<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21 1998
REGISTRATION NO. 333-48261
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES
ACT OF 1933
---------------
UNIGRAPHICS SOLUTIONS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 75-2728894
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
13736 RIVERPORT DRIVE
MARYLAND HEIGHTS, MISSOURI 63043
(314) 344-5900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JOHN J. MAZZOLA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UNIGRAPHICS SOLUTIONS INC.
13736 RIVERPORT DRIVE
MARYLAND HEIGHTS, MISSOURI 63043
(314) 344-5900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
MICHAEL A. SASLAW JERRY V. ELLIOTT
BAKER & BOTTS, L.L.P. SHEARMAN & STERLING
2001 ROSS AVENUE 599 LEXINGTON AVENUE
DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10022
(214) 953-6500 (212) 848-4000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
par value $.01 per
share................. 6,595,250 shares $15.00 $98,928,750 $29,184(3)
</TABLE>
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(1) Includes 860,250 shares of Class A Common Stock which the U.S.
Underwriters have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee, in
accordance with Rule 457(a) promulgated under the Securities Act.
(3) $36,875 was paid on March 19, 1998 in connection with the initial filing
of the registration statement.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus" and, together with the U.S.
Prospectus, the "Prospectuses"). The Prospectuses are identical in all
material respects except for the front cover page. The U.S. Prospectus is
included herein and is followed by the alternate front cover page to be used
in the International Prospectus. The alternate page for the International
Prospectus included herein is labeled "Alternate Page for International
Prospectus." Final forms of each Prospectus will be filed with the Securities
and Exchange Commission under Rule 424(b).
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued May 21, 1998
5,735,000 Shares
Unigraphics Solutions Inc.
CLASS A COMMON STOCK
-----------
OF THE 5,735,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED, 4,588,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,147,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. ALL OF THE SHARES
OF CLASS A COMMON STOCK BEING OFFERED ARE BEING SOLD BY UNIGRAPHICS SOLUTIONS
INC., WHICH IS CURRENTLY A WHOLLY OWNED SUBSIDIARY OF ELECTRONIC DATA SYSTEMS
CORPORATION. PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
CLASS A COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE PER SHARE OF CLASS A COMMON STOCK WILL BE BETWEEN $13 AND $15.
SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE.
-----------
HOLDERS OF CLASS A COMMON STOCK GENERALLY HAVE RIGHTS IDENTICAL TO THOSE OF
HOLDERS OF CLASS B COMMON STOCK, EXCEPT THAT HOLDERS OF CLASS A COMMON STOCK
ARE ENTITLED TO ONE VOTE PER SHARE WHILE HOLDERS OF CLASS B COMMON STOCK ARE
ENTITLED TO 10 VOTES PER SHARE ON ALL MATTERS SUBMITTED TO A VOTE OF
STOCKHOLDERS. HOLDERS OF CLASS A COMMON STOCK ARE GENERALLY ENTITLED TO VOTE
WITH THE HOLDERS OF CLASS B COMMON STOCK AS ONE CLASS ON ALL MATTERS AS TO
WHICH THE HOLDERS OF CLASS B COMMON STOCK ARE ENTITLED TO VOTE. SEE
"DESCRIPTION OF CAPITAL STOCK." UPON COMPLETION OF THE OFFERING, EDS WILL OWN
100% OF THE OUTSTANDING CLASS B COMMON STOCK OF THE COMPANY, WHICH WILL
REPRESENT APPROXIMATELY 98.2% OF THE COMBINED VOTING POWER OF ALL CLASSES OF
VOTING STOCK IN THE COMPANY (APPROXIMATELY 97.9% IF THE U.S. UNDERWRITERS' OVER-
ALLOTMENT OPTION IS EXERCISED IN FULL). SEE "RELATIONSHIP WITH EDS AND CERTAIN
TRANSACTIONS."
-----------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "UGS," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............................. $ $ $
Total(3).............................. $ $ $
</TABLE>
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(1) The Company and EDS have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 860,250
additional Shares of Class A Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in full,
the total price to public, underwriting discounts and commissions and
proceeds to Company will be $ , $ and $ , respectively. See
"Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Shearman & Sterling, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about June , 1998, at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
J.P. MORGAN & CO.
June , 1998
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE CLASS A COMMON STOCK OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Class A Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary..................................................... 3
Risk Factors........................................................... 10
Special Note Regarding Forward-Looking Statements...................... 17
Use of Proceeds........................................................ 18
Dividend Policy........................................................ 18
Capitalization......................................................... 19
Dilution............................................................... 20
Pro Forma Financial Information........................................ 21
Selected Financial and Operating Data.................................. 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 27
Business............................................................... 38
Management............................................................. 53
Security Ownership of Management and Principal Stockholder............. 63
Relationship with EDS and Certain Transactions......................... 64
Description of Capital Stock........................................... 67
Shares Eligible for Future Sale........................................ 76
Certain Federal Income Tax Consequences for Non-United States Holders.. 78
Underwriters........................................................... 80
Legal Matters.......................................................... 83
Experts................................................................ 83
Additional Information................................................. 84
Index to Financial Statements.......................................... F-1
</TABLE>
----------------
For investors outside the United States: No action has been or will be taken
in any jurisdiction by the Company or any Underwriter that would permit a
public offering of the Class A Common Stock or possession or distribution of
this Prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about, and to observe any restrictions as to, the offering of the Class A
Common Stock and the distribution of this Prospectus.
In this Prospectus, references to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
----------------
The Company owns or otherwise has rights to trademarks and trade names that
it uses in conjunction with the sale of its products. Unigraphics
Solutions(TM), Unigraphics(R), Solid Edge(R), Parasolid(R) and IMAN(R), among
others, are trademarks that are owned by the Company. This Prospectus also
makes reference to trademarks of companies other than those of the Company.
Where other companies or their trademarks are referenced in this Prospectus,
such companies make no representation or endorsement as to the securities
offered hereby or the information contained herein.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CLASS A
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THE OFFERING AND MAY BID FOR, AND PURCHASE, SHARES OF CLASS A COMMON STOCK IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
Unigraphics Solutions/TM/
[Logo of Parasolid, Solid Edge, Unigraphics and IMAN]
Mid-Range thru High End product Development Solutions
[Graphics of products designed with the Company's software]
Boeing Space Systems
Titleist and Foot-Joy Worldwide
LG Electronics Design Tech, Ltd.
Pratt & Whitney
Mosley Automotive
Detroit Diesel
Sunbeam Product Design Group
Boeing
Abu AB
Gencorp/Aerojet
Aircom Manufacturing Inc.
Seiko Instruments Inc.
Jura EA AG
APPH Ltd.
SOCOMEC S.A.
Ericsson Inc.
Electrodrives Ltd.
Decathlon
Univ. of Bohemia
Classic Design
Creaholic S.A.
Howald AG
Ryobi Motor Products
Dalian Locomotive & Rolling Stock
Lucent Technologies
European Gas Turbines
Origin Medsystems Inc.
Dresser-Rand
Sundstrand Aerospace
STN Atlas Elektronik GmbH
General Motors Do Brazil
IAI ELTA
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. Unless otherwise indicated, all information contained in this
Prospectus assumes that the U.S. Underwriters' over-allotment option is not
exercised. As used herein, references to the "Company" include the historical
operating results and activities of, and assets and liabilities assigned to,
the business and operations which comprise the Company as of the date hereof.
The following terms used in this Prospectus have the respective meanings
assigned to them: (i) CAD--computer-aided design; (ii) CAM--computer-aided
manufacturing; (iii) CAE--computer-aided engineering; (iv) MCAD--the mechanical
CAD/CAM/CAE business; (v) PDM--product data management; and (vi) seat--a
configuration of the Company's software products that can be operated by a
single user.
THE COMPANY
The Company is a leading global provider of scalable, integrated, enterprise-
level MCAD solutions that are used for virtual product development principally
in the automotive and transportation, aerospace, consumer products, equipment
and machinery and electronics industries. The Company's MCAD solutions consist
of both software products and consulting services. The Company's software
products allow customers to reduce design, engineering and manufacturing costs
and minimize the time between a product's inception and its introduction to the
market while simultaneously improving product quality. Through MCAD, product
design is accomplished digitally, eliminating the need for paper drawings or
physical prototypes. With digital assemblies, fit, tolerances and moving
mechanisms, as well as design alternatives, can be tested before a physical
product has been made. For example, automobile designers can virtually "open"
the door or trunk and can "walk around" a digital three-dimensional ("3-D")
model of a car to assess its design. MCAD systems produce large volumes of data
which can be managed by the Company's product data management ("PDM") software.
The Company's PDM software makes the most current product data readily
accessible to all appropriate users throughout a manufacturing enterprise. Some
of the Company's significant customers, located worldwide, include General
Motors Corporation ("GM"), The Boeing Company ("Boeing"), Ericsson Telecom AB
("Ericsson") and General Electric Company ("GE").
The Company offers a full line of design, analysis and manufacturing software
products that meets the diverse needs of its customer base, which includes a
spectrum of companies from multinational corporations to small machine shops.
The Company addresses all aspects of digital product development, including (i)
product modeling, (ii) product information management, (iii) data transfer and
(iv) process re-engineering. The Company's integrated, scalable software
solutions range from Unigraphics, its high-end MCAD software product suite for
complex design, manufacture and assembly projects, to Solid Edge, its Windows-
based, easy-to-use design and drafting product. Both Unigraphics and the latest
version of Solid Edge, Version 5.0 (which was released in May 1998), are based
on the Company's core solid modeling kernel, Parasolid. As a result, the
Company can differentiate itself from its competitors by enabling Unigraphics
and Solid Edge to seamlessly share geometric data without the need for
translation. The Company's PDM software, IMAN, works in conjunction with both
the Company's and third parties' MCAD software to organize and manage the large
volume of data and numerous versions associated with the typical digital
product model. A key element of the Company's product development strategy is
the management, visualization and simulation of product data across the World
Wide Web ("Web") so that model data may be shared among all users of the
Company's MCAD and PDM products and companion applications. In addition, the
Company offers a full range of customization, implementation and integration
consulting services that enables customers to re-engineer their methods of
virtual product development by optimizing the use of the Company's software.
Through its Unigraphics, Solid Edge, Parasolid and IMAN products, the Company
served more than 4,000 customers worldwide at December 31, 1997, comprising an
aggregate of over 93,000 seats. Of these seats, there were over 49,000
Unigraphics seats, over 9,000 Solid Edge seats, over 72,000 Parasolid seats
(including over
3
<PAGE>
49,000 seats embedded in Unigraphics) and over 12,000 IMAN seats. With its
suite of core products, its large worldwide installed seat base and the
continuing evolution of Parasolid as a solid modeling standard for MCAD
software, the Company believes that it is well positioned to take advantage of
the MCAD market's varying demands for software functionality, virtual product
development and product data management.
BUSINESS STRATEGY
Demand in MCAD and PDM markets is dictated by the needs of users throughout
companies of all sizes and across extended enterprises to collaborate on
virtual product development. These users often require different levels of
software functionality. The Company's strategy is to offer a variable,
customizable combination of software products and implementation and
integration services to address the product and process complexities associated
with design and assembly projects. The key elements of the Company's strategy
include:
PROVIDING A FULL RANGE OF INTEGRATED SCALABLE ENTERPRISE SOLUTIONS. The
Company provides a full range of MCAD software products to meet the needs of
its customers, from its high-end Unigraphics product suite to its mid-range
offering, Solid Edge. Both Solid Edge 5.0 and Unigraphics are integrated
through the use of the Company's core solid modeler, Parasolid, thereby
allowing Unigraphics and Solid Edge to seamlessly share geometric data without
the need for translation. Unigraphics is scalable with the ability to add
modules or features to fit the needs of the Company's customers, thereby
reducing hardware system requirements. Solid Edge's Windows capabilities
improve design engineering productivity, shorten learning curves and reduce
training costs. The Company believes that it is well positioned because each of
its customers can buy the precise software product or products that meet that
customer's particular needs and allow its users to share data within a single
organization or throughout several organizations.
ESTABLISHING PARASOLID AS A SOLID MODELING STANDARD. The Company believes
that Parasolid has emerged as the mid-range MCAD solid modeling standard while
being fully capable of addressing the demanding requirements of high-end MCAD
software. Unigraphics, the Company's high-end MCAD offering, is based on
Parasolid. The Company licenses Parasolid for incorporation into mid-range MCAD
software products such as Dassault Systemes S.A.'s ("Dassault") Solid Works and
Parametric Technology Corporation's ("Parametric") DesignWave. In addition,
Bentley Systems, Inc. ("Bentley") has recently incorporated Parasolid in its
mid-range product, MicroStation Modeler, to Parasolid. The Company also
licenses Parasolid to various third-party niche software application
developers, who create Parasolid-compatible specialized applications that
enhance the functionality of Unigraphics and Solid Edge. Accordingly, the
Company expects that the growing prevalence of Parasolid-based applications
will make Parasolid part of the buying criteria for MCAD software, thereby
giving Unigraphics, the only high-end MCAD product to use Parasolid, an
advantage over competing high-end products.
OFFERING FULL FUNCTION PRODUCT DATA MANAGEMENT. The Company believes that
IMAN is one of the industry's most functional product data management tools for
engineering applications. IMAN captures, manages and provides enterprise-wide
access to the large volume of data generated throughout the virtual product
development cycle. IMAN's technology is scalable for use within a wide range of
customer implementations, extending from small Unigraphics-centric design teams
to globally distributed enterprises with thousands of concurrent users across
many functional areas, such as engineering, manufacturing, marketing and
procurement. The Company believes that IMAN's strengths lie in (i) its tight
integration with Unigraphics, which enables IMAN to manage the complex
interrelationships among Unigraphics files, (ii) its variant configuration
modeling, which facilitates the definition of the modularized, rules-based
views of the bill of materials that are required for efficient manufacturing of
customized products and (iii) its object-oriented architecture, which enables
designers to share data across an enterprise. A key element of the Company's
PDM strategy is utilizing Web-based technologies to provide a common framework
for the visualization, simulation and management of product data. The Company's
Web technologies provide enterprise-wide access to the virtual product model
and associated specification data, enabling organizations outside of the
traditional users of the Company's MCAD products to utilize the data. For
example, marketing departments can view virtual products and provide immediate
feedback during the product development process.
4
<PAGE>
MAINTAINING TECHNOLOGICAL LEADERSHIP. The Company is focused on continually
developing and acquiring the most technologically advanced MCAD products.
Unigraphics' breadth of modeling functionality combines complex surface design
capabilities with advanced feature and solid modeling while providing some of
the most advanced CAM technology on the market today. Solid Edge, which has
pioneered advances in ease of use, was developed with native Windows
functionality, including familiar "drag and drop" features, menu driven
options, dialog boxes and on-line help, and was the first mechanical CAD
product to be certified as Microsoft Office compatible. In order to maintain
its technological leadership, the Company releases major enhancements
containing significant improvements to each of its four core products
approximately twice per year. In addition, the Company has developed UG/WAVE, a
next generation parametric approach to top-down product design that allows
"what-if" evaluations of engineering alternatives. For example, UG/WAVE allows
engineers to more efficiently evaluate at the system level the impact of
changes in wing design on the aerodynamic performance of an airplane.
LEVERAGING AND EXPANDING ITS CUSTOMER BASE. The Company intends to expand its
user base by increasing sales to existing customers and to new customers by
expanding its sales force and by utilizing Web-based distribution. The Company
intends to increase the licensing of its MCAD software to its existing customer
base by offering an affordable integrated scalable product line. The Company is
targeting existing users of two-dimensional ("2-D") software by marketing the
latest version of Solid Edge as an affordable, easy-to-use 3-D product. The
Company intends to increase the size of its customer base by marketing to the
suppliers of its aerospace and automotive original equipment manufacturers
("OEMs"). The Company believes that both of its MCAD software offerings are
attractive to suppliers who seek to meet OEM requirements because (i)
Unigraphics is available in discrete modules to allow users to purchase only
the Unigraphics capabilities their businesses require and (ii) Solid Edge is an
affordable easy-to-use MCAD software package that will have the ability to
seamlessly transfer geometric data to high-end Unigraphics users. As part of
the Solid Edge Acquisition (as hereinafter defined), the Company acquired
Engineering Modeling Systems Software ("EMS"), a high-end MCAD product, which
had over 6,000 seats at December 31, 1997. The Company will seek to convert EMS
customers to Unigraphics or Solid Edge.
RECENT DEVELOPMENTS
SOLID EDGE ACQUISITION. On March 2, 1998, the Company completed the
acquisition (the "Solid Edge Acquisition") of the MCAD business of Intergraph
Corporation ("Intergraph") consisting of the Solid Edge and EMS product lines
(the "Solid Edge/EMS Business") for a purchase price of $105 million (excluding
approximately $2 million of acquisition costs). The Solid Edge Acquisition
involved the direct transfer to the Company of the intellectual property rights
(through the ownership of some intellectual property and a perpetual, royalty-
free license for the remaining intellectual property) needed to modify and
improve all acquired or licensed intellectual property and to own any
modifications or improvements that it makes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Solid Edge
Acquisition."
Generally, Intergraph's customer contracts for Solid Edge and EMS also
covered other products and services of Intergraph. Therefore, such contracts
were not assigned to the Company. However, the Company will provide products
and services under such contracts as they relate to the Solid Edge/EMS
Business, and will receive the related economic benefits, until such time as
the Company and those Solid Edge and EMS customers enter into new agreements.
RELATIONSHIP WITH EDS. The Company is a newly-formed Delaware corporation
and, prior to the Offering (as hereinafter defined), a direct wholly owned
subsidiary of Electronic Data Systems Corporation ("EDS"). Upon completion of
the Offering, EDS will own 100% of the outstanding Class B Common Stock, par
value $.01 per share (the "Class B Common Stock"), of the Company representing
approximately 98.2% of the combined voting power of all classes of voting stock
of the Company (approximately 97.9% if the U.S. Underwriters' over-allotment
option is exercised in full). As long as EDS beneficially owns a majority of
the
5
<PAGE>
combined voting power, it will have the ability to elect all of the members of
the Board of Directors of the Company (the "Board of Directors") and ultimately
to control the management and affairs of the Company. See "Risk Factors--
Relationship with EDS."
Pursuant to a reorganization consummated effective as of January 1, 1998 (the
"Reorganization"), the Company became the successor to the MCAD businesses of
EDS which were formerly operated within several business units of EDS. In order
to fund the purchase price and expenses in connection with the Solid Edge
Acquisition, the Company borrowed $105 million from EDS pursuant to the
Intercompany Credit Agreement (as hereinafter defined). In addition, effective
March 6, 1998, the Company issued to EDS as a dividend a $73 million note (the
"Intercompany Note"). The net proceeds from the Offering (as hereinafter
defined) will be used to repay indebtedness to EDS outstanding under the
Intercompany Credit Agreement and any remaining proceeds will be applied to
reduce amounts owed to EDS under the Intercompany Note. In connection with the
Reorganization, the Company entered into certain agreements with EDS and its
affiliates, the terms of which were generally effective as of January 1, 1998.
See "Risk Factors--Relationship with EDS," "Relationship with EDS and Certain
Transactions--Contractual Arrangements" and "Pro Forma Financial Information."
----------------
The Company's executive offices are located at 13736 Riverport Drive,
Maryland Heights, Missouri, 63043, and its telephone number is (314) 344-5900.
6
<PAGE>
THE OFFERING
The offering hereby of 4,588,000 shares of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock" and, together with the Class B
Common Stock, the "Common Stock"), of the Company initially being offered in
the United States and Canada (the "U.S. Offering") and the offering of
1,147,000 shares of Class A Common Stock initially being offered outside the
United States and Canada (the "International Offering") are collectively
referred to as the "Offering." The closing of each of the U.S. Offering and the
International Offering is conditioned on the closing of the other.
Class A Common Stock
Offered:
U.S. Offering......... 4,588,000 shares(1)
International
Offering.............. 1,147,000 shares
Total.............. 5,735,000 shares(1)
Common Stock to Be
Outstanding After the
Offering:
Class A Common
Stock................. 5,735,000 shares(1)(2)
Class B Common
Stock................. 31,265,000 shares
Total.............. 37,000,000 shares(1)(2)
Use of Proceeds........... The net proceeds to the Company from the Offering
are estimated to be approximately $73.7 million.
Such net proceeds will be used to repay
indebtedness to EDS outstanding under the
Intercompany Credit Agreement and any remaining
proceeds will be applied to reduce amounts owed to
EDS under the Intercompany Note. See "Use of
Proceeds."
Voting Rights............. The holders of Class A Common Stock generally have
rights identical to holders of Class B Common
Stock, except that holders of Class A Common Stock
are entitled to one vote per share and holders of
Class B Common Stock are entitled to 10 votes per
share. The Class A Common Stock and Class B Common
Stock generally will vote together as a single
class on all matters except as otherwise required
by Delaware law. See "Description of Capital
Stock--Common Stock--Voting Rights." Under certain
circumstances, Class B Common Stock will
automatically convert to Class A Common Stock. See
"Description of Capital Stock--Common Stock--
Conversion."
Proposed New York Stock
Exchange Symbol...... UGS
- --------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised.
(2) Does not include approximately 800,000 shares of Class A Common Stock
subject to issuance pursuant to options to be awarded under the Company's
1998 Incentive Plan. See "Management--1998 Incentive Plan."
RISK FACTORS
See "Risk Factors" immediately following the Prospectus Summary for a
discussion of certain factors that should be considered in evaluating an
investment in the Class A Common Stock.
7
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data of the Company with respect to each of
the years in the three-year period ended December 31, 1997 and the three-month
periods ended March 31, 1997 and 1998 are derived from the financial statements
of the Company prepared in accordance with generally accepted accounting
principles. The summary historical statement of operations and balance sheet
data as of December 31, 1996 and 1997 and each of the years in the three-year
period ended December 31, 1997 are derived from the financial statements of the
Company, which were audited by KPMG Peat Marwick LLP, independent certified
public accountants. The summary historical statement of operations and balance
sheet data presented below as of December 31, 1995 and March 31, 1997 and 1998
and the three-month periods ended March 31, 1997 and 1998 are derived from the
unaudited financial statements of the Company which, in the opinion of
management of the Company, include all adjustments necessary for a fair
presentation of the results of such unaudited periods. The historical financial
information may not be indicative of the Company's future performance and does
not necessarily reflect what the financial position and results of operations
of the Company would have been had the Company operated as a separate, stand-
alone entity during the periods covered. The unaudited pro forma statement of
operations data below assumes the Reorganization, the Solid Edge Acquisition,
the issuance of the Intercompany Note and the Offering and the application of
the estimated net proceeds therefrom occurred on January 1, 1997. The unaudited
pro forma balance sheet data presented below assumes the Offering and the
application of the estimated net proceeds therefrom had occurred on March 31,
1998. The following information should be read in conjunction with, and is
qualified in its entirety by reference to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Pro Forma
Financial Information and the financial statements and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------ ---------------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997(1) 1997 1998 1998(1)
-------- -------- -------- --------- --------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Software............... $ 89,103 $209,480 $115,479 $134,463 $ 26,236 $ 31,560 $ 33,949
Services............... 111,575 121,528 137,794 154,028 30,547 37,885 40,275
Hardware............... 66,944 83,201 61,320 61,320 12,344 17,083 17,083
-------- -------- -------- -------- --------- --------- --------
Total revenue........ $267,622 $414,209 $314,593 $349,811 $ 69,127 $ 86,528 $ 91,307
======== ======== ======== ======== ========= ========= ========
Gross profit(2)......... $158,557 $274,389 $185,469 $206,249 $ 40,520 $ 50,023 $ 52,404
Operating income
(loss)................. 29,872 134,779 34,731 20,156 6,641 (33,962) 6,195
Other income, net(3).... 129 106 5,092 (1,689) 11 9,692 8,961
Net income (loss)....... 18,376 83,336 25,013 11,601 4,179 (14,083) 9,700
Pro forma net earnings
(loss) per share(4).... $ 0.68 $ 0.31 $ 0.11 $ (0.38) $ 0.26
Weighted average common
shares outstanding..... 37,000 37,000 37,000 37,000 37,000
OTHER DATA:
Non-GM software
revenue................ $ 73,484 $ 89,328 $115,479 $134,463 $ 26,236 $ 31,560 $ 33,949
GM software revenue(5).. 15,619 120,152 -- -- -- -- --
-------- -------- -------- -------- --------- --------- --------
Total software
revenue............. $ 89,103 $209,480 $115,479 $134,463 $ 26,236 $ 31,560 $ 33,949
======== ======== ======== ======== ========= ========= ========
BALANCE SHEET DATA (END
OF PERIOD):
Working capital(6)...... $ 34,091 $ 87,835 $ 52,958 $ 76,559 $ 48,221 $ 48,221
Total assets............ 146,907 231,206 166,790 208,186 254,591 254,591
Long-term debt.......... -- -- -- -- 156,055 82,385
Stockholder's equity/net
investment............. 90,770 132,147 88,350 118,381 6,136 79,806
</TABLE>
(footnotes appear on following page)
8
<PAGE>
- --------
(1) The pro forma information does not include a write-off of acquired in-
process research and development costs of $42.5 million incurred in
connection with the Solid Edge Acquisition. These pro forma results may not
necessarily be indicative of future results of the combined entities.
(2) Gross profit for each of the years in the three-year period ended December
31, 1997 includes $13.4 million of amortization relating to EDS'
acquisition of the Company in 1991. Gross profit for the three months ended
March 31, 1997 and 1998 includes $3.4 million of amortization relating to
EDS' acquisition of the Company in 1991. Gross profit for the three months
ended March 31, 1998 also includes $1.1 million of amortization relating to
the Solid Edge Acquisition.
(3) The increase in other income, net during the year ended December 31, 1997
and three months ended March 31, 1998 is due to gains on the sale of
investment securities.
(4) For purposes of the calculation of pro forma earnings per share, weighted
average common shares outstanding assumes 5,735,000 shares of Class A
Common Stock issued in the Offering and 31,265,000 shares of Class B Common
Stock are outstanding for the entire period. Employee stock options for
approximately 800,000 shares of Class A Common Stock to be issued upon
completion of the Offering at the initial public offering price are assumed
to have no dilutive effect on earnings per share. The Company plans on
accounting for its employee stock options under the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees."
(5) In 1996, the Company's parent, EDS, entered into a corporate software
license agreement with GM which provides for the delivery of up to 10,000
seats of Unigraphics and IMAN as well as the provision of maintenance
services for an initial term of three years. Software license revenue of
$110.3 million relating to this agreement was recognized in 1996. The
Company has agreed to perform EDS' obligations to provide products and
services under such agreement pursuant to the GM Subcontract (as
hereinafter defined) executed in connection with the Reorganization.
(6) Working capital consists of total current assets less total current
liabilities.
SUMMARY SOLID EDGE/EMS FINANCIAL DATA
The following summary financial data of the Solid Edge/EMS Business with
respect to each of the years in the three-year period ended December 31, 1997
are derived from the statements of revenues and direct expenses of the Solid
Edge/EMS Business prepared in accordance with generally accepted accounting
principles. Such statements were audited by Ernst & Young LLP, independent
certified public accountants. The following information should be read in
conjunction with, and is qualified in its entirety by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Solid Edge Acquisition" and the financial statements and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF REVENUES AND DIRECT EXPENSES DATA:
Revenues:
Software........................................ $ 14,800 $ 15,419 $ 18,984
Maintenance and services........................ 19,711 16,461 16,234
-------- -------- --------
Total revenues................................. $ 34,511 $ 31,880 $ 35,218
======== ======== ========
Excess of direct expenses over revenues.......... $ (6,327) $(10,122) $ (4,116)
</TABLE>
9
<PAGE>
RISK FACTORS
Prospective purchasers of the Class A Common Stock offered hereby should
consider carefully the following risk factors in addition to the other
information presented in this Prospectus.
RISKS ASSOCIATED WITH ABSENCE OF HISTORY AS A STAND-ALONE COMPANY AND
INTEGRATION OF SOLID EDGE/EMS BUSINESS
The Company, which was formed in October 1997, succeeded to the MCAD
business of EDS in the United States effective as of January 1, 1998 (or later
with respect to certain operations outside the United States). Prior to such
time, the operations of the Company had been operated within several business
units of EDS, and not as a separate legal division or subsidiary. After the
Reorganization, the Company integrated its various operations into a single
operating unit. Although management has extensive experience managing the
Company as a part of EDS, there is no operating history of the Company as a
stand-alone entity for a prospective investor to evaluate. There can be no
assurance that the Company will be able to successfully integrate its
operations into a single entity or that such integration will be achieved in
an efficient and effective manner. After the Offering, the Company will be a
subsidiary of EDS, but will operate as a stand-alone company, and EDS will
have no obligation to provide assistance to the Company or any of its
subsidiaries except for certain financial, tax and other services as described
in "Relationship with EDS and Certain Transactions."
The Company consummated the Solid Edge Acquisition on March 2, 1998. Prior
to the Solid Edge Acquisition, the Solid Edge/EMS Business had not been
operated as a separate subsidiary or division of Intergraph but had been
integrated with Intergraph's other operations. As a result, there is only
limited financial and operating information for an investor to evaluate.
Management and operation of the Solid Edge/EMS Business will initially
require a certain amount of coordination with Intergraph and must be
integrated with the Company's other businesses and there can be no assurance
that any such coordination or integration will be achieved in an efficient and
effective manner. The Company continues to seek additional opportunities to
acquire, or merge with, related businesses and is presently evaluating, as it
does on a regular basis, potential opportunities. The Company is not currently
engaged in negotiations for a material acquisition. There can be no assurance
that the Company will be able to successfully integrate the Solid Edge/EMS
Business or such other businesses into its operations or that the integration
of the Solid Edge/EMS Business or any other acquired businesses will not
materially limit the amount of time that management may devote to running the
Company's day-to-day business or disrupt the Company's ongoing business.
Further growth in the Company's operations from additional businesses may
strain the Company's existing management resources and its financial and
management systems and controls and may require the Company to make additional
expenditures in such areas. See "Prospectus Summary--Recent Developments--
Solid Edge Acquisition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RELATIONSHIP WITH EDS
EDS currently owns all of the outstanding capital stock of the Company. See
"Relationship with EDS and Certain Transactions." Upon completion of the
Offering, EDS will own 100% of the Company's outstanding Class B Common Stock,
representing approximately 98.2% of the combined voting power of all classes
of voting stock of the Company (approximately 97.9% if the U.S. Underwriters'
over-allotment option is exercised in full). The Class A Common Stock and the
Class B Common Stock will be the only voting stock of the Company outstanding
following the Offering. As long as EDS continues to beneficially own a
majority of the combined voting power of the Common Stock, it will have the
ability to elect all of the members of the Board of Directors and control the
management and affairs of the Company, including any determinations with
respect to mergers or other business combinations involving the Company, the
acquisition or disposition of assets by the Company, the incurrence of
indebtedness by the Company, the issuance of any additional Common Stock or
other equity securities or the declaration and payment of any dividends on the
Common Stock. In addition, EDS will be able
10
<PAGE>
to determine the outcome of any matter submitted to a vote of the Company's
stockholders for approval and to cause or prevent a change in control of the
Company.
The Restated Certificate of Incorporation of the Company (the "Certificate
of Incorporation") provides that any amendment or termination of any agreement
or arrangement, or any new agreement or arrangement, between the Company and
EDS or its affiliates effected with the approval of a majority of the
Company's directors who are not officers of either the Company or EDS or
directors of EDS (the "Disinterested Directors") or consistent with guidelines
or standards approved by the Disinterested Directors, or approved by the
holders of a majority of the Company's outstanding voting stock (not including
shares owned by EDS) shall be deemed fair to the Company and its stockholders.
If such approval is not obtained, however, no presumption shall arise that
such amendment or termination (or new agreement) is not fair to the Company
and its stockholders. The Certificate of Incorporation also contains
provisions allocating corporate opportunities that may be suitable for both
EDS and the Company. See "Description of Capital Stock--Certificate of
Incorporation and Bylaw Provisions."
Certain intercompany agreements and arrangements exist between the Company,
EDS and EDS' other subsidiaries, including a management services agreement and
a subcontract arrangement with respect to the provision of Unigraphics and
related services to GM. There can be no assurance that the services provided
to the Company by EDS under the Affiliate Agreements (as hereinafter defined)
will continue to be provided, and if not, whether or on what terms such
licenses or services could be replicated. In addition, while the parties to
the Affiliate Agreements endeavored to establish terms fair to both EDS and
the Company, as a result of EDS' control of the Company none of such
agreements resulted from "arm's-length" negotiations. There can be no
assurance that the Company would not have received more favorable terms from
an unaffiliated party. For a description of the Affiliate Agreements, see
"Relationship with EDS and Certain Transactions."
Conflicts of interest may arise between the Company and EDS in a number of
areas relating to their past and ongoing relationships, including the nature
and quality of services rendered by EDS and its affiliates to the Company, the
performance by the Company of its obligation under the subcontract arrangement
relating to products and services to be provided to GM, potential competitive
business activities, tax and employee benefit matters, indemnity agreements,
registration rights, sales or distributions by EDS of all or any portion of
its ownership interest in the Company or EDS' ability to control the
management and affairs of the Company. There can be no assurance that EDS and
the Company will be able to resolve any potential conflict or that, if
resolved, the Company would not have received more favorable resolution if it
were dealing with an unaffiliated party. In addition, certain of the Affiliate
Agreements contain specific procedures for resolving disputes between the
Company and EDS with respect to the subject matter of those agreements. There
can be no assurance that more favorable results to the Company would not be
obtained under different procedures.
Beneficial ownership of at least 80% of the total voting power and value of
the outstanding Common Stock is required in order for EDS to continue to
include the Company in its consolidated group for federal income tax purposes,
and beneficial ownership of at least 80% of the total voting power and 80% of
each class of nonvoting capital stock is required in order for EDS to effect a
tax-free spin-off (as defined under "Description of Capital Stock--Common
Stock--Conversion") of the Company or certain other tax-free transactions.
Each member of a consolidated group for federal income tax purposes is jointly
and severally liable for the federal income tax liability of each other member
of the consolidated group. Each member of the EDS controlled group, which
includes EDS, the Company and EDS' other subsidiaries, is also jointly and
severally liable for pension and benefit funding and termination liabilities
of other group members, as well as certain benefit plan taxes. Accordingly,
the Company could be liable under such provisions in the event any such
liability is incurred, and not discharged, by any other member of the EDS
consolidated or controlled group. If the Company were no longer to be included
in EDS' consolidated group for federal tax purposes, there is no assurance
that the Company's tax position would not be less favorable than it is at
present.
In addition, by virtue of its controlling beneficial ownership and the terms
of a Tax Sharing Agreement (as hereinafter defined) between the Company and
EDS, EDS effectively controls all of the Company's tax decisions. Under the
Tax Sharing Agreement, EDS has sole authority to respond to and conduct all
tax
11
<PAGE>
proceedings (including tax audits) relating to the Company's federal and
combined state returns, to file all such returns on behalf of the Company and
to determine the amount of the Company's liability to (or entitlement to
payment from) EDS under the Tax Sharing Agreement. See "Relationship with EDS
and Certain Transactions--Contractual Agreements--Tax Sharing Agreement." This
arrangement may result in conflicts of interests between the Company and EDS.
For example, under the Tax Sharing Agreement, EDS may choose to contest,
compromise or settle any adjustment or deficiency proposed by the relevant
taxing authority in a manner that may be beneficial to EDS and detrimental to
the Company.
DEPENDENCE ON KEY CUSTOMERS/INDUSTRIES
The Company's earnings are highly dependent on its business with GM. In
connection with the split-off of EDS from GM in June 1996, EDS entered into a
Master Services Agreement (the "EDS/GM MSA") and certain related agreements
pursuant to which EDS serves as GM's principal supplier of information
technology on a worldwide basis for an initial term of 10 years. The EDS/GM
MSA serves as the framework for the negotiation and operation of service
agreements between GM and EDS related to certain "in scope" services (as
defined in the EDS/GM MSA). The EDS/GM MSA provides GM with termination rights
under certain circumstances, including upon the occurrence of certain changes
of control of EDS. EDS and GM entered into a Unigraphics Software Corporate
License Agreement, effective as of July 1, 1996 (the "EDS/GM Site License
Agreement"), which provided for the sale to GM of a perpetual license of up to
10,000 seats of Unigraphics, including IMAN, and the provision of three years
of maintenance services for such products. These products and services are "in
scope" services under the EDS/GM MSA. The EDS/GM Site License Agreement
terminates on June 30, 1999. In connection with the Reorganization, EDS and
the Company entered into a Memorandum of Understanding, effective January 1,
1998 (the "GM Subcontract"), pursuant to which the Company receives all
revenues and performs EDS' obligations under the EDS/GM Site License Agreement
and agrees to cooperate with EDS in providing additional products and services
to GM under the EDS/GM MSA. The GM Subcontract further provides that the
Company may provide directly to GM products and services that are outside of
the scope of the EDS/GM MSA. Approximately 34%, or $139.4 million, of the
Company's 1996 revenue was attributable to products and services provided to
GM. Although less than 10% of the Company's 1997 revenue was attributable to
the products and services provided to GM, approximately 48% of the Company's
accounts receivable balance at December 31, 1997 was related to products and
services provided to GM. If the EDS/GM MSA were to be terminated, or if the
Company (as a subcontractor to EDS) and GM do not enter into a successor to
the EDS/GM Site License Agreement upon termination of that agreement in 1999,
the Company's financial condition and results of operations would be
materially adversely affected.
The Company's products are licensed to customers in a variety of industry
sectors, but approximately 40% of the Company's 1997 revenue was derived from
the automotive and transportation and aerospace industries. Both industries
are relatively mature MCAD markets that have been substantially penetrated.
The Company's future success will depend on its ability to maintain and
increase product licensing in the automotive and transportation and aerospace
industries, as well as other industries, and there can be no assurance that
the Company will be able to achieve this objective. Additionally, both the
automotive and transportation and aerospace industries are cyclical, and an
economic downturn in one of these industries would likely have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Customers."
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCTS
The MCAD industry is characterized by rapidly changing technology and
frequent new product introductions and product enhancements. Therefore, the
Company's success is highly dependent upon its ability to enhance its existing
products and to introduce new products in a cost-effective and timely manner
to meet evolving customer requirements. The Company has committed and intends
to continue to commit substantial resources to the development of new
products. Because new product development commitments must be made well in
advance of sales, however, new product decisions must anticipate both future
demand and the technology that will be responsive to such demand. Delays in
developing new products with anticipated technological
12
<PAGE>
advances or in commencing releases of new products may have a material adverse
effect on the Company's financial condition and results of operations, as
might the issuance of releases in which material defects or shortcomings
emerge. There can be no assurance that new products will gain market
acceptance or will not be adversely affected by technological changes or new
product announcements by others. In addition, since many software users rely
on databases of existing parts for new product designs, there can be no
assurance that potential customers will switch to the Company's new products.
The Company has introduced a number of new product innovations in the first
half of 1998. The Company introduced its Parasolid solid modeling kernel in
Solid Edge 5.0 in May 1998, replacing Solid Edge's previous solid modeling
kernel. New versions of Unigraphics contain significant changes in the
software with the introduction of the UG/WAVE technology. There can be no
assurance that future versions of Unigraphics and Solid Edge or any of the
Company's other core products will perform as expected or that they will
achieve market acceptance or contribute significantly to the Company's
revenue. The Company's business strategy includes establishing Parasolid as
the MCAD industry's solid modeling standard. Competitors of the Company could
develop independent solid modeling kernels and license them to third parties.
Although the Company believes that Parasolid is the emerging solid modeling
standard for mid-range MCAD software, there can be no assurance that it will
become the solid modeling standard or that a competitor of the Company will
not develop a solid modeling kernel that will become the standard for the MCAD
industry. If a competitor of the Company were to develop a product that became
the solid modeling standard, it could have a material adverse effect not only
on the future success of Parasolid, but also on the Company's other products
which are based on the Parasolid solid modeling kernel.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success is heavily dependent upon its proprietary software
technology. The Company relies on a combination of contracts, copyrights,
trade secret laws and patents to establish and protect its proprietary rights
in its technology. Effective copyright, trade secret and patent protection,
however, may be unavailable or limited in certain countries. Litigation, which
could demand financial and management resources, may be necessary to enforce
its copyrights, patents or other intellectual property rights. There can be no
assurance that the steps taken by the Company will be adequate to deter
misappropriation or independent third party development of its technology.
To date, the Company has not been involved in any litigation regarding
copyrights, trademarks, trade secrets or other intellectual property rights
alleging the possible infringement of such intellectual property rights of
others. Litigation alleging infringement of the intellectual property rights
of others is not uncommon in the MCAD and PDM industry and there can be no
assurance that such litigation will not be commenced in the future against the
Company. If litigation were to be commenced against the Company alleging
infringement of the intellectual property rights of others, the Company could
incur significant costs with respect to the defense thereof, irrespective of
the validity or the successful assertion of such claims, which could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business--Intellectual Property" and "--Litigation."
COMPETITION
Markets for the Company's products are highly competitive and characterized
by rapidly changing technology and evolving standards. The Company's
competitors include (i) generalist MCAD developers that offer broad-range
systems, such as Dassault, Matra Datavision, Parametric and Structural Dynamic
Research Corporation ("SDRC"); (ii) specialist software developers whose
product lines are focused on CAD products, CAM products, CAE products or PDM
products; and (iii) numerous smaller niche software developers.
The Company has experienced and expects to continue to experience strong
competition. The Company's competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products
than the
13
<PAGE>
Company. Current and potential competitors may establish strategic alliances
or undertake acquisitions to increase the ability of their products to address
the needs of the Company's current and prospective customer base. For example,
Dassault markets and distributes its software products through a non-exclusive
marketing agreement with International Business Machines Corporation. See
"Business--Competition."
DECLINING PRICES OF MCAD AND PDM PRODUCTS
As is common in high technology industries, the MCAD industry is
characterized by selling prices which have tended to decline for existing
products over time due to competition, lower marginal costs and rapid
technological change. In particular, increased competition from new sources,
including the introduction of numerous lower priced, higher volume 3-D CAD
products, the emergence of a mid-range market, and the increased penetration
of niche players into the CAM and CAE markets, has led to price pressure on
MCAD software products which is expected to continue. Despite declining unit
prices, the total size of the MCAD global market, as measured by revenue, has
increased over the past several years. See "Business--The MCAD Software
Industry." There can be no assurance, however, the MCAD global market will
continue to grow.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon, among other
factors, the continued service of its key senior executives and research and
development, technical, support and other personnel, and on its ability to
continue to attract, retain and motivate qualified personnel. The competition
for such employees is intense, and the loss of the services of any of these
key personnel without adequate replacement or the inability to attract new
qualified personnel could have a material adverse effect on the Company. The
Company will enter into employment contracts with certain executive officers
prior to the consummation of the Offering. The Company generally does not
maintain insurance with respect to the loss of its key personnel. See
"Management."
RISKS IN INTERNATIONAL OPERATIONS
As a global participant in the MCAD industry, the Company's business is
subject to various risks beyond its control, such as instability of foreign
economies and governments, changes in laws and policies affecting trade and
investment, fluctuations in exchange rates and the slowdown in European
business activity during the summer months. In 1997, approximately 54% of the
Company's revenue was derived from sales outside the United States. There can
be no assurance that the Company will not experience material adverse effects
on its business and results of operations arising from its international
operations and sales. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SIGNIFICANT QUARTERLY FLUCTUATIONS
The Company's quarterly operating results have varied significantly and are
likely to vary significantly in the future, depending on factors such as the
number, timing and significance of product enhancements or new products by the
Company or its competitors, the ability of the Company to develop, introduce
and market new and enhanced versions of its products, customer order deferrals
in anticipation of new or enhanced Company products, foreign currency exchange
rates, general conditions in the MCAD and computer industries and regional
economies and other events or factors. A substantial portion of the Company's
orders and shipments typically occur in the last month of each quarter.
Therefore, the timing of orders and shipments, unexpected delays or actions
taken by competitors in reducing prices or introducing new products could
result in significant quarterly fluctuations in the Company's results of
operations. The Company's software revenue, total revenue, operating income
and net income are generally lower in the first and third quarters of a given
year than in the second and fourth quarters. Additionally, as is typical in
the MCAD software industry, the Company historically has experienced its
highest licensing activity for the year in December. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Quarterly Results of Operations."
14
<PAGE>
YEAR 2000 COMPLIANCE
Currently, there is a significant uncertainty in the software industry and
among software users regarding the impact of the year 2000 on installed
software. For example, many customers historically captured only two digit
entries in the date code field. Software database modifications, and/or
implementation modifications, are required to enable such software to
distinguish between 21st and 20th century dates. Current versions of the
Company's products are designed to be "Year 2000" compliant. The Company is in
the process of determining the extent to which the customized implementations
of, and third-party programs for, its software products are Year 2000
compliant, as well as the impact of any non-compliance on the Company and its
customers. The Company does not currently believe that the effects of any Year
2000 non-compliance in the Company's installed base of software will result in
any material adverse impact on the Company's business or results of
operations. However, there can be no assurance that the Company will not be
exposed to potential claims resulting from system problems associated with the
century change.
In accordance with the Management Services Agreement (as hereinafter
defined), the Company will continue to use centralized internal accounting
systems of EDS in the near term. EDS has completed the assessment and planning
stages and has commenced the renovation process for its internal systems,
including those used by the Company. The Company has been advised that EDS
anticipates that this process and the subsequent testing and implementation of
the modified code will be completed in stages, from mid-1998 through mid-1999.
Costs incurred to make EDS' centralized internal accounting systems Year 2000
compliant will be paid entirely by EDS. The failure to complete the Year 2000
conversion process for EDS' internal systems on a timely basis would have a
material adverse impact on the Company's business or results of operations.
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The financial information included herein may not necessarily reflect the
results of operations, financial position and cash flows of the Company in the
future or what the results of operations, financial position and cash flows
would have been had the Company been a separate, stand-alone entity during the
periods presented. The financial information included herein does not reflect
many significant changes that will occur in the funding and operations of the
Company as a result of the Reorganization. In addition, the consolidated
financial statements of the Company include certain assets, liabilities,
revenues and expenses which were not historically recorded at the level of,
but are associated with, the business transferred to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Pro Forma Financial Information."
There are no financial or operating data, other than statements of assets
sold and revenues and direct expenses, for the Solid Edge/EMS Business for
each of the years in the three-year period ended December 31, 1997, as there
is not sufficient data available to permit the preparation of a complete set
of financial statements in accordance with generally accepted accounting
principles. During such periods, the Solid Edge/EMS Business did not comprise
a separate business unit of Intergraph and was not a material part of its
overall business. As a result, there is only limited financial and operating
information available for a potential investor to evaluate trends in gross
profit, expenses or net income. In addition, because the Solid Edge/EMS
Business was operated as part of the software product business of Intergraph
during each of the years in the three-year period ended December 31, 1997,
various costs incurred by Intergraph during such years were allocated to the
Solid Edge/EMS Business based on estimates described in the notes to the
financial statements included elsewhere in this Prospectus. As a result, the
financial and operating data presented for the Solid Edge/EMS Business for
such years may not reflect the costs and expenses that would have resulted if
the Solid Edge/EMS Business had been operated as a separate entity.
POTENTIAL ANTI-TAKEOVER CONSIDERATIONS
Under the Company's Certificate of Incorporation, the Board of Directors has
the authority, without action by the Company's stockholders, to fix certain
terms and issue shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and to issue rights to purchase securities or other
property from the Company. Actions
15
<PAGE>
of the Board of Directors pursuant to this authority may have the effect of
delaying, deterring or preventing a change in control of the Company. Other
provisions in the Company's Certificate of Incorporation and in the Restated
Bylaws (the "Bylaws") impose procedural and other requirements, including the
requirement that a vote of more than 80% of the voting stock of the Company is
necessary for stockholders to amend the Bylaws and certain provisions of the
Certificate of Incorporation. These requirements could make it more difficult
to effect certain corporate actions, including replacing incumbent directors.
In addition, the Board of Directors is divided into three classes, each of
which is to serve for a staggered three-year term after the initial
classification and election, and, after EDS ceases to be the beneficial owner
of an aggregate of at least a majority of the voting power of the Company,
incumbent directors may not be removed without cause, all of which may make it
more difficult for a third party to gain control of the Board of Directors.
With certain exceptions, Section 203 of the Delaware General Corporation Law
(the "DGCL") imposes certain restrictions on mergers and other business
combinations between the Company and any holder of 15% or more of the voting
stock of the Company. Section 203 does not apply to EDS' interest in the
Company. See "Description of Capital Stock--Certificate of Incorporation and
Bylaw Provisions."
BENEFITS OF OFFERING TO CURRENT STOCKHOLDER
EDS may realize certain benefits as a result of the Offering, including the
creation of a public market for the Class A Common Stock, which should
increase the liquidity of EDS' investment in Common Stock and potentially
increase the market value of its holding of Common Stock. EDS will also have a
substantial unrealized gain based upon the difference between the pro forma
net tangible book deficit per share of Class A Common Stock immediately before
the Offering and the pro forma net tangible book deficit per share of Common
Stock immediately after completion of the Offering, which would have been
$2.38 per share at March 31, 1998. See "Dilution." In addition, the net
proceeds of the Offering will be used to repay all indebtedness to EDS
outstanding under the Intercompany Credit Agreement and a portion of the
Intercompany Note to EDS. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE
Subject to applicable law, EDS may sell any and all of the shares of Common
Stock it owns after completion of the Offering. EDS and the Company have
agreed, however, subject to certain exceptions, not to sell or otherwise
dispose of any shares of Class A Common Stock (other than the shares offered
hereby or pursuant to employee stock option plans which exist on, or are
described herein to be implemented after, the date of this Prospectus) for a
period of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated, on behalf of the Underwriters.
In connection with the Offering, the Company and EDS have entered into an
agreement which provides that EDS will have certain rights to have shares of
Common Stock owned by it after the Offering registered by the Company under
the Securities Act of 1933, as amended (the "Securities Act"), in order to
permit the public sale of such shares. In addition, beginning one year after
EDS acquired its shares of Common Stock, EDS will be permitted to sell in the
public market specified amounts of such Common Stock without registration
pursuant to Rule 144 under the Securities Act ("Rule 144"). No prediction can
be made as to the effect, if any, that future sales of Common Stock by EDS, or
the availability of Common Stock for future sale, will have on the market
price of the Class A Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Class A Common
Stock. See "Shares Eligible for Future Sale."
ABSENCE OF A PRIOR PUBLIC MARKET; VOLATILITY OF PRICE
Prior to the Offering, there has been no public market for the Class A
Common Stock and there can be no assurance that an active trading market will
develop or be sustained. The initial public offering price of the Class A
Common Stock will be determined through negotiation between the Company and
the Underwriters and may not be indicative of the market price for the Class A
Common Stock after the Offering. See "Underwriters."
16
<PAGE>
The market price for the Class A Common Stock may be highly volatile. The
Company believes that factors such as announcements by it, or by its
competitors, of quarterly financial results could cause the market price of
the Class A Common Stock to fluctuate substantially. The stock market has from
time to time experienced extreme price and volume fluctuations which have
particularly affected the market prices for many high technology companies. In
addition, the stock market may experience extreme price and volume
fluctuations which often are unrelated to the operating performance of
specific companies. Market fluctuations or perceptions regarding the Company's
industry, as well as general economic or political conditions, may adversely
affect the market price of the Class A Common Stock.
DILUTION
Purchasers of the Class A Common Stock in the Offering will experience
immediate and substantial dilution in the amount of $14.12 in the pro forma
net tangible book deficit per share of Class A Common Stock from the initial
public offering price. See "Dilution."
NO INTENTION TO PAY DIVIDENDS
The Company intends to retain its earnings to finance future growth and,
therefore, does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein under "Prospectus Summary," "Risk
Factors," Pro Forma Financial Information, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
including, without limitation, those concerning (i) the integration of the
Solid Edge/EMS Business into the Company's operations, (ii) the success of
establishing Parasolid as a solid modeling standard for MCAD software, (iii)
the schedule for developing and releasing new software, (iv) the capabilities
of new software, (v) the Company's continuing relationship with EDS, (vi)
future sales activities and (vii) Year 2000 compliance contain certain
forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed under "Risk
Factors."
17
<PAGE>
USE OF PROCEEDS
The Company will receive approximately $73.7 million from the sale of Class
A Common Stock in the Offering (approximately $84.9 million if the U.S.
Underwriters' over-allotment option is exercised in full) after deducting
underwriting commissions and estimated expenses payable by the Company,
assuming an initial public offering price of $14.00 per share (the mid-point
of the price range appearing on the cover of this Prospectus). Substantially
all of the net proceeds of the Offering will be used to repay outstanding
indebtedness to EDS under the Intercompany Credit Agreement which was incurred
to pay the purchase price and certain expenses in connection with the Solid
Edge Acquisition. Borrowings by the Company under the Intercompany Credit
Agreement bear interest at a rate equal to the one-month London Interbank
Offered Rate ("LIBOR") plus 0.5%. The remaining net proceeds of the Offering
will be used to repay amounts outstanding under the Intercompany Note to EDS.
The Intercompany Note bears interest, payable semiannually, at a rate equal to
the one-month London Interbank Bid Rate ("LIBID") minus 0.5%. See
"Relationship with EDS and Certain Transactions."
DIVIDEND POLICY
The Company currently intends to retain its earnings to finance future
growth and, therefore, does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Any future determination as to the
payment of dividends will depend upon the future results of operations,
capital requirements and financial condition of the Company and such other
factors as the Board of Directors may consider, including any contractual or
statutory restrictions on the Company's ability to pay dividends.
18
<PAGE>
CAPITALIZATION
The following table sets forth information regarding the cash position,
consolidated long-term debt and capitalization of the Company (i) at March 31,
1998 and (ii) as adjusted to reflect the Offering and the application of the
estimated net proceeds therefrom as described in "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Pro Forma Financial
Information and the financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash................................................ $ 14,624 $ 14,624
======== ========
Intercompany Note (1)............................... $ 73,000 $ 73,000
Intercompany Credit Agreement (1)................... 83,055 9,385
Stockholders' equity:
Class A Common Stock: $.01 par value; 168,735,000
shares authorized; 5,735,000 shares issued and
outstanding, as adjusted (2)(3).................. -- 57
Class B Common Stock: $.01 par value; 31,265,000
shares issued and outstanding, as adjusted....... 313 313
Additional paid-in capital.......................... 85,627 159,240
Accumulated deficit................................. (87,083) (87,083)
Accumulated other comprehensive income.............. 7,279 7,279
-------- --------
Total stockholders' equity/net investment........... 6,136 79,806
-------- --------
Total capitalization.......................... $162,191 $162,191
======== ========
</TABLE>
- --------
(1) The actual amounts that will be outstanding under the Intercompany Note
and the Intercompany Credit Agreement subsequent to the Offering will be
directly affected by the cash flows of the Company from April 1, 1998
through the date of the Offering.
(2) Assumes the U.S. Underwriters' over-allotment option is not exercised.
(3) Does not include approximately 800,000 shares of Class A Common Stock
subject to issuance pursuant to options to be awarded under the Company's
1998 Incentive Plan. See "Management--1998 Incentive Plan."
19
<PAGE>
DILUTION
The net tangible book deficit of the Company at March 31, 1998 was
approximately $(78.2) million, or $(2.50) per share of Common Stock. Net
tangible book deficit per share of Common Stock represents the amount of total
tangible assets less total liabilities, divided by the total number of shares
of Common Stock outstanding.
Dilution per share represents the difference between the amount per share
paid by purchasers of shares of Class A Common Stock in the Offering and the
pro forma net tangible book deficit per share of Common Stock immediately
after the completion of the Offering. After giving effect to the sale of
approximately 5,735,000 shares of Class A Common Stock at an assumed price of
$14.00 per share by the Company in the Offering and the application of the
estimated net proceeds therefrom, the pro forma net tangible book deficit of
the Company as of March 31, 1998 would have been approximately $(4.6) million,
or $(0.12) per share of Common Stock. This represents an immediate dilution in
pro forma net tangible book deficit per share of $14.12 to investors who
purchase shares of Class A Common Stock in the Offering. The following table
illustrates the dilution in pro forma net tangible book value per share to
such investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Net tangible book deficit per share as of March 31, 1998 ... (2.50)
Decrease in net tangible book deficit per share attributable
to new investors(1)(2)..................................... 2.38
-----
Pro forma net tangible book deficit per share as of March
31, 1998 after giving effect to the Offering(1)............ (0.12)
------
Dilution in net tangible book deficit per share to new
investors(2)............................................... $14.12
======
</TABLE>
- --------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised.
(2) Does not include approximately 800,000 shares of Class A Common Stock
subject to issuance pursuant to options to be awarded under the Company's
1998 Incentive Plan. See "Management--1998 Incentive Plan."
20
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
consists of an unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1998 and related unaudited Condensed Combined Statements of
Operations for the year ended December 31, 1997 and the three months ended
March 31, 1998 (collectively, the "Pro Forma Statements") and are based upon
the historical financial statements of the Company and the Solid Edge/EMS
Business. The Pro Forma Statements reflect adjustments to the historical
financial statements to give effect for certain transactions which have either
occurred or are probable to occur. The unaudited Pro Forma Condensed Combined
Balance Sheet has been prepared assuming that the Offering and the application
of the estimated proceeds therefrom occurred on March 31, 1998, and the Pro
Forma Condensed Combined Statements of Operations have been prepared assuming
that the Solid Edge Acquisition, the Reorganization, the issuance of the
Intercompany Note and the Offering and the application of the estimated
proceeds therefrom occurred on January 1, 1997.
The Solid Edge Acquisition was accounted for as a purchase. The purchase
price has been allocated in the Pro Forma Statements to the assets acquired
based on estimated fair values at the date of acquisition. The allocation of
the purchase price is subject to change based on the completion of an
independent appraisal. Management does not believe that the final allocation
of the purchase price or the related useful lives assigned to the acquired
assets will be materially different from the preliminary amounts presented in
the Pro Forma Statements.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the transactions had been consummated as presented in
the accompanying Pro Forma Statements, nor is it necessarily indicative of
future results of operations or financial position.
The Pro Forma Statements should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes thereto of the Company and the
Solid Edge/EMS Business included elsewhere herein.
21
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
COMPANY ADJUSTMENTS FOR PRO FORMA
HISTORICAL OFFERING AS ADJUSTED
---------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets.............. $140,621 $73,670 (a) $140,621
(73,670)(b)
Property and equipment,
net........................ 20,718 -- 20,718
Software and other
intangibles, net........... 84,366 -- 84,366
Deferred income taxes....... 8,886 -- 8,886
-------- -------- --------
Total assets.............. $254,591 $ -- $254,591
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities......... $ 92,400 $ -- $ 92,400
Intercompany debt........... 156,055 (73,670)(b) 82,385
Stockholders' equity........ 6,136 73,670 (a) 79,806
-------- -------- --------
Total liabilities and
stockholders' equity..... $254,591 $ -- $254,591
======== ======== ========
</TABLE>
See accompanying notes to Pro Forma Statements.
22
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR
REORGANIZATION,
SOLID EDGE/EMS INTERCOMPANY NOTE PRO FORMA PRO FORMA
COMPANY BUSINESS AND SOLID EDGE PRO FORMA ADJUSTMENTS FOR COMBINED AS
HISTORICAL HISTORICAL ACQUISITION COMBINED OFFERING ADJUSTED
---------- -------------- ----------------- --------- --------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Total revenue........... $314,593 $35,218 $ -- $349,811 $ -- $349,811
-------- ------- -------- -------- ------ --------
Cost of revenue......... 129,124 3,979 10,459 (c) 143,562 -- 143,562
Selling, general, and
administrative......... 102,759 25,404 -- 128,163 -- 128,163
Research and
development............ 47,979 9,951 -- 57,930 -- 57,930
-------- ------- -------- -------- ------ --------
Total costs and
expenses............. 279,862 39,334 10,459 329,655 -- 329,655
-------- ------- -------- -------- ------ --------
Operating income
(loss)............... 34,731 (4,116) (10,459) 20,156 -- 20,156
Other income (expense),
net.................... 5,092 -- (11,570)(d) (6,478) 4,789(f) (1,689)
-------- ------- -------- -------- ------ --------
Income (loss) before
income taxes......... 39,823 (4,116) (22,029) 13,678 4,789 18,467
Provision for income
taxes.................. 14,810 -- (9,726)(e) 5,084 1,782(e) 6,866
-------- ------- -------- -------- ------ --------
Net income (loss)..... $ 25,013 $(4,116) $(12,303) $ 8,594 $3,007 $ 11,601
======== ======= ======== ======== ====== ========
Pro forma net earnings
per share(g)........... $ 0.31
========
Weighted average shares
outstanding(g)......... 37,000
========
</TABLE>
See accompanying notes to Pro Forma Statements.
23
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR
REORGANIZATION,
SOLID EDGE/EMS INTERCOMPANY NOTE PRO FORMA PRO FORMA
COMPANY BUSINESS AND SOLID EDGE PRO FORMA ADJUSTMENTS FOR COMBINED AS
HISTORICAL HISTORICAL ACQUISITION COMBINED OFFERING ADJUSTED
---------- -------------- ----------------- --------- --------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Total revenue........... $ 86,528 $4,779 $ -- $91,307 $ -- $91,307
-------- ------ ------- ------- ----- -------
Cost of revenue......... 36,505 659 1,739 (c) 38,903 -- 38,903
Selling, general, and
administrative......... 27,229 3,348 -- 30,577 -- 30,577
Research and
development............ 14,288 1,344 -- 15,632 -- 15,632
In process research and
development............ 42,468 -- (42,468)(c) -- -- --
-------- ------ ------- ------- ----- -------
Total costs and
expenses............. 120,490 5,351 (40,729) 85,112 -- 85,112
-------- ------ ------- ------- ----- -------
Operating income
(loss)............... (33,962) (572) 40,729 6,195 -- 6,195
Other income (expense),
net.................... 9,692 -- (1,928)(d) 7,764 1,197 (f) 8,961
-------- ------ ------- ------- ----- -------
Income (loss) before
income taxes......... (24,270) (572) 38,801 13,959 1,197 15,156
Provision for income
taxes.................. (10,187) -- 15,212 (e) 5,025 431 (e) 5,456
-------- ------ ------- ------- ----- -------
Net income (loss)..... $(14,083) $( 572) $23,589 $ 8,934 $ 766 $ 9,700
======== ====== ======= ======= ===== =======
Pro forma net earnings
per share(g)........... $ 0.26
=======
Weighted average shares
outstanding(g)......... 37,000
=======
</TABLE>
See accompanying notes to Pro Forma Statements.
24
<PAGE>
NOTES TO PRO FORMA STATEMENTS
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the transactions had been consummated as presented in
the accompanying Pro Forma Statements, nor is it necessarily indicative of
future results of operations or financial position.
The accompanying Pro Forma Condensed Combined Balance Sheet as of March 31,
1998 reflects the following pro forma adjustments for the Offering and the
application of the estimated net proceeds therefrom as if such transactions
had occurred on March 31, 1998.
(a) To record the issuance of 5,375,000 shares of Class A Common Stock of the
Company pursuant to the Offering, resulting in net proceeds of
approximately $73.7 million. Such net proceeds assume that the U.S.
Underwriters' over-allotment option is not exercised.
(b) To record the repayment of a portion of the outstanding borrowings under
the Intercompany Credit Agreement and the Intercompany Note with the net
proceeds from the Offering.
The accompanying Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1997 and the three months ended March 31, 1998,
reflect the following pro forma adjustments, assuming the Solid Edge
Acquisition, the Reorganization, the issuance of the Intercompany Note and the
Offering and the application of the estimated net proceeds therefrom had
occurred on January 1, 1997.
(c) To reflect additional amortization expense on intangibles acquired in the
Solid Edge Acquisition. The transaction has been accounted for as a
purchase. The purchase price has been allocated to the assets acquired
based on estimated fair values at the date of acquisition as determined by
an independent appraisal. Such values are as follows (in thousands):
<TABLE>
<S> <C>
Current assets..................................................... $ 220
Property and equipment and other assets............................ 1,147
Intangibles:
Software (two year useful life).................................. 3,377
Goodwill (seven year useful life)................................ 55,758
Workforce (five year useful life)................................ 4,030
In-process research and development costs........................ 42,468
--------
Total purchase price........................................... $107,000
========
</TABLE>
Amounts assigned to in-process research and development costs were expensed
upon acquisition. Pro forma depreciation expense associated with property
and equipment acquired in the Solid Edge Acquisition is assumed to be
consistent with historical depreciation expense. The Pro Forma Condensed
Combined Statement of Operations do not reflect the write-off of in-process
research and development costs of $42.5 million in connection with the
Solid Edge Acquisition.
(d) To record interest expense resulting from borrowings under the
Intercompany Credit Agreement of $105.0 million in connection with the
Solid Edge Acquisition on March 2, 1998 and the $73.0 million Intercompany
Note issued as a dividend to EDS on March 6, 1998. All such indebtedness
is assumed to bear interest at 6.5% for the periods presented. The
interest rates on the Intercompany Credit Agreement and the Intercompany
Note are variable. The effect on income of a 1/8% variance from the
assumed interest rate would be $223,000 and $55,625 for the year ended
December 31, 1997 and the three months ended March 31, 1998, respectively.
(e) To record the estimated tax impact of pre-tax statement of operations
adjustments at the Company's 1997 effective tax rate of 37.2% and
estimated 1998 effective tax rate of 36.0%.
(f) To record the reduction of interest expense (using a 6.5% interest rate)
in connection with the repayment of a portion of the outstanding
borrowings under the Intercompany Credit Agreement and the Intercompany
Note with the net proceeds of the Offering.
(g) The pro forma earnings per common share data is calculated using the total
shares of Common Stock expected to be outstanding after the Offering
(37,000,000 shares). Employee stock options for approximately 800,000
shares of Class A Common Stock to be issued upon completion of the
Offering at the initial public offering price are assumed to have no
dilutive effect on earnings per share. The Company plans on accounting for
its employee stock options under APB Opinion No. 25, "Accounting for Stock
Issued to Employees."
25
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial data of the Company with respect to each of
the five years in the five-year period ended December 31, 1997 and the three-
month periods ended March 31, 1997 and 1998 are derived from the financial
statements of the Company prepared in accordance with generally accepted
accounting principles. The selected historical statement of operations and
balance sheet data as of December 31, 1996 and 1997 and for each of the years
in the three-year period ended December 31, 1997 are derived from the
financial statements of the Company, which were audited by KPMG Peat Marwick
LLP, independent certified public accountants. The selected statement of
operations and balance sheet data presented below as of December 31, 1993,
1994 and 1995 and March 31, 1997 and 1998 and for the years ended December 31,
1993 and 1994 and the three-month periods ended March 31, 1997 and 1998 are
derived from the unaudited financial statements of the Company which, in the
opinion of management of the Company, include all adjustments necessary for a
fair presentation of the results of such unaudited periods. The historical
financial information may not be indicative of the Company's future
performance and does not necessarily reflect what the financial position and
results of operations of the Company would have been had the Company operated
as a separate, stand-alone entity during the periods covered. The following
information should be read in conjunction with, and is qualified in its
entirety by reference to, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Software............... $ 64,359 $ 63,750 $ 89,103 $ 209,480 $115,479 $ 26,236 $ 31,560
Services............... 79,761 95,888 111,575 121,528 137,794 30,547 37,885
Hardware............... 65,143 71,578 66,944 83,201 61,320 12,344 17,083
-------- -------- -------- --------- -------- -------- --------
Total revenue.......... 209,263 231,216 267,622 414,209 314,593 69,127 86,528
-------- -------- -------- --------- -------- -------- --------
Cost of revenue:
Software:
Amortization........... 13,412 13,412 14,641 14,808 14,754 3,672 4,596
Royalties, distribution
and other............. 9,260 6,427 12,854 23,677 13,199 2,785 3,277
Services............... 30,950 26,115 34,328 41,721 57,059 13,759 14,726
Hardware............... 45,572 48,995 47,242 59,614 44,112 8,391 13,906
-------- -------- -------- --------- -------- -------- --------
Total cost of revenue.. 99,194 94,949 109,065 139,820 129,124 28,607 36,505
-------- -------- -------- --------- -------- -------- --------
Gross profit(1)......... 110,069 136,267 158,557 274,389 185,469 40,520 50,023
Operating expenses:
Selling, general and
administrative........ 81,346 77,229 85,031 92,444 102,759 22,934 27,229
Research and develop-
ment.................. 44,000 42,623 43,654 47,166 47,979 10,945 14,288
In process research and
development........... -- -- -- -- -- -- 42,468
-------- -------- -------- --------- -------- -------- --------
Total operating ex-
penses................ 125,346 119,852 128,685 139,610 150,738 33,879 83,985
-------- -------- -------- --------- -------- -------- --------
Operating income
(loss)................. (15,277) 16,415 29,872 134,779 34,731 6,641 (33,962)
Other income, net(2).... 59 341 129 106 5,092 11 9,692
-------- -------- -------- --------- -------- -------- --------
Income (loss) before in-
come taxes............. (15,218) 16,756 30,001 134,885 39,823 6,652 (24,270)
Provision for income
taxes.................. (4,355) 6,133 11,625 51,549 14,810 2,473 (10,187)
-------- -------- -------- --------- -------- -------- --------
Net income (loss)....... $(10,863) $ 10,623 $ 18,376 $ 83,336 $ 25,013 $ 4,179 $(14,083)
======== ======== ======== ========= ======== ======== ========
Pro forma net earnings
(loss) per share(3).... $ 0.68 $ 0.11 $ (0.38)
======== ======== ========
Weighted average common
shares outstanding..... 37,000 37,000 37,000
======== ======== ========
OTHER DATA:
Non-GM software reve-
nue.................... $ 56,272 $ 52,121 $ 73,484 $ 89,328 $115,479 $ 26,236 $ 31,560
GM software revenue(4).. 8,087 11,629 15,619 120,152 -- -- --
-------- -------- -------- --------- -------- -------- --------
Total software revenue
...................... $ 64,359 $ 63,750 $ 89,103 $ 209,480 $115,479 $ 26,236 $ 31,560
======== ======== ======== ========= ======== ======== ========
BALANCE SHEET DATA (END
OF PERIOD):
Working capital(5)...... $ 26,635 $ 33,460 $ 34,091 $ 87,835 $ 52,958 $76,559 $ 48,221
Total assets............ 171,363 162,956 146,907 231,206 166,790 208,186 254,591
Long-term debt.......... -- -- -- -- -- -- 156,055
Stockholder's equity/net
investment............. 119,176 107,272 90,770 132,147 88,350 118,381 6,136
</TABLE>
- -------
(1) Gross profit for each of the years in the five-year period ended December
31, 1997 includes $13.4 million of amortization relating to EDS'
acquisition of the Company in 1991. Gross profit for the three months
ended March 31, 1997 and 1998 includes $3.4 million of amortization
relating to EDS' acquisition of the Company in 1991. Gross profit for the
three months ended March 31, 1998 also includes $1.1 million of
amortization relating to the Solid Edge Acquisition.
(2) The increase in other income, net for the year ended December 31, 1997 and
for the three months ended March 31, 1998 is due to gains on the sale of
investment securities.
(3) For purposes of the calculation of pro forma earnings per share, weighted
average common shares outstanding assumes 5,735,000 shares of Class A
Common Stock issued in the Offering and 31,265,000 shares of Class B
Common Stock are outstanding for the entire period. Employee stock options
for approximately 800,000 shares of Class A Common Stock to be issued upon
completion of the Offering at the initial public offering price are
assumed to have no dilutive effect on earnings per share. The Company
plans on accounting for its employee stock options under the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees."
(4) In 1996, the Company's parent, EDS, entered into a corporate software
license agreement with GM which provides for the delivery of up to 10,000
seats of Unigraphics and IMAN as well as the provision of maintenance
services for an initial term of three years. Software license revenue of
$110.3 million relating to this agreement was recognized in 1996. The
Company has agreed to perform EDS' obligations to provide products and
services under such agreement pursuant to the GM Subcontract executed in
connection with the Reorganization.
(5) Working capital consists of total current assets less total current
liabilities.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the financial condition and
results of operations of the Company prior to the Solid Edge Acquisition,
unless otherwise specifically stated. For a discussion of the Solid Edge
Acquisition, see "--Solid Edge Acquisition."
OVERVIEW
The Company generates revenue primarily from the licensing of MCAD and PDM
software products, provision of software consulting and support services and
computer equipment sales to users of the Company's products. The Company
operates business units in the United States and more than 20 other countries.
The Company's software products are licensed to customers through the
Company's direct sales force and by specific arrangements with certain
distributors, value-added resellers ("VARs") and other marketing
representatives. The Company also offers a full range of customization,
implementation and integration consulting services.
Effective as of January 1, 1998, the Company succeeded to the MCAD business
of EDS which had previously been operated within several business units of
EDS. The Company's historical financial statements reflect the results of
operations, financial condition and cash flows of the Company as a component
of EDS prior to the Reorganization and may not be indicative of actual results
of operations and financial position of the Company subsequent to the
Reorganization. See "Risk Factors--Risks Associated with Absence of History as
a Stand-Alone Company and Integration of Solid Edge/EMS Business," "--Limited
Relevance of Historical Financial Information" and "Selected Financial and
Operating Data."
The Company's customers may license only software products or software
products coupled with customization, implementation, consulting and/or
maintenance services. Pricing for software licenses is based on the
configuration of the Company's products selected by the customer on a per seat
basis or pursuant to a site license for multiple seats. The MCAD software
industry is characterized by selling prices which have tended to decline for
existing software products over time due to competition, lower marginal costs
and rapid technological change.
The Company typically licenses software to customers under perpetual or term
license arrangements. Revenue on such perpetual arrangements is recognized
upon delivery of the software or as seats are installed, depending on the
terms of the arrangement and providing all revenue recognition criteria have
been met. Revenue on term license arrangements is recognized ratably over the
license term. Software revenue also includes royalty revenue related to the
licensing of Parasolid to third-party software developers.
Services revenue includes revenue from maintenance and consulting services.
Revenue attributable to maintenance services is recognized ratably over the
maintenance period. Maintenance fees entitle customers to the receipt of
product upgrades as well as customer support. Maintenance fees generate
recurring revenue and thereby provide a degree of stability to the Company's
results of operations. The Company typically provides maintenance services to
its customers on an annual basis with automatic renewals subject to the
Company's or the customer's right to terminate the maintenance upon 60 days
prior notice. The average maintenance renewal rate over the past five years
has been approximately 98%. Consulting and other services consist primarily of
customer training, implementation and integration, engineering and data
exchange services.
Hardware revenue results from the sale of bundled hardware/software products
to certain customers. Hardware consists of computer hard drives, monitors and
related equipment which is typically purchased through EDS and resold to
customers. In late 1996, the Company began deemphasizing hardware sales in
order to focus on higher margin software sales and consulting services.
Therefore, hardware revenue declined in 1997 and is expected to continue to
decline in the future.
In 1996 EDS and GM signed the EDS/GM Site License Agreement for Unigraphics
software. The EDS/GM Site License Agreement is a three-year arrangement that
consists of three elements: (1) a license of the
27
<PAGE>
Unigraphics software for up to 10,000 seats; (2) maintenance for the installed
software; and (3) a specified upgrade to be delivered by a non-Unigraphics
business unit of EDS on a when-and-if available basis. The contract did not
require any significant modification or customization of the software. The
contract price was approximately $178 million, of which approximately $110.3
million was attributed to the software license element, approximately $64.3
million was attributable to maintenance support and approximately $3.7 million
was attributed to the specified upgrade. Revenue related to the specified
upgrade will not be recorded by the Company since such upgrade will be
delivered to the customer by a non-Unigraphics business unit of EDS. The
license fee is payable over three years in monthly installments of
approximately $3.1 million. Maintenance revenue is recognized on a per-seat
basis over the term of the arrangement. Accordingly, the $64.3 million
expected maintenance revenue is an estimate that is dependent on how many
seats are ultimately deployed. The Company has estimated the total revenue to
be derived from maintenance based on the anticipated deployment of seats over
the license period. The Company recognized license revenue of approximately
$110.3 million in 1996 under this arrangement since all conditions for revenue
recognition had been met.
By recognizing Unigraphics as its single MCAD product development system, GM
has expressed its intent to consolidate its usage of MCAD software systems.
Prior to the EDS/GM Site License Agreement, GM received software and
maintenance services on a monthly basis pursuant to a term lease agreement
which was cancelable upon notice. In connection with the Reorganization, EDS
and the Company entered into the GM Subcontract pursuant to which the Company
receives all revenue and performs substantially all of EDS' obligations under
the EDS/GM Site License Agreement. Although less than 10% of the Company's
1997 revenues were attributable to the products and services provided to GM,
receivables of $55.2 million, or approximately 48% of the Company's accounts
receivable balance, at December 31, 1997 were related to products and services
provided to GM. The extended payment terms of this arrangement have not had a
material effect on the Company's liquidity since any costs incurred to support
the arrangement are adequately funded by maintenance support billings and
related revenue. If the EDS/GM MSA were to be terminated, or if the Company
(as a subcontractor to EDS) and GM were not to enter into a successor
agreement to the EDS/GM Site License Agreement upon termination of that
agreement in 1999, the Company's financial condition and results of operations
would be materially adversely affected.
Effective January 1, 1998, the Company and EDS entered into the Management
Services Agreement, pursuant to which EDS performs various management services
for the Company including treasury, risk management and tax, and similar
administrative services. Amounts charged to the Company under this agreement
approximate EDS' cost of providing the services plus a fixed fee equal to 0.5%
of the Company's total revenues. The Management Services Agreement will expire
on December 31, 2002 unless terminated earlier by either party if EDS and the
Company are no longer under common control. Except for certain tax and
treasury management services relating to consolidated operations or corporate
policy of EDS, which the Company is required to purchase during the term of
the Management Services Agreement, the Company or EDS may terminate any
service on or after January 1, 2000 with prior notice of not less than five
months. The Company's historical financial statements include an allocation of
corporate general and administrative costs in the amount of approximately 2.1%
of total revenues per year. Management believes that this percentage, which is
based on an analysis of actual services and estimated costs provided to the
Company by EDS, is reasonable. However, there can be no assurance that such
costs will be indicative of costs to be incurred under the Management Services
Agreement or in transactions with unrelated third parties. The Company expects
to pay EDS approximately $8.5 million for such services in 1998, subject to
adjustment levels and negotiated prices.
SOLID EDGE ACQUISITION
On March 2, 1998, the Company completed the Solid Edge Acquisition for a
purchase price of $105 million (excluding approximately $2 million of
acquisition costs). The Company borrowed $105.0 million from EDS pursuant to
the Intercompany Credit Agreement. The cost of the Solid Edge Acquisition was
allocated to identifiable assets based on estimated fair values as determined
by an independent appraisal. Costs allocated to identifiable intangible assets
will be amortized on a straight-line basis over the remaining estimated useful
lives
28
<PAGE>
of the assets. Based on an independent appraisal, costs were allocated to in-
process research and development in the amount of $42.5 million and were
expensed in the three month period ended March 31, 1998. The excess of
purchase price over fair value of identifiable assets acquired was recorded as
goodwill and will be amortized on a straight-line basis over its useful life
of seven years. On a preliminary basis, the Company has allocated the purchase
price as follows: $1.3 million to computer equipment, furniture and other
assets; $3.4 million to software; $4.0 million to acquired workforce; $42.5
million to in-process research and development costs; and $55.8 million to
goodwill. As a result of the write-off of in-process research and development
costs and additional amortization expense resulting from the Solid Edge
Acquisition, the Company expects that net income in 1998 will be significantly
less than in prior years.
In-process research and development relates to the modification of Solid
Edge 4.0 to include the Company's Parasolid solid modeling kernel. This
project commenced in July 1997 and was completed in May 1998. Initial sales of
Solid Edge 5.0 occurred shortly thereafter. The Company estimates that costs
incurred subsequent to March 31, 1998 to complete development of Solid Edge
5.0 total $1.3 million.
Revenues of the Solid Edge/EMS Business totaled $34.5 million, $31.9 million
and $35.2 million during 1995, 1996 and 1997, respectively. Sales of Solid
Edge commenced in 1996. Revenues attributable to Solid Edge product and
services represented 22% and 46% of total revenues of the Solid Edge/EMS
Business during the years ended December 31, 1996 and 1997, respectively.
Revenues related to EMS declined from $34.5 million in 1995 to $19.0 million
in 1997 primarily due to the introduction of Solid Edge in 1996. Management
expects that revenues attributable to the EMS product will continue to decline
in the future. Research and development costs of $12.1 million, $10.9 million
and $10.0 million in 1995, 1996 and 1997, respectively, primarily related to
the development of the Solid Edge product. The excess of direct expenses over
revenues of the Solid Edge/EMS Business were $6.3 million, $10.1 million and
$4.1 million during 1995, 1996 and 1997, respectively.
RESULTS OF OPERATIONS
The following tables summarizes the Company's revenue for each of the years
ended December 31, 1995, 1996 and 1997 and the three months ended March 31,
1997 and 1998 by revenue type and geographic region.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ---------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
Software.......................... $ 89,103 $209,480 $115,479 $26,236 $31,560
Services.......................... 111,575 121,528 137,794 30,547 37,885
Hardware.......................... 66,944 83,201 61,320 12,344 17,083
-------- -------- -------- ------- -------
Total revenue................... $267,622 $414,209 $314,593 $69,127 $86,528
======== ======== ======== ======= =======
Revenue by Geographic Region (1):
United States..................... $135,555 $249,049 $144,529 $35,114 $44,670
Europe............................ 96,364 117,172 112,785 23,130 29,926
Other (2)......................... 35,703 47,988 57,279 10,883 11,932
-------- -------- -------- ------- -------
Total revenue................... $267,622 $414,209 $314,593 $69,127 $86,528
======== ======== ======== ======= =======
</TABLE>
- --------
(1) The Company classifies its software and hardware revenue by region based
on the geographic region of the Company's business unit in which a
software license or piece of equipment is sold. Services and other revenue
is classified by the location in which the activity is performed.
(2) Revenue in the "Other" category is derived from Asia Pacific and South and
Central America regions as well as Canada.
29
<PAGE>
The following table sets forth, as a percentage of total revenue, statement
of income data of the Company for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 and 1998. These operating
results are not necessarily indicative of results for any future periods.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ -----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue:
Software.................... 33% 51% 37% 38% 36%
Services.................... 42 29 44 44 44
Hardware.................... 25 20 19 18 20
-------- -------- -------- ------- -------
Total revenue............. 100% 100% 100% 100% 100%
======== ======== ======== ======= =======
Costs of revenue:
Software:
Amortization............... 5% 4% 5% 5% 5%
Royalties, distribution and
other..................... 5 6 4 4 4
Services.................... 13 10 18 20 17
Hardware.................... 18 14 14 12 16
-------- -------- -------- ------- -------
Total cost of revenue..... 41 34 41 41 42
-------- -------- -------- ------- -------
Gross profit.................. 59% 66% 59% 59% 58%
======== ======== ======== ======= =======
Operating expenses:
Selling, general and
administrative............. 32% 22% 33% 33% 31%
Research and development.... 16 11 15 16 17
In process research and
development................ -- -- -- -- 49
-------- -------- -------- ------- -------
Total operating expenses.. 48 33 48 49 97
-------- -------- -------- ------- -------
Operating income (loss)... 11 33 11 10 (39)
Other income, net............. -- -- 2 -- 11
-------- -------- -------- ------- -------
Income (loss) before
income taxes............. 11 33 13 10 (28)
Provision for income taxes.... 4 13 5 4 (12)
-------- -------- -------- ------- -------
Net income (loss)......... 7% 20% 8% 6% (16)%
======== ======== ======== ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenue. Revenue of the Company was $86.5 million during the quarter ended
March 31, 1998, an increase of $17.4 million from $69.1 million for the
corresponding quarter in 1997. Software revenue increased $5.4 million, or
21%, to $31.6 million for the quarter ended March 31, 1998 from the $26.2
million for the corresponding quarter in 1997. This increase was primarily due
to increased sales from Europe which had a significant backlog of sales which
were not shipped until the first quarter of 1998.
Services revenue increased $7.4 million, or 24%, to $37.9 million for the
quarter ended March 31, 1998 from $30.5 million for the corresponding quarter
in 1997. This increase was primarily attributed to increased maintenance
revenues related to GM as well as other customers, totaling approximately $4.3
million. In addition, revenues from training and professional services
increased approximately $3.1 million, primarily attributable to increased GM
training and support.
Hardware revenue increased $4.8 million, or 39%, to $17.1 million for the
quarter ended March 31, 1998 from $12.3 million for the corresponding quarter
in 1997. This increase was primarily due to increased revenues from the United
States totaling $3.9 million, attributable to two significant hardware sales
during the quarter. In addition, hardware revenues from Europe increased $1.3
million as a result of backlog from the fourth quarter of 1997.
30
<PAGE>
The Company derived 48% and 49% of its revenue from international operations
for the quarters ended March 31, 1998 and 1997, respectively. Excluding GM
revenue, international revenue accounted for 52% and 53% of total revenue for
the quarters ended March 31, 1998 and 1997, respectively. Revenue from Europe
increased $6.8 million for the quarter ended March 31, 1998 due to sales
backlog from the fourth quarter of 1997 as noted above. Results of operations
of the Company have not been materially affected by the currency volatility in
Asia Pacific markets.
Gross Profit. The Company's gross profit was $50.0 million for the quarter
ended March 31, 1998 as compared to $40.5 million for the corresponding
quarter in 1997, an increase of $9.5 million. Gross profit margin was 58% and
59% for the quarters ended March 31, 1998 and 1997, respectively. Cost of
software revenue was $7.9 million and $6.5 million for the quarters ended
March 31, 1998 and 1997, respectively. Gross profit margin on software
revenues was approximately 75% for the quarters ended March 31, 1998 and 1997.
Cost of software revenue includes amortization of $4.6 million and $3.7
million for the quarters ended March 31, 1998 and 1997, respectively.
Amortization includes amounts relating to EDS' acquisition of Unigraphics in
1991, which amortization is expected to continue through October 1999, and the
Solid Edge Acquisition, which is expected to continue through 2003. Gross
profit on service revenue increased $6.4 million to $23.2 million for the
quarter ended March 31, 1998 from $16.8 million for the corresponding quarter
in 1997. Gross profit margin on service revenue increased to 61% for the
quarter ended March 31, 1998 from 55% for the corresponding quarter in 1997
principally due to the increase in maintenance revenues as a component of
total service revenues. Gross profit on hardware revenue decreased
$0.8 million to $3.2 million for the quarter ended March 31, 1998 from $4.0
million for the corresponding quarter in 1997. Gross profit margin on hardware
revenue decreased to 19% for the quarter ended March 31, 1998 as compared to
32% for the corresponding quarter in 1997, due to reductions in vendor rebates
in the first quarter of 1998 as compared to first quarter of 1997 and
increased price pressure on personal computer sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses totaled $27.2 million for the quarter ended March 31,
1998, an increase of $4.3 million from $22.9 million for the corresponding
quarter in 1997. Selling, general and administrative expenses represented 31%
and 33% of total revenues for the quarters ended March 31, 1998 and 1997,
respectively. Selling costs are comprised of salesperson salaries, commissions
and benefits, travel, sales office occupancy and other related costs. The
increase of $4.3 million in selling, general and administrative costs was
principally due to increases in commissions and bonuses as a result of
increased revenues for the quarter, increased staffing requirements to support
higher anticipated revenue growth and additional employee costs associated
with the Solid Edge Acquisition.
Research and Development Costs. Research and development costs were $14.3
million and $10.9 million for the quarters ended March 31, 1998 and 1997,
respectively. Research and development costs as a percentage of total revenue
were 17% and 16% for the quarters ended March 31, 1998 and 1997, respectively.
The increase of $3.4 million in research and development costs was principally
due to the development of Solid Edge 5.0 as well as increased salaries,
contract labor and travel costs.
In-process Research and Development Expense. In-process research and
development includes the write off of in-process research and development
costs of $42.5 million associated with the Solid Edge Acquisition.
Operating Income (Loss). Operating income (loss) was $(34.0) million for the
quarter ended March 31, 1998 as compared to $6.6 million for the corresponding
quarter in 1997.
Other Income, Net. Other income, net was $9.7 million for the quarter ended
March 31, 1998 as compared to $11 thousand for the corresponding quarter in
1997. During the quarter ended March 31, 1998, the Company realized gains upon
the exercise of warrants and subsequent sale of related marketable equity
securities of $10.1 million. The warrants were received in exchange for
reduced royalty fees from a private software company which was acquired by a
public company in 1997. The Company anticipates that significant gains on
similar
31
<PAGE>
transactions will continue to be reflected in its results of operations in
1998. The amount of such gains will be dependent on existing market conditions
at the date of sale.
Provision for Income Taxes. The provision for income taxes was $(10.2)
million for the quarter ended March 31, 1998 compared to $2.5 million for the
corresponding quarter in 1997. The Company's effective tax rate was 42% and
37.2% for the quarters ended March 31, 1998 and 1997, respectively. The
Company's effective tax rate was higher than normal in the first quarter of
1998 due to the write-off of in-process research and development costs
discussed above. The Company expects that its effective tax rate for the
remaining quarters in 1998 will be 36%.
Net Income (Loss). Net income (loss) was $(14.1) million and $4.2 million
for the quarters ended March 31, 1998 and 1997, respectively.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenue. Revenue of the Company was $314.6 million during the year ended
December 31, 1997, a decrease of $99.6 million from $414.2 million in 1996.
The decrease in total revenue was due to the recognition of software license
revenue in 1996 pursuant to the EDS/GM Site License Agreement, which resulted
in the recognition of license revenue totaling $110.3 million. Revenue related
to GM totaled $18.6 million in 1997 compared to $139.4 million in 1996. Non-GM
revenue totaled $296.0 million, an increase of $21.2 million, or 8%, over 1996
non-GM revenue of $274.8 million. The increase in non-GM revenue in 1997 was
due to additional sales of software seats and increased maintenance revenue,
partially offset by decreases in sales of computer equipment.
Software revenue decreased $94.0 million to $115.5 million in 1997 due to
recognition of GM revenue in 1996 in connection with the signing of the EDS/GM
Site License Agreement. Non-GM software revenue increased $26.2 million, or
29%, in 1997 primarily due to the licensing of the Unigraphics product suite
to a number of new aerospace customers as a result of increased functionality
available in Versions 12.0 and 13.0 of Unigraphics released in 1997.
Services revenue increased $16.3 million, or 13%, to $137.8 million in 1997
from $121.5 million in 1996. This increase was primarily attributed to
increased maintenance revenue due to continued growth in the Company's
installed customer base and increased training, implementation and integration
consulting services provided to licensees of the Company's software.
Hardware revenue decreased $21.9 million, or 26%, to $61.3 million in 1997
from $83.2 million in 1996. In late 1996, the Company began deemphasizing
hardware sales in order to focus on higher margin software sales and
consulting services. Therefore, hardware revenue declined in 1997 and is
expected to continue to decline in the future.
The Company derived 54% and 40% of its revenue from international operations
during 1997 and 1996, respectively. Excluding GM revenue, international
revenue accounted for 58% and 60% of total revenue in 1997 and 1996,
respectively. Revenue from Asia Pacific increased $7.1 million in 1997 due to
increased software revenue in Japan, China and Korea. These increases were
partially offset by a decline in revenue in Europe of $4.4 million, primarily
resulting from reduced hardware revenue in Eastern Europe and Germany. Results
of operations of the Company have not been materially affected by the currency
volatility in Asia Pacific markets in late 1997.
Gross Profit. The Company's gross profit was $185.5 million in 1997 as
compared to $274.4 million in 1996, a decrease of $88.9 million. Gross profit
margin was 59% and 66% in 1997 and 1996, respectively. The decrease in gross
profit margin in 1997 is due to the exceptionally high proportion of software
revenue to total revenue in 1996 as a result of revenue attributable to the
EDS/GM Site License as well as a slight decline in the gross profit margin for
services. Cost of software revenue was $28.0 million and $38.5 million in 1997
and 1996,
32
<PAGE>
respectively. Gross profit on service revenue increased $0.9 million to $80.7
million in 1997 from $79.8 million in 1996. Gross profit margin on service
revenue declined to 59% in 1997 from 66% in 1996 principally due to a higher
proportion of consulting and other revenue to total service revenue as well as
increased staffing in the U.S. and Asia Pacific regions. Gross profit on
hardware revenue decreased $6.4 million to $17.2 million in 1997 from $23.6
million in 1996. Gross profit margin on hardware revenue was 28% in 1997 and
1996. Cost of software revenue includes amortization of $13.4 million per year
relating to EDS' acquisition of Unigraphics in 1991, which amortization is
expected to continue through October 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses totaled $102.8 million in 1997, an increase of $10.4
million from $92.4 million in 1996. Selling, general and administrative
expenses represented 33% and 22% of total revenues in 1997 and 1996,
respectively. Exclusive of GM revenues, selling, general and administrative
costs represented 35% and 34% of 1997 and 1996 revenues, respectively. Selling
costs are comprised of salesperson salaries, commissions and benefits, travel,
sales office occupancy and other related costs. The increase of $10.4 million
in selling, general and administrative costs was principally due to increased
selling costs due to increases in non-GM sales and expansion of the Company's
U.S. and Asia Pacific sales operations. Such increase was partially offset by
lower allocations of corporate general and administrative expenses from EDS
due to lower total revenue.
Research and Development Costs. Research and development costs were $48.0
million and $47.2 million in 1997 and 1996, respectively. Research and
development costs as a percentage of total revenue were 15% and 11% in 1997
and 1996, respectively. Research and development costs as a percentage of
total revenue in 1996 were lower than in 1997 due primarily to increased
revenue associated with the EDS/GM Site License Agreement in 1996.
Operating Income. Operating income was $34.7 million in 1997 as compared to
$134.8 million in 1996.
Other Income, Net. Other income, net was $5.1 million in 1997 as compared to
$0.1 million in 1996. During 1997, the Company realized gains upon the
exercise of warrants and subsequent sale of related marketable equity
securities of $5.1 million. The warrants were received in exchange for reduced
royalty fees from a private software company which was acquired by a public
company in 1997. The Company anticipates that significant gains on similar
transactions will also be reflected in its results of operations in 1998. The
amount of such gains will be dependent on the timing of the Company's vesting
in related warrants and existing market conditions at the date of sale.
Provision for Income Taxes. The provision for income taxes was $14.8 million
in 1997 compared to $51.5 million in 1996. The Company's effective tax rate
was 37.2% and 38.2% in 1997 and 1996, respectively. The difference between the
Company's effective tax rate and the statutory federal income tax rate
primarily resulted from state and foreign taxes, partially offset by research
and experimentation credits.
Net Income. Net income was $25.0 million and $83.3 million in 1997 and 1996,
respectively.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenue. Revenue of the Company was $414.2 million during the year ended
December 31, 1996, an increase of $146.6 million from $267.6 million in 1995.
The increase in total revenue was principally due to the recognition of
software license revenue upon the signing of the EDS/GM Site License Agreement
in 1996. Revenue related to GM totaled $139.4 million in 1996 compared to
$36.6 million in 1995. Non-GM revenue totaled $274.8 million, an increase of
$43.8 million, or 19%, over 1995 non-GM revenue of $231.0 million.
Software revenue increased $120.4 million to $209.5 million in 1996
primarily due to the signing of the EDS/GM Site License Agreement. Non-GM
software revenue increased $15.8 million, or 22%, in 1996. The increase in
non-GM revenue was due to the introduction of Version 11.0 of Unigraphics
which was the Company's first MCAD product capable of handling large, complex
design assemblies with hundreds of components, making it especially well
suited for automotive and aerospace manufacturers. In addition, certain
33
<PAGE>
modules associated with Unigraphics 11.0 were specifically designed for the
commercial automotive market which the Company believes enabled EDS to obtain
the EDS/GM Site License Agreement. Furthermore, licenses of software to
suppliers of GM increased as a result of GM's decision to standardize its
operations using a single MCAD product.
Services revenue increased $9.9 million, or 9%, to $121.5 million in 1996
from $111.6 million in 1995. This increase is primarily attributed to
increased maintenance revenue due to growth in the Company's installed
customer base and increased training, implementation and integration
consulting services provided to licensees.
Hardware revenue increased $16.3 million, or 24%, to $83.2 million in 1996
from $66.9 million in 1995. Hardware revenue increased primarily due to
increased sales in Europe which typically consisted of bundled hardware and
software products.
The Company derived 40% and 49% of its revenue from international operations
during 1996 and 1995, respectively. International revenue accounted for 60%
and 57% of total revenue, exclusive of GM revenue, in 1996 and 1995,
respectively. Revenue from Europe increased $20.8 million in 1996, primarily
due to increased software and hardware revenue in most European countries.
Revenue from Asia Pacific increased $7.1 million in 1996, principally due to
increased software revenue in China, Singapore and Australia.
Gross Profit. The Company's gross profit was $274.4 million in 1996 as
compared to $158.6 million in 1995, an increase of $115.8 million. Gross
profit margin was 66% and 59% in 1996 and 1995, respectively. The increase in
gross profit margin in 1996 was due to the exceptionally high proportion of
software revenue to total revenue in 1996 as a result of revenue attributable
to the EDS/GM Site License Agreement. Cost of software sales was $38.5 million
and $27.5 million in 1996 and 1995, respectively. Gross profit on services
revenue increased $2.6 million to $79.8 million in 1996 from $77.2 million in
1995. Gross profit margin on services revenue declined to 66% in 1996 from 69%
in 1995 principally due to a higher proportion of consulting and other service
revenue to total service revenue. Gross profit on hardware revenue increased
$3.9 million to $23.6 million in 1996 from $19.7 million in 1995. Gross profit
margin on hardware revenue was 28% and 29% in 1996 and 1995, respectively.
Cost of software revenue includes amortization of $13.4 million per year
relating to EDS' acquisition of Unigraphics in 1991, which amortization is
expected to continue through October 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses totaled $92.4 million in 1996, an increase of $7.4
million from $85.0 million in 1995, of which $3.1 million was attributable to
the increased allocation for general and administrative expense from EDS due
to higher revenue and the remainder was due to increased selling costs
resulting from higher sales as well as expansion of foreign operations.
