079 Leasehold improvements 3,799 3,594 49,316 48,728 Less accumulated depreciation and amortization 35,537 32,897 Net property and equipment 13,779 15,831 Computer software construction costs, net 30,854 28,457 Other assets 3,089 2,598 Total assets $142,699 $134,549 See accompanying notes to consolidated financial statements. December 31, (in thousands, except per share data) 1994 1993 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 6,857 $ 6,512 Accrued expenses 29,495 24,699 Accrued income taxes 4,262 5,371 Deferred revenue 19,714 13,060 Total current liabilities 60,328 49,642 Postemployment benefits and other 4,336 326 Cumulative share of losses in affiliate, net 5,883 -- Commitments and contingencies (Note 9) Shareholders' equity: Common stock, stated value $.0069 per share Authorized 100,000 shares; outstanding shares - 28,897 and 28,709 net of 1,652 and 1,612 shares in treasury 201 199 Capital in excess of stated value 46,482 45,376 Retained earnings 26,728 39,625 Foreign currency translation adjustment (590) (619) Unrealized holding loss on investments (669) -- Total shareholders' equity 72,152 84,581 Total liabilities and shareholders' equity $142,699 $134,549
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Structural Dynamics Research Corporation Foreign Unrealized Total Common stock Capital in currency holding share- outstanding excess of Retained translation loss on holders' Shares Stated stated value earnings adjustment investments equity value (in thousands) December 31, 1991 27,081 $188 $38,440 $41,882 $(151) $ -- $80,359 Transactions involving employee stock plans 1,178 8 4,621 4,629 Purchases of treasury stock (123) (1) (1,587) (1,588) Net income 9,475 9,475 Foreign currency translation adjustment (428) (428) December 31, 1992 28,136 195 41,474 51,357 (579) -- 92,447 Transactions involving employee stock plans 582 4 4,067 4,071 Purchases of treasury stock (9) (165) (165) Net loss (11,732) (11,732) Foreign currency translation adjustment (40) (40) December 31, 1993 28,709 199 45,376 39,625 (619) -- 84,581 Transactions involving employee stock plans 228 2 1,463 1,465 Purchases of treasury stock (40) (357) (357) Net loss (12,897) (12,897) Foreign currency translation adjustment 29 29 Unrealized holding loss on investments (669) (669) December 31, 1994 28,897 $201 $46,482 $26,728 $(590) $(669) $72,152 See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS Structural Dynamics Research Corporation Year ended December 31 (in thousands) 1994 1993 1992 Cash flows from operating activities: Net income (loss) $(12,897) $(11,732) $ 9,475 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,027 6,990 7,009 Amortization of computer software construc- tion costs 7,137 9,539 3,667 Equity in losses of affiliates 5,329 614 410 Postemployment benefits accounting change 3,896 -- -- Changes in assets and liabilities: (Increase) decrease in accounts receivable, net (16,158) 8,468 (7,989) Increase in prepaid expenses (966) (717) (92) Increase in accounts payable and accrued expenses 5,141 6,433 1,771 (Decrease) increase in accrued income taxes (1,109) 13 4,920 Increase (decrease) in deferred revenue 6,654 (141) 2,761 Increase (decrease) in other long-term liabilities 2,122 -- (77) Net cash provided by operating activities 6,176 19,467 21,855 Cash flows from investing activities: Purchases of investments (32,007) (39,811) (14,890) Proceeds from sales of investments 28,250 39,296 10,628 Additions to property and equipment, net (4,975) (6,150) (8,764) Additions to computer software construction costs (9,534) (11,578) (9,625) Investment in joint ventures (1,823) (1,500) (1,477) Other, net (122) (468) 2 Net cash used in investing activities (20,211) (20,211) (24,126) Cash flows from financing activities: Stock issued under employee benefit plans 1,465 4,071 4,629 Purchases of treasury stock (357) (165) (1,588) Net cash provided by financing activities 1,108 3,906 3,041 Effect of exchange rate changes on cash 29 (40) (428) (Decrease) increase in cash and cash equivalents (12,898) 3,122 342 Cash and cash equivalents: Beginning of period 34,783 31,661 31,319 End of period $21,885 $ 34,783 $ 31,661 Cash paid during the year for income taxes $ 3,528 $ 4,450 $ 3,957 See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Structural Dynamics Research Corporation (in thousands, except per share data) (1) Summary of Significant Accounting Policies (a) Basis of Consolidation The consolidated financial statements include the accounts of the Company and its wholly- owned subsidiaries. Investments in which the Company has significant influence, but not control, are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated. (b) Revenue Recognition The use of software programs is licensed through