Selling, general and administrative expenses represented 22% and 32% of total
revenue in 1996 and 1995, respectively. Exclusive of GM revenue, selling,
general and administrative costs represented 34% and 37% of 1996 and 1995
revenue, respectively.
Research and Development Costs. Research and development costs were $47.2
million and $43.7 million in 1996 and 1995, respectively. Research and
development costs as a percentage of total revenue were 11% and 16% in 1996
and 1995, respectively. The increase in research and development costs was
primarily due to the capitalization of $3.3 million of product development
costs in 1995.
Operating Income. Operating income was $134.8 million in 1996 as compared to
$29.9 million in 1995.
Provision for Income Taxes. The provision for income taxes was $51.5 million
in 1996 compared to $11.6 million in 1995. The Company's effective tax rate
was 38.2% and 38.7% in 1996 and 1995, respectively. The difference between the
Company's effective tax rate and the statutory federal income tax rate
primarily results from state and foreign income taxes.
Net Income. Net income was $83.3 million and $18.4 million in 1996 and 1995,
respectively.
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<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain quarterly information for the Company
for the years ended December 31, 1996 and 1997 and the three months ended
March 31, 1998. Such information is derived from the Company's unaudited
financial statements, prepared on a basis consistent with the Company's
audited financial statements. In the opinion of management, the unaudited
quarterly information includes all necessary adjustments, which are normal and
recurring, required for a fair presentation of the information. Operating
results for any given quarter are not necessarily indicative of results for
any future period and should not be relied upon as an indicator of future
performance.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software............... $22,081 $27,282 $30,149 $129,968 $26,236 $28,780 $24,651 $35,812 $31,560
Services............... 28,108 30,305 28,643 34,472 30,547 35,847 33,297 38,103 37,885
Hardware............... 18,337 23,748 16,228 24,888 12,344 16,645 18,408 13,923 17,083
------- ------- ------- -------- ------- ------- ------- ------- --------
Total revenue.......... 68,526 81,335 75,020 189,328 69,127 81,272 76,356 87,838 86,528
------- ------- ------- -------- ------- ------- ------- ------- --------
Cost of revenue:
Software............... 6,829 9,635 6,524 15,497 6,457 7,452 6,736 7,308 7,873
Services............... 9,402 11,537 9,804 10,978 13,759 12,810 15,283 15,207 14,726
Hardware............... 13,118 17,275 11,405 17,816 8,391 10,688 13,399 11,634 13,906
------- ------- ------- -------- ------- ------- ------- ------- --------
Total cost of revenue.. 29,349 38,447 27,733 44,291 28,607 30,950 35,418 34,149 36,505
------- ------- ------- -------- ------- ------- ------- ------- --------
Gross profit............ 39,177 42,888 47,287 145,037 40,520 50,322 40,938 53,689 50,023
Selling, general and
administrative......... 21,381 22,578 22,430 26,055 22,934 26,398 24,660 28,767 27,229
Research and
development............ 11,989 10,912 11,809 12,456 10,945 11,505 12,105 13,424 14,288
In-process research and
development............ -- -- -- -- -- -- -- -- 42,468
------- ------- ------- -------- ------- ------- ------- ------- --------
Operating income
(loss)................. 5,807 9,398 13,048 106,526 6,641 12,419 4,173 11,498 (33,962)
Other income (expense),
net.................... (11) (104) (11) 232 11 3 3,795 1,283 9,692
------- ------- ------- -------- ------- ------- ------- ------- --------
Income (loss) before
income taxes........... 5,796 9,294 13,037 106,758 6,652 12,422 7,968 12,781 (24,270)
Provision for income
taxes.................. 2,214 3,551 4,982 40,802 2,473 4,619 2,964 4,754 (10,187)
------- ------- ------- -------- ------- ------- ------- ------- --------
Net income (loss)....... $ 3,582 $ 5,743 $ 8,055 $ 65,956 $ 4,179 $ 7,803 $ 5,004 $ 8,027 $(14,083)
======= ======= ======= ======== ======= ======= ======= ======= ========
</TABLE>
The Company's total revenue for the first, second, third and fourth quarters
of 1997 represented 22%, 26%, 24% and 28%, respectively, of total revenue for
1997. In 1996, the first, second, third and fourth quarters represented 17%,
20%, 18% and 45%, of total revenue for the year. The Company's quarterly
operating results have varied significantly and are likely to vary
significantly in the future, depending on factors such as number, timing and
significance of product enhancements or new products by the Company or its
competitors, the ability of the Company to develop, introduce and market new
and enhanced versions of its products, general conditions in the MCAD and
computer industries and regional economies and other events and factors.
The Company's first quarter software revenue, total revenue, operating
income and net income have generally been the lowest of any quarter during the
year. Additionally, as is typical in the MCAD software industry, the Company
historically has experienced its highest licensing activity each year in the
fourth quarter.
Revenue and cost of revenue relating to software increased in the fourth
quarter of 1996 primarily due to the signing of the EDS/GM Site License
Agreement resulting in the recognition of software revenue totaling $101.1
million in that quarter. Total software revenue recognized by the Company
under the EDS/GM Site License Agreement in 1996 was $110.3 million. See "--
Results of Operations" for further discussion of the impact of the EDS/GM Site
License Agreement.
The Company's net income for the first quarter of 1998 was significantly
less than in prior years as a result of the Solid Edge Acquisition. The
Company allocated approximately $42.5 million of the purchase price of the
Solid Edge/EMS Business to in-process research and development which the
Company expensed in the first
35
<PAGE>
quarter of 1998. The Company's results of operations for the first quarter of
1998 also reflect amortization of acquired software and other intangibles of
approximately $1.1 million associated with the Solid Edge Acquisition. Such
amortization was recorded as cost of software revenue. See "--Solid Edge
Acquisition" for a discussion of the impact of the Solid Edge Acquisition on
the financial statements and results of operations of the Company, including
with respect to the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has utilized the central cash management function
of EDS to finance its operations. Cash requirements were satisfied either by
intercompany transactions between EDS and the Company or by cash from
operations. Intercompany transactions between EDS and the Company did not bear
interest. In connection with the Reorganization, EDS and the Company entered
into the Intercompany Credit Agreement which provides the Company with funding
to meet its daily cash requirements. Under the Intercompany Credit Agreement,
the interest rate to be charged to the the Company is the sum of the one-month
LIBOR plus 0.5%. In addition, the Company is required, with minor exceptions,
to lend any excess cash it has available to EDS, with such loans to bear
interest at a rate equal to the one-month LIBID minus 0.5%. Subsequent to the
Offering, the maximum amount that the Company may borrow at any time from EDS
under the Intercompany Credit Agreement (and certain other credit agreements
between EDS Finance plc, a wholly-owned subsidiary of EDS, and certain non-
U.S. subsidiaries of the Company) will be $70.0 million. The Intercompany
Credit Agreement restricts the Company from obtaining financing from any party
other than EDS without written consent from EDS, unless EDS fails to provide
funding available to the Company under the Intercompany Credit Agreement. See
"Relationship with EDS and Certain Transactions--Contractual Arrangements--
Intercompany Credit Agreement."
In connection with the Solid Edge Acquisition, the Company borrowed $105.0
million under the Intercompany Credit Agreement on March 2, 1998. In addition,
effective March 6, 1998, the Company issued to EDS as a dividend the
Intercompany Note in the principal amount of $73.0 million. The Intercompany
Note is payable on March 6, 2001 and bears interest, payable semiannually, at
a rate equal to the one-month LIBID minus 0.5%. A portion of the amounts
advanced to the Company under the Intercompany Credit Agreement in respect of
the Solid Edge Acquisition will be repaid to EDS with the net proceeds from
the Offering.
The Company generated net cash from operating activities of $43.3 million,
$53.8 million and $74.3 million in 1995, 1996 and 1997, respectively. Net cash
used in investing activities was $7.4 million, $12.4 million and $4.1 million
in 1995, 1996 and 1997, respectively. Included in investing activities for
these years were capital expenditures of $6.6 million, $12.3 million and $9.1
million, respectively. The Company generated net cash from operating
activities of $29.1 million and $18.0 million for the quarters ended March 31,
1998 and 1997, respectively. Net cash used in investing activities was $97.4
million and $1.7 million for the quarters ended March 31, 1998 and 1997,
respectively. Investing activities for the quarter ended March 31, 1998,
include $105.0 million relating to the Solid Edge Acquisition. Included in
investing activities for these periods were capital expenditures of $1.6
million and $1.6 million, respectively. At March 31, 1998, the Company had an
unbilled receivable from GM of $46.0 million relating to the software revenue
recognized in 1996 under the EDS/GM Site License Agreement. Such receivable is
scheduled to be paid in 1998 and the first half of 1999. The Company believes
currently available sources of liquidity, including the Intercompany Credit
Agreement and cash generated from operations, will be sufficient for its
operations for at least the next 12 months.
YEAR 2000 ISSUE
Current versions of the Company's products are designed to be Year 2000
compliant. The Company is in the process of determining the extent to which
the customized implementations of its software products are Year 2000
compliant, as well as the impact of any non-compliance on the Company and its
customers. While there can be no assurance that the Company will not be
exposed to potential claims resulting from system problems associated with the
Year 2000 issue, the Company does not currently believe that the effects of
any Year 2000 non-compliance in the Company's installed base of software will
result in any material adverse impact on the Company's business or results of
operations.
36
<PAGE>
In accordance with the Management Services Agreement with EDS, the Company
will continue to use centralized internal accounting systems of EDS in the
near term. EDS has completed the assessment and planning stages and has
commenced the renovation process for its internal systems, including those
used by the Company. The Company has been advised that EDS anticipates that
this process and the subsequent testing and implementation of the modified
code will be completed in stages, from mid-1998 through mid-1999. Costs
incurred to make EDS' centralized internal accounting systems Year 2000
compliant will be paid entirely by EDS. The failure to complete the Year 2000
conversion process for EDS' internal systems on a timely basis would have a
material adverse impact on the Company's business or results of operations.
IMPACT OF CHANGES IN EXCHANGE RATES
The Company's results of operations can be affected by changes in exchange
rates. Revenue received and expenses paid in currencies other than the U.S.
dollar are translated into U.S. dollars for financial reporting purposes based
on the average exchange rate for the period. During the year ended December
31, 1997, international revenue and operating income represented 54% and 56%,
respectively, of total revenue and operating income of the Company. The
Company's most significant international operations are located in Germany and
the United Kingdom, which comprised 20% and 16%, respectively, of total
international revenue in 1997. Foreign revenue and costs are generally
received and paid in the local currency. Historically, foreign currency
transaction gains (losses) have not had a material effect on the Company's
operations.
INFLATION
Historically, inflation has not had a material effect on the Company's
results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information, were
issued. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements.
Reclassification of financial statements for earlier periods, provided for
comparative purposes, is required. The statement also requires the accumulated
balance of other comprehensive income to be displayed separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. SFAS No. 131 establishes standards for reporting
information about operating segments in annual and interim financial
statements. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. Categories required to be reported as
well as reconciled to the financial statements are segment profit or loss,
certain specific revenue and expense items, and segment assets. SFAS No. 130
and No. 131 are effective for fiscal years beginning after December 15, 1997.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, Software Revenue Recognition, to
supersede SOP 91-1, the previously released SOP on this topic. SOP 97-2
provides additional guidance on when revenue should be recognized, and in what
amounts, for licensing, selling, leasing, or otherwise marketing computer
software. The provisions of SOP 97-2 are effective for transactions entered
into in fiscal years beginning after December 15, 1997. Adoption of SOP 97-2
is not expected to have a material adverse impact on the Company's financial
statements.
In March 1998, Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, was issued. This SOP
requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. The provisions of SOP 98-1 are effective for financial
statements issued for fiscal years beginning after December 15, 1998, although
early adoption is allowed. Initial application of SOP 98-1 is not expected to
have a material impact on the Company's financial statements. The Company has
not determined if it will adopt the provisions of this SOP prior to its
effective date.
37
<PAGE>
BUSINESS
The Company is a leading global provider of scalable, integrated,
enterprise-level MCAD solutions that are used for virtual product development
principally in the automotive and transportation, aerospace, consumer
products, equipment and machinery and electronics industries. The Company's
MCAD solutions consist of both software products and consulting services. The
Company's software products allow customers to reduce design, engineering and
manufacturing costs and minimize the time between a product's inception and
its introduction to the market while simultaneously improving product quality.
Through MCAD, product design is accomplished digitally, eliminating the need
for paper drawings or physical prototypes. With digital assemblies, fit,
tolerances and moving mechanisms, as well as design alternatives, can be
tested before a physical product has been made. For example, automobile
designers can virtually "open" the door or trunk and can "walk around" a
digital 3-D model of a car to assess its design. MCAD systems produce large
volumes of data which can be managed by the Company's PDM software. The
Company's PDM software makes the most current product data readily accessible
to all appropriate users throughout a manufacturing enterprise. Some of the
Company's significant customers, located worldwide, include GM, Boeing,
Ericsson and GE.
The Company offers a full line of design, analysis and manufacturing
software products that meets the diverse needs of its customer base, which
includes a spectrum of companies from multinational corporations to small
machine shops. The Company addresses all aspects of digital product
development, including (i) product modeling, (ii) product information
management, (iii) data transfer and (iv) process re-engineering. The Company's
integrated, scalable software solutions range from Unigraphics, its high-end
MCAD software product suite for complex design, manufacture and assembly
projects, to Solid Edge, its Windows-based, easy-to-use design and drafting
product. Both Unigraphics and Solid Edge 5.0 are based on the Company's core
solid modeling kernel, Parasolid. As a result, the Company can differentiate
itself from its competitors by enabling Unigraphics and Solid Edge to
seamlessly share geometric data without the need for translation. The
Company's PDM software, IMAN, works in conjunction with both the Company's and
third parties' MCAD software to organize and manage the large volume of data
and numerous versions associated with the typical digital product model. A key
element of the Company's product development strategy is the management,
visualization and simulation of product data across the Web so that model data
may be shared among all users of the Company's MCAD and PDM products and
companion applications. In addition, the Company offers a full range of
customization, implementation and integration consulting services that enables
customers to re-engineer their methods of virtual product development by
optimizing the use of the Company's software.
Through its Unigraphics, Solid Edge, Parasolid and IMAN products, the
Company served more than 4,000 customers worldwide at December 31, 1997,
comprising an aggregate of over 93,000 seats. Of these seats, there were over
49,000 Unigraphics seats, over 9,000 Solid Edge seats, over 72,000 Parasolid
seats (including over 49,000 seats embedded in Unigraphics) and over 12,000
IMAN seats. With its suite of core products, its large worldwide installed
seat base and the continuing evolution of Parasolid as a solid modeling
standard for MCAD software, the Company believes that it is well positioned to
take advantage of the MCAD market's varying demands for software
functionality, virtual product development and product data management.
THE MCAD SOFTWARE INDUSTRY
Product development has traditionally been an iterative process of detailed
product definition, conceptual design, layout, drafting, physical prototyping,
testing, design refinement, manufacturing and assembly. Prior to the
development of computer-driven design tools, the product development cycle
demanded a long lead time since modifications to a product's design required
time intensive manual redesign at each step. CAD and CAM first became
available in the early 1970s and allowed engineers to create drawings using
computers much more quickly and accurately than by hand.
The product development market is in transition. As is common in many high
technology sectors, the MCAD industry is characterized by selling prices which
have tended to decline for existing products over time
38
<PAGE>
due to competition, lower marginal costs and rapid technological change. In
particular, increased competition from new sources, including the introduction
of numerous lower priced, higher volume 3-D CAD products, the
emergence of a mid-range market, and the increased penetration of niche
players into the CAM and CAE markets, has increased price pressure on MCAD
software products. Despite declining unit prices, the total size of the MCAD
global market, as measured by revenue, has increased over the past several
years.
Once focused on the individual engineer's demand for MCAD functionality, the
market is now driven by the needs of the expanded enterprise of OEMs,
suppliers, partners and customers to collaborate, share data and integrate the
multiple sub-assemblies in the creation of a complex master digital model.
These needs have raised MCAD and PDM decision making to executive management
levels. However, the requirement for an enterprise level solution has not
lessened the need to provide superior functionality and engineering
capabilities to the individual user.
Customer requirements for enterprise wide product development solutions are
driving a demand for scalability and redefining the historically fragmented
MCAD marketplace. Scalability is provided through a graduated series of MCAD
and PDM products that has been optimized for each level of user throughout the
customer's organization, enabling the customer to buy or lease only those
products it needs, at the most affordable prices, and to upgrade functionality
as necessary. The Company believes that this need for scalability is
contributing to the consolidation in the MCAD software industry as companies
attempt to address both the high-end and mid-range markets.
The Company believes the factors dictating customer demand in this new
consolidating market are: (i) enterprise level product design and development,
(ii) affordable solid modeling, (iii) Windows orientation, (iv) software
interoperability and (v) product data management.
Enterprise Level Product Design and Development. Product development
involves more than desktop product modeling. The development of a particular
product involves multiple organizations, within and outside a given
enterprise, designing a complex digital master product model, testing this
model, and then revising it or advancing the original design. While this
completely digital "master-model" approach had always been an objective,
current technological innovation and process understanding have finally
converged so that an enterprise level framework for product development can be
established with MCAD and PDM software.
Affordable Solid Modeling. Solid modeling enables the user to generate more
accurate and complete product descriptions for use throughout the entire
design, manufacturing and engineering process. The availability of such solid
modeling software reinforced the distinction between high-end software, like
Unigraphics, and low-end 2-D drafting MCAD software. The Company believes its
decision to license its Parasolid solid modeling kernel contributed to the
growth of a mid-range market in which advanced solid modeling functionality is
now available at affordable prices with significantly more functionality than
is available in low-end systems. Due to the affordability of mid-range MCAD
software, the Company believes the mid-range 3-D market will grow
substantially over the next several years by drawing a small percentage of
MCAD users from the high-end sector and a large percentage of users from the
low-end 2-D sector and by creating new users out of traditional "blueprint"
designers who design manually.
Windows Orientation. In addition to price considerations, mid-range MCAD
products attract customers by incorporating the user-friendly Windows
interface, thereby allowing users to work without extensive or specialized
training. Not only is the Windows interface familiar, but it allows a user to
easily move from other Microsoft applications to a product modeling
application on the same operating platform and computer hardware. Today, most
mid-range MCAD offerings combine solid modeling capabilities with the Windows
user interface for both the Windows 95 and Windows NT operating systems.
Interoperability. In order to design products efficiently, an enterprise's
various design teams must be able to collaborate through the exchange of
digital design data. The fact that most geometry engines are embedded within
the source code of their corresponding MCAD products has prohibited the
development of high-end and
39
<PAGE>
mid-range products that share the same solid modeler. Consequently, MCAD
systems produce data files that cannot be read or used by other systems.
Product designers must therefore rely on translators to exchange data. This
data translation process is time-consuming and often results in inaccuracies
that require correction. Industry-wide efforts to solve this problem, such as
STEP (Standard for the Exchange of Product Model Data), have so far been
inadequate.
Product Data Management. PDM software captures and manages all information
generated during the product development cycle, making data readily accessible
to appropriate users throughout an organization. This data capture and
management enables organizations to share information earlier in the product
development cycle, encourages data reuse and reduces engineering changes. PDM
software is beginning to extend beyond traditional database management.
Working together with MCAD software, PDM systems are enabling enterprise-wide
visualization and simulation of the virtual product. PDM systems are provided
not only by MCAD software suppliers, but also by independent PDM vendors.
BUSINESS STRATEGY
Demand in MCAD and PDM markets is dictated by the needs of users throughout
companies of all sizes and across extended enterprises to collaborate on
virtual product development. These users often require different levels of
software functionality. The Company's strategy is to offer a variable,
customizable combination of software products and implementation and
integration services to address the product and process complexities
associated with design and assembly projects. The key elements of the
Company's strategy include:
PROVIDING A FULL RANGE OF INTEGRATED SCALABLE ENTERPRISE SOLUTIONS. The
Company provides a full range of MCAD software products to meet the needs of
its customers from its high-end Unigraphics product suite to its mid-range
offering, Solid Edge. Both Solid Edge 5.0 and Unigraphics are integrated
through the use of the Company's core solid modeler, Parasolid, thereby
allowing Unigraphics and Solid Edge to seamlessly share geometric data without
the need for translation. Unigraphics is scalable with the ability to add
modules or features to fit the needs of the Company's customers, thereby
reducing hardware system requirements. Solid Edge's Windows capabilities
improve design engineering productivity, shorten learning curves and reduce
training costs. The Company believes that it is well positioned because each
of its customers can buy the precise software product or products that meet
that customer's particular needs and allow its users to share data within a
single organization or throughout several organizations.
ESTABLISHING PARASOLID AS A SOLID MODELING STANDARD. The Company believes
that Parasolid has emerged as the mid-range MCAD solid modeling standard while
being fully capable of addressing the demanding requirements of high-end MCAD
software. Unigraphics, the Company's high-end MCAD offering, is based on
Parasolid. The Company licenses Parasolid for incorporation into mid-range
MCAD software products such as Dassault's Solid Works and Parametric's
DesignWave. In addition, Bentley has recently incorporated Parasolid in its
mid-range product, MicroStation Modeler, to Parasolid. The Company also
licenses Parasolid to various third-party niche software application
developers, who create Parasolid-compatible specialized applications that
enhance the functionality of Unigraphics and Solid Edge. Accordingly, the
Company expects that the growing prevalence of Parasolid-based applications
will make Parasolid part of the buying criteria for MCAD software, thereby
giving Unigraphics, the only high-end MCAD product to use Parasolid, an
advantage over competing high-end products.
OFFERING FULL FUNCTION PRODUCT DATA MANAGEMENT. The Company believes that
IMAN is one of the industry's most functional product data management tools
for engineering applications. IMAN captures, manages and provides enterprise-
wide access to the large volume of data generated throughout the virtual
product development cycle. IMAN's technology is scalable for use within a wide
range of customer implementations, extending from small Unigraphics-centric
design teams to globally distributed enterprises with thousands of concurrent
users across many functional areas, such as engineering, manufacturing,
marketing and procurement. The Company believes that IMAN's strengths lie in
(i) its tight integration with Unigraphics, which enables
40
<PAGE>
IMAN to manage the complex interrelationships among Unigraphics files, (ii)
its variant configuration modeling, which facilitates the definition of the
modularized, rules-based views of the bill of materials that are required for
efficient manufacturing of customized products and (iii) its object-oriented
architecture, which enables designers to share data across an enterprise. A
key element of the Company's PDM strategy is utilizing Web-based technologies
to provide a common framework for the visualization, simulation and management
of product data. The Company's Web technologies provide enterprise-wide access
to the virtual product model and associated specification data, enabling
organizations outside of the traditional users of the Company's MCAD products
to utilize the data. For example, marketing departments can view virtual
products and provide immediate feedback during the product development
process.
MAINTAINING TECHNOLOGICAL LEADERSHIP. The Company is focused on continually
developing and acquiring the most technologically advanced MCAD products.
Unigraphics' breadth of modeling functionality combines complex surface design
capabilities with advanced feature and solid modeling while providing some of
the most advanced CAM technology on the market today. Solid Edge, which has
pioneered advances in ease of use, was developed with native Windows
functionality, including familiar "drag and drop" features, menu driven
options, dialog boxes and on-line help, and was the first mechanical CAD
product to be certified as Microsoft Office compatible. In order to maintain
its technological leadership, the Company releases major enhancements
containing significant improvements to each of its four core products
approximately twice per year. In addition, the Company has developed UG/WAVE,
a next generation parametric approach to top-down product design that allows
"what-if" evaluations of engineering alternatives. For example, UG/WAVE allows
engineers to more efficiently evaluate at the system level the impact of
changes in wing design on the aerodynamic performance of an airplane.
LEVERAGING AND EXPANDING ITS CUSTOMER BASE. The Company intends to expand
its user base by increasing sales to existing customers and to new customers
by expanding its sales force and by utilizing Web-based distribution. The
Company intends to increase the licensing of its MCAD software to its existing
customer base by offering an affordable integrated scalable product line. The
Company is targeting existing users of 2-D software by marketing the latest
version of Solid Edge as an affordable, easy-to-use 3-D product. The Company
intends to increase the size of its customer base by marketing to the
suppliers of its aerospace and automotive OEMs. The Company believes that both
of its MCAD software offerings are attractive to suppliers who seek to meet
OEM requirements because (i) Unigraphics is available in discrete modules to
allow users to purchase only the Unigraphics capabilities their businesses
require and (ii) Solid Edge is an affordable easy-to-use MCAD software package
that will have the ability to seamlessly transfer geometric data to high-end
Unigraphics users. As part of the Solid Edge Acquisition, the Company acquired
EMS, a high-end MCAD product, which had over 6,000 seats at December 31, 1997.
The Company will seek to convert EMS customers to Unigraphics or Solid Edge.
PRODUCTS AND SERVICES
PRODUCTS
The Company provides a full range of integrated, scalable software
applications, based on four core product lines: (i) Unigraphics, a suite of
high-end MCAD software for large scale Unix/Windows NT-based design,
manufacture and assembly projects, (ii) Solid Edge, a mid-range, easy-to-use
Windows MCAD modeling system for mechanical part and assembly design, (iii)
Parasolid, a solid modeling kernel, featuring an exact boundary representation
geometric modeler for high-end and mid-range MCAD, as well as commercial,
internal and data exchange applications and (iv) IMAN, a product data
management software application which organizes and manages the volumes of
data and numerous versions associated with the typical digital product model.
Unigraphics. The Company believes that Unigraphics is one of the most
functional and technologically advanced MCAD systems available. Unigraphics is
used for complex design-through-manufacturing applications in the aerospace,
automotive and transportation, heavy machinery and equipment, electronics and
consumer products industries. The Unigraphics system allows a product
manufacturer to manage and coordinate the overall
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process used to design the product, reduce the time and cost of the product
development cycle and organize and share product development data within a
manufacturer's organization and between a manufacturer and its OEMs and
suppliers. Its focus on mechanical engineering, including the ability to
design the entire product and its component parts, precision, high
visualization and integration with manufacturing, make it appropriate for
large and complex product development applications which require "master-
model" driven data sharing. However, it can also be scaled down, through the
use of a more streamlined software bundle, to meet the criteria of smaller,
less demanding projects.
Unigraphics consists of a suite of four scalable pre-configured bundles, all
of which can be individually tailored to meet customers' feature, function and
price requirements. To further enhance scalability and customization, each
bundle is comprised of various software component modules or "building
blocks." All four bundles share and are progressively built upon certain core
modules, such as UG/Gateway, UG/Modeling (solid, feature, free-form and/or
assembly) and UG/Drafting. In addition, the Company has created over 200
specialized modules to provide specific features, which may be an included
function of a particular bundle or which may be added to a bundle as a custom
feature. All four of the bundles incorporate the same user interface and are
based upon the same Parasolid geometry engine and master-model concept, which
allows all of the bundles to interoperate and share data. These four bundles,
ranging from least to most expensive and advanced, are UG/Creator,
UG/Designer, UG/Advanced Designer and UG/Advanced Manufacturing. The Company's
scalable approach to the MCAD market allows the base purchase price of a
particular bundle to be applied to the "upgrade" of a customer's system to the
next bundle level.
UG/Creator. UG/Creator is specifically designed as a mid-range companion
product for users who work within or for an existing Unigraphics-based
organization. Aimed at users, such as parts suppliers, who need powerful
design functionality but do not require all of the advanced features of
Unigraphics, UG/Creator includes a flexible solid, feature and free-form
modeler, a sketcher and assembly modeling capability. Data created by
UG/Creator can be moved "upstream" to any of the more advanced
Unigraphics bundles. The other three Unigraphics bundles described below
can fully and seamlessly share data bi-directionally "upstream" to more
complex Unigraphics bundles and "downstream" to less complex bundles.
UG/Designer. The next step in the Company's Unigraphics scale,
UG/Designer, is a full-featured Unigraphics bundle which meets the needs
of component modeling and drafting while also delivering complete
interoperability with advanced Unigraphics applications. UG/Designer
provides for curve, surface and solid geometry modeling, fully
associative drafting and industry standard data translation
capabilities. Because UG/Designer is fully and bi-directionally
associative with all Unigraphics bundles, it is particularly appropriate
for Unigraphics-based suppliers who need the ability to access and
modify standard product designs of a particular manufacturer generated
in Unigraphics, rather than merely access and read product data.
UG/Advanced Designer. The third UG bundle, UG/Advanced Designer, is the
Company's most advanced product modeling (versus manufacturing) tool
set. In addition to the functions provided with UG/Designer, UG/Advanced
Designer is equipped with freeform modeling and assembly modeling
capabilities, user-defined features and a rapid prototyping interface.
This bundle extends high-performance geometry creation using both
parametric and non-parametric modeling techniques to design products
either from the top-down or bottom-up. Where UG/Designer is ideal for
designing component parts of products, such as the power train (the
engine and transmission) of an automobile, UG/Advanced Designer is
suitable for designing the entire product, such as the automobile.
UG/Advanced Manufacturing. The Company's most functional and full-
featured bundle is UG/Advanced Manufacturing, which is suitable for
product design and large scale assembly and manufacturing. U/G Advanced
Manufacturing includes all of the design functions of UG/Advanced
Designer, as well as manufacturing-specific features, which allow the
programming of multi-axis machine tools and simulation capabilities to
actually manufacture the products designed with UG/Advanced Designer.
Extensive editing and customization routines give each user the
flexibility to meet his or her particular design and manufacturing
needs.
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The Company has specifically designed Unigraphics with an open, object-
oriented software architecture. Users and third party developers can access
this open architecture through the UG/Open module, which provides a
programming framework for integrating other applications with Unigraphics. The
UG/Open framework includes an extensive set of programming tools that enable
third parties to create highly automated and sophisticated applications that
are well integrated with Unigraphics. Many of such third parties participate
in the Company's Alliance Program (as defined herein) as either "Toolkit VARs"
or business partners. See "--Sales and Marketing--Business Partnerships--
Alliance Program."
The open Unigraphics architecture enables customers to achieve significant
productivity improvements by designing and integrating their own proprietary
software applications with Unigraphics. For example, Denso Co., Ltd.
("Denso"), the largest supplier of automobile parts in Japan, is using UG/Open
in an object oriented programming environment to build a set of streamlined
engineering applications that extend the built-in capabilities of Unigraphics.
These applications capture Denso's proprietary engineering expertise,
providing a high degree of automation for designing such things as instrument
panel components, fuel systems, and HVAC. By incorporating specialized
applications into Unigraphics, Denso is able to improve its engineering
efficiency
In Version 14.0 of Unigraphics, which was released in April 1998, the
Company expanded one of its newest modules, UG/WAVE, within the three high-end
UG bundles. UG/WAVE, a next generation parametric approach to top-down product
design, allows "what-if" evaluations of engineering alternatives. For example,
UG/WAVE allows engineers to more efficiently evaluate at the system level the
impact of design changes on such factors as the aerodynamic performance of an
airplane through changes in wing structure. By identifying and specifying the
most important variables that drive a product's design, high level
specifications can be passed down and imposed on lower-level subassemblies,
thereby automatically updating the product model. The WAVE methodology is
based on the premise that there exist not only relationships of a "global"
nature that may affect several subsystems in a product's design, but also
relationships of a more "local" nature that only need to be dealt within a
limited context of one or a few subassemblies. UG/WAVE has the ability to
segregate global relationships into an associative "control structure," with
more local relationships isolated in the components of the assembly.
In addition to incorporating software developed by the Company based on its
own core competencies, in certain cases, the Company also integrates
specialized third party components and applications into the Unigraphics
product suite. For example, Lightworks Ltd.'s software is used as the
visualization engine within Unigraphics for photo realistic rendering.
Solid Edge. Solid Edge is a solid modeling system for mechanical part and
assembly design that incorporates high-performance CAD functions into an
affordable, easy-to-use software package. Solid Edge is a mid-range product
targeted towards the machinery, consumer products and consumer electronics
markets and the many users of 2-D CAD or traditional "blueprint" paper design
methods. Solid Edge supports a wide range of mechanical design applications,
including assembly design, part modeling, detailing and drafting. Solid Edge's
automatic interference detection and reporting quickly identifies assembly
problems and its concurrent assembly access allows several designers to work
on separate parts or subassemblies within the same assembly model--all with
immediate access to up-to-the-moment work of other design team members. The
Solid Edge user interface is fully Windows-compliant and task-oriented,
leading the user through a series of directed steps to accomplish the desired
task.
Solid Edge was developed specifically as a native Windows application, is
available on Windows 95 or Windows NT and is well integrated into the overall
Windows environment with the standard Windows interface, including "drag and
drop" features, menu driven options, dialog boxes and on-line help. Solid Edge
is certified as "Designed for Microsoft Windows NT and Windows 95" and was the
first MCAD product to be certified as Microsoft Office compatible. The Company
believes Solid Edge's Windows capabilities improve design engineering
productivity, shorten learning curves, reduce training costs and lower system
administration overhead. The Solid Edge CAD system works well with familiar
Windows word processing, spreadsheet,
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database, presentation graphics and electronic mail packages and its native
Windows orientation allows a user to bi-directionally "cut and paste" Solid
Edge data into and from these other Windows applications.
Parasolid. Parasolid is an exact boundary representation geometric modeler,
supporting complex blending, freeform surfaces and feature-based solids to
serve MCAD applications. Parasolid's extensive functionality is based on a
library of routines with an object-oriented programming interface. Parasolid
provides robust solid modeling and integrated surface/sheet modeling
capabilities, including the ability to create non-manifold and cellular
bodies. It is designed for easy integration and is the only commercially
available solid modeling toolkit used in a high-end MCAD system. Parasolid is
used in Unigraphics for free-form surface construction and feature modeling as
well as all applications, including drafting, visualization, machining and
mesh generation. Parasolid is also used as the geometric modeling kernel in
Solid Edge 5.0.
The Parasolid solid modeling kernel provides the geometric engine for a
variety of MCAD applications. Its functionality includes the ability to handle
the complex blending of edges and faces and the hollowing, shelling and
creating of offset surfaces, which is important in the creation of plastic
parts. In addition, Parasolid enables a user to taper and draft angles to
calculate mold parting lines and drafts, a key aspect of die and mold design.
Finally, one of Parasolid's most unique aspects is its tolerant modeling
function which allows different tolerances to be applied to individual edges
and faces, thereby enabling the importation of less-than-perfect geometry from
other systems.
The Company released Version 9.1 of Parasolid in February 1998, which
extended Parasolid's penetration in the modeling kernel market by adding
enhancements such as blending of complex vertices and extensions to hollowing
operations. These improvements are especially important for automotive and
aerospace modeling applications. The next Parasolid release, Version 10, is
scheduled for shipment in August 1998.
The Company licenses Parasolid for use in such mid-range MCAD software
products as Dassault's Solid Works, Bentley's MicroStation Modeler and
Parametric's DesignWave. Parasolid is also used by many specialized software
developers to create Parasolid-compatible programs. Consequently, any MCAD
software and specialized applications that use the Parasolid engine will
become part of the "Parasolid Pipeline" and will be able to share geometric
data with other applications in the "pipeline." This seamless geometric data
sharing does not require translation of data from one program to another. The
Company has also published Parasolid's XT file format. All of these products
will be geometrically compatible with the Company's Unigraphics and Solid Edge
products, which, in turn, will be integrated with each other.
IMAN. IMAN is a full-function product data management system that organizes,
manages, customizes and distributes the volumes of data and numerous versions
associated with the typical digital product model, addressing all information
in the product development environment. IMAN makes the most current product
data readily accessible to all appropriate users throughout the manufacturing
enterprise, including the engineering, purchasing and manufacturing
departments, thereby eliminating time-consuming searches and the need to re-
create data. Design, manufacturing, engineering, planning, scheduling and
other organizations can easily access and manage applicable data such as MCAD
files, bills of material, process plans, analysis models and results, audio
and video annotations, prototypes, cost structures, material specifications
and purchase orders. The Company believes that when IMAN is used in
conjunction with Unigraphics, the combination is the most tightly integrated
PDM/MCAD product on the market today. This integration supports the bi-
directional updating of a product model's structure and attributes, whether a
change to the model occurs in IMAN or Unigraphics. For example, the product
model's structure can be modified within IMAN to meet a specific customer
configuration. The updated product model can then be retrieved and validated
within Unigraphics prior to sending the customized bill of material to
manufacturing.
IMAN provides configuration management, version control and other data
management capabilities through PC- and Web-based client-server architectures
communicating with remote servers. IMAN data are stored in a commercial data
base management system ("DBMS"), such as Oracle, but most of IMAN is
independent of the underlying DBMS because it creates a proprietary object-
oriented abstraction of how the data are physically
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stored in the DBMS. The Unigraphics user has the option of storing files
directly in the native file system (such as UNIX or Windows) or in the IMAN
data repository.
The Company is actively engaged in creating a new user interface to IMAN's
PDM engine. This new visual/virtual interface will be built upon Web-based
tools, including HTML and Java applets. It is being tailored for different
types of customers, such as "data consumers" who are mainly interested in
viewing the data, "reviewers" who need to comment on and/or approve data as
well as view it and "data authors" who generate new or substantially edit
existing data. IMAN's use of Web technology provides global access to the data
from virtually any computing platform located anywhere in the world. In turn,
IMAN's distributed object architecture provides for on-demand access to the
geographically dispersed data. This architecture provides optimal performance
while conserving global data storage requirements.
The IMAN product suite consists of a set of scalable modules that can be
combined with Unigraphics modules to meet the varying needs of the Company's
customers. IMAN Base, the foundation IMAN module, maintains and secures
product data integrity by coordinating multiple concurrent user access and
preventing unauthorized data changes. All data--specifications, standard,
engineering, production and technical publications--associated with a product
and its life cycle are managed through IMAN Base. A basic IMAN license also
includes IMAN Workspace, which is an easy-to-use, graphical interface to IMAN,
and IMAN SA (System Administration), which is a utility for defining users'
roles and responsibilities and the customer's workflow procedures. Additional
IMAN modules include: (i) IMAN PSM (Product Structure Management) for managing
product configurations, (ii) IMAN Workflow for modeling business processes to
promote collaborative engineering, (iii) ITK (Integration Toolkit), an
application programming interface for integrating other applications with
IMAN, and (iv) IMAN Image Services for managing scanned images and documents
as well as multi-media data. IMAN Image Services will be a part of Version 5.0
of IMAN, which is expected to be released in June 1998.
EMS. EMS is a high-end MCAD software that was acquired as part of the Solid
Edge Acquisition. The Company will continue to maintain and support the EMS
product; however, it will seek to convert EMS customers to Unigraphics or
Solid Edge. There can be no assurance that such customers will switch to
Unigraphics or Solid Edge or that EMS customers will continue their current
software maintenance contracts.
CONSULTING AND SUPPORT SERVICES
The Company offers a full range of customization, implementation and
integration consulting services and support services to its customers. The
Company provides complete multi-platform consulting services for deployment
and support of its MCAD and PDM technologies and for their integration into a
customer's product development environment. Such services enable customers to
re-engineer their methods of virtual product development by optimizing the use
of the Company's software. The Company charges for its consulting and support
services in three different ways. Support service costs for the first 90 days
are generally included in the cost of an initial product license. Standard
ongoing support services, such as a 24-hour technical troubleshooting
telephone hotline, are included in the cost of an annual maintenance license.
Specialized consulting services or support, such as instructor-led training
courses, are charged by the man-hour or on a project basis.
Customization, Implementation and Integration Consulting. The Company's
customization, implementation and integration consulting helps customers (i)
identify, acquire, customize and install hardware, software and communications
components and (ii) build and modify interfaces to allow different application
components to function together effectively. For example, Motor Coach
Industries ("Motor Coach") of Winnipeg, Manitoba, Canada launched its new
Renaissance bus using Unigraphics and IMAN software in conjunction with the
Company's consulting and implementation services. In particular, the Company's
consultants provided technical guidance and implementation and integration
expertise regarding the product information management of this large scale
project.
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Technical Support. The Company provides comprehensive technical support
services to its customers, including 24-hour a day support for certain users,
operating system support, Web tools and services and an electronic bulletin
board system, which provides electronic conferencing, electronic mail, file
transfer, call logging, and a symptom/solution database. The cost of most of
the services are built into product maintenance fees.
Training. Training is designed to dramatically extend users' MCAD and PDM
skills and knowledge. The Company's training services include instructor-led
courses, computer assisted self teaching modules, on-line library, custom
course development and education, instructor placement, training assessments
and a Master Certificate Program providing a series of classes that ensure
users master the skills needed to use specific software.
Data Exchange. One of the biggest obstacles companies face in realizing an
enterprise-wide product development environment is the exchange of data from
one MCAD system to another or from one media type (tapes) to another
(diskettes). To optimize data exchange, the Company offers platform transfers,
standards and premium-based translator services, media transfers, and rapid
prototyping translations.
Engineering. The Company provides engineering services both on-site or at
remote locations for increased affordability. Engineering services include
modeling and drafting, analysis, data conversion and translation, numerical
control programming, and customized programming.
HARDWARE
The Company sells hardware to customers on an as-needed basis. The Company
purchases its hardware through EDS pursuant to purchase agreements that EDS
has with various hardware vendors. As long as EDS owns a majority interest in
the Company, the Company will be able to purchase hardware pursuant to these
purchase agreements. The Company has relationships with certain hardware
vendors to ensure that the Company's software and the vendors' hardware are
compatible and mutually supportable. These relationships generally provide for
joint marketing and sales efforts, including joint advertising, reselling
discounts and finders fees. The Company's hardware partners include Compaq
Computer Corporation, Dell Computer Corporation, Digital Equipment Corp.,
Hewlett-Packard Company, International Business Machines Corporation,
Intergraph Computer Systems, NeTpower Inc., Silicon Graphics Inc. and Sun
Microsystems Corporation. In late 1996, the Company began deemphasizing
hardware sales in order to focus on higher margin software sales and
consulting services.
LICENSE AGREEMENTS
The Company typically charges a fixed license fee per seat for Unigraphics,
Solid Edge and IMAN based upon the number of modules and features within each
such seat. Typically, the customer receives a perpetual license for each of
these products. This license fee generally includes some short-term
maintenance and integration services as well as training services. The Company
typically provides maintenance services to its customers on an annual basis
with automatic renewals subject to the Company's or the customer's right to
terminate the maintenance upon 60 days prior notice. The Company typically
charges a maintenance fee equal to a percentage of the initial license fee,
which entitles the customer to regular product updates and enhancements and
general telephone support. The average maintenance renewal rate over the past
two years has been approximately 98%.
The Company typically licenses Parasolid directly to VARs or distributors
who embed Parasolid in their own proprietary software products. These
customers typically pay an initial development license fee for the use of
Parasolid and royalty payments related to sales of their own proprietary
software products. A small number of customers license Parasolid solely for
use in their own internal operations.
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CUSTOMERS
The Company's customers come from a wide range of industries, including the
six key industries that are the focus of the Company's business strategy--
automotive and transportation, aerospace, consumer products, equipment and
machinery, electronics and universities. In 1997, no single customer of the
Company accounted for more than 10% of total revenues. The following table
sets forth, by strategic industry sector, certain of the Company's largest and
most significant customers:
<TABLE>
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Automotive &
Transportation ..... Arctic Cat, Inc. Dura Mechanical Components, Inc. New Flyer Industries
AVTOVAZ (Lada) Excel Industries, Inc. New Venture Gear
Benetton Formula One Ltd. FMC Corporation Norton TRW
Byron Jackson Pump General Motors Corporation Robert Bosch GmbH
Cosworth Engineering Grumman Data Systems Corporation Tower Automotive
Division of Vickers Plc
DAF Trucks NV Motorcoach Industries United Technologies Corporation
Denso Co. Ltd. Navistar International VME Americas Inc.
--------------------------------------------------------------------------------------------------------
Aerospace ........... The Boeing Company General Electric Company Martin-Baker Aircraft Ltd
Dynamic Engineering, Inc. Israel Aircraft Industries Ltd Pilatus Aircraft Limited
European Gas Turbines Ltd Kaman Corporation United Technologies Corporation
FiatAvio SpA Learjet Corporation
Gencorp Aerojet Lucas Aerospace Inc.
--------------------------------------------------------------------------------------------------------
Consumer Products.... Calsonic Corporation Morioka Seiko Kogyo Ryobi Motor Products
Continental AG Moulinex SA Stanley Works
Dresser-Rand Company NASA Lewis Research Center The Gillette Company
Komet of America Incorporated Pentax (Asahi Kougaku) Titleist and Foot-Joy Worldwide
Minolta Rossignol SA
--------------------------------------------------------------------------------------------------------
Equipment and
Machinery .......... Cascade Corporation Heidelberg Web Press Inc. Makino Milling
Donaldson Company, Inc. Hitachi Kouki Co. Ltd. MTD Products Inc.
Fanuc Ltd. Husky Injection Molding Systems Ltd. Takara Seisakusho
FMC Corporation Kennametal, Inc. Valenite Inc.
--------------------------------------------------------------------------------------------------------
Electronics ......... Digital Equipment Corporation Siemens AG Yazaki Electronic Components Ltd.
Electromechanical Components
Philips Electronics NV Telefonaktlebolaget LM
Ericsson Telecom AB
--------------------------------------------------------------------------------------------------------
University .......... ETH Zurich Pennsylvania State University The University of Dayton
Cranfield Institute of Technology Polytechnic University The University of Illinois
GMI Engineering & Management Prairie View A&M University University of Hartford
Illinois State University Rochester Institute of Technology University of Washington
Iowa State University Stevens Institute of Technology University of Wisconsin-Madison
Kochi Polytechnic College Silver Creek Central School
Mississippi State University Technical University of Eindhoven
--------------------------------------------------------------------------------------------------------
</TABLE>
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AUTOMOTIVE AND TRANSPORTATION
Automotive and transportation customers that use Unigraphics in their
manufacturing processes include GM, Tower Automotive and Motor Coach
Industries. In addition, many suppliers of the Company's automotive and
transportation customers use Unigraphics or Solid Edge to design parts for
these customers. Motor Coach Industries used Unigraphics in 1996 and 1997 to
virtually design the entire prototype of its Renaissance motor coach. This
virtual design process helped reduce the number of parts required by
approximately 60% and decreased the time from inception to market by 21
months, from 60 months to 39 months. In 1995, Robert Bosch GmbH migrated
25,000 of its motor model designs from a competing MCAD product to the
Company's Unigraphics product. These motors are often incorporated into
vehicles manufactured by GM, which is also a Unigraphics customer.
In 1996, GM entered into the EDS/GM Site License Agreement in which GM
selected Unigraphics as GM's only vehicle development software platform. By
recognizing Unigraphics as its single MCAD product development system, GM has
expressed its intent to consolidate its usage of MCAD software systems. This
consolidation will support tight integration of all phases of the GM vehicle
development processes with common data and integrated applications.
AEROSPACE
Unigraphics has been used by many aerospace manufacturers, including Boeing,
Israel Aircraft Industries Ltd ("Israel Aircraft"), Learjet Corporation and
Martin-Baker Aircraft Ltd, to design and manufacture various aircraft and
aircraft parts. Unigraphics was the CAD/CAM system used for the design of the
F-18 E/F fighter aircraft. The use of Unigraphics, high speed machining and a
design for manufacturing and assembly approach resulted in a 75% reduction in
the number of engineering changes and a 42% reduction in the number of parts
compared to the design of the F-18 C/D unit. In 1996 and 1997, Israel Aircraft
employed Unigraphics to manufacture the wing of its Galaxy aircraft directly
from an electronic mockup of the model, without the need for any physical
mockups.
CONSUMER PRODUCTS
Unigraphics' breadth of functionality supports the design and manufacturing
of highly styled and complex consumer products. For this market, the
development process includes the definition of aesthetic surfaces incorporated
with the functional elements of the product. Unigraphics has proved especially
adept at integrating the aesthetic design elements with the practical and
engineering elements of products such as those from Moulinex SA. Integrated
digital mockup, photo-realistic rendering and feature-based solid modeling
have allowed enterprises to reduce their product development cycles.
Solid Edge is also well suited to many design tasks within the consumer
products marketplace. Feature-based solids modeling, sheet metal, assemblies
and comprehensive drafting are employed on tasks that were once time consuming
manual design processes.
EQUIPMENT AND MACHINERY
Unigraphics is widely used for the manufacturing of large, complex equipment
and machinery. Its high functionality is particularly valuable to vertically
integrated equipment and machinery manufacturers seeking to satisfy all of
their MCAD needs with a single system.
The Company believes that Solid Edge is well suited for many smaller product
design tasks within the equipment and machinery industry. Manufacturers that
have typically performed their design functions in two dimensions can migrate
to Solid Edge and incorporate the design benefits of 3-D solid modeling
applications such as mass properties analysis, interference detection, 3-D
visualization and assembly mock-ups. By performing more design steps with a 3-
D MCAD system, issues of form, fit and function can be addressed digitally,
rather than with physical prototypes, thereby reducing product development
cycle times and costs.
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ELECTRONICS
Due to the short shelf life of consumer electronics products, the
electronics industry must be able to create a product, from inception to
manufacture, in a very short period of time. The Company's products allow the
mechanical design and packaging aspects of electronics products to be
considered in tandem with the actual electronics development being performed
by a different MCAD system. For example, a user of Unigraphics can design the
plastic keys of a computer keyboard at the same time the actual keyboard
electronics are being developed by another engineer on a different design
system.
UNIVERSITY
Through a number of programs, the Company provides its products to the
engineering departments of several universities and other educational
institutions. These programs not only provide educational opportunities for
the university students but also familiarize them with the Company's MCAD and
PDM products. The Company believes that this familiarity will encourage
engineering students to select the Company's products for their engineering
projects and further cause them to purchase or support the purchase of the
Company's products after graduation.
SALES AND MARKETING
GENERAL
The Company has a worldwide direct sales force and distributor network. The
Company's sales organization, which is divided by geographic zone, comprises
approximately 1,100 employees in 78 offices worldwide, with approximately 445
employees in the Americas, approximately 430 employees in Europe and
approximately 225 employees in the Asia/Pacific region. Each regional office
operates autonomously, but industry groups, which focus on the automotive and
transportation and aerospace industries, have been organized from a cross-
section of sales, marketing and technical personnel in each region. The
Company also has approximately 57 Unigraphics distribution partners or VARs in
21 countries covering several regions, including Eastern Europe, the Middle
East, Japan and Korea.
Unigraphics and IMAN are primarily marketed and sold by the Company's direct
sales force. The high-end Unigraphics/IMAN sales cycle typically lasts from
six to eighteen months as prospective customers generally consider and test
MCAD and PDM systems from several competing vendors. The Company's sales force
is focused on increasing sales penetration at existing customers through the
sale of additional Unigraphics seats, modules and services to such customers.
Emphasis during the sales cycle is not only on product functionality, but also
on the integration of MCAD and PDM software with networking and computing
capabilities. A typical sale will include customization, implementation and
integration consulting services.
While the mid-range Solid Edge sales process is generally shorter than the
Unigraphics/IMAN sales cycles, it usually involves the testing and
benchmarking of competing products. The Company intends to market and sell
Solid Edge primarily through its VARs, with support from Company-generated
marketing materials as well as shared support of industry trade shows and
seminars, advertising within trade publications and journals and direct mail
and telemarketing solicitation programs. The Company intends to strengthen its
VAR distribution network by having members of such network report directly to
senior level sales management personnel.
BUSINESS PARTNERSHIPS
The Company has established two business partnership programs to develop
relationships with various software developers to ensure that the Company's
software products are fully integrated with other software products in the
MCAD and PDM market.
Alliance Program. The Alliance Program is an extensive and growing group of
niche software suppliers which provide specialized software applications to be
used in conjunction with Unigraphics and IMAN. The
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Company typically enters into joint marketing agreements with software
suppliers whereby the Company and the software suppliers undertake joint
marketing and promotional efforts. The Company provides its customers with
both print and online catalogs listing the names of the Alliance Program
members and the software that each member provides. The Company believes that
the Alliance Program allows the Company's customers to capitalize on the use
of Unigraphics and IMAN. For example, Variation Systems Analysis provides a
tolerance checking ability software to be used in conjunction with Unigraphics
and Composite Design Technologies provides software that provides composite
design and manufacturing capability not available in Unigraphics.
Voyager Program. The Voyager Program is a worldwide consortium of leading
software vendors offering products that complement Solid Edge's mechanical
design and drafting capabilities. It was initiated by Intergraph before the
Solid Edge Acquisition and the Company is in the process of re-signing members
to new contracts with the Company. The typical Voyager Program agreement
provides for joint marketing and promotional activities. An example of a
Voyager Program member is Structural Research and Analysis Corporation, the
developer of COSMOS/Edge, an application used to perform stress analysis
calculations in conjunction with Solid Edge.
RESEARCH AND DEVELOPMENT
The Company's research and development staff comprises approximately 430
employees located at several offices worldwide. Members of the Company's
research and development organization are primarily located in: Cypress,
California; Huntsville, Alabama; St. Louis, Missouri; Cambridge, England; and
Cologne, Germany. The Company's current research and development staff is
composed of people with diverse backgrounds and strong industry and technical
expertise, including many senior technical and managerial people who have been
employed in the Company's development organization for fifteen years or more.
During 1997, the Company spent approximately $48.0 million on software
research, development and engineering, constituting approximately 42% of its
total software revenue. The Company's software practices, architecture and
computing environment support development of software products in multiple
locations, allowing project teams to collaborate on software development
without requiring team members to be located at the same site.
The Company uses a functional development process to create technologically
advanced products. This well-defined process emphasizes requirements
definition, up-front design and early detection of defects. In addition to
focusing on functionality, the Company ensures that its products are adapted
to the most popular and productive computing environments, which currently
include UNIX and Windows NT workstations employing a modern graphical user
interface based on Motif, Microsoft Windows, Web and 3-D graphics technology.
The Company's software products are designed and built using object-oriented
programming techniques.
Major enhancement releases of each of the Company's four core products are
distributed approximately twice each year. The Company generally believes that
new releases contain significant improvements to the functionality of each
product as well as updates and performance improvements. Product updates are
released periodically between enhancement releases if problems are discovered
in production software. Each product enhancement release must be upwardly
compatible with the previous enhancement release and maintenance releases must
be upwardly and downwardly compatible relative to the previous enhancement
release.
Reliability of the Company's products is assessed using manual testing and
the Company's suite of automated tests. Automated performance tests are also
executed for every new software build to ensure that there are no performance
or memory utilization regressions. Solid Edge's development, marketing and
support operations have been ISO 9001 certified and the Company is currently
seeking such certification for its other operations.
INTELLECTUAL PROPERTY
The Company relies on a combination of contracts, trade secret laws and
patents to establish and protect the proprietary rights to its technology. The
Company distributes its products under software licenses which grant
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customers licenses to, rather than ownership of, the Company's products and
which contain various provisions protecting the Company's ownership and
confidentiality of the licensed technology. The source code for Unigraphics,
IMAN and Parasolid is protected as a trade secret and as an unpublished
copyright work and in certain instances with a patent. However, no assurance
can be made that others will not copy or otherwise obtain and use the
Company's products or technology without authorization. In addition, effective
copyright, trade secret and patent protection or enforcement may be
unavailable or limited in certain countries. The Company believes that, due to
the rapid technological advances within the industry, factors such as the
technological and creative skills of its personnel are more important to
establishing and maintaining a technology leadership position within the
industry than are the various legal protections of the technology.
The Solid Edge Acquisition involved (i) the direct transfer to the Company
of the intellectual property rights unique to the Solid Edge and EMS products
and (ii) a perpetual, royalty-free license to the Company for certain patents,
patent applications and other intellectual property for the Solid Edge and EMS
products which is also used across other Intergraph business lines and in
other Intergraph products. The Company has the right to modify and improve all
acquired or licensed intellectual property and to own any modifications or
improvements that it makes.
Unigraphics Solutions, Unigraphics, Solid Edge, Parasolid and IMAN, among
others, are trademarks that are owned by the Company.
COMPETITION
Markets for the Company's products are highly competitive and characterized
by rapidly changing technology and evolving standards. The Company's
competitors include (i) generalist MCAD developers that offer broad-range
systems, such as Dassault, Matra Datavision, Parametric and SDRC; (ii)
specialist software developers whose product lines are focused on CAD
products, CAM products, CAE products or PDM products; and (iii) numerous
smaller niche software developers.
The Company's products compete on the basis of functionality, technical
performance, price, operating system compatibility, integration, customization
capability, marketing and technical support and training. The ability of the
Company to compete successfully depends on factors both within and outside the
Company's control, including, among others, the successful and timely
development of new products, versions and features, product performance and
quality, pricing, customer service and support and both MCAD and PDM industry
and general economic trends.
The Company has experienced and expects to continue to experience strong
competition. The Company's competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products
than the Company. Current and potential competitors may establish strategic
alliances or undertake acquisitions to increase the ability of their products
to address the needs of the Company's current and prospective customer base.
PROPERTIES
In connection with the Reorganization, the Company entered into sublease
agreements with EDS covering substantially all of the real property occupied
by the Company at the time of the Reorganization. The terms of such sublease
agreements incorporate the financial and other material terms of EDS' lease
agreements for the subject property (other than the sublease for the Company's
St. Louis headquarters for which the rental rate charged to the Company is
based on an estimate of current market rates). The Company will pay to EDS
annual aggregate rental payments of approximately $11.9 million in 1998 in
respect of all real property leased or subleased from EDS.
The Company's corporate headquarters is located in St. Louis, Missouri,
where it subleases from EDS approximately 86,000 square feet of office space
for corporate general and administrative, marketing, research
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and development and consulting services activities. That sublease will expire
in September 2001 and provides for an annual aggregate rental payment
(including operating expenses) to EDS in 1998 of approximately $1.8 million.
The Company subleases approximately 127,000 square feet of office space in
Cypress, California from EDS, until the expiration of EDS' lease in June 2002.
The annual aggregate rental payment to EDS under such sublease is
approximately $1.8 million (excluding utilities). The Cypress facility is the
Company's principal technical development and support center, where the
principal activities and functions include research and development, a global
technical access center, consulting services, product manufacturing and
distribution, marketing, demonstration and training and general
administration. The Company's European headquarters are located in Fleet,
Hants, United Kingdom. This facility is being sublet from EDS until expiration
of EDS' master lease facility in 2001 at an annual aggregate rental payment of
approximately $360,000 (including operating expenses). Activities at the
United Kingdom office include oversight of European operations, marketing and
finance. The Company's Asia Pacific headquarters is located in Hong Kong,
where the Company subleases approximately 4,300 square feet from EDS for a
term expiring in November 1998. The headquarters for Germany and Eastern
Europe is in Cologne, Germany, where the Company subleases 19,700 square feet
of office space from EDS until the expiration of EDS' master lease facility in
2001. The annual aggregate rental payment to EDS under such sublease is
approximately $1 million (excluding operating expenses.) Activities at the
Cologne office include research and development, customer training and general
administration. The headquarters for Solid Edge operations is in Huntsville,
Alabama. The Company leases approximately 37,600 square feet from Intergraph,
which lease will expire in December 1998.
EMPLOYEES
At March 2, 1998, the Company employed over 2,000 persons who conduct
business in more than 60 offices worldwide. The Company's future success will
depend, in part, on its ability to attract, retain and motivate highly
qualified technical, engineering, marketing and management personnel. None of
the Company's U.S. employees are represented by a labor union. The Company has
never experienced a work stoppage and believes that its employee relations are
good.
LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental
to its operations. None of the litigation in which the Company is currently
involved, individually or in the aggregate, is material to the financial
condition or results of operations.
To date, the Company has not experienced any litigation regarding
copyrights, trademarks, trade secrets or other intellectual property rights
alleging the infringement of such intellectual property rights of others.
Litigation alleging infringement of the intellectual property rights of others
is not uncommon in the MCAD industry and there can be no assurance that such
litigation will not be commenced in the future against the Company. If such
litigation were to be commenced against the Company, the Company could incur
significant costs with respect to the defense thereof, irrespective of the
validity or the successful assertion of such claims, which could have a
material adverse effect on the Company's results of operations or financial
condition. See "Risk Factors--Dependence on Proprietary Technology."
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MANAGEMENT
The directors and executive officers of the Company, their present positions
and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John J. Mazzola....... 54 President and Chief Executive Officer
Anthony J. Affuso..... 52 Vice President--Product Marketing and Development
Douglas E. Barnett.... 38 Vice President and Chief Financial Officer
Donald E. Davidson.... 57 Vice President--Asia Pacific
James Duncan.......... 61 Vice President--Europe
Dennis P. Kruse....... 48 Vice President--Americas
Robert F. Loss, III... 57 Vice President--Operations
Gary J. Fernandes..... 54 Chairman of the Board of Directors
Gary B. Moore......... 48 Vice Chairman of the Board of Directors
</TABLE>
The following biographies describe the business experience of the directors
and executive officers of the Company.
John J. Mazzola was appointed President and Chief Executive Officer of the
Company on January 1, 1998. From 1992 to December 1997, Mr. Mazzola served as
the President of the Unigraphics division of EDS. Prior to 1992, Mr. Mazzola
served as President of McDonnell Douglas Systems Integration ("MDSI"), the
predecessor to the Unigraphics division of EDS. Prior to 1992, Mr. Mazzola
held numerous positions within MDSI, including Vice President of Manufacturing
and Engineering, Director of Marketing, Vice President of Check Card Systems
and Vice President of Research and Development.
Anthony J. Affuso was appointed Vice President--Product Marketing and
Development of the Company on January 1, 1998. From March 1992 to December
1997, Mr. Affuso served as the Vice President of Software Development and
Marketing of the Unigraphics division of EDS, with responsibility for research
and development for the Company's core products. From September 1989 to March
1992, Mr. Affuso was in charge of the business unit of EDS which automated
GM's world-wide engineering, computing, communications and information
management infrastructure.
Douglas E. Barnett was appointed Vice President and Chief Financial Officer
of the Company on March 2, 1998. From January 1996 to March 1998, Mr. Barnett
served as Vice President and Corporate Controller of Giddings & Lewis, Inc.
("Giddings & Lewis"), a publicly traded company and the largest supplier of
industrial automation products in North America. From 1991 to 1996, Mr.
Barnett served as Treasurer of Giddings & Lewis.
Donald E. Davidson was appointed Vice President--Asia Pacific of the Company
on January 1, 1998. Mr. Davidson served as Managing Director of the Asia
Pacific Region for the Unigraphics division of EDS from November 1991 to
December 1997 with responsibility for all direct and indirect sales and
support activities covering Japan, Korea, Greater China, South East Asia and
Australasia.
James Duncan was appointed Vice President--Europe of the Company on January
1, 1998. Mr. Duncan oversees operations in 32 countries located throughout
Europe, India, the Middle East and Africa. Mr. Duncan served as Managing
Director of the European operations for the Unigraphics division of EDS from
November 1991 to December 1997.
Dennis P. Kruse was appointed Vice President--Americas of the Company on
January 1, 1998. Mr. Kruse served as Vice President--Sales, Americas for the
Unigraphics division of EDS from April 1994 to December 1997 with
responsibility for sales profit and loss, pre- and post-sales support,
training and technical sales support. From 1987 to 1994, Mr. Kruse served as
Director of the Western Region for the Unigraphics division of EDS and, prior
to 1991, MDSI.
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Robert F. Loss, III was appointed Vice President--Operations of the Company
on January 1, 1998. From March 1992 to December 1997, Mr. Loss served as the
Vice President of Operations of the Unigraphics division of EDS with
responsibility for software documentation and media manufacturing, product
delivery, customer services, product support, educational services and
internal management of information systems. Prior to 1992, Mr. Loss held
numerous positions within MDSI, including Vice President of Development and
Operations, Director of Product Management and Director of Business Management
and Marketing.
Gary J. Fernandes has been Vice Chairman of EDS since June 1996, a director
of EDS since 1981 and is a member of EDS' Office of the Chairman. Mr.
Fernandes was a Senior Vice President of EDS from October 1984 until June
1996. He has oversight responsibility for EDS' worldwide business development
and corporate development (including marketing and strategic planning) and is
Chairman of its A.T. Kearney management consulting services subsidiary and of
EDS Australia. Mr. Fernandes joined EDS in 1969 and has served in numerous
management capacities in the United States, Europe and Japan. He is a director
of The Southland Corporation and John Wiley & Sons, Inc. Mr. Fernandes became
Chairman of the Board of Directors of the Company at its inception in October
1997. Mr. Fernandes will continue to serve on the board of directors of EDS
after the Offering.
Gary B. Moore has been a Senior Vice President of EDS since June 1996 and
prior to that time had been a Vice President of EDS since 1992. Since June
1996, Mr. Moore has held responsibility for EDS' business units serving
customers in the manufacturing, retail and distribution industries. He served
as Chairman of EDS Japan from January 1993 to June 1996. Mr. Moore became Vice
Chairman of the Board of Directors of the Company at its inception in October
1997.
Until completion of the Offering, the Company will have a Board of Directors
consisting of Messrs. Fernandes and Moore. After completion of the Offering,
the Company anticipates that the size and composition of the Board of
Directors will be changed to seven members and will include Messrs. Fernandes,
Moore and Mazzola, two directors who are current or former officers or
employees of EDS and two directors who will be persons who are neither
employees or officers of the Company or EDS nor directors of EDS (a "Non-
employee Director").
INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors will be divided into three classes of directors, with
each class elected to a three-year term every third year and holding office
until their successors are elected and qualified. The class whose term of
office will expire at the Company's 1999 Annual Meeting of Stockholders will
consist of Mr. Mazzola and one other employee of EDS; the class whose term of
office will expire at the Company's 2000 Annual Meeting of Stockholders will
consist of Mr. Moore, one Non-employee Director and one other employee of EDS;
and the class whose term of office will expire at the Company's 2001 Annual
Meeting of Stockholders will consist of Mr. Fernandes and one Non-employee
Director.
The Bylaws authorize the Board of Directors to designate three committees,
an Executive Committee, an Audit Committee and a Compensation Committee. The
Board of Directors will, upon consummation of the Offering, designate an
Executive Committee, an Audit Committee and a Compensation Committee. In
addition, the Board of Directors may, from time to time, designate one or more
additional committees, which shall have such duties and may exercise such
powers as are granted to it by the Board of Directors.
The Executive Committee will consist of three or more members, including the
Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors and the Chief Executive Officer. The Executive Committee has and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Company, with the exception of
such powers and authority as may be specifically reserved to the Board by law
or by resolution adopted by the Board of Directors.
The Audit Committee, which will be composed entirely of directors who are
not employees or officers of the Company or EDS or directors of EDS, will
review and recommend the selection of independent auditors, the
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fees to be paid to such auditors, the adequacy of the audit and accounting
procedures of the Company and such other matters as may be specifically
delegated to the Audit Committee by the Board of Directors. In this
connection, the Audit Committee shall, at its request, meet with
representatives of the independent auditors and with the financial officers of
the Company separately or jointly.
The Compensation Committee, which will be composed entirely of Non-employee
Directors, will administer management incentive compensation plans, including
the 1998 Incentive Plan (as hereinafter defined), and will review and make
recommendations with respect to the management remuneration policies of the
Company, including salary rates and fringe benefits of elected officers, other
remuneration plans such as incentive compensation, deferred compensation and
stock option plans, directors' compensation and benefits and such other
matters as may be specifically delegated to the Compensation Committee by the
Board of Directors.
COMPENSATION OF DIRECTORS
Non-employee Directors will receive an annual retainer of $20,000 for Board
of Directors and committee service, a fee of $3,500 for serving as a committee
chairman, a fee of $1,000 for attending each meeting of the Board of Directors
or any committee thereof and reimbursement for reasonable out-of-pocket
expenses incurred in connection with attendance at such meeting of the Board
of Directors or any committee thereof.
In addition, each Non-employee Director will receive, on an annual basis
pursuant to the 1998 Incentive Plan, options to purchase 3,000 shares of Class
A Common Stock at an exercise price equal to the fair market value of such
shares at the date of grant. A Non-employee Director may make an annual
election to receive, in lieu of all or any portion of the cash portion of
director's fees he or she would otherwise receive in the next year, non-
qualified stock options to purchase Common Stock in accordance with the terms
of the 1998 Incentive Plan.
EXECUTIVE COMPENSATION
Prior to the Reorganization, all employees of the Company, including the
executive officers, were compensated by EDS. Since the Reorganization, the
executive officers and all other employees of the Company have been
compensated solely by the Company. Following the Offering, the executive
officers of the Company will continue to participate in most EDS compensation
plans other than the EDS 1996 Incentive Plan, which, with respect to future
grants to employees of the Company, will be replaced by the Company's 1998
Incentive Plan. The Company will conduct a comprehensive review of all benefit
plans during 1998 with the goal of adopting its own benefit plans over time
following the Offering.
The Company's executive officers will receive annual cash compensation in
the form of a base salary and will participate in a formula-based incentive
compensation plan that is tied to the Company's financial performance. In
addition, the Company's executive officers and other key employees will be
eligible to participate in the 1998 Incentive Plan.
THE 1998 INCENTIVE PLAN
The Board of Directors has adopted, and EDS, as the Company's sole
stockholder prior to the consummation of the Offering has approved, effective
upon the consummation of the Offering, the Unigraphics Solutions Inc. 1998
Incentive Plan (the "1998 Incentive Plan"). The description set forth below
represents a summary of the principal terms and conditions of the 1998
Incentive Plan in the form so approved and does not purport to be complete.
Such description is qualified in its entirety by reference to the 1998
Incentive Plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
Any outstanding awards under the EDS 1996 Incentive Plan (or its predecessor
plan) held by executives or other employees of the Company will remain
outstanding following the closing of the Offering. However, no new awards are
expected to be granted to employees or directors of the Company under the EDS
1996 Incentive Plan. The value of outstanding awards under the EDS 1996
Incentive Plan may be taken into consideration by the Compensation Committee
in determining any awards to be granted under the Company's 1998 Incentive
Plan.
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<PAGE>
GENERAL
Key employees eligible for awards ("Awards") under the 1998 Incentive Plan
(the "Employees") are those that hold positions of responsibility and whose
performance can have a significant effect on the success of the Company and
its subsidiaries. The only directors eligible for automatic or elective Awards
under the 1998 Incentive Plan are Non-employee Directors.
Awards to Employees under the 1998 Incentive Plan ("Employee Awards") may be
made in the form of grants of stock options ("Options"), stock appreciation
rights ("SARs"), restricted or non-restricted stock or units denominated in
stock ("Stock Awards"), cash awards ("Cash Awards"), performance awards
("Performance Awards") or any combination of the foregoing. Awards to Non-
employee Directors under the 1998 Incentive Plan ("Director Awards") will be
in the form of grants of Options.
The 1998 Incentive Plan provides for Awards to be made in respect of a
maximum of 1,300,000 shares of Class A Common Stock, of which 100,000 shares
will be available for Director Awards and the remainder will be available for
Employee Awards. No participant under the 1998 Incentive Plan may be granted
in any 12 month period Options for more than 200,000 shares of Class A Common
Stock, Stock Awards for more than 100,000 shares of Class A Common Stock or
Cash Awards in excess of $2.0 million. Shares of Class A Common Stock which
are the subject of Awards that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Class A Common Stock or in a
manner such that all or some of the shares covered thereby are not issued or
are exchanged for Awards that do not involve Class A Common Stock will again
immediately become available for Awards under the 1998 Incentive Plan.
The 1998 Incentive Plan, as it applies to Employee Awards, but not with
respect to Non-employee Directors, will be administered by the Compensation
Committee. To the extent required pursuant to Rule 16b-3 under the Exchange
Act in order for the grant of Employee Awards to be exempt under Section 16,
the Compensation Committee will at all times consist of at least two members
of the Board of Directors who meet the requirements of the definition of "Non-
Employee Director" set forth in Rule 16b-3(b)(3)(i).
Insofar as the 1998 Incentive Plan relates to Employee Awards, the
Compensation Committee will have the exclusive authority to administer the
1998 Incentive Plan and to take all actions which are specifically
contemplated thereby or are necessary or appropriate in connection with the
administration thereof. The Compensation Committee may, in its discretion,
provide for the extension of the exercisability of an Employee Award,
accelerate the vesting or exercisability of an Employee Award, eliminate or
make less restrictive any restrictions contained in an Employee Award, waive
any restriction or other provision of the 1998 Incentive Plan or in any
Employee Award or otherwise amend or modify an Employee Award in any manner
that is either (i) not adverse to the Employee holding the Employee Award or
(ii) consented to by such Employee.
EMPLOYEE AWARDS
The Compensation Committee will administer the 1998 Incentive Plan,
determine the type or types of Employee Awards made under the 1998 Incentive
Plan and will designate the Employees who are to be recipients of such Awards.
Each Employee Award may be embodied in an agreement, which will contain such
terms, conditions and limitations as are determined by the Compensation
Committee. Employee Awards may be granted singly, in combination or in tandem.
Employee Awards may also be made in combination or in tandem with, in
replacement of, or as alternatives to, grants or rights under the 1998
Incentive Plan or any other employee plan of the Company or any of its
subsidiaries, including any acquired entity; provided, however, that no Option
may be issued in exchange for the cancellation of an Option with a lower
exercise price. All or part of an Employee Award may be subject to conditions
established by the Compensation Committee, which may include continuous
service with the Company and its subsidiaries, achievement of specific
business objectives, increases in specified indices, attainment of specified
growth rates and other comparable measurements of performance.
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The types of Employee Awards that may be made under the 1998 Incentive Plan
are as follows:
Options. Options are rights to purchase a specified number of shares of
Class A Common Stock at a specified price. An option granted pursuant to the
1998 Incentive Plan may consist of either an incentive stock option ("ISO")
that complies with the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or a non-qualified stock option
("NQSO") that does not comply with such requirements. ISOs must have an
exercise price per share that is not less than the fair market value of the
Class A Common Stock on the date of grant. To the extent that the aggregate
fair market value of ISOs exercised by an Employee in any one calendar year
exceeds $100,000, such options shall be treated as NQSOs and not as ISOs.
NQSOs must have an exercise price per share that is not less than, but may
exceed, the fair market value of the Class A Common Stock on the date of
grant. In either case, the exercise price must be paid in full at the time an
Option is exercised in cash or, if the Employee so elects, by means of
tendering Class A Common Stock or surrendering another Award.
SARs. SARs are rights to receive a payment, in cash or Class A Common Stock,
equal to the excess of the fair market value or other specified valuation of a
specified number of shares of Class A Common Stock on the date the rights are
exercised over a specified strike price. An SAR may be granted under the 1998
Incentive Plan to the holder of an Option with respect to all or a portion of
the shares of Class A Common Stock subject to such Option or may be granted
separately. The terms, conditions and limitations applicable to any SARs,
including the term of any SARs and the date or dates upon which they become
exercisable, will be determined by the Compensation Committee.
Stock Awards. Stock Awards consist of restricted and non-restricted grants
of Class A Common Stock or units denominated in Class A Common Stock. The
terms, conditions and limitations applicable to any Stock Awards will be
determined by the Compensation Committee. The Compensation Committee may
remove any restrictions on Stock Awards, at its discretion. Without limiting
the foregoing, rights to dividends or dividend equivalents may be extended to
and made part of any Stock Award in the discretion of the Compensation
Committee.
Cash Awards. Cash Awards consist of grants denominated in cash. The terms,
conditions and limitations applicable to any Cash Awards will be determined by
the Compensation Committee.
Performance Awards. Performance Awards consist of grants made to an Employee
subject to the attainment of one or more performance goals. A Performance
Award will be paid, vested or otherwise deliverable solely upon the attainment
of one or more pre-established, objective performance goals established by the
Compensation Committee prior to the earlier of (i) 90 days after the
commencement of the period of service to which the performance goals relate
and (ii) the elapse of 25% of the period of service, and in any event while
the outcome is substantially uncertain. A performance goal may be based upon
one or more business criteria that apply to the Employee, one or more business
units of the Company or the Company as a whole, and may include any of the
following: revenues, net income, stock price, market share, earnings per
share, return on equity, return on assets or decrease in costs. Subject to the
foregoing, the terms, conditions and limitations applicable to any Performance
Awards will be determined by the Compensation Committee.
DIRECTOR AWARDS
Under the 1998 Incentive Plan, each Non-employee Director will receive the
Awards described below, which will be granted either automatically or at the
option of the Non-employee Director in lieu of director's fees.
Non-employee Director Options. On the date of his or her initial election to
the Board of Directors, each Non-employee Director will automatically receive
a grant of NQSOs that provide for the purchase of 3,000
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shares of Class A Common Stock. In addition, on the first business day of the
month following the date on which each annual meeting of the stockholders of
the Company is held (each, an "Annual Director Award Date"), each Non-employee
Director will automatically receive a grant of NQSOs that provide for the
purchase of 3,000 shares of Class A Common Stock. A Non-employee Director who
is elected otherwise than by election at an annual meeting of stockholders of
the Company, and other than those elected immediately following the Offering,
will automatically receive, on the date of his or her election, a grant of
NQSOs that provides for the purchase of a number of shares of Class A Common
Stock equal to the product of (i) 3,000 and (ii) a fraction the numerator of
which is the number of days between the election of such Non-employee Director
and the next scheduled Annual Director Award Date and the denominator of which
is 365. The term of the NQSOs granted to Non-employee Directors will be for a
period of ten years from the date of grant. The exercise price of such NQSOs
will be equal to the fair market value of the Class A Common Stock on the date
of grant. Such exercise price must be paid in full in cash at the time an NQSO
is exercised. All NQSOs granted to Non-employee Directors under the 1998
Incentive Plan will become exercisable in increments of one-third of the total
number of shares of Class A Common Stock that are subject thereto on the
first, second and third anniversaries of the date of grant. All unvested NQSOs
granted to a Non-employee Director will be forfeited if the Non-employee
Director resigns from the Board of Directors without the consent of a majority
of the other directors.
In addition a Non-employee Director may make an annual election to receive,
in lieu of all or any portion of the director's fees he or she would otherwise
receive in the next year (including both annual retainer and meeting fees), a
number of NQSOs equal to the product of (x) three times (y) a fraction the
numerator of which is equal to the dollar amount of fees the Non-employee
Director elects to forego in the next year in exchange for NQSOs and the
denominator of which is equal to the fair market value of Class A Common Stock
on the date of the election. The terms of the NQSOs received by a Non-employee
Director pursuant to such election will be the same as those of the NQSOs
automatically granted as described above.
OTHER PROVISIONS
The Board of Directors may amend, modify, suspend or terminate the 1998
Incentive Plan for the purpose of addressing any changes in legal requirements
or for any other purpose permitted by law, except that (i) no amendment that
would impair the rights of any Employee or Non-employee Director with respect
to any Award may be made without the consent of such Employee or Non-employee
Director and (ii) no amendment requiring stockholder approval in accordance
with Rule 16b-3 under the Exchange Act will be effective until such approval
has been obtained.
In the event of any subdivision or consolidation of outstanding shares of
Class A Common Stock, declaration of a stock dividend payable in shares of
Class A Common Stock or other stock split, the 1998 Incentive Plan provides
for the Compensation Committee to make appropriate adjustments to (i) the
number of shares of Class A Common Stock reserved under the 1998 Incentive
Plan, (ii) the number of shares of Class A Common Stock covered by outstanding
Awards in the form of Class A Common Stock or units denominated in Class A
Common Stock, (iii) the exercise or other price in respect of such Awards,
(iv) the appropriate fair market value and other price determinations for
Awards in order to reflect such transactions, (v) the number of shares of
Class A Common Stock covered by Options automatically granted to Non-employee
Directors, (vi) the number of shares covered by restricted Stock Awards
automatically granted to Non-employee Directors and (vii) the limitations set
forth in the 1998 Incentive Plan regarding the number of Awards which may be
made to any Employee in a given year. Furthermore, in the event of any other
recapitalization or capital reorganization of the Company, any consolidation
or merger of the Company with another corporation or entity, the adoption by
the Company of any plan of exchange affecting the Class A Common Stock or any
distribution to holders of Class A Common Stock of securities or property
(other than normal cash dividends or stock dividends), the Board of Directors
will make appropriate adjustments to the amounts or other items referred to in
clauses (ii), (iii), (iv), (v), (vi) and (vii) above to give effect to such
transactions, but only to the extent necessary to maintain the proportionate
interest of the holders of the Awards and to preserve, without exceeding, the
value thereof.
58
<PAGE>
ANTICIPATED OPTION AND SAR GRANTS TO THE EXECUTIVE OFFICERS FOR 1998
On the date of the consummation of the Offering, the Company will make
grants of an aggregate of approximately 800,000 NQSOs to certain key personnel
in connection with the Offering including the following grants to the named
executive officers:
STOCK OPTIONS TO BE GRANTED TO EXECUTIVE OFFICERS UNDER THE 1998 INCENTIVE
PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
CLASS A COMMON STOCK
NAME UNDERLYING OPTIONS GRANTED EXERCISE OR BASE PRICE EXPIRATION DATE
---- -------------------------- ---------------------- ---------------
<S> <C> <C> <C>
John J. Mazzola............. 100,000 (a) March 1, 2008
Anthony J. Affuso........... 75,000 (a) March 1, 2008
Douglas E. Barnett.......... 45,000 (a) March 2, 2008
Donald E. Davidson.......... 35,000 (a) March 1, 2008
James Duncan................ 40,000 (a) March 1, 2008
Dennis P. Kruse............. 40,000 (a) March 1, 2008
</TABLE>
(a) The exercise price is equal to the initial price to public set forth on
the cover page of this Prospectus.
THE EDS RETIREMENT PLAN
Following the closing of the Offering, the Company intends to fully review
its employee benefit packages to seek to better align its benefit packages
with those of its competitors. Prior to the completion of such review, the
Company's employees will continue to participate in substantially all EDS
benefit plans to the extent permitted by law, including the Electronic Data
Systems Corporation Retirement Plan (the "EDS Retirement Plan"). All of the
Company's employees who have at least one year of Service and are at least 18
years of age are eligible to participate in the EDS Retirement Plan.
The following table indicates the estimated annual benefits payable upon
retirement to Messrs. Mazzola, Affuso, Loss, Duncan and Kruse, for the
specified compensation and years of service classifications, under the EDS
Retirement Plan.
PROJECTED TOTAL ANNUAL RETIREMENT BENEFITS UNDER THE EDS RETIREMENT PLAN
<TABLE>
<CAPTION>
YEARS OF SERVICE
INAL AVERAGEF -------------------------------------------------
EARNINGS 5 10 15 20 25 30
- ------------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000.......................... .. $ 3,011 $ 6,023 $ 9,034 $12,045 $ 15,057 $ 18,068
100,000.......................... .. 7,186 14,373 21,559 28,745 35,932 43,118
150,000.......................... .. 11,361 22,723 34,084 45,445 56,807 68,168
200,000.......................... .. 15,536 31,073 46,609 62,145 77,682 93,218
250,000.......................... .. 19,711 39,423 59,134 78,845 98,557 118,268
300,000.......................... .. 23,886 47,773 71,659 95,545 119,432 143,318
</TABLE>
As of December 31, 1997, the final average earnings for the highest five
consecutive years over the last 10-year period and the eligible years of
credited service for each of the named executive officers was as follows: Mr.
Mazzola, $249,972--6 years; Mr. Affuso, $176,445--13 years; Mr. Kruse,
$178,382--6 years; Mr. Davidson, $183,580--6 years; Mr. Duncan, $121,506--6
years. The annual base salary for the most recent year considered in the
calculation of such average annual base salary is set forth in the Summary
Compensation Table set forth below under the column labeled "Salary."
"Earnings" under the EDS Retirement Plan generally refer to total annual
cash compensation (up to $160,000 for 1997 as limited by the Code) for
services rendered to the Company and its participating subsidiaries, together
with any salary reduction contributions to the EDS Deferred Compensation Plan,
and shall exclude extraordinary compensation (such as overseas living
allowances, relocation allowances and benefits under any employee benefit
plan, such as the 1998 Incentive Plan). Benefits under the EDS Retirement
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<PAGE>
Plan generally equal (i) 55% of the participant's final average earnings
(based on the highest five consecutive years of includible earnings within the
last ten years of employment), less the maximum offset allowance that can be
deducted from final average earnings as determined under the Code, multiplied
by (ii) the participant's years of credited benefit service (not to exceed
30), divided by 30. Benefits are payable in the form of a single or joint
survivor life annuity, unless otherwise elected.
EDS STOCK PURCHASE PLAN
Under the terms of the Management Services Agreement entered into between
the Company and EDS, all employees of the Company will be permitted to
continue participation in the Electronic Data Systems Corporation Stock
Purchase Plan (the "EDS Stock Purchase Plan") to the extent they are currently
permitted by law to participate. The Company will reimburse EDS for the
difference between the price paid for a share of common stock, par value $.01
per share ("EDS Common Stock"), of EDS pursuant to the EDS Stock Purchase Plan
and the fair market value of such share of EDS Common Stock. In connection
with its overall review of the Company's benefit packages to occur following
the closing of the Offering, EDS or the Company may determine to discontinue
the Company's participation in such plan.
The EDS Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Code. All full-time employees of EDS
and certain subsidiaries are eligible to participate in the EDS Stock Purchase
Plan.
All eligible employees who enroll in an offering receive options to purchase
shares of EDS Common Stock at a price that is not less than the lesser of (i)
85% of the fair market value of the stock on the offering date or (ii) an
amount which under the terms of the offering is not less than 85% of such fair
market value at the time the right to purchase is exercised. Shares of EDS
Common Stock purchased under the EDS Stock Purchase Plan may not be sold or
transferred within two years of the date of purchase unless they are first
offered to EDS at the lesser of (i) the price originally paid for the shares
or (ii) the fair market value per share of EDS Common Stock on the date the
shares are offered to EDS.
EMPLOYMENT AGREEMENTS
In May 1998, the Company entered into employment agreements ("Employment
Agreements") with Messrs. Mazzola, Affuso, Barnett, Davidson, Duncan and Kruse
(each an "Executive") which provide for a term of two years, subject to
automatic, annual renewals, unless such Executive or the Company provides
written notice of termination at least 60 days prior to the expiration or
renewal date, as applicable, of the agreement. Under the terms of the
Employment Agreements, the Executives will receive minimum annual base
salaries as follows: Mr. Mazzola, $210,000; Mr. Affuso, $200,000; Mr. Barnett,
$180,000; Mr. Davidson, $140,000; Mr. Duncan, $160,000; and Mr. Kruse,
$160,000. The Executives are also eligible to receive a bonus to be paid on or
before the first anniversary of the Employment Agreements based upon the
actual performance of the Company in relation to its projected business plan
as follows: Mr. Mazzola, $175,000; Mr. Affuso, $100,000; Mr. Davidson,
$80,000; Mr. Duncan, $90,000; and Mr. Kruse, $90,000. Mr. Barnett will receive
an unconditional and irrevocable bonus of $90,000 to be paid on or before the
first anniversary of his Employment Agreement. In addition, the Executives are
eligible to participate in the Company's 1998 Incentive Plan for the first
calendar year following the effective date of the Employment Agreements. Upon
consummation of the Offering, each Executive will receive a stock option grant
to purchase the following number of shares of Class A Common Stock: Mr.
Mazzola, 100,000 shares; Mr. Affuso, 75,000 shares; Mr. Barnett, 45,000
shares; Mr. Davidson, 35,000 shares; Mr. Duncan, 40,000 shares; and Mr. Kruse,
40,000 shares. The options vest in equal thirds over a three year period, are
exercisable at the initial price to public set forth on the front cover of
this Prospectus and expire on the tenth anniversary of the Employment
Agreements. Messrs. Mazzola, Affuso, Davidson, Duncan and Kruse continue to
vest in any awards made under the EDS 1996 Incentive Plan as long as such
individuals are employees of the Company; however, such individuals are not
eligible for any new awards under the EDS 1996 Incentive Plan. In the event
any Executive terminates his employment with the Company for "Cause" (as
defined in the Employment Agreements) or the Company terminates any Executive
without Cause, then such
60
<PAGE>
Executive will be entitled to receive the equivalent of one year of his then
annual salary and bonus and all unvested stock options will vest. The
Employment Agreements provide that the Executives will not compete with the
Company, become employed by a customer of the Company or solicit employees of
the Company for a period of twelve months after termination of such
Executive's employment with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation information with respect to the named executives for 1997
reflects compensation earned prior to the effectiveness of the Reorganization
while the business of the Company was operated within several business units
of EDS. Accordingly, the Company did not have a compensation committee during
1997.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements (the
"Indemnification Agreements") with certain of its directors and executive
officers (the "Indemnitees"), a form of which is filed with the Commission as
an exhibit to the Registration Statement of which this Prospectus is a part.
Under the terms of the Indemnification Agreements, the Company has generally
agreed to indemnify, and advance expenses to, each Indemnitee to the fullest
extent permitted by applicable law on the date of such agreements and to such
greater extent as applicable law may thereafter permit. In addition, the
Indemnification Agreements contain specific provisions pursuant to which the
Company has agreed to indemnify each Indemnitee (i) if such person is, by
reason of his or her status as a director, nominee for director, officer,
agent or fiduciary of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise with which
such person was serving at the request of the Company (any such status being
hereinafter referred to as a "Corporate Status"), made or threatened to be
made a party to any threatened, pending or completed action, suit,
arbitration, alternative dispute resolution mechanism, investigation or other
proceeding (each, a "Proceeding"), other than a Proceeding by or in the right
of the Company, (ii) if such person is, by reason of his or her Corporate
Status, made or threatened to be made a party to any Proceeding brought by or
in the right of the Company to procure a judgment in its favor, except that no
indemnification shall be made in respect of any claim, issue or matter in such
Proceeding as to which such Indemnitee shall have been adjudged to be liable
to the Company if applicable law prohibits such indemnification (unless and
only to the extent that a court shall otherwise determine), (iii) against
expenses actually and reasonably incurred by such person or on his or her
behalf in connection with any Proceeding to which such Indemnitee was or is a
party by reason of his or her Corporate Status and in which such Indemnitee is
successful, on the merits or otherwise, (iv) against expenses actually and
reasonably incurred by such person or on his or her behalf in connection with
a Proceeding to the extent that such Indemnitee is, by reason of his or her
Corporate Status, a witness or otherwise participates in any Proceeding at a
time when such person is not a party in the Proceeding, and (v) against
expenses actually and reasonably incurred by such person in any judicial
adjudication of or any award in arbitration to enforce his or her rights under
the Indemnification Agreements.
Furthermore, under the terms of the Indemnification Agreements, the Company
has agreed to pay all reasonable expenses incurred by or on behalf of an
Indemnitee in connection with any Proceeding, whether brought by or in the
right of the Company or otherwise, in advance of any determination with
respect to entitlement to indemnification and within 15 days after the receipt
by the Company of a written request from such Indemnitee for such payment. In
the Indemnification Agreements, each Indemnitee has agreed that he or she will
reimburse and repay the Company for any expenses so advanced to the extent
that it shall ultimately be determined that he or she is not entitled to be
indemnified by the Company against such expenses.
The Indemnification Agreements also include provisions that specify the
procedures and presumptions which are to be employed to determine whether an
Indemnitee is entitled to indemnification thereunder. In some cases, the
nature of the procedures specified in the Indemnification Agreements varies
depending on whether there has occurred a "Change in Control" (as defined in
the Indemnification Agreements) of the Company.
61
<PAGE>
COMPENSATION OF THE NAMED EXECUTIVE OFFICERS IN 1997
The following Summary Compensation Table sets forth certain compensation
information for the chief executive officer and the four other executive
officers of the Company as of December 31, 1997 who, based on employment with
EDS and its subsidiaries, were the five most highly compensated officers of
the Company. All of the information set forth in this table reflects
compensation earned by such individuals for services with EDS and its
subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------- -----------------------------
AWARDS PAYOUTS
OTHER --------------------- -------
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
NAME SALARY BONUS(A) SATION(B) AWARDS(C) OPTIONS PAYOUTS SATION(D)
---- --------- ------------------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Mazzola......... $ 170,000 $ 60,000 $ 204 $ 516,750 -- -- $424
Anthony J. Affuso....... 152,500 35,000 295 215,313 -- -- 295
Donald E. Davidson...... 112,425 92,677 53,268 107,656 -- -- --
James Duncan............ 122,320 59,812 -- 107,656 -- -- --
Dennis P. Kruse......... 118,220 114,198 -- 107,656 -- -- --
</TABLE>
- --------
(a) Represents bonuses earned by the named executives with respect to the year
ended December 31, 1997. Amounts for Messrs. Davidson, Duncan and Kruse
include commissions or new business bonuses of $84,677, $59,812 and
$106,198, respectively.
(b) For Messrs. Mazzola and Affuso, amounts represent payments in respect of
taxes due on imputed interest for non-interest bearing loans. For Mr.
Davidson, amount represents cost of living adjustments for foreign
service.
(c) Represents awards of the following number of shares of restricted EDS
Common Stock granted pursuant to the EDS 1996 Incentive Plan to the named
executive officers on January 3, 1997: Mr. Mazzola, 12,500 shares; Mr.
Affuso, 5,000 shares; Mr. Davidson, 2,500 shares; Mr. Duncan, 2,500
shares; and Mr. Kruse, 2,500 shares. Such shares will vest ratably over
each of the following 10 years subject to the achievement by EDS of
performance goals. Shares which do not vest in any year due to failure to
achieve such goals will vest in 2007.
(d) Represents the imputed value of outstanding non-interest bearing loans for
the payment of withholding taxes required as a result of the vesting of
restricted stock under the EDS 1996 Incentive Plan.
62
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDER
As of the date of this Prospectus, no shares of Class A Common Stock are
outstanding. Immediately after completion of the Offering, the only shares of
Class A Common Stock that will be outstanding are those that will be issued in
the Offering (including any shares issued if the U.S. Underwriters' over-
allotment option is exercised). See "Management--1998 Incentive Plan." The
table below sets forth certain information with respect to the expected
beneficial ownership of Common Stock of the Company before and after
completion of the Offering by each beneficial owner of more than 5% of the
outstanding shares of Common Stock and by the Company's directors and
executive officers.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BEFORE OFFERING BENEFICIAL OWNERSHIP AFTER OFFERING
------------------------------------------ -------------------------------------------
PERCENT PERCENT PERCENT
PERCENT OF OF OF OF
NUMBER OF COMMON VOTING NUMBER OF COMMON VOTING
NAME OF BENEFICIAL OWNER SHARES STOCK POWER SHARES STOCK POWER
- ------------------------ ---------------- ------------- ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Electronic Data Systems 31,265,000 100% 100% 31,625,000 84.5%(2) 98.2%(2)
Corporation(1).........
5400 Legacy Drive
Plano, Texas 75024
All directors and
executive officers as a
group (9 persons)...... -- -- -- -- -- (3) -- (3)
</TABLE>
- --------
(1) EDS exercises sole voting and dispositive power over the shares of Class
B Common Stock held of record by EDS.
(2) If the U.S. Underwriters' over-allotment option is exercised in full, EDS
would beneficially own 83.7% of the Common Stock and 98.1% of the voting
power after the Offering.
(3) Non-employee Directors and executive officers will receive options to
purchase shares of Class A Common Stock pursuant to the 1998 Incentive
Plan. For information on the grants to be made, see "Management."
The following table sets forth certain information as of March 12, 1998
regarding the beneficial ownership of EDS Common Stock by (i) each director of
the Company, (ii) each executive officer named in the Summary Compensation
Table and (iii) all executive officers and directors of the Company as a
group. Unless otherwise noted, the persons named below have sole voting and
investment power with respect to the shares shown as beneficially owned by
them.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
EDS COMMON STOCK
NAME BENEFICIALLY OWNED PERCENT OF CLASS
---- ------------------- ----------------
<S> <C> <C>
John J. Mazzola.......................... 12,080 *
Anthony J. Affuso........................ 9,707 *
James Duncan............................. 1,250 *
Dennis P. Kruse.......................... 625 *
Donald E. Davidson....................... 4,384 *
Gary J. Fernandes........................ 12,000 *
Gary B. Moore............................ 45,561 *
All directors and executive officers as a
group (9 persons)....................... 89,454 *
</TABLE>
- --------
* Less than one percent (1%).
63
<PAGE>
RELATIONSHIP WITH EDS AND CERTAIN TRANSACTIONS
FORMATION OF THE COMPANY; INDEBTEDNESS TO EDS
The Company was formed on October 2, 1997 and, pursuant to the
Reorganization, became the successor to the Unigraphics MCAD business of EDS
effective as of January 1, 1998.
In connection with the Solid Edge Acquisition, on March 2, 1998 the Company
borrowed $105 million from EDS pursuant to the Intercompany Credit Agreement.
See "--Contractual Arrangements--Intercompany Credit Agreement." In addition,
effective March 6, 1998 the Company issued to EDS as a dividend the
Intercompany Note in the principal amount of $73 million. The Intercompany
Note bears interest, payable semiannually, at the one-month LIBID minus 0.5%,
and matures on March 6, 2001. The amounts advanced by EDS to the Company under
the Intercompany Credit Agreement in respect of the Solid Edge Acquisition, as
well as a portion of the amount outstanding under the Intercompany Note, will
be repaid to EDS with the net proceeds of the Offering. See "Use of Proceeds."
Also in connection with the Reorganization, the Company and EDS entered into
an Intercompany Agreement (the "Intercompany Agreement") pursuant to which
each party indemnified the other for certain obligations relating to the
Reorganization. Pursuant to the Intercompany Agreement, the Company
indemnified EDS for liabilities assumed in the Reorganization and against
third party claims asserted against EDS as a result of EDS' prior ownership of
assets or operation of businesses contributed to the Company and for losses
arising from or in connection with the Company's lease of property from EDS.
In exchange, EDS indemnified the Company for specified liabilities retained by
it in the Reorganization, against third party claims against the Company
relating to EDS' businesses and asserted against the Company as a result of
the ownership or possession by EDS prior to the Reorganization of any asset
contributed to the Company in the Reorganization.
COMMON STOCK OWNERSHIP
EDS currently owns all of the outstanding capital stock of the Company. Upon
completion of the Offering, EDS will own 100% of the Company's outstanding
Class B Common Stock, which will represent approximately 98.2% of the combined
voting power of the Company's outstanding Common Stock (approximately 97.9% if
the U.S. Underwriters' over-allotment option is exercised in full). The Class
A Common Stock and Class B Common Stock will be the only voting stock of the
Company following the Offering. As long as EDS continues to beneficially own a
majority of the combined voting power of the Common Stock, it will have the
ability to elect all of the members of the Board of Directors and control the
management and affairs of the Company, including any determinations with
respect to mergers or other business combinations involving the Company, the
acquisition or disposition of assets by the Company, the incurrence of
indebtedness by the Company, the issuance of any additional Common Stock or
other equity securities or the declaration and payment of any dividends on the
Common Stock. In addition, EDS will be able to determine the outcome of any
matter submitted to a vote of the Company's stockholders for approval and to
cause or prevent a change in control.
Conflicts of interest may arise between the Company and EDS in a number of
areas relating to their past and ongoing relationships, including the nature
and quality of services rendered by EDS and its affiliates to the Company, the
performance by the Company and EDS of their obligations under the GM
Subcontract, potential competitive business activities, tax and employee
benefit matters, indemnity agreements, registration rights, sales or
distributions by EDS of all or any portion of its ownership interest in the
Company or EDS' ability to control the management and affairs of the Company.
There can be no assurance that EDS and the Company will be able to resolve any
potential conflict or that, if resolved, the Company would not have received a
more favorable resolution if it were dealing with an unaffiliated party. In
addition, certain of the Affiliate Agreements contain specific procedures for
resolving disputes between the Company and EDS with respect to the subject
matter of those agreements. There can be no assurance that more favorable
results to the Company would not be obtained under different procedures.
64
<PAGE>
CHARTER PROVISIONS
The Certificate of Incorporation of the Company provides that any amendment
or termination of any agreement or arrangement, or any new agreement or
arrangement, between the Company and EDS or its affiliates effected with the
approval of a majority of the Company's directors who are Disinterested
Directors or consistent with guidelines or standards approved by the
Disinterested Directors, or approved by the holders of a majority of the
Company's outstanding voting stock (not including that owned by EDS) shall be
deemed fair to the Company and its stockholders. If such approval is not
obtained, however, no presumption shall arise that such amendment or
termination (or new agreement) is not fair to the Company and its
stockholders. The Certificate of Incorporation also contains provisions
allocating corporate opportunities that may be suitable for both EDS and the
Company. See "Description of Capital Stock--Certificate of Incorporation and
Bylaw Provisions."
CONTRACTUAL ARRANGEMENTS
In addition to the Intercompany Agreement, the Company entered into the
following agreements with EDS or affiliates of EDS (together with the
Intercompany Agreement, the "Affiliate Agreements").
MANAGEMENT SERVICES AGREEMENT
The Company and EDS are parties to the Management Services Agreement, dated
effective as of January 1, 1998 (the "Management Services Agreement"),
pursuant to which EDS performs various management services for the Company,
including treasury, risk management, tax and similar administrative services.
The Company expects to pay EDS approximately $8.5 million for such services in
1998, subject to adjustment based on service levels and negotiated prices.
This agreement provides for the payments of fees to EDS for such services,
either on a fixed price or usage basis, which fees are generally designed to
approximate EDS' cost of providing the services, as well as a fixed fee equal
to 0.5% of the Company's total revenues. The Management Services Agreement
will expire on December 31, 2002 unless terminated earlier by either party if
EDS and the Company are no longer under common control. Except for certain tax
and treasury management services relating to consolidated operations or
corporate policy of EDS, which the Company is required to purchase during the
term of the Management Services Agreement, the Company or EDS may terminate
any service on or after January 1, 2000 with prior notice of not less than
five months. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview."
TAX SHARING AGREEMENT
The Company and EDS have entered into the Tax Sharing Agreement, dated
effective as of January 1, 1998 (the "Tax Sharing Agreement"), which provides
for the allocation of tax liabilities during the tax periods the Company is
part of consolidated federal, state and local income tax returns filed by EDS.
In addition, the Tax Sharing Agreement sets out certain benefits and
obligations of the Company and EDS for tax matters relating to periods before
the Reorganization and for certain benefits and obligations that would affect
the Company or EDS in the future if the Company ceased to be a member of EDS'
consolidated group for federal income tax purposes. The Tax Sharing Agreement
generally requires the Company to pay to EDS the amount of federal, state and
local income taxes that the Company would have been required to pay had the
Company and its subsidiaries filed their own tax return or returns and not
been included in the EDS consolidated group. The Company is jointly and
severally liable for the federal income tax of EDS and the other companies
included in the consolidated return for all periods in which the Company is
included in the EDS consolidated group. EDS has agreed, however, to indemnify
the Company for any liability for taxes reported or required to be reported on
a consolidated return.
Except for certain items specified in the Tax Sharing Agreement, EDS
generally retains any potential tax benefit carryforwards, and remains
obligated to pay all taxes, attributable to periods before the Reorganization.
65
<PAGE>
INTERCOMPANY CREDIT AGREEMENT
In order to allow EDS to manage efficiently the cash and cash needs of its
subsidiaries, the Company and EDS are parties to the Intercompany Credit
Agreement, effective as of January 1, 1998 (the "Intercompany Credit
Agreement"), pursuant to which the Company is required to borrow from EDS, and
EDS is required to lend to the Company, amounts required by the Company to
fund its daily cash requirements. In addition, EDS has made an advance to the
Company under the Intercompany Credit Agreement in the amount of $107 million
in connection with the Solid Edge Acquisition, which advance will be repaid
upon consummation of the Offering. The maximum amount that the Company may
borrow at any time from EDS under the Intercompany Credit Agreement (together
with the other non-U.S. credit agreements referred to below) is $177 million
at any time prior to the consummation of the Offering or $70 million at any
time thereafter. Also, under the Intercompany Credit Agreement, the Company is
required to lend to EDS all excess cash of the Company. The interest rate to
be charged to the Company is the sum of the one-month LIBOR plus 0.5%. The
interest rate to be charged to EDS is the one-month LIBID minus 0.5%. On any
business day that the Company has excess cash available, it must use that cash
to repay any outstanding loans it has under the Intercompany Credit Agreement
or make an advance to EDS if no loans are outstanding. The Intercompany Credit
Agreement will terminate on December 31, 2002, unless earlier terminated at
the election of one of the parties upon the occurrence of certain events,
including the termination of the Management Services Agreement or the
cessation of EDS' beneficial ownership of 50% or more of the capital stock of
the Company. In addition to the Intercompany Credit Agreement between the
Company and EDS, EDS Finance plc, a wholly-owned subsidiary of EDS, has
entered into or will enter into credit agreements with substantially all non-
U.S. subsidiaries of the Company, which credit agreements will have terms
similar to the Intercompany Credit Agreement.
GM SUBCONTRACT
The Company and EDS have entered into the GM Subcontract dated effective
January 1, 1998 which sets forth the framework for the provisions of the
Company's products and services to GM. The GM Subcontract provides that all
products and services of the Company which are "in-scope" for purposes of the
EDS/GM MSA will continue to be provided directly by EDS to GM, with the
Company providing such products and services as a subcontractor to EDS and
receiving the revenues attributable to such products and services. "In-scope"
services include the EDS/GM Site License Agreement and any successor
agreement. The GM Subcontract further provides that products and services
which are not "in-scope" under the EDS/GM MSA may be provided directly to GM
by the Company. The GM Subcontract sets forth a framework for cooperation
between EDS and the Company in connection with providing services to GM and
provides for the operation and the representation of EDS and Company with the
goal of furthering both EDS' and the Company's relationships with GM in a
coordinated manner.
OTHER AGREEMENTS
In addition to the agreements set forth above, the Company and EDS are
parties to a Registration Rights Agreement described under "Shares Eligible
for Future Sale," and Sublease Agreements with respect to substantially all of
the real property occupied by the Company described under "Business--
Properties." The Company also has, or expects to enter into, other agreements
with EDS or other EDS affiliates, pursuant to which the Company does not
expect to receive or pay material amounts.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 168,735,000 shares
of Class A Common Stock, 31,265,000 shares of Class B Common Stock and
20,000,000 shares of Preferred Stock. None of the Class A Common Stock or
Preferred Stock is outstanding as of the date hereof. Of the 168,735,000
shares of Class A Common Stock authorized, 5,735,000 shares are being offered
in the Offering (6,595,250 shares if the U.S. Underwriters' over-allotment
option is exercised in full), 31,265,000 shares will be reserved for issuance
upon conversion of Class B Common Stock into Class A Common Stock and
1,300,000 shares have been reserved for issuance pursuant to the 1998
Incentive Plan. See "Management--Compensation of Directors" and "Management--
1998 Incentive Plan." Of the 31,265,000 shares of Class B Common Stock
authorized, 31,265,000 will be outstanding and held by EDS upon consummation
of the Offering. The following summary description of the capital stock of the
Company is qualified by reference to the Certificate of Incorporation and
Bylaws of the Company, copies of which are filed as exhibits to the
Registration Statement.
COMMON STOCK
VOTING RIGHTS
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights except that holders of Class A Common Stock are entitled to
one vote per share while holders of Class B Common Stock are entitled to 10
votes per share on all matters to be voted on by stockholders. Holders of
shares of Class A Common Stock and Class B Common Stock are not entitled to
cumulate their votes in the election of directors. Generally, all matters to
be voted on by stockholders must be approved by a majority (or, in the case of
election of directors, by a plurality) of the votes entitled to be cast by all
shares of Class A Common Stock and Class B Common Stock present in person or
represented by proxy, voting together as a single class, subject to any voting
rights granted to holders of any Preferred Stock. Except as otherwise provided
by law, and subject to any voting rights granted to holders of any outstanding
Preferred Stock, amendments to the Company's Certificate of Incorporation
generally must be approved by a majority of the combined voting power of all
Class A Common Stock and Class B Common Stock voting together as a single
class. However, amendments to the Company's Certificate of Incorporation that
would alter or change the powers, preferences or special rights of the Class A
Common Stock or the Class B Common Stock so as to affect them adversely also
must be approved by a majority of the votes entitled to be cast by the holders
of the shares affected by the amendment, voting as a separate class.
Notwithstanding the foregoing, any amendment to the Company's Certificate of
Incorporation to increase the authorized shares of any class or authorize the
creation, authorization or issuance of any securities convertible into, or
warrants or options to acquire, shares of any such class or classes of stock
shall be approved by the affirmative vote of the holders of a majority of the
Common Stock, voting together as a single class.
Effective as of the first time at which EDS shall cease to be the beneficial
owner of an aggregate of at least a majority of the voting power of the Voting
Stock (as defined herein) of the Company then outstanding (the "Trigger
Date"), amendments to certain provisions of the Certificate of Incorporation
will require the approval of 80% of the combined voting power of all Class A
Common Stock and Class B Common Stock, voting together as a single class.
DIVIDENDS
Holders of Class A Common Stock and Class B Common Stock will share in an
equal amount per share in any dividend declared by the Board of Directors,
subject to any preferential rights of any outstanding Preferred Stock.
Dividends consisting of shares of Class A Common Stock and Class B Common
Stock may be paid only as follows: (i) shares of Class A Common Stock may be
paid only to holders of Class A Common Stock and shares of Class B Common
Stock may be paid only to holders of Class B Common Stock and (ii) shares
shall be paid proportionally with respect to each outstanding share of Class A
Common Stock and Class B Common Stock.
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CONVERSION
Each share of Class B Common Stock is convertible while held by EDS or any
of its subsidiaries at such holder's option into one share of Class A Common
Stock. Following the occurrence of a Tax-Free Spin-Off (as hereinafter
defined), if any, shares of Class B Common Stock shall not be convertible into
shares of Class A Common Stock at the option of the holder thereof.
Except as provided below, prior to any Tax-Free Spin-Off, any shares of
Class B Common Stock transferred to a person other than EDS or any of its
subsidiaries or the Class B Transferee (as defined below) shall automatically
convert to shares of Class A Common Stock upon such disposition. Shares of
Class B Common Stock representing more than a 50% economic interest in the
Company transferred by EDS or any of its subsidiaries in a single transaction
to one unrelated person (the "Class B Transferee") or any subsidiary of the
Class B Transferee shall not automatically convert to shares of Class A Common
Stock upon such disposition. Any shares of Class B Common Stock retained by
EDS or its subsidiaries following any such transfer of shares of Class B
Common Stock to the Class B Transferee shall automatically convert into shares
of Class A Common Stock upon such transfer. Shares of Class B Common Stock
transferred to stockholders of EDS or stockholders of the Class B Transferee
in a transaction intended to be on a tax-free basis (a "Tax-Free Spin-Off")
under the Code shall not convert to shares of Class A Common Stock upon the
occurrence of such Tax-Free Spin-Off.
Following a Tax-Free Spin-Off, shares of Class B Common Stock shall be
transferred as Class B Common Stock, subject to applicable laws; provided,
however, that shares of Class B Common Stock shall automatically convert into
shares of Class A Common Stock on the fifth anniversary of the Tax-Free Spin-
Off, unless prior to such Tax-Free Spin-Off, EDS, or the Class B Transferee,
as the case may be, delivers to the Company an opinion of counsel reasonably
satisfactory to the Company to the effect that such conversion could adversely
affect the ability of EDS, or the Class B Transferee, as the case may be, to
obtain a favorable ruling from the Internal Revenue Service that the transfer
would be a Tax-Free Spin-Off. If such an opinion is received, approval of such
conversion shall be submitted to a vote of the holders of the Common Stock as
soon as practicable after the fifth anniversary of the Tax-Free Spin-Off,
unless EDS or the Class B Transferee, as the case may be, delivers to the
Company an opinion of counsel reasonably satisfactory to the Company prior to
such anniversary that such vote could adversely affect the status of the Tax-
Free Spin-Off, including the ability to obtain a favorable ruling from the
Internal Revenue Service; if such opinion is so delivered, such vote shall not
be held. Approval of such conversion will require the affirmative vote of the
holders of a majority of the shares of both Class A Common Stock and Class B
Common Stock present and voting, voting together as a single class, with each
share entitled to one vote for such purpose. No assurance can be given that
such conversion would be consummated. The requirement to submit such
conversion to a vote of the holders of the Common Stock is intended to ensure
that tax-free treatment of the Tax-Free Spin-Off is preserved should the
Internal Revenue Service challenge such automatic conversion as violating the
80% vote requirement currently required by the Code for a tax-free spin-off.
OTHER RIGHTS
On liquidation, dissolution or winding up of the Company, after payment in
full of the amounts required to be paid to holders of Preferred Stock, if any,
all holders of Common Stock, regardless of class, are entitled to share
ratably in any assets available for distribution to holders of shares of
Common Stock.
No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock.
Upon consummation of the Offering, all the outstanding shares of Class A
Common Stock and Class B Common Stock will be legally issued, fully paid and
nonassessable.
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PREFERRED STOCK
As of the date of this Prospectus, no shares of Preferred Stock are
outstanding. The Board of Directors may authorize the issuance of Preferred
Stock in one or more series and may determine, with respect to any such
series, the designations, powers, preferences and rights of such series, and
the qualifications, limitations and restrictions thereof, including (i) the
designation of the series; (ii) the number of shares of the series, which
number the Board of Directors may thereafter (except where otherwise provided
in the designations for such series) increase or decrease (but not below the
number of shares of such series then outstanding); (iii) whether dividends, if
any, will be cumulative or noncumulative and the dividend rate of the series;
(iv) the conditions upon which and the dates at which dividends, if any, will
be payable, and the relation which such dividends, if any, shall bear to the
dividends payable on any other class or classes of stock; (v) the redemption
rights and price or prices, if any, for shares of the series; (vi) the terms
and amounts of any sinking fund provided for the purchase or redemption of
shares of the series; (vii) the amounts payable on and the preferences, if
any, of shares of the series, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company; (viii)
whether the shares of the series will be convertible into shares of any other
class or series, or any other security, of the Company or any other
corporation, and, if so, the specification of such other class or series or
such other security, the conversion price or prices or rate or rates, any
adjustments thereof, the date or dates as of which such shares shall be
convertible and all other terms and conditions upon which such conversion may
be made; (ix) restrictions on the issuance of shares of the same series or of
any other class or series; and (x) the voting rights, if any, of the holders
of shares of such series.
The Company believes that the ability of the Board of Directors to issue one
or more series of Preferred Stock will provide the Company with flexibility in
structuring possible future financings and acquisitions and in meeting other
corporate needs that might arise. The authorized shares of Preferred Stock
will be available for issuance without further action by the Company's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded.
Although the Board of Directors has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Board of Directors will make any determination to
issue such shares based on its judgment as to the best interests of the
Company and its stockholders. The Board of Directors, in so acting, could
issue Preferred Stock having terms that could discourage a potential acquiror
from making, without first negotiating with the Board of Directors, an
acquisition attempt through which such acquiror may be able to change the
composition of the Board of Directors, including a tender offer or other
transaction that some, or a majority, of the Company's stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then current market price of such stock.
BUSINESS COMBINATION STATUTE
As a corporation organized under the laws of the State of Delaware, the
Company will be subject to Section 203 of the DGCL, which restricts certain
business combinations between the Company and an "interested stockholder" (in
general, a stockholder owning 15% or more of the Company's outstanding voting
stock) or its affiliates or associates for a period of three years following
the time that the stockholder becomes an "interested stockholder." The
restrictions do not apply if (i) prior to an interested stockholder becoming
such, the Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in any
person becoming an interested stockholder, such interested stockholder owns at
least 85% of the voting stock of the Company outstanding at the time the
transaction commenced (excluding shares owned by certain employee stock
ownership plans and persons who are both directors and officers of the
Company) or (iii) at or subsequent to the time an interested stockholder
becomes such, the business combination is both approved by the Board of
Directors and authorized at an annual or special meeting of the Company's
stockholders, not by written consent, by the affirmative vote of at least 66
2/3% of the outstanding voting stock not owned by the interested stockholder.
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Because EDS became an interested stockholder at a time when the restrictions
did not apply, the restrictions will not apply to any business combination
with EDS.
Under certain circumstances, Section 203 of the DGCL makes it more difficult
for a person who would be an "interested stockholder" to effect various
business combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Certificate of Incorporation of the Company does not exclude
the Company from the restrictions imposed under Section 203 of the DGCL. It is
anticipated that the provisions of Section 203 of the DGCL may encourage
companies interested in acquiring the Company to negotiate in advance with the
Board of Directors, since the stockholder approval requirement would be
avoided if a majority of the directors then in office approves, prior to the
date on which a stockholder becomes an interested stockholder, either the
business combination or the transaction which results in the stockholder
becoming an interested stockholder.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The summary set forth below describes certain provisions of the Certificate
of Incorporation and Bylaws. The summary is qualified in its entirety by
reference to the provisions of the Certificate of Incorporation and Bylaws,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part.
Certain of the provisions of the Certificate of Incorporation and Bylaws
discussed below may have the effect, either alone or in combination with the
provisions of Section 203 discussed above, of making more difficult or
discouraging a tender offer, proxy contest or other takeover attempt that is
opposed by the Board of Directors but that a stockholder might consider to be
in such stockholder's best interest. Those provisions include (i) restrictions
on the rights of stockholders to remove directors, (ii) prohibitions against
stockholders calling a special meeting of stockholders or acting by unanimous
written consent in lieu of a meeting and (iii) requirements for advance notice
of actions proposed by stockholders for consideration at meetings of the
stockholders. In addition, the Certificate of Incorporation contains
provisions relating to the allocation of certain corporate opportunities and
resolution of certain potential conflicts of interest. See "--Corporate
Opportunity and Conflict of Interest Policies."
CLASSIFIED BOARD OF DIRECTORS; REMOVAL; NUMBER OF DIRECTORS; FILLING
VACANCIES
The Certificate of Incorporation and Bylaws of the Company provide that the
Board of Directors--except for directors who may be elected by the holders of
Preferred Stock or any other series or class of stock--will be divided into
three classes of directors, with the classes to be as nearly equal in number
as possible. One class is to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1999, another class is to be
originally elected for a term expiring at the annual meeting of stockholders
to be held in 2000 and another class is to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 2001. Each
director is to hold office until his or her successor is duly elected and
qualified. Commencing with the 1999 annual meeting of stockholders, directors
elected to succeed directors whose terms then expire will be elected for a
term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until
such person's successor is duly elected and qualified.
The Bylaws provide that, subject to any rights of holders of Preferred Stock
or any other series or class of stock to elect directors under specified
circumstances, the number of directors will be fixed from time to time
exclusively pursuant to a resolution adopted by directors constituting a
majority of the total number of directors that the Company would have if there
were no vacancies on the Board of Directors (the "Whole Board"), with the
Whole Board consisting of not more than twelve nor less than three directors.
The Bylaws also provide that, subject to any rights of holders of Preferred
Stock or any other series or class of stock, and unless the Board of Directors
otherwise determines, any vacancies will be filled only by the affirmative
vote of a majority of the remaining directors, even if less than a quorum.
Accordingly, absent an amendment to the Bylaws, the Board of Directors could
prevent any stockholder from enlarging the Board of Directors and filling the
new directorships with such stockholder's own nominees.
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The Certificate of Incorporation and Bylaws of the Company provide that,
subject to the rights of holders of Preferred Stock or any other series or
class of stock to elect directors under specified circumstances, effective as
of the Trigger Date, directors may be removed only for cause and only upon the
affirmative vote of holders of at least 80% of the voting power of all the
then outstanding shares of stock entitled to vote generally in the election of
directors ("Voting Stock"), voting together as a single class; provided
however, that prior to the Trigger Date, directors may be removed, without
cause, with the affirmative vote of the holders of at least a majority of the
voting power of the then outstanding Voting Stock, voting together as a class.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Board of
Directors. At least two annual meetings of stockholders, instead of one, will
generally be required to effect a change in a majority of the Board of
Directors. Such a delay may help ensure that the Company's directors, if
confronted by a holder attempting to force a proxy contest, a tender or
exchange offer, or an extraordinary corporate transaction, would have
sufficient time to review the proposal as well as any available alternatives
to the proposal and to act in what they believe to be the best interest of the
stockholders. The classification provisions will apply to every election of
directors, however, regardless of whether a change in the composition of the
Board of Directors would be beneficial to the Company and its stockholders and
whether or not a majority of the Company's stockholders believe that such a
change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its stockholders. The
classification of the Board of Directors could thus increase the likelihood
that incumbent directors will retain their positions. In addition, because the
classification provisions may discourage accumulations of large blocks of the
Company's stock by purchasers whose objective is to take control of the
Company and remove a majority of the Board of Directors, the classification of
the Board of Directors could tend to reduce the likelihood of fluctuations in
the market price of the Common Stock that might result from accumulations of
large blocks. Accordingly, stockholders could be deprived of certain
opportunities to sell their shares of Common Stock at a higher market price
than might otherwise be the case.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate of Incorporation and Bylaws of the Company provide that,
effective as of the Trigger Date, and subject to the rights of any holders of
Preferred Stock or any other series or class of stock to elect additional
directors under specified circumstances, stockholder action can be taken only
at an annual or special meeting of stockholders and stockholder action may not
be taken by written consent in lieu of a meeting. The Bylaws provide that,
subject to the rights of holders of any series of Preferred Stock to elect
additional directors under specified circumstances, special meetings of
stockholders can be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the Whole Board or the Chairman of the
Board; provided that, prior to the Trigger Date, special meetings can also be
called at the request of the holders of a majority of the voting power of the
then outstanding Voting Stock. Effective as of the Trigger Date, stockholders
are not permitted to call a special meeting or to require that the Board of
Directors call a special meeting of stockholders. Moreover, the business
permitted to be conducted at any special meeting of stockholders is limited to
the business brought before the meeting pursuant to the notice of meeting
given by the Company.
The provisions of the Certificate of Incorporation and Bylaws of the Company
prohibiting stockholder action by written consent and permitting special
meetings to be called only by the Chairman or at the request of a majority of
the Whole Board may have the effect, as of the Trigger Date, of delaying
consideration of a stockholder proposal until the next annual meeting. The
provisions would also prevent the holders of a majority of the voting power of
the Voting Stock from unilaterally using the written consent procedure to take
stockholder action. Moreover, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Chairman or a majority
of the Whole Board by calling a special meeting of stockholders prior to the
time such parties believe such consideration to be appropriate.
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ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The Company's Bylaws establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors or bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board of Directors, or by a
stockholder who has given timely written notice containing specified
information to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors of the
Company. The Stockholder Notice Procedure also provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Chairman or the Board of Directors or
by a stockholder who has given timely written notice containing specified
information to the Secretary of the Company of such stockholder's intention to
bring such business before such meeting. Under the Stockholder Notice
Procedure, for notice of stockholder nominations or proposals to be made at an
annual meeting to be timely, such notice must be received by the Company not
less than 90 days nor more than 120 days prior to the first anniversary of the
previous year's annual meeting (or, in the event that the date of the annual
meeting is advanced by more than 20 days or delayed by more than 70 days from
such anniversary date, not earlier than the 120th day prior to such meeting
and not later than the later of (x) the 90th day prior to such meeting and (y)
the 10th day after public announcement of the date of such meeting is first
made). Notwithstanding the foregoing, in the event that the number of
directors to be elected is increased and there is no public announcement
naming all of the nominees for director or specifying the size of the
increased Board of Directors made by the Company at least 100 days prior to
the first anniversary of the preceding year's annual meeting, a stockholder's
notice will be timely, but only with respect to nominees for any new positions
created by such increase, if it is received by the Company not later than the
10th day after such public announcement is first made by the Company. Under
the Stockholder Notice Procedure, for notice of a stockholder nomination to be
made at a special meeting at which directors are to be elected to be timely,
such notice must be received by the Company not earlier than the 120th day
before such meeting and not later than the later of (x) the 90th day prior to
such meeting and (y) the 10th day after public announcement of the date of
such meeting is first made. If the Chairman of the Board or other officer
presiding at a meeting determines at or prior to the meeting that a person was
not nominated or other business was not brought before the meeting in
accordance with the Stockholder Notice Procedure, such person will not be
eligible for election as a director, or such business will not be conducted at
such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Board of Directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Board of Directors, to inform stockholders about
such qualifications. By requiring advance notice of other proposed business,
the Stockholder Notice Procedure will also provide a more orderly procedure
for conducting annual meetings of stockholders and, to the extent deemed
necessary or desirable by the Board of Directors, will provide the Board of
Directors with an opportunity to inform stockholders, prior to such meetings,
of any business proposed to be conducted at such meetings, together with any
recommendations as to the Board of Directors' position regarding action to be
taken with respect to such business, so that stockholders can better decide
whether to attend such a meeting or to grant a proxy regarding the disposition
of any such business.
Although the Bylaws do not give the Board of Directors any power to approve
or disapprove stockholder nominations for the election of directors or
proposals for action, they may have the effect of precluding a contest for the
election of directors or the consideration of stockholder proposals if the
proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the Company and its stockholders.
The Stockholder Notice Procedure does not apply to EDS and its affiliates
prior to the Trigger Date.
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AMENDMENTS
The Certificate of Incorporation and Bylaws require that, effective as of
the Trigger Date, any amendment to the provisions of the Bylaws or to certain
provisions of the Certificate of Incorporation, including those provisions
discussed above, must be approved by the holders of at least 80% of the Voting
Stock. This requirement, as of the Trigger Date, will prevent a stockholder
with only a majority of the Common Stock from avoiding the requirements of the
provisions discussed above by amending or repealing such provisions. The
Certificate of Incorporation further provides that the Bylaws may be amended
by the Company's Board of Directors.
LIABILITY OF DIRECTORS; INDEMNIFICATION
The Certificate of Incorporation provides that a director will not be
personally liable for monetary damages to the Company or its stockholders for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for paying a dividend or
approving a stock repurchase in violation of Section 174 of the DGCL or (iv)
for any transaction from which the director derived an improper personal
benefit. Any amendment or repeal of such provision shall not adversely affect
any right or protection of a director existing under such provision for any
act or omission occurring prior to such amendment or repeal.
The Bylaws provide that the Company will indemnify any person who was or is
a party to any threatened, pending or completed action, suit or proceeding
because he or she is or was a director or officer of the Company, or is or was
serving at the request of the Company as a director or officer of another
corporation, partnership or other enterprise. The Bylaws provide that this
indemnification will be from and against expenses, judgments, fines and
amounts paid in settlement by the indemnitee. However, this indemnification
will only be provided if the indemnitee acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the Company.
CORPORATE OPPORTUNITY AND CONFLICT OF INTEREST POLICIES
In order to address certain potential conflicts of interest between the
Company and EDS, the Certificate of Incorporation contains provisions
concerning the conduct of certain affairs of the Company as they may involve
EDS and its subsidiaries (other than the Company and its subsidiaries) and
their respective officers and directors, and the powers, rights, duties and
liabilities of the Company and its subsidiaries and their respective officers,
directors and stockholders in connection therewith. In general, these
provisions recognize that the Company and EDS and their respective
subsidiaries may engage in the same or similar business activities and lines
of business and have an interest in the same areas of corporate opportunities
and that the Company and EDS and their subsidiaries will continue to have
contractual and business relations with each other (including service of
officers and directors of EDS as directors of the Company). See "Management--
Directors and Executive Officers."
For purposes of these provisions, the terms "Company" and "EDS" include
their subsidiaries and other entities in which they respectively beneficially
own, directly or indirectly, 50 percent or more of the outstanding voting
securities or interests (except that "EDS" does not include the Company and
its subsidiaries and such other entities), and, in the case of EDS, all
successors to EDS by way of merger, consolidation or sale of all or
substantially all its assets.
The Certificate of Incorporation provides that any person purchasing or
otherwise acquiring any interest in any shares of capital stock of the Company
shall be deemed to have notice of and to have consented to these provisions.
Corporate Opportunity Policy. The Certificate of Incorporation provides
that, except as EDS may otherwise agree in writing, EDS will have the right
(i) to engage in the same or similar business activities or lines of business
as the Company, (ii) to do business with any potential or actual client,
customer or supplier of
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the Company and (iii) to employ or engage any officer or employee of the
Company. Neither EDS nor any officer or director thereof will be liable to the
Company or its stockholders for breach of any fiduciary duty by reason of
these activities.
If EDS acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for both EDS and the Company, EDS will have no duty to
communicate that opportunity to the Company. Furthermore, EDS will not be
liable to the Company or its stockholders because EDS pursues or acquires that
corporate opportunity for itself, directs that corporate opportunity to
another person or entity or does not present that corporate opportunity to the
Company.
If a director or officer of the Company who is also a director or officer of
EDS acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for both the Company and EDS, the Certificate of
Incorporation requires that the director or officer of the Company act in good
faith in accordance with the following three-part policy, and a director or
officer so acting is deemed to have acted reasonably and in good faith and
fully to have satisfied his or her duties of loyalty and fiduciary duties to
the Company and its stockholders with respect to such opportunity.
First, a corporate opportunity offered to any person who is a director but
not an officer of the Company and who is also an officer (whether or not a
director) of EDS will belong to EDS, unless the opportunity is expressly
offered to that person primarily in his or her capacity as a director of the
Company, in which case the opportunity will belong to the Company.
Second, a corporate opportunity offered to any person who is an officer
(whether or not a director) of the Company and who is also a director but not
an officer of EDS will belong to the Company, unless the opportunity is
expressly offered to that person primarily in his or her capacity as a
director of EDS, in which case the opportunity will belong to EDS.
Third, a corporate opportunity offered to any other person who is either an
officer of both the Company and EDS or a director of both the Company and EDS
will belong to EDS or to the Company, as the case may be, if the opportunity
is expressly offered to the person primarily in his or her capacity as an
officer or director of EDS or of the Company, respectively. Otherwise, the
opportunity will belong to EDS.
Under the Certificate of Incorporation, any corporate opportunity that
belongs to EDS or to the Company pursuant to the foregoing policy will not be
pursued by the other (or directed by the other to another person or entity)
unless and until EDS or the Company, as the case may be, determines not to
pursue the opportunity. If the party to whom the corporate opportunity belongs
does not, however, within a reasonable period of time, begin to pursue, or
thereafter continue to pursue, such opportunity diligently and in good faith,
the other party may pursue such opportunity (or direct it to another person or
entity).
A director or officer of the Company who acts in accordance with the
foregoing three-part policy: (i) will be deemed fully to have satisfied his or
her fiduciary duties to the Company and its stockholders with respect to such
corporate opportunity; (ii) will not be liable to the Company or its
stockholders for any breach of fiduciary duty by reason of the fact that EDS
pursues or acquires such opportunity for itself or directs such corporate
opportunity to another person or does not communicate information regarding
such opportunity to the Company; (iii) will be deemed to have acted in good
faith and in a manner he or she reasonably believes to be in the best
interests of the Company; and (iv) will be deemed not to have breached his or
her duty of loyalty to the Company or its stockholders and not to have derived
an improper benefit therefrom.
Under the Certificate of Incorporation, "corporate opportunities"
potentially allocable to the Company consist of business opportunities which
(i) the Company is financially able to undertake; (ii) are, from their nature,
in the Company's line or lines of business and are of practical advantage to
the Company; and (iii) are ones in which the Company has an interest or
reasonable expectancy.
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In addition, "corporate opportunities" do not include transactions in which
the Company or EDS is permitted to participate pursuant to any agreement
between the Corporation and EDS that is in effect as of the time any equity
security of the Company is held of record by any person other than EDS or
subsequently entered into with the approval of the Disinterested Directors.
For purposes of these corporate opportunity provisions, a director of the
Company who is chairman of the Board of Directors (or a committee thereof) or
chief executive officer will not be deemed to be an officer of the Company by
reason of holding such position, unless such person is a full-time employee of
the Company.
Conflict of Interests Policy. The Certificate of Incorporation provides that
no contract, agreement, arrangement or transaction between the Company and EDS
or any customer or supplier or any entity in which a director of the Company
has a financial interest (a "Related Entity"), or between the Company and one
or more of the directors or officers of the Company, EDS or any Related
Entity, or any amendment, modification or termination thereof, will be
voidable solely because EDS or such customer or supplier, any Related Entity,
or any one or more of the officers or directors of the Company, EDS or any
Related Entity are parties thereto, or solely because any such directors or
officers are present at or participate in the meeting of the Board of
Directors or committee thereof which authorizes the contract, agreement,
arrangement, transaction, amendment, modification or termination (each, a
"Transaction") or solely because their votes are counted for such purpose, if
a specified standard is satisfied. That standard will be satisfied, and EDS,
the Related Entity and the directors and officers of the Company, EDS or the
Related Entity (as applicable) will be deemed to have acted reasonably and in
good faith (to the extent such standard is applicable to such person's
conduct) and fully to have satisfied any duties of loyalty and fiduciary
duties they may have to the Company and its stockholders with respect to such
transaction if any of the following four requirements are met:
(i) the material facts as to the Transaction are disclosed or known to
the Board of Directors or the committee thereof that authorizes the
Transaction, and the Board of Directors or such committee in good faith
approves the Transaction by a majority of the Disinterested Directors on
the Board of Directors or such committee, even if the Disinterested
Directors are less than a quorum;
(ii) the material facts as to the Transaction are disclosed or known to
the holders of Voting Stock entitled to vote thereon, and the Transaction
is specifically approved by vote of the holders of a majority of the then
outstanding Voting Stock not owned by EDS or such Related Entity, voting
together as a single class;
(iii) the Transaction is effected pursuant to guidelines which are in
good faith approved by a majority of the Disinterested Directors on the
Board of Directors or the applicable committee thereof or by vote of the
holders of a majority of the then outstanding Voting Stock not owned by EDS
or such Related Entity, voting together as a single class; or
(iv) the Transaction is fair to the Company as of the time it is approved
by the Board of Directors, a committee thereof or the stockholders of the
Company.
The Certificate of Incorporation also provides that any such Transaction
authorized, approved or effected, and each of such guidelines so authorized or
approved, as described in (i), (ii) or (iii) above, shall be deemed to be
entirely fair to the Company and its stockholders; provided that, if such
authorization or approval is not obtained, or such Transaction is not so
effected, no presumption shall arise that such Transaction or guideline is not
fair to the Company and its stockholders. In addition, the Certificate of
Incorporation provides that EDS shall not be liable to the Company or its
stockholders for breach of any fiduciary duty that EDS may have by reason of
the fact that EDS takes any action in connection with any transaction between
EDS and the Company.
Effective as of the Trigger Date, the affirmative vote of the holders of
more than 80 percent of the outstanding Voting Stock, voting together as a
single class, will be required to alter, amend or repeal any of these conflict
of interest or corporate opportunity provisions in a manner adverse to the
interests of EDS.
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RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The Certificate of Incorporation authorizes the Board of Directors to create
and issue rights entitling the holders thereof to purchase from the Company
shares of capital stock or other securities or property. The times at which
and terms upon which such rights are to be issued would be determined by the
Board of Directors and set forth in the contracts or instruments that evidence
such rights. The authority of the Board of Directors with respect to such
rights includes, but is not limited to, determination of (i) the purchase
price of the capital stock to be purchased upon exercise of such rights; (ii)
provisions relating to the times at which and the circumstances under which
such rights may be exercised or sold or otherwise transferred, either together
with or separately from, any other stock or other securities of the Company;
(iii) provisions which adjust the number or exercise price of such rights or
amount or nature of the stock receivable upon exercise of such rights in the
event of a combination, split or recapitalization of any stock of the Company,
a change in ownership of the Company's stock or other securities or a
reorganization, merger, consolidation, sale of assets or other occurrence
relating to the Company or any stock of the Company, and provisions
restricting the ability of the Company to enter into any such transaction
absent an assumption by the other party or parties thereto of the obligations
of the Company under such rights; (iv) provisions which deny the holder of a
specified percentage of the outstanding securities of the Company the right to
exercise such rights and cause such rights held by such holder to become void;
(v) provisions which permit the Company to redeem or exchange such rights; and
(vi) the appointment of the rights agent with respect to such rights. This
provision is intended to confirm the authority of the Board of Directors to
issue such share purchase rights or other rights to purchase stock or
securities of the Company or any other corporation.
LISTING
The Class A Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "UGS," subject to official notice of issuance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices.
Upon completion of the Offering, the Company will have 5,735,000 shares of
Class A Common Stock issued and outstanding (6,595,250 if the U.S.
Underwriters' over-allotment option is exercised in full) and 31,265,000
shares of Class B Common Stock issued and outstanding. All of the shares of
Class A Common Stock to be sold in the Offering will be freely tradable
without restrictions or further registration under the Securities Act, except
that shares purchased by an "affiliate" of the Company (as that term is
defined in Rule 144) will be subject to the resale limitations of Rule 144.
All of the outstanding shares of Class B Common Stock are owned by EDS and
have not been registered under the Securities Act and may not be sold in the
absence of an effective registration statement under the Securities Act other
than in accordance with Rule 144 or another exemption from registration
("Restricted Shares"). Restricted Shares will become eligible for resale in
the public market at various dates in the future.
The Restricted Shares will constitute "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act and will be eligible
for sale in the open market after the Offering subject to the contractual
lockup provisions and applicable requirements of Rule 144 described below. In
addition, for as long as EDS is able to cause a majority of the Company's
Board of Directors to be elected, it will be able to cause the Company at any
time to register under the Securities Act all or a portion of the Common Stock
owned by it, in which event such shares could be sold publicly upon the
effectiveness of any such registration without
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restriction. EDS may also, at any time following the contractual lockup
provisions described below, sell any or all of the Class B Common Stock in a
private placement without regard to the Rule 144 restrictions described below.
In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed between the later of the date on which "restricted
shares" (as that phrase is defined in Rule 144) were acquired from the Company
and the date on which they were acquired from an "affiliate" of the Company
(an "Affiliate," as that term is defined in Rule 144), then the holder of such
restricted shares (including an Affiliate) is entitled to sell a number of
shares within any three-month period that does not exceed the greater of (i)
one percent of the then outstanding shares of the Common Stock or (ii) the
average weekly reported volume of trading of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements pertaining to the manner of such sales, notices of such
sales and the availability of current public information concerning the
Company. Affiliates may sell shares not constituting restricted shares in
accordance with the foregoing volume limitations and other requirements but
without regard to the one-year period. Under Rule 144(k), if a period of at
least two years has elapsed between the later of the date on which restricted
shares were acquired from the Company and the date on which they were acquired
from an Affiliate, a holder of such restricted shares who is not an Affiliate
at the time of the sale and has not been an Affiliate for at least three
months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
The foregoing description of Rule 144 is not intended to be a complete
description thereof.
Sales of significant amounts of the Class A Common Stock, or the perception
that such sales could occur, could have an adverse impact on the market price
of the Class A Common Stock. Each of the Company and its directors, executive
officers and EDS has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 180 days after the date of this Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly,
any shares of Class A Common Stock or any securities convertible into or
exercisable or exchangeable for Class A Common Stock or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in part, any
of the economic consequences of ownership of the Class A Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Class A Common Stock or such other securities, in cash or
otherwise. The restrictions described in this paragraph do not apply to (w)
the sale of Shares to the Underwriters, (x) the issuance of options, SARs or
shares of Class A Common Stock granted pursuant to the 1998 Incentive Plan,
(y) the issuance by the Company of shares of Class A Common Stock upon the
exercise of an option or a warrant or the conversion of a security outstanding
on the date of this Prospectus of which the Underwriters have been advised in
writing or (z) transactions by any person other than the Company relating to
shares of Class A Common Stock or other securities acquired in open market
transactions after the completion of the offering of the Shares. See
"Underwriters."
The Company and EDS are also parties to the Registration Rights Agreement
pursuant to which EDS may demand registration under the Securities Act of
shares of the Company's capital stock held by it at any time subject to its
agreement not to sell any shares prior to the expiration of 180 days from the
date of this Prospectus. So long as EDS owns capital stock of the Company
representing more than 20% of the total voting power of all classes of stock
of the Company outstanding, EDS may exercise this "demand registration" at any
time and on an unlimited number of occasions. Transferees of EDS (and EDS upon
a reduction in its ownership to less than 20% of the voting power) may only
exercise this demand registration right three times. If EDS owns less than 50%
of the total voting power of all classes of stock of the Company outstanding,
the Company may postpone a demand registration under certain customary
circumstances. In addition, at any time prior to the tenth anniversary of the
date of the Registration Rights Agreement, EDS may request the Company to
include shares of the Company's capital stock held by it in any registration
proposed by the Company of such capital stock under the Securities Act. The
Registration Rights Agreement contains provisions regarding the pro rata
payment of expenses by the Company and EDS and regarding mutual
indemnification agreements between the Company and EDS for certain securities
laws violations.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES FOR NON-UNITED STATES HOLDERS
The following is a general summary of certain United States federal income
and estate tax consequences expected to result under current law from the
purchase, ownership and taxable disposition of Class A Common Stock by a
person or entity other than (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any state thereof, (iii) an estate,
the income of which is subject to United States federal income taxation
regardless of its source or (iv) a trust whose administration is subject to
the primary supervision of a United States court and which has one or more
United States persons who have the authority to control all substantial
decisions of the trust (a "Non-U.S. Holder"). This summary does not address
all of the United States federal income and estate tax considerations that may
be relevant to a Non-U.S. Holder in light of its particular circumstances or
to Non-U.S. Holders that may be subject to special treatment under United
States federal income tax laws (such as insurance companies, tax-exempt
organizations, financial institutions, brokers, and dealers in securities).
Furthermore, this summary does not discuss any aspects of state, local or
foreign taxation. This summary is based on current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations, judicial
opinions, published positions of the United States Internal Revenue Service
(the "IRS") and other applicable authorities, all of which are subject to
change, possibly with retroactive effect. Each prospective purchaser of Class
A Common Stock is advised to consult its tax advisor with respect to the tax
consequences of acquiring, holding and disposing of Class A Common Stock.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Class A Common Stock generally will
be subject to withholding of United States federal income tax at a 30 percent
rate (or such lower rate as may be specified by an applicable income tax
treaty) unless the dividends are effectively connected with the conduct of a
trade or business of the Non-U.S. Holder within the United States (and, if an
income tax treaty applies, is applicable to a United States permanent
establishment of the Non-United States Holder) and the Non-United States
Holder provides the payor with proper documentation (generally I.R.S. Form
4224 or any successor form), in which case the dividends will be taxed at
ordinary United States federal income tax rates and will not be subject to the
withholding tax described above. If the Non-U.S. Holder is a corporation, such
effectively connected income may also be subject to an additional "branch
profits tax" which is imposed, under certain circumstances, at a rate of 30%
(or such lower rate as may be specified by an applicable treaty) of the Non-
United States corporation's "effectively connected earnings and profits,"
subject to certain adjustments.
SALE OR DISPOSITION OF CLASS A COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other disposition
of Class A Common Stock unless (i) the gain is effectively connected with a
trade or business of the Non-U.S. Holder in the United States; (ii) in the
case of a Non-U.S. Holder who is an individual and holds the Class A Common
Stock as a capital asset, (a) such holder is present in the United States for
183 or more days in the taxable year of the disposition and (b) such holder
has a "tax home" in the United States for United States federal income tax
purposes or maintains an office or other fixed place of business in the United
States to which such gain is attributable; (iii) the Non-U.S. Holder is
subject to tax pursuant to the provisions of United States federal income tax
law applicable to certain United States expatriates whose loss of U.S.
citizenship has as one of its principal purposes the avoidance of U.S. taxes;
or (iv) the Company becomes a U.S. real property holding corporation and
either (a) the Class A Common Stock ceases to be "regularly traded on an
established securities market" for United States federal income tax purposes
or (b) the Non-U.S. Holder has held, directly or indirectly, at any time
during the five-year period ending on the date of disposition (or, if shorter,
the Non-U.S. Holder's holding period), more than 5 percent of all of the
Company's outstanding Common Stock. The Company is not, and does not
anticipate becoming, a U.S. real property holding company.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the amount, if any, of tax
withheld with respect to such dividends. This information may also be made
available to the tax authorities in the Non-U.S. Holder's country of
residence.
United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting
requirements) generally will not apply to dividends paid to Non-United States
Holders if such dividends are subject to the 30% withholding discussed above
(or that are not so subject because a tax treaty applies that reduces or
eliminates such 30% withholding). In the case of dividends which are not
described in the preceding sentence, backup withholding would still not apply
(i) under current law, if such dividends are paid before January 1, 2000 to a
Non-United States Holder at an address outside of the United States or (ii)
under recently promulgated final United States Treasury regulations which are
to become effective as of January 1, 2000, if certain certification procedures
(or, in the case of payments made outside the United States with respect to an
offshore account, certain documentary evidence procedures) are satisfied.
Upon the sale or other taxable disposition of Class A Common Stock by a Non-
U.S. Holder to or through a United States office of a broker, the broker must
backup withhold at a rate of 31 percent and report the sale to the IRS, unless
the holder certifies its non-U.S. status under penalties of perjury or
otherwise establishes exemption. Upon the sale or other taxable disposition of
Class A Common Stock by a Non-U.S. Holder to or through the foreign office of
a United States broker, or a foreign broker with certain types of
relationships to the United States, the broker must report the sale to the IRS
(but, prior to January 1, 2000, is probably not required to backup withhold)
unless the broker has documentary evidence in its files that the seller is a
Non-U.S. Holder and certain other conditions are met, or the holder otherwise
establishes an exemption. A sale or other taxable disposition of Class A
Common Stock by a Non-U.S. Holder to or through the foreign office of a
foreign broker that does not have certain types of relationships to the United
States is generally not subject to either information reporting or backup
withholding.
Backup withholding is not an additional U.S. federal income tax. Amounts
withheld under the backup withholding rules are generally allowable as a
refund or credit against such Non-U.S. Holder's United States federal income
tax liability, if any, provided that the required information is furnished to
the IRS.
FEDERAL ESTATE TAXES
Class A Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for United States federal estate tax
purposes) of the United States at the time of death will be included in such
individual's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC and
J.P. Morgan Securities Inc. are acting as U.S. Representatives, and the
International Underwriters named below for whom Morgan Stanley & Co.
International Limited, Donaldson, Lufkin & Jenrette Securities Corporation,
Hambrecht & Quist LLC and J.P. Morgan Securities Ltd. are acting as
International Representatives, have severally agreed to purchase, and the
Company has agreed to sell to them, severally, the respective number of shares
of Class A Common Stock set forth opposite the names of such Underwriters
below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated................................
Donaldson, Lufkin & Jenrette Securities Corporation..............
Hambrecht & Quist LLC............................................
J.P. Morgan Securities Inc.......................................
---------
Subtotal....................................................... 4,588,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited.......................
Donaldson, Lufkin & Jenrette Securities Corporation..............
Hambrecht & Quist LLC............................................
J.P. Morgan Securities Ltd.......................................
---------
Subtotal....................................................... 1,147,000
---------
Total........................................................ 5,735,000
=========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain
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legal matters by their counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all of the shares of Class A
Common Stock offered hereby (other than those covered by the U.S.
Underwriters' over-allotment option described below) if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as hereinafter defined) for the account of
anyone other than a United States or Canadian Person (as hereinafter defined)
and (ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any Shares or distribute any prospectus relating to the Shares
outside the United States or Canada or to anyone other than a United States or
Canadian Person. Pursuant to the Agreement between U.S. and International
Underwriters, each International Underwriter has represented and agreed that,
with certain exceptions: (i) it is not purchasing any Shares for the account
of any United States or Canadian Person and (ii) it has not offered or sold,
and will not offer or sell, directly or indirectly, any Shares or distribute
any prospectus relating to the Shares in the United States or Canada or to any
United States or Canadian Person. With respect to any Underwriter that is a
U.S. Underwriter and an International Underwriter, the foregoing
representations and agreements (i) made by it in its capacity as a U.S.
Underwriter apply only to it in its capacity as a U.S. Underwriter and (ii)
made by it in its capacity as an International Underwriter apply only to it in
its capacity as an International Underwriter. The foregoing limitations do not
apply to stabilization transactions or to certain other transactions specified
in the Agreement between U.S. and International Underwriters. As used herein,
"United States or Canadian Person" means any national or resident of the
United States or Canada, or any corporation, pension, profit-sharing or other
trust or other entity organized under the laws of the United States or Canada
or of any political subdivision thereof (other than a branch located outside
the United States and Canada of any United States or Canadian Person), and
includes any United States or Canadian branch of a person who is otherwise not
a United States or Canadian Person. All shares of Class A Common Stock to be
purchased by the Underwriters under the Underwriting Agreement are referred to
herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing
such Shares, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Shares
in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such Shares a notice containing substantially the same statement as is
contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell, any Shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning
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of the Public Offers of Securities Regulations 1995; (ii) it has complied and
will comply with all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the Shares in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received
by it in connection with the offering of the Shares to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each International Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such Shares, directly
or indirectly, in Japan or to or for the account of any resident thereof
except for offers or sales to Japanese International Underwriters or dealers
and except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Class A Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
860,250 additional shares of Class A Common Stock at the public offering price
set forth on the cover page hereof, less underwriting discounts and
commissions. The U.S. Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Class A Common Stock offered hereby. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Class A Common Stock as the number set forth next to such
U.S. Underwriter's name in the preceding table bears to the total number of
shares of Class A Common Stock set forth next to the names of all U.S.
Underwriters in the preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Class A Common Stock offered by them.
The Class A Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "UGS," subject to official notice of issuance.
Each of the Company and its directors and executive officers and EDS has
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of this Prospectus, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Class
A Common Stock or any securities convertible into or exercisable or
exchangeable for Class A Common Stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Class A Common Stock, whether any
such transaction described in clause (i) or (ii) above is to be settled by
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delivery of Class A Common Stock or such other securities, in cash or
otherwise. The restrictions described in this paragraph do not apply to (w)
the sale of Shares to the Underwriters, (x) the issuance of options, SARs or
shares of Class A Common Stock granted pursuant to the 1998 Incentive Plan,
(y) the issuance by the Company of shares of Class A Common Stock upon the
exercise of an option or a warrant or the conversion of a security outstanding
on the date of this Prospectus of which the Underwriters have been advised in
writing or (z) transactions by any person other than the Company relating to
shares of Class A Common Stock or other securities acquired in open market
transactions after the completion of the offering of the Shares.
In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters
may over-allot in connection with the offering, creating a short position in
the Class A Common Stock for their own account. In addition, to cover over-
allotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an Underwriter or a dealer for distributing the Class A
Common Stock in the offering, if the syndicate repurchases previously
distributed Class A Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Class A Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The Company and EDS and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be determined by
negotiations between the Company and the U.S. Representatives. Among the
factors to be considered in determining the initial public offering price will
be the future prospects of the Company and its industry in general, sales,
earnings and certain other financial operating information of the Company in
recent periods, and the price-earnings ratios, price-sales ratios, market
prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. The estimated
initial public offering price range set forth on the cover page of this
Preliminary Prospectus is subject to change as a result of market conditions
and other factors.
LEGAL MATTERS
The validity of the issuance of the shares of Class A Common Stock offered
by this Prospectus will be passed upon for the Company by Baker & Botts,
L.L.P., Dallas, Texas. Certain legal matters in connection with the sale of
the Class A Common Stock offered hereby will be passed upon for the
Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The financial statements and schedule of the Company as of December 31, 1996
and 1997 and for each of the years in the three-year period ended December 31,
1997 have been included in this Prospectus in reliance upon the reports of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of that firm as experts in auditing
and accounting.
The statements of assets sold and statements of revenues and direct expenses
of the Solid Edge/EMS Business as of December 31, 1996 and 1997 and for the
fiscal years ended December 31, 1995, 1996 and 1997 included in this
Prospectus have been audited by Ernst & Young LLP, independent auditors, as
stated in their report thereon appearing elsewhere herein, and are so included
in reliance on such report given upon the authority of that firm as experts in
auditing and accounting.
83
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to
the shares of Class A Common Stock offered by this Prospectus. This Prospectus
constitutes a part of the Registration Statement and does not contain all of
the information set forth in the Registration Statement, certain parts of
which are omitted from this Prospectus as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus regarding
the contents of any contract, agreement or other document are not necessarily
complete. With respect to each contract, agreement or other document filed
with the Commission as an exhibit to the Registration Statement, reference is
made to the exhibit for further information regarding the contents thereof,
and each such statement is qualified in its entirety by such reference. For
further information regarding the Company and the shares of Class A Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits and schedules thereto.
The Registration Statement, including the exhibits and schedules thereto,
are available for inspection at, and copies of such materials may be obtained
at prescribed rates from, the public reference facilities maintained by the
Commission at its principal offices located at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its regional offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60601 and 7 World Trade Center, New York, New York 10048. The
Commission also makes electronic filings publicly available on the Internet at
http://www.sec.gov and the Registration Statement, including the exhibits and
schedules thereto, may be inspected at such site.
The Company is not currently subject to the informational requirements of
the Exchange Act. As a result of the Offering, the Company will become subject
to the informational requirements of the Exchange Act. The Company will
fulfill its obligations with respect to such requirements by filing periodic
reports and other information with the Commission. In addition, the Company
intends to furnish to its stockholders annual reports containing consolidated
financial statements examined by an independent public accounting firm.
84
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF UNIGRAPHICS SOLUTIONS INC.
Report of Independent Auditors.......................................... F-2
Statements of Operations for the Years Ended December 31, 1995, 1996 and
1997 and Three Months Ended March 31, 1997 and 1998 (Unaudited)........ F-3
Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998
(Unaudited)............................................................ F-4
Statements of Stockholder's Equity/Net Investment for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months Ended March 31,
1998 (unaudited)....................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997 and the Three Months Ended March 31, 1997 and 1998 (Unaudited).... F-6
Notes to Financial Statements........................................... F-7
FINANCIAL STATEMENTS OF THE SOLID EDGE AND ENGINEERING MODELING SYSTEMS
SOFTWARE PRODUCT LINES OF INTERGRAPH CORPORATION
Report of Independent Auditors.......................................... F-21
Statements of Assets Sold as of December 31, 1996 and 1997.............. F-22
Statements of Revenues and Direct Expenses for the Years Ended December
31, 1995, 1996 and 1997................................................ F-23
Notes to Statements of Assets Sold and Statements of Revenues and Direct
Expenses............................................................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Electronic Data Systems Corporation:
We have audited the accompanying balance sheets of Unigraphics Solutions
Inc., a subsidiary of Electronic Data Systems Corporation, as of December 31,
1996 and 1997, and the related statements of operations and stockholder's
equity/net investment, and cash flows for each of the years in the three-year
period ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Unigraphics Solutions Inc.
as of December 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1997 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 6, 1998
F-2
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software....................... $ 89,103 $209,480 $115,479 $26,236 $ 31,560
Services....................... 111,575 121,528 137,794 30,547 37,885
Hardware....................... 66,944 83,201 61,320 12,344 17,083
-------- -------- -------- ------- --------
Total revenue................ 267,622 414,209 314,593 69,127 86,528
-------- -------- -------- ------- --------
Cost of revenue:
Software:
Amortization.................. 14,641 14,808 14,754 3,672 4,596
Royalties, distribution and
other........................ 12,854 23,677 13,199 2,785 3,277
Services....................... 34,328 41,721 57,059 13,759 14,726
Hardware....................... 47,242 59,614 44,112 8,391 13,906
-------- -------- -------- ------- --------
Total cost of revenue........ 109,065 139,820 129,124 28,607 36,505
-------- -------- -------- ------- --------
Gross profit..................... 158,557 274,389 185,469 40,520 50,023
-------- -------- -------- ------- --------
Operating expenses:
Selling, general and
administrative................ 85,031 92,444 102,759 22,934 27,229
Research and development....... 43,654 47,166 47,979 10,945 14,288
In-process research and
development................... -- -- -- -- 42,468
-------- -------- -------- ------- --------
Total operating expenses..... 128,685 139,610 150,738 33,879 83,985
-------- -------- -------- ------- --------
Operating income (loss)...... 29,872 134,779 34,731 6,641 (33,962)
Other income, net................ 129 106 5,092 11 9,692
-------- -------- -------- ------- --------
Income (loss) before income
taxes....................... 30,001 134,885 39,823 6,652 (24,270)
Provision for income taxes....... 11,625 51,549 14,810 2,473 (10,187)
-------- -------- -------- ------- --------
Net income (loss)............ $ 18,376 $ 83,336 $ 25,013 $ 4,179 $(14,083)
======== ======== ======== ======= ========
Pro forma net earnings (loss) per
share (Note 11)................. $ -- $ -- $ 0.68 $ 0.11 $ (0.38)
======== ======== ======== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...................... $ 1 $ 11 $ 14,624
Marketable securities.......................... -- 2,685 10,311
Accounts receivable, net....................... 171,427 115,692 110,236
Prepaids and other............................. 1,809 3,624 5,450
-------- -------- --------
Total current assets......................... 173,237 122,012 140,621
Property and equipment, net...................... 18,380 19,821 20,718
Software, and other intangibles, net............. 39,589 24,957 84,366
Deferred tax asset............................... -- -- 8,886
-------- -------- --------
Total assets................................. $231,206 $166,790 $254,591
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY/NET
INVESTMENT
Current liabilities
Accounts payable and accrued liabilities....... $ 45,203 $ 41,759 $ 51,864
Deferred revenue............................... 7,740 7,798 10,295
Income taxes payable........................... -- -- 9,477
Deferred income taxes--current................. 32,459 19,497 20,764
-------- -------- --------
Total current liabilities.................... 85,402 69,054 92,400
Intercompany credit agreement (Note 10).......... -- -- 83,055
Intercompany note (Note 10)...................... -- -- 73,000
Deferred income taxes............................ 13,657 9,386 --
Commitments and contingent liabilities
Stockholder's equity/net investment:
Preferred stock, $.01 par value, 20,000,000
shares authorized, none issued................ -- -- --
Class A common stock, $.01 par value,
168,735,000 shares authorized, none issued.... -- -- --
Class B common stock, $.01 par value,
31,265,000 shares authorized, issued and
outstanding at March 31, 1998--(Note 10)...... -- -- 313
Additional paid-in-capital (Note 10)........... -- -- 85,627
Retained earnings (deficit).................... -- -- (87,083)
Accumulated other comprehensive income......... 1,060 2,410 7,279
Stockholder's net investment................... 131,087 85,940 --
-------- -------- --------
Total stockholder's equity/net investment.... 132,147 88,350 6,136
-------- -------- --------
Total liabilities and stockholder's
equity/net investment....................... $231,206 $166,790 $254,591
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
STATEMENTS OF STOCKHOLDER'S EQUITY/NET INVESTMENT
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THE THREE MONTHS
ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER RETAINED STOCKHOLDER'S
COMPREHENSIVE CLASS B PAID-IN- COMPREHENSIVE EARNINGS NET
INCOME (LOSS) COMMON STOCK CAPITAL INCOME (DEFICIT) INVESTMENT
------------- ------------ ---------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $ -- $ -- $ 526 $ -- $106,746
Net advances to
affiliates............. -- -- -- -- (35,882)
Foreign currency
translation............ $ 1,004 -- -- 1,004 -- --
Net income.............. 18,376 -- -- -- -- 18,376
-------- ----- ------- ------ -------- --------
Comprehensive income.... $ 19,380
========
Balance at December 31,
1995................... -- -- 1,530 -- 89,240
Net advances to
affiliates............. -- -- -- -- (41,489)
Foreign currency
translation............ $ (470) -- -- (470) -- --
Net income.............. 83,336 -- -- -- -- 83,336
-------- ----- ------- ------ -------- --------
Comprehensive income.... $ 82,866
========
Balance at December 31,
1996 -- -- 1,060 -- 131,087
Net advance to
affiliates............. -- -- -- -- (70,160)
Foreign currency
translation............ $ (395) -- -- -- -- --
Unrealized gain on
marketable security.... 1,745 -- -- -- -- --
--------
Other comprehensive
income................. 1,350 -- -- 1,350 -- --
Net income.............. 25,013 -- -- -- -- 25,013
-------- ----- ------- ------ -------- --------
Comprehensive income.... $ 26,363
========
Balance at December 31,
1997................... -- -- 2,410 -- 85,940
Reorganization and
recapitalization....... 313 86,627 -- -- (85,940)
Dividend to parent...... -- -- -- (73,000) --
Foreign currency
translation............ $ (70) -- -- -- -- --
Unrealized gain on
marketable security.... 4,939 -- -- -- -- --
--------
Other comprehensive
income................. 4,869 -- -- 4,869 -- --
Net loss................ (14,083) -- -- -- (14,083) --
-------- ----- ------- ------ -------- --------
Comprehensive loss...... $ (9,214)
========
Balance at March 31,
1998 (unaudited)....... $ 313 $85,627 $7,279 $(87,083) $ --
===== ======= ====== ======== ========
Disclosure of
reclassification
amount:
Unrealized holding
gains arising during
the quarter ended
March 31, 1998........ $ 6,684
Less: reclassification
adjustment for gains
included in net
income................ (1,745)
--------
Net unrealized gains on
securities............ $ 4,939
========
</TABLE>
F-5
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income (loss)........ $ 18,376 $ 83,336 $ 25,013 $ 4,179 $ (14,083)
-------- -------- -------- --------- ---------
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Deferred income taxes.. 1,647 30,653 (18,174) (4,545) (19,664)
Depreciation and
amortization.......... 21,266 22,923 22,134 5,188 6,373
Allowance for bad
debts................. 2,994 1,251 2,425 337 181
Gain on sale of
marketable equity
securities............ -- -- (5,097) -- (10,124)
In process research and
development........... -- -- -- -- 42,468
Changes in operating
assets and
liabilities, net of
affect of acquired
company:
Accounts receivable.. 3,150 (98,952) 51,126 20,201 5,247
Prepaids and other... (1,523) 2,464 (1,783) (3,066) (1,463)
Accounts payable and
accrued
liabilities......... (3,190) 11,344 (1,630) (4,173) 8,149
Income taxes
payable............. -- -- -- -- 9,477
Deferred revenue..... 542 829 254 (155) 2,542
-------- -------- -------- --------- ---------
Total adjustments.. 24,886 (29,488) 49,255 13,787 43,186
-------- -------- -------- --------- ---------
Net cash provided by
operating activities.... 43,262 53,848 74,268 17,966 29,103
-------- -------- -------- --------- ---------
Cash Flows from Investing
Activities
Proceeds from sales of
marketable securities... -- -- 5,126 -- 10,145
Payments related to Solid
Edge acquisition........ -- -- -- -- (104,993)
Payments for purchases of
property and equipment.. (6,559) (12,319) (9,073) (1,558) (1,613)
Payments for purchases of
software and other
intangibles............. (821) (40) (122) (114) (840)
Payments for purchases of
marketable securities... -- -- (29) -- (51)
-------- -------- -------- --------- ---------
Net cash used in
investing activities.... (7,380) (12,359) (4,098) (1,672) (97,352)
-------- -------- -------- --------- ---------
Cash Flows from Financing
Activities--
Borrowings under
Intercompany Credit
Agreement............... -- -- -- -- 107,691
Payments on Intercompany
Credit Agreement........ -- -- -- -- (24,636)
Net advances to
affiliates.............. (35,882) (41,489) (70,160) (16,294) --
-------- -------- -------- --------- ---------
Net cash provided by
(used in) financing
activities.............. (35,882) (41,489) (70,160) (16,294) 83,055
-------- -------- -------- --------- ---------
Effect of exchange rates on
cash and cash
equivalents............... -- -- -- -- (193)
Net Increase in Cash and
Cash Equivalents.......... -- -- 10 -- 14,613
Cash and Cash Equivalents
at Beginning of Year...... 1 1 1 1 11
-------- -------- -------- --------- ---------
Cash and Cash Equivalents
at End of Year............ $ 1 $ 1 $ 11 $ 1 $ 14,624
======== ======== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Unigraphics Solutions Inc., a wholly owned subsidiary of Electronic Data
Systems Corporation ("EDS"), was incorporated under the laws of the state of
Delaware on October 2, 1997. Unigraphics Solutions Inc. is the successor to
the Unigraphics business of EDS (the "Division") which operated within several
business units of EDS through December 31, 1997. Unigraphics Solutions Inc.
develops, markets and supports mechanical computer-aided design ("CAD"),
computer-aided manufacturing ("CAM") and computer-aided engineering ("CAE")
software to customers in more than 20 countries. All references to the
"Company" in the notes to the financial statements refer to Unigraphics
Solutions Inc. and its predecessor businesses and divisions.
On January 1, 1998, EDS reorganized the business of the Division (the
"Reorganization"). As part of the Reorganization, the businesses of the
Division were combined under the Company. See Note 10 regarding transactions
related to the implementation of the Reorganization.
Basis of presentation
The accompanying financial statements have been prepared using EDS'
historical basis in the assets and liabilities of the Company. The financial
statements reflect the results of operations, financial condition and cash
flows of the Company as a component of EDS prior to the Reorganization and may
not be indicative of the actual results of operations and financial position
of the Company subsequent to the Reorganization. Management believes the
statements of operations include a reasonable allocation of administrative
costs, which are described in Note 2, incurred by EDS on behalf of the
Company.
All significant accounts and transactions among the Company's businesses
have been eliminated. For financial reporting purposes, the equity accounts of
the Company have been accumulated into a single disclosure caption entitled
Stockholder's Net Investment.
Marketable Securities
Marketable securities at December 31, 1997 consist of corporate equity
securities which are classified as available-for-sale. Management determines
the appropriate classification of all securities at the time of purchase and
reevaluates such designation as of each balance sheet date. The Company's
available-for-sale securities are recorded at fair value. Unrealized holding
gains, net of the related tax effect, of $1.7 million are excluded from net
income and included in Stockholder's Net Investment. A decline in the fair
value of any available-for-sale security below cost that is deemed other than
temporary is charged to earnings, resulting in the establishment of a new cost
basis for the security. Proceeds and realized gains from sales of marketable
securities totaled $5.1 million during the year ended December 31, 1997.
Specific identification is used to determine cost in computing gain or loss.
Inventory Valuation
Inventories, primarily consisting of computer equipment, are stated
principally at the lower of cost or market using the average cost method and
are included in prepaids and other current assets in the accompanying balance
sheet. The Company uses EDS' centralized inventory purchase system whereby
computer equipment is shipped directly from EDS or the vendor to the customer
and charged to the Company through an intercompany transaction. Included in
inventory are amounts for computer equipment which has been shipped to
customers and charged to the Company but not yet billed to customers.
F-7
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation of property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets. Depreciation expense
totaled $6.7 million, $8.1 million and $7.3 million during the years ended
December 31, 1995, 1996 and 1997, respectively. The ranges of estimated useful
lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Facilities............................................................. 5-7
Computer equipment..................................................... 5
Other equipment and furniture.......................................... 5-7
</TABLE>
Software, and Other Intangibles
The Company capitalizes software development costs in compliance with
Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Capitalization of software development costs begins upon the establishment of
technological feasibility of the product. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
requires considerable judgment by management with respect to certain external
forces including, but not limited to, anticipated future gross product
revenue, estimated economic life and changes in software and hardware
technology. Amortization of capitalized software development costs begins when
the products are available for release to customers and is generally computed
on a straight-line basis over 3 years or, if less, the remaining estimated
economic life of the product. Software purchased by the Company, including
amounts allocated to software when the Company was acquired by EDS, and
utilized in designing software and operations is capitalized and amortized on
a straight-line basis over a five- to eight-year period.
In the accompanying statements of operations, amortization is included in
cost of software for capitalized software development costs and software
acquired in business combinations. Software purchased for internal use is
amortized to cost of software or selling, general and administrative expenses,
as determined by the nature of its use. Amortization of capitalized and
purchased software totaled $14.6 million, $14.8 million and $14.8 million
during the years ended December 31, 1995, 1996 and 1997, respectively.
Revenue Recognition
The Company's software products are licensed to customers through the
Company's direct sales force and by specific arrangements with certain
distributors, value-added resellers and other marketing representatives.
Revenue generated from licenses is recognized when the following criteria have
been met: (a) a written contract for the license of software has been
executed, (b) the Company or its representative has shipped the products and
fulfilled its contractual obligations to the customer, (c) the fee is fixed or
determinable, and (d) collectibility is probable. Revenues recognized but not
yet billed to customers total $103.1 million and $56.2 million, at December
31, 1996 and 1997, respectively. Unbilled revenue amounts recorded at December
31, 1997 and expected to be collected subsequent to 1998 total $18.9 million.
Revenue from maintenance contracts is recognized ratably over the term of
the agreement and is generally billed on a monthly basis. Deferred revenue is
recorded when upfront payments are received for annual maintenance
arrangements. Revenue from consulting, customer training and other services is
recognized as the service is performed.
F-8
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Cost of Revenue
The cost of software licenses primarily consists of the cost of distributing
the software products and an allocation of the amortization of capitalized
software development costs and royalty fees paid to third parties under
licensing agreements. Costs of maintenance and services primarily consist of
staff and related costs associated with the generation and support of software
service revenue and an allocation of the amortization of capitalized software
development costs and royalty fees paid to third parties under licensing
agreements. Management believes that the methodology for allocating the costs
is reasonable.
Currency Translation
Assets and liabilities of non-U.S. subsidiaries or divisions whose
functional currency is not the U.S. dollar are translated at current exchange
rates. Revenue and expense accounts are translated using an average rate for
the period. Translation gains (losses) are not included in determining net
income but are reflected as a component of Stockholder's Net Investment.
Cumulative currency translation adjustments included in Stockholder's Net
Investment were $1.1 million and $0.7 million at December 31, 1996 and 1997,
respectively. Foreign currency transaction gains (losses) were not material.
Income Taxes
The operations of the Company are included in EDS' consolidated income tax
returns. Current and deferred taxes have been allocated to the Company as if
taxes were computed on a stand-alone basis.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Tax benefits of operating losses and tax
credit carryforwards generated by the Company in foreign jurisdictions and
utilized by EDS to offset non-Company taxable income in such jurisdictions are
recognized by the Company as a reduction in Stockholder's Net Investment. See
Note 10 regarding the tax sharing agreement between the Company and EDS
effective January 1, 1998.
Statements of Cash Flows
The Company uses the indirect method to present cash flows from operating
activities and considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Financial Instruments
The carrying amounts of the Company's other financial instruments, including
cash and cash equivalents, trade accounts receivable, other current assets,
trade accounts payable, and accrued expenses approximate fair value because of
the short maturity of these instruments.
The carrying amount and fair value of the Company's available-for-sale
marketable securities was $2.7 million at December 31, 1997. The estimated
fair value of the securities is based upon quoted market prices.
F-9
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997, the Company also owned unvested warrants to purchase
447,091 shares of a public company for $0.11 per share. The warrants were
acquired in exchange for reduced royalty fees from a private software company
which was acquired by the public company in 1997. The warrants have a nominal
carrying value and vest over 8 years, or earlier if the acquired company's
revenues exceed predetermined amounts. The fair value of the underlying shares
to which these unvested warrants relate was $13.8 million at December 31,
1997.
Significant Customers
Effective July 1, 1996, the Company's parent, EDS, entered into a corporate
software license agreement with General Motors Corporation ("GM") which
provided for the delivery of various software products as well as the
provision of maintenance services for an initial term of three years. The
Company has agreed to perform EDS' obligation to provide products and services
under such agreement pursuant to a Memorandum of Understanding executed in
connection with the Reorganization.
During the years ended December 31, 1995, 1996 and 1997, the portion of
Company revenues attributable to GM was 14%, 34%, and 6%, respectively. Other
than GM, no single customer accounted for more than 10% of the Company's
revenues in 1995, 1996 or 1997. Accounts receivable, including amounts
unbilled, from GM accounted for 54% and 48% of total accounts receivable in
1996 and 1997, respectively.
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers constituting the Company's
customer base and their dispersion across different industry and geographic
areas. Accounts receivable are shown net of allowances of $4.9 million and
$5.4 million as of December 31, 1996 and 1997, respectively.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
During 1995 and the period from January 1, 1996 through June 30, 1996,
Company billings to GM were included in the billings of EDS under a master
agreement that, prior to EDS' split-off from GM, served as a framework for
individual services agreements between GM and EDS. Management has estimated
that the Company's portion of GM revenues for 1995 and 1996 under EDS' master
service agreement with GM were $36.6 million and $21.4 million, respectively,
based on the number of workstations installed with Unigraphics software during
the year and average price per installed seat. Management believes that this
estimate is reasonable.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less cost to sell.
F-10
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Interim Financial Information
The accompanying unaudited consolidated financial statements as of March 31,
1998 and for the three months ended March 31, 1997 and 1998 have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments
(consisting of only normal recurring items) which are necessary for a fair
presentation have been included. The results for interim periods are not
necessarily indicative of results which may be expected for any other interim
period or for the full year.
NOTE 2: RELATED PARTY TRANSACTIONS
The Company utilized central cash management systems of EDS to finance its
operations. Cash requirements were satisfied either by intercompany
transactions between EDS and the Company or by cash from operations. Such
intercompany transactions are included in the Stockholder's Net Investment
account in the balance sheets and as net cash advances to affiliates in the
statements of cash flows. Intercompany transactions between EDS and the
Company do not bear interest and therefore, no interest charge is reflected in
the accompanying statements of income. An analysis of the intercompany
activity included in the Stockholder's Net Investment account follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Purchases of inventory from EDS............ $ 47,242 $ 59,614 $ 44,112
Allocation of corporate services and em-
ployee benefits........................... 7,272 10,945 9,298
Other net payments/transfers to EDS
relating to normal cash management
activity.................................. (90,396) (112,048) (123,570)
-------- --------- ---------
Net advances to affiliates............... $(35,882) $ (41,489) $ (70,160)
======== ========= =========
</TABLE>
EDS provides services for the Company for management, accounting, human
resources, information systems, legal, taxes and other corporate activities.
Such corporate expenses amounting to $5.5 million, $8.6 million and $6.6
million have been allocated to the Company during the years ended December 31,
1995, 1996 and 1997, respectively, and are reflected in the accompanying
consolidated statements of operations as selling, general and administrative
expenses. These costs were allocated to the Company by multiplying Company
revenues by a standard overhead rate for each period presented. The standard
overhead rate was developed through analysis of actual services and related
estimated costs provided to the Company on a historical basis. However, the
costs of these transactions may differ from those that would result from
transactions with unrelated parties.
EDS has noncontributory defined benefit pension plans covering substantially
all of its employees, including employees of the Company. In general,
employees become fully vested upon attaining five years of service, and
benefits are based on years of service and earnings. The actuarial cost method
currently used is the projected unit credit cost method. EDS' U.S. funding
policy is to contribute amounts that fall within the range of deductible
contributions for federal income tax purposes.
F-11
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The weighted-average assumptions used for the EDS defined benefit pension
plans using a measurement date of October 1 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
------------------------
<S> <C> <C> <C>
Discount rate....................................... 8.0% 8.0% 7.3%
Rate of increase in compensation levels............. 5.4% 5.4% 5.5%
Long-term rate of return on assets.................. 9.9% 9.7% 10.1%
</TABLE>
Net pension cost consisted of the following components (in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost for the period.................. $ 87.6 $ 119.8 $ 135.8
Interest cost on projected benefit obliga-
tion........................................ 97.5 121.8 159.8
Actual return on assets...................... (158.6) (195.5) (458.0)
Net amortization and deferral................ 59.9 78.3 286.4
-------- -------- --------
Net pension cost............................. $ 86.4 $ 124.4 $ 124.0
======== ======== ========
</TABLE>
At December 31, 1996 and 1997, the assets of these plans consisted primarily
of equity and fixed income securities and U.S. government obligations. The
following is a reconciliation of the funded status of the EDS defined benefit
plans (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1997
------------------ -----------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED ACCUM. EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Plans' assets at fair value.......... $1,772.2 $ 8.0 $2,368.6 $ 8.3
Actuarial present value of benefit
obligation
Vested benefits.................... 1,178.5 86.6 1,570.7 91.0
Nonvested benefits................. 89.8 14.2 113.1 14.8
-------- ------- -------- -------
Accumulated benefit obligation....... 1,268.3 100.8 1,683.8 105.8
Effect of projected future salary
increases........................... 513.8 57.0 671.3 50.4
-------- ------- -------- -------
Projected benefit obligation......... 1,782.1 157.8 2,355.1 156.2
Excess (deficiency) of Plans' assets
over projected benefit obligation... (9.9) (149.8) 13.5 (147.9)
Unrecognized net (gain) loss......... 68.4 (15.3) 106.0 (7.8)
Unrecognized net (asset) obligation
at date of adoption................. (2.5) 22.2 0.4 17.2
Unrecognized prior service cost...... 10.5 (0.8) 9.2 (0.4)
-------- ------- -------- -------
Net prepaid (accrued) pension cost... $ 66.5 $(143.7) $ 129.1 $(138.9)
======== ======= ======== =======
</TABLE>
Costs related to these plans are allocated to the Company through an
intercompany transaction based on the ratio of total payroll dollars of the
Company to total payroll dollars of EDS for the employee groups of the
respective plans and are included in selling, general and administrative
expenses. During the years ended December 31, 1995, 1996 and 1997, the Company
recognized expense of $1.8 million, $2.4 million and $2.7 million,
respectively, for such pension coverage.
F-12
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
EDS has a deferred compensation plan which provides a long-term savings
program for U.S. employees, including employees of the Company. This plan
allows eligible employees to contribute a percentage of their compensation to
a savings program and to defer income taxes until the time of distribution.
EDS also offers a stock purchase plan which enables EDS employees to purchase
shares of EDS common stock at 85% of the quoted market price through payroll
deductions of up to 10% of their compensation.
Eligible employees of the Company participate in EDS' PerformanceShare Plan
which permits the granting of stock-based awards in the form of stock options
for up to 20.0 million shares of EDS common stock. In 1997, EDS granted to
employees options to acquire 14.1 million shares of EDS common stock, of which
0.2 million were issued to Company employees. The options vest after 10 years
of service, subject to accelerated vesting based on the appreciation in quoted
market price of the Company common stock. The exercise price of $37.375
equaled the quoted market price of EDS stock on the date of grant. EDS applies
the provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its plans. Therefore, no compensation costs
related to this grant are reflected in the historical financial statements of
the Company. If compensation cost for the PerformanceShare Plan had been
determined in accordance with the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's pro forma net income for the year
ended December 31, 1997 would not have been materially different from
historical amounts.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1997 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
ACCUMULATED
COST DEPRECIATION NET
------- ------------ -------
<S> <C> <C> <C>
Buildings and facilities....................... $ 4,036 $ 3,181 $ 855
Computer equipment............................. 45,106 29,279 15,827
Other equipment and furniture.................. 4,831 3,133 1,698
------- ------- -------
Total........................................ $53,973 $35,593 $18,380
======= ======= =======
<CAPTION>
DECEMBER 31, 1997
----------------------------
ACCUMULATED
COST DEPRECIATION NET
------- ------------ -------
<S> <C> <C> <C>
Buildings and facilities....................... $ 3,562 $ 3,070 $ 492
Computer equipment............................. 46,499 29,468 17,031
Other equipment and furniture.................. 5,048 2,750 2,298
------- ------- -------
Total........................................ $55,109 $35,288 $19,821
======= ======= =======
</TABLE>
F-13
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4: SOFTWARE AND OTHER INTANGIBLES
Software and other intangibles at December 31, 1996 and 1997 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
ACCUMULATED
COST AMORTIZATION NET
-------- ------------ -------
<S> <C> <C> <C>
Software.......................................... $133,711 $ 94,329 $39,382
Other intangibles................................. 483 276 207
-------- -------- -------
Total........................................... $134,194 $ 94,605 $39,589
======== ======== =======
<CAPTION>
DECEMBER 31, 1997
-----------------------------
ACCUMULATED
COST AMORTIZATION NET
-------- ------------ -------
<S> <C> <C> <C>
Software.......................................... $133,711 $109,016 $24,695
Other intangibles................................. 605 343 262
-------- -------- -------
Total........................................... $134,316 $109,359 $24,957
======== ======== =======
</TABLE>
NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1996 and 1997 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Accounts payable............................................... $ 4,624 $ 6,805
Accrued foreign value added tax................................ 5,253 5,453
Accrued compensation........................................... 6,717 6,132
Accrued expenses............................................... 28,609 23,369
------- -------
Total........................................................ $45,203 $41,759
======= =======
</TABLE>
NOTE 6: INCOME TAXES
Income taxes related to the Company were allocated as if they were
calculated on a separate return basis. The provision for income tax expense is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
U.S. NON-
YEAR ENDED DECEMBER 31, 1995 FEDERAL U.S. STATE TOTAL
- ---------------------------- ------- ------ ------ -------
<S> <C> <C> <C> <C>
Current.......................................... $ 9,226 $2,186 $1,101 $12,513
Deferred......................................... 1,416 (2,534) 230 (888)
------- ------ ------ -------
Total.......................................... $10,642 $ (348) $1,331 $11,625
======= ====== ====== =======
<CAPTION>
U.S. NON-
YEAR ENDED DECEMBER 31, 1996 FEDERAL U.S. STATE TOTAL
- ---------------------------- ------- ------ ------ -------
<S> <C> <C> <C> <C>
Current.......................................... $18,124 $2,769 $2,450 $23,343
Deferred......................................... 26,355 (2,447) 4,298 28,206
------- ------ ------ -------
Total.......................................... $44,479 $ 322 $6,748 $51,549
======= ====== ====== =======
</TABLE>
F-14
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
U.S. NON-
YEAR ENDED DECEMBER 31, 1997 FEDERAL U.S. STATE TOTAL
- ---------------------------- ------- ------ ------ -------
<S> <C> <C> <C> <C>
Current........................................ $27,692 $3,317 $3,894 $34,903
Deferred....................................... (15,625) (1,920) (2,548) (20,093)
------- ------ ------ -------
Total........................................ $12,067 $1,397 $1,346 $14,810
======= ====== ====== =======
</TABLE>
Income before income taxes included the following components (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
U.S. income........................................ $33,046 $135,115 $38,297
Non-U.S. income (loss)............................. (3,045) (230) 1,526
------- -------- -------
Total............................................ $30,001 $134,885 $39,823
======= ======== =======
</TABLE>
A reconciliation of income tax expense using the statutory federal income
tax rate of 35.0 percent to the actual income tax expense follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Income before income taxes.......................... $30,001 $134,885 $39,823
Statutory federal income tax........................ 10,500 47,210 13,938
State income tax, net of federal tax benefit........ 866 4,386 875
Non-US taxes, net of credit......................... 717 403 863
Research and experimentation credits................ (530) (549) (1,001)
Other............................................... 72 99 135
------- -------- -------
Total............................................. $11,625 $ 51,549 $14,810
======= ======== =======
Effective income tax rate........................... 38.7% 38.2% 37.2%
======= ======== =======
</TABLE>
The tax effects of temporary differences and carryforwards, which result in
a significant portion of the deferred tax assets and liabilities, are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1997
------------------ ------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Adjustments necessary to convert accrued
amounts to a tax basis..................... $4,383 $33,134 $3,120 $19,468
Accumulated depreciation/amortization....... -- 13,657 -- 9,386
Allowance for doubtful accounts............. 496 -- 338 --
Other....................................... -- 4,204 -- 3,487
------ ------- ------ -------
Subtotal.................................. 4,879 50,995 3,458 32,341
Less valuation allowance.................. -- -- -- --
------ ------- ------ -------
Total................................... $4,879 $50,995 $3,458 $32,341
====== ======= ====== =======
</TABLE>
F-15
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Tax benefits of operating losses and tax credit carryforwards totaling $2.5
million, $2.4 million and $1.9 million for the years ended December 31, 1995,
1996 and 1997 generated by the Company in foreign jurisdictions and utilized
by EDS to offset non-Company taxable income in such jurisdictions are
recognized by the Company as a reduction in Stockholder's Net Investment.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the period in
which those temporary differences become deductible. Management believes it is
more likely than not that the Company will realize the benefits of these
deductible differences.
NOTE 7: SEGMENT INFORMATION
Industry Segments
The Company's business involves operations in principally one industry
segment: providing mechanical design automation software and related services
to manufacturers for the design, analysis, testing and manufacturing of
mechanical products.
Geographic Segments
The following presents information about the Company's operations in
different geographic areas (in thousands):
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1995
----------------------------------
U.S. EUROPE OTHER TOTAL
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $135,555 $ 96,364 $35,703 $267,622
======== ======== ======= ========
Operating income.......................... $ 24,801 $ 643 $ 4,428 $ 29,872
======== ======== ======= ========
Identifiable assets....................... $ 85,805 $ 40,185 $20,917 $146,907
======== ======== ======= ========
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1996
----------------------------------
U.S. EUROPE OTHER TOTAL
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $249,049 $117,172 $47,988 $414,209
======== ======== ======= ========
Operating income.......................... $114,046 $ 11,440 $ 9,293 $134,779
======== ======== ======= ========
Identifiable assets....................... $162,373 $ 40,149 $28,684 $231,206
======== ======== ======= ========
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1997
----------------------------------
U.S. EUROPE OTHER TOTAL
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $144,529 $112,785 $57,279 $314,593
======== ======== ======= ========
Operating income.......................... $ 15,314 $ 13,577 $ 5,840 $ 34,731
======== ======== ======= ========
Identifiable assets....................... $112,892 $ 34,258 $19,640 $166,790
======== ======== ======= ========
</TABLE>
F-16
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8: COMMITMENTS AND CONTINGENT LIABILITIES
The Company is not a party to any litigation other than ordinary, routine
litigation incidental to its business. In the opinion of management, the
ultimate liability, if any, resulting from the aforementioned contingencies
will not have a material adverse effect on the Company's consolidated results
of operations or financial position.
The Company licenses software used to develop components of certain software
products. Royalties are payable to developers of the software at various rates
and amounts generally based on unit sales or revenues. Royalty expense was
$3.4 million, $8.0 million, and $5.7 million for the years ended December 31,
1995, 1996 and 1997, respectively. Such costs are included in cost of
revenues-software.
NOTE 9: SOLID EDGE ACQUISITION
On March 2, 1998, the Company acquired the Solid Edge/EMS mechanical CAD/CAM
business of Intergraph Corporation (the "Solid Edge Acquisition") for $105.0
million (excluding approximately $2 million of acquisition costs). The Company
borrowed $105.0 million from EDS pursuant to a credit agreement established in
connection with the Reorganization (the "Intercompany Credit Agreement"). The
cost of acquired companies is allocated first to identifiable assets based on
estimated fair values. Costs allocated to identifiable intangible assets are
amortized on a straight-line basis over the remaining estimated useful lives
of the assets as determined by underlying contract terms or independent
appraisals. Amounts allocated to in-process research and development costs are
expensed in the period of acquisition. The excess of purchase price over the
fair value of identifiable assets acquired, net of liabilities assumed, is
recorded as goodwill and amortized on a straight-line basis over the useful
life of five years. In connection with the acquisition, the Company incurred a
charge of $42.5 million relating to the write off of acquired in-process
research and development costs.
The following summary presents selected unaudited pro forma consolidated
information for the Company assuming the Solid Edge Acquisition and related
financing under the Intercompany Credit Agreement had occurred on January 1,
1997 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------
1997 1997 1998
------------ ------- -------
<S> <C> <C> <C>
Revenues....................................... $349,811 $76,171 $91,307
======== ======= =======
Net income..................................... $ 11,504 $ 396 $ 9,426
======== ======= =======
Net earnings per share......................... $ 0.31 $ 0.01 $ 0.25
======== ======= =======
</TABLE>
The pro forma information does not include the write off of $42.5 million of
in-process research and development costs acquired in connection with the
Solid Edge Acquisition.
NOTE 10: REORGANIZATION AND AFFILIATE AGREEMENTS (UNAUDITED)
The following transactions were consummated in connection with the
Reorganization:
INTERCOMPANY INDEBTEDNESS--In addition to the $105.0 million borrowed under
the Intercompany Credit Agreement in connection with the Solid Edge
Acquisition, effective March 6, 1998, the Company issued to EDS as a dividend
an Intercompany Note in the principal amount of $73.0 million. The
Intercompany Note is payable on March 6, 2001 and bears interest, payable
semiannually, at a rate equal to the London Interbank Bid Rate ("LIBID") minus
0.5%. A portion of the amounts advanced to the Company under the Intercompany
Credit
F-17
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Agreement in respect of the Solid Edge Acquisition is expected to be repaid to
EDS with the net proceeds of the initial public offering discussed under
Note 11 (the "Offering"). The Intercompany Credit Agreement restricts the
Company from obtaining financing from any party other than EDS without written
consent from EDS, unless EDS fails to provide funding available to the Company
under the Intercompany Credit Agreement.
CAPITAL STOCK--At March 31, 1998, the Company had authorized 1,000 shares of
common stock, all of which were issued and outstanding. On May 21, 1998, the
Company filed a restated articles of incorporation with the state of Delaware
which authorized the issuance of 168,735,000 shares of Class A common stock,
31,265,000 shares of Class B common stock and 20,000,000 shares of preferred
stock. As a result, 1,000 shares of common stock, representing all outstanding
shares of common stock of the Company, were converted into 31,265,000 shares
of Class B common stock on May 21, 1998. The holders of Class A common stock
and Class B common stock of the Company will have identical voting rights
except that holders of Class A common stock will be entitled to one vote per
share while holders of Class B common stock are entitled to ten votes per
share on all matters to be voted on by stockholders. Holders of Class A common
stock and Class B common stock will share in an equal amount per share in any
dividend declared by the Board of Directors, subject to any preferential
rights of any outstanding preferred stock of the Company. Neither class of
common stock are subject to redemption or have preemptive rights to purchase
additional shares of common stock. Preferred stock of the Company can be
issued in series with varying preferences and conversion features as
determined by the Board of Directors.
CASH AND CASH EQUIVALENTS--Effective with the Reorganization, the Company
began maintaining separate cash and investment accounts from EDS. Transactions
with EDS no longer result in immediate charges and credits to the Company's
cash equivalents, but are settled through intercompany billings. EDS manages
the Company's cash management system under the Management Services Agreement
discussed below.
MANAGEMENT SERVICES AGREEMENT--The Company and EDS are parties to the
Management Services Agreement, effective as of January 1, 1998 (the
"Management Services Agreement") pursuant to which EDS performs various
management services for the Company including treasury, risk management and
tax, and similar administrative services, that EDS has historically provided
to the Company. Amounts charged to the Company under this agreement
approximate EDS' cost of providing the services plus a fixed fee equal to 0.5%
of the Company's total revenues. The Management Services Agreement will expire
on December 31, 2002 unless terminated earlier by either party if EDS and the
Company are no longer under common control. Except for certain tax and
treasury management services relating to consolidated operations or corporate
policy of EDS, which the Company is required to purchase during the term of
the Management Services Agreement, the Company or EDS may terminate any
service on or after January 1, 2000 with prior notice of not less than five
months.
TAX SHARING AGREEMENT--The Company and EDS have entered into a tax sharing
agreement (the "Tax Sharing Agreement") which provides for the allocation of
tax liabilities during the tax periods the Company is part of consolidated
federal, state and local income tax returns filed by EDS. In addition, the Tax
Sharing Agreement sets out certain benefits and obligations of the Company and
EDS for tax matters relating to periods before the Reorganization and for
certain benefits and obligations that would affect the Company or EDS in the
future if the Company ceased to be a member of EDS's consolidated group for
federal income tax purposes. The Tax Sharing Agreement generally requires the
Company to pay EDS the amount of federal, state and local income taxes that
the Company would have been required to pay had the Company and its
subsidiaries filed their own tax return or returns and not been included in
the EDS consolidated group. The Company is jointly and severally liable for
the federal income tax of EDS and the other companies included in the
F-18
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
consolidated return for all periods in which the Company is included in the
EDS consolidated group. EDS has agreed, however, to indemnify the Company for
any liability for taxes reported or required to be reported on a consolidated
return.
Except for certain items specified in the Tax Sharing Agreement, EDS
generally retains any potential tax benefit carryforwards, and remains
obligated to pay all taxes, attributable to periods before the Reorganization.
CREDIT AGREEMENT--In order to allow EDS to manage efficiently the cash and
cash needs of its subsidiaries, the Company and EDS (or EDS Subsidiary, EDS
Finance plc, as the case may be) are parties to the Intercompany Credit
Agreement, pursuant to which the Company is required to borrow from EDS, and
EDS is required to lend to the Company, any amount required by the Company to
fund its daily cash requirements. In addition, EDS has made an advance to the
Company under the Intercompany Credit Agreement in the amount of $105.0
million in connection with the Solid Edge Acquisition, which advance will be
repaid upon consummation of the Offering. The maximum amount that the Company
may borrow at any time from EDS under the Intercompany Credit Agreement
(together with the other non-U.S. credit agreements referred to below) is
$177.0 million at any time prior to the closing of the Offering, or $70.0
million at any time thereafter. Also, under the Intercompany Credit Agreement,
the Company is required to lend to EDS all excess cash of the Company. The
interest rate to be charged to the Company is the sum of the one-month London
Interbank Offered Rate plus 0.5%. The interest rate to be charged to EDS is
the one-month LIBID minus 0.5%. On any business day that the Company has
excess cash available, it must use that cash to repay any outstanding loans it
has under the Intercompany Credit Agreement or make an advance to EDS if no
loans are outstanding. The Intercompany Credit Agreement will terminate on
December 31, 2002, unless earlier terminated at the election of one of the
parties upon the occurrence of certain events, including the termination of
the Management Services Agreement or the cessation of EDS' beneficial
ownership of 50% or more of the capital stock of the Company. In addition to
the Intercompany Credit Agreement between the Company and EDS, EDS Finance
plc, a wholly-owned subsidiary of EDS, has entered into or will enter into
credit agreements with substantially all non-U.S. subsidiaries of the Company
having terms similar to the Intercompany Credit Agreement.
GM SUBCONTRACT--In connection with the Reorganization, EDS and the Company
entered into a Memorandum of Understanding, effective January 1, 1998 (the "GM
Subcontract"), pursuant to which the Company receives all revenues and
performs EDS' obligations under the EDS/GM Site License Agreement and agrees
to cooperate with EDS in providing additional products and services to GM
under the EDS/GM MSA. The GM Subcontract further provides that the Company may
provide directly to GM products and services that are outside of the scope of
the EDS/GM MSA.
OTHER AGREEMENTS--In addition to the agreements set forth above, the Company
and EDS are parties to a Registration Rights Agreement described under "Shares
Eligible for Future Sale." The Company and EDS are also parties to various
subleases pursuant to which the Company subleases from EDS the real property
occupied by the Company prior to the Reorganization. The terms of these
sublease agreements incorporate the financial and other material terms of EDS'
lease agreements for the subject properties.. The Company also has, or expects
to enter into, other agreements with EDS or other EDS affiliates, pursuant to
which the Company does not expect to receive or pay material amounts.
PENSION BENEFITS--The Company and EDS have entered into an agreement which
permits the employees of the Company to continue to participate in the benefit
plans and programs sponsored by EDS until the Company establishes separate
plans and programs for employees.
F-19
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1998 INCENTIVE PLAN--The Board of Directors has adopted, and EDS, as the
Company's sole stockholder, prior to the consummation of the Offering, has
approved, effective with the consummation of the Offering, the Unigraphics
Solutions Inc. 1998 Incentive Plan (the "1998 Incentive Plan"). Employees
eligible for awards under the 1998 Incentive Plan are those that hold
positions of responsibility and whose performance can have a significant
effect on the success of the Company and its subsidiaries. The only directors
eligible for automatic or elective awards under the 1998 Incentive Plan are
Non-employee Directors. The 1998 Incentive Plan covers up to 1,300,000 shares
of Class A Common Stock, of which 100,000 shares will be available for
Director Awards and the remainder will be available for Employee awards. The
1998 Incentive Plan permits the granting of stock-based awards in the form of
restricted shares, stock options, stock appreciation rights or cash awards.