the Company's direct sales force and by specific arrangements with certain hardware vendors and distributors. Revenue generated from licenses is recognized when the following criteria have been met: (a) a written order for the unconditional license of software has been received, (b) the Company has delivered the products and performed substantially all services for which it was committed, (c) the customer is obligated to pay and (d) collectibility is probable. Under the terms of a former licensing agreement with an OEM customer, the Company was unable to determine the amount of revenue earned until cash was received from the customer. Amounts recorded as revenue on the cash basis were $5,877, $7,877 and $13,599 in 1994, 1993 and 1992, respectively. This licensing agreement was terminated by the Company in 1994. Maintenance revenue is recognized ratably over the term of the agreement and represents the substantial component of deferred revenue. The Company recognizes revenue and expenses from engineering consulting contracts based on the percentage of completion method of accounting. When losses are estimated to occur on these contracts, the entire estimated loss is recognized at that time. (c) Earnings (Loss) Per Share Earnings (loss) per common and common equivalent share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock option grants using the treasury stock method. (d) Cash and Cash Equivalents The Company considers investments in interest bearing accounts, certificates of deposit, commercial paper and reverse repurchase agreements with maturities of less than 90 days to be cash equivalents. Reverse repurchase agreements of $11,549 and $19,555 were held at December 31, 1994 and 1993, respectively. Due to the short-term nature of the agreements, the Company and the trustee do not take possession of the securities, which are segregated in the accounts of the trustee; the Company and the trustee monitor the underlying market values to assure that sufficient collateral exists to cover the initial investment and accrued interest. (e) Investments Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" which requires the Company to distinguish between those securities held for sale and those for which the ability and intent to hold to maturity exists. Unrealized gains and losses on assets held for sale are included in a separate component of equity. The effect of adopting SFAS No. 115 was not material. The Company invests in marketable securities which are available-for-sale and are recorded at market value. The Company also invests in certificates of deposit which are held-to-maturity and are recorded at amortized cost which approximates market value. Realized and unrealized gains and losses are determined based on the specific identification method. (f) Property and Equipment Depreciation is primarily computed on the straight-line method. Leasehold improvements are amortized on the straight-line method over the lesser of the life of the lease or the estimated useful life of the improvement. The general ranges of years used in calculating depreciation and amortization are: computer and other equipment, 2-5 years; office furniture and equipment, 7 years; leasehold improvements, 1-10 years. (g) Computer Software Construction Costs The Company designs, develops and markets computer software products. Costs related to the construction of software are capitalized and are amortized over the useful lives of such software, which are estimated to be no more than five years. Computer software construction costs are shown net of accumulated amortization of $11,573 and $4,436 at December 31, 1994 and 1993, respectively. As of December 31, 1994 and 1993, computer software construction costs, net, include only those costs related to current software products. Amortization is the greater of the amount computed using (a) the ratio that current gross revenue bears to the total of current and anticipated future years' revenue, or (b) the straight-line method over the remaining estimated economic lives of the software products. The Company included in amortization expense approximately $3,311 and $68 for the years ended December 31, 1993 and 1992, respectively, related to software construction costs determined to be non-recoverable. (h) Foreign Currency Translation and Hedging Contracts The functional currency of the engineering services foreign operations is their local currency and their assets and liabilities are translated at year-end exchange rates. Translation gains and losses are not included in determining net income but are accumulated in a separate component of shareholders' equity. For foreign software products and services operations, the U.S. dollar is the functional currency and