NOTE 11: PROPOSED PUBLIC OFFERING OF COMMON STOCK (UNAUDITED)
On March 17, 1998, the Company's Board of Directors authorized management of
the Company to file a Registration Statement with the Securities and Exchange
Commission for an initial public offering of the Company's Class A Common
Stock. The Company contemplates using the proceeds from such offering to repay
indebtedness incurred in connection with the Solid Edge Acquisition. Upon
completion of the offering of the 5,735,000 shares of Class A Common Stock,
EDS will own 84.5% of the outstanding common shares of the Company, exclusive
of any shares which could be issued pursuant to the underwriters' over-
allotment option or upon exercise of stock options granted in the Company's
1998 Incentive Plan.
Pro forma earnings per share for the year ended December 31, 1997 and the
three months ended March 31, 1998 have been calculated by dividing net income
by the weighted average shares outstanding as calculated in accordance with
Securities and Exchange Commission rules for initial public offerings. Such
rules require that the weighted average share calculation give retroactive
effect to any changes in the capital structure of the Company as well as the
number of shares whose proceeds will be used to pay any dividend declared by
the Company prior to the offering. Therefore, weighted average shares of the
Company for the year ended December 31, 1997 and the three months ended March
31, 1998 are comprised of 31,265,000 shares of Class B common stock described
above and 5,735,000 shares of Class A common stock, assuming all such shares
are outstanding as of the beginning of each period.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Intergraph Corporation
We have audited the accompanying statements of assets sold of the Solid Edge
and Engineering Modeling Systems Software Product Lines of Intergraph
Corporation (the Product Lines) as of December 31, 1996 and 1997 and the
related statements of revenues and direct expenses for each of the years in
the three-year period ended December 31, 1997. These statements are the
responsibility of the Product Lines' management. Our responsibility is to
express an opinion on the statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements. An audit also
includes assessing the basis of accounting used and significant estimates made
by management, as well as evaluating the overall presentation of the
statements. We believe that our audits provide a reasonable basis for our
opinion.
The Product Lines consist of products and services offered by various
subsidiaries and divisions of Intergraph Corporation and as such do not
constitute a separate legal entity. Accordingly, the statements of assets sold
and revenues and direct expenses of the Product Lines have been carved out
from the consolidated balance sheets and statements of operations of
Intergraph Corporation. Management believes the assumptions underlying the
statements of assets sold and revenues and direct expenses of the Product
Lines to be reasonable.
As described in Note 1, the accompanying financial statements were prepared
for the purpose of complying with Rule 3-05 of Regulation S-X of the
Securities and Exchange Commission and are not intended to be a complete
presentation of assets and results of operations on a stand-alone basis of the
Product Lines.
In our opinion, the statements referred to above present fairly, in all
material respects, the assets sold described in Note 2 of the Solid Edge and
Engineering Modeling Systems Software Product Lines of Intergraph Corporation
as of December 31, 1996 and 1997, and the revenues and direct expenses for
each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Birmingham, Alabama
February 28, 1998,
except for Note 2, as to which the date is
March 2, 1998
F-21
<PAGE>
THE SOLID EDGE AND ENGINEERING MODELING SYSTEMS
SOFTWARE PRODUCT LINES
OF INTERGRAPH CORPORATION
STATEMENTS OF ASSETS SOLD
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Inventories and supplies........................................ $ 36 $ 6
Prepaid expenses................................................ 334 214
Computer hardware, office equipment, and furniture.............. 6,112 6,012
Less--accumulated depreciation................................ 3,865 4,946
------- -------
Net computer hardware, office equipment, and furniture........ 2,247 1,066
------- -------
Other assets.................................................... 86 81
------- -------
Total Assets Sold............................................... $ 2,703 $ 1,367
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
THE SOLID EDGE AND ENGINEERING MODELING SYSTEMS
SOFTWARE PRODUCT LINES
OF INTERGRAPH CORPORATION
STATEMENTS OF REVENUES AND DIRECT EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Software......................................... $14,800 $ 15,419 $18,984
Maintenance and services......................... 19,711 16,461 16,234
------- -------- -------
Total revenues................................. 34,511 31,880 35,218
------- -------- -------
Direct expenses
Cost of sales.................................... 5,976 4,436 3,979
Product development.............................. 12,119 10,936 9,951
Sales and marketing.............................. 22,743 26,630 25,404
------- -------- -------
Total direct expenses.......................... 40,838 42,002 39,334
------- -------- -------
Excess of direct expenses over revenues............ $(6,327) $(10,122) $(4,116)
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
THE SOLID EDGE AND ENGINEERING MODELING SYSTEMS
SOFTWARE PRODUCT LINES
OF INTERGRAPH CORPORATION
NOTES TO STATEMENTS OF ASSETS SOLD AND
STATEMENTS OF REVENUES AND DIRECT EXPENSES
NOTE 1: ORGANIZATION, OPERATIONS, AND BASIS OF PRESENTATION
"Solid Edge" and "Engineering Modeling Systems" ("EMS") software are
application specific software products developed, marketed, and sold by
Intergraph Corporation ("Intergraph") to end user customers for use in
automation of the design of mechanical parts and assemblies. The products are
sold by Intergraph through its direct sales force, its international
subsidiary companies, and through indirect channels including distributors,
business partners, and resellers.
All significant intercompany accounts and transactions have been eliminated
in combination of the accompanying statements.
Historically, financial statements have not been prepared for the Solid Edge
and EMS product lines as they do not represent a separate Intergraph legal
entity or line of business. The accompanying statements are derived from the
historical accounting records of Intergraph and its subsidiary companies, and
present assets sold relative to these product lines as of December 31, 1996
and 1997, and revenues and direct expenses of the product lines for the three
years in the period ended December 31, 1997. The Statements of Revenues and
Direct Expenses includes all revenues and expenses directly attributable to
the Solid Edge and EMS product lines for the periods presented. Direct
expenses consist principally of cost of sales, product development expenses,
and selling and marketing expenses. The Statements do not include general and
administrative expenses, general corporate overhead, interest expense, or
income taxes. These Statements are not intended to be a complete presentation
of Solid Edge and EMS financial position and results of operations had these
product lines operated as a stand alone entity, but were prepared for the
purpose of complying with Rule 3-05 of Regulation S-X of the Securities and
Exchange Commission. Historical operating results may not be indicative of
results after acquisition of these product lines by the buyer.
NOTE 2: ASSET PURCHASE AGREEMENT
The accompanying statements have been prepared for the purpose of presenting
the assets sold pursuant to the Asset Purchase Agreement (the "Agreement")
between Intergraph Corporation and Unigraphics Solutions Inc. ("USI"), a
direct wholly owned subsidiary of Electronic Data Systems Corporation. Under
the Agreement, which was consummated March 2, 1998, USI purchased from
Intergraph for $105 million in cash certain of the assets of the Solid Edge
and EMS product lines, including:
1) Intellectual property interests, including the outright purchase of
the Solid Edge and EMS source code, trademarks, and copyrights unique to
those products, and license agreements with Intergraph for source code,
patents and patent applications, and software development tools common to
the acquired products and other products not sold to USI.
2) Contract rights (except for certain contract rights between Intergraph
and the United States government and contract rights for the sale and
maintenance of software used in the design and manufacturing of structural
support systems for ships and other marine vessels), distributor, business
partner, and reseller contracts, and unfulfilled bids and sales orders with
customers.
3) Inventories and supplies.
4) Computer hardware, office equipment, and furniture.
5) Prepaid expenses and other assets.
In addition, USI extended offers of employment to Intergraph employees
directly associated with the Solid Edge and EMS product lines.
F-24
<PAGE>
THE SOLID EDGE AND ENGINEERING MODELING SYSTEMS
SOFTWARE PRODUCT LINES OF INTERGRAPH CORPORATION
NOTES TO STATEMENTS OF ASSETS SOLD AND
STATEMENTS OF REVENUES AND DIRECT EXPENSES--(CONTINUED)
Assets specifically retained by Intergraph and thus not included in the
accompanying statements include, in addition to those described in 1) and 2)
above, accounts receivable attributable to sales of the product lines up to
the March 2, 1998 closing date, contracts related to real property associated
with the product lines, and certain contracts for third party software
utilized in the product lines.
Liabilities of the product lines assumed by USI are limited to those arising
subsequent to the date of closing under the assumed contracts described above.
All liabilities arising from the operations of the product lines prior to the
closing date, or relating to any of the assets retained, were retained by
Intergraph.
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition: Revenues from software sales with no significant post-
shipment obligations are recognized as software is shipped and collectibility
is probable, with any post-shipment costs accrued at that time.
Maintenance and services revenues are recognized ratably over the lives of
the maintenance contracts or as services are performed.
Billings may not coincide with the recognition of revenue. Unbilled accounts
receivable occur when revenue recognition precedes billing to the customer,
and arise primarily from sales with predetermined billing schedules. Billings
in excess of sales occur when billing to the customer precedes revenue
recognition, and arise primarily from maintenance revenue billed in advance of
performance of the maintenance activity.
Inventories: Inventories are stated at the lower of average cost or market.
Computer Hardware, Office Equipment, and Furniture: Computer hardware,
office equipment, and furniture is stated at cost. Depreciation is provided
using the straight line method over estimated useful lives ranging from three
years for computer hardware and office equipment to eight years for certain
items of furniture.
F-25
<PAGE>
[LOGO OF UNIGRAPHICS SOLUTIONS(TM) APPEARS HERE]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Alternate Page for International Prospectus]
PROSPECTUS (Subject to Completion)
Issued May 21, 1998
5,735,000 Shares
Unigraphics Solutions Inc.
CLASS A COMMON STOCK
-----------
OF THE 5,735,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED, 1,147,000 SHARES
ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 4,588,000 SHARES ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. ALL OF THE SHARES OF
CLASS A COMMON STOCK BEING OFFERED ARE BEING SOLD BY UNIGRAPHICS SOLUTIONS
INC., WHICH IS CURRENTLY A WHOLLY OWNED SUBSIDIARY OF ELECTRONIC DATA SYSTEMS
CORPORATION. PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
CLASS A COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE PER SHARE OF CLASS A COMMON STOCK WILL BE BETWEEN $13 AND $15.
SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE.
-----------
HOLDERS OF CLASS A COMMON STOCK GENERALLY HAVE RIGHTS IDENTICAL TO THOSE OF
HOLDERS OF CLASS B COMMON STOCK, EXCEPT THAT HOLDERS OF CLASS A COMMON STOCK
ARE ENTITLED TO ONE VOTE PER SHARE WHILE HOLDERS OF CLASS B COMMON STOCK ARE
ENTITLED TO 10 VOTES PER SHARE ON ALL MATTERS SUBMITTED TO A VOTE OF
STOCKHOLDERS. HOLDERS OF CLASS A COMMON STOCK ARE GENERALLY ENTITLED TO VOTE
WITH THE HOLDERS OF CLASS B COMMON STOCK AS ONE CLASS ON ALL MATTERS AS TO
WHICH THE HOLDERS OF CLASS B COMMON STOCK ARE ENTITLED TO VOTE. SEE
"DESCRIPTION OF CAPITAL STOCK." UPON COMPLETION OF THE OFFERING, EDS WILL OWN
100% OF THE OUTSTANDING CLASS B COMMON STOCK OF THE COMPANY, WHICH WILL
REPRESENT APPROXIMATELY 98.2% OF THE COMBINED VOTING POWER OF ALL CLASSES OF
VOTING STOCK IN THE COMPANY (APPROXIMATELY 97.9% IF THE U.S. UNDERWRITERS' OVER-
ALLOTMENT OPTION IS EXERCISED IN FULL). SEE "RELATIONSHIP WITH EDS AND CERTAIN
TRANSACTIONS."
-----------
THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE
UNDER THE SYMBOL "UGS," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total(3).............................. $ $ $
</TABLE>
- -----
(1) The Company and EDS have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 860,250
additional Shares of Class A Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in full,
the total price to public, underwriting discounts and commissions and
proceeds to Company will be $ , $ and $ , respectively. See
"Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Shearman & Sterling, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about June , 1998, at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
J.P. MORGAN & CO.
June , 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meanings assigned to them in the Prospectus which
forms a part of this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses incurred by the Company
in connection with the issuance and distribution of the securities being
registered pursuant to this Registration Statement, other than underwriting
discounts and commissions.
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Securities Act registration fee.................................. $ 29,184
NASD filing fee.................................................. 13,000
Blue sky qualification fees and expenses......................... 5,000
Printing and engraving fees and expenses......................... 300,000
Legal fees and expenses.......................................... 200,000
Accounting fees and expenses..................................... 350,000
Transfer agent and registrar fees and expenses................... 20,000
New York Stock Exchange listing fee.............................. 50,000
Miscellaneous.................................................... 32,816
----------
Total........................................................ $1,000,000
==========
</TABLE>
All of the foregoing estimated costs, expenses and fees will be borne by the
Company.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify directors and
officers and certain other individuals against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by any such person in connection with any threatened, pending or
completed action, suit or proceeding (other than an action by or in the right
of the corporation) in which such person is involved because such person is a
director or officer of the corporation, if such person acted in good faith and
in a manner that such person reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that such person's conduct
was unlawful. No indemnification shall be made to an officer or director or
other qualified individual if such person shall have been adjudged to be
liable to the corporation unless such person acted in good faith and in a
manner that such person reasonably believed to be in or not opposed to the
best interest of the corporation and only to the extent the Court of Chancery
of the State of Delaware or the court in which such action or suit was
brought, determines that despite the adjudication of liability such person is
fairly and reasonably entitled to such indemnification. If such person is
successful on the merits or otherwise in defense of any action, then Section
145 provides that such person shall be indemnified against expenses including
attorneys' fees actually and reasonably incurred by that person in connection
therewith. Section 102(b)(7) of the DGCL provides that the liability of a
director may not be limited or eliminated for the breach of such director's
duty of loyalty to the corporation or its stockholders, for such director's
intentional acts or omissions not in good faith, for such director's
concurrence in or vote for an unlawful payment of a dividend or unlawful stock
purchase or redemption or for any improper personal benefit derived by the
director from any transaction.
II-1
<PAGE>
The Company's Bylaws provide that the Company will indemnify any person who
was or is a party (or is threatened to be made a party) to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or
was or has agreed to serve at the request of the Company as a director or
officer of the Company, or is or was serving or has agreed to serve at the
request of the Company as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity. The Company's
Bylaws further provide that the Company may indemnify any person who was or is
a party (or is threatened to be made a party) to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was or has agreed
to become an employee or agent of the Company, or is or was serving or has
agreed to serve at the request of the Company as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action alleged to have been taken or omitted in such
capacity.
The indemnification referred to in the preceding paragraph will be from and
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by the indemnitee or on
his or her behalf in connection with such action, suit or proceeding and any
appeal therefrom. However, such indemnification will only be provided if the
indemnitee acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal action, suit or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. Notwithstanding the preceding two sentences,
in the case of an action or suit by or in the right of the Company to procure
a judgment in its favor (a) the indemnification referred to in this paragraph
will be limited to expenses (including attorneys' fees) actually and
reasonably incurred by such person in the defense or settlement of such action
or suit, and (b) no indemnification will be made in respect of any claim,
issue or matter as to which such person will have been adjudged to be liable
to the Company unless, and only to the extent that, the Delaware Court of
Chancery (or the court in which such action or suit was brought) determines
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery
(or such other court) deems proper. To the extent that a director, officer,
employee or agent of the Company has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to above or in
defense of any claim, issue or matter therein, he or she will be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him or her in connection therewith. Expenses incurred by a director or
officer in defending a civil or criminal action, suit or proceeding will be
paid by the Company in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director
or officer to repay such amount if it will ultimately be determined that he or
she is not entitled to be indemnified by the Company. Such expenses incurred
by other employees and agents may be so paid upon such terms and conditions,
if any, as the Board of Directors deems appropriate.
The indemnification described in the preceding two paragraphs will not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and
as to action in another capacity while holding such office, will continue as
to a person who has ceased to be a director, officer, employee or agent and
will inure to the benefit of the heirs, executors and administrators of such a
person.
The Company will maintain insurance on behalf of any person who is or was or
has agreed to serve at the request of the Company as a director or officer of
the Company, or is or was serving at the request of the Company as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against, and incurred by, him or her
or on his or her behalf in any such capacity, or arising out of his or her
status as such, whether or not the Company would have the power to indemnify
him or her against such liability under the provisions of the Bylaws;
provided, however, such insurance must be available on acceptable terms, which
determination shall be made by a vote of a majority of the Board of Directors.
II-2
<PAGE>
UNDERWRITING AGREEMENT
The Underwriting Agreement, the form of which is filed as Exhibit 1.1 to the
Registration Statement, provides for the indemnification of the directors and
officers of the Company against certain liabilities, including liabilities
arising under the Securities Act.
The above discussion of the Certificate of Incorporation, Bylaws,
Underwriting Agreement and Section 145 of the DGCL is not intended to be
exhaustive and is respectively qualified in its entirety by the Certificate of
Incorporation, Bylaws, Underwriting Agreement and such statute.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with its formation on October 2, 1997, the Company issued 500
shares of common stock to EDS in consideration for a cash payment of $1,000.
Effective January 1, 1998 the Company issued an additional 500 shares of
common stock to EDS in consideration for the assets transferred to the Company
in connection with the Reorganization. Effective March 6, 1998, the Company
issued as a dividend a $73 million Intercompany Note to EDS. On May 21, 1998,
the 1,000 shares of common stock were reclassified into 31,265,000 shares of
Class B Common Stock. Based on the relationship between the Company and EDS
and other factors, the Company believes that these issuances and distributions
were exempt from registration under the Securities Act pursuant to Section
4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* --Form of Underwriting Agreement.
3.1 --Restated Certificate of Incorporation of the Company.
3.2 --Amended and Restated Bylaws of the Company.
4.1 --Registration Rights Agreement between the Company and EDS.
4.2 --Specimen Stock Certificate for the Class A Common Stock, par value
$.01 per share, of the Company.
5.1* --Opinion of Baker & Botts, L.L.P. regarding legality of securities
being registered.
10.1 --Registration Rights Agreement between the Company and EDS (see
Exhibit 4.1).
10.2 --Intercompany Agreement, effective as of January 1, 1998, between the
Company and EDS.
10.3 --Management Services Agreement, effective as of January 1, 1998,
between the Company and EDS.
10.4 --Credit Agreement, effective as of January 1, 1998, between the
Company and EDS.
10.5 --Form of Credit Agreement entered into between EDS Finance Plc and
each of substantially all of the Non-U.S. subsidiaries of the
Company, each effective as of January 1, 1998.
10.6 --Intercompany Note of Unigraphics Solutions Inc., dated March 6,
1998, in the principal amount of $73 million issued to EDS.
10.7 --Tax Sharing Agreement, effective as of January 1, 1998, between the
Company and EDS.
10.8 --Memorandum of Understanding, effective as of January 1, 1998,
between EDS and the Company regarding performance of certain
obligations of EDS to General Motors Corporation.
10.9** --Asset Purchase Agreement, dated as of March 2, 1998, among the
Company, certain subsidiaries of the Company, Intergraph Corporation
and certain subsidiaries of Intergraph Corporation.
10.10 --Unigraphics Solutions Inc. 1998 Incentive Plan.
10.11** --Form of Indemnification Agreement to be entered into by the Company
and certain of the directors and executive officers of the Company.
10.12 --Personal Services Agreement, dated as of March 1, 1998, between the
Company and John J. Mazzola.
10.13 --Personal Services Agreement, dated as of March 1, 1998, between the
Company and Anthony J. Affuso.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14 --Personal Services Agreement, dated as of March 2, 1998, between the
Company and Douglas Barnett.
10.15 --Personal Services Agreement, dated as of March 1, 1998, between the
Company and Donald E. Davidson.
10.16 --Personal Services Agreement, dated as of March 1, 1998, between the
Company and James Duncan.
10.17 --Personal Services Agreement, dated as of March 1, 1998, between the
Company and Dennis P. Kruse.
10.18 --Electronic Data Systems Corporation Standard Sub-Sublease Agreement
dated as of January 1, 1998 between EDS and the Company (Maryland
Heights, MO. facility).
10.19 --Electronic Data Systems Corporation Standard Sub-Sublease Agreement
dated as of January 1, 1998 between EDS and the Company (Cypress, CA.
facility).
21.1** --Subsidiaries of the Company.
23.1 --Consent and report on schedule of KPMG Peat Marwick LLP.
23.2 --Consent of Ernst & Young LLP.
23.3 --Consent of Baker & Botts, L.L.P. (included in the opinion filed as
Exhibit 5.1 to this Registration Statement).
24.1** --Powers of Attorney.
27.1 --Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
- --------------------
(b)Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant also undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF MARYLAND HEIGHTS, STATE OF MISSOURI, ON MAY 21, 1998.
Unigraphics Solutions Inc.
By: /s/ John J. Mazzola
---------------------------------
JOHN J. MAZZOLA
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John J. Mazzola President and Chief May 21, 1998
- ------------------------- Executive Officer
JOHN J. MAZZOLA (Principal Executive
Officer)
/s/ Douglas E. Barnett* Vice President and Chief May 21, 1998
- ------------------------- Financial Officer
DOUGLAS E. BARNETT (Principal Financial and
Accounting Officer)
/s/ Gary J. Fernandes* Chairman of the Board of May 21, 1998
- ------------------------- Directors
GARY J. FERNANDES
/s/ Gary B. Moore* Vice Chairman of the May 21, 1998
- ------------------------- Board of Directors
GARY B. MOORE
*By: /s/ D. Gilbert Friedlander
---------------------------
D. GILBERT FRIEDLANDER
ATTORNEY-IN-FACT FOR SUCH
PERSONS PURSUANT TO THE POWERS
OF ATTORNEY DATED MARCH 19, 1998
FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT
</TABLE>
II-5
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A DIVISION OF ELECTRONIC DATA SYSTEMS CORPORATION)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997
Allowance for
doubtful accounts... $4,907 2,425 -- 1,914 $5,418
------ ----- --- ----- ------
Total valuation and
qualifying
accounts.......... $4,907 2,425 -- 1,914 $5,418
====== ===== === ===== ======
For the year ended
December 31, 1996
Allowance for
doubtful accounts... $5,181 1,251 -- 1,525 $4,907
------ ----- --- ----- ------
Total valuation and
qualifying
accounts.......... $5,181 1,251 -- 1,525 $4,907
====== ===== === ===== ======
For the year ended
December 31, 1995
Allowance for
doubtful accounts... $1,959 2,994 -- (228) $5,181
------ ----- --- ----- ------
Total valuation and
qualifying
accounts.......... $1,959 2,994 -- (228) $5,181
====== ===== === ===== ======
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* --Form of Underwriting Agreement.
3.1 --Restated Certificate of Incorporation of the Company.
3.2 --Amended and Restated Bylaws of the Company.
4.1 --Registration Rights Agreement between the Company and EDS.
4.2 --Specimen Stock Certificate for the Class A Common Stock, par value
$.01 per share, of the Company.
5.1* --Opinion of Baker & Botts, L.L.P. regarding legality of securities
being registered.
10.1 --Registration Rights Agreement between the Company and EDS (see
Exhibit 4.1).
10.2 --Intercompany Agreement, effective as of January 1, 1998, between the
Company and EDS.
10.3 --Management Services Agreement, effective as of January 1, 1998,
between the Company and EDS.
10.4 --Credit Agreement, effective as of January 1, 1998, between the
Company and EDS.
10.5 --Form of Credit Agreement entered into between EDS Finance Plc and
each of substantially all of the Non-U.S. subsidiaries of the
Company, each effective as of January 1, 1998.
10.6 --Intercompany Note of Unigraphics Solutions Inc., dated March 6,
1998, in the principal amount of $73 million issued to EDS.
10.7 --Tax Sharing Agreement, effective as of January 1, 1998, between the
Company and EDS.
10.8 --Memorandum of Understanding, effective as of January 1, 1998,
between EDS and the Company regarding performance of certain
obligations of EDS to General Motors Corporation.
10.9** --Asset Purchase Agreement, dated as of March 2, 1998, among the
Company, certain subsidiaries of the Company, Intergraph Corporation
and certain subsidiaries of Intergraph Corporation.
10.10 --Unigraphics Solutions Inc. 1998 Incentive Plan.
10.11** --Form of Indemnification Agreement to be entered into by the Company
and certain of the directors and executive officers of the Company.
10.12 --Personal Services Agreement, dated as of March 1, 1998, between the
Company and John J. Mazzola.
10.13 --Personal Services Agreement, dated as of March 1, 1998, between the
Company and Anthony J. Affuso.
10.14 --Personal Services Agreement, dated as of March 2, 1998, between the
Company and Douglas Barnett.
10.15 --Personal Services Agreement, dated as of March 1, 1998, between the
Company and Donald E. Davidson.
10.16 --Personal Services Agreement, dated as of March 1, 1998, between the
Company and James Duncan.
10.17 --Personal Services Agreement, dated as of March 1, 1998, between the
Company and Dennis P. Kruse.
10.18 --Electronic Data Systems Corporation Standard Sub-Sublease Agreement
dated as of January 1, 1998 between EDS and the Company (Maryland
Heights, MO. facility).
10.19 --Electronic Data Systems Corporation Standard Sub-Sublease Agreement
dated as of January 1, 1998 between EDS and the Company (Cypress, CA.
facility).
21.1** --Subsidiaries of the Company.
23.1 --Consent and report on schedule of KPMG Peat Marwick LLP.
23.2 --Consent of Ernst & Young LLP.
23.3 --Consent of Baker & Botts, L.L.P. (included in the opinion filed as
Exhibit 5.1 to this Registration Statement).
24.1** --Powers of Attorney (included in the signature page of this
Registration Statement).
27.1 --Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
UNIGRAPHICS SOLUTIONS INC.
UNDER SECTIONS 242 AND 245 OF THE
DELAWARE GENERAL CORPORATION LAW
(as amended through May 18, 1998)
UNIGRAPHICS SOLUTIONS INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, hereby certifies as follows:
1. The name of the Corporation is:
UNIGRAPHICS SOLUTIONS INC.
The original Certificate of Incorporation of the Corporation (as
amended, the "Certificate of Incorporation") was filed with the Secretary of
State of the State of Delaware on October 2, 1997.
2. The restatement and amendment of the Certificate of Incorporation has
been duly adopted by a resolution of the Board of Directors of the Corporation
(the "Board of Directors") proposing and declaring advisable this Restated
Certificate of Incorporation, and the sole holder of all shares of the
Corporation's capital stock has duly approved and adopted this Restated
Certificate of Incorporation, all in accordance with the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware.
3. This Restated Certificate of Incorporation restates and amends the
Certificate of Incorporation of the Corporation.
4. The text of the Certificate of Incorporation as amended or supplemented
heretofore is hereby restated and amended to read in its entirety as follows
(hereinafter, this Restated Certificate of Incorporation, as it may be further
amended or restated from time to time, is referred to the "Restated Certificate
of Incorporation"):
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
UNIGRAPHICS SOLUTIONS INC.
FIRST: The name of the Corporation is
UNIGRAPHICS SOLUTIONS INC.
SECOND: The name and address of the registered office of the Corporation
in the County of New Castle in the State of Delaware is:
The Prentice-Hall Corporation System, Inc.
1013 Centre Road
Wilmington, Delaware 19805-1297
Third: The purpose of the Corporation is to engage in any lawful business,
act or activity for which corporations may be organized under the provisions of
the General Corporation Law of the State of Delaware, or any successor statute
(the "DGCL").
FOURTH: (A) Authorized Stock. The total number of shares of stock which
the Corporation shall have authority to issue is Two Hundred Twenty Million
(220,000,000), consisting of (i) One Hundred Sixty Eight Million Seven Hundred
Thirty Five Thousand (168,735,000) shares of Class A Common Stock, par value
$.01 per share (hereinafter referred to as "Class A Common Stock"), and Thirty
One Million Two Hundred Sixty Five Thousand (31,265,000) shares of Class B
Common Stock, par value $.01 per share (hereinafter referred to as "Class B
Common Stock") (the Class A Common Stock and the Class B Common Stock being
hereinafter collectively referred to as the "Common Stock"), and (ii) Twenty
Million (20,000,000) shares of Preferred Stock, par value $.01 per share
(hereinafter referred to as "Preferred Stock").
(B) Common Stock. The following is a statement of the relative powers,
preferences and participating, optional or other special rights, and the
qualifications, limitations and restrictions of the Class A Common Stock and the
Class B Common Stock of the Corporation:
(i) Except as otherwise set forth in this Article FOURTH, the
relative powers, preferences and participating, optional or other special
rights, and the qualifications, limitations and restrictions of the Class A
Common Stock and the Class B Common Stock shall be identical in all
respects.
(ii) Subject to the rights of holders of Preferred Stock, and subject
to any other provisions of this Certificate of Incorporation, holders of
Class A Common Stock and Class B Common Stock shall be entitled to receive
such dividends and other distributions in cash, stock or property of the
Corporation as may be declared thereon by the Board of Directors from time
to time out of assets or funds of the Corporation legally available
therefor. If any dividend or other distribution in cash or other property
is paid with
2
<PAGE>
respect to Class A Common Stock or with respect to Class B Common Stock
(other than dividends or other distributions payable in shares of Common
Stock), a like dividend or other distribution in cash or other property
shall also be paid with respect to shares of the other class of Common
Stock, in an amount equal per share. In the case of dividends or other
distributions payable in Common Stock, including without limitation
distributions pursuant to stock splits or divisions of Common Stock of the
Corporation, only shares of Class A Common Stock shall be paid or
distributed with respect to Class A Common Stock and only shares of Class B
Common Stock shall be paid or distributed with respect to Class B Common
Stock. The number of shares of Class A Common Stock and Class B Common
Stock so distributed shall be equal in number on a per share basis. Neither
the shares of Class A Common Stock nor the shares of Class B Common Stock
may be reclassified, subdivided or combined unless such reclassification,
subdivision or combination occurs simultaneously and in the same proportion
for each class.
(iii) (a) At each meeting of the stockholders of the Corporation,
each holder of Class A Common Stock shall be entitled to one vote in person
or by proxy for each share of Class A Common Stock standing in his or her
name on the transfer books of the Corporation, and each holder of Class B
Common Stock shall be entitled to ten votes in person or by proxy for each
share of Class B Common Stock standing in his or her name on the transfer
books of the Corporation in connection with the election of directors and
all other matters submitted to a vote of stockholders; provided, however,
that with respect to any proposed conversion of the shares of Class B
Common Stock into shares of Class A Common Stock pursuant to paragraph
(B)(v)(b) below, each holder of a share of Common Stock, irrespective of
class, shall have one vote in person or by proxy for each share of Common
Stock standing in his or her name on the transfer books of the Corporation.
Except as may be otherwise required by law or by this Article Fourth, the
holders of Class A Common Stock and Class B Common Stock shall vote
together as a single class, subject to any voting rights which may be
granted to holders of Preferred Stock, on all matters submitted to a vote
of stockholders of the Corporation.
(b) Except as otherwise provided by law, and subject to any rights of
the holders of Preferred Stock, the provisions of this Certificate of
Incorporation shall not be modified, revised, altered or amended, repealed
or rescinded in whole or in part, without the approval of a majority of the
votes entitled to be cast by the holders of the Class A Common Stock and
the Class B Common Stock, voting together as a single class; provided,
however, that with respect to any proposed amendment of this Certificate of
Incorporation which would alter or change the powers, preferences or
special rights of the shares of Class A Common Stock or Class B Common
Stock so as to affect them adversely, the approval of a majority of the
votes entitled to be cast by the holders of the shares affected by the
proposed amendment, voting separately as a class, shall be obtained in
addition to the approval of a majority of the votes entitled to be cast by
the holders of the Class A Common Stock and the Class B Common Stock voting
together as a single class as hereinbefore provided. Any increase in the
authorized number of shares of any class or classes of stock of the
Corporation or creation, authorization or issuance of any securities
convertible into, or warrants, options or similar rights to purchase,
acquire or
3
<PAGE>
receive, shares of any such class or classes of stock shall be deemed not
to affect adversely the powers, preferences or special rights of the shares
of Class A Common Stock or Class B Common Stock.
(c) Each reference in this Certificate of Incorporation to a majority
or other proportion of shares of Common Stock, Class A Common Stock or
Class B Common Stock shall refer to such majority or other proportion of
the votes to which such shares of Common Stock, Class A Common Stock or
Class B Common Stock, as applicable, are entitled.
(iv) In the event of any dissolution, liquidation or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after
payment in full of the amounts required to be paid to the holders of
Preferred Stock, the remaining assets and funds of the Corporation shall be
distributed pro rata to the holders of Class A Common Stock and Class B
Common Stock (and, for the avoidance of doubt, such distribution shall be
irrespective of the difference in voting rights between such classes of
stock). For purposes of this paragraph (B)(iv), the voluntary sale,
conveyance, lease, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
assets of the Corporation or a consolidation or merger of the Corporation
with one or more other corporations or other Persons (whether or not the
Corporation is the corporation surviving such consolidation or merger)
shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.
(v) (a) Prior to the date on which shares of Class B Common Stock
are transferred to the holders of shares of common stock, par value $.01
per share ("EDS Parent Common Stock"), of EDS Parent (as defined in Article
SEVENTH), or to holders of stock of the Class B Transferee (as defined in
paragraph (B)(v)(b) below) in a Tax-Free Spin-Off (as defined in paragraph
(B)(v)(b) below), each record holder of shares of Class B Common Stock may
from time to time convert any or all of such shares into an equal number of
shares of Class A Common Stock by surrendering the certificates for such
shares, accompanied by any required tax transfer stamps and by a written
notice by such record holder to the Corporation stating that such record
holder desires to convert such shares of Class B Common Stock into the same
number of shares of Class A Common Stock and requesting that the
Corporation issue all of such shares of Class A Common Stock to Persons
named therein, setting forth the number of shares of Class A Common Stock
to be issued to each such Person and the denominations in which the
certificates therefor are to be issued. To the extent permitted by law,
such voluntary conversion shall be deemed to have been effected at the
close of business on the date of such surrender. Following a Tax-Free
Spin-Off, shares of Class B Common Stock shall no longer be convertible
into shares of Class A Common Stock except as set forth in paragraph
(B)(v)(b) below.
(b) Prior to a Tax-Free Spin-Off, each share of Class B Common Stock
shall automatically convert into one share of Class A Common Stock upon the
transfer of such share if, after such transfer, such share is not
Beneficially Owned (as defined in Article
4
<PAGE>
Eleventh (B)) by EDS or, as set forth below in this paragraph (B)(v)(b), by
the Class B Transferee or any subsidiary of the Class B Transferee. Shares
of Class B Common Stock shall not convert into shares of Class A Common
Stock (1) in any transfer effected in connection with a distribution of
Class B Common Stock as a spin-off, split-up or split-off to holders of EDS
Parent Common Stock or to holders of stock of the Class B Transferee
intended to be on a tax-free basis under the Internal Revenue Code of 1986,
as amended from time to time (the "Code"), (a "Tax-Free Spin-Off") or (2)
except as otherwise set forth below in this paragraph (B)(v)(b), in any
transfer after a Tax-Free Spin-Off. For purposes of this paragraph (B)(v),
a Tax-Free Spin-Off shall be deemed to have occurred at the time shares are
first transferred to holders of EDS Parent Common Stock or to holders of
stock of the Class B Transferee, as the case may be, following receipt of
an affidavit described in clauses (6) or (7) of the first sentence of
paragraph (B)(v)(d) below. Prior to a Tax-Free Spin-Off, shares of Class B
Common Stock representing more than a 50 percent equity interest in the
then outstanding shares of Common Stock taken as a whole transferred by EDS
in a single transaction to one Person who is not an affiliate of EDS
(together with its successors, the "Class B Transferee") or any subsidiary
of the Class B Transferee shall not automatically convert to Class A Common
Stock upon the transfer of such shares. Any shares of Class B Common Stock
retained by EDS following any such transfer of shares of Class B Common
Stock to the Class B Transferee shall automatically convert into shares of
Class A Common Stock upon such transfer.
In the event of a Tax-Free Spin-Off, shares of Class B Common Stock
shall automatically convert into shares of Class A Common Stock on the
fifth anniversary of the date on which shares of Class B Common Stock are
first transferred to holders of EDS Parent Common Stock or of the Class B
Transferee, as the case may be, in a Tax-Free Spin-Off unless, prior to
such Tax-Free Spin-Off, EDS or the Class B Transferee, as the case may be,
delivers to the Corporation an opinion of counsel, reasonably satisfactory
to the Corporation, to the effect that such conversion could adversely
affect the ability of EDS or the Class B Transferee, as the case may be, to
obtain a favorable ruling from the Internal Revenue Service (the "IRS")
that the distribution would be a Tax-Free Spin-Off under the Code. If such
an opinion is received, approval of such conversion shall be submitted to a
vote of the holders of the Common Stock as soon as practicable after the
fifth anniversary of the Tax-Free Spin-Off unless EDS or the Class B
Transferee, as the case may be, delivers to the Corporation an opinion of
counsel, reasonably satisfactory to the Corporation, prior to such
anniversary to the effect that such vote could adversely affect the status
of the Tax-Free Spin-Off (including without limitation the ability to
obtain a favorable ruling from the IRS); if such opinion is so delivered,
such vote shall not be held. At the meeting of stockholders called for
such purpose, each holder of Common Stock shall be entitled to one vote
(irrespective of the voting rights provided for such shares under paragraph
(B)(iii)(a)) in person or by proxy for each share of Common Stock standing
in his or her name on the transfer books of the Corporation. Approval of
such conversion shall require the approval of a majority of the votes, on
the per share voting basis provided in the preceding sentence, entitled to
be cast by the holders of the Class A Common Stock and the Class B Common
Stock present and voting, voting together as a single class, and the
holders of the Class B Common Stock shall not be entitled to a
5
<PAGE>
separate class vote. Such conversion shall be effective on the date on
which such approval is given at a meeting of stockholders called for such
purpose.
The Corporation will provide notice of any automatic conversion of all
outstanding shares of Class B Common Stock to all holders of record of the
Common Stock as soon as practicable following such conversion; provided,
however, that the Corporation may satisfy such notice requirement by
providing such notice prior to such conversion. Such notice shall be
provided by mailing notice of such conversion first class postage prepaid,
to each holder of record of the Common Stock at such holder's address as it
appears on the transfer books of the Corporation; provided, further, that
no failure to give such notice nor any defect therein shall affect the
validity of the automatic conversion of any shares of Class B Common Stock.
Each such notice shall state, as appropriate, the following:
(1) the automatic conversion date;
(2) that all outstanding shares of Class B Common Stock are
automatically converted;
(3) the place or places where certificates for such shares are
to be surrendered for conversion; and
(4) that no dividends will be declared on the shares of Class B
Common Stock converted after such conversion date.
Immediately upon such conversion, the rights of the holders of shares
of Class B Common Stock as such shall cease and such holders shall be
treated for all purposes as having become the record owners of the shares
of Class A Common Stock issuable upon such conversion; provided, however,
that such Persons shall be entitled to receive when paid dividends, if any,
declared on the Class B Common Stock as of a record date preceding the time
of such conversion and unpaid as of the time of such conversion, subject to
paragraph (B)(v)(f) below.
(c) Prior to a Tax-Free Spin-Off, holders of shares of Class B Common
Stock may (1) sell or otherwise dispose of or transfer any or all of such
shares held by them, respectively, only in connection with a transfer which
meets the qualifications of paragraph (B)(v)(d) below, and under no other
circumstances, or (2) convert any or all of such shares into shares of
Class A Common Stock as provided in paragraph (B)(v)(a) above. Prior to a
Tax-Free Spin-Off, no one other than those Persons in whose names shares of
Class B Common Stock become registered on the original stock ledger of the
Corporation by reason of their record ownership of shares of Common Stock
of the Corporation which are reclassified into shares of Class B Common
Stock, or transferees or successive transferees who receive shares of Class
B Common Stock in connection with a transfer which meets the qualifications
set forth in paragraph (B)(v)(d) below, shall by virtue of the acquisition
of a certificate for shares of Class B Common Stock have the status of an
6
<PAGE>
owner or holder of shares of Class B Common Stock or be recognized as such
by the Corporation or be otherwise entitled to enjoy for his or her own
benefit the special rights and powers of a holder of shares of Class B
Common Stock.
Holders of shares of Class B Common Stock may at any and all times
transfer to any Person the shares of Class A Common Stock issuable upon
conversion of such shares of Class B Common Stock.
(d) Prior to a Tax-Free Spin-Off, shares of Class B Common Stock shall
be transferred on the books of the Corporation and a new certificate
therefor issued, upon presentation at the office of the Secretary of the
Corporation (or at such additional place or places as may from time to time
be designated by the Secretary of the Corporation) of the certificate for
such shares, in proper form for transfer and accompanied by all requisite
stock transfer tax stamps, only if such certificate when so presented shall
also be accompanied by any one of the following:
(1) an affidavit from EDS stating that such certificate is being
presented to effect a transfer by EDS of such shares to a Subsidiary
of EDS; or
(2) an affidavit from EDS stating that such certificate is being
presented to effect a transfer by any Subsidiary of EDS of such shares
to EDS or another Subsidiary of EDS; or
(3) an affidavit from EDS stating that such certificate is being
presented to effect a transfer by EDS or any of its Subsidiaries of
such shares to the Class B Transferee or a Subsidiary of the Class B
Transferee as contemplated by paragraph (B)(v)(b); or
(4) an affidavit from the Class B Transferee stating that such
certificate is being presented to effect a transfer by the Class B
Transferee of such shares to a Subsidiary of the Class B Transferee;
or
(5) an affidavit from the Class B Transferee stating that such
certificate is being presented to effect a transfer by any Subsidiary
of the Class B Transferee of such shares to the Class B Transferee or
another Subsidiary of the Class B Transferee; or
(6) an affidavit from EDS stating that such certificate is being
presented to effect a transfer by EDS of such shares to the holders of
EDS Parent Common Stock in connection with a Tax-Free Spin-Off; or
(7) an affidavit from the Class B Transferee stating that such
certificate is being presented to effect a transfer by the Class B
Transferee
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of such shares to the stockholders of the Class B Transferee in
connection with a Tax-Free Spin-Off.
Each affidavit of a record holder furnished pursuant to this paragraph
(B)(v)(d) shall be verified as of a date not earlier than five days prior
to the date of delivery thereof, and, where such record holder is a
corporation or partnership, shall be verified by an officer of the
corporation or by a general partner of the partnership, as the case may be.
If a record holder of shares of Class B Common Stock shall deliver a
certificate for such shares, endorsed by him or her for transfer or
accompanied by an instrument of transfer signed by him or her, to a Person
who receives such shares in connection with a transfer which does not meet
the qualifications set forth in this paragraph (B)(v)(d), then such Person
or any successive transferee of such certificate may treat such endorsement
or instrument as authorizing him or her on behalf of such record holder to
convert such shares in the manner above provided for the purpose of the
transfer to himself or herself of the shares of Class A Common Stock
issuable upon such conversion, and to give on behalf of such record holder
the written notice of conversion above required, and may convert such
shares of Class B Common Stock accordingly.
If such shares of Class B Common Stock shall improperly have been
registered in the name of such a Person (or in the name of any successive
transferee of such certificate) and a new certificate therefor issued, such
Person or transferee shall surrender such new certificate for cancellation,
accompanied by the written notice of conversion above required, in which
case (1) such Person or transferee shall be deemed to have elected to treat
the endorsement on (or instrument of transfer accompanying) the certificate
so delivered by such former record holder as authorizing such Person or
transferee on behalf of such former record holder so to convert such shares
and so to give such notice, (2) the shares of Class B Common Stock
registered in the name of such former record holder shall be deemed to have
been surrendered for conversion for the purpose of the transfer to such
Person or transferee of the shares of Class A Common Stock issuable upon
conversion, and (3) the appropriate entries shall be made on the books of
the Corporation to reflect such action.
In the event that the Board of Directors of the Corporation (or any
committee of the Board of Directors, or any officer of the Corporation,
designated for the purpose by the Board of Directors) shall determine, upon
the basis of facts not disclosed in any affidavit or other document
accompanying the certificate for shares of Class B Common Stock when
presented for transfer, that such shares of Class B Common Stock have been
registered in violation of the provisions of paragraph (B)(v), or shall
determine that a Person is enjoying for his or her own benefit the special
rights and powers of shares of Class B Common Stock in violation of such
provisions, then the Corporation shall take such action at law or in equity
as is appropriate under the circumstances. Without limiting the generality
of the preceding sentence, an unforeclosed pledge made to secure a bona
fide obligation shall not be deemed to violate such provisions.
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(e) Prior to the occurrence of a Tax-Free Spin-Off, each certificate
for shares of Class B Common Stock shall bear a legend on the face thereof
reading as follows:
"The shares of Class B Common Stock represented by this
certificate may not be transferred to any person or entity in
connection with a transfer that does not meet the qualifications
set forth in paragraph (B)(v)(d) of Article Fourth of the
Certificate of Incorporation of this corporation and no person
who receives such shares in connection with a transfer which does
not meet the qualifications prescribed by paragraph (B)(v)(d) of
said Article Fourth is entitled to own or to be registered as the
record holder of such shares of Class B Common Stock, but the
record holder of this certificate may at any time convert such
shares of Class B Common Stock into the same number of shares of
Class A Common Stock. Each holder of this certificate, by
accepting the same, accepts and agrees to all of the foregoing."
Upon and after the transfer of shares in a Tax-Free Spin-Off, shares of
Class B Common Stock shall no longer bear the legend set forth above in
this paragraph (B)(v)(e).
(f) Upon any conversion of shares of Class B Common Stock into shares
of Class A Common Stock pursuant to the provisions of this paragraph
(B)(v), any dividend, for which the record date or payment date shall be
subsequent to such conversion, which may have been declared on the shares
of Class B Common Stock so converted shall be deemed to have been declared,
and shall be payable, with respect to the shares of Class A Common Stock
into or for which such shares of Class B Common Stock shall have been so
converted, and any such dividend shall be deemed to have been declared, and
shall be payable, in shares of Class A Common Stock.
(g) The Corporation shall not reissue or resell any shares of Class B
Common Stock which shall have been converted into shares of Class A Common
Stock pursuant to or as permitted by the provisions of this paragraph
(B)(v), or any shares of Class B Common Stock which shall have been
acquired by the Corporation in any other manner. The Corporation shall,
from time to time, take such appropriate action as may be necessary to
retire such shares and to reduce the authorized amount of Class B Common
Stock accordingly. The Corporation shall at all times reserve and keep
available, out of its authorized but unissued Common Stock, such number of
shares of Class A Common Stock as would become issuable upon the conversion
of all shares of Class B Common Stock then outstanding.
(h) In connection with any transfer or conversion of any stock of the
Corporation pursuant to or as permitted by the provisions of this paragraph
(B)(v) or in connection with the making of any determination referred to in
this paragraph (B)(v):
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(1) the Corporation shall be under no obligation to make any
investigation of facts unless an officer, employee or agent of the
Corporation responsible for making such transfer or determination or
issuing Class A Common Stock pursuant to such conversion has
substantial reason to believe, or unless the Board of Directors (or a
committee of the Board of Directors designated for the purpose)
determines that there is substantial reason to believe, that any
affidavit or other document is incomplete or incorrect in a material
respect or that an investigation would disclose facts upon which any
determination referred to in paragraph (B)(v)(f) above should be made,
in either of which events the Corporation shall make or cause to be
made such investigation as it may deem necessary or desirable in the
circumstances and have a reasonable time to complete such
investigation; and
(2) neither the Corporation nor any director, officer, employee
or agent of the Corporation shall be liable in any manner for any
action taken or omitted in good faith.
(vi) The Corporation will not be required to pay any documentary,
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Class A Common Stock on the conversion of shares of
Class B Common Stock pursuant to this paragraph (B)(v), and no such issue
or delivery shall be made unless and until the Person requesting such issue
has paid to the Corporation the amount of any such tax or has established,
to the satisfaction of the Corporation, that such tax has been paid.
(vii) All rights to vote and all voting power (including, without
limitation thereto, the right to elect directors) shall be vested
exclusively in the holders of Common Stock, voting together as a single
class, except as otherwise expressly provided in this Certificate of
Incorporation, in a Preferred Stock Designation or as otherwise expressly
required by applicable law.
(viii) No stockholder shall be entitled to exercise any right of
cumulative voting.
(ix) Immediately upon the effectiveness of this Restated Certificate
of Incorporation, each share of common stock of the Corporation, par value
$.01 per share, issued and outstanding immediately prior to such
effectiveness shall be changed into and reclassified as 31,265 shares of
Class B Common Stock. Promptly after such effectiveness, each record
holder of a certificate that, immediately prior to such effectiveness,
represented common stock of the Corporation, par value $.01 per share,
shall be entitled to receive in exchange for such certificate, upon
surrender of such certificate to the Corporation, a certificate for the
number of shares of Class B Common Stock to which such holder is entitled
as a result of the changes in the common stock effected by the preceding
sentence (the "Reclassification"). Until surrendered and exchanged in
accordance herewith, each certificate that, immediately prior to such
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effectiveness, represented common stock shall represent the number of
shares of Class B Common Stock to which the holder is entitled as a result
of the Reclassification.
(C) Preferred Stock The Preferred Stock may be issued from time to time in
one or more series. The Board of Directors is hereby authorized to provide by
resolution or resolutions from time to time for the issuance of shares of
Preferred Stock in one or more series and, by filing a certificate pursuant to
the applicable law of the State of Delaware (hereinafter, along with any similar
designation relating to any other class or series of stock which may hereafter
be authorized, referred to as a "Preferred Stock Designation," each of which
shall be part of this Certificate of Incorporation), to establish from time to
time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations and restrictions thereof. The authority of
the Board of Directors with respect to each series shall include, but not be
limited to, determination of the following:
(i) The designation of the series, which may be by distinguishing
number, letter or title.
(ii) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(iii) Whether dividends, if any, shall be cumulative or noncumulative
and the dividend rate of the series.
(iv) The conditions upon which and dates at which dividends, if any,
shall be payable, and the relation which such dividends, if any, shall bear
to the dividends payable on any other class or classes of stock.
(v) The redemption rights and price or prices, if any, for shares
of the series.
(vi) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series.
(vii) The amounts payable on and the preferences, if any, of shares
of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(viii) Whether the shares of the series shall be convertible into
shares of any class or series, or any other security, of the Corporation or
any other corporation, and, if so, the specification of such other class or
series of such other security, the conversion price or prices or rate or
rates, any adjustments thereof, the date or dates at which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made.
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(ix) Restrictions on the issuance (or reissuance) of shares of the
same series or of any other class or series.
(x) The voting rights, if any, of the holders of shares of the
series.
(D) Record Holders. The Corporation shall be entitled to treat the Person
(as defined in Article Eleventh) in whose name any share of its stock is
registered as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to, or interest in, such share on the
part of any other Person, whether or not the Corporation shall have notice
thereof, except as expressly provided by applicable law.
(E) No Preemptive Rights. No stockholder of the Corporation shall have any
preemptive or preferential right, nor be entitled as such as a matter of right,
to subscribe for or purchase any part of any new or additional issue of stock of
the Corporation of any class or series, whether now or hereafter authorized, and
whether issued for money or for consideration other than money, or of any issue
of securities convertible into stock of the Corporation.
FIFTH: The Board of Directors is hereby authorized to create and issue,
whether or not in connection with the issuance and sale of any of its stock or
other securities or property, rights entitling the holders thereof to purchase
from the Corporation shares of stock or other securities or property of the
Corporation or any other corporation. The times at which and the terms upon
which such rights are to be issued will be determined by the Board of Directors
and set forth in the contracts or instruments that evidence such rights. The
authority of the Board of Directors with respect to such rights shall include,
but not be limited to, determination of the following:
(A) The initial purchase price per share or other unit of the stock or
other securities or property to be purchased upon exercise of such rights.
(B) Provisions relating to the times at which and the circumstances under
which such rights may be exercised or sold or otherwise transferred, either
together with or separately from, any other stock or other securities of the
Corporation.
(C) Provisions which adjust the number or exercise price of such rights or
amount or nature of the stock or other securities or property receivable upon
exercise of such rights following the occurrence of specified events, including
without limitation a combination, split or recapitalization of any stock of the
Corporation, a change in ownership of the Corporation's stock or other
securities or a reorganization, merger, consolidation, sale of assets or other
occurrence relating to the Corporation or any stock of the Corporation, and
provisions restricting the ability of the Corporation to enter into any such
transaction absent an assumption by the other party or parties thereto of the
obligations of the Corporation under such rights.
(D) Provisions which deny the holder of a specified percentage of the
outstanding stock or other securities of the Corporation the right to exercise
such rights and cause the rights held by such holder to become void.
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(E) Provisions which permit the Corporation to redeem or exchange such
rights.
(F) The appointment of a rights agent with respect to such rights.
SIXTH: (A) In furtherance of, and not in limitation of, the powers
conferred by law, the Board of Directors is expressly authorized and empowered:
(i) to adopt, amend or repeal the Bylaws of the Corporation; provided,
however, that the Bylaws adopted by the Board of Directors under the powers
hereby conferred may be amended or repealed by the Board of Directors or by the
stockholders having voting power with respect thereto; provided, further, that
in the case of amendments by stockholders, effective as of the first time at
which EDS shall cease to be the Beneficial Owner of an aggregate of at least a
majority of the voting power of the Voting Stock (as defined in paragraph (B)
of this Article Sixth) then outstanding (the "Trigger Date"), the affirmative
vote of the holders of at least 80 percent of the voting power of the then
outstanding Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provision of the Bylaws or adopt any provision of
the Bylaws inconsistent with any other provision of the Bylaws; and
(ii) from time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the accounts
and books of the Corporation, or any of them, shall be open to inspection of
stockholders; and, except as so determined, or as expressly provided in this
Certificate of Incorporation or in any Preferred Stock Designation, no
stockholder shall have any right to inspect any account, book or document of the
Corporation other than such rights as may be conferred by applicable law.
(B) The Corporation may in its Bylaws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
Effective as of the Trigger Date and notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80 percent of the voting power of the then outstanding
Voting Stock, voting together as a single class, shall be required to amend or
repeal, or adopt any provision inconsistent with, paragraph (A)(i) of this
Article Sixth. For the purposes of this Certificate of Incorporation, "Voting
Stock" shall mean the outstanding shares of stock of the Corporation entitled to
vote generally in the election of directors.
SEVENTH: (A) For purposes of this Certificate of Incorporation, "EDS"
shall mean Electronic Data Systems Corporation, a Delaware corporation ("EDS
Parent"), all successors to EDS Parent by way of merger, consolidation or sale
of all or substantially all its assets, and all corporations, partnerships,
joint ventures, associations and other entities (each a "Subsidiary Entity") in
which EDS Parent Beneficially Owns, directly or indirectly, 50 percent or more
of the outstanding voting stock, voting power or similar voting interests
("Voting Interest"), which shall not include the Corporation or any Subsidiary
Entity in which the Corporation Beneficially Owns, directly or indirectly, 50
percent or more of the outstanding Voting Interest.
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(B) In anticipation that:
(i) the Corporation will cease to be a wholly-owned Subsidiary (as
defined in Article Eleventh hereof) of EDS Parent but that EDS Parent will
remain, for some period of time, a stockholder of the Corporation;
(ii) the Corporation and EDS may engage in the same or similar
activities or lines of business and may have an interest in the same or similar
areas of corporate opportunities;
(iii) there will be benefits to be derived by the Corporation through
its continued contractual, corporate and business relations with EDS (including
without limitation service of officers of EDS as directors of the Corporation);
and
(iv) there will be benefits in providing guidelines for directors and
officers of EDS and of the Corporation with respect to the allocation of
corporate opportunities and other matters;
The provisions of this Article Seventh are set forth to regulate, define and
guide the conduct of certain affairs of the Corporation as they may involve EDS
and its officers and directors, and the powers, rights, duties and liabilities
of the Corporation and its officers, directors and stockholders in connection
therewith.
(C) Except as EDS may otherwise agree in writing, EDS shall have the right
to, and shall have no duty not to, (i) engage in the same or similar business
activities or lines of business as the Corporation, (ii) do business with any
potential or actual customer or supplier of the Corporation, or (iii) employ or
otherwise engage any officer or employee of the Corporation. Neither EDS nor
any officer or director thereof (except as provided in paragraph (D) of this
Article Seventh) shall be liable to the Corporation or its stockholders for
breach of any fiduciary duty by reason of any such activities (set forth in the
preceding sentence) of EDS or of the participation therein of such Person. In
the event that EDS acquires knowledge of a potential transaction or matter that
may be a corporate opportunity for both EDS and the Corporation, EDS shall have
no duty to communicate or present such corporate opportunity to the Corporation
and shall not be liable to the Corporation or its stockholders for breach of any
fiduciary duty as a stockholder of the Corporation by reason of the fact that
EDS pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another Person, or does not present such corporate
opportunity to the Corporation.
(D) In the event that a director or officer of the Corporation who is also
a director or officer of EDS acquires knowledge of a potential transaction or
matter that may be a corporate opportunity for both the Corporation and EDS,
such director or officer of the Corporation (i) shall have fully satisfied and
fulfilled the fiduciary duties of such director or officer to the Corporation
and its stockholders with respect to such corporate opportunity, (ii) shall not
be liable to the Corporation or its stockholders for breach of any fiduciary
duty by reason of the fact that EDS pursues or acquires such corporate
opportunity for itself or directs such corporate opportunity to another Person
or does not communicate information regarding such corporate
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opportunity to the Corporation, (iii) shall be deemed to have acted in good
faith and in a manner such Person reasonably believes to be in and not opposed
to the best interests of the Corporation, and (iv) shall be deemed not to have
breached his or her duty of loyalty to the Corporation or its stockholders and
not to have derived an improper benefit therefrom, if such director or officer
acts in a manner consistent with the following policy:
(x) a corporate opportunity offered to any Person who is a director
but not an officer of the Corporation and who is also an officer (whether
or not a director) of EDS shall belong to EDS, unless such opportunity is
expressly offered to such Person primarily in his or her capacity as a
director of the Corporation, in which case such opportunity shall belong to
the Corporation;
(y) a corporate opportunity offered to any Person who is an officer
(whether or not a director) of the Corporation and who is also a director
but not an officer of EDS shall belong to the Corporation, unless such
opportunity is expressly offered to such Person primarily in his or her
capacity as a director of EDS, in which case such opportunity shall belong
to EDS; and
(z) a corporate opportunity offered to any other Person who is either
an officer of both the Corporation and EDS or a director of both the
Corporation and EDS shall belong to EDS or to the Corporation, as the case
may be, if such opportunity is expressly offered to such Person primarily
in his or her capacity as an officer or director of EDS or of the
Corporation, respectively; otherwise, such opportunity shall belong to EDS.
(E) Any corporate opportunity that belongs to EDS or to the Corporation
pursuant to the foregoing policy shall not be pursued by the other, or directed
by the other to another Person, unless and until EDS or the Corporation, as the
case may be, determines not to pursue the opportunity. Notwithstanding the
preceding sentence, if the party to whom the corporate opportunity belongs does
not within a reasonable period of time begin to pursue, or thereafter continue
to pursue, such opportunity diligently and in good faith, the other party may
then pursue such opportunity or direct it to another Person.
(F) For purposes of this Article Seventh, "corporate opportunities" shall
consist of business opportunities which (i) the Corporation is financially able
to undertake, (ii) are, from their nature, in the line or lines of the
Corporation's business and are of practical advantage to it, and (iii) are ones
in which the Corporation has an interest or reasonable expectancy. In addition,
"corporate opportunities" shall not include any transaction in which the
Corporation or EDS is permitted to participate pursuant to (a) any agreement
between the Corporation and EDS in effect as of the time any equity security of
the Corporation is held of record by any Person other than EDS, as may be
amended thereafter with the approval of a majority of Disinterested Directors
(as defined in Article Eleventh hereof) or (b) any subsequent agreement between
the Corporation and EDS approved by a majority of Disinterested Directors, it
being acknowledged that the rights of the Corporation under any such agreement
shall be deemed to be contractual rights and shall not be corporate
opportunities of the Corporation for any purpose; provided, however, that no
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presumption or implication as to corporate opportunities relating to any
transaction not explicitly covered by such an agreement shall arise from the
existence or absence of any such agreement.
(G) Any Person purchasing or otherwise acquiring any interest in any shares
of stock of the Corporation shall be deemed to have notice of and consented to
the provisions of this Article Seventh.
(H) For purposes of this Article Seventh, the "Corporation" shall mean the
Corporation and all corporations, partnerships, joint ventures, associations and
other entities in which the Corporation Beneficially Owns, directly or
indirectly, 50 percent or more of the outstanding voting stock, voting power or
similar voting interests.
(I) If any contract, agreement, arrangement or transaction between the
Corporation and EDS involves a corporate opportunity and is approved in
accordance with the procedures set forth in Article Seventh hereof, EDS and its
officers and directors shall also, for the purposes of this Article Seventh and
the other provisions of this Certificate of Incorporation, be deemed to have
fully satisfied and fulfilled any fiduciary duties they may have to the
Corporation and its stockholders. Any such contract, agreement, arrangement or
transaction involving a corporate opportunity not so approved shall not by
reason thereof result in any such breach of any fiduciary duty, but shall be
governed by the other provisions of this Article Seventh, this Certificate of
Incorporation, the Bylaws, the DGCL and other applicable law.
(J) For purposes of this Article Seventh, a director of the Corporation who
is Chairman of the Board of Directors of the Corporation, Vice Chairman of the
Board of Directors of the Corporation or the Chief Executive Officer of the
Corporation shall not be deemed to be an officer of the Corporation by reason of
holding such position (regardless of whether such position is deemed an office
of the Corporation under the Bylaws of the Corporation), unless such Person is a
full-time employee of the Corporation.
(K) Effective as of the Trigger Date, and notwithstanding anything in this
Certificate of Incorporation to the contrary and in addition to any vote of the
Board of Directors required by applicable law or this Certificate of
Incorporation, the affirmative vote of the holders of more than 80 percent of
the voting power of the Voting Stock then outstanding, voting together as a
single class, shall be required to alter, amend or repeal in a manner adverse to
the interests of EDS, or adopt any provision adverse to the interests of EDS and
inconsistent with, any provision of this Article Seventh. Neither the
alteration, amendment or repeal of this Article Seventh nor the adoption of any
provision inconsistent with this Article Seventh shall eliminate or reduce the
effect of this Article Seventh in respect of any matter occurring, or any cause
of action, suit or claim that, but for this Article Seventh, would accrue or
arise, prior to such alteration, amendment, repeal or adoption.
EIGHTH: (A) In anticipation that:
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(i) the Corporation will cease to be a wholly-owned Subsidiary of
EDS Parent but EDS Parent will remain, for some period of time, a
stockholder of the Corporation and have continued contractual, corporate
and business relations with the Corporation;
(ii) the Corporation and EDS or its customers or suppliers may enter
into contracts or otherwise transact business with each other and the
Corporation may derive benefits therefrom; and
(iii) the Corporation may from time to time enter into contractual,
corporate or business relations with one or more of its directors, or one
or more corporations, partnerships, associations or other organizations in
which one or more of its directors have a financial interest (collectively,
"Related Entities");
the provisions of this Article Eighth are set forth to regulate and guide
certain contractual relations and other business relations of the Corporation as
they may involve EDS or its customers or suppliers, Related Entities and their
respective officers and directors, and the powers, rights, duties and
liabilities of the Corporation and its officers, directors and stockholders in
connection therewith.
(B) The provisions of this Article Eighth are in addition to, and not in
limitation of, the provisions of the DGCL and the other provisions of this
Certificate of Incorporation. Any contract or business relation which does not
comply with procedures set forth in this Article Eighth shall not by reason
thereof be deemed void or voidable or result in any breach of any fiduciary duty
to, or duty of loyalty to, or failure to act in good faith or in the best
interests of, the Corporation, or the derivation of any improper personal
benefit, but shall be governed by the remaining provisions of this Certificate
of Incorporation, the Bylaws, the DGCL and other applicable law.
(C) No contract, agreement, arrangement or transaction between the
Corporation and EDS or any customer or supplier thereof or any Related Entity or
between the Corporation and one or more of the directors or officers of the
Corporation, EDS or any Related Entity, or any amendment, modification or
termination thereof, shall be void or voidable solely for the reason that EDS or
such customer or supplier, any Related Entity or any one or more of the officers
or directors of the Corporation, EDS or any Related Entity are parties thereto,
or solely because any such directors or officers are present at or participate
in the meeting of the Board of Directors or committee thereof which authorizes
such contract, agreement, arrangement, transaction, amendment, modification or
termination (each, a "Transaction") or solely because his or their votes are
counted for such purpose, and EDS, any Related Entity and such directors and
officers (i) shall have fully satisfied and fulfilled any fiduciary duties they
may have to the Corporation and its stockholders with respect thereto, (ii)
shall not be liable to the Corporation or its stockholders for any breach of any
fiduciary duty they may have by reason of the entering into, performance or
consummation of any such Transaction, (iii) shall be deemed to have acted in
good faith and in a manner such Persons reasonably believed to be in and not
opposed to the best interests of the Corporation, to the extent such standard is
applicable to such Persons' conduct, and (iv) shall be
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deemed not to have breached any duties of loyalty to the Corporation or its
stockholders they may have and not to have derived an improper personal benefit
therefrom, if:
(w) the material facts as to the Transaction are disclosed or are
known to the Board of Directors or the committee thereof that authorizes
the Transaction and the Board of Directors or such committee in good faith
authorizes or approves the Transaction by the affirmative vote of a
majority of the Disinterested Directors on the Board of Directors or such
committee (even though the Disinterested Directors be less than a quorum);
(x) the material facts as to the Transaction are disclosed or are
known to the holders of Voting Stock entitled to vote thereon, and the
Transaction is specifically approved in good faith by vote of the holders
of a majority of the then outstanding Voting Stock not owned by EDS or such
Related Entity, voting together as a single class, as the case may be;
(y) such Transaction is effected pursuant to, and consistent with,
terms and conditions specified in any arrangements, standards, protocols or
guidelines (collectively, the "Guidelines") which are in good faith
authorized or approved, after disclosure or knowledge of the material facts
related thereto, by the affirmative vote of a majority of the Disinterested
Directors on the Board of Directors or the applicable committee thereof
(even though the Disinterested Directors be less than a quorum) or by vote
of the holders of a majority of the then outstanding Voting Stock not owned
by EDS or such Related Entity, voting together as a single class, as the
case may be (such authorization or approval of such Guidelines constituting
or being deemed to constitute authorization or approval of such
Transaction); or
(z) such Transaction is fair as to the Corporation as of the time it
is authorized, approved or ratified by the Board of Directors, a committee
thereof or the stockholders of the Corporation.
In addition, each Transaction authorized, approved or effected, and such
Guidelines so authorized or approved, as described in (w), (x), or (y) above,
shall be deemed to be entirely fair to the Corporation and its stockholders;
provided, however, that if such authorization or approval is not obtained, or
such Transaction is not so effected, no presumption shall arise that such
Transaction or such Guidelines are not fair to the Corporation and its
stockholders.
(D) Directors of the Corporation who are also directors or officers of EDS
or any Related Entity may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or of a committee that authorizes or
approves any such Transaction or any such Guidelines. Voting Stock owned by EDS
and any Related Entities may be counted in determining the presence of a quorum
at a meeting of stockholders that authorizes or approves any such Transaction or
any such Guidelines.
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(E) EDS shall not be liable to the Corporation or its stockholders for
breach of any fiduciary duty it may have by reason of the fact that EDS takes
any action or exercises any rights or gives or withholds any consent in
connection with any Transaction between EDS and the Corporation. No vote cast
or other action taken by any Person who is an officer, director or other
representative of EDS, which vote is cast or action is taken by such Person in
his capacity as a director of the Corporation, shall constitute an action of, or
the exercise of a right by, or a consent of, EDS for the purpose of any such
Transaction.
(F) Any Person purchasing or otherwise acquiring any interest in any shares
of stock of the Corporation shall be deemed to have notice of and to have
consented to the provisions of this Article Eighth.
(G) For purposes of this Article Eighth, any Transaction with any
corporation, partnership, joint venture, association or other entity in which
the Corporation Beneficially Owns, directly or indirectly, 50 percent or more of
the outstanding voting stock, voting power or similar voting interests, or with
any officer or director thereof, shall be deemed to be a Transaction with the
Corporation.
(H) Effective as of the Trigger Date, and notwithstanding anything in this
Certificate of Incorporation to the contrary, and in addition to any vote of the
Board of Directors required by applicable law or this Certificate of
Incorporation, the affirmative vote of the holders of more than 80 percent of
the voting power of the Voting Stock then outstanding, voting together as a
single class, shall be required to alter, amend or repeal in a manner adverse to
the interests of EDS, or adopt any provision adverse to the interests of EDS and
inconsistent with, any provision of this Article Eighth. Neither the
alteration, amendment or repeal of this Article Eighth nor the adoption of any
provision inconsistent with this Article Eighth shall eliminate or reduce the
effect of this Article Eighth in respect of any matter occurring, or any cause
of action, suit or claim that, but for this Article Eighth, would accrue or
arise, prior to such alteration, amendment, repeal or adoption.
NINTH: Effective as of the Trigger Date, and subject to the rights of the
holders of any series of Preferred Stock or any other series or class of stock
as set forth in this Certificate of Incorporation to elect additional directors
under specified circumstances, any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing in lieu of a meeting of such stockholders. Except as
otherwise required by law, and subject to the rights of the holders of any
series of Preferred Stock or any other series or class of stock as set forth in
this Certificate of Incorporation to elect additional directors under specified
circumstances, special meetings of the stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of Directors which the Corporation would have if
there were no vacancies or by the Chairman of the Board; provided, that, prior
to the Trigger Date, special meetings of the stockholders of the Corporation
shall also be called at the request of the holders of a majority of the voting
power of the then outstanding Voting Stock. Except as expressly provided in the
immediately preceding sentence, any power of stockholders to call a special
meeting is specifically denied. Only such
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business as shall have been brought before the special meeting of stockholders
pursuant to the Corporation's notice of meeting shall be conducted at such
meeting. Effective as of the Trigger Date, and notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of at least 80 percent of the voting power of the then outstanding Voting
Stock, voting together as a single class, shall be required to amend or repeal,
or adopt any provision inconsistent with, this Article Ninth.
TENTH: (A) Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be fixed by the
Bylaws of the Corporation and may be increased or decreased from time to time in
such a manner as may be prescribed by the Bylaws.
(B) Unless and except to the extent that the Bylaws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
(C) The directors, other than those who may be elected by the holders of
any series of Preferred Stock or any other series or class of stock as set forth
in this Certificate of Incorporation, shall be divided into three classes, as
nearly equal in number as possible. One class of directors shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
1999, another class shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 2000, and another class shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
2001. Members of each class shall hold office until their successors are
elected and qualified. At each annual meeting of the stockholders of the
Corporation, commencing with the 1999 annual meeting, the successors of the
class of directors whose term expires at that meeting shall be elected by a
plurality vote of all votes cast at such meeting to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election.
(D) Subject to the rights of the holders of any series of Preferred Stock
or any other series or class of stock, as set forth in this Certificate of
Incorporation, to elect additional directors under specified circumstances, any
director may be removed from office, at any time, but only for cause and only by
the affirmative vote of the holders of at least 80 percent of the voting power
of the then outstanding Voting Stock, voting together as a single class;
provided, however, that prior to the Trigger Date any director or directors may
be removed from office, without cause, with the affirmative vote of the holders
of at least a majority of the voting power of the then outstanding Voting Stock,
voting together as a single class.
(E) Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, and in addition to any vote of the Board of Directors required
by applicable law or this Certificate of Incorporation, effective as of the
Trigger Date, the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal, or adopt any provision
inconsistent with, this Article Tenth.
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ELEVENTH: For purposes of this Certificate of Incorporation:
(A) "Person" shall mean any individual, firm, corporation or other
entity.
(B) "Beneficial Owner," "Beneficially Own," "Beneficially Owned,"
"Beneficial Ownership," and words of similar import shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations of
the Securities Exchange Act of 1934, as in effect on March 19, 1998.
(C) "Disinterested Directors" shall mean the directors of the
Corporation who are not officers of either EDS or the Corporation or
directors of EDS.
(D) "Subsidiary" shall mean any corporation of which a majority of any
series or class of equity security is owned, directly or indirectly, by a
different corporation.
TWELFTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (A) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (B) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (C) under Section 174 of the DGCL, or (D) for any transaction
from which the director derived an improper personal benefit. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, any
alteration, amendment or repeal of, or adoption of any provision inconsistent
with, this Article Twelfth shall not adversely affect any right or protection of
a director of the Corporation existing hereunder in respect of any act or
omission occurring prior to such alteration, amendment, repeal or adoption.
THIRTEENTH: Except as may be expressly provided in this Certificate of
Incorporation, the Corporation reserves the right at any time and from time to
time to alter, amend, or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed herein or by applicable law, and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors or
any other Persons whomsoever by and pursuant to this Certificate of
Incorporation (in its present form or as hereafter amended) are granted subject
to the right reserved in this Article Thirteenth.
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IN WITNESS WHEREOF, the Corporation has caused the Restated Certificate of
Incorporation to be signed and attested by its duly authorized officer, this
18/th/ day of May, 1998.
UNIGRAPHICS SOLUTIONS INC.
By: /s/ D. GILBERT FRIEDLANDER
----------------------------
Name: D. Gilbert Friedlander
Title: Vice President
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EXHIBIT 3.2
RESTATED BYLAWS
OF
UNIGRAPHICS SOLUTIONS INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1 DELAWARE OFFICE. The registered office of Unigraphics
Solutions Inc. (the "Corporation") in the State of Delaware shall be located in
the City of Wilmington, County of New Castle, and the name and address of its
registered agent is The Prentice-Hall Corporation System, Inc., 1013 Centre
Road, Wilmington, Delaware 19805-1297.
SECTION 1.2 OTHER OFFICES. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
SECTION 1.3 BOOKS AND RECORDS. The books and records of the Corporation
may be kept at the Corporation's headquarters in Maryland Heights, Missouri or
at such other locations outside the State of Delaware as may from time to time
be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held on the third Wednesday in May of each year, if not a
legal holiday, and if a legal holiday then on the next succeeding business day,
at 10:00 a.m., local time, at the principal executive offices of the
Corporation, or at such other date, place and/or time as may be fixed from time
to time by resolution of the Board of Directors.
SECTION 2.2 SPECIAL MEETING. Except as otherwise required by applicable
law, and subject to the rights of the holders of any series of preferred stock,
par value $.01 per share (the "Preferred Stock"), or any other series or class
of stock, as set forth in the Certificate of Incorporation, to elect additional
directors under specified circumstances, special meetings of the stockholders of
the Corporation may be called only by the Board of Directors pursuant to a
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resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies (the "Whole Board") or by the
Chairman of the Board; provided, that prior to the Trigger Date (as such term is
defined in the Certificate of Incorporation), special meetings of the
stockholders of the Corporation shall also be called at the request of the
holders of a majority of the voting power of the then outstanding Voting Stock
(as defined in Section 2.5 hereof). Except as expressly provided in the
immediately preceding sentence, any power of stockholders of the Corporation to
call a special meeting is specifically denied.
SECTION 2.3 PLACE OF MEETING. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office of
the Corporation.
SECTION 2.4 NOTICE OF MEETING. Written or printed notice, stating the
place, day and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be prepared and delivered by the Corporation not less
than ten days nor more than sixty days before the date of the meeting, either
personally, or by mail, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with postage thereon prepaid, addressed to the
stockholder at his address as it appears on the stock transfer books of the
Corporation. Such further notice shall be given as may be required by law.
Meetings may be held without notice if all stockholders entitled to vote are
present, or if notice is waived by those not present. Any previously scheduled
meeting of the stockholders may be postponed by resolution of the Board of
Directors upon public notice given prior to the time previously scheduled for
such meeting of stockholders.
SECTION 2.5 QUORUM AND ADJOURNMENT. Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the voting
power of the outstanding shares of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting as a class, the
holders of a majority of the voting power the outstanding shares of such class
or series shall constitute a quorum for the transaction of such business. The
chairman of the meeting or a majority of the voting power of the shares of
Voting Stock so represented may adjourn the meeting from time to time, whether
or not there is such a quorum (or in the case of specified business to be voted
on by a class or series, the chairman of the meeting or a majority of the shares
of such class or series so represented may adjourn the meeting with respect to
such specified business). No notice of the time and place of adjourned meetings
need be given if the time and place thereof are announced at the meeting at
which the adjournment is taken, unless the adjournment is for more than thirty
days or a new record date is fixed for the adjourned meeting, in which case a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
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SECTION 2.6 PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or as otherwise permitted
by law, or by his duly authorized attorney-in-fact. Such proxy must be filed
with the Secretary of the Corporation or his representative at or before the
time of the meeting.
SECTION 2.7 NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting delivered pursuant to Section 2.4 of
these Bylaws, (b) by or at the direction of the Board of Directors or the
Chairman of the Board, (c) by any stockholder of the Corporation who is
entitled to vote at the meeting, who complied with the notice procedures
set forth in clauses (2) and (3) of this paragraph (A) and this Bylaw and
who was a stockholder of record at the time such notice is delivered to the
Secretary of the Corporation or (d) prior to the Trigger Date, by EDS (as
such term is defined in the Certificate of Incorporation).
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder, pursuant to clause (c) of paragraph
(A)(1) of this Bylaw, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than ninety days nor more
than one hundred and twenty days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than twenty days, or
delayed by more than seventy days, from such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the one
hundred and twentieth day prior to such annual meeting and not later than
the close of business on the later of the ninetieth day prior to such
annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. For purposes of
determining whether a stockholder's notice shall have been delivered in a
timely manner for the annual meeting of stockholders in 1999, the "first
anniversary of the preceding year's annual meeting" shall be deemed to be
the third Wednesday in May, 1999.
In no event shall the adjournment of an annual meeting commence a new
time period for the giving of a stockholder's notice as described above.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11
thereunder, including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (b)
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as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as
to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees
for director or specifying the size of the increased Board of Directors
made by the Corporation at least one hundred days prior to the first
anniversary of the preceding year's initial meeting, a stockholder's notice
required by this Bylaw shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by the
Corporation.
(B) Special Meetings of Stockholders. Only such business as shall have
been brought before the special meeting of stockholders pursuant to the
Corporation's notice of meeting pursuant to Section 2.4 of these Bylaws shall be
conducted at such meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (1) by or at
the direction of the Board of Directors or (2) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Bylaw and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. Nominations
by stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice as required
by paragraph (A)(2) of this Bylaw shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the one hundred
and twentieth day prior to such special meeting and not later than the close of
business on the later of the ninetieth day prior to such special meeting or the
tenth day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General.
(1) Only persons who are nominated in accordance with the procedures
set forth in this Bylaw shall be eligible to serve as directors and only
such business shall be conducted
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at a meeting of stockholders as shall have been brought before the meeting
in accordance with the procedures set forth in this Bylaw. Except as
otherwise provided by law, the Restated Certificate of Incorporation or
these Bylaws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth in
this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination
shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to
affect any rights (i) of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act, or (ii) of the holders of any series of Preferred Stock to elect
directors if so provided under an applicable Preferred Stock Designation
(as defined in the Certificate of Incorporation).
SECTION 2.8 VOTING PROCEDURES. Election of directors at all meetings of
the stockholders at which directors are to be elected shall be by written
ballot. Except as otherwise set forth in the Certificate of Incorporation with
respect to the right of the holders of any series of Preferred Stock or any
other series or class of stock to elect additional directors under specified
circumstances, directors shall be elected by a plurality of the votes cast by
the holders of Common Stock, present in person or by proxy. Except as otherwise
provided by law, the Certificate of Incorporation or these Bylaws, all matters
other than the election of directors properly submitted to the stockholders at
any meeting shall be decided by the affirmative vote of a majority of the voting
power of the shares present in person or represented by proxy at the meeting and
entitled to vote on the matter. The vote upon any matter other than the
election of directors shall be by ballot only if so ordered by the chairman of
the meeting.
SECTION 2.9 INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.
(A) The Board of Directors by resolution shall appoint, or shall authorize
an officer of the Corporation to appoint, one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives of the Corporation, to act at the meeting and make a written
report thereof. One or more persons may be designated as alternate inspectors
to replace any inspector who fails to act. If no inspector or alternate has
been appointed to act, or if all inspectors
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or alternates who have been appointed are unable to act, at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by the General Corporation Law of
the State of Delaware.
(B) The chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the stockholders will vote at a meeting.
SECTION 2.10 NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Effective as of
the Trigger Date, and subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in the
Certificate of Incorporation to elect additional directors under specified
circumstances, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at an annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by law or by the Certificate of
Incorporation or by these Bylaws required to be exercised or done by the
stockholders.
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights of
the holders of any series of Preferred Stock, or any other series or class of
stock, as set forth in the Certificate of Incorporation, to elect directors
under specified circumstances, the number of directors shall be fixed from time
to time exclusively pursuant to a resolution adopted by a majority of the Whole
Board, but shall consist of not more than twelve nor less than three directors.
The directors, other than those who may be elected by the holders of any series
of Preferred Stock or any other series or class of stock as set forth in the
Certificate of Incorporation, shall be divided into three classes, as nearly
equal in number as possible. One class of directors shall be initially elected
for a term expiring at the annual meeting of stockholders to be held in 1999;
another class shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 2000; and another class shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
2001. Members of each class shall hold office until their successors are
elected and qualified. At each annual meeting of the stockholders of the
Corporation, commencing with the 1999 annual meeting, the successors of the
class of directors whose term expires at that meeting shall
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be elected by a plurality vote of all votes cast at such meeting to hold office
for a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
SECTION 3.3 REGULAR MEETINGS. A regular annual meeting of the Board of
Directors shall be held without other notice than this Bylaw on the same date,
and at the same place, as each annual meeting of stockholders or on such other
day, at such other place and at such time as the Board of Directors may
determine. The Board of Directors may from time to time, by resolution, provide
the time and place for the holding of additional regular meetings without other
notice than such resolution.
SECTION 3.4 SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be called at the request of the Chairman of the Board, the President or a
majority of the Whole Board. The person or persons authorized to call special
meetings of the Board of Directors may fix the place and time of the meetings.
SECTION 3.5 NOTICE. Notice of any special meeting shall be given to each
director at his or her business or residence in writing or by telegram,
facsimile or by telephone communication. If mailed, such notice shall be deemed
adequately delivered when deposited in the United States mails so addressed,
with postage thereon prepaid, at least three days before such meeting. If by
telegram, such notice shall be deemed adequately delivered when the telegram is
delivered to the telegraph company at least twenty-four hours before such
meeting. If by facsimile transmission, such notice shall be transmitted at
least twenty-four hours before such meeting. If by telephone, the notice shall
be given at least twelve hours prior to the time set for the meeting. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice of such
meeting, except for amendments to these Bylaws as provided under Section 8.1 of
Article VIII hereof. A meeting may be held at any time without notice if all
the directors are present or if those not present waive notice of the meeting in
writing, either before or after such meeting. Any director present in person at
a meeting of the Board of Directors shall be deemed to have waived notice of the
time and place of meeting.
SECTION 3.6 ACTION BY CONSENT OF BOARD OF DIRECTORS. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 3.7 CONFERENCE TELEPHONE MEETINGS. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
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SECTION 3.8 QUORUM. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. The directors present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough directors to leave less than a quorum.
SECTION 3.9 VACANCIES. Subject to the rights of the holders of any series
of Preferred Stock or any other series or class of stock, as set forth in the
Certificate of Incorporation, to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, shall be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors, and directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
SECTION 3.10 REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock or any other series or class of stock, as set forth in the
Certificate of Incorporation, to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause by the affirmative vote of the
holders of at least 80 percent of the voting power of the then outstanding
Voting Stock, voting together as a single class; provided, however, that prior
to the Trigger Date any director or directors may be removed from office,
without cause, with the affirmative vote of the holders of at least a majority
of the voting power of the then outstanding Voting Stock, voting together as a
single class.
SECTION 3.11 FEES AND EXPENSES. Directors shall receive such fees and
expenses as the Board of Directors shall from time to time prescribe.
ARTICLE IV
COMMITTEES
SECTION 4.1 EXECUTIVE COMMITTEE.
(A) The Board of Directors may, by resolution passed by a majority of the
Whole Board, designate an Executive Committee, to consist of three or more
members, including the Chairman of the Board and the Chief Executive Officer. A
majority of the members of the Executive Committee shall constitute a quorum.
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(B) The Executive Committee shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, with the exception of such powers and authority as
may be specifically reserved to the Board of Directors by law or by resolution
adopted by the Board of Directors.
SECTION 4.2 AUDIT COMMITTEE.
(A) The Board of Directors may, by resolution passed by a majority of the
Whole Board, designate an Audit Committee, to consist of two or more members,
none of the members of which shall be employees or officers of the Corporation
or EDS or directors of EDS. A majority of the members of the Audit Committee
shall constitute a quorum.
(B) The Audit Committee shall from time to time review and make
recommendations to the Board of Directors with respect to the selection of
independent auditors, the fees to be paid such auditors, the adequacy of the
audit and accounting procedures of the Corporation, and such other matters as
may be specifically delegated to the Committee by the Board of Directors. In
this connection the Audit Committee shall, at its request, meet with
representatives of the independent auditors and with the financial officers of
the Corporation separately or jointly.
SECTION 4.3 COMPENSATION/NOMINATING COMMITTEE.
(A) The Board of Directors may, by resolution passed by a majority of the
Whole Board, designate a Compensation/Nominating Committee, to consist of three
or more members, none of the members of which shall be employees or officers of
the Corporation. A majority of the members of the Compensation/Nominating
Committee shall constitute a quorum.
(B) The Compensation/Nominating Committee shall from time to time review
and make recommendations to the Board of Directors with respect to the
management remuneration policies of the Corporation including salary rates and
fringe benefits of elected officers, other remuneration plans such as incentive
compensation, deferred compensation and stock option plans, directors'
compensation and benefits and such other matters as may be specifically
delegated to the Committee by the Board of Directors.
(C) In addition, the Compensation/Nominating Committee shall make
recommendations to the Board of Directors (1) concerning suitable candidates for
election to the Board, (2) with respect to assignments to Board Committees, and
(3) with respect to promotions, changes and succession among the senior
management of the Corporation, and shall perform such other duties as may be
specifically delegated to the Committee by the Board of Directors.
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SECTION 4.4 COMMITTEE PROCEDURE, SEAL.
(A) The Executive, Compensation/Nominating, and Audit Committees shall
keep regular minutes of their meetings, which shall be reported to the Board of
Directors, and shall fix their own rules of procedures.
(B) The Executive, Compensation/Nominating, and Audit Committees may each
authorize the seal of the Corporation to be affixed to all papers which may
require it.
(C) In the absence or disqualification of a member of any Committee, the
members of that Committee present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of such
absent or disqualified member.
SECTION 4.5 OTHER COMMITTEES. The Board of Directors, or any Committee
thereof so authorized by the Board of Directors, may, from time to time, by
resolution passed by a majority of the Whole Board or such Committee, designate
one or more other Committees of the Board. Each such Committee shall have such
duties and may exercise such powers as are granted to it in the resolution
designating the members thereof. Each Committee shall fix its own rules of
procedure.
ARTICLE V
OFFICERS
SECTION 5.1 ELECTED OFFICERS. The elected officers of the Corporation
shall be (A) a Chairman of the Board, unless the Board of Directors specifies
that the Chairman of the Board shall not be an officer of the Corporation, (B) a
Vice Chairman of the Board, unless the Board of Directors specifies that the
Vice Chairman of the Board shall not be an officer of the Corporation, (C) a
President, (D) one or more Vice Presidents (including Executive Vice Presidents
and Senior Vice Presidents), (E) a Secretary, (F) a Treasurer, and (G) such
other officers as the Board of Directors from time to time may deem proper. The
Chairman of the Board (whether or not an officer of the Corporation) shall be
chosen from the directors. The other officers of the Corporation may or may not
be directors. All officers chosen by the Board of Directors shall each have
such powers and duties as generally pertain to their respective offices, subject
to the specific provisions of this Article V. Such officers shall also have
such powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
SECTION 5.2 ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held at the time of each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
5.10 of these Bylaws, the officers shall hold their respective offices at the
pleasure
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of the Board of Directors and any officer may be removed at any time, with or
without cause, by a vote of the majority of the directors; each officer shall
hold office until his or her successor shall have been duly elected and shall
have qualified or until his death or removal or until he shall resign.
SECTION 5.3 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors. He or
she shall make reports to the Board of Directors and the stockholders, and shall
have such other powers and perform such other duties as are required of him or
her from time to time by the Board of Directors. The Board of Directors may
specify in a resolution or resolutions that the Chairman of the Board shall not
be an officer of the Corporation. The offices of Chairman of the Board and
President may be filled by the same individual.
SECTION 5.4 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board
shall perform such duties as shall be assigned by the Board of Directors or the
Chairman of the Board.
SECTION 5.5 PRESIDENT. Unless otherwise specified by the Board of
Directors, the President shall be the Chief Executive Officer of the
Corporation, shall be responsible for the general management of the affairs of
the Corporation and shall perform all duties incidental to his or her office
which may be required by law, and shall have such other powers and perform such
other duties as are required of him or her from time to time by the Board of
Directors. The President shall, in the absence of or because of the inability
to act of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of stockholders and of the Board of Directors.
The President may sign, alone or with the Secretary, or an Assistant Secretary,
or any other proper officer of the Corporation authorized by the Board of
Directors, certificates, contracts, and other instruments of the Corporation as
authorized by the Board of Directors. He or she shall see that all orders and
resolutions of the Board of Directors and of any committee thereof are carried
into effect.
SECTION 5.6 VICE PRESIDENTS. Each Vice President (including any Executive
Vice Presidents and Senior Vice Presidents) shall perform such duties as shall
be assigned by the Board of Directors, the Chairman of the Board or the
President.
SECTION 5.7 SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and Directors and all other notices
required by law or by these Bylaws, and in case of his or her absence or refusal
or neglect so to do, any such notice may be given by any person thereunto
directed by the Chairman of the Board or the President, or by the Board of
Directors, upon whose request the meeting is called as provided in these Bylaws.
He or she shall record all the proceedings of the meetings of the Board of
Directors, any committees thereof and the stockholders of the Corporation in a
book to be kept for that purpose, and shall perform such other duties as may be
assigned to him or her by the Board of Directors, the Chairman of the Board or
the President. He or she shall have the custody of the seal of the Corporation
and shall affix the same to all instruments requiring it, when authorized by the
Board of Directors, the Chairman of the Board
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or the President, and attest to the same. Any or all of the duties of the
Secretary may be delegated to one or more Assistant Secretaries.
SECTION 5.8 TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursement in books belonging to the Corporation. The Treasurer
shall deposit all moneys and other valuables in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, the Chairman of the Board, or the President,
taking proper vouchers for such disbursements. The Treasurer shall render to
the Chairman of the Board, the President and the Board of Directors, whenever
requested, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of Directors,
the Treasurer shall give the Corporation a bond for the faithful discharge of
his or her duties in such amount and with such surety as the Board of Directors
shall prescribe. Any or all of the duties of the Treasurer may be delegated to
one or more Assistant Treasurers.
SECTION 5.9 COMPENSATION. The compensation of the officers of the
Corporation shall be fixed, from time to time, by the Board of Directors.
SECTION 5.10 VACANCIES. In case any office becomes vacant by death,
resignation, retirement, disqualification, removal from office, or any other
cause, the Board of Directors may abolish the office (except that of President,
Secretary and Treasurer) or elect an officer to fill such vacancy.
ARTICLE VI
STOCK CERTIFICATES AND TRANSFERS
SECTION 6.1 STOCK CERTIFICATES AND TRANSFERS.
(A) The interest of each stockholder of the Corporation shall be evidenced
by certificates for shares of stock in such form as the appropriate officers of
the Corporation may from time to time prescribe; provided, however, the Board of
Directors may provide by resolution that some or all of any or all classes or
series of the Corporation's stock shall be uncertificated shares. The shares of
the stock of the Corporation shall be transferred on the books of the
Corporation by the holder thereof in person or by his attorney, upon surrender
for cancellation of certificates for the same number of shares, with an
assignment and power of transfer endorsed thereon or attached thereto, duly
executed, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require.
(B) The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the
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signatures on such certificates to be in facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate has ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he or she were such officer, transfer agent or
registrar at the date of issue.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1 FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of January and end on the thirty-first day of December of each
year.
SECTION 7.2 DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Restated
Certificate of Incorporation.
SECTION 7.3 SEAL. The corporate seal may bear in the center the emblem of
some object, and shall have inscribed thereunder the words "Corporate Seal" and
around the margin thereof the words "Unigraphics Solutions Inc. - Delaware".
SECTION 7.4 WAIVER OF NOTICE. Whenever any notice is required to be given
to any stockholder or director of the Corporation under the provisions of the
General Corporation Law of the State of Delaware, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders of the Board of Directors need be
specified in any waiver of notice of such meeting.
SECTION 7.5 AUDITS. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
SECTION 7.6 RESIGNATIONS. Any director or any officer, whether elected or
appointed, may resign at any time by serving written notice of such resignation
on the Chairman of the Board, the President or the Secretary, and such
resignation shall be deemed to be effective as of the close of business on the
date said notice is received by the Chairman of the Board, the President, or the
Secretary, or at such later date as is stated therein. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.
SECTION 7.7 INDEMNIFICATION AND INSURANCE.
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(A) Generally.
(1) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was or has agreed
to serve at the request of the Corporation as a director or officer of the
Corporation, or is or was serving or has agreed to serve at the request of
the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity.
(2) The Corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was or has agreed
to serve at the request of the Corporation as an employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of
the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity.
(3) The indemnification provided by this Subsection (A) shall be from
and against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the
indemnitee or on his or her behalf in connection with such action, suit or
proceeding and any appeal therefrom, but shall only be provided if the
indemnitee acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation
and, with respect to any criminal action, suit or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
(4) Notwithstanding the foregoing provisions of this Subsection (A),
in the case of an action or suit by or in the right of the Corporation to
procure a judgment in its favor (a) the indemnification provided by this
Subsection (A) shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or
settlement of such action or suit, and (b) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless, and only to the
extent that, the Delaware Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall
deem proper.
(5) The Board of Directors (by resolution passed by a majority of the
Board of Directors), the Chairman of the Board, the President or the
Secretary shall have the authority to determine whether a person is or was
serving or has agreed to serve at the request of the
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Corporation (a) as a director or officer of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise, or (b)
as an employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise. If the Board of
Directors (by resolution passed by a majority of the Board of Directors),
the Chairman of the Board, the President or the Secretary determines that a
person is not or was not serving or has not agreed to serve at the request
of the Corporation in any capacity described in clause (a) or (b) of the
preceding sentence, then such person shall not (unless otherwise ordered by
a court) be entitled to indemnification under this Section 7.7.
(6) The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
(B) Successful Defense. To the extent that a director, officer, employee
or agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Subsection (A) hereof
or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
(C) Determination That Indemnification Is Proper. Any indemnification of
a person entitled to indemnity under Subsection (A)(1) hereof shall (unless
otherwise ordered by a court) be made by the Corporation unless a determination
is made that indemnification of such person is not proper in the circumstances
because he or she has not met the applicable standard of conduct set forth in
Subsection (A)(3) hereof. Any indemnification of a person entitled to indemnity
under Subsection (A)(2) hereof may (unless otherwise ordered by a court) be made
by the Corporation upon a determination that indemnification of such person is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in Subsection (A)(3) hereof. Any such determination shall be
made (1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even if less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(D) Advance Payment of Expenses. Expenses (including attorneys' fees)
incurred by a director or officer in defending a civil, criminal, administrative
or investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation as authorized in this Section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate. The Board of Directors may authorize the Corporation's counsel to
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represent a director, officer, employee or agent in any action, suit or
proceeding, whether or not the Corporation is a party to such action, suit or
proceeding.
(E) Procedure for Indemnification of Required Indemnitees. Any
indemnification of a person the Corporation is required to indemnify under
Subsection (A) hereof, or advance of costs, charges and expenses of a person the
Corporation is required to pay under Subsection (D) hereof, shall be made
promptly, and in any event within 60 days, upon the written request of such
person. If the Corporation fails to respond within 60 days, then the request for
indemnification shall be deemed to be approved. The right to indemnification or
advances as granted by this Section shall be enforceable by the person the
Corporation is required to indemnify under Subsection (A) hereof in any court of
competent jurisdiction if the Corporation denies such request, in whole or in
part. Such person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such action shall also be indemnified by the Corporation. It shall be a defense
to any such action (other than an action brought to enforce a claim for the
advance of costs, charges and expenses under Subsection (D) hereof where the
required undertaking, if any, has been received by the Corporation) that the
claimant has not met the standard of conduct set forth in Subsection (A) hereof,
but the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, its independent
legal counsel, and its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in Subsection (A) hereof, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel, and its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
(F) Survival; Preservation of Other Rights. The foregoing indemnification
provisions shall be deemed to be a contract between the Corporation and each
director, officer, employee and agent who serves in such capacity at any time
while these provisions as well as the relevant provisions of the General
Corporation Law of the State of Delaware are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit,
or proceeding previously or thereafter brought or threatened based in whole or
in part upon any such state of facts. Such a "contract right" may not be
modified retroactively without the consent of such director, officer, employee
or agent.
The indemnification provided by this Section 7.7 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
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(G) Insurance. The Corporation shall purchase and maintain insurance on
behalf of any person who is or was or has agreed to serve at the request of the
Corporation as a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against, and incurred by, him or her or on his or her behalf in any
such capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Section 7.7; provided, however, that such insurance
is available on acceptable terms, which determination shall be made by a vote of
a majority of the entire Board of Directors.
(H) Savings Clause. If this Section 7.7 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the full extent permitted by any applicable portion
of this Section 7.7 that shall not have been invalidated and to the full extent
permitted by applicable law.
ARTICLE VIII
AMENDMENTS
SECTION 8.1 AMENDMENTS. These Bylaws may be amended, added to, rescinded
or repealed at any meeting of the Board of Directors or of the stockholders, so
long as notice of the proposed change was given in the notice of the meeting
and, in the case of a meeting of the Board of Directors, in a notice given no
less than twenty-four hours prior to the meeting; provided, however, that, in
the case of amendments by stockholders, notwithstanding any other provisions of
these Bylaws or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of stock required by law, the Certificate of
Incorporation or these Bylaws, effective as of the Trigger Date, the affirmative
vote of the holders of at least 80 percent of the voting power of the then
outstanding Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provision of these Bylaws.
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EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of January 1,
1998, between Electronic Data Systems Corporation, a Delaware corporation
("EDS"), and Unigraphics Solutions Inc., a Delaware corporation (the "Company"):
WHEREAS, Company is contemplating an initial public offering (the "IPO") of
its Class A Common Stock, $.01 par value per share (the "Class A Common Stock");
WHEREAS, immediately following consummation of the IPO EDS will be the
owner of all of the Company's issued and outstanding Class B Common Stock, $.01
par value per share ("Class B Common Stock"); and
WHEREAS, the parties hereto desire to enter into this Agreement which sets
forth the terms of certain registration rights applicable to the Registrable
Securities (as defined below) effective immediately upon consummation of the
IPO.
NOW, THEREFORE, upon the premises and the mutual promises herein contained,
and for good and valuable consideration, the receipt and adequacy of which is
acknowledged, the parties agree as follows:
1. Definitions. As used in this Agreement the following initially
capitalized terms shall have the following meanings:
(a) "After-Tax Basis" means, with respect to any payment to be received or
accrued by any Person, the amount of such payment supplemented by a further
payment or payments (which shall be payable either simultaneously with the
initial payment or, in the event that taxes resulting from the receipt or
accrual of such initial payment are not payable in the year of receipt or
accrual, at the time or times such taxes become payable) so that the sum of all
such initial and supplemental payments, after deduction of all taxes imposed by
any taxing authority (after taking into account any credits or deductions or
other tax benefits arising from the events giving rise to such indemnity
payments to the extent such are currently utilized) resulting from the receipt
or accrual of such payments (whether or not such taxes are payable in the year
of receipt or accrual) shall be equal to the initial payment to be so received
or accrued.
(b) "Holder" means EDS and any "transferee" (as such term is defined in
Section 11 hereof).
(c) "Primary EDS Ownership Reduction" means any decrease at any time in
the total voting power of all classes of stock of the Company owned by EDS or
any of its majority owned subsidiaries to less than fifty percent (50%) of the
total voting power of all classes of stock of the Company then outstanding.
<PAGE>
(d) "Registrable Securities" means the Class B Common Stock (as presently
constituted), any stock or other securities (including the Class A Common Stock)
into which or for which such Class B Common Stock may hereafter be changed,
converted or exchanged, and any other securities issued to holders of such Class
B Common Stock (or such shares into which or for which such shares are so
changed, converted or exchanged) upon any reclassification, share combination,
share subdivision, share dividend, merger, consolidation or similar transaction
or event; except, that any such securities shall not be Registrable Securities
with respect to a proposed offer or sale thereof if a registration statement
with respect to the sale of such securities shall have become effective under
the Securities Act and such securities shall have been disposed of in accordance
with the plan of distribution set forth in such registration statement.
(e) "Registration Expenses" means all expenses in connection with any
registration of securities pursuant to this Agreement including, without
limitation, the following: (i) the fees, disbursements and expenses of the
Company's counsel(s) (United States and foreign) and accountants (United States
and foreign) in connection with the registration of the Registrable Securities
to be disposed of under the Securities Act; (ii) all expenses in connection with
the preparation, printing and filing of the registration statement, any
preliminary prospectus or final prospectus, any other offering document and
amendments and supplements thereto and the mailing and delivering of copies
thereof to any underwriters (United States and foreign) and dealers (United
States and foreign); (iii) the cost of printing or producing any agreement(s),
any blue sky or legal investment memoranda, any selling agreements and any other
documents (in each case, United States and foreign) in connection with the
offering, sale or delivery of the Registrable Securities to be disposed of; (iv)
all expenses in connection with the qualification of the Registrable Securities
to be disposed of for offering and sale under state securities laws, including
the fees and disbursements of counsel for the underwriters or the Holders of
Registrable Securities in connection with such qualification and in connection
with any blue sky and legal investments surveys; (v) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Registrable Securities to be disposed of;
(vi) transfer agents', depositaries' and registrars' fees and the fees of any
other agent (in each case, United States and foreign) appointed in connection
with such offering; (vii) all security engraving and security printing expenses;
and (viii) all fees and expenses payable in connection with the listing of the
Registrable Securities on each securities exchange or inter-dealer quotation
system (in each case, United States and foreign) on which a class of common
equity securities of the Company is then listed.
(f) "Rule 144" means Rule 144 promulgated under the Securities Act, or any
successor rule to similar effect.
(g) "SEC" means the United States Securities and Exchange Commission.
(h) "Secondary EDS Ownership Reduction" means any decrease at any time in
the total voting power of all classes of stock of the Company owned by EDS or
any of its majority owned subsidiaries to less than twenty percent (20%) of the
total voting power of all classes of
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stock of the Company then outstanding.
(i) "Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
2. Demand Registration.
(a) Upon written notice from a Holder of Registrable Securities in the
manner set forth in Section 12(g) hereof requesting that the Company effect the
registration under the Securities Act of any or all of the Registrable
Securities held by such Holder, which notice shall specify the intended method
or methods of disposition of such Registrable Securities, the Company will use
its best efforts to effect (at the earliest practicable date) the registration
under the Securities Act of such Registrable Securities for disposition in
accordance with the intended method or methods of disposition stated in such
request (including, but not limited to, an offering on a delayed or continuous
basis pursuant to Rule 415 (or any successor rule to similar effect) promulgated
under the Securities Act (a "Rule 415 Offering") if the Company is then eligible
to register such Registrable Securities on Form S-3 (or a successor form)),
except that:
(i) if, after the Primary EDS Ownership Reduction, upon receipt of
a registration request pursuant to this Section 2(a), the Company is
advised in writing setting forth specific reasons (with a copy to the
person requesting registration pursuant to this Section 2(a)), by a
nationally recognized independent investment banking firm selected by the
Company that, in such firm's opinion, a registration at the time and on the
terms requested would materially and adversely affect any underwritten
public equity financing by the Company that had been contemplated by the
Company prior to receipt of notice requesting registration pursuant to this
Section 2(a) and that had been planned to be completed within 90 days of
such notice (a "Transaction Blackout"), the Company shall not be required
to effect a registration pursuant to this Section 2(a) until the earliest
to occur of (A) the abandonment of such financing, (B) 90 days after the
completion of such financing, (C) the termination of any "hold back" or
"lock up" period obtained by the underwriter(s) selected by the Company
from any person in connection with such financing or (D) 165 days after
receipt by the Holder requesting registration of written notice of such
Transaction Blackout (together with the copy of the investment banking firm
opinion referred to above in this subsection (i)) (the written notice of
such Transaction Blackout and a copy of the investment banking firm opinion
must be given to the Holder of Registrable Securities requesting
registration pursuant to this Section 2(a) within 10 days of receipt of
such the registration request);
(ii) if, after the Primary EDS Ownership Reduction, while a
registration request is pending pursuant to this Section 2(a), counsel for
the Company determines in good faith that (A) the filing of a registration
statement would require the disclosure of material information that the
Company has a bona fide business purpose for preserving as confidential or
(B) the Company then is unable to comply with SEC requirements, the
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Company shall not be required to effect a registration pursuant to this
Section 2(a) until the earliest to occur of (1) the date upon which such
material information is disclosed to the public or ceases to be material or
the Company is able to so comply with SEC requirements, as the case may be,
or (2) 45 days after counsel for the Company initially makes such good
faith determination (such counsel shall make such determination promptly
and shall give written notice of such determination to the Holder of
Registrable Securities requesting registration within 5 days of making such
determination);
(iii) EDS' transferees, collectively, shall have the right to
exercise registration rights pursuant to this Section 2 an aggregate of
five (5) times (it being acknowledged that EDS' registration rights
pursuant to this Section 2 are independent of any rights it transfers to
transferees); and
(iv) subsequent to the Secondary EDS Ownership Reduction, EDS shall
have the right to exercise its registration rights pursuant to this Section
2 an aggregate of three (3) times (it being acknowledged that prior to the
Secondary EDS Ownership Reduction, there shall be no limit to the number of
occasions on which EDS or any of its affiliates may exercise such rights).
(b) Notwithstanding any other provision of this Agreement to the contrary,
a registration requested by a Holder of Registrable Securities pursuant to this
Section 2 shall not be deemed to have been effected (and, therefore, not
exercised for purposes of subsection 2(a)), (i) if it has not become effective,
(ii) if, after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
governmental agency or court for any reason other than a misrepresentation or an
omission by such Holder and, as a result thereof, the Registrable Securities
requested to be registered cannot be completely distributed in accordance with
the plan of distribution set forth in the related registration statement or
(iii) if the conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such registration are not
satisfied or waived other than by reason of some act or omission by such Holder
of Registrable Securities.
(c) In the event that any registration pursuant to this Section 2 (other
than subsection (2)(a)(iii)) shall involve, in whole or in part, an underwritten
offering, EDS shall have the right to designate an underwriter reasonably
satisfactory to the Company as the lead underwriter of such underwritten
offering.
(d) The Company shall have the right to cause the registration of
additional securities for sale for the account of any person (including the
Company) in any registration of Registrable Securities requested by EDS pursuant
to Section 2(a); except, that the Company shall not have the right to cause the
registration of such additional securities if EDS is advised in writing setting
forth specific reasons (with a copy to the Company) by a nationally recognized
independent investment banking firm selected by EDS that, in such firm's
opinion, registration of such additional securities would materially and
adversely affect the offering and sale of the
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Registrable Securities then contemplated by EDS. EDS may require that any such
additional securities be included in the offering proposed by EDS on the same
terms and conditions as the Registrable Securities that are included therein.
(e) After the Primary EDS Ownership Reduction, in the event that, at any
time after any Rule 415 Offering is declared effective, the general counsel of
the Company determines in good faith that the sale of Registrable Securities in
such Rule 415 Offering would require disclosure of material information that the
Company has a bona fide business purpose for preserving as confidential or that
the Company is unable to comply with SEC requirements, Holders selling
Registrable Securities in such Rule 415 Offering shall, upon written notice of
such good faith determination, suspend sales of such Registrable Securities for
a period beginning on the date of receipt of such notice and expiring on the
earlier of (i) the date upon which such material information is disclosed to the
public or ceases to be material or the Company is able to comply with SEC
requirements, as the case may be, and (ii) 45 days after the general counsel of
the Company initially makes such good faith determination.
3. Piggyback Registration. If prior to the tenth anniversary of the date
of this Agreement, the Company at any time proposes to register any of its Class
B Common Stock or any other of its common equity securities, including Class A
Common Stock, (collectively, "Other Securities") under the Securities Act (other
than a registration on Form S-4 or S-8), whether or not for sale for its own
account, in a manner that would permit registration of Registrable Securities
for sale for cash to the public under the Securities Act, it will each such time
give prompt written notice to each Holder of Registrable Securities of its
intention to do so and of the rights of such Holder under this Section 3 at
least 30 days prior to the anticipated filing date of the registration statement
relating to such registration. Such notice shall offer each such Holder the
opportunity to include in such registration statement such number of Registrable
Securities as such Holder may request. Upon the written request of any such
Holder made within 10 days after the receipt of the Company's notice (which
request shall specify the number of Registrable Securities intended to be
disposed of and the intended method of disposition thereof), the Company will
use its best efforts to effect, in connection with the registration of the Other
Securities, the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register, to the extent
required to permit the disposition (in accordance with such intended methods
thereof) of the Registrable Securities so requested to be registered, except
that:
(a) if, after the Primary EDS Ownership Reduction, at any time after
giving such written notice of its intention to register any Other Securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register the Other Securities, the Company may, at its election, give written
notice of such determination to such Holders, and thereupon the Company shall be
relieved of its obligation to register such Registrable Securities in connection
with the registration of such Other Securities without prejudice, however, to
the rights of the Holders of Registrable Securities immediately to request that
such registration be effected as a registration under Section 2 hereof
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<PAGE>
(in the event that the Company shall so determine not to so register the Other
Securities, each of the Company and each Holder shall be responsible for the
respective Registration Expenses incurred by it in connection with such failed
registration);
(b) (i) if, after the Primary EDS Ownership Reduction, the
registration of Other Securities referred to in the first sentence of this
Section 3 is to be an underwritten primary registration on behalf of the
Company, and a nationally recognized independent investment banking firm
selected by the Company advises the Company in writing setting forth
specific reasons that, in such firm's opinion, such offering would be
materially and adversely affected by the inclusion therein of the
Registrable Securities requested to be included therein, the Company shall
include in such registration: (1) first, all securities the Company
proposes to sell for its own account ("Company Securities"), (2) second, up
to the full number of Registrable Securities held by EDS and requested to
be included in such registration by EDS ("EDS Securities") in excess of the
number or dollar amount of securities the Company proposes to sell that, in
the good faith opinion of such underwriter(s), can be so sold without so
materially and adversely affecting such offering, (3) third, up to the full
number of Registrable Securities (other than EDS Securities) in excess of
the number or dollar amount of Company Securities and EDS Securities that,
in the good faith opinion of such underwriter(s) can be so sold without
materially and adversely affecting such offering (and, if less than the
full number of such Registrable Securities, allocated pro rata among the
Holders of such Registrable Securities (other than EDS Securities) on the
basis of the number of securities requested to be included therein by each
such Holder and (4) fourth, an amount of other securities, if any,
requested to be included therein in excess of the number or dollar amount
of Company Securities, EDS Securities and other Registrable Securities
that, in the opinion of such underwriter(s), can be so sold without
materially and adversely affecting such offering (allocated among the
holders of such other securities in such proportions as such holders and
the Company may agree); and
(ii) if, after the Primary EDS Ownership Reduction, the
registration of Other Securities referred to in the first sentence of this
Section 3 is to be an underwritten secondary registration on behalf of
holders of the securities (other than Registrable Securities) of the
Company (the "Other Holders"), and the managing underwriter(s) advise the
Company in writing setting forth specific reasons that in their good faith
opinion such offering would be materially and adversely affected by the
inclusion therein of the Registrable Securities requested to be included
therein, the Company shall include in such registration the amount of
securities (including Registrable Securities) that such underwriter(s)
advise allocated pro rata among the Other Holders and the Holders of
Registrable Securities on the basis of the number of securities (including
Registrable Securities) requested to be included therein by each Other
Holder and each Holder of the Registrable Securities;
(c) the Company shall not be required to effect any registration of
Registrable
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<PAGE>
Securities under this Section 3 incidental to the registration of any of its
securities in connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock option or other
executive or employee benefit or compensation plans; and
(d) no registration of Registrable Securities effected under this Section
3 shall relieve the Company of its obligation to effect a registration of
Registrable Securities pursuant to Section 2 hereof.
(e) in the event that any registration pursuant to this Section 3 shall
involve, in whole or in part, an underwritten offering, the Company may require
the Registrable Securities requested to be registered pursuant to this Section 3
to be included in such underwriting on the same terms and conditions as shall be
applicable to the other securities being sold through underwriters under such
registration.
4. Expenses. Except as provided in Section 3(a) hereof, each of EDS and
the Company agrees to pay its pro rata portion of Registration Expenses with
respect to a particular offering (or proposed offering); such pro rata portion
to be equal to the total amount of such Registration Expenses multiplied by a
fraction, the numerator of which is the number of shares sold (or proposed to be
sold if the offering is not completed) in such offering by such party and the
denominator of which is the total number of shares sold (or proposed to be sold)
in such offering. For purposes of determining which person is required to pay
Registration Expenses, shares sold (or proposed to be sold) by the Company, by
any Other Holder and on behalf of any person other than a Holder shall be deemed
to have been sold (or proposed to be sold) by the Company. Notwithstanding the
foregoing, each Holder and the Company shall be responsible for its own internal
administrative and similar costs, which shall not constitute Registration
Expenses. Underwriting discounts with respect to any offering shall also be
apportioned in the manner set forth above.
5. Registration and Qualification. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 2 or 3 hereof, the
Company will as promptly as is practicable:
(a) prepare, file and use its best efforts to cause to become effective a
registration statement under the Securities Act relating to the Registrable
Securities to be offered;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities until (i) in the case of a Rule 415 Offering, the
completion of such offering (subject to Section 2(e)) or (ii) in the case of an
offering other than a Rule 415 Offering, the earlier of (A) such time as all of
such Registrable Securities have been disposed of in accordance with the
intended methods of disposition set forth in such registration statement and (B)
the expiration of nine months after such registration
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<PAGE>
statement becomes effective; except, that such nine-month period shall be
extended for such number of days that equals the number of days elapsing from
(x) the date the written notice contemplated by Section 5(g) hereof is given by
the Company to (y) the date on which the Company delivers to the Holders of
Registrable Securities the supplement or amendment contemplated by Section 5(g)
hereof;
(c) furnish to the Holders of Registrable Securities and to any
underwriter of such Registrable Securities such number of conformed copies of
such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus) (in conformity with the requirements of the
Securities Act), such documents incorporated by reference in such registration
statement or prospectus and such other documents, as the Holders of Registrable
Securities or such underwriter may reasonably request, and a copy of any and all
transmittal letters or other correspondence to, or received from, the SEC or any
other governmental agency or self-regulatory body or other body having
jurisdiction (including any domestic or foreign securities exchange) relating to
such offering;
(d) use its best efforts to register or qualify all Registrable Securities
covered by such registration statement under the securities or blue sky laws of
such jurisdictions (domestic or foreign) as the Holders of such Registrable
Securities or any underwriter of such Registrable Securities shall reasonably
request, and use its best efforts to obtain all appropriate registrations,
permits and consents required in connection therewith, and do any and all other
acts and things that may be reasonably necessary or advisable to enable the
Holders of Registrable Securities or any such underwriters to consummate the
disposition in such jurisdictions of its Registrable Securities covered by such
registration statement; except, that the Company shall not for any such purpose
be required to (i) qualify generally to do business as a foreign corporation in
any non-United States jurisdiction, wherein it is not so qualified, (ii) subject
itself to taxation in any such non-United States jurisdiction or (iii) consent
to general service of process in any such non-United States jurisdiction; and,
except, that, in the case of any such registration or qualification in any non-
United States jurisdiction, (1) notwithstanding Section 4 hereof, the Holder of
the Registrable Securities to be so registered or qualified shall pay all costs
and expenses incurred by the Company in connection with such registration or
qualification in such non-United States jurisdiction, (2) the Company shall have
no obligation to so register or qualify Registrable Securities if in the good
faith opinion of counsel for the Company such registration or qualification
shall impose on the Company an on going material compliance obligation and (3)
the Company shall not be obligated to keep any such registration or
qualification in effect except for so long as is necessary or appropriate in
order to dispose of Registrable Securities in such jurisdiction;
(e) use its best efforts to list all Registrable Securities covered by
such registration statement on any securities exchange or inter-dealer quotation
system (in each case, domestic or foreign) as the Holders of such Registrable
Securities shall reasonably request, and use its best
8
<PAGE>
efforts to obtain all appropriate registrations, permits and consents required
in connection therewith and do any and all other acts and things that may be
reasonably necessary or advisable to effect such listing; except, that with
respect to any listing on any such securities exchange or inter-dealer quotation
system on which shares of the Company's Class A Common Stock are then listed,
(i) notwithstanding Section 4 hereof, the Holder of the Registrable Securities
to be so listed shall pay all costs and expenses incurred by the Company in
connection with such listing and (ii) the Company shall have no obligation to
use its best efforts to so list Registrable Securities if in the good faith
opinion of counsel for the Company such listing shall impose on the Company an
ongoing material compliance obligation;
(f) (i) furnish to each Holder of Registrable Securities included in such
registration (each, a "Selling Holder") and to any underwriter of such
Registrable Securities an opinion of counsel for the Company addressed to each
Selling Holder and dated the date of the closing under the underwriting
agreement (if any) (or if such offering is not underwritten, dated the effective
date of the registration statement) and (ii) use its best efforts to furnish to
each Selling Holder a "cold comfort" letter addressed to each Selling Holder and
signed by the independent public accountants who have audited the Company's
financial statements included in such registration statement, in each such case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as the Selling Holders may reasonably request and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements;
(g) as promptly as practicable notify the Selling Holders in writing (i)
at any time when a prospectus relating to a registration pursuant to Section 2
or 3 hereof is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) of any request by the SEC or any
other regulatory body or other body having jurisdiction for any amendment of or
supplement to any registration statement or other document relating to such
offering, and, in either such case (i) or (ii), at the request of the Selling
Holders prepare and furnish to the Selling Holders a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(h) furnish unlegended certificates representing ownership of the
Registrable Securities being sold in such denominations as shall be requested by
the Selling Holders or the underwriters.
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6. Conversion of Other Securities, etc. If EDS offers any options,
rights, warrants or other securities issued by it or any other person that are
offered with, convertible into or exercisable or exchangeable for any
Registrable Securities, the Registrable Securities underlying such options,
rights, warrants or other securities shall continue to be eligible for
registration pursuant to Section 2 and Section 3 hereof.
7. Underwriting; Due Diligence. (a) If requested by the underwriters for
any underwritten offering of Registrable Securities pursuant to a registration
requested under this Agreement (under either Section 2 or Section 3 hereof), the
Company and any other person or entity for whose account securities are being
sold in such offering will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other person or entity for whose account
securities are being sold in such offering and such other terms and provisions
as are customarily contained in underwriting agreements with respect to
secondary distributions, including, without limitation, indemnities and
contribution substantially to the effect and to the extent provided in Section 8
hereof and the provision of opinions of counsel and accountants letters to the
effect and to the extent provided in Section 5(f) hereof. The Selling Holders
on whose behalf the Registrable Securities are to be distributed by such
underwriters shall be parties to any such underwriting agreement, and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such Selling Holders. Such underwriting agreement shall also
contain such representations and warranties by the Selling Holders on whose
behalf the Registrable Securities are to be distributed and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including without limitation, indemnification and
contribution provisions substantially similar to the extent provided in Section
8 hereof.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act, the
Company will give the Holders of such Registrable Securities and the
underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such opportunities
to discuss the business of the Company with its officers and the independent
public accountants who have certified the Company's financial statements as
shall be necessary, in the opinion of such Holders and such underwriters or
their respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act.
8. Indemnification and Contribution.
(a) In the case of each offering of Registrable Securities made pursuant
to this Agreement, the Company agrees to indemnify and hold harmless, on an
After-Tax Basis, each Holder of Registrable Securities, each underwriter of
Registrable Securities so offered and each person, if any, who controls any of
the foregoing persons within the meaning of the Securities
10
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Act and the officers and directors of each of the foregoing, from and against
any and all claims, liabilities, losses, damages, expenses (including reasonable
attorneys' fees and disbursements) and judgments, joint or several, to which
they or any of them may become subject, under the Securities Act or otherwise,
including any amount paid in settlement of any litigation commenced or
threatened, and shall promptly reimburse them, as and when incurred, for any
legal or other expenses reasonably incurred by them in connection with
investigating any claims and defending any actions, insofar as such losses,
claims, damages, liabilities, expenses or judgments shall arise out of, or shall
be based upon, any untrue statement or alleged untrue statement of a material
fact contained in the registration statement (or in any preliminary or final
prospectus included therein) or in any offering memorandum or other offering
document relating to the offering and sale of such Registrable Securities, or
any amendment thereof or supplement thereto, or in any document incorporated by
reference therein, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or shall arise out of or be based upon any violation or
alleged violation by the Company of the Securities Act, any blue sky laws,
securities laws or other applicable laws of any state or country in which the
Registrable Securities are offered and relating to action or inaction required
of the Company in connection with such offering; except, that the Company shall
not be liable to a particular Holder of Registrable Securities in any such case
to the extent that any such loss, claim, damage, liability, expense or judgment
arises out of, or is based upon, any untrue statement or alleged untrue
statement, or any omission, if such statement or omission shall have been made
in reliance upon and in conformity with information relating to such Holder
furnished to the Company in writing by or on behalf of such Holder specifically
for use in the preparation of the registration statement (or in any preliminary
or final prospectus included therein,) offering memorandum or other offering
document, or any amendment thereof or supplement thereto and, except, that, in
the case of an offering with respect to which a Selling Holder has designated
the lead underwriter, this indemnity does not apply to any loss, liability,
claim, damage, expense or judgment arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus if a copy of a prospectus was not sent or given by or on
behalf of an underwriter to such person asserting such loss, claim, damage,
liability, expense or judgment at or prior to the written confirmation of the
sale of the Registrable Securities as required by the Securities Act and such
untrue statement or omission had been corrected in such prospectus. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of a Holder of Registrable Securities and shall survive the
transfer of such securities. The foregoing indemnity agreement is in addition to
any liability that the Company may otherwise have to each Holder of Registrable
Securities, its officers and directors, underwriters of the Registrable
Securities or any controlling person of the foregoing.
(b) In the case of each offering made pursuant to this Agreement, each
Holder of Registrable Securities included in such offering, by exercising its
registration rights hereunder, agrees to indemnify and hold harmless, on an
After-Tax Basis, the Company, and each person, if any,
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<PAGE>
who controls any of the foregoing within the meaning of the Securities Act (and
if requested by the underwriters, each underwriter who participates in the
offering and each person, if any, who controls any such underwriter within the
meaning of the Securities Act) and the officers and directors of each of the
foregoing, from and against any and all claims, liabilities, losses, damages,
expenses (including reasonable attorneys fees' and expenses) and judgments,
joint or several, to which they or any of them may become subject, under the
Securities Act or otherwise, including any amount paid in settlement of any
litigation commenced or threatened, and shall promptly reimburse them, as and
when incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating any claims and defending any actions, insofar as
any such losses, claims, damages, liabilities, expenses or judgments shall arise
out of, or shall be based upon, any untrue statement or alleged untrue statement
of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or in any offering memorandum
or other offering document relating to the offering and sale of such Registrable
Securities, or any amendment thereof or supplement thereto, or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but in each case only to the
extent that such untrue statement of a material fact is contained in, or such
material fact is omitted from, information relating to such Holder furnished in
writing to the Company by or on behalf of such Holder specifically for use in
the preparation of such registration statement (or in any preliminary or final
prospectus included therein), offering memorandum or other offering document,
and except, that, in the case of an offering with respect to which the Company
has designated the lead underwriter, this indemnity does not apply to any loss,
liability, claim, damage, expense or judgment arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged omission in
any preliminary prospectus if a copy of a prospectus was not sent or given by or
on behalf of an underwriter to such person asserting such loss, claim, damage,
liability, expense or judgment at or prior to the written confirmation of the
sale of the Registrable Securities as required by the Securities Act and such
untrue statement or omission had been corrected in such prospectus. The
foregoing indemnity is in addition to any liability which such Holder may
otherwise have to the Company, or any of its directors, officers or controlling
persons. In no event shall the liability of a Holder hereunder be greater in
amount than the dollar amount of the net proceeds received by it upon the sale
of the Registrable Securities pursuant to such offering.
9. Procedure for Indemnification. Each party indemnified under paragraph
(a) or (b) of Section 8 hereof shall, promptly after receipt of notice of any
claim or the commencement of any action against such indemnified party in
respect of which indemnity may be sought, notify the indemnifying part in
writing of the claim or the commencement thereof; except, that the failure to
notify the indemnifying party shall not relieve it from any liability that it
may have to an indemnified party on account of the indemnity agreement contained
in paragraph (a) or (b) of Section 8 hereof, unless the indemnifying party was
prejudiced by such failure and, then, only to the extent of such prejudice, and
in no event shall such failure relieve the indemnifying party from any other
liability that it may have to such indemnified party. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying
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party to the indemnified party of its election to assume the defense of such
claim or action, the indemnifying party shall not be liable to the indemnified
party under Section 8 hereof for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof other
than reasonable costs of investigation; except, that each Holder of Registrable
Securities, its officers and directors, if any, and each person, if any, who
controls such Holder within the meaning of the Securities Act, shall have the
right to employ separate counsel to represent them if, in the reasonable
judgment of such Holder or such other person, it is advisable for them to be
represented by separate counsel, and in that event the fees and expenses of one
such separate counsel shall be paid by the Company. Any indemnifying party
against whom indemnity may be sought under Section 8 hereof shall not be liable
to indemnify an indemnified party for any settlement if such indemnified party
enters into such settlement without the consent of the indemnifying party (which
consent will not be unreasonably withheld if requested). The indemnifying party
may not agree to any settlement of any such claim or other action as the result
of which any remedy or relief, other than solely for monetary damages for which
the indemnifying party shall be responsible hereunder, shall be applied to or
against the indemnified party, without the prior written consent of the
indemnified party. In any action hereunder as to which the indemnifying party
has assumed the defense thereof with counsel reasonably satisfactory to the
indemnified party, the indemnified party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but, except
as set forth above, the indemnifying party shall not be obligated hereunder to
reimburse the indemnified party for the costs thereof.
If the indemnification provided for in Section 8 hereof shall for any
reason be unavailable to an indemnified party in respect of any loss, claim,
damage, liability, expense or judgment, or any action in respect thereof,
referred to therein, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage, liability, expense or
judgment, or action in respect thereof, in such proportion as shall be
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other with respect to the statements or
omissions that resulted in such loss, claim, damage, liability, expense or
judgment, or action in respect thereof, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party on the one hand or the indemnified party on the other, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission, but not by
reference to any indemnified party's stock ownership in the Company. In no
event, however, shall a Holder of Registrable Securities be required to
contribute in excess of the amount of the net proceeds received by such Holder
in connection with the sale of Registrable Securities in the offering that is
the subject of such loss, claim, damage, liability, expense or judgment. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage, liability, expense or judgment, or action in respect thereof, referred
to above in this paragraph shall be deemed to include, for purposes of this
paragraph, any legal or other expenses reasonably incurred by such indemnified
party in
13
<PAGE>
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
10. Rule 144. The Company shall take such measures and file such
information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 (or any successor provision). The
Company further agrees to use its reasonable efforts to cause all conditions to
the availability of Form S-3 (or any successor form) under the Securities Act
for the filing of registration statements under this Agreement to be met as soon
as practicable after the date hereof.
11. Transfer of Registration Rights.
(a) EDS may transfer all or any portion of its rights under this Agreement
to any transferee of an amount of Registrable Securities owned by EDS exceeding
one (1) percent of the outstanding class of such Securities at the time of
transfer (each, a "transferee"). Any transfer of registration rights pursuant
to this Section 11 shall be effective upon receipt by the Company of written
notice from EDS stating the name and address of any transferee and identifying
the amount of Registrable Securities with respect to which the rights under this
Agreement are being transferred and the nature of the rights so transferred. In
connection with any such transfer, the term "EDS" as used in this Agreement
(other than in this Section 11 and Section 3(b)(i)(2) hereof) shall, where
appropriate to assign the rights and obligations of EDS hereunder to such direct
transferee, be deemed to refer to the transferee holder of such Registrable
Securities. In no event shall the Company be required to effect more than a
total of five (5) registrations for all transferees taken as a whole pursuant to
Section 2 hereof and each such registration shall be at the request of not more
than one Holder.
(b) After any such transfer, EDS shall retain its rights under this
Agreement with respect to all other Registrable Securities owned by EDS.
(c) Upon the request of EDS, the Company shall execute a Registration
Rights Agreement with such transferee or a proposed transferee substantially
similar to this Agreement, and any demand registrations granted to such
transferee shall reduce the then remaining number of demand registrations to
which transferees of EDS are entitled under Section 2(a) hereof.
12. Miscellaneous.
(a) Injunctions. Irreparable damage would occur in the event that any of
the provisions of this Agreement was not performed in accordance with its
specific terms or was otherwise breached. Therefore, the parties hereto shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court having jurisdiction, such remedy being in
addition to any other remedy to which they may be entitled at law or in equity.
14
<PAGE>
(b) Severability. If any term or provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms and provisions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term or provision.
(c) Further Assurances. Subject to the specific terms of this Agreement,
each of the parties hereto shall make, execute, acknowledge and deliver such
other instruments and documents and take all such other actions as may be
reasonably required in order to effectuate the purposes of this Agreement and to
consummate the transactions contemplated hereby.
(d) Waivers, Etc. No failure or delay on the part of either party hereto
(or the intended third party beneficiaries referred to herein) in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. No
modification or waiver of any provision of this Agreement nor consent to any
departure therefrom shall in any event be effective unless the same shall be in
writing, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given.
(e) Entire Agreement. This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof. The section headings
contained in this Agreement are solely for the purpose of reference and shall
not in any way affect the meaning or interpretation of this Agreement.
(f) Counterparts. For the convenience of the parties, this Agreement may
be executed in any number of counterparts, each of which shall be deemed to be
an original but all of which together shall be one and the same instrument.
(g) Notices. All notices, consents, requests, instructions, approvals and
other communications provided for herein shall be validly given, made or served,
if in writing and delivered personally, by facsimile or sent by registered mail,
postage prepared as follows:
(i) if to EDS, to
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024
Attention: General Counsel
Facsimile No.: (972) 605-5610
15
<PAGE>
(ii) if to the Company, to
Unigraphics Solutions Inc.
13736 Riverport Drive
Maryland Heights, Missouri 63043
Attention: President
Facsimile No.: (314) 232-1523
(iii) if to a Holder of Registrable Securities, to the name and
address as the same appear in the security transfer books of the Company or such
other address as any party (or other Holders of Registrable Securities) may,
from time to time, designate in a written notice in a like manner. Notice given
by facsimile shall be deemed delivered on the business day after it is received
by the recipient. Notice given by mail as set out above shall be deemed
delivered five calendar days after the date the same is mailed.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE.
(i) Assignment. Except as provided herein, the parties may not assign
their rights under this Agreement. The Company may not delegate its obligations
under this Agreement.
16
<PAGE>
IN WITNESS WHEREOF, EDS and the Company have caused this Agreement to be
duly executed as of the date first above written.
ELECTRONIC DATA SYSTEMS
CORPORATION
By: /S/ D. Gilbert Friedlander
-------------------------------------
Name: D. Gilbert Friedlander
Title: Senior Vice President
UNIGRAPHICS SOLUTIONS INC.
By: /S/ John Mazzola
-------------------------------------
Name: John Mazzola
Title: President
17
<PAGE>
EXHIBIT 4.2
<TABLE>
<S> <C> <C>
INCORPORATED UNDER THE LAWS CLASS A
OF THE STATE OF DELAWARE COMMON STOCK
UNIGRAPHICS PAR VALUE $.01
THIS CERTIFICATE IS TRANSFERABLE SOLUTIONS(TM) SEE REVERSE FOR CERTAIN DEFINITIONS
NUMBER IN NEW YORK, NEW YORK CUSIP 904928 10 8 SHARES
CA
UNIGRAPHICS SOLUTIONS INC.
</TABLE>
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES, $.01 PAR VALUE, OF THE CLASS A
COMMON STOCK OF
Unigraphics Solutions Inc., transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be
subject to all the provisions of the Certificate of Incorporation of the
Corporation, as we now or hereinafter amended, to all of which the holder hereof
by acceptance hereof assents.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
<TABLE>
<S> <C>
[CORPORATE SEAL]
/s/ JOHN MAZZOLA
PRESIDENT AND
CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED:
THE BANK OF NEW YORK
TRANSFER AGENT AND REGISTRAR
BY
/s/ DOUGLAS E. BARNETT /s/ William J. Skinner
SECRETARY AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUEST SHOULD BE MADE TO THE CORPORATION OR TO
THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-___________Custodian__________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act___________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ______________________________hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated
---------------------
NOTICE: X
--------------------------------------
THE SIGNATURE(S) TO THIS (SIGNATURE)
ASSIGNMENT MUST CORRES-
POND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY X
PARTICULAR, WITHOUT ALTER- --------------------------------------
ATION OR ENLARGEMENT OR (SIGNATURE)
ANY CHANGE WHATEVER.
-----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
-----------------------------------------
SIGNATURE(S) GUARANTEED BY:
-----------------------------------------
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: TRICIA O'CONNOR:215-830-2154
680 BLAIR MILL ROAD PROOF OF MAY 5, 1998
HORSHAM, PA 19044 UNIGRAPHICS SOLUTIONS, INC.
(215) 657-3480 H 56259bk
- ---------------------------------------------------------------------------------------------
SALES: J. UHLENBROCK: 314-421-6587 OPERATOR: HJ/lr
- ---------------------------------------------------------------------------------------------
/NET/BANKNOTE/HOME52/U2/UNIGRAPH56259/FC rev 1
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.2
INTERCOMPANY AGREEMENT
INTERCOMPANY AGREEMENT, dated as of January 1, 1998, by and between
ELECTRONIC DATA SYSTEMS CORPORATION, a Delaware corporation ("EDS"), and
UNIGRAPHICS SOLUTIONS INC., a Delaware corporation ("USI").
WHEREAS, pursuant to the Assignment and Assumption Agreements (as such term
and other capitalized terms used herein without definition are defined in
Section 1.01), EDS has, directly or indirectly, transferred the Transferred
Assets to the USI Entities and the USI Entities have assumed the Assumed
Liabilities; and
WHEREAS, EDS and USI desire to set forth certain agreements with respect to
the Transferred Assets, the Assumed Liabilities and certain other matters;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. General. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Action" shall mean any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
"Agreement" shall mean this Intercompany Agreement, dated as of January 1,
1998.
"Assignment and Assumption Agreements" shall mean the agreements listed on
Schedule 1.
"Assumed Liabilities" shall mean any and all Liabilities assumed, whether
directly or indirectly, or agreed to be performed by one or more of the USI
Entities, pursuant to or as a result of any Assignment Agreement, this
Agreement or any Intercompany Agreement.
"Confidential Information" shall mean information subject to a duty of
confidence and a restriction on use on any EDS Entity or any USI Entity under
Article III of this Agreement.
"Dispute" shall mean any dispute, disagreement, claim, or controversy
arising in connection with or relating to this Agreement or any Assignment and
Assumption Agreement, including any claim for indemnification and any
<PAGE>
claim regarding bodily or other personal injury or damage to tangible property.
"Dispute Resolution Appendix" shall mean Appendix A to this Agreement,
containing the Dispute Resolution Procedure for, and as an integral part of, the
Agreement.
"Dispute Resolution Procedure" shall mean the procedure or process by which
a Dispute must be resolved (except as otherwise stated in the Agreement) as
described in the Dispute Resolution Appendix.
"Effective Time" shall mean 12:01 A.M., Central Standard Time, on January
1, 1998.
"EDS" shall mean Electronic Data Systems Corporation, a Delaware
corporation, together with its successors and assigns.
"EDS Assets" shall mean all assets, properties and rights owned by any EDS
Entity prior to, at or after the Effective Time. The EDS Assets shall not
include the Transferred Assets or the Retained Assets.
"EDS Business" shall mean all functions and activities related to or
associated with the EDS Assets prior to, at or after the Effective Time.
"EDS Entity" shall mean each of EDS and each corporation or other entity
controlled, directly or indirectly, after the Effective Time by EDS and shall
exclude the USI Entities.
"EDS Indemnitee" shall have the meaning specified therefor in Section 2.02.
"Entity" shall mean either an EDS Entity or a USI Entity.
"Environmental Liabilities" shall mean all Liabilities, unidentified as of
the Effective Time, relating to, arising out of or resulting from any law or
contract or agreement relating to environmental, health or safety matters
(including without limitation all removal, remediation or cleanup costs,
investigatory costs, governmental response costs, natural resources damages,
property damages, personal injury damages, costs of compliance with any
settlement, judgment or other determination of Liability and indemnity,
contribution or similar obligations) and all costs and expenses, interest,
fines, penalties or other monetary sanctions in connection therewith.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Foreign Exchange Rate" shall mean, with respect to any currency other than
United States dollars as of any date of determination, the average of the
opening bid and asked rates on such date at which such currency may be exchanged
for United States dollars as quoted by Citibank, N.A.
"Indemnifying Party" shall have the meaning specified therefor in Section
2.03.
2
<PAGE>
"Indemnitee" shall have the meaning specified therefor in Section 2.03.
"Indemnity Payment" shall have the meaning specified therefor in Section
2.03.
"Insurance Proceeds" shall mean those monies (a) received by an insured
party from an insurance carrier in respect of a claim or (b) paid by an
insurance carrier on behalf of the insured party in respect of a claim, in
either case net of (i) any applicable amounts that such insured party shall be
obligated to contribute (by means of application of a deductible, payment under
a reimbursement obligation or otherwise) in respect of such claim, provided
that, for purposes of determining any such amounts to be contributed, the
benefits of application of any maximum premium limits, stop-loss aggregates or
other provisions that would have the effect of aggregating deductibles or self-
insured retentions shall be allocated appropriately to reduce the uninsured
retentions of such insured party, and (ii) any related costs paid by such
insured party.
"Intercompany Agreements" shall mean any written agreements between any EDS
Entity and any USI Entity including those set forth on Schedule 2. Intercompany
Agreements shall not include this Agreement or the Assignment and Assumption
Agreements.
"Liabilities" shall mean any and all debts, liabilities, responsibilities
and obligations, including, without limitation, those arising under any law,
rule, regulation, Action, order or consent decree of any governmental entity or
any award of any arbitrator of any kind, and those arising under any contract,
commitment or undertaking.
"Losses" shall mean any and all losses, Liabilities, claims, damages,
payments, costs and expenses, matured or unmatured, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, known or unknown (including,
without limitation, the costs and expenses of any and all Actions, threatened
Actions, demands, assessments, judgments, settlements and compromises relating
thereto and attorneys' fees and any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any such Actions or
threatened Actions), whether or not resulting from Third Party Claims.
"Parties" shall mean EDS (on its behalf and on behalf of the EDS Entities)
and its successors and assigns as permitted by the Agreement, and USI (on its
behalf and on behalf of the USI Entities) and its successors and assigns as
permitted by the Agreement.
"Person" shall mean an individual, a corporation, limited liability
company, partnership, trust, association, or entity of any kind or nature; or a
governmental authority.
"Retained Assets" shall have the meanings set forth in the Assignment
Agreements referred to in numbered paragraphs 1 and 2 of Schedule 1.
"Tax Sharing Agreement" shall mean that Tax Sharing Agreement, dated as of
January 1, 1998, by and between EDS and USI.
3
<PAGE>
"Taxes" shall mean (i) all forms of taxation, whenever created or imposed,
and whether of the United States or elsewhere, and whether imposed by local,
municipal, governmental, state, federal or other body, and without limiting the
generality of the foregoing, shall include income, sales, use, ad valorem, gross
receipts, value added, franchise, transfer, recording, withholding, payroll,
employment, excise, occupation, premium or property taxes, and (ii) any amounts
paid by USI under a pro forma return prepared pursuant to the Tax Sharing
Agreement.
"Third Party Claim" shall mean any Action commenced or threatened to be
commenced, and any other claim or demand asserted, against an EDS Indemnitee or
a USI Indemnitee by a Person other than an EDS Entity or USI Entity.
"Transferred Assets" shall mean any and all assets, properties and rights
contributed, granted, conveyed or otherwise transferred to any USI Entity
pursuant to the Assignment and Assumption Agreements.
"Transferred Business" shall mean all functions and activities of that
portion of the business of the EDS Entities prior to or at the Effective Time
which specifically involves the ownership, distribution and maintenance of the
CAD/CAM/CAE software programs known as "Unigraphics," "Information Manager" and
"Parasolid" and the provision of systems integration, consulting and training
services relating exclusively to such software.
"USI" shall mean Unigraphics Solutions Inc., a Delaware corporation,
together with its successors and assigns.
"USI Entity" shall mean each of USI and each corporation or other entity
controlled, directly or indirectly, after the Effective Time, by USI.
"USI Indemnitee" shall have the meaning specified in Section 2.01.
"USI Premises" shall mean those premises listed under such heading on
Schedule 3.
ARTICLE II
INDEMNIFICATION
Section 2.01. Indemnification by EDS. EDS shall indemnify, defend and
hold harmless each USI Entity and its respective directors, officers, employees
and agents and each of the heirs, executors, successors and assigns of any of
the foregoing (the "USI Indemnitees") from and against:
(a) Losses resulting from any breach, default or failure to pay,
perform or otherwise discharge any Liability on the part of any EDS Entity under
this Agreement or any Assignment and Assumption Agreement;
(b) Losses arising from any Third Party Claim against a USI
Indemnitee that asserts a Liability on the part of such USI Indemnitee relating
to, arising out of, or due to, directly or indirectly,
4
<PAGE>
the EDS Assets or the EDS Business, whether relating to, arising our of, or due
to occurrences or conditions prior to, on, or after the Effective Time;
(c) Losses arising from Environmental Liabilities at any of the
USI Premises, only to the extent that such Environmental Liabilities are
attributable to the EDS Business;
(d) Losses arising from any Third Party Claim against any USI
Indemnitee made by (i) any individual employed in the EDS Business at the time
the Third Party Claim was made or (ii) any former employee in, or retiree from,
the EDS Business who was employed in the EDS Business at the time the Third
Party Claim arose, unless in either case the Third Party Claim arose primarily
from the conduct of any USI Entity or any individual employed in any Transferred
Business at the time that the Third Party Claim arose;
(e) Losses arising from any Third Party Claim against any USI
Indemnitee made by any current or former employee in, or retiree from, the
Transferred Business who was employed in the Transferred Business at the time
the Third Party Claim arose if the Third Party Claim arose primarily from
conduct by any EDS Entity or by any individual employed in any EDS Business at
the time that the Third Party Claim arose; and
(f) Losses (excluding those arising from Environmental
Liabilities, which are addressed in subsection (c) of this Section 2.01) arising
from any Third Party Claim against a USI Indemnitee relating to a personal
injury or property damage in or about the Premises, only to the extent that such
Losses are attributable to the EDS Businesses.
Section 2.02. Indemnification by USI. USI shall indemnify, defend and
hold harmless each EDS Entity and its respective directors, officers, employees
and agents and each of the heirs, executors, successors and assigns of any of
the foregoing (the "EDS Indemnitees") from and against:
(a) Losses resulting from a failure by any USI Entity to pay,
perform or otherwise discharge any Assumed Liability;
(b) Losses resulting from any breach, default or failure to pay,
perform or otherwise discharge any Liability on the part of any USI Entity under
this Agreement or any Assignment and Assumption Agreement;
(c) Losses arising from any Third Party Claim against an EDS
Indemnitee that asserts, explicitly or implicitly, a Liability on the part of
such EDS Indemnitee relating to, arising out of, or due to, directly or
indirectly, any Transferred Assets or Transferred Business whether relating to,
arising our of, or due to occurrences or conditions prior to, on, or after the
Effective Time;
(d) Losses arising from Environmental Liabilities at any of the
USI Premises, only to the extent that such Environmental Liabilities are
attributable to the Transferred Business;
5
<PAGE>
(e) Losses arising from or in connection with a breach, default or
failure to pay, perform or otherwise discharge any Liability on the part of any
USI Entity under any lease or sublease for any USI Premises;
(f) Losses arising from any Third Party Claim against any EDS
Indemnitee made by (i) any individual employed in the Transferred Business at
the time the Third Party Claim was made or (ii) any former employee in, or
retiree from, the Transferred Business who was employed in the Transferred
Business at the time the Third Party Claim arose, unless in either case the
Third Party Claim arose primarily from conduct by any EDS Entity or by any
individual employed in any EDS Business at the time that the Third Party Claim
arose;
(g) Losses arising from any Third Party Claim against any EDS
Indemnitee made by any current or former employee in, or retiree from, the EDS
Business who was employed in the EDS Business at the time the Third Party Claim
arose if the Third Party Claim arose primarily from conduct by any USI Entity or
by any individual employed in any Transferred Business at the time that the
Third Party Claim arose; and
(h) Losses (excluding those arising from Environmental
Liabilities, which are addressed in subsection (d) of this Section 2.02) arising
from any Third Party Claim against an EDS Indemnitee relating to a personal
injury or property damage in or about the Premises, only to the extent that such
Losses are attributable to the Transferred Business.
Section 2.03. Limitations on Indemnification Obligations.
(a) Insurance Proceeds. The amount which either EDS or USI (an
"Indemnifying Party") is required to pay to any other Person (an "Indemnitee")
pursuant to this Article II shall be reduced (including, without limitation,
retroactively) by any Insurance Proceeds or other amounts actually recovered by
or on behalf of such Indemnitee with respect to the related Loss. All amounts
required to be paid, as so reduced, are hereafter sometimes called "Indemnity
Payments." If any Indemnitee shall have received an Indemnity Payment in respect
of a Loss and shall subsequently actually receive Insurance Proceeds or other
amounts in respect of such Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the lesser of the amount of such Insurance
Proceeds or other amounts actually received or the amount of such Indemnity
Payment.
(b) After-Tax Nature of Indemnity Payments. Any Indemnity Payment
required to be made under this Agreement shall include any amount necessary to
hold the Indemnitee harmless on an after-tax basis from all Taxes required to be
paid with respect to the receipt of such Indemnity Payment (after taking into
account any reduction in Taxes realized by the Indemnitee as a result of the
Loss giving rise to the Indemnity Payment). In determining the amount necessary
to be added to any Indemnity Payment in order to accomplish the foregoing, EDS
and USI hereto agree (i) to treat all Taxes required to be paid by, and all
reductions in Tax realized by, any Indemnitee as if such Indemnitee were subject
to tax at the highest marginal tax rates applicable to such Indemnitee and (ii)
to treat any Indemnity Payments made under this Agreement as an adjustment to
the assets transferred (directly or indirectly) pursuant to the Assignment and
Assumption Agreements, unless the Indemnitee receives a written opinion,
reasonably satisfactory in form and substance to the Indemnifying Party, of
6
<PAGE>
a law firm of national recognized standing to the effect that it is not
permissible or is not likely to be permissible to treat such Indemnity Payment
in that manner on a federal, state or local income tax return.
(c) Foreign Currency Adjustments. In the event that an Indemnity
Payment under this Article II shall be denominated in a currency other than
United States dollars, the amount of such payment shall be translated into
United States dollars using the Foreign Exchange Rate for such currency
determined in accordance with the following rules:
(i) with respect to a Loss for which indemnification is sought
under this Article II arising from payment by a financial institution under a
guaranty, comfort letter, letter of credit, foreign exchange contract or similar
instrument, the Foreign Exchange Rate for such currency shall be determined as
of the date on which such financial institution shall have been reimbursed;
(ii) with respect to a Loss for which indemnification is sought
under this Article II that is covered by insurance, the Foreign Exchange Rate
for such currency shall not be calculated as set forth in Article I hereto, but
shall be the foreign exchange rate employed by the insurance company providing
such insurance in settling such Loss with the Indemnitee; and
(iii) with respect to a Loss for which indemnification is sought
under this Article II not covered by clause (i) or (ii) above, the Foreign
Exchange Rate for such currency shall be determined as of the date that notice
of the claim with respect to such Loss is given by the Indemnitee.
Section 2.04. Procedure for Indemnification. The procedure for all
indemnification sought under this Article II shall be as set forth in this
Section 2.04.
(a) If any Indemnitee shall receive notice of a Third Party Claim
with respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Article II, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third Party Claim; provided that the failure of any Indemnitee to give notice
promptly as provided in this Section 2.04 shall not relieve the Indemnifying
Party of its obligations under this Article II, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice and
except that no indemnification may be claimed by an Indemnitee hereunder unless
notice is given not later than two years after such Indemnitee became aware of
any Third Party Claim. Such notice shall describe the Third Party Claim in
reasonable detail and shall indicate the amount (estimated if necessary and to
the extent practicable) of the Loss that has been or may be sustained by such
Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle
or compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third Party Claim. Within 30 days of the receipt of
notice from an Indemnitee in accordance with Section 2.04(a) (or sooner, if the
nature of such a Third Party Claim so requires), the Indemnifying Party shall
notify such Indemnitee if the Indemnifying Party elects to not defend and to not
seek to settle or compromise such Third Party Claim. An election by an
Indemnifying Party to not defend or to not seek to settle or compromise a Third
Party Claim may be made only in the event of a good faith assertion by the
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Indemnifying Party that a claim was inappropriately tendered under Section 2.01
or 2.02, as the case may be. If an Indemnifying Party fails to elect to not
defend and to not seek to settle or compromise a Third Party Claim, such
Indemnifying Party shall assume the defense of such Third Party Claim and shall
not be liable to such Indemnitee under this Article II for any legal fees and
expenses subsequently incurred by such Indemnitee in connection with the defense
of such claim; provided that such Indemnitee shall have the right to employ
separate counsel to represent such Indemnitee if, in such Indemnitee's
reasonable judgment, a conflict of interest between such Indemnitee and such
Indemnifying Party exists in respect of such claim, and in that event the fees
and expenses of such separate counsel shall be paid by such Indemnifying Party.
If an Indemnifying Party elects to not defend or to not seek to settle or
compromise, such Indemnitee may defend or seek to settle or compromise such
Third Party Claim, and in that event the legal fees and expenses incurred by the
Indemnitee shall be paid by such Indemnifying Party. Notwithstanding the
foregoing, neither an Indemnifying Party nor any Indemnitee may settle or
compromise any Third Party Claim over the objection of the other, provided,
however, that consent to settlement or compromise shall not be unreasonably
withheld. The party seeking to settle or compromise any Third Party Claim shall
provide notice in writing to the other party of such proposal to settle or
compromise, which notice shall specify that the other party has 30 days from
receipt of such notice (or sooner, if the nature of such proposal to settle or
compromise so requires) to notify the other party of its objection, the failure
to object by the party receiving the notice within such time period constituting
a waiver of such right to object. No Indemnifying Party shall consent to entry
of any judgment or enter into any compromise or settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnitee of a release from all liability in respect of such claim or
litigation.
(c) If any Indemnifying Party chooses to defend or to seek to
settle or compromise any Third Party Claim, the Indemnitee shall make available
to such Indemnifying Party any personnel or any books, records, or other
documents within its control or which it otherwise has the ability to make
available that are necessary or appropriate for such defense, settlement or
compromise and shall otherwise cooperate in the defense, settlement or
compromise of such Third Party Claim.
(d) Notwithstanding anything to the contrary in this Section 2.04,
if any offer to settle or compromise is received by an Indemnifying Party with
respect to a Third Party Claim and such Indemnifying Party notifies the related
Indemnitee in writing of such Indemnifying Party's willingness to settle or
compromise such Third Party Claim on the basis set forth in such notice and such
Indemnitee declines to accept such settlement or compromise, such Indemnitee may
continue to contest such Third Party Claim free of any participation by such
Indemnifying Party, at such Indemnitee's sole expense. In such event, the
obligation of such Indemnifying Party to such Indemnitee with respect to such
Third Party Claim shall be equal to the lesser of (i) the amount of the offer of
settlement or compromise which such Indemnitee declined to accept plus the legal
fees and expenses of such Indemnitee prior to the date such Indemnifying Party
notifies such Indemnitee of the offer to settle or compromise and (ii) the
actual out-of-pocket amount such Indemnitee is obligated to pay as a result of
such Indemnitee's continuing to contest such Third Party Claim. An Indemnifying
Party shall be entitled to recover (by set-off or otherwise) from any Indemnitee
any additional legal fees and expenses incurred by such Indemnifying Party as a
result of such Indemnitee's decision to continue to contest such Third Party
Claim.
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(e) Any claim on account of any Loss for which indemnification is
sought under this Article II which does not result from a Third Party Claim
shall be asserted by written notice by the Indemnitee to the Indemnifying Party.
Such Indemnifying Party shall have a period of 30 days after the receipt of such
notice within which to respond thereto. If such Indemnifying Party does not
respond within such 30-day period or rejects such a claim in whole or in part,
the Indemnitee shall be free to pursue remedies through the Dispute Resolution
Procedure.
(f) If the amount of any Loss for which indemnification is sought
under this Article II shall, at any time subsequent to payment pursuant to this
Article II, be reduced by recovery, settlement or otherwise (excluding insurance
maintained separately by the Indemnitee, the treatment of which shall be
governed by Section 2.03(a)), the amount of such reduction, less any legal fees
and expenses incurred in connection therewith, shall promptly be repaid by the
Indemnitee to the relevant Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to or for the
benefit of any Indemnitee in connection with a Loss resulting from any Third
Party Claim, such Indemnifying Party shall, to the extent of any such Loss, be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to any Third Party Claim against any claimant or plaintiff asserting
such Third Party Claim. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
(i) As a condition precedent to the assertion by any Indemnitee
that is not a party to this Agreement of any claim for indemnification from an
Indemnifying Party under this Article II, such Indemnitee shall furnish the
Indemnifying Party with a written undertaking to be bound by all of the terms
and provisions applicable to an Indemnitee under this Article II.
Section 2.05. Remedies Cumulative. The remedies provided in this Article
II shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party; provided, however, that all remedies sought or asserted
under this Agreement by an Indemnitee against an Indemnifying Party with respect
to any Loss for which indemnification is sought under this Article II shall be
(i) limited by and subject to the provisions of this Article II, and (ii)
precluded where such remedy relates to a claim (x) which also arises under any
Intercompany Agreement, or (y) for which indemnification may be sought under any
Intercompany Agreement.
Section 2.06. Survival of Indemnities. The obligations of EDS and USI and
their respective Indemnitees under this Article II shall survive (a) the sale or
other transfer by either EDS or USI of any assets or businesses or the
assumption by any third party of any Liabilities with respect to any Loss
related to such assets, businesses or Liabilities, and (b) any termination of
this Agreement.
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ARTICLE III
CONFIDENTIALITY
Section 3.01. Generally. (a) Each of EDS and USI on behalf of itself and
each of its respective Entities, agrees to hold, and to cause its respective
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives to hold, in strict confidence, all Confidential Information
concerning the other (or its Entities) that is (i) in its possession immediately
after the Effective Time or (ii) is furnished by each other, as the case may be,
or its respective directors, officers, employees, agents, accountants, counsel
and other advisors or representatives at any time pursuant to this Agreement,
any Assignment and Assumption Agreement, or any ongoing commercial relationship
between the Parties commencing prior to the Effective Time. Each of EDS and USI
on behalf of itself and each of its respective Entities agrees that it shall not
use any such Confidential Information other than for such purposes as shall be
expressly permitted under this Agreement, or any Assignment and Assumption
Agreement, or any ongoing commercial relationship between the Parties commencing
prior to the Effective Time.
(b) In addition, the following information is Confidential
Information, whether acquired either by any EDS Entity or any USI Entity under
or in connection with this Agreement, any Assignment and Assumption Agreement,
or any ongoing commercial relationship between the Parties commencing prior to
the Effective Time:
(i) Information relating to the other Party's business, customers,
financial condition, performance, or operations that the other Party treats as
confidential or proprietary.
(ii) The terms and conditions of this Agreement, any Assignment and
Assumption Agreement or any ongoing commercial relationship between the Parties
commencing prior to the Effective Time.
(iii) Information concerning any breach under, or any Dispute
regarding, this Agreement, any Assignment and Assumption Agreement, or any
ongoing commercial relationship between the Parties commencing prior to the
Effective Time.
(iv) Information that is the Confidential Information of a third
party and disclosed to a Party subject to an obligation of confidentiality.
(v) Any other information, whether in a tangible medium or oral
and whether proprietary to the other Party or not, that is marked or clearly
identified by the other Party as confidential or proprietary.
(vi) The other Party's trade secrets.
(vii) The conduct, decisions, documents, and negotiations as part
of, and the status of, any proceedings under the Dispute Resolution Procedure.
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Section 3.02. Excluded Information. Information is not considered
Confidential Information under this Agreement to the extent that the
information: (a) is or becomes publicly available, other than as a result of any
breach of this Agreement or of any other duty of a Party; (b) is or becomes
available to that Party from a source that, to that Party's knowledge, is
lawfully in possession of that information and is not subject to a duty of
confidentiality, whether to the other Party or another Person, violated by that
disclosure; or (c) is independently developed without reference to the
Confidential Information.
Section 3.03. Use of Confidential Information. Except as expressly
permitted by this Agreement, all Confidential Information shall be held and
protected by the recipient in strict confidence, shall be used by the recipient
only in the manner as it was used immediately after the Effective Time and only
as required to render performance or to exercise rights and remedies under this
Agreement, any Assignment and Assumption Agreement, or any ongoing commercial
relationship between the Parties commencing prior to the Effective Time, and
shall not be disclosed to any other Person.
Section 3.04. Standard of Care. Each Party shall use at least the same
degree of care in maintaining the confidentiality of the Confidential
Information as that Party uses with respect to its own proprietary or
Confidential Information, and in no event less than reasonable care.
Section 3.05. Permitted Disclosures. A Party may disclose Confidential
Information to its officers, directors, employees, legal representatives,
accountants, or tax advisors, on a need-to-know basis, in order to give effect
to this Agreement. Each Party must inform each such Person to whom any
Confidential Information is so communicated of the duty of confidentiality
regarding that information under this Agreement and impose on that Person the
obligation to comply with this Article III regarding the Confidential
Information.
Section 3.06. Required Disclosures. Each Party may disclose Confidential
Information in response to a request for disclosure by a court or another
governmental authority, including a subpoena, court order, or audit-related
request by taxing authority; if that Party: (a) promptly notifies the other
Party of the terms and the circumstances of that request; (b) consults with the
other Party, and cooperates with the other Party's reasonable requests to resist
or narrow that request; (c) furnishes only information that, according to
written advice (which need not be a legal opinion) of its legal counsel, that
the Party is legally compelled to disclose; and (d) uses reasonable efforts at
the other Party's expense to obtain an order or other reliable assurance that
confidential treatment will be accorded the information disclosed. A Party need
not comply with these conditions to disclosure, however, to the extent that the
request or order of the governmental authority in effect prohibits that
compliance. A Party may also disclose Confidential Information without
complying with these conditions to the extent that the Party is otherwise
legally obligated to do so (including for the purposes of complying with
applicable securities laws), as confirmed by advice of competent and
knowledgeable legal counsel. Further, a Party may disclose Confidential
Information, without complying with these conditions, in connection with a tax
audit to representatives of a taxing authority or in connection with a tax
contest in which that Party uses reasonable efforts to assure that confidential
treatment will be accorded the information disclosed.
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Section 3.07. Title to Information. The Confidential Information
disclosed by one Party to the other Party remains the property of the disclosing
Party, and nothing in this Article 3 grants or confers any ownership rights in
any of that information to the other Party.
Section 3.08. Irreparable Harm. The Parties acknowledge that any
disclosure or misappropriation of Confidential Information in violation of this
Agreement could cause irreparable harm, the amount of which may be extremely
difficult to estimate, thus making any remedy at law or in damages inadequate.
Each Party therefore agrees that the other Party shall have the right, afforded
in Section B.4(b) of Appendix A: Dispute Resolution Appendix, to apply to any
court of competent jurisdiction for a temporary or provisional order restraining
any breach or impending breach of this Article III. This right shall be in
addition to any other remedy available under this Agreement.
Section 3.09. General Knowledge. Each Party understands that the other
Party may enhance its generalized knowledge and experience while this Agreement
is in effect and that the other Party may already possess or hereafter obtain
concepts, data, discoveries, ideas, information, inventions, know-how,
knowledge, methodologies, processes, products, skills, techniques or other work
product, whether or not patentable, that are generally similar to Confidential
Information it may receive under this Agreement. This Agreement shall not be
interpreted as limiting such other Party's rights to develop, disclose, display,
market, obtain, own publish, provide, release, sell, transfer, or use, in any
manner whatsoever, any such generalized knowledge and experience or any such
concepts; provided, however, that such other Party shall in all events comply
with the preceding Sections of this Article III.
Section 3.10. Other Agreements Providing for Treatment of Confidential
Information. The rights and obligations under this Article III are subject to
any specific limitations, qualifications or additional provisions on the
confidential treatment or disclosure of information as set forth in any
Intercompany Agreement.
ARTICLE IV
CONTINUING INFORMATION SUPPORT
Section 4.01. Access to Information. Until the ten year anniversary of
the Effective Time, each of EDS and USI (on behalf of itself and its respective
Entities) each shall afford to the other reasonable access and duplicating
rights upon reasonable advance request and during normal business hours to all
information (other than information subject to the attorney-client privilege)
within such party's possession relating to such other party's business, assets
or liabilities to the extent that such access is reasonably required by such
other party as a result of the parties' current parent-subsidiary relationship
for audit, accounting, claims, litigation (except for litigation between the
parties hereto), regulatory or tax purposes, or for purposes of fulfilling
disclosure and reporting obligations. In connection therewith, each party shall
upon the request of the other party make available their respective officers and
employees (and those of their respective Entities) to the extent that they are
reasonably necessary to discuss and explain such information with and to the
other party. Each Party shall cooperate with the other, and shall cause their
respective Entities to cooperate, in the provision of access to information
reasonably necessary for the preparation of reports required by or filed under
the Exchange Act with respect to any period entirely or partially prior to the
Effective Time. The access
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provided pursuant to this Section 4.01 shall be subject to such additional
confidentiality and security provisions as the disclosing party may reasonably
deem necessary.
Section 4.02. Production of Witnesses. Until the six year anniversary of
the Effective Time, each of EDS and USI shall use commercially reasonable
efforts, and shall cause each of its Entities to use commercially reasonable
efforts, to make available to the other, upon written request, its directors,
officers, employees and other representatives as witnesses to the extent that
any such Person may reasonably be required (giving consideration to the business
demands upon such Persons) in connection with any legal, administrative or other
proceedings in which the requesting party may from time to time be involved.
Section 4.03. Reimbursement. Except with respect to costs and expenses
incurred in connection with any legal, administrative or other proceedings to
which Article II applies, each party to this Agreement providing access,
information or witnesses to the other party pursuant to this Article IV shall be
entitled to receive from the recipient, upon the presentation of invoices
therefor, payment for all reasonable out-of-pocket costs and expenses (excluding
allocated compensation, salary and overhead expense) as may be reasonably
incurred in providing such information or witnesses.
Section 4.04 Retention of Records. Except as otherwise required by law,
each of EDS and USI shall use commercially reasonable efforts to accommodate the
other with respect to retention and provision of copies of any significant
information in such party's possession or under its control relating to the
business, assets or liabilities of the other party.
ARTICLE V
DISPUTE RESOLUTION
Section 5.01. Generally. All Disputes under this Agreement shall be
resolved by the Parties under the Dispute Resolution Procedure set forth in
Appendix A attached hereto.
Section 5.02. Contribution and Transfer Agreements. EDS and USI agree that
any Dispute under the Assignment and Assumption Agreements, including as to
whether a particular asset has been transferred, shall be resolved by the
Dispute Resolution Procedure.
ARTICLE VI
MISCELLANEOUS
Section 6.01. Leased Premises. USI SHALL TAKE, OR SHALL CAUSE ANY USI
ENTITY TO TAKE, EACH OF THE USI PREMISES IN ITS "AS IS" CONDITION AND WAIVES,
AND SHALL CAUSE ALL USI ENTITIES TO WAIVE, ANY AND ALL RIGHTS THAT THEY MAY HAVE
AGAINST ANY EDS ENTITY REGARDING ANY WARRANTIES, EXPRESS OR IMPLIED.
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Section 6.02. Complete Agreement. This Agreement, including the Schedules
and Annexes and other agreements and documents referred to herein, shall
constitute the entire agreement among the parties with respect to the subject
matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter, except as provided in Section 2.05
and Section 3.10 of this Agreement.
Section 6.03. Further Actions. In case at any time after the Effective
Time any further action is necessary or reasonably desirable to carry out the
purposes of this Agreement, each Party shall take, and shall cooperate with the
other Party to take, all such necessary or desirable action.
Section 6.04. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 6.05. Notices. All notices, requests and other communications to
any Party hereunder shall be given to such Party (i) in writing, (ii) delivered
by hand, by telecopy (with a conforming copy of such notice to be sent via a
nationally recognized express delivery service, charges prepaid), by a
nationally recognized express delivery service, charges prepaid, or by first-
class mail, postage prepaid, and (iii) to its address or telecopy number set
forth below:
if to EDS or any EDS Entity:
Electronic Data Systems Corporation
5400 Legacy Drive, Mail Stop, H2-8W-40
Plano, Texas 75024
Facsimile: (972) 605-5610
Attention: General Counsel
if to USI or any USI Entity:
Unigraphics Solutions Inc.
13736 Riverport Drive
Maryland Heights, Missouri 63043
Facsimile: (314) 344-8241
Attention: President
Section 6.06. Amendments. This Agreement may not be modified or amended
except by an agreement in writing signed by EDS and USI.
Section 6.07. No Third Party Beneficiaries. This Agreement is solely for
the benefit of the parties and the Indemnitees and should not be deemed to
confer any benefit upon any other person or entity.
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Section 6.08. Titles and Headings. The titles and headings to Articles
and Sections herein are inserted for the convenience of reference only and are
not intended to be part of or to affect the meaning or interpretation of this
Agreement.
Section 6.09. Appendices and Schedules. The Appendices and Schedules
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth herein.
Section 6.10. Legal Enforceability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable in any other jurisdiction such provision or remedies
otherwise available to any party hereto. To the extent permitted by applicable
law, each party hereby waives any provision of law that renders any provision
hereof prohibited or unenforceable in any respect. The party shall endeavor in
good faith negotiations to replace any prohibited or unenforceable provisions
with valid provisions, the economic effect of which comes as close as possible
to that of the prohibited or unenforceable provisions.
Section 6.11. Counterparts. This Agreement may be executed by the parties
in separate counterparts, each of which when so executed and delivered shall be
an original, but such counterparts shall together constitute but one and the
same instrument.
[REMAINDER OF PAGE IS INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have caused this Intercompany Agreement to
be executed as of the day and year first above written.
ELECTRONIC DATA SYSTEMS
CORPORATION
By: /s/ D. GILBERT FRIEDLANDER
--------------------------
Name: D. Gilbert Friedlander
Title: Senior Vice President
UNIGRAPHICS SOLUTIONS INC.
By: /s/ JOHN MAZZOLA
--------------------------
Name: John Mazzola
Title: President
16
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SCHEDULE 1
ASSIGNMENT AGREEMENTS
1. Contribution, Assignment and Assumption Agreement, dated January 1, 1998,
between EDS and USI.
2. Bills of Sale and Assumption Agreements dated on or after January 1, 1998
between the local EDS Entity and the local USI Entity with regard to
tangible and intangible personal property and receivables located in:
Australia
Austria
Belgium
Brazil
Canada
China
Czech Republic
Denmark
France
Germany
Hong Kong
Indonesia
Italy
Japan
Korea
Malaysia
Mexico
Netherlands
Norway
Poland
Portugal
Russia
Singapore
Spain
Sweden
Switzerland
Taiwan
Thailand
United Kingdom
<PAGE>
3. Patent Assignment, dated January 1, 1998, executed by EDS, and all related
assignment documentation prepared for recordation purposes in the United States
Patent and Trademark Office or the equivalent office in foreign jurisdictions.
4. Copyright Assignment, dated January 1, 1998, executed by EDS, and all
related assignment documentation prepared for recordation purposes in the United
States Copyright Office or the equivalent office in foreign jurisdictions.
5. Trademark Assignment, dated January 1, 1998, executed by EDS and all related
assignment documentation prepared for recordation purposes in the United States
Patent and Trademark Office or the equivalent office in foreign jurisdictions.
<PAGE>
SCHEDULE 2
INTERCOMPANY AGREEMENTS
1. Memorandum of Understanding dated January 1, 1998 between EDS and USI
regarding support by EDS and USI of General Motors Corporation.
2. Management Services Agreement, dated January 1, 1998, between EDS and USI.
3. Tax Sharing Agreement, dated January 1, 1998, between EDS and USI.
4. Credit Agreement, dated January 1, 1998, between EDS and USI.
5. Credit Agreements, dated January 1, 1998 or thereafter, between EDS Finance
plc and certain non-US USI Entities.
6. Registration Rights Agreement dated January 1, 1998 between EDS and USI.
7. Sublease Agreements dated effective January 1, 1998 between EDS and USI
relating to all or a portion of EDS' real property interest in the following
properties located in the United States and Canada:
10824 Hope St., Cypress, CA
3945 Freedom Circle, Santa Clara, CA
100 Roscommon Dr., Suite 216, Middletown, CT.
5850 T.G. Lee Blvd., Orlando, FL
3000 Business Park Dr., Norcross, GA
6250 River Road, Rosemont, IL
Seven Mile Rd., Livonia, MI
7780 France Avenue South, Bloomington, MN
Riverport Drive, Maryland Heights, MO
25 Hanover Road, Florham Park, NJ
375 Woodcliff Drive, Fairport, NY
11260 Chester Road, Cincinnati, OH
680 Andersen Drive, Pittsburgh, PA
620 W. Germantown Pike, Plymouth Meeting, PA
6900 and 6950 W. Jefferson Ave., Lakewood, CO
10975 El Monte, Overland Park, KS
1601 Trapelo Road, 1st Floor, Waltham, MA
750 Tower Drive, Troy, MI
700 Tower Drive, Troy, MI
9014 Research Dr., Charlotte, NC
<PAGE>
13245 Reese Blvd., Huntersville, NC
1221 McKinney, Houston, TX
5400 Legacy Drive, Plano, TX
176 N. 200, Salt Lake City, UT
13600 EDS Drive, Herndon, VA
13555 S.E. 36th St, Suite 300, Bellevue, WA
100 Blvd. Alexi, St. Laurent, Canada
33 Yonge St., Toronto, Canada
8. Those certain Intercompany Agreements between the local USI Entity and the
local EDS Entity setting forth the terms and conditions under which the USI
Entity shall continue to occupy certain real property leased or owned by the
EDS Entity in various countries outside the United States and Canada.
<PAGE>
SCHEDULE 3
USI PREMISES
The "USI Premises" shall include the following:
1. All real property or portions thereof located within and outside of the
United States leased or subleased by EDS to USI (or an EDS Entity to a
USI Entity) pursuant to one of the lease, sublease or occupancy
agreements referred to in numbered paragraphs 7 and 8 of Schedule 2 to
this Agreement.
2. The real property utilized by the Transferred Business at customer
sites and residences of employees of the Transferred Business.
3. All real property owned or leased directly by USI or a USI Entity.
The "EDS Premises" shall consist of all other real property owned or leased by
EDS other than the USI Premises.
<PAGE>
APPENDIX A
DISPUTE RESOLUTION APPENDIX
TO INTERCOMPANY AGREEMENT
A. Defined Terms. Various terms used in this Dispute Resolution Appendix,
which begin with a capital letter, are defined in Article I of the Intercompany
Agreement. In addition, the following terms used only in this Dispute
Resolution Appendix have the corresponding meanings:
"COMPLEX DISPUTE LIST": The "Complex Dispute List," maintained by the
American Arbitration Association or if that list is not then maintained by the
American Arbitration Association, another list of individuals having similar
qualifications maintained by the American Arbitration Association.
"EXECUTIVE REVIEW COMMITTEE": A committee consisting of a Senior Vice
President of EDS (selected by EDS) and the Chief Financial Officer of USI.
"QUALIFICATIONS": Inclusion in the Complex Dispute List or having
extensive knowledge or experience, or both, regarding issues that are the
subject of the Dispute.
B. Dispute Resolution Procedure.
1. General Procedure. Except as otherwise stated in the Agreement, the
Parties shall resolve all Disputes in accordance with this procedure:
(a) Any Dispute shall initially be referred by either Party to the
Executive Review Committee for resolution.
(b) If the Executive Review Committee does not resolve the Dispute
within twenty Business Days (or such longer period as that Committee may
agree) after the date of referral to it, either Party may submit the
Dispute for resolution by the President of USI and the President of EDS,
who may submit the Dispute to non-binding mediation in accordance with
Section B.2 of this Dispute Resolution Appendix.
(c) If the Dispute is not resolved by the executives to whom it was
submitted pursuant to Section B.1.(b) above (if submitted to them) and is
not submitted to or resolved by mediation, then either Party may submit the
Dispute to binding arbitration in accordance with Section B.3 of this
Dispute Resolution Appendix (which, except as provided in Section 4 of this
Dispute Resolution Appendix, shall be the sole means available for
resolution of the Dispute).
A referral under any of Sections B.1(a) and B.1(b) of this Dispute
Resolution Appendix shall be made by written notice to the Persons designated in
the applicable Section or Sections. That notice
<PAGE>
shall be in a form described in the Agreement or an electronic mail message and
addressed to each Person at his office address or electronic mail address; each
notice shall be given and effective as described in the Agreement or, in the
case of electronic mail, upon actual receipt. The date of referral is the last
date that notice is given to all of the Persons to whom the Dispute must have
been referred.
2. Mediation. The mediation of an unresolved Dispute shall be conducted
in this manner:
(a) Either Party may submit the Dispute to mediation by giving notice
of mediation to the other Party. The Parties shall attempt to agree upon
and appoint a sole mediator who has the Qualifications promptly after that
notice is given.
(b) If the Parties are unable to agree upon a mediator within ten days
after the date the Dispute is submitted to mediation, either Party may
request the Dallas office of the American Arbitration Association to
appoint a mediator who has the Qualifications. The mediator so appointed
shall be deemed to have the Qualifications and to be accepted by the
Parties.
(c) The mediation shall be conducted in the Dallas-Fort Worth
metropolitan area at a place and a time agreed by the Parties with the
mediator, or if the Parties cannot agree, as designated by the mediator.
The mediation shall be held within 20 days after the mediator is appointed.
(d) If either Party has substantial need for information from the
other Party in order to prepare for the mediation, the Parties shall
attempt to agree on procedures for the formal exchange of information; if
the Parties cannot agree, the mediator's determination shall be final.
(e) Each Party shall be represented in the mediation by a natural
Person with authority to settle the Dispute on behalf of that Party and, if
desired by that Party, by counsel for that Party. The Parties'
representatives in the mediation shall continue with the mediation as long
as the mediator requests.
(f) The mediation shall be subject to Chapter 154 of Title 7 of the
Texas Civil Practice and Remedies Code.
(g) Unless otherwise agreed by the Parties, each Party shall pay one-
half of the mediator's fees and expenses and shall bear all of its own
expenses in connection with the mediation. Neither Party may employ or
use the mediator as a witness, consultant, expert, or counsel regarding the
Dispute or any related matters.
3. Arbitration. The arbitration of an unresolved Dispute shall be
conducted in this manner:
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(a) Either Party may begin arbitration by filing a demand for
arbitration in accordance with the Arbitration Rules. The Parties shall
attempt to agree upon and appoint a panel of three arbitrators promptly
after that demand is filed. Each of those arbitrators must have the
Qualifications, and at least one of those arbitrators must be included in
the Complex Dispute List (unless no list of that kind is then maintained).
(b) If the Parties are unable to agree upon any or all of the
arbitrators within ten days after the demand for arbitration was filed (and
do not agree to an extension of that ten-day period), either Party may
request the Dallas office of the American Arbitration Association to
appoint the arbitrator or arbitrators, who have the Qualifications (and at
least one of whom must be included in the Complex Dispute List, unless no
list of that kind is then maintained), necessary to complete the panel in
accordance with the Arbitration Rules. Each arbitrator so appointed shall
be deemed to have the Qualifications and to be accepted by the Parties as
part of the panel.
(c) The arbitration shall be conducted in the Dallas-Fort Worth
metropolitan area at a place and a time agreed by the Parties with the
panel, or if the Parties cannot agree, as designated by the panel. The
panel may, however, call and conduct hearings and meetings at such other
places as the Parties may agree or as the panel may, on the motion of one
Party, determine to be necessary to obtain significant testimony or
evidence.
(d) The Parties shall attempt to agree upon the scope and nature of
any discovery for the arbitration. If the Parties do not agree, the panel
may authorize discovery in accordance with the Federal Rules of Civil
Procedure upon a showing of particularized need that the requested
discovery is likely to lead to material evidence needed to resolve the
Dispute and is not excessive in scope, timing, or cost.
(e) The arbitration shall be subject to the Federal Arbitration Act
and conducted in accordance with the Arbitration Rules to the extent they
do not conflict with this Section B.3 of this Dispute Resolution Appendix.
The Parties and the panel may, however, agree to vary the provisions of
this Section B.3 of this Dispute Resolution Appendix or the matters
otherwise governed by the Arbitration Rules.
(f) The panel has no power to:
(i) rule upon or grant any extension, renewal, or continuance
of the Agreement;
(ii) award remedies or relief either expressly prohibited by the
Agreement or under circumstances not permitted by the Agreement; or
(iii) grant provisional or temporary injunctive relief before
rendering the final decision or award.
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(g) Unless the Parties otherwise agree, all Disputes regarding or
related to the same topic or event that are subject to arbitration at one
time shall be consolidated in a single arbitration proceeding.
(h) A Party or other Person involved in an arbitration under this
Section B.3 may join in that arbitration any Person other than a Party if
(i) the Person to be joined agrees to resolve the particular
dispute or controversy in accordance with this Section B.3 and the
other provisions of this Dispute Resolution Appendix applicable to
arbitration; and
(ii) the panel determines, upon application of the Person
seeking joinder, that the joinder of that other Person will promote
the efficiency, expedition, and consistency of the result of the
arbitration and will not unfairly prejudice any other party to the
arbitration .
(i) The arbitration hearing shall be held within 30 days after the
appointment of the panel. Upon request of either Party, the panel shall
arrange for a transcribed record of the arbitration hearing, to be made
available to both Parties.
(j) The panel's final decision or award shall be made within 30 days
after the hearing. That final decision or award shall be made by unanimous
or majority vote or consent of the arbitrators constituting the panel, and
shall be deemed issued at the place of arbitration. The panel shall issue
a reasoned written final decision or award based on the Agreement and
Delaware law; the panel may not act according to equity and conscience.
(k) The panel's final decision or award may include:
(i) recovery of damages to the extent permitted by the
Agreement; or
(ii) injunctive relief in response to any actual or threatened
breach of the Agreement or any other actual or threatened action or
omission of a Party under or in connection with the Agreement.
(l) The panel's final decision or award shall be final and binding
upon the Parties, and judgment upon that decision or award may be entered
in any court having jurisdiction over either or both of the Parties or
their respective assets. The Parties specifically waive any right they may
have to apply or appeal to any court for relief from the preceding sentence
or from any decision of the panel made, or any question of law arising,
before the final decision or award. If any decision by the panel is
vacated for any reason, the Parties shall submit that Dispute to a new
arbitration in accordance with this Section B.3.
(m) Each Party shall pay one-half of the arbitrators' fees and
expenses, and shall bear all of its own expenses in connection with the
arbitration. The panel has the authority,
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however, to award recovery of all costs and fees (including attorneys'
fees, administrative fees and the panel's fees and expenses) to the
prevailing Party in the arbitration.
4. Recourse to Courts. Nothing in the Dispute Resolution Procedure limits
the right of either Party to apply to a court or other tribunal having
jurisdiction to:
(a) enforce the Dispute Resolution Procedure, including the agreement
to arbitrate in this Dispute Resolution Appendix;
(b) seek provisional or temporary injunctive relief so as to avoid
irreparable damage or maintain the status quo, until a final arbitration
decision or award is rendered or the Dispute is otherwise resolved; or
(c) challenge or vacate any final arbitration decision or award that
does not comport with Section B.3 of this Dispute Resolution Appendix.
5. Submission to Jurisdiction. Each Party irrevocably submits to the
jurisdiction of the federal courts of the United States and the state courts of
Texas located in Collin County, Texas. Each Party waives any defense or
challenge to that jurisdiction based on lack of personal jurisdiction, improper
venue, or inconvenience of forum.
6. Confidentiality. The proceedings of all negotiations, mediations, and
arbitrations as part of the Dispute Resolution Procedure shall be privately
conducted. The Parties shall keep confidential all conduct, negotiations,
documents, decisions, and awards in connection with those proceedings under the
Dispute Resolution Procedure.
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<PAGE>
EXHIBIT 10.3
MANAGEMENT SERVICES AGREEMENT
BETWEEN
ELECTRONIC DATA SYSTEMS CORPORATION
AND
UNIGRAPHICS SOLUTIONS INC.
<PAGE>
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND INTERPRETATION
ARTICLE 2
TERM
2.1 Stated Term........................................................... 1
2.2 Renewal............................................................... 1
2.3 Transition Assistance................................................. 1
ARTICLE 3
SERVICES
3.1 Management and Other Services......................................... 2
3.2 Standard of Care...................................................... 2
3.3 Manner and Place of Performance....................................... 2
3.4 Recipients of Services................................................ 2
3.5 Subcontracting Services............................................... 2
3.6 Information Regarding Services........................................ 2
3.7 Legal Services........................................................ 3
3.8 Warranty Disclaimer................................................... 3
ARTICLE 4
SERVICE LEVEL
4.1 Continuation of Level................................................. 3
4.2 Mid-year Changes in Level............................................. 3
4.3 Procedure for Level Change............................................ 3
ARTICLE 5
DISCONTINUANCE OF OPTIONAL SERVICES
5.1 Procedure............................................................. 3
5.2 Service Level and Price of Discontinued Services...................... 4
5.3 Impossible Optional Services.......................................... 4
5.4 Transition Assistance................................................. 4
5.5 Reinstatement of Discontinued Service................................. 4
5.6 Change in Internal Systems............................................ 4
ARTICLE 6
SERVICES OBTAINED FROM OTHERS
6.1 Mandatory Services.................................................... 4
6.2 Upon Discontinuance................................................... 4
6.3 Before Discontinuance................................................. 5
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ARTICLE 7
SERVICE AND MANAGEMENT FEES
7.1 Cost Determination for Services....................................... 5
7.2 Annual Pricing for Services........................................... 5
7.3 Disagreement on Mandatory Service Pricing............................. 5
7.4 Annual Service Price Effectiveness.................................... 6
7.5 Fixed Management Services Fee......................................... 6
ARTICLE 8
PAYMENT
8.1 Invoices.............................................................. 6
8.2 Payment............................................................... 6
8.3 Method of Payment..................................................... 7
8.4 Interest.............................................................. 7
8.5 Nonpayment Notice..................................................... 7
8.6 Payment for IB Services............................................... 7
8.7 Dispute of Invoice or IB Payment Notice............................... 7
ARTICLE 9
RECORDS
9.1 Record Keeping........................................................ 7
9.2 Examination........................................................... 7
ARTICLE 10
CONFIDENTIAL INFORMATION
10.1 Confidential Information.............................................. 8
10.2 Excluded Information.................................................. 8
10.3 Standard of Care...................................................... 8
10.4 Permitted Disclosures................................................. 8
10.5 Required Disclosures.................................................. 8
10.6 Title to Information.................................................. 9
10.7 Survival; Return...................................................... 9
ARTICLE 11
PARTIES' RELATIONSHIP
11.1 Independent........................................................... 9
11.2 Employees............................................................. 9
11.3 Authority and Enforceability.......................................... 9
11.4 Third-Party Consents.................................................. 9
11.5 Further Assurances.................................................... 9
ARTICLE 12
PARTIES' REPRESENTATIVES
12.1 Representatives' Authority............................................10
12.2 Designation...........................................................10
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<PAGE>
ARTICLE 13
TERMINATION
13.1 Termination Events....................................................10
13.2 Nonexclusive..........................................................10
13.3 Consequences of Termination...........................................10
13.4 Survival of Rights and Obligations....................................11
ARTICLE 14
LIABILITY AND REMEDIES
14.1 Warranties............................................................11
14.2 Nonconforming Services................................................11
14.3 Actual Damages........................................................12
14.4 Indemnities for Certain Breaches and Other Matters....................12
14.5 Time for Claims.......................................................13
14.6 Offset................................................................14
14.7 Equitable Relief......................................................14
14.8 Exclusive Remedies....................................................14
14.9 Waiver of Remedies....................................................14
14.10 Cumulative Remedies...................................................14
14.11 Survival..............................................................14
ARTICLE 15
FORCE MAJEURE
15.1 No Breach or Liability................................................14
15.2 Notice of Excusable Delay or Failure..................................14
15.3 Efforts to Overcome...................................................14
15.4 Extended Delay or Failure.............................................14
ARTICLE 16
DISPUTE RESOLUTION MATTERS
16.1 General Procedure.....................................................15
16.2 Continued Performance.................................................15
16.3 Parties' Agreement....................................................15
ARTICLE 17
EXPENSES AND TAXES
17.1 Expenses..............................................................15
17.2 Taxes.................................................................15
ARTICLE 18
MISCELLANEOUS
18.1 Notices...............................................................16
18.2 Assignment............................................................17
18.3 Amendment and Waiver..................................................17
18.4 Integration...........................................................17
18.5 Severability..........................................................17
18.6 Successors............................................................17
18.7 Governing Law.........................................................17
18.8 Counterparts..........................................................17
iii
<PAGE>
ATTACHMENTS:
DEFINITIONAL APPENDIX
DISPUTE RESOLUTION APPENDIX
SCHEDULES OF SERVICES
iv
<PAGE>
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement is between Electronic Data Systems
Corporation, a Delaware corporation, and Unigraphics Solutions Inc., a Delaware
corporation, effective on January 1, 1998.
BACKGROUND
Effective as of January 1, 1998, EDS is transferring the business and
assets which comprised its Unigraphics division to USI, a wholly-owned
subsidiary of EDS. In anticipation of EDS' ownership interest in USI being
reduced, the Parties wish to set forth the terms on which certain management
services will be rendered by EDS to USI and its subsidiaries.
AGREEMENT
The Parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
Various terms used in this Agreement are defined in the Definitional
Appendix; the defined terms used in this Agreement begin with a capital letter.
Various interpretative matters for this Agreement are also set forth in the
Definitional Appendix. The Definitional Appendix is an integral part of this
Agreement.
ARTICLE 2
TERM
2.1 Stated Term. This Agreement commences on the Effective Date and will
continue in effect until 11:59 p.m., Central Time, on December 31, 2002, unless
terminated earlier by one or both of the Parties in accordance with Article 13.
2.2 Renewal. The Parties may consent to successive one-year renewal terms
by following this procedure: If USI wishes to renew the term of this Agreement,
it shall Notify EDS of that intention by September 30, 2002 and the same date of
each subsequent year. If EDS wishes to concur with that renewal, it shall Notify
USI of that concurrence by October 31 of that year. If no Notice of intent to
renew or no concurrence is given, this Agreement will Expire when the then
current term expires.
2.3 Transition Assistance. For up to 180 days after Expiration, EDS shall
comply with USI's reasonable requests for assistance in engaging or training
another Person or Persons to provide, and for records and other information
relating to, the Services rendered by EDS immediately preceding that Expiration.
USI shall reimburse and pay EDS' Transition Expenses in accordance with invoices
submitted to USI by EDS. Articles 8 and 18 shall apply in this situation as
though this Agreement had not Expired. EDS may cease providing transition
assistance, immediately upon Notice to USI, if USI has not paid the amount
described in a Nonpayment Notice by the tenth Business Day after the Nonpayment
Notice was given. If the records or other information provided by EDS are
Confidential Information, Article 10 shall also apply as though this Agreement
had not Expired.
<PAGE>
ARTICLE 3
SERVICES
3.1 Management and Other Services. EDS shall render, and USI shall pay
for, the Mandatory Services and, to the extent not discontinued in accordance
with this Agreement, the Optional Services and the IB Services during the
effectiveness of this Agreement. The Services are described on the Schedules,
which are an integral part of this Agreement. The Services described on
Schedules I and II are Mandatory Services; the Services described on Schedules
III through XII are Optional Services; and the Services described on Schedule
XIII are the IB Services. Neither Party may unilaterally change any Mandatory
Service or Optional Service or separate any one or more of the Tasks that
constitute such a Service. In addition to the Services described on Schedules I
through XII, during the effectiveness of this Agreement, EDS' management shall
be available to management of USI to provide management and financial advisory
services.
3.2 Standard of Care. EDS shall use the same care in rendering the
Services as it uses in rendering services to itself and to its other
subsidiaries.
3.3 Manner and Place of Performance. EDS shall render each Mandatory
Service and Optional Service in accordance with any terms (including any time
period) described on the corresponding Schedule or any applicable SLA, though
EDS has full discretion about how and where to render each Service as that
Service is so described. EDS is not obligated to render any Service or Task in
the same manner (such as using the same personnel or other assets of EDS) as it
previously rendered that Service or Task, whether before or after the Effective
Date. USI and the USI Companies shall afford access to their respective premises
as necessary or reasonably appropriate to permit a Service or Task to be
rendered.
3.4 Recipients of Services. The Services shall be rendered solely to, or
for the direct benefit of, USI and the USI Companies. Neither USI nor any USI
Company may assign, license, or otherwise transfer or provide, whether for or
without consideration, any right to any Service, in whole or in part, to any
Person other than USI or any USI Company. USI or any USI Company may, however,
provide any other Person (whether for or without consideration) any product or
information of USI or any USI Company resulting or derived from any Service or
Task, to the extent not prohibited by Article 10.
3.5 Subcontracting Services. EDS has Subcontracted certain of the
Services, in whole or in part, before the Effective Date. USI consents to that
Subcontracting and those Effective Date Service Subcontracts and Subcontractors.
EDS' Subcontracting after the Effective Date, however, is subject to these
terms:
(a) EDS may, without any consent or approval of USI, (i) Subcontract any
Service, in whole or in part, to any Person, including any Affiliate of EDS,
(ii) amend any Service Subcontract, or (iii) cease to Subcontract any Service,
in whole or in part.
(b) USI shall have no indemnification obligation under Section 14.4(b)
regarding any Service Subcontract, other than an Effective Date Service
Subcontract, entered into by EDS without USI's Reasonable Consent. Also, if
EDS, without USI's Reasonable Consent, enters into any amendment to (i) an
Effective Date Service Subcontract or (ii) any other Service Subcontract to
which USI had given its Reasonable Consent, USI shall be liable under Section
14.4(b) only for any Damages of EDS or any of its Indemnified Agents that would
have resulted without that amendment; that is, USI shall not be liable under
Section 14.4(b) for any increase in Damages that results from an amendment of
that kind. EDS shall remain responsible for the rendering to USI of any Service
that is Subcontracted, in whole or in part. Also, except as described in
Section 14.4(b), EDS shall be solely responsible for its obligations to the
Subcontractor (including any applicable Subcontract Termination Penalty) under
each Service Subcontract.
3.6 Information Regarding Services. Each Party shall make available to the
other Party any information required or reasonably requested by that other Party
regarding the performance of any Service and shall be responsible for timely
providing that information and for the accuracy and completeness of that
information. But a Party shall not be liable for not providing any information
that is subject to a confidentiality obligation owed by it to a Person other
than an Affiliate of it or the other Party. A Party shall not be liable for any
impairment of any Service caused by its not
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<PAGE>
receiving information, either timely or at all, or by its receiving inaccurate
or incomplete information from the other Party that is required or reasonably
requested regarding that Service.
3.7 Legal Services. The Service described in one of the Schedules as
"legal services" consists of EDS' making the Legal Staff available for
engagement by USI and the USI Companies for their legal matters. The engagement,
services, or withdrawal of any of the Legal Staff regarding a particular legal
matter for USI or any of the USI Companies, as well as certain of the Prices for
those legal services, are governed by and subject to the Legal Staff's
professional or ethical obligations.
3.8 Warranty Disclaimer. EDS MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, REGARDING ANY SERVICE OR TASK OTHER THAN AS STATED IN THIS
AGREEMENT. EDS SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, REGARDING
THE SERVICES.
ARTICLE 4
SERVICE LEVEL
4.1 Continuation of Level. EDS shall provide substantially the same Level
of each Mandatory Service and Optional Service, and each Task, as it provided to
the Unigraphics division of EDS before the Effective Date, except as otherwise
agreed in accordance with this Agreement.
4.2 Mid-year Changes in Level. The Level of any Service may be changed
annually by the Parties' agreement, so long as that agreement includes a
mutually acceptable corresponding Price for the changed Level of Service. A
change in the Level of a Service shall be effective only on and after July 1 if
the Parties agree, and enter into an SLA for that Service, by the preceding
April 1 in accordance with Section 4.3. A change in the Level of any one or more
Tasks that constitute a Service shall be deemed a change in the Level of that
Service. Seasonal or other normal fluctuations in a Service or Task shall not be
deemed a change in the Level of that Service.
4.3 Procedure for Level Change. If the Parties agree by April 1 that there
should be a Level Change, EDS shall submit to USI a corresponding Price Proposal
for that Service by the following May 1. Otherwise:
(a) If EDS proposes, by Notice to USI by April 1, a Level Change,
EDS shall concurrently submit to USI a corresponding Price Proposal for
that service for the following July through December; USI shall then
respond in writing by the May 1 following the submission of that proposal.
(b) If USI proposes, by Notice to EDS by April 1, a Level Change,
EDS shall respond in writing by the following May 1. To the extent that EDS
agrees with the proposed change, its response shall include a revised Price
Proposal for that Service for the following July through December
reflecting a Level Change to which EDS would agree.
ARTICLE 5
DISCONTINUANCE OF OPTIONAL SERVICES
5.1 Procedure. Either Party may discontinue or terminate annually any
Optional Service, commencing effective January 1, 1999 for the Legal Services
described on Schedule VIII and effective January 1, 2000 for all other Optional
Services, by five months' Notice to the other Party. A Notice of discontinuance
shall be given by August 1 to discontinue an Optional Service effective at
midnight on the following December 31 (i.e., a Notice of discontinuance with
respect to an Optional Service to be terminated effective January 1, 2000 must
be given by August 1, 1999). A Notice of discontinuance may refer to more than
one Optional Service. Only an entire Optional Service may be discontinued; none
of the Tasks that constitute an Optional Service may be separately discontinued
without the Parties' agreement (which may be stated in the corresponding
Schedule). Any Optional Service that is the subject of a Notice of
discontinuance shall continue to be rendered by EDS until the effective date of
the discontinuance (i.e., January 1),
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<PAGE>
and USI shall pay for that Optional Service rendered until that date. A Party
may not unilaterally rescind its Notice of discontinuance.
5.2 Service Level and Price of Discontinued Services. Until the date of
its discontinuance, an Optional Service that is the subject of a Notice of
discontinuance shall be rendered at the same Level and for the same Price as in
effect immediately preceding the Notice of discontinuance.
5.3 Impossible Optional Services. If either Party reasonably determines
that the discontinuance of any Optional Service would make it functionally
impossible to continue any other Optional Service, in whole or in part, that
Party shall promptly Notify the other of that determination. Any Optional
Service that so becomes functionally impossible to render shall be deemed
discontinued effective upon the date of discontinuance of the Optional Service
or Optional Services that caused that impossibility.
5.4 Transition Assistance. For up to 180 days after the effective date of
discontinuance of an Optional Service, EDS shall comply with USI's reasonable
requests for assistance in USI's engaging or training another Person or Persons
to provide, and for records and other information relating to, that discontinued
Optional Service, at USI's expense. USI shall pay for EDS' compliance with those
requests by:
(a) reimbursing EDS all of its resulting out-of-pocket expenses; and
(b) paying EDS for the resulting time or activities of EDS' personnel as
follows:
(i) if the activities of those personnel are or were part of a Use-
based Service, then at the Price then in effect, or most recently paid (if
that Optional Service has been discontinued), for that Use-based Service,
or
(ii) if the activities of those personnel are or were part of a Fixed-
price Service, then that portion of the Price then in effect, or most
recently paid (if that Optional Service was discontinued), for that Fixed-
price Service corresponding to the transition activities' portion of all
activities that constituted that Fixed-price Service for the time covered
by that Price.