foreign currency gains and losses, which are not material, are included in determining net income. In 1993 the Company began hedging certain portions of its exposure to foreign currency fluctuations, primarily the Company's net assets in foreign subsidiaries, by utilizing forward foreign exchange contracts. At December 31, 1994, the Company had contracts to exchange foreign currencies totaling $16,500 which matured in January 1995. Gains and losses associated with these financial instruments are recorded currently in income to offset the foreign exchange gains and losses on the assets and liabilities being hedged. The interest element of the foreign currency instruments is recognized over the life of the contract. Should the counterparty to these contracts fail to meet its obligations, the Company would be exposed to foreign currency fluctuations, along with the cost, if any, to extinguish the contracts. (i) Income Taxes Effective January 1, 1992, the Company adopted SFAS No. 109, "Accounting for Income Taxes". The cumulative effect of applying this statement was to increase net income by $700 or $.02 per share in 1992. Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. A valuation allowance is provided against deferred tax assets when the Company believes it is more likely than not that the deferred tax assets will not be realized. The Company does not accrue Federal income taxes on undistributed earnings of its foreign subsidiaries that have been, or are intended to be, permanently reinvested. Undistributed earnings amounted to approximately $3,705 at December 31, 1994. (j) Concentration of Credit Risk The Company's revenue is generated from customers in diversified industries, primarily in North America, Europe and the Far East. In 1994 and 1993, the Company generated revenue from a significant customer aggregating 11%. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains allowances for potential credit losses which management believes to be adequate in the circumstances. The Company invests its excess cash with major financial institutions with strong credit ratings and, by policy, limits the amount of credit exposure in any one such institution. (k) Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, investments, accounts receivable, accounts payable, accrued expenses and forward foreign exchange contracts approximate fair value. (2) Supplemental Consolidated Balance Sheet Data December 31 Trade accounts receivable, net, consists of: 1994 1993 Trade accounts receivable $38,774 $22,918 Allowance for doubtful accounts and reserve for returns and allowances (2,907) (2,351) $35,867 $20,567 December 31, 1994 Fair Amortized Investments consist of: Value Cost Short-term: Available-for-sale U.S. government agency obligations $10,548 $10,741 Held-to-maturity certificates of deposit 6,748 6,748 $17,296 $17,489 Long-term: Available-for-sale U.S. government agency obligations $ 7,059 $ 7,535 Investments available-for-sale have maturities of $10,548 in 1995, $4,392 in 1996, $1,867 in 1997 and $800 in 2013. December 31 Accrued expenses consist of: 1994 1993 Accrued compensation $13,171 $ 9,470 Accrued royalties 3,020 102 Accrued marketing costs 2,715 3,936 Accrued taxes other than income taxes 1,776 2,036 Other 8,813 9,155 $29,495 $24,699 (3) Leases Future minimum lease payments under noncancelable operating leases for the five years ending December 31, 1999 approximate $8,958, $6,770, $5,396, $4,118 and $3,262, respectively, and $36,568 thereafter. Total rental expenses under operating leases for the years ended December 31, 1994, 1993 and 1992 were $13,042, $10,673 and $9,673, respectively. (4) Income Taxes
The provision for income taxes Year ended December 31 consists of the following: 1994 1993 1992 Federal: Current $(1,754) $ -- $ 387 Deferred -- -- (77) (1,754) -- 310 State 411 500 979 Foreign: Income taxes 1,113 444 1,010 Withholding taxes 4,063 3,432 2,833 $ 3,833 $4,376 $5,132
Deferred state and foreign taxes are not material. (4) Income Taxes - continued The provision for income taxes differs from the amounts computed by using the statutory U.S. Federal income tax rate. The Year ended December 31 reasons for the differences are as follows: 1994 1993 1992 Computed expected income tax expense (benefit) $(1,809) $(2,575) $4,728 Increase (reduction) resulting from: Foreign taxes, without current benefit 5,176 3,876 -- U.S. losses without tax benefit 1,809 2,575 -- Receipt of research and experimentation tax credit refund not previously recorded (1,754) -- -- State taxes, net of federal benefit 411 500 646 Research and experimentation credit -- -- (354) Other, net -- -- 112 $3,833 $4,376 $5,132 The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows: Year ended December 31, 1994 1993 Deferred tax assets: Revenue recognition and accounts receivable $ 730 $ 18,276 Property and equipment 1,028 959 Other liabilities and reserves 2,926 998 Tax credit and net operating loss carryforwards 24,412 2,661 Other 792 802 Total deferred tax assets 29,888 23,696 Valuation allowance (19,537) (14,628) Net deferred tax assets 10,351 9,068 Deferred tax liabilities: Computer software construction costs, net of amortization (10,351) (9,068) Total net deferred taxes $ -- $ -- Of the $24,412 in tax credit and net operating loss carryforwards available at December 31, 1994, $10,908 of foreign tax credits expire in the years 1997 through 1999, $2,243 of research and experimentation credits expire in the years 2007 through 2009, $1,017 of alternative minimum taxes never expire and $10,244 of net operating losses expire in the year 2009. The net change in the valuation allowance for deferred tax assets was an increase of $4,909 in 1994 and $8,533 in 1993. Of the $19,537 in valuation allowance at December 31, 1994, $7,908 is attributable to the tax benefit of stock option exercises. Such benefits will be credited to capital in excess of stated value when realized. (5) Postemployment Benefits In the first quarter of 1994, the Company adopted the provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits". This statement requires that entities providing postemployment benefits to their employees accrue the cost of benefits, if attributable to employees' service already rendered. The Company provides severance benefits for involuntarily terminated employees. The cumulative effect of adopting SFAS 112 reduced income by $3,896, net of zero tax benefit, in the first quarter of 1994. In the fourth quarter of 1994 the Company initiated a plan to cut costs and strengthen its competitive position by reducing its workforce by 87 people. These employees were primarily product development, marketing and administrative personnel. As a result, the Company recognized a charge of $1,247 for severance costs and outplacement assistance for employees. In 1994, the Company paid $303 to these employees. At December 31, 1994, the Company had accrued severance benefits of $944 related to this matter. In February, 1995, the Company further reduced its workforce and will record a related charge to income of approximately $1,000. (6) Joint Venture Investments In 1992 the Company and Control Data Systems, Inc. established a joint venture company, Metaphase Technology, Inc. (Metaphase), to develop and market product data management software worldwide. The Company initially owned a 30% interest in Metaphase and increased such interest to 50% during 1993. In March 1994 the Company and Siemens Nixdorf Informationssysteme AG (SNI) formed a joint venture, SDRC Software and Services GmbH (SDRC GmbH), to market mechanical CAE/CAD/CAM software and services in Central Europe. The Company has a 50% interest in the joint venture. Previously, revenue from the Company's activities in this region was reported on a consolidated basis. The SDRC GmbH joint venture agreement requires each venture partner to make additional equity contributions in the event of venture losses. SDRC's future commitment is limited to $2,000 through 1996. The Company's investments in the joint ventures are accounted for on the equity basis. Financial data for the year ended December 31, 1994 for Metaphase and SDRC GmbH is presented below; data for 1993 and 1992 represents only Metaphase: Year ended and as of December 31 1994 1993 1992 Current assets $ 5,905 $ 764 $ 737 Non-current assets 4,426 2,185 836 Current liabilities 8,564 1,075 2,643 Non-current liabilities 6,760 4,670 -- Net revenue 14,379 6,412 737 Loss before income taxes (10,483) (1,756) (1,170) Net loss $(10,502) $(1,756) $(1,170) (7) Shareholders' Rights Plan In 1988 the Board of Directors adopted a Shareholders' Rights Plan to protect shareholders' interests in the event of an unsolicited attempt to gain control of the Company. The Rights become exercisable if a person acquires 20% or more of the Company's outstanding common stock (Common Stock) or announces a tender offer which would result in a person or group acquiring 20% or more of the Common Stock (Distribution Date). If, at any time following the Distribution Date, and the Company has not redeemed the Rights, the Company becomes the surviving corporation in a merger or a person becomes the beneficial owner of 20% or more of the Common Stock (Triggering Date), each holder of a Right will have the right to purchase shares of Common Stock having a value equal to two times the Right's exercise price of $110. If, at any time following the Triggering Date, the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation, each holder