Invoicing and payment for transition assistance shall be in accordance with
Article 8. EDS may cease providing transition assistance, immediately upon
Notice to USI, if USI has not paid the amount described in a Nonpayment Notice
by the tenth Business Day after the Nonpayment Notice was given.
5.5 Reinstatement of Discontinued Service. Neither Party may unilaterally
reinstate any Optional Service that has been discontinued under this Agreement.
5.6 Change in Internal Systems. In the event that either Party shall make
a significant change to its internal systems, or adopt new systems, so that it
would be functionally impossible for EDS to render an Optional Service, and such
Optional Service is not yet terminable pursuant to Section 5.1 hereof and/or it
is impracticable to modify the Level of Service pursuant to Article 4 hereof,
the Parties shall negotiate in good faith to reach agreement as to the terms
under which such Optional Service may nevertheless be modified or discontinued.
ARTICLE 6
SERVICES OBTAINED FROM OTHERS
6.1 Mandatory Services. USI may not perform itself or obtain from any
Person other than EDS or any Subcontractor any service or services to supplement
or substitute for all or any portion of a Mandatory Service.
6.2 Upon Discontinuance. USI need not obtain EDS' consent to or approval
of USI's performing itself or obtaining from any other Person, upon and after
the discontinuance of any Optional Service, any service or services that
substitute for the Optional Service that has been discontinued.
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<PAGE>
6.3 Before Discontinuance. Before the discontinuance of any Optional
Service:
(a) USI need not obtain EDS' consent to or approval of USI's performing
itself or obtaining from any other Person any service or services to supplement
or substitute for all or any portion of
(i) a Fixed-price Service, so long as USI continues to pay for the
Fixed-price Service in accordance with this Agreement, including the
corresponding Schedule;
(ii) a Use-based Service other than any travel or aviation related
Service to the extent that the decrease in that Service obtained from EDS
in each month does not exceed 10% of the average monthly invoiced amount
for that Service for the preceding three months for which EDS has submitted
an invoice for that Service (with the calculation of that average to
exclude any credit given to USI related to any other Service in any monthly
invoice);
(iii) any Use-based travel or aviation related Service; or
(iv) any Optional Service to the extent permitted by Section 15.4.
(b) EDS' Reasonable Consent shall be required for USI's performing itself
or obtaining from any other Person any service or services to supplement all or
any portion of any Use-based Service in any circumstance other than as described
in Section 6.3(a)(ii).
ARTICLE 7
SERVICE AND MANAGEMENT FEES
7.1 Cost Determination for Services. Prices for Mandatory Services and
Optional Services shall be determined based on EDS' reasonable determination of
its cost of providing such Services. Prices for IB Services shall be the same as
the prices charged by EDS to its business units for such services. The price for
Management Services is set forth in Section 7.5 hereof.
7.2 Annual Pricing for Services. The Price payable by USI for each
Mandatory Service and Optional Service shall be established annually by this
procedure:
(a) EDS shall submit to USI by November 1 a Price Proposal for each
Mandatory Service and Optional Service then in effect, except for any Optional
Service that will be discontinued effective by the following January 1 in
accordance with a Notice of discontinuance given by the preceding August 1. EDS
shall propose the Price for each Mandatory Service and Optional Service assuming
a continuation of the Level of that Service since the preceding January 1,
unless the Parties have agreed to, or EDS is proposing, a Level Change for that
Service in accordance with Section 4.3.
(b) USI shall respond in writing to the Price Proposal for each Mandatory
Service and Optional Service by December 1.
(c) To the extent that USI does not accept or agree with a Price Proposal,
the Parties shall negotiate in good faith to reach agreement on the Price for
that Service by December 15. The Parties' agreement by December 15 on the Price
of any Use-based Service shall also include an estimated annual amount for that
Service.
(d) If by December 15 the Parties do not agree on the Price at which any
Optional Service shall continue to be rendered (without any change in Level) and
neither Party gives a Notice of discontinuance of that Optional Service, the
Price for that Optional Service shall continue to be the Price then in effect.
7.3 Disagreement on Mandatory Service Pricing. If the Parties do not agree
by December 15 on the Price at which any Mandatory Service shall be rendered,
the Dispute shall be resolved by the Dispute Resolution Procedure. Pending
resolution of that Dispute, the Price for that Mandatory Service shall continue
to be the Price in effect on
5
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December 15. The Price determined by resolution of that Dispute shall be deemed
effective January 1 as though the Parties had agreed to it as of the preceding
December 15. Accordingly, (a) any excess amount paid by USI shall be credited
(without interest) to the next invoice or invoices for any Service or Services
payable by USI after the date of resolution, or to the extent full credit cannot
be given to invoiced amounts payable within 30 days after the date of
resolution, paid (without interest) by EDS by wire transfer of immediately
available funds to an account or accounts designated by USI; or (b) any amount
due to EDS shall be paid (without interest) within 30 days after the date of
resolution by wire transfer of immediately available funds to an account or
accounts designated by EDS.
7.4 Annual Service Price Effectiveness. The Price for each Mandatory
Service and Optional Service agreed or determined as of December 1 of each year
will be effective for that Service for the succeeding calendar year, unless
changed to correspond to a change in the Level of that Service in accordance
with Article 4.
7.5 Fixed Management Services Fee. During the term of this Agreement, USI
shall pay to EDS a Management Fee for the Management Services equal to .5% (one-
half of one percent) of the Consolidated USI Revenues. The Management Fee shall
not be adjusted during the term of this Agreement. The Management Fee shall be
payable monthly, subject to adjustment as set forth in this Section 7.5. The
Management Fee set forth on each monthly invoice shall be determined based on
the Consolidated USI Revenues for the most recently completed fiscal quarter of
USI (or, if financial information regarding the most recently completed fiscal
quarter is not available to EDS at the time an invoice is prepared, the next
prior fiscal quarter) and shall assume that revenues were recognized equally
during each of the three months comprising such fiscal quarter. Accordingly:
(a) Any excess Management Fee paid by USI with respect to the three months
comprising a fiscal quarter shall be credited (without interest) to the next
invoice delivered to USI following the determination of the Consolidated USI
Revenues for that fiscal quarter, or to the extent full credit cannot be given
to invoiced amounts payable within 30 days after the date of such determination,
paid (without interest) by EDS by wire transfer of immediately available funds
to an account or accounts designated by USI; or
(b) any shortfall in the Management Fee paid by USI with respect to the
three months comprising a fiscal quarter shall be paid (without interest) within
30 days after the date of the determination of the Consolidated USI Revenues for
that fiscal quarter by wire transfer of immediately available funds to an
account or accounts designated by EDS.
ARTICLE 8
PAYMENT
8.1 Invoices. EDS shall submit to USI monthly one or more invoices for the
Mandatory Services, Optional Services and Management Fee. Each invoice shall
indicate:
(a) The amount charged for each Mandatory Service and Optional Service
covered by that invoice;
(b) if the Service is a Use-based Service, the calculation of the invoiced
amount or the basis on which that amount was determined;
(c) the Management Fee to be set forth on such monthly invoice determined
in accordance with Section 7.5 above; and
(d) if that invoice includes any credit or offset for USI, the amount and
purpose of that credit or offset.
Each invoice should also indicate the sales, use, or similar taxes being
collected on each Service, or part of a Service, that EDS believes to be so
taxable. An invoice may cover more than one Service.
8.2 Payment. USI shall pay the amount of each invoice within 30 days after
the date of that invoice. Such payment may be made through the transfer of funds
from USI to EDS on EDS' general ledger. USI shall pay the
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invoiced amount even if USI disputes all or a portion of that amount, unless EDS
has agreed on or before the due date to accept a different amount.
8.3 Method of Payment. USI shall pay EDS by wire transfer of immediately
available funds to an account or accounts designated by EDS. All payments shall
be made in United States currency.
8.4 Interest. EDS may charge interest on any past due invoiced amount at
the annual rate of 18% (or, if lower, the highest lawful rate) from the due date
until paid in full with accrued interest. Any payment of interest only is not a
cure or EDS' sole remedy for nonpayment of any invoiced amount that is due.
8.5 Nonpayment Notice. If EDS does not receive the full payment of any
invoice (and has not agreed to accept a different amount), it may give USI a
Nonpayment Notice. USI shall pay the amount described in the Nonpayment Notice
by the tenth Business Day after that Nonpayment Notice is given.
8.6 Payment for IB Services. Payment for IB Services shall not be made
through the invoice process described above in this Article 8 but shall be made
through the transfer of funds from USI to EDS on EDS' general ledger. USI will
be notified of such transfer in accordance with the procedures then in place for
notification of other EDS business units of intercompany charges.
8.7 Dispute of Invoice or IB Payment Notice. Except as described in the
last sentence of this Section 8.7, USI may dispute the amount of any invoice or
IB Payment Notice for up to 90 days after the date of that invoice or IB Payment
Notice; if no Notice of that Dispute is given within those 90 days, the billed
amount shall be deemed agreed to by USI. The Notice of a Dispute of any invoice
or IB Payment Notice shall describe the basis for that Dispute and specify the
Service and the USI Business Unit to which that Dispute relates. A Dispute of
any invoice or IB Payment Notice (except as described in the last sentence of
this Section 8.7) shall be resolved by the Dispute Resolution Procedure. If it
is determined by resolution of that Dispute that USI has paid any excess amount
in response to the invoice or IB Payment Notice, that amount shall be credited
(without interest) to the next invoice or invoices payable by USI after the date
of resolution, or to the extent full credit cannot be given to invoiced amounts
payable within 30 days after the date of resolution, paid (without interest) by
EDS by wire transfer of immediately available funds to an account or accounts
designated by USI. Under this Section 8.7, USI may dispute only the invoiced
amount and the particular calculation thereof, and not the previously
established basis for the established Price for any invoiced Service. Any
Dispute regarding the application to any Service (in whole or in part) of any
invoiced sales, use, or similar taxes is subject to Section 17.2(b) instead of
this Section 8.7.
ARTICLE 9
RECORDS
9.1 Record Keeping. Each Party shall create and maintain accurate records
regarding the Services rendered and the amounts charged and paid or received
under this Agreement. EDS' records shall include information regarding the
determination of amounts charged or invoiced to USI for Use-based Services and
information regarding the determination of the cost or the cost allocation for
each Service rendered. Each Party's records regarding (a) the Services rendered,
and at the Level rendered, as of the Effective Date shall be of substantially
the same kinds as that Party has created and maintained regarding those Services
before the Effective Date, and (b) the Services, or the Level of Services, as
changed after the Effective Date in accordance with this Agreement shall be of
the kinds that are reasonable, and consistent with the other business records
created and maintained by that Party, regarding services like those Services at
those Levels. Each Party shall create and maintain those records with the same
degree of completeness and care as it maintains its other similar business
records. Each Party shall maintain those records for the time or times required
by applicable law or regulation, except that a Party shall, upon request of the
other Party, maintain any of those records for a longer time if the requesting
Party pays the additional expenses incurred in complying with that request.
9.2 Examination. Each Party shall be entitled to examine, through its
authorized representatives or agents and at its own expense, the records that
the other Party is required to maintain under this Agreement. This examination
right may be exercised only by three Business Days' prior Notice to the other
Party, and the examination may be made
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only during the other Party's normal business hours or at any other reasonable
time or times to which the other Party may consent. An examination shall be
performed in a manner that does not unreasonably disrupt the other Party's
normal business operations. This examination right will continue: (a) for two
years after Expiration or the termination of this Agreement; and (b) thereafter,
as long as necessary to enable a Party to respond to any Third-Party Claim or to
a request or order issued by a court or another Governmental Authority. The
Party conducting an examination may make and take away copies of any or all of
the other Party's records being examined.
ARTICLE 10
CONFIDENTIAL INFORMATION
10.1 Confidential Information. Each Party shall keep confidential the
following information (the "Confidential Information") whether acquired by it
under or in connection with this Agreement or obtained in connection with the
relationship of EDS and USI or its subsidiaries regarding management services
rendered before the Effective Date:
(a) Information relating to the other Party's business, financial
condition or performance, or operations that the other Party treats as
confidential or proprietary.
(b) Copies of records and other information obtained from a Party's
examination of the other Party's records under Section 9.2.
(c) The terms and performance of, any breach under, or any Dispute
regarding this Agreement.
(d) The Parties' conduct, decisions, documents, and negotiations as part
of, and the status of, any Dispute resolution proceedings under the Dispute
Resolution Procedure.
(e) Any other information, whether in a tangible medium or oral and
whether proprietary to the other Party or not, that is marked or clearly
identified by the other Party as confidential or proprietary.
Neither Party may use any of the other Party's Confidential Information
other than as required to perform its obligations or exercise its rights and
remedies, including as part of the resolution of any Dispute, under this
Agreement. Each USI Company and EDS Company has the same rights and benefits,
and the same duties and obligations, as USI and EDS, respectively, has (as a
"Party") in this Article 10.
10.2 Excluded Information. A Party has no obligation under this Article 10
regarding any information, including information that would otherwise be
Confidential Information, to the extent that the information (a) is or becomes
publicly available or available in the industry other than as a result of any
breach of this Agreement or any other duty of that Party or (b) is or becomes
available to that Party from a source that, to that Party's knowledge, is
lawfully in possession of that information and is not subject to a duty of
confidentiality, whether to the other Party or another Person, violated by that
disclosure.
10.3 Standard of Care. Each Party shall use the same degree of care in
maintaining the confidentiality and restricting the use of the other Party's
Confidential Information as that Party uses with respect to its own proprietary
or confidential information, and in no event less than reasonable care.
10.4 Permitted Disclosures. A Party may disclose Confidential Information
to its officers, directors, agents, or employees as necessary to give effect to
this Agreement. Each Party shall inform each of those Persons to whom any
Confidential Information is communicated of the obligations regarding that
information under this Article 10 and impose on that Person the obligation to
comply with this Article 10 regarding the Confidential Information. Each Party
shall be responsible for any breach of that Party's obligations under this
Article 10 by its officers, directors, agents, or employees.
10.5 Required Disclosures. Each Party may disclose Confidential Information
in response to a request for disclosure by a court or another Governmental
Authority, including a subpoena, court order, or audit-related request by
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a taxing authority, if that Party: (a) promptly notifies the other Party of the
terms and the circumstances of that request; (b) consults with the other Party,
and cooperates with the other Party's reasonable requests, to resist or narrow
that request; (c) furnishes only information that, according to written advice
(which need not be a legal opinion) of its legal counsel, that Party is legally
compelled to disclose; and (d) uses its Reasonable Efforts to obtain an order or
other reliable assurance that confidential treatment will be accorded the
information disclosed. A Party need not comply with these conditions to
disclosure, however, to the extent that the request or order of the Governmental
Authority in effect prohibits that compliance. A Party may also disclose
Confidential Information without complying with these conditions to the extent
that the Party is otherwise legally obligated to do so (for example, to comply
with applicable securities laws), as confirmed by advice of competent and
knowledgeable counsel. Further, a Party may also disclose Confidential
Information, without complying with these conditions, in connection with a tax
audit if the disclosure is to representatives of a taxing authority, or in
connection with a tax contest if that Party uses its Reasonable Efforts to
assure that confidential treatment will be accorded the information disclosed.
10.6 Title to Information. The Confidential Information of a Party
disclosed by it to the other Party under this Agreement shall remain the
property of the disclosing Party; nothing in this Agreement, other than in this
Article 10, grants or conveys to the other Party any ownership or other rights
in any of that Confidential Information.
10.7 Survival; Return. The obligations under this Article 10 shall continue
on and after Expiration or the termination of this Agreement. Upon request of
the disclosing Party upon or after Expiration or the termination of this
Agreement, the other Party shall return or, if requested by the disclosing
Party, destroy the Confidential Information of the disclosing Party that it
holds. The requested return or destruction (a) shall include removal or deletion
of Confidential Information from all data bases and magnetic media of the other
Party and (b) need not be effected to the extent that it would be impractical or
unduly burdensome to effect.
ARTICLE 11
PARTIES' RELATIONSHIP
11.1 Independent. The Parties are independent; each has sole authority and
control of the manner of, and is responsible for, its performance of this
Agreement. This Agreement does not create or evidence a partnership or joint
venture between the Parties. Neither Party may create or incur any liability or
obligation for or on behalf of the other Party, except as described in this
Agreement. This Agreement does not restrict EDS from providing or rendering any
services, including services like the Services, to any other Person.
11.2 Employees. Except as described in Section 14.4(b) or Section 14.4(c),
for the purposes of this Agreement each Party is solely responsible for its own
employees or agents, including the actions or omissions and the compensation of
those employees and agents, and neither Party has any authority with respect to
any of the other Party's employees or agents.
11.3 Authority and Enforceability. Each Party warrants to the other Party
that: (a) it has the requisite corporate authority to enter into and perform
this Agreement; (b) its execution, delivery, and performance of this Agreement
have been duly authorized by all requisite corporate action on its behalf; (c)
this Agreement is enforceable against it; and (d) it has obtained all consents
or approvals of Governmental Authorities and other Persons that are conditions
to its entering into this Agreement.
11.4 Third-Party Consents. Each Party shall be responsible for obtaining
and maintaining any licenses, permits, consents, or approvals of Governmental
Authorities and other Persons necessary or appropriate for it to perform its
obligations under this Agreement.
11.5 Further Assurances. Each Party shall take such actions, upon request
of the other Party and in addition to the actions specified in this Agreement,
as may be necessary or reasonably appropriate to implement or give effect to
this Agreement.
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ARTICLE 12
PARTIES' REPRESENTATIVES
12.1 Representatives' Authority. Each Party has authorized its
Representative to conduct discussions and negotiations, make and communicate
decisions, frame and pose questions or issues, and resolve Disputes on behalf of
that Party relating to this Agreement. Though one Party's employees or agents
other than its Representative may also take actions of the kinds described in
the preceding sentence with the other Party's employees or agents other than its
Representative, matters that require more formal discussions or negotiations
between Parties shall be addressed through and by the Representatives. Each
Party and its Representative are entitled to rely on the actions and decisions
of the other Party's Representative relating to this Agreement.
12.2 Designation. EDS designates its Manager - Corporate Financial Analysis
as EDS' Representative, and USI designates its Chief Financial Officer as USI's
Representative, upon and after the Effective Date until changed by the
designating Party. A Party may change its Representative by Notice to the other
Party. A Party may rely on and deal with the Person who is designated as the
other Party's Representative until any Notice of change is given by the other
Party.
ARTICLE 13
TERMINATION
13.1 Termination Events. This Agreement may be terminated, without
liability to the Party terminating:
(a) By either Party, upon 30 days' Notice to the other, at any time upon
or after the Parties cease to be Affiliates.
(b) By a Party, immediately upon Notice to the other Party, if: (i) that
other Party makes a general assignment of all or substantially all of its assets
for the benefit of its creditors; (ii) that other Party applies for, consents
to, or acquiesces in the appointment of a receiver, trustee, custodian, or
liquidator for its business or all or substantially all of its assets; (iii)
that other Party files, or consents to or acquiesces in, a petition seeking
relief or reorganization under any bankruptcy or insolvency laws; or (iv) a
petition seeking relief or reorganization under any bankruptcy or insolvency
laws is filed against that other Party and is not dismissed within 90 days after
it was filed.
(c) By a Party, immediately upon Notice to the other Party, if that other
Party's material breach of this Agreement continues uncured or uncorrected for
30 days after both the nature of that breach and the necessary cure or
correction has been agreed upon by the Parties or otherwise determined by the
Dispute Resolution Procedure. But if: (i) the Parties agree or it is determined
by the Dispute Resolution Procedure that the material breach is not capable of
being cured or corrected, the termination shall be effective immediately upon
Notice, without any cure period; or (ii) the breaching Party (A) reasonably
requires longer than 30 days to cure or correct (such as when an applicable
Service Subcontract permits the Subcontractor longer than 30 days to cure or
correct) and (B) Notifies the non-breaching Party of the circumstances, then the
cure period shall be extended for the reasonable time so required, so long as
during that time the breaching Party diligently acts to effect that cure or
correction. A non-breaching Party's exercise of the remedy described in this
Section 13.1(c) shall be conditioned upon its giving a Breach Notice to the
other Party.
(d) By EDS, immediately upon Notice to USI, if USI has not paid the amount
described in a Nonpayment Notice by the tenth Business Day after that Nonpayment
Notice was given.
A Party may not terminate this Agreement if the event or circumstance
described above in this Section 13.1 upon which that Party would rely in so
terminating was caused by that Party's breach of this Agreement.
13.2 Nonexclusive. The termination rights under Sections 13.1(c) and
13.1(d) are not exclusive of any other right or remedy of a non-breaching Party
granted in this Agreement.
13.3 Consequences of Termination. Upon termination of this Agreement:
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(a) Under Section 13.1(a) or by USI under Section 13.1(c):
(i) During the Transition Period EDS shall continue to render,
and USI shall pay for, each Service reasonably requested by USI until
terminated by either Party in accordance with Sections 13.3(a)(ii) and
13.3(a)(iii). Except as stated in Section 13.3(a)(ii), the terms of this
Agreement shall continue to apply during the Transition Period as though no
termination of this Agreement had occurred.
(ii) The Level of each Service rendered, and the Price for each
Service, during the Transition Period shall be the same as in effect
immediately preceding the Termination Date. Article 5 shall not apply
during the Transition Period. During the Transition Period, any Service
(including a Mandatory Service), but not any one or more of the Tasks
separately, may be terminated by (A) USI, for any reason, by 60 days'
Notice to EDS, or (B) EDS, if USI has not paid the amount described in a
Nonpayment Notice by the tenth Business Day after the Nonpayment Notice was
given. Any Service that is the subject of a Notice of termination shall
continue to be rendered by EDS until the effective date of that
termination, and USI shall pay for that Service rendered through that date.
Neither Party may unilaterally rescind a Notice of termination.
(iii) If either Party reasonably determines that the termination of
any Service during the Transition Period would make it functionally
impossible to continue any other Service during the Transition Period, that
Party shall promptly Notify the other Party of that determination; any
Service that so becomes functionally impossible to render shall be deemed
terminated effective upon the date of termination of the Service that
caused that impossibility. Neither Party may unilaterally reinstate any
Service that has been terminated as of the Termination Date or during the
Transition Period.
(b) Under Section 13.1(b), then during the Transition Period EDS shall
comply with USI's reasonable requests for assistance in USI's engaging or
training another Person or Persons to provide, and for records and other
information relating to, each Service in effect immediately preceding the
Termination Date. If USI terminates this Agreement, EDS shall comply with those
requests at its own expense. If EDS terminates this Agreement, USI shall
reimburse and pay EDS' Transition Expenses in accordance with invoices submitted
to USI by EDS. Articles 8 and 18 shall apply in this situation as though this
Agreement had not been terminated. When USI is obligated to reimburse and pay
EDS' Transition Expenses, EDS may cease providing transition assistance,
immediately upon Notice to USI, if USI has not paid the amount described in a
Nonpayment Notice by the tenth Business Day after the Nonpayment Notice was
given. If the records or other information provided by EDS are Confidential
Information, Article 10 shall also apply as though this Agreement had not been
terminated.
(c) Under Section 13.1(d) or by EDS under Section 13.1(c), then EDS shall
have no obligation to provide any continued Services or transition assistance as
described above in this Section 13.3.
13.4 Survival of Rights and Obligations. No rights or obligations of either
Party that expressly or impliedly are to remain in effect in order to give
effect to this Agreement shall be impaired by Expiration or the termination of
this Agreement, and those rights and obligations shall remain in effect.
ARTICLE 14
LIABILITY AND REMEDIES
14.1 Warranties. Each Party's warranties in this Agreement are made solely
to and for the benefit of the other Party. No Person other than a Party may make
a claim based on the other Party's warranties under this Agreement.
14.2 Nonconforming Services. USI shall promptly Notify EDS of any
Deficiency in any Service or Task, whether rendered by EDS or a Subcontractor.
To the extent EDS agrees, or it is otherwise determined by the Dispute
Resolution Procedure, that a Service or Task was or is a Nonconforming Service,
EDS shall use its Reasonable Efforts promptly to cure or correct, or cause to be
cured or corrected, the Deficiency to the extent it may then be cured or
corrected.
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(a) If the Deficiency was, or was the result of, EDS' or a Subcontractor's
negligence, EDS shall not be responsible or liable for any resulting Damages of
USI.
(b) If the Deficiency was, or was the result of, EDS' or a Subcontractor's
gross negligence (including recklessness) or willful misconduct, EDS shall be
responsible or liable for USI's resulting Damages in an amount up to: (i) if
EDS' liability is determined (by the Parties' agreement or the Dispute
Resolution Procedure) after the calendar year in which the Deficiency occurred,
the aggregate amount received by EDS for the Nonconforming Service for the
calendar year in which the Deficiency occurred; (ii) if EDS' liability is
determined during the calendar year in which the Deficiency occurred and the
Nonconforming Service is a Fixed-price Service, the annual Price for the
Nonconforming Service for that calendar year; or (iii) if EDS' liability is
determined during the calendar year in which the Deficiency occurred and the
Nonconforming Service is a Use-based Service, the greater of (A) the estimated
annual amount for that Service for that calendar year and (B) the aggregate
amount received by EDS to the date the liability is determined, annualized for
that calendar year. The annual limit on EDS' liability described above in this
Section 14.2(b) is not cumulative from year to year. If there is more than one
Deficiency in a single Service for which EDS is responsible or liable for
Damages and EDS' liability for those Deficiencies is determined in the same
calendar year, EDS' responsibility or liability for Damages resulting from all
of those Deficiencies shall be subject to the applicable annual limit on
liability described above in this Section 14.2(b).
14.3 Actual Damages. Neither Party shall be liable under or relating in any
manner to this Agreement for any losses or damages other than Damages, even if a
Party has been advised of the possibility of losses or damages of that kind and
regardless of the form of the Proceedings or the theory of liability, whether
based on contract, warranty, tort (including negligence and strict liability),
infringement, or misappropriation.
14.4 Indemnities for Certain Breaches and Other Matters. The following
shall apply to any breach of, and certain other Damages relating to, this
Agreement, other than a Deficiency for which EDS has no liability for Damages
under Section 14.2(a) or a nonpayment by USI of any amount relating to an
invoice:
(a) Subject to the limits on liability described in Section 14.2(b), if
that Section is applicable, each Party shall indemnify the other Party against
all Damages of the Indemnified Party, or any of its Indemnified Agents,
resulting from or relating to: (i) any breach of this Agreement, including a
breach of any warranty in this Agreement, by the Indemnifying Party; (ii) any
Proceedings relating to a breach of this Agreement by the Indemnifying Party;
and (iii) the actions or omissions of the Indemnifying Party's employees or
agents under or in connection with this Agreement, except as described in
Sections 14.4(b) and 14.4(c).
(b) USI shall also indemnify EDS against all Damages of EDS or any of its
Indemnified Agents, including any Subcontract Termination Penalty, under or
relating to any Service Subcontract, other than as described in Section 3.5(b),
resulting from: (i) any violation by USI of any obligation imposed on it under
that Service Subcontract; (ii) the actions or omissions of USI's employees or
agents under or in connection with that Service Subcontract; (iii) USI's
discontinuance of any Optional Service that EDS renders, in whole or in part, by
that Service Subcontract, even if permitted by Article 5; (iv) USI's performing
itself or obtaining from any Person other than EDS or its Subcontractor any
service or services to supplement or substitute for any Optional Service that
EDS renders, in whole or in part, by that Service Subcontract, even if permitted
by Section 6.3; (v) Expiration; or (vi) the termination of this Agreement other
than a termination by USI under Section 13.1(b) or Section 13.1(c).
(c) USI shall also indemnify EDS against all Damages of EDS or any of its
Indemnified Agents resulting from or relating to: (i) the actions or omissions
of any of the Legal Staff that are directed by USI or any USI Company within the
scope of that lawyer's or paralegal's engagement for any legal matter of USI or
any USI Company; or (ii) any sales, use, consumption, value-added,
telecommunications, gross receipts or similar taxes (however described),
including any related interest and penalties, applicable to any of the Services,
in whole or in part, that are assessed or levied against or paid by EDS or an
EDS Company.
(d) The indemnification obligations in Sections 14.4(a), 14.4(b), and
14.4(c) shall be extinguished to the extent that the Damages of the other Party,
or any of its Indemnified Agents for whom or which the other Party is seeking
indemnification, were caused by the gross negligence or willful misconduct of
the Person for whom or which indemnification is sought. THE INDEMNIFICATION
PROVISIONS IN SECTIONS 14.4(a), 14.4(b), AND 14.4(c)
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EXPRESS THE PARTIES' INTENT THAT A PERSON BE INDEMNIFIED AGAINST ITS OWN
ORDINARY NEGLIGENCE, OR THE RESULTS OF THAT ORDINARY NEGLIGENCE, UNDER THIS
AGREEMENT.
(e) If an Indemnification Claim is not based on a Third-Party Claim, the
Indemnified Party shall give an Indemnification Claim Notice promptly after the
event constituting the basis for the Indemnification Claim; its failure to do
so, however, shall relieve the Indemnifying Party of its indemnification
obligations only to the extent the Indemnifying Party is actually prejudiced by
that failure. If the Indemnified Party gives an Indemnification Claim Notice
regarding an Indemnification Claim not based on a Third-Party Claim, the
Indemnifying Party shall Notify the Indemnified Party within the Indemnification
Response Period whether the Indemnifying Party disputes all or any portion of
the Indemnification Claim. If the Indemnifying Party does not give that dispute
Notice or agrees to accept liability for all or a portion of the Indemnification
Claim, the Indemnification Claim, or the agreed portion of that Indemnification
Claim, shall be the Indemnifying Party's liability. Otherwise, the
Indemnification Claim shall be deemed a Dispute to be resolved by the Dispute
Resolution Procedure.
(f) If an Indemnification Claim is based on a Third-Party Claim:
(i) The Indemnified Party shall give an Indemnification Claim
Notice promptly after it receives the Third-Party Claim. The failure of an
Indemnified Party to timely give an Indemnification Claim Notice shall
relieve the Indemnifying Party of its indemnification obligations only to
the extent the Indemnifying Party is actually prejudiced by that failure.
(ii) The Indemnifying Party shall be entitled to defend the Third-
Party Claim, with its chosen counsel and at its own expense, if (A) the
Third-Party Claim seeks only monetary relief, and not an injunction or
other equitable relief, against the Indemnified Party, and (B) the
Indemnifying Party elects to assume, and diligently conducts, that defense.
The Indemnifying Party's election to defend shall be given by Notice to the
Indemnified Party within the Indemnification Response Period. If the
Indemnifying Party conducts the defense, the Indemnified Party may
participate in that defense with its own counsel and at its own expense.
(iii) If the Indemnifying Party does not elect to defend the Third-
Party Claim by Notice within the Indemnification Response Period, or if the
Indemnifying Party does not diligently conduct the defense, the Indemnified
Party shall be entitled, upon further Notice to the Indemnifying Party, to
defend the Third-Party Claim on behalf of, and for the account and risk of,
the Indemnifying Party (if it is determined that the Indemnifying Party has
an indemnification obligation regarding that Indemnification Claim). In
this circumstance, the Indemnifying Party may participate in the defense
with its own counsel and at its own expense.
(iv) If there is a conflict of interest that makes it inappropriate
for the same counsel to represent the Indemnifying Party and the
Indemnified Party in defending the Third-Party Claim, the Indemnifying
Party shall pay for separate counsel for the Indemnified Party.
(v) The Indemnifying Party defending a Third-Party Claim may
compromise, settle, or resolve that Third-Party Claim without the
Indemnified Party's consent if the compromise, settlement, or resolution
involves only the payment of money by the Indemnifying Party (whether on
its own behalf or behalf of the Indemnified Party) and the third-party
claimant provides the Indemnified Party a release from all liability
regarding the Third-Party Claim. Otherwise, the Indemnifying Party may not
compromise, settle, or resolve the Third-Party Claim without the
Indemnified Party's Reasonable Consent.
(vi) The Indemnifying Party and the Indemnified Party shall
cooperate with all reasonable requests of the other in defending any Third-
Party Claim.
14.5 Time for Claims. USI may make a claim against EDS for the cure or
correction of any Deficiency only within one year after the Deficiency occurred.
Any Deficiency shall be deemed to have occurred when the particular
Nonconforming Service was rendered. A Party may make an Indemnification Claim:
(a) not based on a Third-Party Claim, only within one year after the breach or
other event constituting the basis for that Indemnification
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Claim occurred, even if not discovered until after that first anniversary, or
(b) based on a Third-Party Claim, at any time.
14.6 Offset. A Party entitled to any payment due from the other Party
under this Agreement may offset all or any portion of the amount of that payment
against any payment that is due from it to the other Party under this Agreement.
14.7 Equitable Relief. To the extent that monetary relief is not a
sufficient remedy for any breach of this Agreement, or upon any breach or
impending breach of Article 10, the non-breaching Party shall be entitled to
injunctive relief as a remedy for that breach or impending breach by the other
Party, in addition to any other remedies granted to the non-breaching Party in
this Agreement. That injunctive relief shall be sought through arbitration in
accordance with the Dispute Resolution Procedure, except as permitted by Section
B.4(b) of the Dispute Resolution Appendix.
14.8 Exclusive Remedies. Except for the termination right stated in
Article 13 and the relief described in Sections 15.4 and 17.2(b) and in the
Dispute Resolution Procedure, the remedies described in this Article 14 are the
exclusive rights and remedies of a Party regarding any breach of this Agreement
or any other matter that may be the subject of an Indemnification Claim.
14.9 Waiver of Remedies. No forbearance, delay, or indulgence by either
Party in enforcing this Agreement, within the applicable time limits stated in
this Agreement, shall prejudice the rights or remedies of that Party. No waiver
of a Party's rights or remedies regarding a particular breach of this Agreement
constitutes a waiver of those rights or remedies, or any other rights or
remedies, regarding any other or any subsequent breach of this Agreement.
14.10 Cumulative Remedies. A Party's election to pursue a right or remedy
granted in this Agreement upon the other Party's breach of this Agreement shall
not preclude the non-breaching Party from pursuing other rights or remedies
granted to that Party in this Agreement that are applicable to that breach under
this Agreement.
14.11 Survival. The rights, remedies, and obligations under this Article
14 shall continue on and after Expiration or the termination of this Agreement.
ARTICLE 15
FORCE MAJEURE
15.1 No Breach or Liability. No delay or failure of a Party to perform
any of its obligations, other than payment obligations, under this Agreement due
to causes beyond its reasonable control shall constitute a breach of this
Agreement or render that Party liable for that delay or failure. Causes beyond a
Party's reasonable control include: (a) events or circumstances that the Party,
using its Reasonable Efforts, is unable to prevent or overcome; (b) as to EDS,
causes also beyond the reasonable control of the Person to whom or which EDS has
Subcontracted the affected Service or Task in accordance with this Agreement;
and (c) labor disputes, strikes, or other similar disturbances; acts of God;
utilities or communications failures; acts of the public enemy; and riots,
insurrections, sabotage, or vandalism.
15.2 Notice of Excusable Delay or Failure. If a Party anticipates any
excusable delay or failure under Section 15.1, it shall promptly Notify the
other Party of the anticipated delay or failure, the anticipated effect of that
delay or failure, and any actions that are being or are to be taken to alleviate
or overcome the cause of the delay or failure.
15.3 Efforts to Overcome. If a Party is claiming an excusable delay or
failure under Section 15.1, it shall use its Reasonable Efforts to alleviate or
overcome the cause of the delay or failure as soon as practicable.
15.4 Extended Delay or Failure. If an excusable delay or failure
continues for more than 30 consecutive days, the Party entitled to the benefit
of the affected obligation may perform itself or obtain from any other Person
the obligation to which that Party is entitled (and that Party shall Notify the
other Party of this election).
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ARTICLE 16
DISPUTE RESOLUTION MATTERS
16.1 General Procedure. Except as otherwise stated in this Agreement, the
Parties shall resolve all Disputes in accordance with the Dispute Resolution
Procedure. Nevertheless, if any Person other than the Parties and their
Affiliates
(a) has initiated a lawsuit or other Proceedings against or involving
either or both of the Parties in which a Dispute will be resolved, or
(b) is a necessary participant in any Proceedings to resolve a Dispute
and cannot be joined by either or both of the Parties in an arbitration of that
Dispute under Section B.3 of the Dispute Resolution Appendix,
so that (in either case) the Dispute Resolution Procedure is or will be
ineffective, then the Parties need not use or follow the Dispute Resolution
Procedure to resolve that Dispute, although the submission to jurisdiction in
Section B.5 of the Dispute Resolution Appendix shall apply if necessary.
16.2 Continued Performance. The Parties shall continue performing their
respective obligations under this Agreement while a Dispute is being resolved.
16.3 Parties' Agreement. Nothing in this Article 16 or the Dispute
Resolution Procedure prevents the Parties from resolving any Dispute by mutual
agreement at any time.
ARTICLE 17
EXPENSES AND TAXES
17.1 Expenses. Each Party shall be solely responsible for its costs and
expenses incurred in performing its obligations and exercising its rights and
remedies under this Agreement, except as otherwise provided in this Agreement.
17.2 Taxes. The Parties shall be responsible and liable for tax payments
or liabilities relating to this Agreement as follows:
(a) Each Party shall be responsible and liable for its income and
franchise taxes and for all other taxes (however described) based on its own
income or earnings.
(b) USI shall be responsible for all sales, use, consumption, value-
added, telecommunications, gross receipts and similar taxes (however described)
applicable to the Services, in whole or in part. This obligation includes USI's
paying the taxes identified in EDS' invoices submitted to USI for the Services.
(i) If USI claims an exemption or exclusion from taxes of this
kind, it shall deliver to EDS a certificate or letter stating USI's good-
faith belief, which is supported by a reasonable interpretation of existing
law, that a Service is not, in whole or in part, subject to those taxes.
Whether or not USI delivers that certificate or letter, however, it shall
indemnify EDS, in accordance with Section 14.4(c)(ii), against any taxes of
this kind assessed or levied against, or paid by, EDS or an EDS Company and
any other related Damages of EDS or an EDS Company.
(ii) If EDS receives an assessment from a taxing authority
covering taxes for which USI is responsible under this Section 17.2(b), EDS
shall Notify USI of the assessment and, at USI's request, timely contest
the assessment. If payment to the taxing authority is required by law as a
condition to protest, USI shall timely furnish EDS the required amount for
that payment. USI shall pay and shall indemnify EDS and its
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Affiliates (other than USI and the USI Companies) against all costs and
expenses incurred in contesting such assessment.
(iii) If USI believes it has overpaid taxes to EDS for any of the
Services (in whole or in part), USI may require EDS to file a claim for a
refund at USI's expense. If permitted by law, EDS may assign any right to
a refund directly to USI instead of filing a refund claim. Any refund of
taxes (including any interest) received by EDS under this Section
17.2(b)(iii) shall be promptly forwarded to USI.
(iv) Before EDS is required to pursue any action requested by USI
under this Section 17.2(b), EDS may at any time require USI to deliver an
opinion from outside counsel (which is selected by USI and acceptable to
EDS) stating that USI's tax position is reasonable.
(v) Notwithstanding anything to the contrary herein, EDS may in
its sole discretion waive the right to be indemnified for the taxes
described in this Section 17.2(b), in which case EDS shall have no
obligation to contest any assessment or pursue any refund claim with
respect to such taxes.
(c) Each Party shall be responsible and liable for all real property,
personal property, and other taxes (however described) based on its owned or
leased property, whether real or personal.
(d) Each Party shall be responsible and liable for all employment-
related taxes (however described) regarding its own employees.
ARTICLE 18
MISCELLANEOUS
18.1 Notices. Each notice (including a Nonpayment Notice, an
Indemnification Claim Notice, and a Breach Notice), request, response, demand,
claim, and other communication required or permitted under this Agreement shall
be in writing and shall be transmitted, delivered, or sent by: personal
delivery; courier or messenger service, whether overnight or same-day; prepaid
telecopy or facsimile; or certified United States mail, with postage prepaid and
return receipt requested, in any case addressed to the other Party at the
address or number for that Party set forth in Section 18.1, or at such other
address or number as the recipient has designated by Notice to the other Party
in accordance with this Section 18.1. The Parties shall transmit, deliver, or
send communications as follows:
(a) If to EDS: Electronic Data Systems Corporation
5400 Legacy Drive, Mail Stop H1-4F-46
Plano, Texas 75024
Facsimile: (972) 605-8424
Attention: Manager - Corporate Financial Analysis
with a copy to: Electronic Data Systems Corporation
5400 Legacy Drive, Mail Stop H2-8W-40
Plano, Texas 75024
Facsimile: (972) 605-5610
Attention: General Counsel
(b) If to USI: Unigraphics Solutions Inc.
13736 Riverport Drive
Maryland Heights, Missouri 63043
Facsimile: (314) 344-8241
Attention: President
Each communication transmitted, delivered, or sent in person, by courier or
messenger service, or by certified United States mail, postage prepaid and
return receipt requested, shall be deemed given, received, and effective on the
date delivered to or refused by the intended recipient (with the return receipt
or the equivalent record of the courier or
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messenger being deemed conclusive evidence of delivery or refusal). Each
communication transmitted by telecopy or facsimile transmission shall be deemed
given, received, and effective on the date of actual receipt (with the
confirmation of transmission being deemed conclusive evidence of such receipt,
except where the intended recipient has promptly notified the other Party that
the transmission is illegible). Nevertheless, if the date of delivery or
transmission is not a Business Day, or if the delivery or transmission is after
5:00 p.m. on a Business Day, the communication shall be deemed given, received,
and effective on the next Business Day.
18.2 Assignment. Neither Party may assign any of its rights or delegate
any of its duties or obligations under this Agreement without the other Party's
Consent. This prohibition of assignment and delegation shall include any
assignment and delegation by operation of law (such as merger or consolidation).
Any attempted assignment or delegation without the other Party's Consent shall
be void and without effect. The two preceding sentences do not, however,
preclude EDS from Subcontracting or USI from extending the benefits of the
Services to the USI Companies as permitted by Article 3.
18.3 Amendment and Waiver. This Agreement may be amended or modified, and
any provision of this Agreement may be discharged or waived, only by a document
signed by the Party against which the amendment, modification, discharge, or
waiver is sought to be enforced.
18.4 Integration. This Agreement constitutes the Parties' entire
agreement on this subject; it replaces and supersedes any prior agreement or
understanding of the Parties, whether written or oral, on this subject not
expressed or referred to in this Agreement.
18.5 Severability. If any part of this Agreement is for any reason found
to be unenforceable, all other parts of this Agreement nevertheless remain
enforceable.
18.6 Successors. This Agreement binds and inures to the benefit of the
Parties and their respective legal representatives, successors, and permitted
assigns.
18.7 Governing Law. This Agreement shall be interpreted or construed
under Texas law. Likewise, the validity and performance of this Agreement shall
be enforced, and all issues relating to this Agreement shall be resolved, under
Texas law.
18.8 Counterparts. This Agreement may be signed in any number of
counterparts, with the same effect as if all signatories had signed the same
document. All counterparts shall be construed together to constitute one, and
the same, document.
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IN WITNESS WHEREOF, the parties have caused this Master Services Agreement
to be executed as of the day and year first above written.
ELECTRONIC DATA SYSTEMS
CORPORATION
By: /S/ D. Gilbert Friedlander
-------------------------------------------
Name: D. Gilbert Friedlander
Title: Senior Vice President
UNIGRAPHICS SOLUTIONS INC.
By: /S/ John Mazzola
-------------------------------------------
Name: John Mazzola
Title: President
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DEFINITIONAL APPENDIX
TO MANAGEMENT SERVICES AGREEMENT
A. DEFINED TERMS. In the Agreement, the following terms have the
corresponding meanings:
"AFFILIATE": A Person that directly or indirectly through one or more
intermediaries Controls, is Controlled by, or is under common Control with
another Person.
"AGREEMENT": The Management Services Agreement between EDS and USI
(including the Definitional Appendix, the Dispute Resolution Appendix, and the
Schedules), as may be amended or supplemented from time to time in accordance
with its terms.
"ARBITRATION RULES": The Rules for Commercial Arbitration of the American
Arbitration Association in effect at the time of an arbitration in accordance
with the Dispute Resolution Procedure.
"BREACH NOTICE": A Party's Notice to the other Party alleging a breach of
the Agreement (other than USI's nonpayment of any amount related to an invoice)
by the other Party, which describes the alleged breach, to the extent known by
the notifying Party, and any particular cure or correction requested by the
notifying Party.
"BUSINESS DAY": Any Monday through Friday, excluding any such day on which
banks are authorized to be closed in Dallas, Texas.
"CONFIDENTIAL INFORMATION": Information subject to a duty of confidence and
a restriction on use imposed on one or both Parties under Article 10.
"CONTROL": The right to exercise, directly or indirectly, more than 50% of
the voting power attributable to the equity interests in an entity.
("Controlling" and "Controlled" have correlative meanings.)
"CONSENT": The prior written consent of a Party (in any capacity) in its
sole discretion.
"CONSOLIDATED USI REVENUES": The total revenues of USI and its subsidiaries
on a consolidated basis.
"CREDIT AGREEMENT": The Credit Agreement dated effective as of January 1,
1998 between EDS and USI.
"DAMAGES": Losses, claims, obligations, demands, assessments, fines and
penalties (whether civil or criminal), liabilities, expenses and costs
(including reasonable fees and disbursements of legal counsel and accountants),
bodily and other personal injuries, damage to tangible property, and other
damages, of any kind or nature, actually suffered or incurred by a Person.
"Damages": (a) consists only of actual damages; (b) excludes any lost profits,
lost income, or lost savings and any punitive, exemplary, consequential,
indirect, special, or incidental damages (however described), even if the
possibility of those losses or damages was known; and (c) includes (except as
may be reduced in accordance with the next sentence) all fines, penalties, and
interest paid or payable to any Governmental Authority. If USI has Damages, for
which EDS is liable, consisting of fines, penalties, and interest paid or
payable to a Governmental Authority corresponding to any tax not timely paid,
then those "Damages" shall be reduced by an amount equal to interest, at the
annual rate of 5%, accrued on that tax from the due date until that tax is paid;
for the avoidance of doubt, in this situation "Damages" shall not include any
tax for which USI would otherwise be liable to the Governmental Authority.
"DEFICIENCY": EDS' failure in rendering a Service or Task to satisfy the
applicable standard of care stated in the Agreement or to render it at the
applicable Level established under the Agreement. ("Deficient" has the
correlative meaning.)
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"DEFINITIONAL APPENDIX": This Definitional Appendix to Management Services
Agreement, containing definitions and interpretive matters for, as an integral
part of, the Agreement.
"DISPUTE": Any dispute, disagreement, claim, or controversy arising in
connection with or relating to the Agreement, or the validity, interpretation,
performance, breach, or termination of the Agreement, including any claim of
breach of representation or warranty or of nonperformance and any claim
regarding bodily or other personal injury or damage to tangible property.
"DISPUTE RESOLUTION APPENDIX": The Dispute Resolution Appendix to
Management Services Agreement, containing the Dispute Resolution Procedure for,
as an integral part of, the Agreement.
"DISPUTE RESOLUTION PROCEDURE": The procedure or process by which a Dispute
shall be resolved (except as otherwise stated in the Agreement) as described in
the Dispute Resolution Appendix.
"EDS": Electronic Data Systems Corporation, a Delaware corporation.
"EDS COMPANY": Any entity over which EDS has Control, other than USI and
any USI Company.
"EDS' REPRESENTATIVE": The individual agent or representative designated by
EDS to be EDS' formal liaison with or representative to USI for matters relating
to the Agreement, having the (non-exclusive) authority and responsibility
described in the Agreement.
"EDS' TRANSITION EXPENSES": The sum of the following, incurred in or
resulting from EDS' compliance with requests for transition assistance for up to
180 days after Expiration or during the Transition Period (as the case may be):
1. All of EDS' reasonable out-of-pocket expenses, and
2. the time or activities of EDS' personnel as follows: (a) if the
activities of those personnel were part of a Use-based Service before Expiration
or the termination of the Agreement, at the Price most recently paid for that
Use-based Service before Expiration or termination, or (b) if the activities of
those personnel were part of a Fixed-price Service before Expiration or the
termination of the Agreement, an amount equal to that portion of the Price most
recently paid for that Fixed-price Service before Expiration or termination
corresponding to the transition activities' portion of all activities that
constituted that Fixed-price Service, for the time covered by that Price, before
Expiration or termination.
"EFFECTIVE DATE": January 1, 1998, the date on which the Agreement becomes
effective.
"EFFECTIVE DATE SERVICE SUBCONTRACT": A Service Subcontract in effect on
the Effective Date.
"EXPIRATION": The expiration of the term of the Agreement as stated in, and
as may be renewed under, Article 2, without regard to any period of transition
assistance. For the avoidance of doubt, "Expiration" does not include a
termination of the Agreement under Section 13.1. ("Expire" and "Expired" have
correlative meanings.)
"FIXED-PRICE SERVICE": A Service the Price for which is a fixed or
nonvariable amount, other than a fixed rate.
"GOVERNMENTAL AUTHORITY": Any federal, state, local, or foreign government
or governmental, quasi-governmental, administrative, or regulatory authority,
agency, body, or entity, including any court or other tribunal.
"IB PAYMENT NOTICE": A notice delivered by EDS to USI of the charge applied
to USI's general ledger account for IB Services rendered by EDS in accordance
with the notice procedures then in place for similar notices to EDS business
units.
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"IB SERVICES": A Service that may be provided at any time during the
effectiveness of this Agreement on an as needed basis the payment for which
shall be made in accordance with an adjustment to the intercompany account
balance under the Credit Agreement or an International Credit Agreement, as the
case may be.
"INDEMNIFICATION CLAIM": A claim or demand of a Party, on its behalf or on
behalf of one or more of its Indemnified Agents, for indemnification under
Section 14.4.
"INDEMNIFICATION CLAIM NOTICE": A Notice from the Indemnified Party
describing an Indemnification Claim and the amount or the estimated amount of
that Indemnification Claim to the extent then feasible (though that estimate
shall not be determinative of the final amount of that Indemnification Claim).
"INDEMNIFICATION RESPONSE PERIOD": The 30 days after an Indemnification
Claim Notice is given during which the Indemnifying Party may investigate and
determine its responsibility or liability for an Indemnification Claim and, if
relating to a Third-Party Claim, Notify the Indemnified Party of the
Indemnifying Party's election to defend that Third-Party Claim.
"INDEMNIFIED AGENTS": Collectively, the officers, directors, employees, and
agents of a Party and, as to USI, the USI Companies and their respective
officers, directors, employees, and agents.
"INDEMNIFIED PARTY": A Party entitled to or seeking indemnification, on its
own behalf or on behalf of one or more of its Indemnified Agents, under Section
14.4.
"INDEMNIFYING PARTY": A Party that has or is alleged to have an obligation
to indemnify the other Party in response to an Indemnification Claim.
"INTERNATIONAL CREDIT AGREEMENT": A Credit Agreement between EDS Finance
PLC and a non-U.S. USI Company.
"LEGAL STAFF": Legal personnel that EDS employs or otherwise engages.
"LEVEL": The scope, timeliness, or quantity of a Service or Task or the
location, intensity, or frequency at or with which a Service or Task is or is to
be rendered.
"LEVEL CHANGE": A change in the Level of a Service to be effective at 12:01
a.m., Central Time, on July 1.
"MANAGEMENT FEE": The fixed annual fee equal to .5% of Consolidated USI
Revenues payable by USI to EDS pursuant to this Agreement in respect of
management and financial advisory services in addition to the Mandatory
Services, Optional Services and IB Services.
"MANDATORY SERVICE": A Service that shall be rendered and paid for, and may
not be unilaterally discontinued under Article 5 by either Party, during the
effectiveness of the Agreement.
"NONCONFORMING SERVICE": A Service or Task that, as agreed by the Parties
or otherwise determined by the Dispute Resolution Procedure, was or is
Deficient.
"NONPAYMENT NOTICE": A Notice from EDS to USI that describes an amount
related to an invoice to USI that EDS has not received when due, which shall:
1. constitute a demand for payment of the described amount; and
2. state that either termination of the Agreement or cessation of
transition assistance, whichever is applicable, by EDS may result if the
described amount is not paid by the tenth Business Day after that Notice is
given.
"NOTICE": A written communication complying with Article 18. ("Notify" has
the correlative meaning.)
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"OPTIONAL SERVICE": A Service that may be unilaterally discontinued by
either Party in accordance with the Agreement.
"PARTIES": Collectively, EDS and USI. ("Party" means either EDS or USI.)
"PERSON": An individual; a corporation, partnership, trust, association, or
entity of any kind or nature; or a Governmental Authority.
"PRICE": The amount or rate, in either case whether fixed or variable and
however measured, charged to USI for a Service, as agreed by the Parties.
"PRICE PROPOSAL": A written proposal or estimate of the Price for a Service
at a particular Level (or, if applicable, at each Level), together with a
description of the basis on which the proposed or estimated Price was determined
or calculated by EDS (including, to the extent applicable, the allocation
methodology, allocation drivers, and margin).
"PROCEEDINGS": Any action, suit, claim, investigation, demand, audit, or
other proceedings by or before any Governmental Authority or any arbitration
proceedings.
"REASONABLE CONSENT": The prior written consent of a Party (in any
capacity), which may not be unreasonably withheld or delayed.
"REASONABLE EFFORTS": The efforts of a Party that are commercially
reasonable under the circumstances, which do not require a Party to institute or
prosecute any Proceedings or to pay any Person other than that Party's
representatives or agents, including (only as to EDS) Subcontractors.
"REPRESENTATIVES": Collectively, EDS' Representative and USI's
Representative.
"SLA": A written agreement or understanding between EDS and USI or any USI
Company describing, or otherwise stating terms regarding, the Level at which a
Service, in whole or in part, will be rendered. An SLA regarding a Service, in
whole or in part, may be entered into by or directly with one or more of EDS'
units rendering that Service or that part of the Service. An SLA entered into on
or after the Effective Date: (a) may be a separate document or part of another
document, such as a Price Proposal that is accepted by USI, (b) may be a
Schedule or part of a Schedule, and (c) shall be signed by EDS and USI.
"SCHEDULE": A Schedule to the Agreement that describes a Service, the basis
of the Price for that Service, the annual Price for that Service for all of
1998, and the location or locations at which that Service is to be rendered if
not at EDS' offices or Subcontracted.
"SERVICE": An individual management service, to be rendered by EDS under
the Agreement, that is described as a "Service" in a Schedule. A Service may
also be described in a Schedule by all or a portion of its constituent Tasks.
"SERVICE SUBCONTRACT": An agreement or arrangement, oral or written, under
which a Subcontractor is to render or perform any Service or Task on EDS' behalf
or in EDS' stead.
"SUBCONTRACT": EDS' entering into a Service Subcontract. ("Subcontracted"
and "Subcontracting" have correlative meanings.)
"SUBCONTRACT TERMINATION PENALTY": An obligation described in, as part of
the terms of, a Service Subcontract to pay the Subcontractor a charge, fine,
penalty, or other amount upon the termination or partial termination of that
Service Subcontract, including any return to the Subcontractor of any equipment
or goods held under that Service Subcontract.
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"SUBCONTRACTOR": A Person, other than an employee of EDS, who or which
enters into a Service Subcontract with EDS.
"TASK": Any one of the group of processes, procedures, or services that is
described in a Schedule as constituting, or included in, a Service.
"TERMINATION DATE": The date on which the Agreement is terminated in
accordance with Section 13.1, without regard to any Transition Period.
"THIRD-PARTY CLAIM": A claim of liability asserted against either Party by
a Person other than the other Party or either Party's Indemnified Agents.
"TRANSITION PERIOD": The maximum 180-day period after the Termination Date
during which EDS shall, as USI reasonably requests, render one or more Services
in accordance with Section 13.3(a) or provide transition assistance in
accordance with Section 13.3(b).
"USE-BASED SERVICE": A Service the Price for which is variable; or a
Service the Price for which is a fixed rate, but the amount due for that Service
is determined by or based upon, at least in part, the extent of the actual use
of EDS' personnel or other assets.
"USI": Unigraphics Solutions Inc., a Delaware corporation.
"USI COMPANY": Any entity over which USI has Control.
"USI'S REPRESENTATIVE": The individual agent or representative designated
by USI to be USI's formal liaison with or representative to EDS for matters
relating to the Agreement, having the (non-exclusive) authority and
responsibility described in the Agreement.
B. INTERPRETATIVE MATTERS. The Agreement is the result of the Parties'
negotiations, and no provision of the Agreement shall be construed for or
against either Party because of the authorship of that provision. In the
interpretation of the Agreement, except where the context otherwise requires:
1. "including" or "include" does not denote or apply any limitation;
2. "or" has the inclusive meaning "and/or";
3. "$" refers to United States dollars;
4. the singular includes the plural, and vice versa, and each gender
includes each of the others;
5. captions or headings are only for reference and are not to be
considered in interpreting the Agreement;
6. "Article" and "Section" refer to an Article and Section, respectively,
of the Agreement, unless otherwise stated in the Agreement;
7. an event to occur, an action to be performed, or a condition to be
satisfied "by" or "as of" a stated date in the Agreement shall occur or be
effective or satisfied no later than 5:00 p.m. on that date; and
8. each reference to a time of day in the Agreement is to local time in
Dallas, Texas, and "midnight" begins a day.
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DISPUTE RESOLUTION APPENDIX
TO MANAGEMENT SERVICES AGREEMENT
A. DEFINED TERMS. Various terms used in this Dispute Resolution Appendix,
which begin with a capital letter, are defined in the Definitional Appendix to
Management Services Agreement. In addition, the following terms used only in
this Dispute Resolution Appendix have the corresponding meanings:
"COMPLEX DISPUTE LIST': The "Complex Dispute List," or if that list is not
then maintained by the American Arbitration Association, another list of
individuals having similar qualifications maintained by the American Arbitration
Association.
"INITIAL EXECUTIVE REVIEW COMMITTEE": A committee consisting of the Manager
- - Corporate Financial Analysis of EDS and the Controller of USI.
"QUALIFICATIONS": Inclusion in the Complex Dispute List or having extensive
knowledge or experience, or both, regarding management services similar to the
Service or Services that are the subject of the Dispute.
"SECOND EXECUTIVE REVIEW COMMITTEE": A committee consisting of the Vice
President and Controller of EDS and the Chief Financial Officer of USI.
"THIRD EXECUTIVE REVIEW COMMITTEE": A committee consisting of the President
of USI and an Executive Vice President or Senior Vice President of EDS
designated by either the Chief Executive Officer, President or Vice Chairman of
EDS.
The interpretative matters set forth in the Definitional Appendix also
apply to this Dispute Resolution Appendix.
B. DISPUTE RESOLUTION PROCEDURE.
1. General Procedure. Except as otherwise stated in the Agreement, the
Parties shall resolve all Disputes in accordance with this procedure:
(a) Each Party shall instruct its Representative to promptly
negotiate in good faith with the other Party's Representative to resolve
the Dispute.
(b) If the Representatives do not resolve the Dispute within ten
Business Days (or such longer period as the Representatives may agree)
after the date of referral of the Dispute to them, the Dispute shall be
referred (by either or both of the Representatives) to the Initial
Executive Review Committee for resolution.
(c) If the Initial Executive Review Committee does not resolve the
Dispute within ten Business Days (or such longer period as that Committee
may agree) from the date of referral to it, the Dispute shall be referred
(by that Committee or any of its members) to the Second Executive Review
Committee for resolution.
(d) If the Second Executive Review Committee does not resolve the
Dispute within ten Business Days (or such longer period as that Committee
may agree) after the date of referral to it, either Party may submit the
Dispute for resolution by the Third Executive Review Committee, who may
submit the Dispute to non-binding mediation in accordance with Section B.2
of this Dispute Resolution Appendix.
(e) If the Dispute is not resolved by the Third Executive Review
Committee (if submitted to them) and is not submitted to or resolved by
mediation, then either Party may submit the Dispute to binding arbitration
in accordance with Section B.3 of this Dispute Resolution Appendix (which,
except as provided in Section 4 of this Dispute Resolution Appendix, shall
be the sole means available for resolution of the Dispute).
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A referral under any of Sections B.1(a), B.1(b), and B.1(c) of this Dispute
Resolution Appendix shall be made by written notice to the Persons designated in
the applicable Section or Sections. That notice shall be in a form described in
the Agreement or an electronic mail message and addressed to each Person at his
office address or electronic mail address; each notice shall be given and
effective as described in the Agreement or, in the case of electronic mail, upon
actual receipt. The date of referral is the last date that notice is given to
all of the Persons to whom the Dispute must have been referred.
2. Mediation. The mediation of an unresolved Dispute shall be conducted
in this manner:
(a) Either Party may submit the Dispute to mediation by giving
notice of mediation to the other Party. The Parties shall attempt to agree
upon and appoint a sole mediator who has the Qualifications promptly after
that notice is given.
(b) If the Parties are unable to agree upon a mediator within ten
days after the date the Dispute is submitted to mediation, either Party may
request the Dallas office of the American Arbitration Association to
appoint a mediator who has the Qualifications. The mediator so appointed
shall be deemed to have the Qualifications and to be accepted by the
Parties.
(c) The mediation shall be conducted in the Dallas metropolitan area
at a place and a time agreed by the Parties with the mediator, or if the
Parties cannot agree, as designated by the mediator. The mediation shall
be held within 20 days after the mediator is appointed.
(d) If either Party has substantial need for information from the
other Party in order to prepare for the mediation, the Parties shall
attempt to agree on procedures for the formal exchange of information; if
the Parties cannot agree, the mediator's determination shall be final.
(e) Each Party shall be represented in the mediation by at least its
Representative or another natural Person with authority to settle the
Dispute on behalf of that Party and, if desired by that Party, by counsel
for that Party. The Parties' representatives in the mediation shall
continue with the mediation as long as the mediator requests.
(f) The mediation shall be subject to Chapter 154 of Title 7 of the
Texas Civil Practice and Remedies Code.
(g) Unless otherwise agreed by the Parties, each Party shall pay
one-half of the mediator's fees and expenses and shall bear all of its own
expenses in connection with the mediation. Neither Party may employ or use
the mediator as a witness, consultant, expert, or counsel regarding the
Dispute or any related matters.
3. Arbitration. The arbitration of an unresolved Dispute shall be
conducted in this manner:
(a) Either Party may begin arbitration by filing a demand for
arbitration in accordance with the Arbitration Rules. The Parties shall
attempt to agree upon and appoint a panel of three arbitrators promptly
after that demand is filed. Each of those arbitrators must have the
Qualifications, and at least one of those arbitrators must be included in
the Complex Dispute List (unless no list of that kind is then maintained).
(b) If the Parties are unable to agree upon any or all of the
arbitrators within ten days after the demand for arbitration was filed (and
do not agree to an extension of that ten-day period), either Party may
request the Dallas office of the American Arbitration Association to
appoint the arbitrator or arbitrators, who have the Qualifications (and at
least one of whom must be included in the Complex Dispute List, unless no
list of that kind is then maintained), necessary to complete the panel in
accordance with the Arbitration Rules. Each arbitrator so appointed shall
be deemed to have the Qualifications and to be accepted by the Parties as
part of the panel.
(c) The arbitration shall be conducted in the Dallas metropolitan
area at a place and a time agreed by the Parties with the panel, or if the
Parties cannot agree, as designated by the panel. The panel may, however,
25
<PAGE>
call and conduct hearings and meetings at such other places as the Parties
may agree or as the panel may, on the motion of one Party, determine to be
necessary to obtain significant testimony or evidence.
(d) The Parties shall attempt to agree upon the scope and nature of
any discovery for the arbitration. If the Parties do not agree, the panel
may authorize discovery in accordance with the Federal Rules of Civil
Procedure upon a showing of particularized need that the requested
discovery is likely to lead to material evidence needed to resolve the
Dispute and is not excessive in scope, timing, or cost.
(e) The arbitration shall be subject to the Federal Arbitration Act
and conducted in accordance with the Arbitration Rules to the extent they
do not conflict with this Section B.3 of this Dispute Resolution Appendix.
The Parties and the panel may, however, agree to vary the provisions of
this Section B.3 of this Dispute Resolution Appendix or the matters
otherwise governed by the Arbitration Rules.
(f) The panel has no power to:
(i) rule upon or grant any extension, renewal, or continuance
of the Agreement;
(ii) award remedies or relief either expressly prohibited by
the Agreement or under circumstances not permitted by the Agreement;
or
(iii) grant provisional or temporary injunctive relief before
rendering the final decision or award.
(g) Unless the Parties otherwise agree, all Disputes regarding or
related to the same topic or event that are subject to arbitration at one
time shall be consolidated in a single arbitration proceeding.
(h) A Party or other Person involved in an arbitration under this
Section B.3 may join in that arbitration any Person other than a Party if
(i) the Person to be joined agrees to resolve the particular
dispute or controversy in accordance with this Section B.3 and the
other provisions of this Dispute Resolution Appendix applicable to
arbitration; and
(ii) the panel determines, upon application of the Person
seeking joinder, that the joinder of that other Person will promote
the efficiency, expedition, and consistency of the result of the
arbitration and will not unfairly prejudice any other party to the
arbitration.
(i) The arbitration hearing shall be held within 30 days after the
appointment of the panel. Upon request of either Party, the panel shall
arrange for a transcribed record of the arbitration hearing, to be made
available to both Parties.
(j) The panel's final decision or award shall be made within 30 days
after the hearing. That final decision or award shall be made by unanimous
or majority vote or consent of the arbitrators constituting the panel, and
shall be deemed issued at the place of arbitration. The panel shall issue
a reasoned written final decision or award based on the Agreement and Texas
law; the panel may not act according to equity and conscience.
(k) The panel's final decision or award may include: (i) recovery of
Damages to the extent permitted by the Agreement or (ii) injunctive relief
in response to any actual or threatened breach of the Agreement or any
other actual or threatened action or omission of a Party under or in
connection with the Agreement.
(l) The panel's final decision or award shall be final and binding
upon the Parties, and judgment upon that decision or award may be entered
in any court having jurisdiction over either or both of the Parties or
their respective assets. The Parties specifically waive any right they may
have to apply or appeal to any court for relief from the preceding sentence
or from any decision of the panel made, or any question of law arising,
26
<PAGE>
before the final decision or award. If any decision by the panel is
vacated for any reason, the Parties shall submit that Dispute to a new
arbitration in accordance with this Section B.3.
(m) Each Party shall pay one-half of the arbitrators' fees and
expenses, and shall bear all of its own expenses in connection with the
arbitration. The panel has the authority, however, to award recovery of
all costs and fees (including attorneys' fees, administrative fees and the
panel's fees and expenses) to the prevailing Party in the arbitration.
4. Recourse to Courts. Nothing in the Dispute Resolution Procedure limits
the right of either Party to apply to a court or other tribunal having
jurisdiction to:
(a) enforce the Dispute Resolution Procedure, including the agreement
to arbitrate in this Dispute Resolution Appendix;
(b) seek provisional or temporary injunctive relief, in response to
an actual or impending breach of Article 10 of the Agreement or otherwise
so as to avoid irreparable damage or maintain the status quo, until a final
arbitration decision or award is rendered or the Dispute is otherwise
resolved; or
(c) challenge or vacate any final arbitration decision or award that
does not comport with Section B.3 of this Dispute Resolution Appendix.
5. Submission to Jurisdiction. Each Party irrevocably submits to the
jurisdiction of the federal courts of the United States and the state courts of
Texas located in Collin County, Texas. Each Party waives any defense or
challenge to that jurisdiction based on lack of personal jurisdiction, improper
venue, or inconvenience of forum.
6. Confidentiality. The proceedings of all negotiations, mediations, and
arbitrations as part of the Dispute Resolution Procedure shall be privately
conducted. The Parties shall keep confidential all conduct, negotiations,
documents, decisions, and awards in connection with those proceedings under the
Dispute Resolution Procedure.
27
<PAGE>
SCHEDULE OF SERVICES
APPENDIX TO MANAGEMENT SERVICES AGREEMENT
MANDATORY SERVICES
SCHEDULE I.................................................................. 2
TAX ADMINISTRATION AND TAX RELATED SERVICES................................. 2
SCHEDULE II................................................................. 5
TREASURY SUPPORT............................................................ 5
OPTIONAL SERVICES
SCHEDULE III................................................................ 7
ADMINISTRATION.............................................................. 7
ADMINISTRATION SECURITY..................................................... 7
ADMINISTRATION AVIATION..................................................... 8
ADMINISTRATION TRAVEL....................................................... 8
SCHEDULE IV................................................................. 9
AUDIT....................................................................... 9
SCHEDULE V..................................................................10
OFFICE OF THE CHIEF INFORMATION OFFICER.....................................10
SCHEDULE VI.................................................................12
EMPLOYEE ADMINISTRATION.....................................................12
SCHEDULE VII................................................................16
FINANCE: CONTROLLER OF EUROPE, AMERICAS, & ASIA PACIFIC.....................16
SCHEDULE VIII...............................................................17
LEGAL.......................................................................17
SCHEDULE IX.................................................................19
GLOBAL PURCHASING GROUP.....................................................19
SCHEDULE X..................................................................20
REAL ESTATE.................................................................20
SCHEDULE XI.................................................................21
SHARED FINANCIAL SERVICES...................................................21
SCHEDULE XII................................................................22
EMPLOYEE RELATIONS..........................................................22
SCHEDULE XIII...............................................................23
IB Services.................................................................23
<PAGE>
MANDATORY SERVICES
SCHEDULE I
TAX ADMINISTRATION AND TAX RELATED SERVICES
DESCRIPTION OF SERVICE: Tax Administration and Tax Related Services include tax
research, tax planning, and tax return preparation in compliance with tax
statutes and regulations. All tax services are a Mandatory service. The
following tasks are Mandatory services to be provided to USI:
. Domestic Compliance
. Domestic Audit & Federal Audit
. State and Local Tax
. Sales Tax Compliance
. Use Tax Compliance
. Business Licenses Compliance
. State and Local Tax-Audits
. State and Local Tax-Reporting & Planning
. Property Tax and Compliance
. Property Tax Audit
. International Compliance
. Federal Planning
. International Planning
PRICE BASIS: These tasks are a combination of use-based and fixed prices as
indicated in the schedule below.
2
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION METHODOLOGY COSTS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Domestic Compliance Flat rate: 1 person's fully loaded costs for domestic income and $80,000
franchise tax returns (Plus out of office expenses).
- ------------------------------------------------------------------------------------------------------------------------------------
Plus pass through direct costs for temporary workers and lawyers. Rate from $30 an hour for
temporary workers and $350 an
hour for lawyers.
- ------------------------------------------------------------------------------------------------------------------------------------
Domestic & Federal Audit Flat rate per year plus out of office expenses. Cost basis assumes $45,000 per audited tax year
slightly less than one person at fully loaded costs. (Plus out of
office expenses).
- ------------------------------------------------------------------------------------------------------------------------------------
Plus pass through direct costs for temporary workers and lawyers. Rates ($30 an hour for temps and
$350 an hour for lawyers)
- ------------------------------------------------------------------------------------------------------------------------------------
International Compliance Average hourly rate of $70 (Plus out of office expenses). Hourly rate of $70 (Estimated
expenses of $136,000)
Pass through rates based on per country international rate quotes
from major accounting firm which EDS uses. $50 an hour to $450 an hour
- ------------------------------------------------------------------------------------------------------------------------------------
State & Local Tax-Sales, Flat rate to file returns for sales, use, and business licenses $40,000
Use, and Business Compliance provided they do not exceed 600 in total per year (plus out of
office expenses).
- ------------------------------------------------------------------------------------------------------------------------------------
Pass through charges will be charged if the returns are completed $60,000 to $150,000 per year
by an external party. The estimate for 1,000 returns (pure
compliance-basic review) is $60,000 to $150,000 per year.
- ------------------------------------------------------------------------------------------------------------------------------------
State & Local Tax Property Flat rate for property tax returns and payments provided that $40,000
Tax Compliance and Audit combined they do not exceed 600 "filings". (Plus out of office
expenses).
- ------------------------------------------------------------------------------------------------------------------------------------
Pass through expenses at an Hourly rate of $100 to $200
hourly rate
- ------------------------------------------------------------------------------------------------------------------------------------
State and Local Tax Audits Part of the state audits. Cost is based on 10 hours a month at $70 $ 8,400
an hour. Additional hours will be billed by the hour.
- ------------------------------------------------------------------------------------------------------------------------------------
State and Local Tax Involves reviewing financial data and business activity to $ 4,200
Reporting and Planning determine EDS tax positions. Cost based on 5 hours per month at
$70 per hour. Additional hours will be billed by the hour.
- ------------------------------------------------------------------------------------------------------------------------------------
International Planning Involves reviewing financial data and business activity to $15,000
determine EDS tax positions. Cost based on 5 hours per month at
$70 per hour. Additional hours will be billed by the hour.
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Planning Involves reviewing financial data and business activity to $10,000
determine EDS tax positions. Cost based on 5 hours per month at
$70 per hour. Additional hours will be billed by the hour.
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Support - Shared $50,000
Financial Services
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
The above amounts reflect estimated charges for 1998 based on 1997 services
rendered to USI. Embedded in the estimates is a critical assumption that USI
will be on EDS Systems (i.e. General Ledger, Accounts Receivable, Accounts
Payable, Fixed Assets, etc.) and will have access to other information (i.e.
taxability decisions in BTS and the On-Line Tax Manual). All internal estimates
are at cost. To the extent that USI shall not be on EDS Systems, these costs
will be revised to reflect any actual change in cost to EDS of providing these
services on different systems.
The monthly invoiced amount to USI will be based on the amounts as outlined in
the above schedule. The Tax SU may subcontract when necessary and all costs of
subcontracting will be "passed-through" at EDS' cost to USI.
The charges for Tax Administration and Tax related Services will be invoiced
monthly during the calendar year and the fixed amount will not vary if any one
or more of the use-based tasks are discontinued.
The annual cost to provide the mandatory tax services is the sum of the fixed
amount, the usage at the hourly rate, pass through costs, and any out of pocket
expense. The estimated costs for tax administration and tax related costs for
1998 are $439,400, excluding out of office expenses and some pass through costs.
4
<PAGE>
SCHEDULE II
TREASURY SUPPORT
DESCRIPTION OF SERVICE: The EDS Treasury SU shall provide USI centralized
treasury support services. These are substantially the same treasury support
services currently provided to other EDS SU's. The tasks to be performed by the
EDS Treasury SU for USI consist of the following:
A. Cash Management /Bank Account Services
. All USI bank accounts will be managed by EDS Treasury, except as may
be agreed by the Treasurer of EDS and the Chief Financial Officer of
USI.
. Accounts will be established with EDS' major cash management banks to
facilitate intercompany transactions and minimize costs.
. USI will be charged for all direct costs such as banking and wire
transfer fees. Any incremental fees billed centrally to EDS will be
rebilled to USI.
B. Corporate Investment Management
. All excess funds will be invested with EDS at a rate of LIBID minus
.50%. U.S. investing will be provided by EDS and international
investing will be provided by EDS Finance plc. LIBID shall equal LIBOR
(defined below) minus 0.125%.
. Any investing of USI funds with third parties will be performed by EDS
and USI and will be charged for all direct costs associated with the
transaction.
C. Financing
. Pursuant to the terms of a separate Credit Agreement entered into
between EDS and USI concurrently with the execution of this Agreement,
EDS will provide all funding at a rate of LIBOR (the Official British
Bankers' Association one month LIBOR Fixings at 11:00 a.m. London
time, as reported on Bloomberg) plus .50%. U.S. funding will be
provided by EDS and international funding will be provided by EDS
Finance plc.
. Any third party financing (including equipment leasing) will be
arranged by EDS and USI will be charged for all direct costs
associated with the financing transaction(s).
D. Foreign Exchange
. Hedging - Any hedges will be provided by EDS International Treasury
and will be done using internal forwards which will be charged to USI
at the market rate (direct cost) that EDS has incurred for the hedge.
. Foreign Currency Purchases/Sales - Any purchases/sales of a foreign
currency made for/to a USI entity will be managed by EDS International
Treasury and will be charged at the market rate (direct cost) incurred
by EDS in executing the purchase/sale.
PRICE BASIS: The cost to USI for the services described in A. through D. above
shall equal any third-party costs incurred by EDS in connection with such
services. USI will not be responsible for general overhead and personnel costs
of EDS for such services.
E. Insurance Risk Management
5
<PAGE>
. Corporate Risk Management will assist USI in the negotiation of
insurance policies to support USI's global operations.
. EDS will provide coverage to USI under the following insurance
policies and any extensions thereof. With respect to countries where
USI has operations but EDS does not, no risk management services or
policies will be provided to USI.
PREMIUM ALLOCATION SCHEDULE:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PREMIUM ALLOCATIONS
- ----------------------------------------------------------------------------------------------------------------------
POLICY EFFECTIVE DATE EXPOSURE BASE
- ----------------------------------------------------------------------------------------------------------------------
US
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Errors & Omissions 1/1/98-1/1/99 Revenue as % of total EDS revenue
- ----------------------------------------------------------------------------------------------------------------------
Aviation Products Liability 6/1/97-6/1/98 Aviation revenue as % of total EDS aviation
revenue
- ----------------------------------------------------------------------------------------------------------------------
All Risk Property 6/1/97-6/1/98 Property Values
- ----------------------------------------------------------------------------------------------------------------------
Crime/Employee Dishonesty 6/1/97-6/1/00 Revenue as % of total EDS revenue
- ----------------------------------------------------------------------------------------------------------------------
Directors & Officers Liability 6/1/97-6/1/00 Revenue as % of total EDS revenue
- ----------------------------------------------------------------------------------------------------------------------
Fiduciary Liability 6/1/97-6/1/98 $2,000 per year
- ----------------------------------------------------------------------------------------------------------------------
General & Products Liability 9/1/97-9/1/98 Revenue as % of total EDS revenue
- ----------------------------------------------------------------------------------------------------------------------
Auto Liability 9/1/97-9/1/98 # of vehicles ($304 per vehicle in 1998)
- ----------------------------------------------------------------------------------------------------------------------
Auto Physical Damage 9/1/97-9/1/98 # of vehicles ($400 per vehicle in 1998)
- ----------------------------------------------------------------------------------------------------------------------
Excess Liability 9/1/97-9/1/98 Based on ratio of USI's general & products
liability and auto liability premiums to those
of EDS
- ----------------------------------------------------------------------------------------------------------------------
Special Crime 9/30/97-9/30/98 $3,000 per year
- ----------------------------------------------------------------------------------------------------------------------
Int'l Property Difference in Conditions 6/1/97-6/1/98 Property Values
- ----------------------------------------------------------------------------------------------------------------------
INTL. COVERAGE'S
- ----------------------------------------------------------------------------------------------------------------------
All Risk Property 6/1/97-6/1/98 Property Values
- ----------------------------------------------------------------------------------------------------------------------
Auto, General & Products Liability 9/1/97-9/1/98 Various
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PRICE BASIS: The premiums payable by USI are set forth above with respect to
Special Crime and Fiduciary policies and with respect to all others will be
allocated according to the exposure base indicated above. The charges will be
invoiced annually in advance at each policy renewal date. The estimated cost
for 1998 is expected to be $160,000.
6
<PAGE>
OPTIONAL SERVICES
SCHEDULE III
ADMINISTRATION
- --------------
DESCRIPTION OF SERVICE: The services performed by the EDS-Administration SU
will consist of the following*:
. Administration-Security
. Administration-Aviation
. Administration-Travel
* The EDS Administration SU may also perform CAS Administration Services.
However, such services will be considered IB Services and not governed by the
terms set forth in this Schedule.
ADMINISTRATION - SECURITY
- -------------------------
The EDS Administration-Security SU will provide the following services and
associated tasks to USI:
. Data security services
. Assign password ID's
. Maintain password ID's
. Provide and control access to EDS systems including the firewall
and EDSNet.
. Physical security services for space occupied at EDS' Plano
headquarters
. Provide security guards
. Provide locks and cameras
. Provide access control
. Provide fire detection systems
. Background Investigations and Drug Screening Services
. Provide an investigation background for new hires and existing
employees
. Provide random drug testing
PRICE BASIS-: The foregoing tasks will be charged at the rates as indicated on
the schedule below:
7
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SERVICES DESCRIPTION CHARGE BASIS RATE UNIT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Data Security Assign & maintain password Ids Monthly Charge per Logon.
- ---------------------------------------------------------------------------------------------------------------
Provide and Control
access to EDS systems
whether it be on the
firewall or EDSNET.
- ---------------------------------------------------------------------------------------------------------------
Network Logon ID 0.50 ID
- ---------------------------------------------------------------------------------------------------------------
Logon ID to access a line 0.95 Application
item on a users menu.
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Physical Security Provide security guards, Monthly Charge Per SQ. FT of
locks, cameras, access leased space at EDS' Plano 0.11 Sq. Ft.
control, and fire detection headquarters
systems.
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Investigation Services for prospective and Flat rate per person screened
and Drug existing employees (both in the U.S.
Screenings services).
- ---------------------------------------------------------------------------------------------------------------
Background Investigation -
U.S. only $33.00 Inquiry
- ---------------------------------------------------------------------------------------------------------------
Drug Screening - U.S., $61.00 Screen
Canada, and Mexico
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
PRICE BASIS: The tasks to be performed are use-based. The monthly invoiced
amount will be the product of the EDS Administration Security rates and the
volume of products used. The costs will be invoiced monthly. Estimated costs
for 1998 are $50,000.
ADMINISTRATION AVIATION
- -----------------------
EDS Administrative Aviation provides private air transportation for executives
to conduct EDS business.
PRICE BASIS: The rate charged to USI will be on a per flight hour to be
determined prior to travel. The rate will be reviewed on an annual basis. The
rate reflects the costs of EDS Aviation and will be invoiced on a usage basis.
Estimated costs for 1998 are $50,000.
ADMINISTRATION TRAVEL
- ---------------------
EDS Administration Travel will provide the task of providing all business travel
coordination, including air travel, hotel reservations, and automotive rental
reservations, to USI.
PRICE BASIS: The charge for providing these services to USI will be the per
transaction rate charged to EDS by its third party travel coordinator, which
rate will be the same rate charged to other EDS business units. The charge
includes the price of the airfare, car rental, or hotel charge. This charge
will be offset by the commission that EDS receives from the airline, hotel, or
car rental company, which commissions will be given back to USI as a credit in
the billing process. The tasks to be performed are use-based. The monthly
invoiced amount will be the product of the EDS Travel rate and the number of
transactions.
8
<PAGE>
SCHEDULE IV
AUDIT
The external audit of USI will be conducted by EDS' independent auditors,
currently KPMG Peat Marwick LLP. Audit services may include, but are not
limited to, the following services:
. Audit of USI's year end consolidated financial statements for filings
with the Securities Exchange Commission (SEC),
. Statutory audits of the various foreign legal entities that are part
of USI
. Review of quarterly and other filings with the SEC.
USI and EDS will be jointly responsible for engaging the external auditors' and
negotiating the fees for audit work. The engagement of independent certified
public accountants is, however, subject to approval by the Audit Committee of
USI's Board of Directors (once such committee is established) based upon the
recommendations of management. EDS and USI will negotiate fees with such
accountants in a timely manner to ensure that such fees are communicated to the
Audit Committee of EDS' Board of Directors within the required time. In
addition, USI will formally communicate to EDS a summary of actual audit fees
incurred on an annual basis along with explanations for variances from
previously negotiated amounts as well as fees paid for accounting, tax, and
management advisory services.
PRICE BASIS: It is anticipated that the costs for the above services for all
audit work performed domestically and internationally will be billed directly to
USI by the external auditors. To the extent that EDS processes payables for USI
in foreign locations, external audit fees will be paid by EDS and charged to USI
at the amounts identified on the billings. In the event that audit fees for EDS
and USI are submitted on the same billing and such billing contains out-of-
pocket expenses which are not specifically identifiable to EDS or USI, such
expenses will be allocated to each party in direct proportion to their audit
fee.
9
<PAGE>
SCHEDULE V
OFFICE OF THE CHIEF INFORMATION OFFICER
DESCRIPTION OF SERVICES: The tasks to be performed by the Office of the Chief
Information Officer (CIO) SU will consist of the following:
. Ensure the operations of production cycles and on-line availability
. Correct production problems
. Make systems modifications to meet requirements from entities external
to EDS such as known International, Federal, State and local statutory
requirements or regulations.
. Support the audit of corporate systems
. Support disaster recovery activities to related corporate systems.
. Perform run-time improvements
PRICE BASIS: The above tasks will be charged according to the following
schedule:
10
<PAGE>
SYSTEM CHARGES FOR USI
----------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SYSTEM/FUNCTION DESCRIPTION 1998 COST
- -----------------------------------------------------------------------------------------------------------------
PRODUCTION SUPPORT ('000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE PEOPLE SYSTEMS
- -----------------------------------------------------------------------------------------------------------------
CAS Tech Support Corp Admin System Support $17.8
- -----------------------------------------------------------------------------------------------------------------
Travel Travel System $5.9
- -----------------------------------------------------------------------------------------------------------------
Real Estate Real Estate System $4.0
- -----------------------------------------------------------------------------------------------------------------
EARS Workflow European SAP Workflow $9.9
- -----------------------------------------------------------------------------------------------------------------
Payroll Payroll System $23.8
- -----------------------------------------------------------------------------------------------------------------
Employee Admin - Other Employee Benefits System $9.9
- -----------------------------------------------------------------------------------------------------------------
Employee Admin - Relocation Relocation System $2.0
- -----------------------------------------------------------------------------------------------------------------
ED WEB Prod Support/Coordination All Employee Development $13.9
- -----------------------------------------------------------------------------------------------------------------
Compensation/People Info Compensation Info System $11.9
- -----------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE PEOPLE SYSTEMS $99.1
- -----------------------------------------------------------------------------------------------------------------
FINANCIAL SYSTEMS
- -----------------------------------------------------------------------------------------------------------------
Financial Acctg/AR/GCC/Billing Financial Systems $50.9
- -----------------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL SYSTEMS $50.9
- -----------------------------------------------------------------------------------------------------------------
PURCHASING SYSTEMS
- -----------------------------------------------------------------------------------------------------------------
Inventory Fixed Assets Systems $4.8
- -----------------------------------------------------------------------------------------------------------------
Payment/Asset Mgmt Vendor Payment/Asset Mgmt Systems $6.7
- -----------------------------------------------------------------------------------------------------------------
Management Reporting Management Reporting Systems $12.4
- -----------------------------------------------------------------------------------------------------------------
GPG Production Global Purchasing Systems $14.3
- -----------------------------------------------------------------------------------------------------------------
Data Warehouse Other Purchasing Systems $12.4
- -----------------------------------------------------------------------------------------------------------------
GPG WEB Other Purchasing Systems $1.0
- -----------------------------------------------------------------------------------------------------------------
TOTAL PURCHASING SYSTEMS $51.6
- -----------------------------------------------------------------------------------------------------------------
OTHER SYSTEM/FUNCTIONS
- -----------------------------------------------------------------------------------------------------------------
Security Information Security $16.8
- -----------------------------------------------------------------------------------------------------------------
Client Server Applications Support of Lan/Wan Servers $21.2
- -----------------------------------------------------------------------------------------------------------------
Corporate People Systems - Intl $14.3
- -----------------------------------------------------------------------------------------------------------------
Financial Systems - Europe $39.7
- -----------------------------------------------------------------------------------------------------------------
Mid Range Support Support of the above Production Systems $89.5
- -----------------------------------------------------------------------------------------------------------------
Year 2000 Project Y2k related expense for all EDS internal used $107.8
systems.
- -----------------------------------------------------------------------------------------------------------------
SAP Mexico System, Application, Products $15.4
- -----------------------------------------------------------------------------------------------------------------
TAC Technical Assistance Center Helpdesk $20.7
- -----------------------------------------------------------------------------------------------------------------
IT Planning Information Technology Planning $10.1
- -----------------------------------------------------------------------------------------------------------------
CIO Office of the CIO $60.6
- -----------------------------------------------------------------------------------------------------------------
TOTAL OTHER SYSTEM/FUNCTIONS $396.1
- -----------------------------------------------------------------------------------------------------------------
TOTAL $597.7
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PRICE BASIS: The tasks to be performed are fixed rates but were based on a
variable factor of headcount. The monthly invoiced amount will be the product
of the Office of the CIO SU rates per system as denoted on the above schedule.
11
<PAGE>
SCHEDULE VI
EMPLOYEE ADMINISTRATION
DESCRIPTION OF SERVICES: The EDS Employee Administration SU renders employee
administration related services. The information contained below is divided
into the following regions; United States, Europe, Asia Pacific, South and
Central America, Canada, and Mexico. The functions supported by the Employee
Administration SU are not the same around the world. In some countries,
Employee Administration will have functions that may be included in another SU
within the United States such as labor relations. The assumption in the rates
outlined below is that all worldwide USI employees will stay on EDS human
resource systems, benefits, and programs. To the extent that USI shall not be
on EDS' systems, these costs will be revised to reflect any actual change in
cost to EDS of providing these services on different systems.
UNITED STATES
- -------------
The services provided to USI in the United States will be based on four main
components.
The first component is the plan costs (as opposed to the administrative costs to
run the plans). These costs are IB Services and will be billed directly through
the local financial or human resource systems to the FIDs that have employees.
The costs include governmental taxes and benefits including pension benefits.
The second component of the United States pricing methodology is the
administrative costs to run the benefits and services not included in the Health
Plan outlined above. The following benefits and services will be provided to
the extent they are offered to other EDS employees and will be charged to USI on
a monthly basis. The monthly rate per person for providing these tasks to USI
will be $30.06 per person.
. Payroll
. Lifekey Facilities and Programs
. Recognition Services
. Dependent Care Voucher and Referral Program
. Length of Service Award Program
. Employee Discount Programs
. Health Spending Account Programs
. Plano and Herndon Mailroom and Switchboard
. Retirement Plan
. Unemployment Processing
. Deferred Compensation Plan
. Workers' Compensation Program
. Transition/Acquisition/New Business Support
. Employee Handbook Expense
. Stock Purchase Plan
. Benefit Development
. PerformanceShare Program
The third component of the United States pricing methodology is the
administrative costs for the relocation program. USI will be charged when a
relocation is requested. The rates are broken down by homeowner and non-
homeowner and the benefits given below.
$244 Non-homeowners: This includes counseling regarding the
approved benefits, processing of all expense reports,
arranging the van line services, and tax assistance
reporting.
12
<PAGE>
$600 Homeowner Closing Services: In addition to above this
will include counseling with the employee regarding the
marketing of their home and administering the paperwork
to handle the closing of the home.
$1,400 Homeowner Purchase of Former Home: In addition to above
this will include reviewing appraisals and inspections
on the home, making an offer to purchase the home, and
marketing the home if it comes into the relocation
inventory.
Each US relocation will receive at least the non-homeowner services and may also
receive the homeowner closing services and homeowner purchase of former home.
The fourth component of the United States pricing methodology is the
administrative costs for the expatriate program. USI will be charged when a
expatriate assignment is requested. The monthly rates would be charged for each
employee on an expatriate assignment until the employee returns to their home
country. The monthly rate will be $70.92 per person.
EUROPE
- ------
The pricing methodology in Europe is based on two components. These costs are IB
Services and will be billed directly through the local financial or human
resource systems to the FIDs that have employees. The costs include
governmental taxes and benefits including pension benefits.
The second component of the European pricing methodology is the administrative
costs of the Human Resource departments in each country. This will be billed as
a monthly rate per person. Each country will provide the following services to
the extent offered to other EDS employees in that country.
. Staffing
. Employee Communication
. Transition/Acquisition/New Business Support
. Country Specific Education
. English as a Second Language Training
. Benefits Processing
. Leadership Training
. Travel Services
. Payroll Services
. EARS Support
. Labor Relations
. Expatriate Administration
. Compensation Administration
The monthly per person rate for performing these tasks for USI is $93.10.
ASIA PACIFIC
- ------------
The pricing methodology in the Asia Pacific region is based on two components.
The first component is the plan costs (as opposed to the administrative costs to
run the plans). These costs are IB Services and will be billed directly through
the local financial or human resource systems to the FIDs that have employees.
The costs include governmental taxes and benefits including pension benefits.
The second component of the Asia Pacific regional pricing methodology is the
administrative costs of the Human Resource departments in each country. This
will be billed as a monthly rate per person. Each country will provide the
following services to the extent offered to other EDS employees in that country.
13
<PAGE>
. Staffing
. Employee Communications
. Country Specific Education
. Transition/Acquisition/New Business Support
. English as a Second Language Training
. Benefits Processing
. Leadership Training
. Payroll Services
. Compensation Administration
. Labor Relations
. Expatriate Administration
The monthly per person rate for providing these tasks to USI will be $120.32.
SOUTH AND CENTRAL AMERICA
- -------------------------
The pricing methodology in the South and Central America region is based on two
components.
The first component is the plan costs (as opposed to the administrative costs to
run the plans). These costs are IB Services and will be billed directly through
the local financial or human resource systems to the FIDs that have employees.
The costs include governmental taxes and benefits including pension benefits.
The second component of the South and Central America regional pricing
methodology is the administrative costs of the Human Resource departments in
each country. This will be billed as a monthly rate per person. Each country
will provide the following services to the extent offered to other EDS employees
in that country.
. Staffing
. Employee Communications
. Transition/Acquisition/New Business Support
. Benefits Processing
. Compensation Administration
. Country Specific Education
. Payroll Services
. English as a Second Language Training
. Leadership Training
. Labor Relations
. Expatriate Administration
The monthly per person rate for providing these tasks to USI is $79.14.
CANADA
- ------
The pricing methodology for Canada is based on two components.
The first component is the plan costs (as opposed to the administrative costs to
run the plans). These costs are IB Services and will be billed directly through
the local financial or human resource systems to the FIDs that have employees.
The costs include governmental taxes and benefits including pension benefits.
The second component of the Canada pricing methodology is the administrative
costs of the Human Resource department in Canada. This will be billed as a
monthly rate per person. Canada Human Resources will provide the following
services to the extent offered to other EDS employees within Canada:
14
<PAGE>
. Staffing
. Employee Communications
. Transition/Acquisition/New Business Support
. Country Specific Education
. Leadership Training
. Expatriate Administration
. Benefits Processing
. Payroll Service
. Labor Relations
. Compensation Administrator
The monthly per person rate for providing these tasks to USI will be $89.65.
MEXICO
- ------
The billing methodology for Mexico is based on two components.
The first component is the plan costs (as opposed to the administrative costs to
run the plans). These costs are IB Services and will be billed directly through
the local financial or human resource systems to the FIDs that have employees.
The costs include governmental taxes and benefits including pension benefits.
The second component of the Mexico pricing methodology is the administrative
costs of the Human Resource department in Mexico. This will be billed as a
monthly rate per person. Mexico Human Resources will provide the following
services to the extent offered to other EDS employees within Mexico:
. Staffing
. Labor Relations
. Transition/Acquisition/New Business Support
. Country Specific Education
. Benefits Processing
. Leadership Training
. Compensation Administration
. Expatriate Administration
The monthly per person rate for providing these tasks to USI is $81.66. This
rate does not include Corporate Apartments, Physical Security, and Facility
Services which will be retained by the EDS Mexico SU.
A summary of the rates for Employee Administration are as follows:
SUMMARY MONTHLY RATE
------- ------------
Employee Administration - Europe $ 93.10 per person
Employee Administration - US $ 30.06 per person
Employee Administration - Asia Pacific $120.32 per person
Employee Administration - South & Central America $ 79.14 per person
Employee Administration - Canada $ 89.65 per person
Employee Administration - Mexico $ 81.66 per person
PRICE BASIS: Each of the tasks described above will be performed on a per
person basis. The price is based on EDS Employee Administration costs. The
estimated 1998 costs for these tasks are $1,279,200.
15
<PAGE>
SCHEDULE VII
FINANCE: CONTROLLER OF EUROPE, AMERICAS, & ASIA PACIFIC
DESCRIPTION OF SERVICES:
1) The Controller organization will in the countries in which USI operates
provide accounting services to specified USI entities, which will be comprised
of the following: .
Generally, maintenance of proper books of account and records, in accordance
with local law and accounting requirements, including
. Regular and timely Balance Sheet reconciliations for centrally
controlled accounts (i.e Cash, Accounts Receivable-Billed, Payroll,
Fixed Assets Control Accounts etc). USI financial staff have the
responsibility to provide EDS staff with regular, adequate, and timely
backup and account reconciliations for "Operations account balances"
(such as Accrued Revenue, Accrued Expenses, etc). EDS staff will have
final responsibility for maintaining proper books of account.
. Reporting local currency results in accordance with US GAAP into the
EDS Corporate Reporting records
. Provides USI appropriate access to all of the EDS accounting and
reporting systems
. Adequate documentation, where agreed, to support billings made to USI
for services provided under this section of the agreement
2) EDS will, in all counties in which USI operates, provide additional
services known as " Shared Financial Services for Europe, Americas and Asia
Pacific" comprising the following:
. Accounts Receivable Support (Billing support, maintaining customer
accounts, collections)
. Maintenance of Fixed Asset Records
. Accounts Payable Support (Recording and payment of vendor invoices and
maintaining vendor accounts)
. Paying USI employees' salaries and related payments on time and in
accordance with local law, based on information provided by USI
management.
. Preparing and filing of local sales and social security tax returns
(for example, VAT and payroll taxes), on time and in accordance with
local law.
. Preparation and filing of annual statutory financial statements, in
accordance with local law
Note: USI staff will be responsible for providing all information required
for these services to be performed in a timely manner, including, for
example, approval authority levels, salary data, and billing data. USI
staff will be responsible for approving vendor invoices, customer
credit memos, and employee payments of any kind.
Note: Where today the preparation of local tax returns and/or statutory
financial statements is not carried out by EDS staff, USI will be
responsible for the additional cost of such preparation.
PRICE BASIS: The costs for 1998 for these services will be $850,000 collectively
for Europe, Asia Pacific and the Americas. The charge will be invoiced monthly
during the calendar year. The 1999 costs will be determined based, among other
matters, on accounting systems to be used. EDS will not support the MSA
accounting and related systems in 1999. Any change in accounting systems used
to provide the above services may result in a change in the cost to provide such
services.