of a Right shall have the right to purchase shares of Common Stock of the acquiring company having a value equal to two times the exercise price of the Right. The Rights expire on August 10, 1998, and may be redeemed by the Company for $.0025 per Right. (8) Common Stock and Employee Benefit Plans In 1991 the shareholders adopted the 1991 Employee Stock Option Plan. Under the 1991 plan, the Company has reserved 5,300 shares of previously unissued common stock. Options to purchase such shares may be granted to key employees and executive officers at the fair market value at the date of grant. In 1991 the shareholders also adopted the Director's Non-Discretionary Stock Option Plan which converted the Amended and Restated 1986 Stock Option Plan into a non-discretionary plan allowing future grants to outside directors at the fair market value at the date of grant. Under the original 1986 plan, the Company had reserved 7,000 shares of previously unissued common stock. The status of all outstanding options previously granted to employees remained unchanged. In 1994 the shareholders adopted the 1994 Long-Term Stock Incentive Plan, allowing stock incentives including stock options, stock appreciation rights, stock awards, and combinations thereof, to be granted to employees. The number of shares with respect to which stock incentives may be granted in one calendar year shall not exceed 4% of the Company's issued and outstanding common stock. No stock incentives other than non-qualified stock options have been granted under the 1994 plan. Under the plans, employee options expire ten years from the date of grant and are exercisable as follows: 33% on the first anniversary of the grant date; 67% on the second anniversary; and all or any remaining options on the third anniversary until expiration. Director options expire five years from the date of grant and are exercisable 50% upon expiration of six months from the grant date and all or any remaining options on the first anniversary of the grant date until expiration. As of December 31, 1994 there were approximately 5,318 shares on which options were exercisable. (8) Common Stock and Employee Benefit Plans - continued Transactions with respect to the Company's stock options for the years ended December 31, 1992, Option Price 1993 and 1994 are as follows: Shares Per Share Shares under option December 31, 1991 5,940 $ 1.25-24.44 Granted 1,684 $10.59-28.75 Exercised 1,103 $ 1.25-20.13 Cancelled 135 $ 9.88-23.75 Shares under option December 31, 1992 6,386 $ 1.25-28.75 Granted 1,627 $13.06-20.18 Exercised 439 $ 1.25-16.25 Cancelled 164 $ 9.88-28.75 Shares under option December 31, 1993 7,410 $ 1.38-28.75 Granted 1,357 $ 4.31-15.94 Exercised 154 $ 1.38-15.94 Cancelled 1,368 $ 1.81-28.75 Shares under option December 31, 1994 7,245 $ 1.38-28.75 In 1990 the Company's Board of Directors established a Stock Purchase Plan. Under the plan all domestic full-time employees who are non-executive officers are entitled to purchase the Company's common stock at 90% of fair market value. Employees electing to participate must contribute at least one percent with a maximum of ten percent of the participants' base salary and commissions each month. All incidental expenses related to the issuance of these shares including the 10% discount have been charged to income. The plan has no fixed expiration date, may be terminated by the Company at any time and has no limitation on the number of shares that may be issued. The Company provides retirement benefits to employees principally through contributory defined contribution retirement plans. Expenses related to these plans totaled $2,091, $943 and $1,686 in 1994, 1993 and 1992, respectively. (9) Commitments and Contingencies In September 1994 the Company announced that in the course of an internal examination, it had discovered that a number of purported sales to or through third-party distribution channels apparently did not reflect actual sales and that, as a result, it would be necessary to restate the Company's financial results. The Company issued its restated financial statements for the years ended December 31, 1993, 1992 and 1991 on January 16, 1995. The Company also announced that it had terminated its Vice President and General Manager of Far East Operations. On September 15, 1994 the first of a total of 12 class action lawsuits and two derivative lawsuits was filed. All of these suits were filed in the United States District Court, Southern District of Ohio and alleged a variety of causes of action under the federal securities laws and Ohio corporate law. Two of the class action lawsuits were later voluntarily dismissed. The remaining cases were then consolidated into one proceeding. The complaint demands money damages in an unspecified amount. The plaintiffs in this case presently consist of 22 individuals who allegedly purchased shares of the Company's Common Stock between February 3, 1992 and September 14, 1994. The consolidated complaint contains allegations intended to support the certification of a class of plaintiffs. The defendants include the Company, certain directors and former officers. The Securities and Exchange Commission has commenced a formal, private investigation of the Company arising out of the same facts which gave rise to the above-described litigation. The Company intends to defend itself vigorously in this litigation but is unable, at this time, to determine the amount of loss, if any, that may result from these matters. Management does not believe the ultimate outcome of these matters will have a material adverse impact on the Company's financial position. Pursuant to certain contractual obligations, the Company has agreed to indemnify its directors and officers under certain circumstances against claims arising from lawsuits. The Company may be obligated to indemnify certain of its directors and officers for the costs they may incur as a result of the lawsuits. The Company is involved in other legal proceedings arising from the normal course of business, none of which, in management's opinion, is expected to have a material adverse impact on the Company's financial position. (10) Segment and Geographic Information Depreciation and Financial data Operating Identifiable Amortization Capital by segment: Revenue Income (Loss) Assets Expense Expendi- tures Year ended December 31, 1994 Software products and services $148,450 $ (2,247) $ 82,436 $4,852 $4,259 Engineering services 19,097 165 9,030 1,061 391 Corporate -- -- 51,233 1,114 325 Consolidated $167,547 $( 2,082) $142,699 $7,027 $4,975 Year ended December 31, 1993 Software products and services $127,473 $ (8,657) $ 67,922 $4,521 $4,340 Engineering services 20,132 273 8,455 1,316 1,323 Corporate -- -- 58,172 1,153 487 Consolidated $147,605 $(8,384) $134,549 $6,990 $6,150 Year ended December 31, 1992 Software products and services $126,517 $12,084 $ 63,562 $4,271 $7,101 Engineering services 22,524 129 9,721 1,453 750 Corporate -- -- 62,847 1,285 913 Consolidated $149,041 $12,213 $136,130 $7,009 $8,764 Financial data by geographic area (Corporate general expenses are not allocated to operating income by Operating Identifiable geographic area): Revenue Income(Loss) Assets Year ended December 31, 1994 North America $ 71,805 $ 5,615 $ 59,168 Europe 46,027 (599) 26,102 Far East 49,715 1,079 6,196 Corporate -- (8,177) 51,233 Consolidated $167,547 $(2,082) $142,699 Year ended December 31, 1993 North America $ 57,760 $ 1,407 $ 41,821 Europe 47,497 (8,142) 30,352 Far East 42,348 4,209 4,204 Corporate -- (5,858) 58,172 Consolidated $147,605 $(8,384) $134,549 Year ended December 31, 1992 North America $ 54,188 $ 3,875 $ 40,550 Europe 49,266 783 24,200 Far East 45,587 14,447 8,533 Corporate -- (6,892) 62,847 Consolidated $149,041 $12,213 $136,130 (11) Quarterly Results of Operations (Unaudited) The following table sets forth selected unaudited quarterly financial information for 1994 and 1993. The Company believes that all necessary adjustments have been included to present fairly the selected quarterly information. Three months ended Year ended March 31, June 30, September December December 1994 1994 30, 1994 31, 1994 31, 1994 Net revenue $36,795 $42,709 $42,500 $45,543 $167,547 Operating results (3,327) 3,507 1,535 (3,797) (2,082) Net income (loss) (8,210) 1,592 8 (6,287) (12,897) Earnings (loss) per share (.27) .05 -- (.22) (.45)* Three months ended Year ended March 31, June 30, September December December 1993 1993 30, 1993 31, 1993 31, 1993 Net revenue $33,506 $40,428 $35,057 $38,614 $147,605 Operating results (47) (2,456) (4,117) (1,764) (8,384) Net loss (636) (3,657) (4,991) (2,448) (11,732) Loss per share (.02) (.12) (.16) (.08) (.39)* *Per share amounts are not additive. EX-21 5 EXHIBIT 21 STRUCTURAL DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT State or Other Jurisdiction Name of Incorporation SDRC Engineering Services Division, Inc. Ohio SDRC Software Products Marketing Division, Inc. Ohio SDRC Systems, Inc. Ohio SDRC U.K. Limited United Kingdom SDRC Italia, Srl. Italy SDRC Korea Limited South Korea SDRC Svenska AB Sweden SDRC Singapore Pte. Ltd. Singapore SDRC Nederland B.V. Netherlands SDRC AG Switzerland SDRC Belgium N.V./S.A. Belgium SDRC France S.A. France SDRC Espaua, S.A. Spain SDRC Japan K.K. Japan SDRC Software and Services, GmbH Germany Note: All of the above corporations are wholly-owned subsidiaries of the Registrant except SDRC U.K. Limited, which is .1% owned by the Registrant, 49.9% owned