16
<PAGE>
SCHEDULE VIII
LEGAL
DESCRIPTION OF SERVICES: Tasks will consist of the rendering of professional
legal services for matters in the listed below. The delivery of services, or the
withdrawal of any of member of the EDS Legal Affairs professional staff from the
delivery of services under this provision, as well as the price for services, is
in all cases subject to the professional and ethical standards imposed on
individuals engaged in the practice of law in the jurisdictions where services
are rendered.
1. Legal advice and consulting in the following practice areas on matters
concerning or related to the sale and delivery of USI's products and
services:
. Commercial Transaction Law, limited to:
New Business Development
Customer Contract Formation
Customer Contract Performance
. Corporate Law, limited to:
Mergers and Acquisitions
Real Estate
Corporate and Securities Law Compliance
Equipment Finance and Equipment Leasing
Hart-Scott-Rodino Antitrust Improvements Act compliance
International transactions
. Import and Export Law, limited to
Import of product, data, and intellectual property
Export of product, data, intellectual property
. Intellectual Property Law, limited to
Patent Review and Application
Copyright
Product Licensing
. Commercial Litigation, limited to
Pre-litigation advice and consultation
. Employment and Labor Law, limited to
Pre-litigation advice and consultation
Advice and consultation regarding other practice areas may be provided on
an "as available basis" at the sole discretion of EDS' Legal Affairs
division. The foregoing services are limited to advice and consultation.
It is not intended that these services will extend to representation of USI
beyond such advice and consultation of USI in connection with transactional
matters, such as mergers, acquisitions, dispositions, joint ventures or
commercial contracting, litigation or governmental proceedings or
investigations, financing transactions, or the establishment or amendment
of benefit plans.
2. Selection, retention, and oversight of outside counsel when a request is
subcontracted to outside counsel. Legal advice and consultation in the
foregoing practice areas may be subcontracted by EDS Legal Affairs as it
deems necessary.
17
<PAGE>
3. Selection retention and oversight of outside counsel when the legal
services requested or required are outside the scope of the practice areas
described above.
4. Corporate secretarial services for USI and any subsidiaries incorporated in
the U.S., limited to:
Administration of minute books
State corporate qualifications, withdrawals, name changes and assumed
name filings.
Outside counsel shall be retained at the discretion EDS Legal Affairs
considering the nature, practice area, complexity, and schedule for the legal
services requested or needed by USI.
USI shall designate a limited number of executives, not to exceed three, who
shall be authorized to request the services described on this Schedule, and EDS
Legal Affairs shall designate a point of contact for USI in each subject matter
area of service described on this Schedule.
PRICE BASIS: The price for the foregoing services described in 1 through 3
above shall be $175,000 per year, which hall be prorated and billed in 12 equal
monthly amounts. Such rate is based on 1,500 hours of professional consultation
and advice from EDS Legal Affairs staff, including hours spent in supervision of
outside counsel, plus an estimate for corporate secretarial services. EDS Legal
Affairs shall not be obligated to provide services in excess of 1,500 hours per
year.
Fees and other costs related to the services provided by outside counsel shall
be the sole responsibility of USI and shall billed by the provider to USI and
paid by USI direct to the provider.
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<PAGE>
SCHEDULE IX
GLOBAL PURCHASING GROUP
DESCRIPTION OF SERVICES: The services to be performed by EDS Global Purchasing
Group will consist of the following:
. Management of supplier relationships.
. Maintenance of day to day operations and processes.
. Strategically source the number and geographic capabilities of
suppliers for all commodities and services for EDS and its customers.
. Lead purchasing with best practice processes and technology.
. Provide volume based discounts.
. Negotiate purchasing agreements.
. Staffing for new business.
PRICE BASIS: These tasks will be billed on both a fixed price and usage based
rate. The fixed price rate for 1998 will equal $210,600 (determined based on 2
FTE's at a cost of $65,000 per FTE ($130,000) and a fee of .2% of USI's 1997
expenses ($80,600)). The usage based rate will equal $3.90 per purchase order
(based on an estimated 2,557 purchase orders per month) the usage based
component of the 1998 charge for purchasing services would equal $119,668.
Based on such estimated usage-based charges, estimated 1998 costs would equal
$330,268.
The foregoing rates are based on EDS Global Purchasing Group costs. The charges
will be invoiced monthly during the calendar year.
Third Party License Agreements: During 1998, USI will pay EDS $100,000 per year
as consideration for the usage of any products under EDS' License Agreement with
Computer Associates Inc. Future costs beyond 1998 will be determined by EDS and
USI based on USI's usage of products under that License Agreement. For other
third party license agreements, to the extent USI utilizes any products
thereunder USI and EDS will agree upon the price to be paid by USI to EDS based
on USI's usage and the market price of the product.
19
<PAGE>
SCHEDULE X
REAL ESTATE
DESCRIPTION OF SERVICES: EDS Corporate Real Estate will provide Project
Management, Proposal Support, Contract Closedown, Due Diligence, Interior
Design, Facility Management, Engineering, Lease Audit, and Technical Facility
Design services to USI:
The tasks to be performed by EDS Corporate Real Estate will consist of the
following:
. Provide comprehensive services to locate, lease, and outfit space
. Provide real estate project management from identifying project to
move in
. Provide information necessary to support business proposals
. Provide support to close facilities
. Conduct research and analysis of real estate documents and issues to
assist in making decisions regarding potential acquisitions involving
lease or owned facilities
. Establish standard and layouts for optimum space utilization based on
account needs
. Coordinate the acquisition, installation, rehabilitation, and disposal
of all furniture
. Provide building maintenance and repair, building engineering,
janitorial, warehousing support, consulting, vending and food services
for occupancy pools
. Provide consulting services related to analysis of soils, structures,
environmental issues, hazardous materials, power and a/c requirements
and assessment of new technology in the construction industry
. Provide overall lease administration
. Review landlord operating expenses to ensure compliance with lease
agreement
. Review all existing and new contracts to ensure insurance requirements
are being met
. Review existing utility rates and negotiate with local utilities for
maximum cost savings
PRICE BASIS: The tasks to be performed are usage-based. The monthly invoiced
amount will be the product of the EDS Corporate Real Estate's hourly rate of $50
and the billable hours required to perform the tasks described above. The
charges for the Corporate Real Estate Service will be invoiced monthly.
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<PAGE>
SCHEDULE XI
SHARED FINANCIAL SERVICES - US ONLY
DESCRIPTION OF SERVICES: EDS Shared Financial Services will provide the
following services in the United States:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SERVICES PROVIDED TO USI
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
EMPLOYEE EXPENSE/ADVANCE Payment of employee expense reports and advances. Control of accounting
records and monthly close activities. Providing help desk assistance and
fulfillment of record retention requirements.
- ----------------------------------------------------------------------------------------------------------------------
PURCHASE ORDER PAYMENT Payment of PO based transactions for services/equipment provided by vendors.
The control of accounting records, capital project expenditures and monthly
close activities. Providing help desk assistance and fulfillment of record
retention requirements.
- ----------------------------------------------------------------------------------------------------------------------
SUNDRY INVOICE PAYMENT The payment of non-purchase order based transactions for services or equipment
provided by vendors. The control of accounting records and monthly close
activities. Providing help desk assistance and fulfillment of record
retention requirements.
- ----------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT Capital Assets: Set up and maintenance of items meeting capital asset
criteria. The control of accounting records and monthly close activities.
Providing help desk assistance and fulfillment of record retention
requirements.
INVENTORY MANAGEMENT: The tracking of non-resale inventory items and the
reconciliation of physical inventory to inventory records.
RENT AND LEASE MAINTENANCE ITEM MANAGEMENT: The tracking and maintenance of
records for rented and leased items with maintenance agreements.
- ----------------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE The recording and monitoring of customer receivables. The control of
accounting records and monthly close activities. Providing help desk
assistance and fulfillment of record retention requirements.
- ----------------------------------------------------------------------------------------------------------------------
COLLECTIONS The activities associated with the investigation and collection of past due
and aging accounts receivables.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PRICE BASIS: The rates for performing the tasks to USI are shown in the
following schedule.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PROCESS 1998 COST PER UNIT CURRENT USI
USAGE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Management $0.24 Active Asset 5,868
- -----------------------------------------------------------------------------------------------------------
PO Payment (1)
- -----------------------------------------------------------------------------------------------------------
Sundry Payment $1.48 Payment 474
- -----------------------------------------------------------------------------------------------------------
Expense Report Payment $2.13 Expense Report 1,000
- -----------------------------------------------------------------------------------------------------------
Receivables $2.82 Customer Invoice 4,800
- -----------------------------------------------------------------------------------------------------------
Collections $4.39 Past Due Invoice 2,500
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Payments for purchase orders will be governed under the purchasing services
provided pursuant to Schedule IX
PRICE BASIS: The tasks to be performed are usage-based. The monthly invoiced
amount will be the product of the EDS Shared Financial Services rates and the
volume of the tasks performed. The usage based services will be invoiced
monthly. In 1998, the estimated costs for these services is $345,000.
21
<PAGE>
SCHEDULE XII
EMPLOYEE RELATIONS
Employee Relations will provide the following services to USI:
. Develop and submit government reporting to include the VETS 100, EEO
1s, and the Affirmative Action Plans (AAPs)
. Employee Relations shall provide consulting on AAP, Wage and Hour ,
and EEO compliance.
. Employee Relations shall provide support with charges of
discrimination or related governmental audits.
PRICE BASIS: The charge for the above services will be $1,000 per month, plus
costs of any travel related expenses incurred in support of such services.
22
<PAGE>
SCHEDULE XIII
IB SERVICES
Mantime and Infrastructure Services:
The following services represent mantime and infrastructure services provided to
USI by EDS. These services are project oriented and are initiated at the field
level to meet specific project needs or to leverage EDS systems and/or
expertise. Rates and terms for these engagements will be established and
maintained at the field level.
Mantime
. Technical Project Support Technical Resources for Unigraphics and
IMAN customer projects
. Operations Support of St. Louis Data Center and
Client server support
. Industry Services Support Technical Support of Commercial Sales
activities
Infrastructure & Communications
. US LAN connectivity & management for St.
Louis office and EDS*LINK backbone USI
will continue to have interconnects
between the USI private network and the
corporate network.
. Non US WAN/LAN connectivity & management for
USI's non-US offices. EDS is providing
EDS*LINK backbone and EDS*LAN network
connectivity to these offices.
. Systems Use of EDS Purchasing system (RADS,
PICS) and EDS Administrative Electronic
Forms and Email system (Officevision)
Employee Administration:
The costs outlined below assume that all worldwide USI employees will stay on
EDS human resource systems, benefits, and programs.
Retirement Plan A monthly charge of 3.5% of the yearly
earnings of the employees for the
Retirement Plan.
Health Plan A monthly charge of $300 per person will
be charged directly to the FID that
receives the employee's salary via the
payroll system. This charge includes the
corporate cost for Medical, Dental, Life
Insurance, Personal Accident Insurance,
Disability Insurance, the Employee
Assistance Program, and the Adoption
Assistance Program.
Payroll Taxes Charges for FICA, FUTA, and SUTA will be
accessed by the payroll system to each
FID that has employees based on their
salary and location.
Stock Purchase An amount equal to 15% of the fair
market price of EDS stock when purchased
by USI employees through the Stock
Purchase Plan will be charged via
Intercompany bill on a monthly basis.
The amount will depend upon the stock
price and the employee participation in
the plan.
Relocation Program The administrative costs are outlined in
Schedule VI above and will be a per
relocation rate.
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<PAGE>
Expatriate Program The actual costs associated with an
expatriate employee based on the package
given by the employee's leader will be
charged directly to the appropriate FID.
This includes US employees going on
assignment outside the US and vice
versa. The costs include the salary,
benefits, and taxes for the employee as
well as the tax return preparation for
US and in-country governments of $2,600
to $3,000 per expatriate. THE
ADMINISTRATIVE COSTS AND THE MONTHLY
CHARGES PER PERSON ARE OUTLINED IN
SCHEDULE VI.
PerformanceShare USI employees who currently hold a
PerformanceShare may continue to hold
such benefit in accordance with the
terms of that plan (however, they may
not be eligible for any future grants).
The employee FICA taxes associated with
the W-2 earnings created due to the
difference between the grant price and
the exercise price per share will be
charged at a corporate level as each
employee exercises their stock options.
The expense for USI employees will be
borne by EDS.
Other Any compensation (including, without
limitation, salary, bonus or equity
incentive compensation) paid by EDS to
USI employees on behalf of USI shall be
treated as an IB Service and billed to
USI.
24
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EXHIBIT 10.4
INTERCOMPANY CREDIT AGREEMENT
-----------------------------
This INTERCOMPANY CREDIT AGREEMENT (the "Agreement") by and between
Electronic Data Systems Corporation, a Delaware corporation ("EDS"), and
Unigraphics Solutions Inc., a Delaware corporation ("USI"), is dated to be
effective as of January 1, 1998.
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings:
(a) "Advance" means an advance by EDS or USI, as applicable, pursuant to
Section 2.01 or 2.02, which shall include, without limitation,
advances by EDS to USI or on behalf of USI and amounts owed by USI for
fees, costs and expenses under the Management Services Agreement.
(b) "EDS Balance" means, with respect to an Interest Period, the net daily
balance of funds owed by EDS to USI as set forth in the intercompany
account maintained by EDS pursuant to Section 2.05 hereof.
(c) "Interest Period" means each calendar month ending after the date of
this Agreement and prior to the termination of this Agreement and any
portion of a calendar month during which this Agreement terminates.
(d) "Interest Rate" has the meaning ascribed to it in Section 2.03.
(e) "LIBID" shall mean LIBOR, minus 0.125%.
(f) "LIBOR" means the Official British Bankers' Association one month U.S.
LIBOR Fixings at 11:00 a.m. London time, as reported on Bloomberg.
LIBOR shall be determined monthly, on the first business day of each
month, which rate shall be applicable for such month.
(g) "Management Services Agreement" means the Management Services
Agreement effective as of January 1, 1998, between EDS and USI, as it
may be amended from time to time. If the Management Services
Agreement is terminated prior to the termination of this Agreement,
any references to the Management Services Agreement after the
termination of the Management Services Agreement shall mean the
version of the Management Services Agreement in effect immediately
prior to the termination of the Management Services Agreement.
<PAGE>
(h) "USI Balance" means, with respect to an Interest Period, the net daily
balance of funds owed by USI to EDS as set forth in the intercompany
account maintained by EDS pursuant to Section 2.05 hereof.
ARTICLE II
ADVANCES
SECTION 2.01. Advances from USI to EDS. Any funds of USI and its U.S.
subsidiaries that are not required to meet the daily cash requirements of USI
and its U.S. subsidiaries will be transferred to EDS as an Advance hereunder
and/or applied to decrease the outstanding balance of Advances from EDS pursuant
to Section 2.02, as applicable. Any funds transferred from USI to EDS will be
deemed as either an Advance to EDS, if there are no outstanding Advances from
EDS to USI, OR a decrease of Advances from EDS to USI, if such Advances exist.
Any interest payable by EDS on an Advance from USI (other than interest payable
upon or after termination of this Agreement) shall be treated (effective as of
the first day of the following Interest Period) as an Advance from USI for the
purposes of this Agreement. Each Advance by USI under this Section 2.01 shall
be deemed to be made by USI notwithstanding the fact that such Advance may
involve cash of one or more U.S. subsidiaries of USI.
SECTION 2.02. Advances from EDS to USI. Any funds needed by USI and its
U.S. subsidiaries in order to meet daily cash requirements of USI and its U.S.
subsidiaries will be advanced by EDS. In addition, subject to repayment as
provided in Section 2.04, EDS will advance funds hereunder to USI in the amount
of $107,000,000 in connection with the Solid Edge Transaction (herein so
called). The outstanding balance of all Advances from EDS to USI and all of its
subsidiaries (including its non-U.S. subsidiaries that are parties to credit
arrangements with EDS Finance plc) shall never exceed (i) $177,000,000 in the
aggregate at any time prior to an initial public offering of stock of USI and
repayment of Advances made to USI for the Solid Edge Transaction, or (ii)
$70,000,000 in the aggregate at any time thereafter. Any funds transferred from
EDS to USI will be deemed as either an Advance to USI, if there are no
outstanding Advances from USI to EDS, OR a decrease of the Advances from USI, if
such Advances to EDS exist. Any interest payable by USI on an Advance from EDS
(other than interest payable upon or after termination of this Agreement) shall
be treated (effective as of the first day of the following Interest Period) as
an Advance from EDS for the purposes of this Agreement. Interest that accrues
after the maximum borrowing amount has been reached shall be considered an
Advance notwithstanding the limits set forth in this Section. Each Advance by
EDS under this Section 2.02 shall be deemed made by EDS notwithstanding the fact
that such Advance may involve cash of one or more subsidiaries of EDS.
SECTION 2.03. Interest.
(a) Subject to the other provisions of this Section 2.03, interest shall
accrue at the applicable interest rates set forth in Sections 2.03(c)
and 2.03(d) below (each an "Interest Rate"). Interest shall be
calculated on the basis of a 360 day year for the actual number of
days elapsed. Interest payments for Interest Periods ending (i) prior
to the termination of this Agreement shall be treated as Advances
pursuant
2
<PAGE>
to Sections 2.01 and 2.02 herein, as applicable, on the first day of
the following Interest Period and (ii) on the termination of this
Agreement shall be payable not later than the 15th day following the
termination of this Agreement (each an "Interest Payment").
Outstanding Advances and Interest Payments for the final Interest
Period not repaid when they become due and payable upon the
termination of this Agreement as provided in Section 3.03 shall bear
interest from and after the required date of payment to the date of
payment at an annual rate of 18% (or, if lower, the highest lawful
rate).
(b) The interest payable by EDS under this Agreement shall be calculated
by multiplying the Interest Rate specified in Section 2.03(c) hereof
by the EDS Balance for the applicable days in the Interest Period.
The interest payable by USI under this Agreement shall be calculated
by multiplying the Interest Rate specified in Section 2.03(d) hereof
by the USI Balance for the applicable days in the Interest Period.
The Interest Payment required to be made by each party is independent
of the Interest Payment required to be paid by the other party, and
interest may be paid by both EDS and USI for any given Interest
Period. EDS shall calculate the amount of interest payable by both
EDS and USI for each Interest Period and, upon request, shall provide
notice thereof to USI, together with supporting calculations.
(c) The Interest Rate per annum applicable to Advances from USI to EDS
outstanding during an Interest Period shall equal LIBID, minus 0.50%.
(d) The Interest Rate per annum applicable to Advances from EDS to USI
outstanding during an Interest Period shall equal LIBOR, plus 0.50%.
(e) All calculations shall be performed by EDS and shall be subject to
the dispute resolution mechanisms set forth in Section 3.01.
SECTION 2.04. Repayment. During the term of this Agreement, all Advances
received by either party under this Agreement shall be offset against and shall
be treated as repaid to the extent of any Advances made by such party to the
other party. Repayments can be made at any time by either party with interest
payable up to the date of repayment. No prepayment penalty may be levied. Upon
termination of this Agreement, any Advances that have not theretofore been
repaid, together with accrued interest, will be payable in full not later than
the 15th day following termination of this Agreement. Upon consummation of a
public offering of stock of USI, all outstanding Advances made hereunder by EDS
to USI for the Solid Edge Transaction, together with accrued interest, will be
due and payable in full.
SECTION 2.05. Intercompany Account. EDS shall maintain a ledger in which
all EDS Advances and USI Advances and all repayments of such Advances shall be
recorded. EDS shall give USI access, during normal business hours, to such
ledger and the other records relating to Advances and payments made with respect
thereto. EDS shall have until the 30th day following
3
<PAGE>
the end of each Interest Period to make any calculations required to be made by
it under the provisions of this Agreement.
SECTION 2.06. Requests for Advances. Notice of a request for an Advance
hereunder (other than Advances made by EDS to USI through intercompany accounts)
to meet the daily cash requirements of USI and its wholly owned U.S.
subsidiaries will be made pursuant to a form and instructions provided
separately by EDS. Advances will be made according to a schedule to be agreed
between the parties.
SECTION 2.07. Transfers of Funds. All transfers of funds between EDS and
USI will be initiated by EDS Treasury. All funds will be transferred through
intercompany accounts, or as otherwise agreed by the parties.
SECTION 2.08 Taxes. If USI or EDS shall be required by law to deduct any
tax from or in respect of any sum payable hereunder to the other party:
(a) as soon as such party is aware that any such deduction, withholding or
payment of a tax is required, or of any change in any such
requirement, it shall notify the other party;
(b) such party shall make such deductions, or pay such tax, before any
interest or penalty becomes payable;
(c) such party shall pay the full amount deducted to the relevant taxing
authority or other authority in accordance with applicable law; and
(d) within thirty (30) days after paying such tax, such party shall
deliver to the other party satisfactory evidence of that deduction,
withholding or payment and (where remittance is required) of the
remittance thereof to the relevant taxing or other authority.
SECTION 2.09. Requirement to Borrow. USI shall not borrow any funds from
any person other than EDS in order to satisfy its financial requirements unless
such borrowing is either consented to by EDS in writing or EDS has not provided
the funds under this Agreement.
SECTION 2.10. Usury. All agreements between the parties, whether now
existing or hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason of demand for payment or acceleration
of the maturity hereof or otherwise, shall the interest contracted for, charged
or received by either party exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, interest would otherwise
be payable to either party in excess of the maximum lawful amount, the interest
payable to such party shall be reduced to the maximum amount permitted under
applicable law; and if from any circumstance either party shall ever receive
anything of value deemed interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive interest shall be applied to the
reduction of the principal hereof and not to the payment of
4
<PAGE>
interest, or if such excessive interest exceeds the unpaid balance of principal
hereof such excess shall be refunded to the party deemed to have made such
payment. All interest paid or agreed to be paid to either party shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full period until payment in full of the principal
(including the period of any renewal or extension hereof) so that the interest
hereon for such full period shall not exceed the maximum amount permitted by
applicable law. This paragraph shall control all agreements between the parties.
ARTICLE III
ADMINISTRATION
SECTION 3.01. Disputes. All disputes under this Agreement shall be
handled in the manner provided for in Article 16 of the Management Services
Agreement.
SECTION 3.02. Limitations on Liability. Neither party shall have any
liability under this Agreement (including any liability for its own negligence)
for damages, losses or expenses (including expenses or higher interest rates
incurred in order to obtain alternative financing sources) suffered by the other
party or its subsidiaries as a result of the performance or non-performance of
such party's obligations hereunder, unless such damages, losses or expenses are
caused by or arise out of the willful misconduct or gross negligence of such
party or a breach by such party. In no event shall either party have any
liability to the other party for indirect, incidental or consequential damages
that such other party or its subsidiaries or any third party may incur or
experience on account of the performance or non-performance of such party's
obligations hereunder. The provisions of this Section 3.02 shall survive any
termination of this Agreement.
SECTION 3.03. Term of the Agreement. This Agreement commences on the
effective date of this Agreement as set forth above and will continue in effect
until 11:59 p.m., Central Time, on December 31, 2002. Notwithstanding the
foregoing, this Agreement may be sooner terminated, without liability to the
terminating party:
(a) by either party, upon 30 days' notice to the other party, if EDS
ceases to own, directly or indirectly, 51% or more of the stock of
USI.
(b) by either party, immediately upon notice to the other party, if
(i) that other party makes a general assignment of all or
substantially all of its assets for the benefit of its
creditors;
(ii) that other party applies for, consents to or acquiesces in the
appointment of a receiver, trustee, custodian or liquidator for
its business or all or substantially all of its assets;
(iii) that other party files, or consents to or acquiesces in a
petition seeking relief or reorganization under any bankruptcy
or insolvency laws; or
5
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(iv) a petition seeking relief or reorganization under any bankruptcy
or insolvency laws is filed against that other party and is not
dismissed within 90 days after it was filed.
(c) by either party, immediately upon notice to the other party, if that
other party's material breach of this Agreement continues uncured or
uncorrected for 30 days after both the nature of that breach and the
necessary cure or correction has been agreed upon by the parties or
otherwise determined by the dispute resolution procedure described in
Section 3.01; provided that if the parties agree or it is determined
by the dispute resolution procedure that the material breach is not
capable of being cured or corrected, the termination shall be
effective immediately upon notice.
(d) by either party, immediately upon notice to the other party, if it
determines that performance of its rights or obligations under this
Agreement is or becomes illegal.
(e) by either party, immediately upon notice to the other party, if
payments made by the other party are subject to any deduction or
withholding for or on account of any tax, unless the other party
agrees to increase its payments such that, after all required
deductions have been made, the party receives a net amount equal to
the sum it would have received had no such deductions been made.
(f) by either party, immediately upon notice to the other party, if it
determines that its compliance with any law or regulation or any
guideline or request from any central bank or governmental or
regulatory authority would create a cost or increase the cost of
providing credit under this Agreement, unless the other party agrees
to pay amounts sufficient to indemnify for such cost or increase in
cost.
(g) by either party, immediately upon notice to the other party, if the
Management Services Agreement has been terminated.
SECTION 3.04. Renewal. The parties may consent to successive one-year
renewal terms by following this procedure: If USI wishes to renew the term of
this Agreement, it shall provide notice to EDS of that intention by September
30, 2002 and the same date of each subsequent year. If EDS wishes to concur
with that renewal, it shall provide notice to USI of that concurrence by October
31 of that year. If no notice of intent to renew or no concurrence is given,
this Agreement will terminate when the then current term expires.
SECTION 3.05. Confidentiality. Confidentiality of matters will be
maintained in the manner set forth in Article 10 of the Management Services
Agreement.
SECTION 3.06. Successors and Assigns. Matters regarding succession and
assignment shall be determined in the manner set forth in the Management
Services Agreement.
6
<PAGE>
SECTION 3.07. No Third-Party Beneficiaries. Nothing expressed or implied
in this Agreement shall be construed to give any person or entity other than the
parties hereto any legal or equitable rights hereunder.
SECTION 3.08. Entire Agreement. This Agreement constitutes the entire
agreement of the parties on this subject, except that any administrative matters
not addressed herein shall be addressed in the manner set forth in the
Management Services Agreement. This Agreement replaces and supersedes any prior
agreement or understanding of the parties, whether written or oral, on this
subject not expressed or referred to in this Agreement.
SECTION 3.09. Amendment. This Agreement may not be amended except by a
written instrument signed by the parties hereto.
SECTION 3.10. Waivers. Either party hereto may (a) extend the time for
performance of any of the obligations or other act of the other party or (b)
waive compliance with any of the agreements contained herein. No waiver of any
term shall be construed as a waiver of the same term in any other situation or a
waiver of any other term of this Agreement. The failure of any party to assert
any of its rights hereunder will not constitute a waiver of any such rights.
SECTION 3.11. Severability. If any provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, such provision shall be deemed severable and all other provisions of
this Agreement shall nevertheless remain in full force and effect.
SECTION 3.12. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
SECTION 3.13. Notices. All notices required hereunder shall be given in
the manner set forth in Article 18 of the Management Services Agreement.
SECTION 3.14. Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of Texas, without
giving effect to any choice-of-law rules that may require the application of the
laws of another jurisdiction.
SECTION 3.15. Counterparts. This Agreement may be signed in any number of
counterparts, with the same effect as if all signatories had signed the same
document. All counterparts shall be construed together to constitute one, and
the same, document.
7
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IN WITNESS WHEREOF, EDS and USI have caused this Agreement to be executed
as of the date first above written.
ELECTRONIC DATA SYSTEMS CORPORATION
By: /s/ D. Gilbert Friedlander
--------------------------------
Name: D. Gilbert Friedlander
------------------------------
Title: Senior Vice President
-----------------------------
UNIGRAPHICS SOLUTIONS INC.
By: /s/ H. Timothy Hatfield
-------------------------------
Name: H. Timothy Hatfield
-----------------------------
Title: Vice President
----------------------------
8
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EXHIBIT 10.5
INTERCOMPANY CREDIT AGREEMENT
-----------------------------
This INTERCOMPANY CREDIT AGREEMENT (the "Agreement") by and between EDS
FINANCE PLC ("EDSF"), a public limited company organized under the laws of
England, and UNIGRAPHICS SOLUTIONS __________ ("US"), a company organized under
the laws of ___________, is dated to be effective as of January 1, 1998.
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings:
(a) "Advance" means an advance by EDSF or US, as applicable, pursuant to
Section 2.01 or 2.02, which shall include, without limitation,
advances by EDSF to US or on behalf of US and amounts owed by US for
fees, costs and expenses under the Management Services Agreement.
(b) "EDSF Balance" means, with respect to an Interest Period, the net
daily balance of funds owed by EDSF to US as set forth in the
intercompany account maintained by EDSF pursuant to Section 2.06
hereof.
(c) "Interest Period" means each monthly period ending after the date of
this Agreement and prior to the termination of this Agreement and
any portion of a monthly period during which this Agreement
terminates.
(d) "Interest Rate" has the meaning ascribed to it in Section 2.04.
(e) "Eurodeposit Bid Rate" means the rate bid for one-month deposits in
the London interbank market as reported on Reuters on the last day
of each Interest Period, or if a rate is not available on Reuters, a
rate for similar deposits of similar maturity in the London or
another market as determined by EDSF, which rate shall be applicable
for the next succeeding Interest Period.
(f) "Eurodeposit Offer Rate" means the rate offered for one-month
deposits in the London interbank market as reported on Reuters on
the last day of each Interest Period, or if a rate is not available
on Reuters, a rate for similar deposits of similar maturity in the
London or another market as determined by EDSF, which rate shall be
applicable for the next succeeding Interest Period.
(g) "Management Services Agreement" means the Management Services
Agreement effective as of January 1, 1998, between Electronic Data
Systems Corporation ("EDS") and Unigraphics Solutions, Inc. ("USI"),
as it may be
<PAGE>
amended from time to time. If the Management Services Agreement is
terminated prior to the termination of this Agreement, any
references to the Management Services Agreement after the
termination of the Management Services Agreement shall mean the
version of the Management Services Agreement in effect immediately
prior to the termination of the Management Services Agreement .
(h) "US Balance" means, with respect to an Interest Period, the net
daily balance of funds owed by US to EDSF as set forth in the
intercompany account maintained by EDSF pursuant to Section 2.06
hereof.
ARTICLE II
ADVANCES
SECTION 2.01. Advances from US to EDSF. Any funds of US that are not
required to meet the daily cash requirements of US will be transferred to EDSF
as an Advance hereunder and/or applied to decrease the outstanding balance of
Advances from EDSF pursuant to Section 2.02, as applicable. Any funds
transferred from US to EDSF will be deemed as either an Advance to EDSF, if
there are no outstanding Advances from EDSF to US, OR a decrease of Advances
from EDSF to US, if such Advances exist. Any interest payable by EDSF on an
Advance from US (other than interest payable upon or after termination of this
Agreement) shall be settled by an Advance from US without movement of funds,
unless physical settlement is required by law or regulation. If interest
payable is required to be settled by movement of funds, EDSF will make the
necessary payment pursuant to Section 2.04(a) herein and US will immediately
repay the funds to EDSF as an Advance from US to the extent they are not
required to meet its daily cash requirements.
SECTION 2.02. Advances from EDSF to US. Any funds needed by US in order to
meet its daily cash requirements will be advanced by EDSF; provided that the
outstanding balance of all Advances from EDS and EDSF to USI and all of its
subsidiaries (including its non-U.S. subsidiaries) shall never exceed (i)
$177,000,000 in the aggregate at any time prior to an initial public offering of
stock of USI and the repayment of Advances made to USI for the Solid Edge
Transaction, or (ii) $70,000,000 in the aggregate at any time thereafter. Any
funds transferred from EDSF to US will be deemed as either an Advance to US, if
there are no outstanding Advances from US to EDSF, OR a decrease of the Advances
from US, if such Advances to EDSF exist. Any interest payable by US on an
Advance from EDSF (other than interest payable upon or after termination of this
Agreement) shall be settled by an Advance from EDSF without movement of funds,
unless physical settlement is required by law or regulation. If interest
payable is required to be settled by movement of funds, EDSF will provide the
necessary funds by an Advance which US will immediately pay to EDSF pursuant to
Section 2.04(a) herein. Interest that accrues after the maximum borrowing
amount has been reached shall be considered an Advance notwithstanding the
limits set forth in this Section.
SECTION 2.03. Currency. The currency of all Advances will be ____________.
2
<PAGE>
SECTION 2.04. Interest.
(a) Subject to the other provisions of this Section 2.04, interest shall
accrue at the applicable interest rates set forth in Sections
2.04(c) and 2.04(d) below (each an "Interest Rate"). Interest shall
be calculated on the basis of a 365 day year for the actual number
of days elapsed. Prior to the termination of this Agreement,
interest payments shall be made pursuant to Sections 2.01 and 2.02
herein, as applicable, on the last business day of the last Interest
Period in each calendar quarter for each of the Interest Periods
ending during that quarter, except if interest payable is required
to be settled by movement of funds, interest payments shall be made
no later than the fifth business day of the following Interest
Period. Notwithstanding the foregoing, interest will first become
payable after the Interest Period ending in June 1998 for all
Interest Periods since the commencement of this Agreement. On the
termination of this Agreement, all unpaid interest for current and
prior Interest Periods, including interest to the date of payment,
shall become due and payable not later than the 15th day following
the termination of this Agreement. Outstanding Advances and
interest payments for Interest Periods not repaid when they become
due and payable upon the termination of this Agreement as provided
in Section 3.03 shall bear interest from and after the required date
of payment to the date of payment at an annual rate of Eurodeposit
Offer Rate plus 5% (or, if lower, the highest lawful rate).
(b) The interest payable by EDSF under this Agreement shall be
calculated by multiplying the Interest Rate specified in Section
2.04(c) hereof by the EDSF Balance for the applicable days in the
Interest Period. The interest payable by US under this Agreement
shall be calculated by multiplying the Interest Rate specified in
Section 2.04(d) hereof by the US Balance for the applicable days in
the Interest Period. The Interest Payment required to be made by
each party is independent of the Interest Payment required to be
paid by the other party, and interest may be paid by both EDSF and
US for any given Interest Period. EDSF shall calculate the amount
of interest payable by both EDSF and US for each Interest Period and
shall provide notice thereof to US, together with supporting
calculations.
(c) The Interest Rate per annum applicable to Advances from US to EDSF
outstanding during an Interest Period shall equal Eurodeposit Bid
Rate, minus 0.50%.
(d) The Interest Rate per annum applicable to Advances from EDSF to US
outstanding during an Interest Period shall equal Eurodeposit Offer
Rate, plus 0.50%.
(e) All calculations shall be performed by EDSF and shall be subject
to the dispute resolution mechanisms set forth in Section 3.01.
3
<PAGE>
SECTION 2.05. Repayment. During the term of this Agreement, all Advances
received by either party under this Agreement shall be offset against and shall
be treated as repaid to the extent of any Advances made by such party to the
other party. Repayments can be made at any time by either party with interest
payable up to the date of repayment. No prepayment penalty may be levied. Upon
termination of this Agreement, any Advances that have not theretofore been
repaid, together with accrued interest, will be payable in full not later than
the 15th day following termination of this Agreement.
SECTION 2.06 Intercompany Account. EDSF shall maintain a ledger in which
all EDSF Advances and US Advances and all repayments of such Advances shall be
recorded. EDSF shall give US access, during normal business hours, to such
ledger and the other records relating to Advances and payments made with respect
thereto. EDSF shall send to US at the end of each Interest Period a statement
indicating Advances between EDSF and US during the Interest Period, outstanding
Advances, interest payable or receivable for the Interest Period, and, at the
end of each calendar quarter, a debit or credit advice for any interest paid or
received during the Interest Period (or to be paid or received following the
Interest Period, as appropriate).
SECTION 2.07 Requests for Advances. A request for an Advance hereunder to
meet the daily cash requirements of US will be made pursuant to a form and
instructions provided separately by EDSF. Advances will be made according to a
schedule to be agreed between the parties, but no more frequently than once per
week.
SECTION 2.08 Transfers of Funds. All transfers of funds between EDSF and
US will be initiated by EDSF or as otherwise agreed by the parties.
SECTION 2.09 Taxes. If US or EDSF shall be required by law to deduct any
tax from or in respect of any sum payable hereunder to the other party:
(a) as soon as such party is aware that any such deduction, withholding
or payment of a tax is required, or of any change in any such
requirement, it shall notify the other party;
(b) such party shall make such deductions, or pay such tax, before any
interest or penalty becomes payable;
(c) such party shall pay the full amount deducted to the relevant taxing
authority or other authority in accordance with applicable law; and
(d) within thirty (30) days after paying such tax, such party shall
deliver to the other party satisfactory evidence of that deduction,
withholding or payment and (where remittance is required) of the
remittance thereof to the relevant taxing or other authority.
4
<PAGE>
SECTION 2.10. Requirement to Borrow. US shall not borrow any funds from
any person other than EDSF in order to satisfy its financial requirements unless
such borrowing is either consented to by EDSF in writing or EDSF has not
provided the funds under this Agreement.
SECTION 2.11. Usury. All agreements between the parties, whether now
existing or hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason of demand for payment or acceleration
of the maturity hereof or otherwise, shall the interest contracted for, charged
or received by either party exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, interest would otherwise
be payable to either party in excess of the maximum lawful amount, the interest
payable to such party shall be reduced to the maximum amount permitted under
applicable law; and if from any circumstance either party shall ever receive
anything of value deemed interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive interest shall be applied to the
reduction of the principal hereof and not to the payment of interest, or if such
excessive interest exceeds the unpaid balance of principal hereof such excess
shall be refunded to the party deemed to have made such payment. All interest
paid or agreed to be paid to either party shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full period until payment in full of the principal (including the period of any
renewal or extension hereof) so that the interest hereon for such full period
shall not exceed the maximum amount permitted by applicable law. This paragraph
shall control all agreements between the parties.
ARTICLE III
ADMINISTRATION
SECTION 3.01. Disputes. All disputes under this Agreement shall be handled
in the manner provided for in Article 16 of the Management Services Agreement.
SECTION 3.02. Limitations on Liability. Neither party shall have any
liability under this Agreement (including any liability for its own negligence)
for damages, losses or expenses (including expenses or higher interest rates
incurred in order to obtain alternative financing sources) suffered by the other
party or its subsidiaries as a result of the performance or non-performance of
such party's obligations hereunder, unless such damages, losses or expenses are
caused by or arise out of the willful misconduct or gross negligence of such
party or a breach by such party. In no event shall either party have any
liability to the other party for indirect, incidental or consequential damages
that such other party or its subsidiaries or any third party may incur or
experience on account of the performance or non-performance of such party's
obligations hereunder. The provisions of this Section 3.02 shall survive any
termination of this Agreement.
SECTION 3.03. Term of the Agreement. This Agreement commences on the
effective date of this Agreement as set forth above and will continue in effect
until 11:59 p.m., United States Central Time, on December 31, 2002.
Notwithstanding the foregoing, this Agreement may be sooner terminated, without
liability to the terminating party:
5
<PAGE>
(a) by either party, upon 30 days' notice to the other party, if EDS
ceases to own, directly or indirectly, 51% or more of the stock of
USI.
(b) by either party, immediately upon notice to the other party, if
(i) that other party makes a general assignment of all or
substantially all of its assets for the benefit of its
creditors;
(ii) that other party applies for, consents to or acquiesces in the
appointment of a receiver, trustee, custodian or liquidator
for its business or all or substantially all of its assets;
(iii) that other party files, or consents to or acquiesces in a
petition seeking relief or reorganization under any bankruptcy
or insolvency laws; or
(iv) a petition seeking relief or reorganization under any
bankruptcy or insolvency laws is filed against that other
party and is not dismissed within 90 days after it was filed.
(c) by either party, immediately upon notice to the other party, if that
other party's material breach of this Agreement continues uncured or
uncorrected for 30 days after both the nature of that breach and the
necessary cure or correction has been agreed upon by the parties or
otherwise determined by the dispute resolution procedure described
in Section 3.01; provided that if the parties agree or it is
determined by the dispute resolution procedure that the material
breach is not capable of being cured or corrected, the termination
shall be effective immediately upon notice.
(d) by either party, immediately upon notice to the other party, if the
Intercompany Credit Agreement between EDS and USI dated January 1,
1998 has been terminated.
(e) by either party, immediately upon notice to the other party, if it
determines that performance of its rights or obligations under this
Agreement is or becomes illegal.
(f) by either party, immediately upon notice to the other party, if
payments made by the other party are subject to any deduction or
withholding for or on account of any tax, unless the other party
agrees to increase its payments such that, after all required
deductions have been made, the party receives a net amount equal to
the sum it would have received had no such deductions been made.
(g) by either party, immediately upon notice to the other party, if it
determines that its compliance with any law or regulation or any
guideline or request from any central bank or governmental or
regulatory authority would create a cost or
6
<PAGE>
increase the cost of providing credit under this Agreement, unless
the other party agrees to pay amounts sufficient to indemnify for
such cost or increase in cost.
(h) by either party, immediately upon notice to the other party, if the
Management Services Agreement has been terminated.
SECTION 3.04. Renewal. The parties may consent to successive one-year
renewal terms by following this procedure: If US wishes to renew the term of
this Agreement, it shall provide notice to EDSF of that intention by September
30, 2002 and the same date of each subsequent year. If EDSF wishes to concur
with that renewal, it shall provide notice to US of that concurrence by October
31 of that year. If no notice of intent to renew or no concurrence is given,
this Agreement will terminate when the then current term expires.
SECTION 3.05. Confidentiality. Confidentiality of matters will be
maintained in the manner set forth in Article 10 of the Management Services
Agreement.
SECTION 3.06. Successors and Assigns. EDSF may assign its rights and
obligations under this Agreement to EDS. Any other matters regarding succession
and assignment shall be determined in the manner set forth in the Management
Services Agreement.
SECTION 3.07. No Third-Party Beneficiaries. Nothing expressed or implied
in this Agreement shall be construed to give any person or entity other than the
parties hereto any legal or equitable rights hereunder.
SECTION 3.08. Entire Agreement. This Agreement constitutes the entire
agreement of the parties on this subject, except that any administrative matters
not addressed herein shall be addressed in the manner set forth in the
Management Services Agreement. This Agreement replaces and supersedes any prior
agreement or understanding of the parties, whether written or oral, on this
subject not expressed or referred to in this Agreement.
SECTION 3.09. Amendment. This Agreement may not be amended except by a
written instrument signed by the parties hereto.
SECTION 3.10. Waivers. Either party hereto may (a) extend the time for
performance of any of the obligations or other act of the other party or (b)
waive compliance with any of the agreements contained herein. No waiver of any
term shall be construed as a waiver of the same term in any other situation or a
waiver of any other term of this Agreement. The failure of any party to assert
any of its rights hereunder will not constitute a waiver of any such rights.
SECTION 3.11. Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.
7
<PAGE>
SECTION 3.12. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
SECTION 3.13. Notices. All notices required hereunder shall be given in
the manner set forth in Article 18 of the Management Services Agreement.
SECTION 3.14. Governing Law. This Agreement shall be governed by and
construed in accordance with English law.
SECTION 3.15. Counterparts. This Agreement may be signed in any number of
counterparts, with the same effect as if all signatories had signed the same
document. All counterparts shall be construed together to constitute one, and
the same, document.
IN WITNESS WHEREOF, EDSF and US have caused this Agreement to be executed as
of the date first above written.
EDS FINANCE PLC
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
UNIGRAPHICS SOLUTIONS
------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
8
<PAGE>
EXHIBIT 10.6
PROMISSORY NOTE
$73,000,000 March 6, 1998
FOR VALUE RECEIVED, the undersigned, UNIGRAPHICS SOLUTIONS INC., a Delaware
corporation ("Maker"), promises to pay to the order of ELECTRONIC DATA SYSTEMS
CORPORATION, a Delaware corporation ("Payee"), at the offices of Payee at 5400
Legacy Drive, Plano, Texas 75024, the sum of Seventy Three Million Dollars
($73,000,000.00), together with interest on the unpaid principal balance from
time to time remaining at a rate per annum equal to LIBID minus 0.50%.
(calculated on the basis of actual days elapsed, but computed as if each
calendar year consisted of 360 days). "LIBID" means the Official British
Bankers' Association one month U.S. LIBID Fixings at 11:00 a.m. London time, as
reported on Bloomberg. LIBID shall be determined monthly, on the first business
day of each month, which rate shall be applicable for such month.
All outstanding principal and interest shall be due and payable on March 6,
2001.
Notwithstanding anything contained herein to the contrary, the outstanding
principal of this Note shall not be due and payable until such time as Maker has
an amount of surplus and/or net profits to pay such principal amount in
accordance with the provisions of Section 170 of the Delaware General
Corporation Law.
Without notice or demand (which are hereby waived), the entire unpaid
principal balance of and all accrued interest on this Note shall immediately
become due and payable at the option of Payee upon the occurrence of any one or
more of the following events of default: Maker shall (i) become insolvent within
the meaning of the Bankruptcy Code of the United States, as amended, (ii) admit
in writing its inability to pay or otherwise fail to pay its debts generally as
they become due, (iii) voluntarily seek, consent to, or acquiesce in the benefit
or benefits of any Debtor Relief Law, or (iv) be made the subject of any
proceeding provided for by any Debtor Relief Law that could suspend or otherwise
affect any of the rights of Payee. As used herein, "Debtor Relief Laws" means
the Bankruptcy Code of the United States of America, as amended and all other
applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, or similar debtor relief laws from
time to time in effect affecting the rights of creditors generally.
Regardless of any provision contained in this Note, no holder of this Note
shall ever be entitled to charge, receive, collect or apply, as interest on any
amount owing hereunder, any amount in excess of the maximum rate of interest
permitted to be charged by applicable law. In the event Payee or any other
holder of this Note ever charges, receives, collects or applies, as interest,
any such excess, such amount which would be excessive interest shall be deemed a
partial prepayment of principal and treated hereunder as such; and, if the
principal amount of this Note is paid in full, any remaining excess shall be
paid to Maker. In determining whether or not the interest paid or payable, under
any specific contingency, exceeds the maximum
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lawful rate, the Payee and any holder of this Note shall, to the maximum extent
permitted under applicable law, (i) characterize any non-principal payment as an
expense, fee or premium rather than as interest; and, (ii) amortize, prorate,
allocate and spread the total amount of interest throughout the entire term of
this Note.
The Maker of this Note shall be entitled to prepay all or any portion of
accrued but unpaid interest or principal of this Note at anytime or from time to
time.
Notwithstanding anything contained herein to the contrary, the Payee of
this Note shall be entitled at its option, to redeem this Note for all or a
portion of the then outstanding principal and interest, such option to be
exercised at anytime and/or from time to time before the stated maturity date.
This is the Note referred to in the unanimous written consent of the Board
of Directors of Maker dated March 6, 1998.
If this Note is placed in the hands of an attorney for collection, or in
the event this Note is collected in whole or in part through legal proceedings
of any nature, then and in any such case Maker promises to pay all costs of
collection, including, but not limited to, reasonable attorneys' fees incurred
by the holder hereof on account of such collection, whether or not suit is
filed.
THE LAWS (INCLUDING THE CONFLICTS OF LAWS RULES) OF THE STATE OF DELAWARE
SHALL GOVERN THE CONSTRUCTION, VALIDITY, ENFORCEMENT, AND INTERPRETATION HEREOF,
EXCEPT TO THE EXTENT FEDERAL LAWS OTHERWISE GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT, AND INTERPRETATION HEREOF.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the 6th
day of March, 1998.
UNIGRAPHICS SOLUTIONS INC.
By: /s/ H. TIMOTHY HATFIELD
------------------------------
Name: H. Timothy Hatfield
Title: Vice President
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EXHIBIT 10.7
TAX SHARING AGREEMENT
This Tax Sharing Agreement is being entered into, effective as of
January 1, 1998, by and between Electronic Data Systems Corporation, a Delaware
corporation ("EDS"), and Unigraphics Solutions Inc., a Delaware corporation
("USI").
WHEREAS, EDS files consolidated federal income tax returns in
accordance with the privilege granted by Sections 1501 and 1502 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the temporary and final
Treasury regulations promulgated thereunder (the "Regulations") for and on
behalf of itself and other "includible corporations" within the meaning of
Section 1504 of the Code which are members of the affiliated group of which EDS
is the common parent (the "EDS Affiliated Group"); and
WHEREAS, it is deemed equitable that with respect to each taxable
period for which a consolidated return is filed by EDS which includes the USI
Companies (as hereinafter defined) that the USI Companies pay to EDS their share
of the tax liabilities of the EDS Affiliated Group and their respective separate
return tax liabilities, each as determined hereunder; and
WHEREAS, it is deemed equitable that in the event that any of the USI
Companies for any reason becomes disaffiliated from the EDS Affiliated Group as
a result of failing to meet the requirements for inclusion in the EDS Affiliated
Group prescribed by Section 1504 of the Code, the portion of the economic
burdens and benefits of tax payments, deficiencies and refunds of the EDS
Affiliated Group which are attributable to the period in which disaffiliation
occurs and for prior consolidated return periods in which any such USI Company
was included in the EDS Affiliated Group, are to be allocated to EDS and the USI
Companies as hereinafter provided.
NOW, THEREFORE, the parties signatory hereto agree as follows:
I. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to the singular and
the plural forms of the terms defined):
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
"Consolidated Return" means any consolidated, combined, or unitary Tax
Return including Tax Items of at least one EDS Company and at least one USI
Company.
"Contribution Transaction" means the transfers by the EDS Companies of
the assets and liabilities relating to the Unigraphics business to the USI
Companies.
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"Deconsolidation Date" means the date upon which the USI Pro Forma
Affiliated Group ceases to be included in the EDS Affiliated Group.
"EDS" means Electronic Data Systems Corporation
"EDS Affiliated Group" means any affiliated group of corporations
(within the meaning of Section 1504(a) of the Code (or any successor provision
thereto) or, as the context may require, any similar provision of state, local
or Foreign law) of which EDS is the common parent.
"EDS Companies" means, for each taxable period or portion thereof, the
affiliated group of corporations, within the meaning of Code section 1504(a) (or
any successor provision thereto) or, as the context may require, any similar
provision of state, local, or Foreign law, of which EDS is the common parent,
but excluding the USI Companies.
"EDS Consolidated Return" means the Consolidated Return for federal
income taxes of the EDS Affiliated Group.
"EDS Separate Return" means any Tax Return required to be filed by an
EDS Company that does not include any Tax Item of a USI Company.
"Effective Date" means January 1, 1998.
"Final Determination" means the final resolution of liability for any
Tax (i) by IRS Form 870-AD (or any successor form thereto), on the date of
acceptance by or on behalf of the IRS, or by a comparable agreement form under
any state, local or Foreign law, except that a Form 870-AD or comparable form
that reserves the right of the taxpayer to file a claim for refund and/or the
right of the taxing authority to assert a further deficiency shall not
constitute a Final Determination with respect to the item or items so reserved;
(ii) by a decision, judgment, decree, or other order by a court of competent
jurisdiction, which has become final and unappealable; (iii) by a closing
agreement or offer in compromise under Section 7121 or 7122 of the Code, or
comparable agreements under any state, local or Foreign law; (iv) by any
allowance of a refund or credit in respect of an overpayment of Tax, including
any related interest or penalties, but only after the expiration of all periods
during which such refund may be recovered (including by way of offset) by the
jurisdiction imposing Tax; (v) by any other final disposition including by
reason of the expiration of the applicable statute of limitations or pursuant to
Code sections 1311 through 1313, or comparable provision of state, local, or
Foreign law, or (vi) by the occurrence of any event which the parties agree in
writing is a Final Determination.
"Foreign" means, with respect to any Tax or Tax Return, any Tax
payable or Tax Return required to be filed under the laws of any government or
taxing authority other than the United States, any state of the United States or
any political subdivision of any state of the United States and shall include,
without limitation, Taxes payable or Tax Returns required to be filed by the
laws of the Commonwealth of Puerto Rico.
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"IRS" means the Internal Revenue Service.
"Post-Consolidation Period" means any taxable period or portion
thereof beginning on or after the Deconsolidation Date.
"Post-Effective Date Period" means any taxable period or portion
thereof beginning on or after the Effective Date.
"Pre-Effective Date Period" means any taxable period or portion
thereof ending before the Effective Date.
"Tax Benefit" means any item of loss, deduction, or tax credit or any
similar item which generally reduces taxable income or taxes payable.
"Tax Detriment" means any item of income, gain, recapture of credits
or any similar item which generally increases taxable income or taxes payable.
"Tax Item" means any item of income, gain, loss, deduction or tax
credit.
"Tax Return" means any return, filing, questionnaire or other document
required to be filed for any period with any taxing authority (whether domestic
or Foreign) in connection with any Taxes (whether or not a payment is required
to be made with respect to such filing).
"Taxes" means all forms of taxation, whenever created or imposed, and
whether of the Untied States or elsewhere, and whether imposed by a local
municipal, governmental, state, federation or other body, and without limiting
the generality of the foregoing, shall include income, sales, use,
telecommunications, ad valorem, gross receipts, value added, franchise,
transfer, recording, withholding, payroll, employment, excise, occupation,
business license, premium or property taxes, together with any related interest,
penalties and additions to tax, or additional amounts imposed by any taxing
authority (domestic or Foreign) upon the USI Companies, the EDS Companies, or
any of their respective divisions or branches.
"USI Companies" means USI and the corporations and other entities
listed on Schedule B and their successors and assigns, and any other corporation
or entity, if any one or more USI Companies owns 80% or more of the stock or
ownership interests in such corporation or entity.
"USI Excess Tax Attributes" means any net operating loss, net capital
loss, or unused Tax credit (including any unused general business credit,
foreign tax credit, or alternative minimum tax credit) actually available to be
carried forward to the first Post-Consolidation Period of the USI Companies to
the extent that the amount of such losses and unused credits exceeds the amount
of net operating losses, net capital losses, and unused Tax credits that would
have been available for carryover to the first Post-Consolidation Period of the
USI Companies if (i) the USI Pro Forma Affiliated Group actually had been
deconsolidated from the EDS Affiliated Group as of the Effective
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Date and had filed the USI Pro Forma Consolidated Returns for all Post-Effective
Date Periods, and (ii) the assumptions set forth in Section 3.1 of this
Agreement (other than clauses (v) and (vi) thereof) actually applied.
"USI Pro Forma Affiliated Group" means a separate group of
corporations, which but for an EDS Company's ownership of USI, would be an
affiliated group of corporations (within the meaning of Section 1504(a) of the
Code or any successor provision thereto or, as the context may require, any
similar provision of state, local or Foreign law) consisting of USI, as the
common parent thereof, and the eligible USI Companies.
"USI Pro Forma Consolidated Return" means the pro forma consolidated
federal income tax returns of the USI Pro Forma Affiliated Group which are
described in Section 3.1 hereof.
"USI Separate Return" means any Tax Return required to be filed by a
USI Company for any tax period ending after the Effective Date which does not
include any Tax Item of an EDS Company.
II. RESPONSIBILITY FOR PREPARATION AND FILING OF TAX RETURNS
2.1 Consolidated Returns. EDS shall prepare and file all
Consolidated Returns which are required or, if EDS so chooses, permitted to be
filed for all periods. EDS will advise USI of the USI Companies which will be
included in a Consolidated Return to be filed by EDS pursuant to this Section
2.1, and (if applicable) the states or localities in which such returns will be
filed. EDS shall, at its sole discretion, make all decisions relating to the
preparation and filing of Consolidated Returns. Each eligible USI Company whose
Tax Items are includable in any Consolidated Return shall timely execute its
consent to be included in such Consolidated Return on any form as may be
prescribed for such consent if such consent is requested. Each USI Company
acknowledges that EDS, as the common parent of the EDS Affiliated Group, may
under Treas. Reg. Section 1.1502-77(a) or similar provision of state, local, or
Foreign law act as the agent for the USI Companies for all taxable periods in
which they are members of the EDS Affiliated Group. Provided that the USI
Companies have made all indemnity payments and payments in respect of Taxes
which are required under the terms of this Agreement, EDS shall pay, and shall
indemnify and hold harmless the USI Companies against, any liability (including
but not limited to liability under Treas. Reg. Section 1.1502-6 or similar
provision of state, local, or Foreign law) for any and all Taxes reported or
required to be reported (whether or not actually reported) on a Consolidated
Return.
2.2 Separate Returns. Except as otherwise set forth in any
management and/or administrative services agreements between EDS and the USI
Companies, the USI Separate Returns shall be prepared and filed by USI, shall be
submitted to EDS for its approval at least 30 days prior to filing, and shall be
prepared utilizing such methods, conventions and principles of taxation and
making such elections as are requested by EDS or, in the absence of any such
request, as are consistent with the methods, conventions, principles, and
elections previously used by EDS in preparing Pre-Effective Date Period Tax
Returns with respect to the businesses, assets and
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operations transferred pursuant to the Contribution Transaction. USI shall pay
all Taxes required to be reflected in USI Separate Returns and shall indemnify
and hold harmless EDS for all Taxes of the USI Companies not required to be
reported on a Consolidated Return (whether or not actually reported on a USI
Separate Return), including any reasonable expenses incurred by an EDS Company
in connection therewith. USI shall bear all costs and expenses of preparation
and submission of the USI Separate Returns, including, without limitation,
accountants' and attorneys' fees. EDS shall have sole responsibility for the
preparation and filing of EDS Separate Returns. EDS shall, at its sole
discretion, make all decisions relating to the preparation and filing of EDS
Separate Returns. EDS shall pay all Taxes shown to be due on EDS Separate
Returns. EDS shall indemnify and hold harmless USI for all Tax liabilities of
the EDS Companies not required to be shown on a Consolidated Return (whether or
not actually reported on an EDS Separate Return), including any reasonable
expenses incurred by a USI Company in connection therewith.
III. PAYMENTS IN RESPECT OF FEDERAL INCOME TAXES
3.1 USI Pro Forma Consolidated Return. For each Post-Effective Date
Period ending before or including the Deconsolidation Date for which an EDS
Consolidated Return is filed, a USI Pro Forma Consolidated Return shall be
prepared on behalf of the USI Companies. Except as otherwise set forth in any
management and/or administrative services agreements between EDS and the USI
Companies, the USI Pro Forma Consolidated Return shall be prepared by USI and
shall be submitted to EDS for its approval on or before March 15 (or such later
date as EDS specifies in writing) of the year following the year in respect of
which the USI Pro Forma Consolidated Return is prepared. The USI Pro Forma
Consolidated Return shall be prepared as if the USI Companies were
deconsolidated from the EDS Affiliated Group as of the beginning of the
Effective Date and began filing a consolidated federal income tax return as a
separate affiliated group consisting of USI, as the common parent thereof, and
the eligible USI Companies (the "USI Pro Forma Affiliated Group") for all Post-
Effective Date Periods and assuming that neither EDS nor any EDS Company owns
any stock of USI, except that (i) the members of the USI Pro Forma Affiliated
Group shall not be permitted or required to carryback any Tax Items to any
taxable period or portion thereof; (ii) no portion of (a) the consolidated
minimum tax credit or (b) the consolidated net operating loss carryovers of the
EDS Affiliated Group or any other Tax Benefit of an EDS Company or a USI Company
as of the Effective Date shall be treated as allocable to any USI Company as of
the Effective Date; (iii) the base period research expenses and gross receipts
of the USI business units owned by EDS prior to the Effective Date shall be
treated as incurred or realized by members of the USI Pro Forma Affiliated
Group, as provided in section 41(f)(3)(A) of the Code and applicable Treasury
Regulations, for purposes of determining the amount of R&E Tax Credit
attributable to the USI Pro Forma Affiliated Group for any Post-Effective Date
Period (provided, however, that the base amount for the USI Pro Forma Affiliated
Group for any Post-Effective Date Period shall not be less than the amount
specified in Section 41(c)(2) of the Code); (iv) the USI pro Forma Consolidated
Return shall be prepared using such methods, conventions and principles of
taxation and making such elections as are requested by EDS or, in the absence of
any such request, as are consistent with the methods, conventions, principles,
and elections previously used by EDS in preparing the EDS Consolidated Returns
for any Pre-Effective Date Period (provided, however, that
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this provision shall not limit EDS' discretion in making any Post-Effective Date
Tax elections that are permitted to be made under applicable laws or regulations
without the consent of any taxing authority); (v) any Tax Items of (a) any USI
Company or (b) any EDS Company that transferred a business or assets to a USI
Company pursuant to the Contribution Transaction (but only to the extent that
such Tax Items are attributable to the ownership of such business or assets)
that would be required to be recognized as a result of the deconsolidation of
the USI Companies from the EDS Affiliated Group (including, for example, gains
or losses deferred under Treas. Reg. Section 1.1502-13 or -14) shall not be
recognized as of the Effective Date but shall be included in the USI Pro Forma
Consolidated Return when and as such Tax Items are required to be included in
the EDS Consolidated Return; (vi) Tax Items attributable to transactions
occurring between any USI Company, on the one hand, and any EDS Company, on the
other, during any Post-Effective Date Period (that is not a Post-Consolidation
Period) shall be treated as if such transactions occurred between members of the
same consolidated group and shall only be included in the USI Pro Forma
Consolidated Return when and as they are required to be included in the EDS
Consolidated Return; (vii) the taxable income reflected on the USI Pro-Forma
Consolidated Return shall be increased by the amount of any deferred
intercompany gain described in Treas. Reg. Section 1.1502-13 which is required
to be recognized by any EDS Company on assets that are held by any USI Company;
(viii) any Tax Benefits described in Section 5.2(b)(ii) below shall not be taken
into account; and (ix) in cases where an EDS Company and a USI Company both
incur costs in performing research with respect to a particular project or
contract, the determination of whether the EDS Company or the USI Company is
entitled to claim the credit under Section 41 of the Code with respect to such
costs shall be made by EDS utilizing any methodology it deems reasonable. USI
shall bear all costs and expenses of preparation and submission of the USI Pro
Forma Consolidated Return, including, without limitation, accountants' and
attorneys' fees.
3.2 USI Tax Payments. For each taxable period for which a USI Pro
Forma Consolidated Return is required to be prepared under Section 3.1, on or
before each date for payment of an installment of estimated federal income taxes
(as determined under Section 6655 of the Code or successor provision then in
effect), USI shall pay to EDS an amount equal to the estimated federal income
tax payment that the USI Pro Forma Affiliated Group would have been required to
make if it actually were filing the USI Pro Forma Consolidated Return for such
taxable period. On or before March 15 of the year following the year in respect
of which a USI Pro Forma Consolidated Return is prepared, USI shall pay to EDS
an amount equal to the excess, if any, of (i) all taxes required to reflected on
the USI Pro Forma Consolidated Return (plus the amount, if any, of any interest
or penalties that would have been payable by the USI Pro Forma Affiliated Group
in respect of underpayment of estimated taxes if it actually were filing the USI
Pro Forma Consolidated Return for such taxable period and made estimated tax
payments equal to the payments USI made to EDS in respect of estimated federal
income taxes for such taxable period pursuant to this Section 3.2), over (ii)
the total estimated amounts previously paid by USI for such tax year in
accordance with the preceding sentence. If the USI Pro Forma Consolidated
Return has not been prepared by March 15, a reasonable estimate of the amount
described in the preceding sentence shall be paid on or before March 15 and the
balance, if any, due on the USI Pro Forma Consolidated Return shall be paid on
the date that the USI Pro Forma Consolidated Return has been prepared. If (A)
the total amount of
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all payments of federal income taxes by USI to EDS pursuant to this Section 3.2
for the taxable period exceeds (B) the taxes shown as due on the USI Pro Forma
Consolidated Return prepared with respect to such taxable period, the amount of
such excess shall be credited to the account of USI.
3.3 Tax Benefit Carrybacks. If, for any Post-Effective Date Period
ending on or including the Deconsolidation Date, a USI Pro Forma Consolidated
Return reflects a consolidated net operating loss, consolidated net capital
loss, consolidated unused tax credit, or other similar tax benefit, such
consolidated loss, unused credit, or other benefit shall be carried forward and
shall be treated as a loss or credit of the USI Pro Forma Affiliated Group in
the subsequent Post-Effective Date Periods to which such loss is carried.
3.4 Liability for Pre-Effective Date Periods and Contribution
Transaction. EDS shall be liable for, and shall indemnify and hold harmless the
USI Companies for, (a) any federal income Taxes incurred for any Pre-Effective
Date Period which are attributable to the assets and operations transferred by
any EDS Company to any USI Company pursuant to the Contribution Transaction and
(b) any federal income Taxes on income or gain realized by any of the EDS
Companies as a result of the Contribution Transaction.
3.5 Payments in the Event of Deconsolidation.
(a) Statement of USI Excess Tax Attributes. As soon as practical
following the filing by the EDS Affiliated Group of its consolidated
federal income tax return for the year which includes the Deconsolidation
Date, EDS will provide to USI its estimate of the amount of any USI Excess
Tax Attributes. No warranty as to the existence or availability of such
attributes will be given or implied. EDS will inform USI promptly of an
adjustment to such attributes that it determines to be appropriate in
connection with the filing of the EDS Consolidated Group's Tax Returns or
which may result from any audit or other proceeding.
(b) USI Payments. USI shall make payments to EDS under this
Section 3.5(b) if, for any Post-Consolidation Period, (i) the actual
federal income tax liability of the USI Companies is reduced below the
federal income tax liability that would have been imposed on the USI
Companies if (A) the USI Pro Forma Affiliated Group actually had been
deconsolidated from the EDS Affiliated Group as of the Effective Date and
had filed the USI Pro Forma Consolidated Returns for all Post-Effective
Date Periods (other than a Post-Consolidation Period), and (B) the
assumptions set forth in Section 3.1 of this Agreement (other than clauses
(v) and (vi) thereof) actually applied, or (ii) the federal income tax
liability of the EDS Affiliated Group is increased because any USI Excess
Tax Attribute is not available for use by the EDS Affiliated Group in that
period. The amount of any payment by USI under this Section 3.5(b) shall
equal the excess of (X) the sum of (i) the amount of such reduction or
increase, as the case may be, in federal income tax liability plus (ii) the
amount of all prior reductions or increases taken into account pursuant to
this Section 3.5, over (Y) the amount of any payments previously made by
USI under this Section 3.5(b)
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in respect of any USI Excess Tax Attribute. USI shall make any payment
required to be made under this Section 3.5(b) within 15 days of, as the
case may be, the filing of the applicable return or amended return, or the
receipt of the applicable Final Determination, for the Post-Consolidation
Period by USI or EDS which reflects such increased EDS Affiliated Group, or
reduced USI Affiliated Group, tax liability (or, in the case of an increase
in liability of the EDS Affiliated Group, any later date on which USI
receives written notice from EDS).
IV. PAYMENTS IN RESPECT OF OTHER TAXES
4.1 State and Local Income Taxes.
(a) Pre-Effective Date Periods. The EDS shall be liable for,
and shall indemnify and hold harmless the USI Companies for, (i) any state
or local income Taxes incurred for any Pre-Effective Date Period to the
extent such Taxes are attributable to the assets and operations transferred
by any EDS Company to any USI Company pursuant to the Contribution
Transaction and (ii) any state or local income Taxes on income or gain
recognized by any of the EDS Companies as a result of the Contribution
Transaction.
(b) Post-Effective Date Periods. In the case of any state or
local Taxes that are required to be reported on a Consolidated Return for
any Post-Effective Date Period pursuant to Section 2.1 of this Agreement,
the sharing and reporting of Tax liabilities, Excess Tax Attributes, and
Tax benefit carrybacks and/or carryovers, and the making of tax payments,
shall be determined under rules equivalent to the provisions of Article III
(including, without limitation, equivalent rules as to the preparation of
pro forma state or local tax returns for the applicable USI Pro Forma
Affiliated Group, the making of payments by USI with respect to liability
reported thereon, refunds in respect of carrybacks, and adjustments in the
event of Deconsolidation), whether or not the applicable USI Pro Forma
Affiliated Group is included in the EDS Consolidated Return for federal
income tax purposes. USI shall also be liable for all other state and
local income Taxes for any Post-Effective Date Period which are (i)
incurred by, imposed on or attributable to any USI Company or (ii) incurred
by, imposed on or attributable to any EDS Company with respect to any
business or assets transferred by the EDS Company to any USI Company
pursuant to or in connection with the Contribution Transaction.
4.2 Foreign Income Taxes.
(a) Pre-Effective Date Periods. EDS shall be liable for, and
shall indemnify and hold harmless the USI Companies for, (i) any Foreign
income Taxes incurred for any Pre-Effective Date Period to the extent such
income Taxes are attributable to the assets and operations transferred by
any EDS Company to any USI Company pursuant to the Contribution Transaction
and (ii) any Foreign income Taxes on income or gain recognized by any of
the EDS Companies as a result of the Contribution Transaction.
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(b) Post-Effective Date Periods. In the case of any Foreign
Taxes that are required to be reported on a Consolidated Return for any
Post-Effective Date Period pursuant to Section 2.1 of this Agreement, the
sharing and reporting of Tax liabilities, Excess Tax Attributes, and Tax
benefit carrybacks and/or carryovers, and the making of tax payments, shall
be determined under rules equivalent to the provisions of Article III
(including, without limitation, equivalent rules as to the preparation of
pro forma Foreign Tax Returns for the applicable USI Pro Forma Affiliated
Group, the making of payments by USI with respect to liability reported
thereon, refunds in respect of carrybacks, and adjustments in the event of
Deconsolidation), whether or not the applicable USI Pro Forma Affiliated
Group is included in the EDS Consolidated Return for federal income tax
purposes. USI shall be liable for all other Foreign Taxes incurred by,
imposed on or attributable to any USI Company for any Post-Effective Date
Period, or which are incurred by, imposed on or attributable to any EDS
Company for any Post-Effective Date Period with respect to any business,
assets, operations, or employees transferred by the EDS Company to any USI
Company pursuant to or in connection with the Contribution Transaction.
4.3 Other Taxes. Except as otherwise expressly provided in this
Agreement, USI shall be liable for, and shall indemnify and hold the EDS
Companies harmless from and against, all other Taxes (a) incurred by, imposed on
or attributable to any USI Company for any Pre-Effective Date Period or for any
Post-Effective Date Period and (b) incurred by, imposed on or attributable to
any EDS Company for any Pre-Effective Date Period or Post-Effective Date Period
with respect to any business, assets, operations, or employees transferred by
the EDS Company to any USI Company pursuant to the Contribution Transaction
(including, without limitation, any payroll taxes and any sales, use, value-
added or other similar transfer Taxes attributable to the transfer of
properties, assets, and employees by any EDS Company to any USI Company pursuant
to the Contribution Transaction). USI's indemnity obligation to EDS for Pre-
Effective Date Taxes under this Section 4.3 shall be limited to an aggregate
amount of $1,500,000, and EDS shall indemnify and hold harmless the USI
Companies for any such liability imposed directly on them by a taxing authority
to the extent that the sum of such liability plus USI's previous indemnity
payments to EDS under this Section 4.3 exceeds $1,500,000.
4.4 Environmental Tax; New Taxes. In the case of the Tax imposed
under section 59A of the Code and any other federal, state, local, or Foreign
tax required to be reflected on a Tax Return for any Post-Effective Date Period
pursuant to Section 2.1 of this Agreement, the sharing and reporting of Tax
liabilities, Excess Tax Attributes, and Tax benefit carrybacks and/or
carryovers, and the making of tax payments, shall be determined under rules
equivalent to the rules of Article III (including, without limitation,
equivalent rules as to the preparation of pro forma returns for the applicable
USI Pro Forma Affiliated Group, the making of payments by USI with respect to
liability reported thereon, refunds in respect of carrybacks and adjustments in
the event of Deconsolidation), whether or not for federal income tax purposes
the applicable USI Pro Forma Affiliated Group is included in the EDS
Consolidated Return.
V. SUBSEQUENT ADJUSTMENTS OF TAX LIABILITY
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5.1 Post-Effective Date Tax Periods. If any Final Determination
results in an adjustment to any Tax Item of any USI Company for any Post-
Effective Date Period or any Tax Item of any EDS Company for any Post-
Consolidation Period, the liability of USI to make payments to EDS or to the
relevant taxing authority, or the liability of EDS to make payments to USI,
under Articles III and IV for all Post-Effective Date Periods shall be
redetermined to reflect such adjustment. USI shall pay to EDS (a) any excess of
the aggregate amount of the net liability of the USI Companies to EDS under
Articles III and IV, as calculated pursuant to such redetermination, over the
net amount previously paid by USI in respect of such liability under Articles
III and IV, plus (b) interest with respect to the amount determined in clause
(a), plus (c) the amount of any penalties, additions to tax, or expenses which
are paid by any EDS Company with respect to such adjustment (including, without
limitation, any reasonable out-of-pocket costs incurred by the EDS Companies in
connection with the assessment or collection thereof), reduced by (d) any amount
paid directly by a USI Company to any government or taxing authority to satisfy
the increased tax liability taken into account in computing such payment. EDS
shall pay to USI (i) any excess of the net amount previously paid by USI to EDS
in respect of USI's liability under Articles III and IV over the aggregate
amount of USI's net liability under Articles III and IV, calculated pursuant to
such redetermination, plus (ii) the amount of any interest received by an EDS
Company from any government or taxing authority with respect to such adjustment,
reduced by (iii) the amount of any refund of Tax received directly from any
government or taxing authority by any USI Company with respect to such
adjustment. Any amount payable pursuant to this Section 5.1 shall be paid
within thirty (30) days after the date of the Final Determination giving rise to
such payment. Any determination under this Section 5.1 and under 5.2 as to the
extent to which an adjustment relates to a Tax Item of any USI Company shall be
made by EDS utilizing any method it deems reasonable.
5.2 Pre-Effective Date Adjustments.
(a) Payment for Increase in Tax Liabilities. If, for any Pre-
Effective Date Period, any Final Determination results in an adjustment to
any Tax Item (i) of any USI Company or (ii) relating to the operations,
businesses, assets, or employees transferred by an EDS Company to any USI
Company pursuant to the Contribution Transaction, causing an increase in
any Tax for which any USI Company is liable pursuant to Sections 4.2 or 4.3
hereof, USI shall pay to EDS an amount equal to (A) such increase in Tax
liability plus (B) any expenses which are paid by any EDS Company with
respect to such adjustment (including, without limitation, any reasonable
out-of-pocket costs incurred by the EDS Companies in connection with the
assessment or collection thereof), reduced by (C) any amount paid directly
by a USI Company to any government or taxing authority to satisfy such
increased Tax liability. USI shall make any such payment within 15 days of
EDS's payment of the increase in liability.
(b) Payment for Certain Tax Benefits. If the amount of Taxes
incurred by any member of the EDS Affiliated Group (or the amount of Taxes
for which any member of the EDS Affiliated Group is otherwise responsible
under the terms of this Agreement) is
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increased for any Pre-Effective Date Period and the particular item that
produced such increase results, directly or indirectly, in a Tax Benefit to
any USI Company for any Post-Effective Date Period, the following
provisions shall apply:
(i) If such Tax Benefit occurs during any Post-Consolidation Period,
USI shall pay EDS the amount of any actual reduction in Taxes
resulting from such Tax Benefit within 15 days after the later of
(i) the due date (without regard to waivers or extensions) of the
Tax Return for the taxable period during which the Tax Benefit is
realized by any USI Company or (ii) the date notice is given by
EDS to USI that the amount of Taxes incurred by any member of the
EDS Affiliated Group (or the amount of Taxes for which any member
of the EDS Affiliated Group is otherwise responsible under the
terms of this Agreement) has been increased for any Pre-Effective
Date Period.
(ii) If such Tax Benefit occurs in any Post-Effective Date Period
other than a Post-Consolidation Period, the USI Pro-Forma
Consolidated Returns described in Section 3.1 above and the
amount of USI Excess Tax Attributes described in Section 3.4
above shall be computed without taking into account such Tax
Benefit.
5.3 Carrybacks of Post-Consolidation Period Tax Benefits.
(a) If a USI Company incurs a Tax Benefit during any Post-
Consolidation Period, it shall elect to relinquish the carryback of such
Tax Benefit to any taxable period ending on or before the Deconsolidation
Date if permitted to do so under applicable tax law. If a USI Company
incurs a Tax Benefit during any Post-Consolidation Period which is required
under applicable law to be (or which EDS and USI mutually agree shall be)
carried back to any taxable period ending on or before the Deconsolidation
Date, EDS shall (i) at USI's request and expense, undertake those actions
reasonably necessary to enable USI to effectuate such carry back (provided
such carryback will result in an actual reduction in tax liability for the
EDS Affiliated Group) and (ii) pay to USI the lesser of (A) the amount of
refund the USI Company would have received if the Tax Benefit were carried
back and reflected on the USI Pro Forma Consolidated Return or (B) the
amount of any actual reduction in tax liability of the EDS Affiliated Group
(determined as described in the following sentence) resulting from the
carryback of such Tax Benefit (to the extent that USI or any USI Company
does not receive such amount directly from the appropriate taxing
authority). The amount of reduction in the tax liability of the EDS
Affiliated Group shall be equal to the excess of (A) the amount of any
Taxes that would have been payable by the EDS Affiliated Group in the
absence of such carryback, over (B) the amount of such Taxes actually
payable by the EDS Affiliated Group including such carryback. Such payment
shall be made within thirty (30) days of the date that EDS receives a
refund of taxes as a result of such carryback or, if applicable, within
thirty (30) days of the date that any credit resulting from such carryback
is applied against tax liabilities of any EDS Company.
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(b) If, subsequent to the payment by EDS to USI of any amount
referred to in Section 5.3(a) above in respect of the carryback of a Tax
Benefit, there shall be (i) a Final Determination under applicable law of a
Tax deficiency of the EDS Affiliated Group as a result of which the EDS
Affiliated Group does not get the benefit of the carryback, or (ii) a Final
Determination resulting from an audit of USI or any USI Company (or any
successor thereto) which results in a reduction of any Tax Benefit so
carried back, USI shall repay EDS, within thirty (30) days of such Final
Determination, the amount which would not have been payable to USI pursuant
to Section 5.3(a) above had the amount of the payment been determined by
taking into account such event.
(c) If, subsequent to the payment by EDS to USI of any amount
referred to in Section 5.3(a) above in respect of the carryback of a Tax
Benefit, any member of the EDS Affiliated Group incurs adverse tax
consequences as a result of the carryback of such Tax Benefit including,
but not limited to, the expiration of other Tax Benefits which would have
been utilized but for the carryback of Tax Benefits of USI or any USI
Company, USI and the USI Companies shall indemnify and hold EDS harmless
from and against such adverse tax consequences (including any interest and
penalties).
VI. ADMINISTRATIVE PROVISIONS
6.1 Contests.
(a) Notice. USI shall promptly provide EDS written notice of any
claim, or of the commencement of any audit or proceeding, together with
copies of all correspondence, notices or other documents relating thereto,
which may result in a Final Determination which would adjust any Tax Item
of a USI Company reportable on any Consolidated Return. Whenever as a
result of examination or audit by a governmental authority EDS becomes
aware of the existence of a material issue involving a Tax Item of any USI
Company which may result in a Final Determination with respect to a
Consolidated Return, EDS shall promptly give notice to USI of the existence
of such issue.
(b) Control of Controversies Other Than USI Separate Return
Controversies. EDS shall, in its sole discretion, control and direct the
conduct of any audit or inquiry or any administrative or judicial appeal or
other proceeding regarding any Consolidated Return or the payment of any
Tax by any member of the EDS Affiliated Group or any entity not required to
be reported on a USI Separate Return. Each USI Company shall provide EDS
with powers of attorney or other appropriate documents which will enable
EDS to conduct any such proceeding. EDS may, in its sole discretion, agree
to pay, settle, compromise, or concede any such claim or issue arising with
respect to any proceeding which it controls pursuant to this Section
6.1(b).
(c) Expenses related to Controversies Other Than USI Separate
Return Controversies. USI shall promptly reimburse EDS for all expenses
(including, without
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limitation, legal and accounting fees) incurred by EDS in the course of
proceedings described in Section 6.1(b) of this Agreement to the extent
such expenses are reasonably attributable to Tax Items of any USI Company.
(d) Control of USI Separate Return Controversies. USI shall, in
its sole discretion, control and direct the conduct of any audit or inquiry
or any administrative or judicial appeal or other proceeding regarding the
payment of any Tax required to be reported on a USI Separate Return;
provided, however, that USI shall not settle, compromise, or concede any
claim or issue arising with respect to any proceeding which it controls
pursuant to this Section 6.1(d) without the written consent of EDS.
6.2 Cooperation and Exchange of Information.
(a) General. In general, EDS and USI will provide, and will
cause their affiliates to provide, one another with such cooperation and
information as either of them reasonably may request of the other in filing
any Tax Return, amended return, or claim for refund; determining a
liability for Taxes or a right to refund of Taxes; or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include EDS's or USI's, as the case may be, (i) providing
to the other party copies of all relevant Tax Returns, together with
accompanying schedules and related workpapers, documents relating to
rulings or other determinations by taxing authorities, and records
concerning the ownership and tax basis of property; and (ii) making its
employees available to the other party on a mutually convenient basis to
provide explanations of any documents or information requested hereunder or
other reasonable technical support (including, without limitation, the
provision of interpretation, analyses, and testimony). Any information
obtained under this Section shall be kept confidential, except as may be
otherwise necessary in connection with the filing of returns or claims for
refund or in conducting any audit or other proceeding.
(b) Preparation of Tax Package by USI. So as to enable EDS to
prepare the Consolidated Returns accurately and completely, to forecast and
plan with respect to Taxes effectively, and to provide for accurate
financial reporting in respect of Taxes, for each Post-Effective Date Tax
Period, USI shall prepare and submit to EDS such tax and financial
information as is reasonably necessary or useful in the preparation of the
Consolidated Returns and any USI Separate Returns. Such information may
include, but need not be limited to, (i) a tax return package for
Consolidated Returns and USI Separate Returns, (ii) an estimated tax
package for Consolidated Returns and USI Separate Returns, (iii) a tax
provision package, (iv) a tax projection package, and (v) workpapers and
other supporting documentation relating to the foregoing (collectively, the
"Tax Package"). USI shall prepare and submit to EDS the Tax Package at
such times and in such form, manner, and medium as EDS shall request.
Unless otherwise expressly consented to by EDS in writing, the Tax Package
shall be prepared, with respect to Tax Items includable in a Consolidated
Return, using the methods, elections, and positions as are requested by EDS
or, in the absence of any
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such request, that EDS previously used in preparing Consolidated Returns or
consolidated financial statements. USI shall bear all costs and expenses of
preparation and submission of the Tax Package, including, without
limitation, accountants' and attorneys' fees.
(c) Record Retention. Each party will retain all Tax Returns,
USI Pro Forma Consolidated Returns, schedules and material work papers, and
all material records or other documents relating thereto, until the
expiration of the statute of limitations (including extensions) of the
taxable periods to which such Tax Returns and other documents relate and,
unless such Tax Returns and other documents are offered to the other party,
until the Final Determination of any payments which may be required in
respect of such years under this Agreement. Before any tax records or
documents are destroyed, the party holding such records shall notify the
other party of its intent to destroy them and shall offer any such records
to the other party. If the other party wishes to receive such records, it
shall notify the party holding the records or documents within 45 days of
receipt of notice of the other party's intent to destroy, and will be
liable for any costs related to the transfer of such records.
(d) Confidentiality. Any information obtained by any party under
this Agreement shall be kept confidential, except as may be necessary in
connection with the filing of tax returns or claims for refund or in
connection with an audit, dispute, proceeding, suit or action concerning
any issues or matters addressed in this Agreement, or unless a party is
compelled to disclose information by judicial or administrative process or,
in the opinion of its counsel, by other requirements of law.
VII. MISCELLANEOUS PROVISIONS
7.1 Interest. Any payments required pursuant to this Agreement which
are not made within the time period specified in this Agreement shall bear
interest at the rate specified in Section 6622 of the Code for underpayment of
federal income tax plus 3 percent.
7.2 Resolution of Disputes. Any disputes between the parties
concerning the calculation of amounts, allocation or attribution of costs or of
any Tax or Tax Item, or similar accounting matters shall be resolved in
accordance with EDS's interpretation of this Agreement, unless USI shall provide
EDS with an opinion of a law firm mutually agreed to by the parties that there
is no basis for such interpretation under applicable law.
7.3 Application to Present and Future Subsidiaries.
(a) EDS agrees that it shall have liability for all Tax
liabilities and indemnity obligations of the EDS Companies as provided for
in this Agreement. Any reference to EDS in this Agreement shall subject
EDS to full, direct and primary liability for any sum owing by EDS or any
other EDS Company. EDS agrees that it shall cause each EDS Company to
comply fully with the terms of this Agreement.
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(b) USI agrees that it shall have liability for all tax
liabilities and indemnity obligations of the USI Companies as provided for
in this Agreement. Any reference to USI in this Agreement shall subject
USI to full, direct and primary liability for any sum owing by USI or any
other USI Company. USI agrees that it shall cause each USI Company to
comply fully with the terms of this Agreement.
(c) USI shall cause each of its group members formally to execute
this Agreement. From and after the time that any such group member
formally executes the Agreement, it shall constitute a direct obligation of
such corporation, which shall become jointly and severally liable for all
amounts payable by USI hereunder. EDS and USI hereby guarantee the
performance of all actions, agreements and obligations provided under this
agreement of each EDS Company or each USI Company, respectively. This
Agreement shall be binding upon, and shall inure to the benefit of, the
successors, assigns and persons controlling any of the corporations bound
hereby.
7.4 Expenses. Unless otherwise expressly provided in this Agreement,
each party shall bear any and all expenses that arise from their respective
obligations under this Agreement.
7.5 Notices. All notices, requests, demands and other communications
to any party hereunder shall be in writing and shall be deemed given if
delivered by hand or sent by telecopy or mailed (registered or certified mail,
postage prepaid, return receipt requested), addressed to the parties as follows:
If to EDS:
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024
Attention: R. Randall Capps - Corporate Tax Director and General
Counsel
If to USI:
Unigraphics Solutions Inc.
13736 Riverport Drive
Maryland Heights, Missouri 63043
Attention: Doug Barnett - Chief Financial Officer
7.6 Entire Agreement; Titles and Headings. This Agreement
constitutes the entire agreement of the parties concerning the subject matter
hereof and supersedes all other agreements, whether or not written, in respect
of any Tax between or among any of the EDS Companies and any of the USI
Companies. In the event of a conflict between this Agreement and a provision in
any
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other agreement between or among members (or former members) of the EDS
Affiliated Group concerning the allocation or sharing of Taxes, this Agreement
shall control unless the provision in the other agreement specifically provides
that it shall control. This Agreement may not be amended except by an agreement
in writing, signed by the parties hereto. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be a
part or to affect the meaning or interpretation of this Agreement.
7.7 Term. This Agreement shall commence on the Effective Date and
shall continue in effect until otherwise agreed to in writing by EDS and USI, or
their successors.
7.8 Governing Law. This Agreement shall be governed by the laws of
the State of Texas, without regard to the principles of conflicts of law
thereof.
7.9 Severability. If any term, provision or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and restrictions shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions and
restrictions without including any of such term, provision or restriction which
may be hereafter declared invalid, void and unenforceable.
7.10 Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but such counterparts shall together constitute but one and the same
instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date first above written.
ELECTRONIC DATA SYSTEMS CORPORATION
By: /s/ D. Gilbert Friedlander
---------------------------------
D. Gilbert Friedlander
Senior Vice President
UNIGRAPHICS SOLUTIONS INC.
By: /s/ H. Timothy Hatfield
---------------------------------
H. Timothy Hatfield
Vice President
UNIGRAPHICS SOLUTIONS ASIA/PACIFIC
INCORPORATED
By: /s/ H. Timothy Hatfield
---------------------------------
H. Timothy Hatfield
Vice President
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EXHIBIT 10.8
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding between Electronic Data Systems
Corporation ("EDS") and Unigraphics Solutions Inc. ("USI") is dated and
effective as of January 1, 1998 (this "MOU"). The relationship between EDS and
General Motors Corporation and its subsidiaries, joint ventures and other
affiliates (collectively, "GM") includes the provision of Unigraphics software
products and services. With the creation of USI as a subsidiary of EDS, USI and
EDS want to facilitate a cooperative framework for EDS and USI each working with
GM. The goal is for EDS and USI (the "Parties") each to provide excellent
service to and grow its business relationship with GM, all in a cooperative and
coordinated manner.
This MOU sets forth the agreement between USI and EDS regarding the roles
and responsibilities of each in serving the GM customer.
1. EDS - USI RELATIONSHIP. USI will conduct business with EDS in a manner
substantially the same as with any other USI customer, subject to the terms of
this MOU. USI and EDS will work together as quickly as possible to establish a
process to be used in implementing an operating framework for themselves with
regard to GM so that lines of communication are established. In all situations
involving GM, the Executive in Charge (defined in numbered paragraph 4) for each
Party will promptly notify, update and coordinate GM business opportunities with
the Executive in Charge for the other Party. In order to facilitate
coordination to the benefit of the GM customer, the Executives in Charge will
provide one another weekly written updates as to any activity involving GM.
2. USI SOFTWARE PRODUCTS.
(a) As between EDS and USI, USI will own the software products provided by
USI to GM (each, a "USI Product").
(b) USI will manage all aspects of the USI Products, including but not
limited to the provision of enhancements and added functionality to USI
Products.
(c) It is in the interest of the Parties that USI Products will be sold to
GM as commercial, off-the-shelf application software. If GM requests provision
of USI Products which are specially developed or which are not part of USI's
standard commercial offerings, the Parties will work together to agree on the
terms and prices for such unique USI Products. Unless otherwise agreed to
between the Parties, such unique USI Products, enhancements, and/or derivative
works will be owned by USI.
3. USI STEERING COMMITTEE. The USI Steering Committee will oversee the
implementation of this MOU and the relationship between EDS and USI relative to
the GM customer. The USI Steering Committee will be composed of two senior USI
executives appointed by the president of USI and two senior EDS executives
appointed by the president of EDS.
<PAGE>
4. EXECUTIVES IN CHARGE. Each Party will appoint an Executive in Charge with
responsibility for managing its relationship with GM and with the other Party.
The EDS and USI Executives in Charge will work cooperatively and will have
authority to resolve issues between USI and EDS with respect to GM. Each Party
may change its Executive in Charge by written notice to the other. If issues or
disputes between EDS and USI cannot be resolved between the Executives in
Charge, such disputes will be submitted to the USI Steering Committee for
resolution. If the USI Steering Committee is unable to resolve the dispute,
full authority for resolution will reside in the Presidents of the Parties.
5. MASTER SERVICE AGREEMENT BETWEEN GM AND EDS. The Master Service Agreement
between EDS and General Motors Corporation dated June 7, 1996 (the "MSA")
describes in Exhibit C thereto a scope of services which GM has agreed to obtain
from EDS ("MSA Services"). EDS and USI hereby acknowledge that EDS will
continue to contract with GM for MSA Services.
(a) When EDS requests in writing that USI perform MSA Services as a
subcontractor to EDS, USI will perform such services on behalf of EDS pursuant
to the terms of the MSA, except as may otherwise be agreed in writing by the
Parties. The details of those subcontracted activities (such as description of
services, timing and pricing) will be documented in a written agreement between
EDS and USI.
(b) USI will comply with and enjoy the benefit of all then-current terms
and conditions included in the MSA and then-current policies and interpretations
agreed to between GM and EDS in its performance of MSA Services, unless
otherwise agreed to between EDS and USI.
(c) The Unigraphics Software Corporate License Agreement between General
Motors Corporation and EDS, effective as of July 1, 1996 (the "UCL"), is a
current Service Agreement under the MSA. Under the UCL, EDS is obligated to
provide up to 10,000 "Concurrent Use Copies" (as defined in the UCL) of
"Unigraphics Software," a sub-set of the then-current commercial products
offered by the Unigraphics division of EDS. Exhibit A to the UCL sets forth a
list of the then-current Unigraphics commercial product offerings and identifies
by module name the maximum number of each Unigraphics Software module to be
provided under the UCL.
(i) EDS will retain management of the UCL and will be the contracting
party for any additional services under the UCL, unless otherwise agreed by
EDS and USI. Additional USI Product and service offerings to be provided
under the UCL will be defined, priced and packaged jointly by EDS and USI.
USI will perform UCL-related obligations and receive the ongoing services
revenues under the UCL to be identified by EDS and USI under separate
cover.
(ii) EDS will track novation agreements signed by GM Eligible
Subsidiaries (as defined in the UCL). Notwithstanding anything to the
contrary set forth in the Contribution, Assignment and Assumption Agreement
dated January 1, 1998 between EDS and USI, EDS will retain responsibility
for payment of all third party royalties with respect to Unigraphics
Software provided under the UCL.
<PAGE>
(iii) EDS will identify by server, and retain for EDS' internal use
on the EDS GM account at no charge, all copies of USI Products previously
furnished to EDS and currently used by EDS. EDS will execute a USI
Software License Evaluation Agreement to govern such usage. EDS will
purchase any USI Products in addition to the USI Products covered above for
EDS' use on the GM account at the then current GM prices for licenses and
maintenance, or at prices as otherwise agreed to by EDS and USI.
6. SERVICES TO GM BY USI OR EDS OUTSIDE THE SCOPE OF THE MSA.
(a) EDS has numerous existing agreements within GM under which EDS provides
products and/or services outside the scope of the MSA. Certain of those
agreements involve the provision of USI Products and services and, as mutually
agreed by the Parties, will be performed by USI, with USI receiving the
associated revenue. USI agrees that, with regard to its performance of EDS'
obligations under each such agreement, it will perform such obligations for the
balance of the applicable agreement term and, to the extent associated EDS
personnel have been transferred to USI, will, for continuity, use the
transferred EDS personnel for the balance of the applicable agreement term. EDS
and USI will meet to agree about any aspects of ongoing performance under
agreements with GM for services outside the scope of the MSA that have not been
so allocated as of the date of this MOU. Existing agreements between EDS and GM
that have not been so allocated will continue to be performed by EDS until such
time as the contracts terminate or other alternative arrangements may be
mutually agreed between EDS and USI.
(b) As to non-MSA business opportunities arising after January 1, 1998, the
Executives in Charge will discuss the nature of the services. Interpretation as
to whether or not a GM request for service is an MSA Service or is outside the
scope of the MSA will be made by EDS, provided that EDS agrees to consult with
the USI Executive in Charge. Except as otherwise provided in this MOU, USI will
have a direct relationship with GM as to non-MSA business involving USI Products
and services and will solicit non-MSA business directly from GM. USI will enter
into agreements and other business arrangements directly with GM for provision
of such USI Products and services. USI will have sole responsibility for the
billing and collection of such non-MSA revenue from GM, unless otherwise agreed
by the EDS and USI Executives in Charge.
7. TEAMING ON NEW BUSINESS ACTIVITIES FOR GM. With respect to those
additional or new business opportunities with GM on which EDS and USI desire to
work together, whether MSA Services or services outside the scope of the MSA
(such opportunities being referred to as "New Business Activities"), EDS and USI
will work together as follows.
(a) The Executives in Charge will be the primary point of contact for each
in dealing with the other with respect to New Business Activities with GM on
which the Parties have decided to team. Each Executive in Charge will have the
authority and power to make decisions with respect to actions to be taken by EDS
or USI, as appropriate, in connection with New Business Activities.
(b) New Business Activities will be conducted on a project-by-project
basis, and any definitive written agreement related to the particular project
will address such issues as the scope,
<PAGE>
structure, timing and price of the USI Products and/or services to be provided
and the respective responsibilities of the Parties. If EDS and USI deem it
appropriate, they may enter into one or more teaming agreements pursuant to
which they will cooperate in submitting bids for identifiable projects and in
which their roles with respect to the USI Products and/or services to be
provided will be agreed upon, such as designation of the prime contractor and
subcontractor for the project. If the USI Products and/or services to be
provided are MSA Services, EDS will be the prime contractor. If the USI Products
and/or services are not MSA Services, then USI will be the prime contractor
unless the Executives in Charge determine to vary their roles depending upon the
particular New Business Activity undertaken in the particular project. If the
USI Products and/or services to be provided are mixed (both MSA and non-MSA),
then EDS will provide the MSA Services, USI will provide the non-MSA Services,
and the designation as prime contractor will be as mutually agreed by the EDS
and USI Executives in Charge.
(c) EDS and USI will each exert reasonable efforts to produce a proposal
which will identify the prime contractor for a project and the acceptance of the
corresponding subcontractor for the project, and each will continue to work
toward this objective through any and all negotiations concerning a request for
proposal and subsequent contract negotiations if EDS and USI's proposal is
accepted.
IN WITNESS WHEREOF, each party has caused its duly authorized
representative to sign and deliver this MOU, all as of its effective date.
ELECTRONIC DATA SYSTEMS UNIGRAPHICS SOLUTIONS INC.
CORPORATION
By: /s/ D. Gilbert Friedlander By: /s/ John Mazzola
----------------------------- -----------------------------
Name: D. Gilbert Friedlander Name: John Mazzola
Title: Senior Vice President Title: President
<PAGE>
EXHIBIT 10.10
UNIGRAPHICS SOLUTIONS INC.
1998 INCENTIVE PLAN
1. PLAN. This Unigraphics Solutions Inc. 1998 Incentive Plan (the "Plan") has
been adopted by Unigraphics Solutions Inc., a Delaware corporation (the
"Company"), to be effective as of the Effective Date stated below for the
purpose stated in paragraph 2 below.
2. OBJECTIVES. This Plan is designed to attract and retain key Employees (as
hereinafter defined), to attract and retain qualified directors of the
Company, to encourage the sense of proprietorship of such employees and
Directors, and to stimulate the active interest of such persons in the
development and financial success of the Company and its Subsidiaries. These
objectives are to be accomplished by making Awards (as hereinafter defined)
under this Plan and thereby providing Participants (as hereinafter defined)
with a proprietary interest in the growth and performance of the Company and
its Subsidiaries.
3. DEFINITIONS. As used herein, the terms set forth below shall have the
following respective meanings:
"Annual Director Award Date" means, for each year beginning after the
Effective Date, the first business day of the month next succeeding the date
upon which the annual meeting of stockholders of the Company is held in such
year.
"Authorized Officer" means the Chairman of the Board of the Company (or any
other senior officer of the Company to whom the Chairman of the Board shall
delegate the authority to execute any Award Agreement).