by SDRC Engineering Services Division, Inc. and 50% owned by SDRC Software Products Marketing Division, Inc., SDRC France S.A., which is a majority owned subsidiary of SDRC Software Products Marketing Division, Inc., SDRC Japan K.K. which is a wholly-owned subsidiary of SDRC Software Products Marketing Division, Inc. and SDRC Software and Services, GmbH which is a joint venture company 50.1% owned by the Registrant and 49.9% owned by Siemens Nixdorf Informationssysteme AG. EX-23 6 EXHIBIT 23 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-20774, 33-22136, 33- 40561, 33-41671 and 33-46011) of Structural Dynamics Research Corporation of our report dated February 15, 1995 appearing on page 32 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule and our report dated March 24, 1995 on the financial statements of SDRC Software and Services, GmbH which is included in this Form 10-K. Price Waterhouse LLP Cincinnati, Ohio March 28, 1995 Report of Independent Accountants To the Shareholder Council and Shareholders of SDRC Software and Services, GmbH In our opinion, the accompanying balance sheet and the related statements of operations, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of SDRC Software and Services, GmbH at December 31, 1994, and the results of its operations and its cash flows for the nine months ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Price Waterhouse LLP Cincinnati, Ohio March 24, 1995 STATEMENT OF OPERATIONS SDRC Software and Services, GmbH For the Nine Months Ended December 31, 1994 Revenue: Software products and services $ 6,276 Maintenance 2,209 Net revenue 8,485 Cost and expenses: Cost of revenue 3,011 Research and development expenses 4,329 Selling, general and administrative expenses 10,603 Total cost and expenses 17,943 Operating loss (9,458) Other income, principally interest 63 Loss before income taxes (9,395) Income tax expense 11 Net loss $(9,406) See accompanying notes to financial statements. BALANCE SHEET SDRC Software and Services, GmbH As of December 31, 1994 (in thousands, except per share data) Assets Current assets: Cash $ 1,907 Trade accounts receivable, net 2,741 Other assets 6 Total current assets 4,654 Property and equipment, at cost: Computer and other equipment 1,567 Office furniture and equipment 251 Leasehold improvements 169 1,987 Less accumulated depreciation and amortization (640) Net property and equipment 1,347 Total assets $ 6,001 Liabilities and Shareholders' Equity Current liabilities: Accounts payable - trade $ 512 Accounts payable - related party 2,788 Accrued expenses - trade 1,482 Accrued expenses - related party 1,243 Deferred revenue 1,079 Total current liabilities 7,104 Shareholders' equity: Common stock, nominal value 1,000,000 deutsche marks per share. Authorized and outstanding 1 share. 586 Capital in excess of stated value 7,717 Accumulated deficit (9,406) Total shareholders' equity (1,103) Total liabilities and shareholders' equity $ 6,001 See accompanying notes to financial statements. STATEMENT OF SHAREHOLDERS' EQUITY SDRC Software and Services, GmbH Common stock Capital Total outstanding in excess Retained share- Share Stated of stated earnings holders' (in thousands) Value value Initial capitalization April 1, 1994 1 $586 $1,007 $ -- $ 1,593 Additional equity contributions -- -- 6,710 -- 6,710 Net loss -- -- -- (9,406) (9,406) December 31, 1994 1 $586 $7,717 $(9,406) $(1,103) See accompanying notes to financial statements. STATEMENT OF CASH FLOWS SDRC Software and Services, GmbH For the Nine Months Ended December 31, 1994 (in thousands) Cash flows from operating activities: Net loss $ (9,406) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 640 Changes in assets and liabilities: Increase in accounts receivable, net (2,741) Increase in other assets (6) Increase in accounts payable 3,300 Increase in accrued expenses 2,725 Increase in deferred revenue 1,079 Net cash used in operating activities (4,409) Cash flows from investing activities: Additions to property and equipment, net (1,987) Net cash used in investing activities (1,987) Cash flows from financing activities: Stock issuance 1,593 Additional equity contributions 6,710 Net cash provided by financing activities 8,303 Increase in cash and cash equivalents 1,907 Cash and cash equivalents: Beginning of period -- End of period $ 1,907 See accompanying notes to financial statements. NOTES TO FINANCIAL STATEMENTS SDRC Software and Services, GmbH (in thousands) (1) Summary of Significant Accounting Policies (a) Basis of Presentation In 1994, Structural Dynamics Research Corporation (SDRC) and Siemens Nixdorf Informationssysteme AG (SNI) formed a joint venture company, SDRC Software and Services, GmbH to supply mechanical CAE/CAD/CAM software and services in Central Europe. SDRC owns 50.1% and SNI owns 49.9% of the Company. The initial contribution was in the form of cash, assets, software and software license agreements. (b) Revenue Recognition The use of software programs is licensed through the Company's direct sales force and by specific arrangements with certain hardware vendors and representatives. Revenue generated from licenses is recognized when the following criteria have been met: (a) a written order for the unconditional license of software has been received, (b) the Company has delivered the products and performed substantially all services for which it was committed, (c) the customer is obligated to pay and (d) collectibility is probable. When customers have the right to return products, revenue recognition is deferred until the right to return expires. Maintenance revenue is recognized ratably over the term of the agreement and represents the substantial component of deferred revenue. (c) Cash The Company invests its excess cash with a major financial institution with a strong credit rating. Excess cash, above weekly operating needs, is deposited in a demand deposit account in order to maximize interest income. (d) Property and Equipment Depreciation is primarily computed on the straight-line method. Leasehold improvements are amortized on the straight-line method over the lesser of the life of the lease or the estimated useful life of the improvement. The general ranges of years used in calculating depreciation and amortization are: computer and other equipment, 2-5 years; office furniture and equipment, 5 years; leasehold improvements, 2 - 5 years. (e) Income Taxes The Company complies with SFAS No. 109 "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. A valuation allowance is provided against deferred tax assets when the Company believes it is more likely than not that the deferred tax assets will not be realized. (f) Concentration of Credit Risk The Company's revenue is generated from customers in diversified industries, primarily in Germany (91%) and Austria (9%). The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains allowances for potential credit losses which management believes to be adequate in the circumstances. (g) Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value. (2) Supplemental Balance Sheet Data Trade accounts receivable, net, as of December 31, 1994 consists of: Trade accounts receivable $2,865 Allowance for doubtful accounts and reserve for returns and allowances (124) $2,741 Accrued expenses as of December 31, 1994 consist of: Accrued compensation $1,072 External development expenses 470 Software distribution costs 359 Accrued royalties 191 Other 633 $2,725 (3) Leases Future minimum lease payments under noncancelable operating leases for the five years ending December 31, 1999 approximate $1,586, $1,240, $696, $403, and $175, respectively. Total rental expense under operating leases for the nine months ended December 31, 1994 was $1,271. (4) Income Taxes The Company has generated a net operating loss (NOL) of $9,406 for the nine months ending December 31, 1994. There was no income tax provisions made in the financial statements for the nine months ended December 31, 1994. No tax benefit has been currently recognized for the NOL as the realization is not assured. Income tax expense represents withholding taxes related to interest income. (5) Related Party Transactions The Company and SDRC have entered into an agreement whereby the Company is entitled to license software products developed by SDRC in exchange for royalty payments. The royalty payments are calculated as a percentage of the current local country list price. For 1994 the joint venture agreement requires each joint venture partner to make additional equity contributions in the event of venture losses. The agreement also stipulates additional contributions denominated in deutsche marks (DM). SNI will contribute 28,125 DM or $17,907 through 1997 and SDRC will contribute 3,200 DM or $2,037 through 1996. The following transactions were recorded by the Company as a result of transactions with SDRC and SNI/Siemens AG for the nine months ended December 31, 1994: SDRC SNI/Siemens AG Royalty fees $2,668 $ 191 Development expenses -- 1,530 Software distribution -- 359 expenses Facility and administrative expenses -- 289 Management allocation to Switzerland (174) -- Amounts owed or accrued, net at December 31, 1994 $2,566 $1,465 EX-27 7 FINANCIAL DATA SCHEDULE FOR 1994
5 1000 YEAR DEC-31-1994 DEC-31-1994 21885 17296 45534 2907 0 87918 49316 35537 142699 60328 0 201 0 0 71951 142699 167547 167547 0 169629 0 424 1 (5168) 3833 (9001) 0 0 (3896) (12897) (.45) (.45)
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