"Award" means an Employee Award or a Director Award.
"Award Agreement" means any Employee Award Agreement or Director Award
Agreement.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation Committee of the Board or such other
committee of the Board as is designated by the Board to administer the Plan.
"Common Stock" means the Class A Common Stock, par value $.01 per share, of
the Company.
"Director" means an individual serving as a member of the Board.
"Director Award" means the grant of a Director Option.
"Director Award Agreement" means a written agreement between the Company
and a Participant who is a Nonemployee Director setting forth the terms,
conditions and limitations applicable to a Director Award.
"Director Options" means Nonqualified Options granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations
specified in paragraph 9 hereof.
"Disability" means, with respect to a Nonemployee Director, the inability
to perform the duties of a Director for a continuous period of more than
three months by reason of any medically determinable physical or mental
impairment.
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"Dividend Equivalents" means, with respect to shares of Restricted Stock
that are to be issued at the end of the Restriction Period, an amount equal
to all dividends and other distributions (or the economic equivalent thereof)
that are payable to stockholders of record during the Restriction Period on a
like number of shares of Common Stock.
"Effective Date" means the closing date of the initial public offering of
the Common Stock.
"Employee" means an employee of the Company or any of its Subsidiaries or
any corporation which directly or indirectly owns shares representing more
than 50% of the combined voting power of the shares of all classes or series
of capital stock of the Company which have the right to vote generally on
matters submitted to a vote of the stockholders of the Company.
"Employee Award" means the grant of any Option, SAR, Stock Award, Cash
Award or Performance Award, whether granted singly, in combination or in
tandem, to a Participant who is an Employee pursuant to such applicable
terms, conditions and limitations as the Committee may establish in order to
fulfill the objectives of the Plan.
"Employee Award Agreement" means a written agreement between the Company
and a Participant who is an Employee setting forth the terms, conditions and
limitations applicable to an Employee Award.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" of a share of Common Stock means, as of the Effective
Date the Price to Public of the Common Stock in connection with the initial
public offering of the Common Stock, and as of any subsequent date, (i) if
shares of Common Stock are listed on a national securities exchange, the mean
between the highest and lowest sales price per share of Common Stock on the
consolidated transaction reporting system for the principal national
securities exchange on which shares of Common Stock are listed on that date,
or, if there shall have been no such sale so reported on that date, on the
last preceding date on which such a sale was so reported, (ii) if shares of
Common Stock are not so listed but are quoted on the Nasdaq National Market,
the mean between the highest and lowest sales price per share of Common Stock
reported by the Nasdaq National Market on that date, or, if there shall have
been no such sale so reported on that date, on the last preceding date on
which such a sale was so reported or (iii) if shares of Common Stock are not
so listed or quoted but are traded in the over-the-counter market, the mean
between the closing bid and asked price on that date, or, if there are no
quotations available for such date, on the last preceding date on which such
quotations shall be available, as reported by the Nasdaq Stock Market, or, if
not reported by the Nasdaq Stock Market, by the National Quotation Bureau
Incorporated.
"Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.
"Nonemployee Director" has the meaning set forth in paragraph 4(b) hereof.
"Nonqualified Stock Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of Common
Stock at a specified price.
"Participant" means an Employee or Director to whom an Award has been made
under this Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee that is subject to the attainment of one or
more Performance Goals.
"Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.
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"Restricted Stock" means any Common Stock that is restricted or subject to
forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date upon
which an Award of Restricted Stock is made pursuant to this Plan and ending
as of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any
successor rule.
"SAR" means a right to receive a payment, in cash or Common Stock, equal to
the excess of the Fair Market Value or other specified valuation of a
specified number of shares of Common Stock on the date the right is exercised
over a specified strike price (in each case, as determined by the Committee).
"Stock Award" means an award in the form of shares of Common Stock or units
denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any corporation of
which the Company directly or indirectly owns shares representing more than
50% of the combined voting power of the shares of all classes or series of
capital stock of such corporation which have the right to vote generally on
matters submitted to a vote of the stockholders of such corporation and (ii)
in the case of a partnership or other business entity not organized as a
corporation, any such business entity of which the Company directly or
indirectly owns more than 50% of the voting, capital or profits interests
(whether in the form of partnership interests, membership interests or
otherwise).
4. ELIGIBILITY.
(a) Employees. Employees eligible for Employee Awards under this Plan are
those who hold positions of responsibility and whose performance, in the
judgment of the Committee, can have a significant effect on the success
of the Company and its Subsidiaries, or whose services to the Company
can, in the Committee's sole determination, be better recruited or
retained through participation in the Plan.
(b) Directors. Directors eligible for Director Awards under this Plan are
those who are not employees of the Company or any of its Subsidiaries
("Nonemployee Directors").
5. COMMON STOCK AVAILABLE FOR AWARDS. Subject to the provisions of paragraph 15
hereof, there shall be available for Awards under this Plan granted wholly or
partly in Common Stock (including rights or options that may be exercised for
or settled in Common Stock) an aggregate of 1,300,000 shares of Common Stock,
of which an aggregate of not more than 100,000 shares shall be available for
Director Awards and the remainder shall be available for Employee Awards.
The number of shares of Common Stock that are the subject of Awards under
this Plan, that are forfeited or terminated, expire unexercised, are settled
in cash in lieu of Common Stock or in a manner such that all or some of the
shares covered by an Award are not issued to a Participant or are exchanged
for Awards that do not involve Common Stock, shall again immediately become
available for Awards hereunder. The Committee may from time to time adopt
and observe such procedures concerning the counting of shares against the
Plan maximum as it may deem appropriate. The Board and the appropriate
officers of the Company shall from time to time take whatever actions are
necessary to file any required documents with governmental authorities, stock
exchanges and transaction reporting systems to ensure that shares of Common
Stock are available for issuance pursuant to Awards.
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6. ADMINISTRATION.
(a) This Plan, as it applies to Participants who are Employees but not with
respect to Participants who are Nonemployee Directors, shall be
administered by the Committee. To the extent required in order for
Employee Awards to be exempt from Section 16 of the Exchange Act by
virtue of the provisions of Rule 16b-3, the Committee shall consist of at
least two members of the Board who meet the requirements of the
definition of "Non-Employee Director" set forth in Rule 16b-3(b)(3)(i)
promulgated under the Exchange Act.
(b) Subject to the provisions hereof, insofar as this Plan relates to the
Employee Awards, the Committee shall have full and exclusive power and
authority to administer this Plan and to take all actions that are
specifically contemplated hereby or are necessary or appropriate in
connection with the administration hereof. Insofar as this Plan relates
to Employee Awards, the Committee shall also have full and exclusive
power to interpret this Plan and to adopt such rules, regulations and
guidelines for carrying out this Plan as it may deem necessary or proper,
all of which powers shall be exercised in the best interests of the
Company and in keeping with the objectives of this Plan. The Committee
may, in its discretion, provide for the extension of the exercisability
of an Employee Award, accelerate the vesting or exercisability of an
Employee Award, eliminate or make less restrictive any restrictions
contained in an Employee Award, waive any restriction or other provision
of this Plan or an Employee Award or otherwise amend or modify an
Employee Award in any manner that is either (i) not adverse to the
Participant to whom such Employee Award was granted or (ii) consented to
by such Participant. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in this Plan or in any Employee
Award in the manner and to the extent the Committee deems necessary or
desirable to further the purposes of the Plan. Any decision of the
Committee in the interpretation and administration of this Plan shall lie
within its sole and absolute discretion and shall be final, conclusive
and binding on all parties concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted to
be done by him or her, by any member of the Committee or by any officer
of the Company in connection with the performance of any duties under
this Plan, except for his or her own willful misconduct or as expressly
provided by statute.
7. DELEGATION OF AUTHORITY. The Committee may delegate to the Chairman of the
Board and to other senior officers of the Company its duties under this Plan
pursuant to such conditions or limitations as the Committee may establish,
except that the Committee may not delegate to any person the authority to
grant Awards to, or take other action with respect to, Participants who are
subject to Section 16 of the Exchange Act or Section 162(m) of the Code.
8. EMPLOYEE AWARDS.
(a) The Committee shall determine the type or types of Employee Awards to be
made under this Plan and shall designate from time to time the Employees
who are to be the recipients of such Awards. Each Employee Award may be
embodied in an Employee Award Agreement, which shall contain such terms,
conditions and limitations as shall be determined by the Committee in its
sole discretion and shall be signed by the Participant to whom the
Employee Award is made and by an Authorized Officer for and on behalf of
the Company. Employee Awards may consist of those listed in this
paragraph 8(a) hereof and may be granted singly, in combination or in
tandem. Employee Awards may also be made in combination or in tandem
with, in replacement of, or as alternatives to, grants or rights under
this Plan or any other employee plan of the Company or any of its
Subsidiaries, including the plan of any acquired entity; provided that no
Option may be issued in exchange for the cancellation of an Option with a
lower exercise price. An Employee Award may provide for the grant or
issuance of additional, replacement or alternative Employee Awards upon
the occurrence of specified events, including the exercise of the
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original Employee Award granted to a Participant. All or part of an
Employee Award may be subject to conditions established by the Committee,
which may include, but are not limited to, continuous service with the
Company and its Subsidiaries, achievement of specific business
objectives, increases in specified indices, attainment of specified
growth rates and other comparable measurements of performance. Upon the
termination of employment by a Participant who is an Employee, any
unexercised, deferred, unvested or unpaid Employee Awards shall be
treated as set forth in the applicable Employee Award Agreement.
(i) Stock Option. An Employee Award may be in the form of an Option.
An Option awarded pursuant to this Plan may consist of an Incentive
Option or a Nonqualified Option. The price at which shares of
Common Stock may be purchased upon the exercise of an Incentive
Option shall be not less than the Fair Market Value of the Common
Stock on the date of grant. The price at which shares of Common
Stock may be purchased upon the exercise of a Nonqualified Option
shall be not less than, but may exceed, the Fair Market Value of
the Common Stock on the date of grant. Subject to the foregoing
provisions, the terms, conditions and limitations applicable to any
Options awarded pursuant to this Plan, including the term of any
Options and the date or dates upon which they become exercisable,
shall be determined by the Committee.
(ii) Stock Appreciation Right. An Employee Award may be in the form of
an SAR. The terms, conditions and limitations applicable to any
SARs awarded pursuant to this Plan, including the term of any SARs
and the date or dates upon which they become exercisable, shall be
determined by the Committee.
(iii) Stock Award. An Employee Award may be in the form of a Stock
Award. The terms, conditions and limitations applicable to any
Stock Awards granted pursuant to this Plan shall be determined by
the Committee.
(iv) Cash Award. An Employee Award may be in the form of a Cash Award.
The terms, conditions and limitations applicable to any Cash Awards
granted pursuant to this Plan shall be determined by the Committee.
(v) Performance Award. Without limiting the type or number of Employee
Awards that may be made under the other provisions of this Plan, an
Employee Award may be in the form of a Performance Award. A
Performance Award shall be paid, vested or otherwise deliverable
solely on account of the attainment of one or more pre-established,
objective Performance Goals established by the Committee prior to
the earlier to occur of (x) 90 days after the commencement of the
period of service to which the Performance Goal relates and (y) the
elapse of 25% of the period of service (as scheduled in good faith
at the time the goal is established), and in any event while the
outcome is substantially uncertain. A Performance Goal is objective
if a third party having knowledge of the relevant facts could
determine whether the goal is met. Such a Performance Goal may be
based on one or more business criteria that apply to the
individual, one or more business units of the Company, or the
Company as a whole, and may include one or more of the following:
increased revenue, net income, stock price, market share, earnings
per share, return on equity, return on assets or decrease in costs.
Unless otherwise stated, such a Performance Goal need not be based
upon an increase or positive result under a particular business
criterion and could include, for example, maintaining the status
quo or limiting economic losses (measured, in each case, by
reference to specific business criteria). In interpreting Plan
provisions applicable to Performance Goals and Performance Awards,
it is the intent of the Plan to conform with the standards of
Section 162(m) of the Code and Treasury Regulations
(S) 1.162-27(e)(2)(i), and the Committee in establishing such goals
and interpreting the Plan shall be guided by such provisions. Prior
to the payment of any compensation based on the achievement of
Performance Goals, the Committee must certify in writing that
applicable Performance Goals and any of the material terms thereof
were, in fact, satisfied. Subject to the foregoing provisions, the
terms, conditions and limitations
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applicable to any Performance Awards made pursuant to this Plan
shall be determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this Plan, the
following limitations shall apply to any Employee Awards made hereunder:
(i) no Participant may be granted, during any one-year period, Employee
Awards consisting of Options or SARs that are exercisable for more
than 200,000 shares of Common Stock;
(ii) no Participant may be granted, during any one-year period, Employee
Awards consisting of shares of Common Stock or units denominated in
such shares (other than any Employee Awards consisting of Options
or SARs) covering or relating to more than 100,000 shares of Common
Stock (the limitation set forth in this clause (ii), together with
the limitation set forth in clause (i) above, being hereinafter
collectively referred to as the "Stock Based Awards Limitations");
and
(iii) no Participant may be granted Employee Awards consisting of cash or
in any other form permitted under this Plan (other than Employee
Awards consisting of Options or SARs or otherwise consisting of
shares of Common Stock or units denominated in such shares) in
respect of any one-year period having a value determined on the
date of grant in excess of $2,000,000.
9. DIRECTOR AWARDS. Each Nonemployee Director of the Company shall be granted
Director Awards in accordance with this paragraph 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the
contrary contained herein, Director Awards shall not be made in any year in
which a sufficient number of shares of Common Stock are not available to make
such Awards under this Plan.
(a) Automatic Director Options. On the date of his or her initial election
to the Board, each Nonemployee Director shall be automatically awarded a
Director Option that provides for the purchase of 3000 shares of Common
Stock. In addition, on each Annual Director Award Date, each Nonemployee
Director shall automatically be granted a Director Option that provides
for the purchase of 3000 shares of Common Stock. In the event that a
Nonemployee Director is elected after the Effective Date otherwise than
by election at an annual meeting of stockholders of the Company, on the
date of his or her election, such Nonemployee Director shall
automatically be granted a Director Option that provides for the purchase
of a number of shares of Common Stock (rounded up to the nearest whole
number) equal to the product of (i) 3000 and (ii) a fraction the
numerator of which is the number of days between the election of such
Nonemployee Director and the next scheduled Annual Director Award Date
(or, if no such date has been scheduled, the first anniversary of the
immediately preceding Annual Director Award Date) and the denominator of
which is 365. Each Director Option shall have a term of ten years from
the date of grant, notwithstanding any earlier termination of the status
of the holder as a Nonemployee Director. The purchase price of each
share of Common Stock subject to a Director Option shall be equal to the
Fair Market Value of the Common Stock on the date of grant. All Director
Options shall vest and become exercisable in increments of one-third of
the total number of shares of Common Stock that are subject thereto
(rounded up to the nearest whole number) on the first and second
anniversaries of the date of grant and of all remaining shares of Common
Stock that are subject thereto on the third anniversary of the date of
grant. All unvested Director Options shall be forfeited if the
Nonemployee Director resigns as a Director without the consent of a
majority of the other Directors.
(b) Elective Director Options. In addition to the Director Options
automatically awarded pursuant to the immediately preceding paragraph, a
Nonemployee Director may make an annual election to receive, in lieu of
all or any portion of the Director's fees he would otherwise be entitled
to receive in cash during the next year (including both annual retainer
and meeting fees), Director Options that provide for the purchase of a
number of shares of Common Stock (rounded up to the nearest whole number)
equal to the product of (x) three times (y) a fraction the numerator of
which is equal to the dollar amount of fees the Nonemployee Director
elects to forego in the next year in exchange for Director Options and
the
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denominator of which is equal to the Fair Market Value of the Common
Stock on the effective date of the election. Each annual election made
by a Nonemployee Director pursuant to this paragraph 9(b), (i) shall take
the form of a written document signed by such Nonemployee Director and
filed with the Secretary of the Company, (ii) shall designate the dollar
amount of the fees the Nonemployee Director elects to forego in the next
year in exchange for Director Options and (iii) to the extent provided by
the Committee in order to ensure that the Award of the Director Options
is exempt from Section 16 by virtue of Rule 16b-3, shall be irrevocable
and shall be made prior to the date as of which such Award of Director
Options is to be effective. An Award of Director Options at the election
of a Nonemployee Director shall be effective on the next Annual Director
Award Date.
Any Award of Director Options shall be embodied in a Director Award
Agreement, which shall contain the terms, conditions and limitations set
forth above and shall be signed by the Participant to whom the Director
Options are granted and by an Authorized Officer for and on behalf of the
Company.
10. PAYMENT OF AWARDS.
(a) General. Payment of Employee Awards may be made in the form of cash
or Common Stock, or a combination thereof, and may include such
restrictions as the Committee shall determine, including, in the case
of Common Stock, restrictions on transfer and forfeiture provisions.
If payment of an Employee Award is made in the form of Restricted
Stock, the Employee Award Agreement relating to such shares shall
specify whether they are to be issued at the beginning or end of the
Restriction Period. In the event that shares of Restricted Stock are
to be issued at the beginning of the Restriction Period, the
certificates evidencing such shares (to the extent that such shares
are so evidenced) shall contain appropriate legends and restrictions
that describe the terms and conditions of the restrictions applicable
thereto. In the event that shares of Restricted Stock are to be
issued at the end of the Restricted Period, the right to receive such
shares shall be evidenced by book entry registration or in such other
manner as the Committee may determine.
(b) Deferral. With the approval of the Committee, payments in respect of
Employee Awards may be deferred, either in the form of installments
or a future lump-sum payment. The Committee may permit selected
Participants to elect to defer payment of some or all types of
Employee Awards in accordance with procedures established by the
Committee. Any deferred payment of an Employee Award, whether elected
by the Participant or specified by the Employee Award Agreement or by
the Committee, may be forfeited if and to the extent that the
Employee Award Agreement so provides.
(c) Dividends and Interest. Rights to dividends or Dividend Equivalents
may be extended to and made part of any Employee Award consisting of
shares of Common Stock or units denominated in shares of Common
Stock, subject to such terms, conditions and restrictions as the
Committee may establish. The Committee may also establish rules and
procedures for the crediting of interest on deferred cash payments
and Dividend Equivalents for Employee Awards consisting of shares of
Common Stock or units denominated in shares of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant who is an Employee may be offered an election to
substitute an Employee Award for another Employee Award or Employee
Awards of the same or different type.
11. STOCK OPTION EXERCISE. The price at which shares of Common Stock may be
purchased under an Option shall be paid in full at the time of exercise
in cash or, if elected by the optionee, the optionee may purchase such
shares by means of tendering Common Stock or surrendering another Award,
including Restricted Stock, valued at Fair Market Value on the date of
exercise, or any combination thereof. The Committee shall determine
acceptable methods for Participants who are Employees to tender Common
Stock or other Employee Awards; provided that any Common Stock that is or
was the subject of an Employee Award may be so tendered only if it has
been held by the Participant for six months. The Committee may provide
for procedures to permit the exercise or purchase of such Awards by use
of the
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proceeds to be received from the sale of Common Stock issuable pursuant
to an Employee Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as
consideration for the exercise of an Option, a number of the shares
issued upon the exercise of the Option, equal to the number of shares of
Restricted Stock used as consideration therefor, shall be subject to the
same restrictions as the Restricted Stock so submitted as well as any
additional restrictions that may be imposed by the Committee.
12. TAX WITHHOLDING. The Company shall have the right to deduct applicable
taxes from any Employee Award payment and withhold, at the time of
delivery or vesting of cash or shares of Common Stock under this Plan, an
appropriate amount of cash or number of shares of Common Stock or a
combination thereof for payment of taxes required by law or to take such
other action as may be necessary in the opinion of the Company to satisfy
all obligations for withholding of such taxes. The Committee may also
permit withholding to be satisfied by the transfer to the Company of
shares of Common Stock theretofore owned by the holder of the Employee
Award with respect to which withholding is required. If shares of Common
Stock are used to satisfy tax withholding, such shares shall be valued
based on the Fair Market Value when the tax withholding is required to be
made. The Committee may provide for loans, on either a short term or
demand basis, from the Company to a Participant who is an Employee to
permit the payment of taxes required by law.
13. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION. The Board may amend,
modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose
permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant, and (ii) no amendment or alteration shall be effective prior
to its approval by the stockholders of the Company to the extent such
approval is then required pursuant to Rule 16b-3 in order to preserve the
applicability of any exemption provided by such rule to any Award then
outstanding (unless the holder of such Award consents) or to the extent
stockholder approval is otherwise required by applicable legal
requirements.
14. ASSIGNABILITY. Unless otherwise determined by the Committee and provided
in the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-1(c)
under the Exchange Act shall be assignable or otherwise transferable
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder.
The Committee may prescribe and include in applicable Award Agreements
other restrictions on transfer. Any attempted assignment of an Award or
any other benefit under this Plan in violation of this paragraph 14 shall
be null and void.
15. ADJUSTMENTS.
(a) The existence of outstanding Awards shall not affect in any manner
the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations
or other changes in the capital stock of the Company or its business
or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock (whether or not such
issue is prior to, on a parity with or junior to the Common Stock) or
the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding of any kind, whether or not of a
character similar to that of the acts or proceedings enumerated
above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares
of Common Stock or other stock split, then (i) the number of shares
of Common Stock reserved under this Plan, (ii) the number of shares
of Common Stock covered by outstanding Awards in the form of Common
Stock or units denominated in Common Stock, (iii) the exercise or
other price in respect of such Awards, (iv) the appropriate Fair
Market Value and other
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price determinations for such Awards, (v) the number of shares of
Common Stock covered by Director Options automatically granted
pursuant to paragraph 9 hereof, and (vi) the Stock Based Awards
Limitations shall each be proportionately adjusted by the Board to
reflect such transaction. In the event of any other recapitalization
or capital reorganization of the Company, any consolidation or merger
of the Company with another corporation or entity, the adoption by
the Company of any plan of exchange affecting the Common Stock or any
distribution to holders of Common Stock of securities or property
(other than normal cash dividends or dividends payable in Common
Stock), the Board shall make appropriate adjustments to (i) the
number of shares of Common Stock covered by Awards in the form of
Common Stock or units denominated in Common Stock, (ii) the exercise
or other price in respect of such Awards, (iii) the appropriate Fair
Market Value and other price determinations for such Awards, (iv) the
number of shares of Common Stock covered by Director Options
automatically granted pursuant to paragraph 9 hereof, and (v) the
Stock Based Awards Limitations to give effect to such transaction
shall each be proportionately adjusted by the Board to reflect such
transaction; provided that such adjustments shall only be such as are
necessary to maintain the proportionate interest of the holders of
the Awards and preserve, without exceeding, the value of such Awards.
In the event of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the
Board shall be authorized to issue or assume Awards by means of a
substitution of new Awards, as appropriate, for previously issued
Awards or an assumption of previously issued Awards as part of such
adjustment.
16. RESTRICTIONS. No Common Stock or other form of payment shall be issued with
respect to any Award unless the Company shall be satisfied based on the
advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. It is the intent of the
Company that this Plan comply with Rule 16b-3 with respect to persons
subject to Section 16 of the Exchange Act unless otherwise provided herein
or in an Award Agreement, that any ambiguities or inconsistencies in the
construction of this Plan be interpreted to give effect to such intention,
and that if any provision of this Plan is found not to be in compliance with
Rule 16b-3, such provision shall be null and void to the extent required to
permit this Plan to comply with Rule 16b-3. Certificates evidencing shares
of Common Stock delivered under this Plan (to the extent that such shares
are so evidenced) may be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, any securities exchange or transaction reporting system upon
which the Common Stock is then listed or to which it is admitted for
quotation and any applicable federal or state securities law. The Committee
may cause a legend or legends to be placed upon such certificates (if any)
to make appropriate reference to such restrictions.
17. UNFUNDED PLAN. Insofar as it provides for Awards of cash, Common Stock or
rights thereto, this Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Participants who are entitled to cash,
Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required
to segregate any assets that may at any time be represented by cash, Common
Stock or rights thereto, nor shall this Plan be construed as providing for
such segregation, nor shall the Company, the Board or the Committee be
deemed to be a trustee of any cash, Common Stock or rights thereto to be
granted under this Plan. Any liability or obligation of the Company to any
Participant with respect to an Award of cash, Common Stock or rights thereto
under this Plan shall be based solely upon any contractual obligations that
may be created by this Plan and any Award Agreement, and no such liability
or obligation of the Company shall be deemed to be secured by any pledge or
other encumbrance on any property of the Company. Neither the Company nor
the Board nor the Committee shall be required to give any security or bond
for the performance of any obligation that may be created by this Plan.
18. GOVERNING LAW. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of
Delaware.
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EXHIBIT 10.12
PERSONAL SERVICES AGREEMENT
THIS PERSONAL SERVICES AGREEMENT ("Agreement") is entered into between
UNIGRAPHIC SOLUTIONS INC. ("UGSI") and JOHN J. MAZZOLA ("Executive"), to be
effective the 1st day of March, 1998 ("Effective Date").
RECITALS
WHEREAS, UGSI desires to employ Executive pursuant to the terms and
conditions and for the consideration set forth in this Agreement, and Executive
desires to enter the employ of UGSI pursuant to such terms and conditions and
for such consideration;
WHEREAS, The provisions of this Agreement are a condition of Executive's
being employed by UGSI, of Executive's having access to confidential business
and technological information, and Executive's being eligible to receive certain
benefits at UGSI. This Agreement is entered into, and is reasonably necessary,
to protect confidential information and customer relationships to which
Executive may have access, and to protect the goodwill and other business
interests of UGSI; and,
WHEREAS, The provisions of this Agreement are also a condition of
Executive's agreeing to provide personal services to UGSI.
NOW, THEREFORE, in consideration of the mutual promises and covenants
agreed to herein, the receipt and sufficiency of which are hereby acknowledged,
UGSI and Executive agree as follow:
SECTION 1. EMPLOYMENT DUTIES
1.1 UGSI agrees to employ Executive, and Executive agrees to be employed
by UGSI, beginning as of the Effective Date and continuing throughout the term
as specified in paragraph 3.1 (the "Term"). Executive shall be employed in the
position of President and Chief Executive Officer for UGSI. Executive shall
faithfully and diligently render such services and perform such related duties
and responsibilities as are customarily performed by a person holding such
corporate title and as otherwise may from time to time be reasonably assigned to
Executive. Executive shall comply with provisions of this Agreement and shall
at all times be subject to such UGSI policies and procedures, including, but not
limited to, the UGSI Code of Conduct, as UGSI may from time to time establish as
pertaining to Executive.
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SECTION 2. COMPENSATION AND BENEFITS
2.1 For the term of this Agreement, UGSI shall pay Executive a salary of
not less than SEVENTEEN THOUSAND FIVE HUNDRED AND 00/100 DOLLARS ($17,500.00)
per month to be paid in semi-monthly payments.
2.2 Executive shall be entitled to annual bonuses, payable as follows:
2.2.1 Executive shall be eligible for a bonus equal to ONE HUNDRED
AND SEVENTY-FIVE THOUSAND AND 00/100 DOLLARS ($175,000.00) to be paid on or
before the first anniversary of the Effective Date of this Agreement. The
bonus will be based upon the actual financial performance of UGSI in
relation to the projected approved business plan as determined by the
Oversight Committee of UGSI.
2.2.2 Executive shall be eligible to participate in UGSI's
Executive Bonus Plan, for the first calendar year following the Effective
Date.
2.1.3 All bonus payments in excess of the first year bonus
specified in paragraph 2.2.1 are contingent upon Executive's not having
been discharged for Cause (as such term is defined in paragraph 3.1) by
UGSI or Executive's not having voluntarily terminated his employment under
paragraph 3.1.2 at the time each particular payment is due.
2.3 In the event that there is an initial public offering of the common
stock of UGSI (an "IPO"), then UGSI agrees to grant stock options to Executive
in accordance with a stock option plan to be maintained by UGSI. Such grant
shall be for an option to purchase ONE HUNDRED THOUSAND (100,000) shares of the
Class A common stock of UGSI (which is the class of common stock which would be
issued in connection with an IPO). Executive shall become vested in such shares
over a three-year period, with one-third of the options vesting on January 1,
1999; one-third of the options vesting on January 1, 2000; and the balance of
all unvested options shall vest on January 1, 2001. Any unvested options shall
be forfeited immediately upon Executive's termination of employment for any
reason other than death, termination without Cause as defined in paragraph
3.1.3, or termination by Executive for Cause as defined in paragraph 3.1.5, in
each of which events vesting shall continue in accordance with the vesting
schedule set forth herein. For purposes of determining the number of shares in
which the Executive will vest, all numbers shall be rounded up to the next
highest whole number so that options will not vest in fractions. Executive
shall have 10 years from the Effective Date of this Agreement to exercise his
purchase option. The exercise price of the option shares awarded to Executive
shall be the IPO price of a share of UGSI Class A Common Stock (as stated on a
registration statement on Form S-1 filed by UGSI with, and declared effective
by, the Securities and Exchange Commission).
2.4 EDS Incentive Plan. For so long as Executive is an employee of
UGSI, Executive shall continue to vest in any and all grants awarded through the
Effective Date to Executive
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under the 1996 Incentive Plan of the Electronic Data Systems Corporation or any
predecessor plan ("Incentive Plan"). Notwithstanding anything to the contrary
herein, after the Effective Date Executive shall not be eligible for any awards
under the Incentive Plan.
SECTION 3. TERM AND TERMINATION
3.1 Executive's employment under this Agreement may not be terminated by
the parties except as follows:
3.1.1 Termination and Extension. Unless extended in accordance
with the provisions of this paragraph, this Agreement shall automatically
terminate two years from the Effective Date. This Agreement shall
automatically extend for additional one-year terms unless either party
delivers to the other party, at least 60 days prior to the expiration of
the Agreement, written notice of such party's intent to terminate the
Agreement. Such notice to Executive must be delivered to Executive's
address then on record with the UGSI. Notice to UGSI must be delivered to
the then Chief Executive Officer at the designated headquarters of UGSI.
3.1.2 Executive's Voluntary Termination. Executive may terminate
his employment with UGSI at any time for any reason whatsoever, by giving
60 days' written notice to UGSI.
3.1.3 Termination With Notice. UGSI may terminate Executive's
employment at any time for any reason whatsoever by giving 60 days' written
notice to Executive.
3.1.4 Termination for Cause. UGSI may terminate Executive's
employment at any time for Cause. For purposes of this paragraph, the term
"Cause" shall mean: (a) gross or habitual neglect of duties or misconduct
in the performance of the duties and services required of Executive
pursuant to this Agreement; (b) conduct of Executive which is materially
detrimental to UGSI's reputation or business operations or its ability to
secure or renew future contracts; (c) Executive's conviction of a felony or
of a misdemeanor involving moral turpitude; (d) Executive's breach of a
material provision of this Agreement which remains uncorrected for 30 days
following written notice to the Executive by UGSI of such breach; (e)
continued failure or refusal of Executive to faithfully, diligently and
competently perform the usual and customary duties of his employment; or
(f) failure or refusal of Executive to materially comply with the policies,
standards and regulations of UGSI as from time to time may be made known to
Executive.
3.1.5 Executive's Termination for Cause. Executive may terminate
his employment with UGSI at any time for Cause. For purposes of this
paragraph 3.1.5, the term "Cause" shall mean a material breach of a
material provision of this Agreement which remains uncorrected for 30 days
following written notice to UGSI by Executive of such breach.
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3.1.6 Termination Upon Death or Incapacity. Executive's employment
will also terminate immediately upon Executive's death or incapacity by
reason of accident, sickness, or other circumstance which renders Executive
mentally or physically incapable of performing the duties and services
required hereunder.
3.2 The effects of termination of the employment relationship shall be
as follows:
3.2.1 Termination of Benefits. In the event of Executive's
voluntary termination of employment pursuant to paragraph 3.1.2 or the
termination of Executive's employment by UGSI for Cause pursuant to
paragraph 3.1.4, UGSI shall have no further obligation to provide Executive
with any benefits and/or payments, except as required by law or the terms
of a controlling benefit or stock plan or policy and the payment of any
salary or bonus accrued to the Termination Date.
3.2.2 Death and Disability Benefits. In the event of the
termination of the employment relationship by reason of death or incapacity
under paragraph 3.1.6, UGSI shall pay Executive his salary to the date of
his death or incapacity and the right of Executive or Executive's heirs to
compensation thereafter shall be governed by the applicable death,
disability, pension, insurance or other written benefit plans or policy.
3.2.3 Salary Continuation Under Limited Circumstances. In the
event UGSI terminates the employment of Executive with notice as set forth
in paragraph 3.1.3, or Executive terminates the employment relationship for
Cause under paragraph 3.1.5, UGSI will pay to Executive an amount equal to
one year of his salary and any bonus to which Executive might otherwise be
entitled. Any unvested UGSI stock options shall continue to vest in
accordance with the vesting schedule set forth in paragraph 2.3.
3.2.4 Employment at Will After Termination of Agreement. If, upon
the termination of this Agreement pursuant to paragraph 3.1.1, the parties
to this Agreement agree that Executive shall remain employed by UGSI, then
Executive's employment with UGSI will continue in accordance with, and
subject to, the terms and conditions of this Agreement, except that
Executive's continued employment will not be for any specific term but will
be at-will and either UGSI or Executive may terminate the employment
relationship at any time for any reason whatsoever. If UGSI then terminates
the employment of Executive pursuant to paragraph 3.1.3 or Executive
terminates the relationship for Cause pursuant to paragraph 3.1.5,
Executive shall be entitled to his salary and bonus through the date of
termination. If UGSI terminates the employment of Executive for Cause
pursuant to paragraph 3.1.4 or Executive voluntarily terminates his
employment pursuant to paragraph 3.1.2, Executive shall be entitled to his
salary through the date of termination and no bonus payments.
3.2.5 Termination Date. Executive's termination of employment
shall be effective on the date coincident with the occurrence of a
terminating event as described in
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this Section 3, or such other date as determined by the Board of Directors
of UGSI. The effective date of Executive's termination of employment shall
be the "Termination Date."
SECTION 4. EXECUTIVE'S NON-COMPETITION AND NON-SOLICITATION OBLIGATIONS
4.1 Executive's Services for Exclusive Benefit of UGSI. While employed
by UGSI, Executive shall devote Executive's full business time and best efforts
to the performance of his duties and responsibilities hereunder and shall not
engage in any other employment or business venture without the prior, written
consent of an officer of UGSI.
4.2 Surviving Covenants. If Executive's employment at UGSI is
terminated by either UGSI or Executive for any reason except Executive's death,
all covenants set forth in this Section 4 shall survive such termination. While
employed by UGSI and for a period of twelve (12) months thereafter, Executive
shall not directly or indirectly, individually or as an employee, contractor,
consultant, partner, officer, director or stockholder (other than as a holder of
less than five percent of the equity of a publicly traded company) or in any
other capacity, engage in any of the following conduct:
4.2.1 Non-Compete and Proprietary Rights. Perform duties as or for
a Competitor of UGSI (i) which are in either the industry(ies) or
geographic location(s) in which Executive performed services for UGSI in
the most recent five years of Executive's UGSI employment and which are the
same or substantially similar to the duties performed by Executive at UGSI;
or (ii) which involve the use of any Confidential Information or
Innovations (as defined in paragraph 5.8, below) which Executive has
received, obtained or acquired during, or as a consequence of, Executive's
employment with UGSI; or
4.2.2 Employment by Customer. Perform duties for any current
customer or prospective customer of UGSI with which Executive has had
business contact during the most recent five years of his employment at
UGSI.
4.2 Impermissible Conduct Without Proper Approval. During the time of
Executive's employment with UGSI and for a period of twelve (12) months
thereafter, without the express, prior written consent of an UGSI officer,
Executive shall not engage in any of the following conduct:
4.3.1 Hiring Away UGSI Employees. Hire, attempt to hire, or assist
any other person or entity in hiring or attempting to hire any current
employee of UGSI or any person who was an UGSI employee within the
six-month period prior to the termination of Executive's employment; or
4.3.2 Competition. Solicit, divert, or take away, in competition
with UGSI, the business or patronage of any current UGSI customer or any
prospective customer with which Executive has had business contact during
his employment at UGSI. This
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restriction shall not apply to any person or entity who is no longer a
customer or prospective customer at the time of any such solicitation by
Executive.
4.3 Automatic Extension of Restrictive Period. Executive agrees that if
he acts in violation of paragraph 4.2 or paragraph 4.3 of this Agreement, the
number of days that such violation exists will be added to any period of
limitations on the specific activities.
4.4 Executive's Acknowledgment of Reasonableness of Limitations.
Executive acknowledges that the limitations set forth in Section 4 of this
Agreement, are reasonable and necessary to protect the valid business interests
and goodwill of UGSI. Executive further acknowledges that UGSI is engaged in
the business of providing information technology and related services to
customers located throughout the United States and the World, and that UGSI
actively solicits business and services customers throughout this territory.
4.5 Competitor Defined. As used in this paragraph 4, the term
"Competitor" means an individual, business or any other entity or enterprise
engaged in, or having publicly announced its intent to engage in business that
is substantially similar to UGSI's business, or the business of UGSI's parent,
subsidiaries or affiliates.
SECTION 5. UGSI'S PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
5.1 Prohibited Use of Confidential Information or Innovations After
Termination. If Executive's employment at UGSI is terminated by either UGSI or
Executive for any reason (including Executive's death), this Section 5 shall
survive such termination. Both during and after the term of Executive's
employment, Executive will not, directly or indirectly, use or disclose any
Confidential Information or Innovations, without the express, prior written
consent of an UGSI officer, except as may be necessary to perform Executive's
duties for the benefit of UGSI during Executive's employment with UGSI. The
restrictions set forth in this paragraph 5.1 will last throughout Executive's
employment with UGSI and for a period of 10 years following the termination of
Executive's employment, with the exception of trade secrets, trademarks,
copyrights and patents, for which the restrictions herein regarding disclosure
or use shall last in perpetuity or for such other maximum period as the law
allows.
5.2 Return of UGSI Property. Upon termination of Executive's
employment, Executive will promptly return to UGSI any UGSI hardware or software
in Executive's possession or control, and all documents, information and
materials of any nature pertaining to Executive's work with UGSI, or relating to
the business of UGSI. Furthermore, Executive will not take any software,
documents or materials or copies thereof containing Confidential Information or
Innovations.
5.3 Disclosure of Innovations. Executive will promptly disclose to
UGSI, or its designees, in writing, all Innovations that Executive, alone or
jointly with others, creates or first reduces to practice during the period of
Executive's employment with UGSI.
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5.4 UGSI's Ownership of Proprietary Rights. Executive hereby assigns
and agrees to assign to UGSI, its successors and assigns, Executive's entire
right, title and interest in and to: (a) any worldwide patents, patent
applications, copyrights, trade secrets and other intellectual property rights
in any Innovations; and (b) any Moral Rights that Executive may have in or with
respect to any Innovations. Executive also waives and agrees never to assert any
Moral Rights Executive may have in or with respect to any Innovations, even
after termination of Executive's employment with UGSI.
5.5 Protection of Proprietary Rights. Executive shall do all lawful
things to assist UGSI in obtaining and enforcing patents, copyrights, trade
secret rights, and other legal protections of UGSI's Innovations in any country.
Executive will execute any documents that UGSI may reasonably request for use in
obtaining or enforcing such patents, copyrights, trade secret rights and other
legal protections. Executive's obligations under this paragraph will continue
beyond the termination of Executive's employment with UGSI.
5.6 Use of Executive's Likeness. Executive authorizes UGSI to use,
reuse, and to reasonably grant others the right to use and reuse, without
additional compensation, Executive's name, photograph, likeness (including
caricature), voice, and biographical information, and any reproduction or
simulation thereof, in any media now known or hereafter developed, for valid
business purposes of UGSI.
5.7 Executive Acknowledgment of Reasonable Limitations. Executive
acknowledges that the limitations set forth in Section 5 of this Agreement are
reasonable and necessary to protect the valid business interests and goodwill of
UGSI. Executive further acknowledges that UGSI is in an industry in which both
the creation and use of information and innovation is critical to business
success, and that the protection of that information/innovation is a valid
interest of UGSI. Executive further acknowledges that signing this Agreement is
required for his having access to UGSI's confidential business and technological
information.
5.8 Definitions. As used in this Section 5, "Confidential Information"
means all business information, technological information, intellectual
property, trade secrets and other information belonging to UGSI, its parent,
subsidiaries or affiliates or relating to UGSI's business, technology,
customers, vendors, or any other party with whom UGSI agrees to hold information
of such party in confidence, which is not generally available to the public.
Also, as used in this Section 5, "Innovations" means all developments,
improvements, designs, original works of authorship, formulas, processes,
software programs, databases and trade secrets that relate to any services,
product, systems or other business(es) of UGSI, whether or not patentable,
copyrightable or protectable as trade secrets, that Executive, alone or jointly
with others, creates or first reduces to practice during the period of
Executive's employment with UGSI. Furthermore, "Moral Rights" means any right
to claim authorship of a work of authorship, to object to or prevent the
modification of any such work of authorship, or to withdraw from circulation or
control the publication or distribution of any such work of authorship. For
purposes of all provisions in this Section 5, "UGSI" mean UGSI, its parent,
subsidiaries or affiliates.
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SECTION 6. MISCELLANEOUS
6.1 Exclusion of Property of Others. Executive will not bring to UGSI
or use in the performance of his duties any documents or materials of a former
employer that are not generally available to the public or that have not been
legally transferred to UGSI.
6.2 Agreement to Testing for Controlled Substances. Executive
understands and agrees that, from time to time, Executive may be reasonably
tested to detect the presence or absence of any illegal drugs or controlled
substances and that the results of any such tests shall be released to UGSI.
6.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of any other person, association, or entity which may
hereafter acquire or succeed to all or substantially all of the business or
assets of UGSI by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise, in the same manner and to the same extent that UGSI
would be obligated under this Agreement if no succession had taken place.
Executive's rights and obligations under this Agreement are personal and such
rights, benefits, and obligations of Executive shall not be voluntarily or
involuntarily assigned, alienated, or transferred by Executive, whether by
operation of law or otherwise, without the prior, written consent of an officer
of UGSI.
6.4 Authorization to Deduct Amounts Owed. Upon Executive's separation
from employment, UGSI is authorized to deduct from Executive's final wages or
other monies due Executive any debts or amounts owed to UGSI by Executive.
6.5 Enforcement to Full Extent Permissible. If the scope of any
provision contained in this Agreement is too broad to permit enforcement of such
provision to its full extent, then such provision shall be enforced to the
maximum extent permitted by law, and the parties hereby consent that such
provision may be reformed or modified accordingly, and enforced as reformed or
modified, in any proceeding brought to enforce such provision.
6.6 Extraordinary Relief and Remedies. Executive understands and agrees
that UGSI would be irreparably damaged and that money damages cannot fully
compensate UGSI in the event that the provisions of Sections 4 or 5 of this
Agreement are violated, and agrees that UGSI shall be entitled (in addition to
any other remedy to which it may be entitled, at law or in equity) to an
injunction or injunctions to redress breaches of this Agreement and to
specifically enforce the terms and provisions hereof.
6.7 Severability. Each provision of this Agreement will be interpreted
in such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision, to the extent of such prohibition or invalidity,
shall be deemed not to be a part of this Agreement, and shall not invalidate the
remainder of such provision or the remaining provisions of this Agreement.
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6.8 Jurisdiction. Any action or proceeding arising out of or relating
to this Agreement may be commenced in any court of competent jurisdiction in
Collin County, Texas, and shall be governed by and interpreted under the laws of
Texas.
6.9 Modification or Amendment. This Agreement may not be modified or
amended except by a written instrument executed by Executive and an authorized
officer of UGSI.
IN WITNESS WHEREOF, Unigraphic Solutions Inc. and John J. Mazzola have
executed this Personal Service Agreement to be effective as of the Effective
Date.
Agreed to this 1st day of March, 1998 by and among:
EXECUTIVE
By: /S/ JOHN J. MAZZOLA
------------------------------
John J. Mazzola
Agreed To By Electronic Data UNIGRAPHIC SOLUTIONS INC.
Systems Corporation for Purposes
of Paragraph 2.4 only:
By: /S/ GARY B. MOORE By: /S/ GARY B. MOORE
---------------------------------- ---------------------------------
Gary B. Moore, Senior Vice President Gary B. Moore, Vice Chairman
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EXHIBIT 10.13
PERSONAL SERVICES AGREEMENT
THIS PERSONAL SERVICES AGREEMENT ("Agreement") is entered into between
UNIGRAPHIC SOLUTIONS INC. ("UGSI") and ANTHONY J. AFFUSO ("Executive"), to be
effective the 1st day of March, 1998 ("Effective Date").
RECITALS
WHEREAS, UGSI desires to employ Executive pursuant to the terms and
conditions and for the consideration set forth in this Agreement, and Executive
desires to enter the employ of UGSI pursuant to such terms and conditions and
for such consideration;
WHEREAS, The provisions of this Agreement are a condition of Executive's
being employed by UGSI, of Executive's having access to confidential business
and technological information, and Executive's being eligible to receive certain
benefits at UGSI. This Agreement is entered into, and is reasonably necessary,
to protect confidential information and customer relationships to which
Executive may have access, and to protect the goodwill and other business
interests of UGSI; and,
WHEREAS, The provisions of this Agreement are also a condition of
Executive's agreeing to provide personal services to UGSI.
NOW, THEREFORE, in consideration of the mutual promises and covenants
agreed to herein, the receipt and sufficiency of which are hereby acknowledged,
UGSI and Executive agree as follow:
SECTION 1. EMPLOYMENT DUTIES
1.1 UGSI agrees to employ Executive, and Executive agrees to be employed
by UGSI, beginning as of the Effective Date and continuing throughout the term
as specified in paragraph 3.1 (the "Term"). Executive shall be employed in the
position of Vice President-Product Marketing and Development for UGSI.
Executive shall faithfully and diligently render such services and perform such
related duties and responsibilities as are customarily performed by a person
holding such corporate title and as otherwise may from time to time be
reasonably assigned to Executive. Executive shall comply with provisions of
this Agreement and shall at all times be subject to such UGSI policies and
procedures, including, but not limited to, the UGSI Code of Conduct, as UGSI may
from time to time establish as pertaining to Executive.
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SECTION 2. COMPENSATION AND BENEFITS
2.1 For the term of this Agreement, UGSI shall pay Executive a salary of
not less than SIXTEEN THOUSAND SIX HUNDRED SIXTY-SEVEN AND 00/100 DOLLARS
($16,667.00) per month to be paid in semi-monthly payments.
2.2 Executive shall be entitled to annual bonuses, payable as follows :
2.2.1 Executive shall be eligible for a performance-based bonus
equal to ONE HUNDRED THOUSAND AND 00/100 DOLLARS ($100,000.00) to be paid
on or before the first anniversary of the Effective Date of this Agreement.
The bonus will be based upon the actual financial performance of UGSI in
relation to the projected approved business plan.
2.2.2 Executive shall be eligible to participate in UGSI's
Executive Bonus Plan, for the first calendar year following the Effective
Date.
2.1.3 All bonus payments in excess of the first year bonus
specified in paragraph 2.2.1 are contingent upon Executive's not having
been discharged for Cause (as such term is defined in paragraph 3.1) by
UGSI or Executive's not having voluntarily terminated his employment under
paragraph 3.1.2 at the time each particular payment is due.
2.3 In the event that there is an initial public offering of the common
stock of UGSI (an "IPO"), then UGSI agrees to grant stock options to Executive
in accordance with a stock option plan to be maintained by UGSI. Such grant
shall be for an option to purchase SEVENTY FIVE THOUSAND (75,000) shares of the
Class A common stock of UGSI (which is the class of common stock which would be
issued in connection with an IPO). Executive shall become vested in such shares
over a three-year period, with one-third of the options vesting on January 1,
1999; one-third of the options vesting on January 1, 2000; and the balance of
all unvested options shall vest on January 1, 2001. Any unvested options shall
be forfeited immediately upon Executive's termination of employment for any
reason other than death, termination without Cause as defined in paragraph
3.1.3, or termination by Executive for Cause as defined in paragraph 3.1.5, in
each of which events vesting shall continue in accordance with the vesting
schedule set forth herein. For purposes of determining the number of shares in
which the Executive will vest, all numbers shall be rounded up to the next
highest whole number so that options will not vest in fractions. Executive
shall have 10 years from the Effective Date of this Agreement to exercise his
purchase option. The exercise price of the option shares awarded to Executive
shall be the IPO price of a share of UGSI Class A Common Stock (as stated on a
registration statement on Form S-1 filed by UGSI with, and declared effective
by, the Securities and Exchange Commission).
2.4 EDS Incentive Plan. For so long as Executive is an employee of
UGSI, Executive shall continue to vest in any and all grants awarded through the
Effective Date to Executive
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under the 1996 Incentive Plan of the Electronic Data Systems Corporation or any
predecessor plan ("Incentive Plan"). Notwithstanding anything to the contrary
herein, after the Effective Date Executive shall not be eligible for any awards
under the Incentive Plan.
SECTION 3. TERM AND TERMINATION
3.1 Executive's employment under this Agreement may not be terminated by
the parties except as follows:
3.1.1 Termination and Extension. Unless extended in accordance
with the provisions of this paragraph, this Agreement shall automatically
terminate two years from the Effective Date. This Agreement shall
automatically extend for additional one-year terms unless either party
delivers to the other party, at least 60 days prior to the expiration of
the Agreement, written notice of such party's intent to terminate the
Agreement. Such notice to Executive must be delivered to Executive's
address then on record with the UGSI. Notice to UGSI must be delivered to
the then Chief Executive Officer at the designated headquarters of UGSI.
3.1.2 Executive's Voluntary Termination. Executive may terminate
his employment with UGSI at any time for any reason whatsoever, by giving
60 days' written notice to UGSI.
3.1.3 Termination With Notice. UGSI may terminate Executive's
employment at any time for any reason whatsoever by giving 60 days' written
notice to Executive.
3.1.4 Termination for Cause. UGSI may terminate Executive's
employment at any time for Cause. For purposes of this paragraph, the term
"Cause" shall mean (a) gross or habitual neglect of duties or misconduct in
the performance of the duties and services required of Executive pursuant
to this Agreement; (b) conduct of Executive which is materially detrimental
to UGSI's reputation or business operations or its ability to secure or
renew future contracts; (c) Executive's conviction of a felony or of a
misdemeanor involving moral turpitude; (d) Executive's breach of a material
provision of this Agreement which remains uncorrected for 30 days following
written notice to the Executive by UGSI of such breach; (e) continued
failure or refusal of Executive to faithfully, diligently and competently
perform the usual and customary duties of his employment; or (f) failure or
refusal of Executive to materially comply with the policies, standards and
regulations of UGSI as from time to time may be made known to Executive.
3.1.5 Executive's Termination for Cause. Executive may terminate
his employment with UGSI at any time for Cause. For purposes of this
paragraph 3.1.5, the term "Cause" shall mean a material breach of a
material provision of this Agreement which remains uncorrected for 30 days
following written notice to UGSI by Executive of such breach.
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3.1.6 Termination Upon Death or Incapacity. Executive's employment
will also terminate immediately upon Executive's death or incapacity by
reason of accident, sickness, or other circumstance which renders Executive
mentally or physically incapable of performing the duties and services
required hereunder.
3.2 The effects of termination of the employment relationship shall be
as follows:
3.2.1 Termination of Benefits. In the event of Executive's
voluntary termination of employment pursuant to paragraph 3.1.2 or the
termination of Executive's employment by UGSI for Cause pursuant to
paragraph 3.1.4, UGSI shall have no further obligation to provide Executive
with any benefits and/or payments, except as required by law or the terms
of a controlling benefit or stock plan or policy and the payment of any
salary or bonus accrued to the Termination Date.
3.2.2 Death and Disability Benefits. In the event of the
termination of the employment relationship by reason of death or incapacity
under paragraph 3.1.6, UGSI shall pay Executive his salary to the date of
his death or incapacity and the right of Executive or Executive's heirs to
compensation thereafter shall be governed by the applicable death,
disability, pension, insurance or other written benefit plans or policy.
3.2.3 Salary Continuation Under Limited Circumstances. In the
event UGSI terminates the employment of Executive with notice as set forth
in paragraph 3.1.3, or Executive terminates the employment relationship for
Cause under paragraph 3.1.5, UGSI will pay to Executive an amount equal to
one year of his salary and any bonus to which Executive might otherwise be
entitled. Any unvested UGSI stock options shall continue to vest in
accordance with the vesting schedule set forth in paragraph 2.3.
3.2.4 Employment at Will After Termination of Agreement. If, upon
the termination of this Agreement pursuant to paragraph 3.1.1, the parties
to this Agreement agree that Executive shall remain employed by UGSI, then
Executive's employment with UGSI will continue in accordance with, and
subject to, the terms and conditions of this Agreement, except that
Executive's continued employment will not be for any specific term but will
be at-will and either UGSI or Executive may terminate the employment
relationship at any time for any reason whatsoever. If UGSI then terminates
the employment of Executive pursuant to paragraph 3.1.3 or Executive
terminates the relationship for Cause pursuant to paragraph 3.1.5,
Executive shall be entitled to his salary and bonus through the date of
termination. If UGSI terminates the employment of Executive for Cause
pursuant to paragraph 3.1.4 or Executive voluntarily terminates his
employment pursuant to paragraph 3.1.2, Executive shall be entitled to his
salary through the date of termination and no bonus payments.
3.2.5 Termination Date. Executive's termination of employment
shall be effective on the date coincident with the occurrence of a
terminating event as described in
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this Section 3, or such other date as determined by the Board of Directors
of UGSI. The effective date of Executive's termination of employment shall
be the "Termination Date."
SECTION 4. EXECUTIVE'S NON-COMPETITION AND NON-SOLICITATION OBLIGATIONS
4.1 Executive's Services for Exclusive Benefit of UGSI. While employed
by UGSI, Executive shall devote Executive's full business time and best efforts
to the performance of his duties and responsibilities hereunder and shall not
engage in any other employment or business venture without the prior, written
consent of an officer of UGSI.
4.2 Surviving Covenants. If Executive's employment at UGSI is
terminated by either UGSI or Executive for any reason except Executive's death,
all covenants set forth in this Section 4 shall survive such termination. While
employed by UGSI and for a period of twelve (12) months thereafter, Executive
shall not directly or indirectly, individually or as an employee, contractor,
consultant, partner, officer, director or stockholder (other than as a holder of
less than five percent of the equity of a publicly traded company) or in any
other capacity, engage in any of the following conduct:
4.2.1 Non-Compete and Proprietary Rights. Perform duties as or for
a Competitor of UGSI (i) which are in either the industry(ies) or
geographic location(s) in which Executive performed services for UGSI in
the most recent five years of Executive's UGSI employment and which are the
same or substantially similar to the duties performed by Executive at UGSI;
or (ii) which involve the use of any Confidential Information or
Innovations (as defined in paragraph 5.8, below) which Executive has
received, obtained or acquired during, or as a consequence of, Executive's
employment with UGSI; or
4.2.2 Employment by Customer. Perform duties for any current
customer or prospective customer of UGSI with which Executive has had
business contact during the most recent five years of his employment at
UGSI.
4.2 Impermissible Conduct Without Proper Approval. During the time of
Executive's employment with UGSI and for a period of twelve (12) months
thereafter, without the express, prior written consent of an UGSI officer,
Executive shall not engage in any of the following conduct:
4.3.1 Hiring Away UGSI Employees. Hire, attempt to hire, or assist
any other person or entity in hiring or attempting to hire any current
employee of UGSI or any person who was an UGSI employee within the
six-month period prior to the termination of Executive's employment; or
4.3.2 Competition. Solicit, divert, or take away, in competition
with UGSI, the business or patronage of any current UGSI customer or any
prospective customer with which Executive has had business contact during
his employment at UGSI. This
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restriction shall not apply to any person or entity who is no longer a
customer or prospective customer at the time of any such solicitation by
Executive.
4.3 Automatic Extension of Restrictive Period. Executive agrees that if
he acts in violation of paragraph 4.2 or paragraph 4.3 of this Agreement, the
number of days that such violation exists will be added to any period of
limitations on the specific activities.
4.4 Executive's Acknowledgment of Reasonableness of Limitations.
Executive acknowledges that the limitations set forth in Section 4 of this
Agreement, are reasonable and necessary to protect the valid business interests
and goodwill of UGSI. Executive further acknowledges that UGSI is engaged in
the business of providing information technology and related services to
customers located throughout the United States and the World, and that UGSI
actively solicits business and services customers throughout this territory.
4.5 Competitor Defined. As used in this paragraph 4, the term
"Competitor" means an individual, business or any other entity or enterprise
engaged in, or having publicly announced its intent to engage in business that
is substantially similar to UGSI's business, or the business of UGSI's parent,
subsidiaries or affiliates.
SECTION 5. UGSI'S PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
5.1 Prohibited Use of Confidential Information or Innovations After
Termination. If Executive's employment at UGSI is terminated by either UGSI or
Executive for any reason (including Executive's death), this Section 5 shall
survive such termination. Both during and after the term of Executive's
employment, Executive will not, directly or indirectly, use or disclose any
Confidential Information or Innovations, without the express, prior written
consent of an UGSI officer, except as may be necessary to perform Executive's
duties for the benefit of UGSI during Executive's employment with UGSI. The
restrictions set forth in this paragraph 5.1 will last throughout Executive's
employment with UGSI and for a period of 10 years following the termination of
Executive's employment, with the exception of trade secrets, trademarks,
copyrights and patents, for which the restrictions herein regarding disclosure
or use shall last in perpetuity or for such other maximum period as the law
allows.
5.2 Return of UGSI Property. Upon termination of Executive's
employment, Executive will promptly return to UGSI any UGSI hardware or software
in Executive's possession or control, and all documents, information and
materials of any nature pertaining to Executive's work with UGSI, or relating to
the business of UGSI. Furthermore, Executive will not take any software,
documents or materials or copies thereof containing Confidential Information or
Innovations.
5.3 Disclosure of Innovations. Executive will promptly disclose to
UGSI, or its designees, in writing, all Innovations that Executive, alone or
jointly with others, creates or first reduces to practice during the period of
Executive's employment with UGSI.
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5.4 UGSI's Ownership of Proprietary Rights. Executive hereby assigns
and agrees to assign to UGSI, its successors and assigns, Executive's entire
right, title and interest in and to: (a) any worldwide patents, patent
applications, copyrights, trade secrets and other intellectual property rights
in any Innovations; and (b) any Moral Rights that Executive may have in or with
respect to any Innovations. Executive also waives and agrees never to assert any
Moral Rights Executive may have in or with respect to any Innovations, even
after termination of Executive's employment with UGSI.
5.5 Protection of Proprietary Rights. Executive shall do all lawful
things to assist UGSI in obtaining and enforcing patents, copyrights, trade
secret rights, and other legal protections of UGSI's Innovations in any country.
Executive will execute any documents that UGSI may reasonably request for use in
obtaining or enforcing such patents, copyrights, trade secret rights and other
legal protections. Executive's obligations under this paragraph will continue
beyond the termination of Executive's employment with UGSI.
5.6 Use of Executive's Likeness. Executive authorizes UGSI to use,
reuse, and to reasonably grant others the right to use and reuse, without
additional compensation, Executive's name, photograph, likeness (including
caricature), voice, and biographical information, and any reproduction or
simulation thereof, in any media now known or hereafter developed, for valid
business purposes of UGSI.
5.7 Executive Acknowledgment of Reasonable Limitations. Executive
acknowledges that the limitations set forth in Section 5 of this Agreement are
reasonable and necessary to protect the valid business interests and goodwill of
UGSI. Executive further acknowledges that UGSI is in an industry in which both
the creation and use of information and innovation is critical to business
success, and that the protection of that information/innovation is a valid
interest of UGSI. Executive further acknowledges that signing this Agreement is
required for his having access to UGSI's confidential business and technological
information.
5.8 Definitions. As used in this Section 5, "Confidential Information"
means all business information, technological information, intellectual
property, trade secrets and other information belonging to UGSI, its parent,
subsidiaries or affiliates or relating to UGSI's business, technology,
customers, vendors, or any other party with whom UGSI agrees to hold information
of such party in confidence, which is not generally available to the public.
Also, as used in this Section 5, "Innovations" means all developments,
improvements, designs, original works of authorship, formulas, processes,
software programs, databases and trade secrets that relate to any services,
product, systems or other business(es) of UGSI, whether or not patentable,
copyrightable or protectable as trade secrets, that Executive, alone or jointly
with others, creates or first reduces to practice during the period of
Executive's employment with UGSI. Furthermore, "Moral Rights" means any right
to claim authorship of a work of authorship, to object to or prevent the
modification of any such work of authorship, or to withdraw from circulation or
control the publication or distribution of any such work of authorship. For
purposes of all provisions in this Section 5, "UGSI" mean UGSI, its parent,
subsidiaries or affiliates.
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SECTION 6. MISCELLANEOUS
6.1 Exclusion of Property of Others. Executive will not bring to UGSI
or use in the performance of his duties any documents or materials of a former
employer that are not generally available to the public or that have not been
legally transferred to UGSI.
6.2 Agreement to Testing for Controlled Substances. Executive
understands and agrees that, from time to time, Executive may be reasonably
tested to detect the presence or absence of any illegal drugs or controlled
substances and that the results of any such tests shall be released to UGSI.
6.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of any other person, association, or entity which may
hereafter acquire or succeed to all or substantially all of the business or
assets of UGSI by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise, in the same manner and to the same extent that UGSI
would be obligated under this Agreement if no succession had taken place.
Executive's rights and obligations under this Agreement are personal and such
rights, benefits, and obligations of Executive shall not be voluntarily or
involuntarily assigned, alienated, or transferred by Executive, whether by
operation of law or otherwise, without the prior, written consent of an officer
of UGSI.
6.4 Authorization to Deduct Amounts Owed. Upon Executive's separation
from employment, UGSI is authorized to deduct from Executive's final wages or
other monies due Executive any debts or amounts owed to UGSI by Executive.
6.5 Enforcement to Full Extent Permissible. If the scope of any
provision contained in this Agreement is too broad to permit enforcement of such
provision to its full extent, then such provision shall be enforced to the
maximum extent permitted by law, and the parties hereby consent that such
provision may be reformed or modified accordingly, and enforced as reformed or
modified, in any proceeding brought to enforce such provision.
6.6 Extraordinary Relief and Remedies. Executive understands and agrees
that UGSI would be irreparably damaged and that money damages cannot fully
compensate UGSI in the event that the provisions of Sections 4 or 5 of this
Agreement are violated, and agrees that UGSI shall be entitled (in addition to
any other remedy to which it may be entitled, at law or in equity) to an
injunction or injunctions to redress breaches of this Agreement and to
specifically enforce the terms and provisions hereof.
6.7 Severability. Each provision of this Agreement will be interpreted
in such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision, to the extent of such prohibition or invalidity,
shall be deemed not to be a part of this Agreement, and shall not invalidate the
remainder of such provision or the remaining provisions of this Agreement.
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6.8 Jurisdiction. Any action or proceeding arising out of or relating
to this Agreement may be commenced in any court of competent jurisdiction in
Collin County, Texas, and shall be governed by and interpreted under the laws of
Texas.
6.9 Modification or Amendment. This Agreement may not be modified or
amended except by a written instrument executed by Executive and an authorized
officer of UGSI.
IN WITNESS WHEREOF, Unigraphic Solutions Inc. and Anthony J. Affuso have
executed this Personal Service Agreement to be effective as of the Effective
Date.
Agreed to this 1st day of March, 1998 by and among:
EXECUTIVE
By: /S/ ANTHONY J. AFFUSO
-------------------------------------
Anthony J. Affuso
UNIGRAPHIC SOLUTIONS INC.
By: /S/ JOHN J. MAZZOLA
-------------------------------------
John J. Mazzola, President
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EXHIBIT 10.14
PERSONAL SERVICES AGREEMENT
THIS PERSONAL SERVICES AGREEMENT ("Agreement") is entered into between
UNIGRAPHIC SOLUTIONS INC. ("UGSI") and DOUG BARNETT ("Executive"), to be
effective the 2nd day of March, 1998 ("Effective Date").
RECITALS
WHEREAS, UGSI desires to employ Executive pursuant to the terms and
conditions and for the consideration set forth in this Agreement, and Executive
desires to enter the employ of UGSI pursuant to such terms and conditions and
for such consideration;
WHEREAS, The provisions of this Agreement are a condition of Executive's
being employed by UGSI, of Executive's having access to confidential business
and technological information, and Executive's being eligible to receive certain
benefits at UGSI. This Agreement is entered into, and is reasonably necessary,
to protect confidential information and customer relationships to which
Executive may have access, and to protect the goodwill and other business
interests of UGSI; and
WHEREAS, The provisions of this Agreement are also a condition of
Executive's agreeing to provide personal services to UGSI.
NOW, THEREFORE, in consideration of the mutual promises and covenants
agreed to herein, the receipt and sufficiency of which are hereby acknowledged,
UGSI and Executive agree as follow:
SECTION 1. EMPLOYMENT DUTIES
1.1 UGSI agrees to employ Executive, and Executive agrees to be employed
by UGSI, beginning as of the Effective Date and continuing throughout the term
as specified in paragraph 3.1 (the "Term"). Executive shall be employed in the
position of Vice President and Chief Financial Officer for UGSI. Executive
shall faithfully and diligently render such services and perform such related
duties and responsibilities as are customarily performed by a person holding
such corporate title and as otherwise may from time to time be reasonably
assigned to Executive. Executive shall comply with provisions of this Agreement
and shall at all times be subject to such UGSI policies and procedures,
including, but not limited to, the UGSI Code of Conduct, as UGSI may from time
to time establish as pertaining to Executive.
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SECTION 2. COMPENSATION AND BENEFITS
2.1 For the term of this Agreement, UGSI shall pay Executive a salary of
not less than FIFTEEN THOUSAND AND 00/100 DOLLARS ($15,000.00) per month to be
paid in semi-monthly payments.
2.2 Executive shall be entitled to annual bonuses, payable as follows:
2.2.1 An unconditional and irrevocable bonus for the first year of
this Agreement of NINETY THOUSAND AND 00/100 DOLLARS ($90,000.00), to be
paid on or before the first anniversary of the Effective Date of this
Agreement.
2.2.2 Executive shall be eligible to participate in UGSI's Executive
Bonus Plan, for the first calendar year following the Effective Date.
2.2.3 All bonus payments in excess of the first year bonus specified
in paragraph 2.2.1 are contingent upon Executive's not having been
discharged for Cause (as such term is defined in paragraph 3.1) by UGSI or
Executive's not having voluntarily terminated his employment under
paragraph 3.1.2 at the time each particular payment is due.
2.3 Executive shall be eligible for a discretionary performance-based
bonus based upon the actual financial performance of UGSI in relation to the
projected approved business plan. Any bonus payable as a performance bonus
shall be in the amount, and paid at the time and in the manner, as determined by
the Oversight Committee of UGSI.
2.4 In the event that an initial public offering of the common stock of
UGSI (an "IPO") occurs on or before December 31, 1998, then UGSI agrees to grant
stock options to Executive in accordance with a stock option plan to be
maintained by UGSI. Such grant shall be for an option to purchase forty five
thousand (45,000) shares of the Class A common stock of UGSI (which is the class
of common stock which would be issued in connection with an IPO). Executive
shall become vested in such shares over a three-year period, with one-third of
the options vesting in calendar year 1999 on the vesting date as established in
the option plan under which such options are granted ("Vesting Date");
one-third of the options vesting on the Vesting Date in 2000; and the balance of
all unvested options shall vest on the Vesting Date in 2001. Any unvested
options shall be forfeited immediately upon Executive's termination of
employment for any reason other than death, termination without Cause as defined
in paragraph 3.1.3, or termination by Executive for Cause as defined in
paragraph 3.1.5, in each of which events vesting shall continue in accordance
with the vesting schedule set forth herein. For purposes of determining the
number of shares in which the Executive will vest, all numbers shall be rounded
up to the next highest whole number so that options will not vest in fractions.
Executive shall have 10 years from the Effective Date of this Agreement to
exercise his purchase option. The exercise price of the option shares awarded to
Executive shall be the price of a share of UGSI Class A Common Stock (as stated
on a registration statement on Form S-1 filed by UGSI with, and declared
effective by, the Securities and Exchange Commission) ("IPO Price").
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If the IPO is not accomplished and closed by December 31, 1998, then Executive
shall have no options or other rights to purchase UGSI common stock under this
Agreement or any UGSI stock option plan, but Electronic Data Systems Corporation
("EDS") shall provide Executive with a restricted stock unit under the 1996
Incentive Plan for EDS ("IP") entitling the Executive to acquire five thousand
(5,000) shares of EDS Common Stock five years after the Effective Date. All
restricted stock units granted to Executive shall be subject to the termination,
cancellation, modification and revocation provisions as well as the standard
restrictions placed on restricted stock units pursuant to the terms of the IP.
2.5 UGSI will provide Executive with a leased car of any General Motors or
Saab family of automobiles not to exceed a manufacturer's suggested retail price
of THIRTY-EIGHT THOUSAND FIVE HUNDRED DOLLARS ($38,500). The term of the lease
shall not exceed 24 months. Executive will be entitled to select a new leased
vehicle at the end of the lease term provided that Executive remains employed
with UGSI. Executive shall be required to comply with all conditions of the
lease of the automobile as described in the lease agreement.
2.6 UGSI will reimburse Executive for certain costs approved by UGSI as
being reasonable and customary expenses incurred by Executive to relocate to
St. Louis, Missouri. Such reimbursable expenses include reasonable expenses for
searching for a new house in the St. Louis, Missouri area, reasonable temporary
living, travel expenses, sale of current residence, the shipment of household
goods, and the closing costs associated with and incurred by Executive in
obtaining a new residence in St. Louis, Missouri. Within ninety (90) days of
incurring reimbursable relocation expenses, Executive must provide UGSI with
satisfactory proof of such expenses. If the reimbursement or such reasonable
relocation expenses shall be income to Executive, then Executive shall receive
additional payment from UGSI in an amount equal to any tax liability associated
with the reimbursement of expenses.
2.7 While employed by UGSI, Executive shall be eligible to participate,
on the same basis, but not necessarily to the same extent, as other similarly
situated senior officers of UGSI in all employee benefit plans and programs,
including improvements or modifications of the same, sponsored by UGSI on the
Effective Date or thereafter. Executive shall be entitled to purchase life
insurance of up to ONE MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS
$1,250,000.00, which can be purchased by Executive at the group insurance
premium rates then available to UGSI.
SECTION 3. TERM AND TERMINATION
3.1 Executive's employment under this Agreement may not be terminated by
the parties except as follows:
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3.1.1 Termination and Extension. Unless extended in accordance with
the provisions of this paragraph, this Agreement shall automatically
terminate two years from the Effective Date. This Agreement shall
automatically extend for additional one-year terms unless either party
delivers to the other party, at least 60 days prior to the expiration of
the Agreement, written notice of such party's intent to terminate the
Agreement. Such notice to Executive must be delivered to Executive's
address then on record with the UGSI. Notice to UGSI must be delivered to
the then Chief Executive Officer at the designated headquarters of UGSI.
3.1.2 Executive's Voluntary Termination. Executive may terminate his
employment with UGSI at any time for any reason whatsoever, by giving sixty
(60) days' written notice to UGSI.
3.1.3 Termination With Notice. UGSI may terminate Executive's
employment at any time for any reason whatsoever by giving 60 days' written
notice to Executive.
3.1.4 Termination for Cause. UGSI may terminate Executive's
employment at any time for Cause provided that any such Cause shall remain
uncorrected for thirty (30) days following UGSI's written notice to
Executive. For purposes of this paragraph, the term "Cause" shall mean (a)
gross or habitual neglect of duties or misconduct in the performance of the
duties and services required of Executive pursuant to this Agreement; (b)
conduct of Executive which is materially detrimental to UGSI's reputation
or business operations or its ability to secure or renew future contracts;
(c) Executive's conviction of a felony or of a misdemeanor involving moral
turpitude; (d) Executive's breach of a material provision of this
Agreement; (e) continued failure or refusal of Executive to faithfully,
diligently and competently perform the usual and customary duties of his
employment; or (f) continued failure or refusal of Executive to materially
comply with the policies, standards and regulations of UGSI as from time to
time may be made known to Executive.
3.1.5 Executive's Termination for Cause. Executive may terminate his
employment with UGSI at any time for Cause. For purposes of this paragraph
3.1.5, the term "Cause" shall mean a material breach of a material
provision of this Agreement which remains uncorrected for 30 days following
written notice to UGSI by Executive of such breach.
3.1.6 Termination Upon Death or Incapacity. Executive's employment
will also terminate immediately upon Executive's death or incapacity by
reason of accident, sickness, or other circumstance which renders Executive
mentally or physically incapable of performing the duties and services
required hereunder.
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3.2 The effects of termination of the employment relationship shall be as
follows:
3.2.1 Termination of Benefits. In the event of Executive's voluntary
termination of employment pursuant to paragraph 3.1.2 or the termination of
Executive's employment by UGSI for Cause pursuant to paragraph 3.1.4, UGSI
shall have no further obligation to provide Executive with any benefits
and/or payments, except as required by law or the terms of a controlling
benefit or stock plan or policy and the payment of any salary or bonus
accrued to the Termination Date.
3.2.2 Death and Disability Benefits. In the event of the termination
of the employment relationship by reason of death or incapacity under
paragraph 3.1.6, UGSI shall pay Executive his salary to the date of his
death or incapacity and the right of Executive or Executive's heirs to
compensation thereafter shall be governed by the applicable death,
disability, pension, insurance or other written benefit plans or policy.
3.2.3 Salary Continuation Under Limited Circumstances. In the event
UGSI terminates the employment of Executive with notice as set forth in
paragraph 3.1.3, or Executive terminates the employment relationship for
Cause under paragraph 3.1.5, UGSI will pay to Executive an amount equal to
one year of his salary and any bonus to which Executive might otherwise be
entitled. Any unvested UGSI stock options shall continue to vest in
accordance with the vesting schedule set forth in paragraph 2.4.
3.2.4 Employment at Will After Termination of Agreement. If, upon
the termination of this Agreement pursuant to paragraph 3.1.1, the parties
to this Agreement agree that Executive shall remain employed by UGSI, then
Executive's employment with UGSI will continue in accordance with, and
subject to, the terms and conditions of this Agreement, except that
Executive's continued employment will not be for any specific term but will
be at-will and either UGSI or Executive may terminate the employment
relationship at any time for any reason whatsoever. If UGSI then terminates
the employment of Executive pursuant to paragraph 3.1.3 or Executive
terminates the relationship for Cause pursuant to paragraph 3.1.5,
Executive shall be entitled to his salary and bonus through the date of
termination. If UGSI terminates the employment of Executive for Cause
pursuant to paragraph 3.1.4 or Executive voluntarily terminates his
employment pursuant to paragraph 3.1.2, Executive shall be entitled to his
salary through the date of termination and no bonus payments.
3.2.5 Termination Date. Executive's termination of employment shall
be effective on the date coincident with the occurrence of a terminating
event as described in this Section 3, or such other date as determined by
the Board of Directors of UGSI. The effective date of Executive's
termination of employment shall be the "Termination Date."
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SECTION 4. EXECUTIVE'S NON-COMPETITION AND NON-SOLICITATION OBLIGATIONS
4.1 Executive's Services for Exclusive Benefit of UGSI. While employed by
UGSI, Executive shall devote Executive's full business time and best efforts to
the performance of his duties and responsibilities hereunder and shall not
engage in any other employment or business venture without the prior, written
consent of an officer of UGSI.
4.2 Surviving Covenants. If Executive's employment at UGSI is terminated
by either UGSI or Executive for any reason except Executive's death, all
covenants set forth in this Section 4 shall survive such termination. While
employed by UGSI and for a period of 12 months thereafter, Executive shall not
directly or indirectly, individually or as an employee, contractor, consultant,
partner, officer, director or stockholder (other than as a holder of less than
five percent of the equity of a publicly traded company) or in any other
capacity, engage in any of the following conduct:
4.2.1 Non-Compete and Proprietary Rights. Perform duties as or for a
Competitor of UGSI (i) which are in either the industry(ies) or geographic
location(s) in which Executive performed services for UGSI in the most
recent five years of Executive's UGSI employment and which are the same or
substantially similar to the duties performed by Executive at UGSI; or (ii)
which involve the use of any Confidential Information or Innovations (as
defined in paragraph 5.8, below) which Executive has received, obtained or
acquired during, or as a consequence of, Executive's employment with UGSI;
or
4.2.2 Employment by Customer. Perform duties for any current
customer or prospective customer of UGSI with which Executive has had
business contact during the most recent five years of his employment at
UGSI.
4.3 Impermissible Conduct Without Proper Approval. During the time of
Executive's employment with UGSI and for a period of 12 months thereafter,
without the express, prior written consent of an UGSI officer, Executive shall
not engage in any of the following conduct:
4.3.1 Hiring Away UGSI Employees. Hire, attempt to hire, or assist
any other person or entity in hiring or attempting to hire any current
employee of UGSI or any person who was an UGSI employee within the
six-month period prior to the termination of Executive's employment; or
4.3.2 Competition. Solicit, divert, or take away, in competition
with UGSI, the business or patronage of any current UGSI customer or any
prospective customer with which Executive has had business contact during
his employment at UGSI. This restriction shall not apply to any person or
entity who is no longer a customer or prospective customer at the time of
any such solicitation by Executive.
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4.4 Automatic Extension of Restrictive Period. Executive agrees that if
he acts in violation of paragraph 4.2 or paragraph 4.3 of this Agreement, the
number of days that such violation exists will be added to any period of
limitations on the specific activities.
4.5 Executive's Acknowledgment of Reasonableness of Limitations.
Executive acknowledges that the limitations set forth in Section 4 of this
Agreement, are reasonable and necessary to protect the valid business interests
and goodwill of UGSI. Executive further acknowledges that UGSI is engaged in
the business of providing information technology and related services to
customers located throughout the United States and the World, and that UGSI
actively solicits business and services customers throughout this territory.
4.6 Competitor Defined. As used in this paragraph 4, the term
"Competitor" means an individual, business or any other entity or enterprise
engaged in, or having publicly announced its intent to engage in business that
is substantially similar to UGSI's business, or the business of UGSI's parent,
subsidiaries or affiliates.
SECTION 5. UGSI'S PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
5.1 Prohibited Use of Confidential Information or Innovations After
Termination. If Executive's employment at UGSI is terminated by either UGSI or
Executive for any reason (including Executive's death), this Section 5 shall
survive such termination. Both during and after the term of Executive's
employment, Executive will not, directly or indirectly, use or disclose any
Confidential Information or Innovations, without the express, prior written
consent of an UGSI officer, except as may be necessary to perform Executive's
duties for the benefit of UGSI during Executive's employment with UGSI. The
restrictions set forth in this paragraph 5.1 will last throughout Executive's
employment with UGSI and for a period of 10 years following the termination of
Executive's employment, with the exception of trade secrets, trademarks,
copyrights and patents, for which the restrictions herein regarding disclosure
or use shall last in perpetuity or for such other maximum period as the law
allows.
5.2 Return of UGSI Property. Upon termination of Executive's employment,
Executive will promptly return to UGSI any UGSI hardware or software in
Executive's possession or control, and all documents, information and materials
of any nature pertaining to Executive's work with UGSI, or relating to the
business of UGSI. Furthermore, Executive will not take any software, documents
or materials or copies thereof containing Confidential Information or
Innovations.
5.3 Disclosure of Innovations. Executive will promptly disclose to UGSI,
or its designees, in writing, all Innovations that Executive, alone or jointly
with others, creates or first reduces to practice during the period of
Executive's employment with UGSI.
5.4 UGSI's Ownership of Proprietary Rights. Executive hereby assigns and
agrees to assign to UGSI, its successors and assigns, Executive's entire right,
title and interest in and to: (a) any worldwide patents, patent applications,
copyrights, trade secrets and other intellectual property rights in any
Innovations; and (b) any Moral Rights that Executive may have in or with
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respect to any Innovations. Executive also waives and agrees never to assert any
Moral Rights Executive may have in or with respect to any Innovations, even
after termination of Executive's employment with UGSI.
5.5 Protection of Proprietary Rights. Executive shall do all lawful
things to assist UGSI in obtaining and enforcing patents, copyrights, trade
secret rights, and other legal protections of UGSI's Innovations in any country.
Executive will execute any documents that UGSI may reasonably request for use in
obtaining or enforcing such patents, copyrights, trade secret rights and other
legal protections. Executive's obligations under this paragraph will continue
beyond the termination of Executive's employment with UGSI.
5.6 Use of Executive's Likeness. Executive authorizes UGSI to use, reuse,
and to reasonably grant others the right to use and reuse, without additional
compensation, Executive's name, photograph, likeness (including caricature),
voice, and biographical information, and any reproduction or simulation thereof,
in any media now known or hereafter developed, for valid business purposes of
UGSI.
5.7 Executive Acknowledgment of Reasonable Limitations. Executive
acknowledges that the limitations set forth in Section 5 of this Agreement are
reasonable and necessary to protect the valid business interests and goodwill of
UGSI. Executive further acknowledges that UGSI is in an industry in which both
the creation and use of information and innovation is critical to business
success, and that the protection of that information/innovation is a valid
interest of UGSI. Executive further acknowledges that signing this Agreement is
required for his having access to UGSI's confidential business and technological
information.
5.8 Definitions. As used in this Section 5, "Confidential Information"
means all business information, technological information, intellectual
property, trade secrets and other information belonging to UGSI, its parent,
subsidiaries or affiliates or relating to UGSI's business, technology,
customers, vendors, or any other party with whom UGSI agrees to hold information
of such party in confidence, which is not generally available to the public.
Also, as used in this Section 5, "Innovations" means all developments,
improvements, designs, original works of authorship, formulas, processes,
software programs, databases and trade secrets that relate to any services,
product, systems or other business(es) of UGSI, whether or not patentable,
copyrightable or protectable as trade secrets, that Executive, alone or jointly
with others, creates or first reduces to practice during the period of
Executive's employment with UGSI. Furthermore, "Moral Rights" means any right
to claim authorship of a work of authorship, to object to or prevent the
modification of any such work of authorship, or to withdraw from circulation or
control the publication or distribution of any such work of authorship. For
purposes of all provisions in this Section 5, "UGSI" mean UGSI, its parent,
subsidiaries or affiliates.
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SECTION 6. MISCELLANEOUS
6.1 Exclusion of Property of Others. Executive will not bring to UGSI or
use in the performance of his duties any documents or materials of a former
employer that are not generally available to the public or that have not been
legally transferred to UGSI.
6.2 Agreement to Testing for Controlled Substances. Executive understands
and agrees that, from time to time, Executive may be reasonably tested to detect
the presence or absence of any illegal drugs or controlled substances and that
the results of any such tests shall be released to UGSI.
6.3 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of UGSI
by any means whether direct or indirect, by purchase, merger, consolidation, or
otherwise, in the same manner and to the same extent that UGSI would be
obligated under this Agreement if no succession had taken place. Executive's
rights and obligations under this Agreement are personal and such rights,
benefits, and obligations of Executive shall not be voluntarily or involuntarily
assigned, alienated, or transferred by Executive, whether by operation of law or
otherwise, without the prior, written consent of an officer of UGSI.
6.4 Authorization to Deduct Amounts Owed. Upon Executive's separation from
employment, UGSI is authorized to deduct from Executive's final wages or other
monies due Executive any debts or amounts owed to UGSI by Executive.
6.5 Enforcement to Full Extent Permissible. If the scope of any provision
contained in this Agreement is too broad to permit enforcement of such provision
to its full extent, then such provision shall be enforced to the maximum extent
permitted by law, and the parties hereby consent that such provision may be
reformed or modified accordingly, and enforced as reformed or modified, in any
proceeding brought to enforce such provision.
6.6 Extraordinary Relief and Remedies. Executive understands and agrees
that UGSI would be irreparably damaged and that money damages cannot fully
compensate UGSI in the event that the provisions of Sections 4 or 5 of this
Agreement are violated, and agrees that UGSI shall be entitled (in addition to
any other remedy to which it may be entitled, at law or in equity) to an
injunction or injunctions to redress breaches of this Agreement and to
specifically enforce the terms and provisions hereof.
6.7 Severability. Each provision of this Agreement will be interpreted
in such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision, to the extent of such prohibition or invalidity,
shall be deemed not to be a part of this Agreement, and shall not invalidate the
remainder of such provision or the remaining provisions of this Agreement.
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6.8 Jurisdiction. Any action or proceeding arising out of or relating to
this Agreement may be commenced in any court of competent jurisdiction in Collin
County, Texas, and shall be governed by and interpreted under the laws of Texas.
6.9 Modification or Amendment. This Agreement may not be modified or
amended except by a written instrument executed by Executive and an authorized
officer of UGSI.
IN WITNESS WHEREOF, Unigraphic Solutions Inc. and Doug Barnett have
executed this Personal Service Agreement to be effective as of the Effective
Date.
Agreed to this 2nd day of March, 1998 by and among:
EXECUTIVE
By: /s/ Doug Barnett
-------------------------------------
Doug Barnett
UNIGRAPHIC SOLUTIONS INC.
Agreed To By Electronic Data
Systems Corporation for Purposes
of Paragraph 2.4 only:
By: /s/ Nick Barretta By: /s/ John Mazzola
------------------------------ -------------------------------------
Nick Barretta, John Mazzola, President
Vice President
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EXHIBIT 10.15
PERSONAL SERVICES AGREEMENT
THIS PERSONAL SERVICES AGREEMENT ("Agreement") is entered into between
UNIGRAPHIC SOLUTIONS INC. ("UGSI") and DONALD E. DAVIDSON ("Executive"), to be
effective the 1st day of March, 1998 ("Effective Date").
RECITALS
WHEREAS, UGSI desires to employ Executive pursuant to the terms and
conditions and for the consideration set forth in this Agreement, and Executive
desires to enter the employ of UGSI pursuant to such terms and conditions and
for such consideration;
WHEREAS, The provisions of this Agreement are a condition of Executive's
being employed by UGSI, of Executive's having access to confidential business
and technological information, and Executive's being eligible to receive certain
benefits at UGSI. This Agreement is entered into, and is reasonably necessary,
to protect confidential information and customer relationships to which
Executive may have access, and to protect the goodwill and other business
interests of UGSI; and,
WHEREAS, The provisions of this Agreement are also a condition of
Executive's agreeing to provide personal services to UGSI.
NOW, THEREFORE, in consideration of the mutual promises and covenants
agreed to herein, the receipt and sufficiency of which are hereby acknowledged,
UGSI and Executive agree as follow:
SECTION 1. EMPLOYMENT DUTIES
1.1 UGSI agrees to employ Executive, and Executive agrees to be employed
by UGSI, beginning as of the Effective Date and continuing throughout the term
as specified in paragraph 3.1 (the "Term"). Executive shall be employed in the
position of Vice President-Asia Pacific for UGSI. Executive shall faithfully
and diligently render such services and perform such related duties and
responsibilities as are customarily performed by a person holding such corporate
title and as otherwise may from time to time be reasonably assigned to
Executive. Executive shall comply with provisions of this Agreement and shall
at all times be subject to such UGSI policies and procedures, including, but not
limited to, the UGSI Code of Conduct, as UGSI may from time to time establish as
pertaining to Executive.
<PAGE>
SECTION 2. COMPENSATION AND BENEFITS
2.1 For the term of this Agreement, UGSI shall pay Executive a salary of
not less than ELEVEN THOUSAND SIX HUNDRED SIXTY-SEVEN DOLLARS ($11,667.00) per
month to be paid in semi-monthly payments.
2.2 Executive shall be entitled to annual bonuses, payable as follows:
2.2.1 Executive shall be eligible for a performance-based bonus equal
to EIGHTY THOUSAND AND 00/100 DOLLARS ($80,000.00) to be paid on or before
the first anniversary of the Effective Date of this Agreement. The bonus
will be based upon the actual financial performance of UGSI in relation to
the projected approved business plan.
2.2.2 Executive shall be eligible to participate in UGSI's Executive
Bonus Plan, for the first calendar year following the Effective Date.
2.1.3 All bonus payments in excess of the first year bonus specified
in paragraph 2.2.1 are contingent upon Executive's not having been
discharged for Cause (as such term is defined in paragraph 3.1) by UGSI or
Executive's not having voluntarily terminated his employment under
paragraph 3.1.2 at the time each particular payment is due.
2.3 In the event that there is an initial public offering of the common
stock of UGSI (an "IPO"), then UGSI agrees to grant stock options to Executive
in accordance with a stock option plan to be maintained by UGSI. Such grant
shall be for an option to purchase THIRTY FIVE THOUSAND (35,000) shares of the
Class A common stock of UGSI (which is the class of common stock which would be
issued in connection with an IPO). Executive shall become vested in such shares
over a three-year period, with one-third of the options vesting on January 1,
1999; one-third of the options vesting on January 1, 2000; and the balance of
all unvested options shall vest on January 1, 2001. Any unvested options shall
be forfeited immediately upon Executive's termination of employment for any
reason other than death, termination without Cause as defined in paragraph
3.1.3, or termination by Executive for Cause as defined in paragraph 3.1.5, in
each of which events vesting shall continue in accordance with the vesting
schedule set forth herein. For purposes of determining the number of shares in
which the Executive will vest, all numbers shall be rounded up to the next
highest whole number so that options will not vest in fractions. Executive
shall have 10 years from the Effective Date of this Agreement to exercise his
purchase option. The exercise price of the option shares awarded to Executive
shall be the IPO price of a share of UGSI Class A Common Stock (as stated on a
registration statement on Form S-1 filed by UGSI with, and declared effective
by, the Securities and Exchange Commission).
2.4 EDS Incentive Plan. For so long as Executive is an employee of UGSI,
Executive shall continue to vest in any and all grants awarded through the
Effective Date to Executive
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under the 1996 Incentive Plan of the Electronic Data Systems Corporation or any
predecessor plan ("Incentive Plan"). Notwithstanding anything to the contrary
herein, after the Effective Date Executive shall not be eligible for any awards
under the Incentive Plan.
Section 3. TERM AND TERMINATION
3.1 Executive's employment under this Agreement may not be terminated by
the parties except as follows:
3.1.1 Termination and Extension. Unless extended in accordance with
the provisions of this paragraph, this Agreement shall automatically
terminate two years from the Effective Date. This Agreement shall
automatically extend for additional one-year terms unless either party
delivers to the other party, at least 60 days prior to the expiration of
the Agreement, written notice of such party's intent to terminate the
Agreement. Such notice to Executive must be delivered to Executive's
address then on record with the UGSI. Notice to UGSI must be delivered to
the then Chief Executive Officer at the designated headquarters of UGSI.
3.1.2 Executive's Voluntary Termination. Executive may terminate his
employment with UGSI at any time for any reason whatsoever, by giving 60
days' written notice to UGSI.
3.1.3 Termination With Notice. UGSI may terminate Executive's
employment at any time for any reason whatsoever by giving 60 days' written
notice to Executive.
3.1.4 Termination for Cause. UGSI may terminate Executive's
employment at any time for Cause. For purposes of this paragraph, the term
"Cause" shall mean (a) gross or habitual neglect of duties or misconduct in
the performance of the duties and services required of Executive pursuant
to this Agreement; (b) conduct of Executive which is materially detrimental
to UGSI's reputation or business operations or its ability to secure or
renew future contracts; (c) Executive's conviction of a felony or of a
misdemeanor involving moral turpitude; (d) Executive's breach of a material
provision of this Agreement which remains uncorrected for 30 days following
written notice to the Executive by UGSI of such breach; (e) continued
failure or refusal of Executive to faithfully, diligently and competently
perform the usual and customary duties of his employment; or (f) failure or
refusal of Executive to materially comply with the policies, standards and
regulations of UGSI as from time to time may be made known to Executive.
3.1.5 Executive's Termination for Cause. Executive may terminate his
employment with UGSI at any time for Cause. For purposes of this paragraph
3.1.5, the term "Cause" shall mean a material breach of a material
provision of this Agreement which remains uncorrected for 30 days following
written notice to UGSI by Executive of such breach.
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3.1.6 Termination Upon Death or Incapacity. Executive's employment
will also terminate immediately upon Executive's death or incapacity by
reason of accident, sickness, or other circumstance which renders Executive
mentally or physically incapable of performing the duties and services
required hereunder.
3.2 The effects of termination of the employment relationship shall be as
follows:
3.2.1 Termination of Benefits. In the event of Executive's voluntary
termination of employment pursuant to paragraph 3.1.2 or the termination of
Executive's employment by UGSI for Cause pursuant to paragraph 3.1.4, UGSI
shall have no further obligation to provide Executive with any benefits
and/or payments, except as required by law or the terms of a controlling
benefit or stock plan or policy and the payment of any salary or bonus
accrued to the Termination Date.
3.2.2 Death and Disability Benefits. In the event of the termination
of the employment relationship by reason of death or incapacity under
paragraph 3.1.6, UGSI shall pay Executive his salary to the date of his
death or incapacity and the right of Executive or Executive's heirs to
compensation thereafter shall be governed by the applicable death,
disability, pension, insurance or other written benefit plans or policy.
3.2.3 Salary Continuation Under Limited Circumstances. In the event
UGSI terminates the employment of Executive with notice as set forth in
paragraph 3.1.3, or Executive terminates the employment relationship for
Cause under paragraph 3.1.5, UGSI will pay to Executive an amount equal to
one year of his salary and any bonus to which Executive might otherwise be
entitled. Any unvested UGSI stock options shall continue to vest in
accordance with the vesting schedule set forth in paragraph 2.3
3.2.4 Employment at Will After Termination of Agreement. If, upon the
termination of this Agreement pursuant to paragraph 3.1.1, the parties to
this Agreement agree that Executive shall remain employed by UGSI, then
Executive's employment with UGSI will continue in accordance with, and
subject to, the terms and conditions of this Agreement, except that
Executive's continued employment will not be for any specific term but will
be at-will and either UGSI or Executive may terminate the employment
relationship at any time for any reason whatsoever. If UGSI then terminates
the employment of Executive pursuant to paragraph 3.1.3 or Executive
terminates the relationship for Cause pursuant to paragraph 3.1.5,
Executive shall be entitled to his salary and bonus through the date of
termination. If UGSI terminates the employment of Executive for Cause
pursuant to paragraph 3.1.4 or Executive voluntarily terminates his
employment pursuant to paragraph 3.1.2, Executive shall be entitled to his
salary through the date of termination and no bonus payments.
3.2.5 Termination Date. Executive's termination of employment shall be
effective on the date coincident with the occurrence of a terminating event
as described in
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this Section 3, or such other date as determined by the Board of Directors
of UGSI. The effective date of Executive's termination of employment shall
be the "Termination Date."
SECTION 4. EXECUTIVE'S NON-COMPETITION AND NON-SOLICITATION OBLIGATIONS
4.1 Executive's Services for Exclusive Benefit of UGSI. While employed by
UGSI, Executive shall devote Executive's full business time and best efforts to
the performance of his duties and responsibilities hereunder and shall not
engage in any other employment or business venture without the prior, written
consent of an officer of UGSI.
4.2 Surviving Covenants. If Executive's employment at UGSI is terminated
by either UGSI or Executive for any reason except Executive's death, all
covenants set forth in this Section 4 shall survive such termination. While
employed by UGSI and for a period of twelve (12) months thereafter, Executive
shall not directly or indirectly, individually or as an employee, contractor,
consultant, partner, officer, director or stockholder (other than as a holder of
less than five percent of the equity of a publicly traded company) or in any
other capacity, engage in any of the following conduct:
4.2.1 Non-Compete and Proprietary Rights. Perform duties as or for a
Competitor of UGSI (i) which are in either the industry(ies) or geographic
location(s) in which Executive performed services for UGSI in the most
recent five years of Executive's UGSI employment and which are the same or
substantially similar to the duties performed by Executive at UGSI; or (ii)
which involve the use of any Confidential Information or Innovations (as
defined in paragraph 5.8, below) which Executive has received, obtained or
acquired during, or as a consequence of, Executive's employment with UGSI;
or
4.2.2 Employment by Customer. Perform duties for any current customer
or prospective customer of UGSI with which Executive has had business
contact during the most recent five years of his employment at UGSI.
4.2 Impermissible Conduct Without Proper Approval. During the time of
Executive's employment with UGSI and for a period of twelve (12) months
thereafter, without the express, prior written consent of an UGSI officer,
Executive shall not engage in any of the following conduct:
4.3.1 Hiring Away UGSI Employees. Hire, attempt to hire, or assist any
other person or entity in hiring or attempting to hire any current employee
of UGSI or any person who was an UGSI employee within the six-month period
prior to the termination of Executive's employment; or
4.3.2 Competition. Solicit, divert, or take away, in competition with
UGSI, the business or patronage of any current UGSI customer or any
prospective customer with which Executive has had business contact during
his employment at UGSI. This
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restriction shall not apply to any person or entity who is no longer a
customer or prospective customer at the time of any such solicitation by
Executive.
4.3 Automatic Extension of Restrictive Period. Executive agrees that if
he acts in violation of paragraph 4.2 or paragraph 4.3 of this Agreement, the
number of days that such violation exists will be added to any period of
limitations on the specific activities.
4.4 Executive's Acknowledgment of Reasonableness of Limitations.
Executive acknowledges that the limitations set forth in Section 4 of this
Agreement, are reasonable and necessary to protect the valid business interests
and goodwill of UGSI. Executive further acknowledges that UGSI is engaged in
the business of providing information technology and related services to
customers located throughout the United States and the World, and that UGSI
actively solicits business and services customers throughout this territory.
4.5 Competitor Defined. As used in this paragraph 4, the term
"Competitor" means an individual, business or any other entity or enterprise
engaged in, or having publicly announced its intent to engage in business that
is substantially similar to UGSI's business, or the business of UGSI's parent,
subsidiaries or affiliates.
SECTION 5. UGSI'S PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
5.1 Prohibited Use of Confidential Information or Innovations After
Termination. If Executive's employment at UGSI is terminated by either UGSI or
Executive for any reason (including Executive's death), this Section 5 shall
survive such termination. Both during and after the term of Executive's
employment, Executive will not, directly or indirectly, use or disclose any
Confidential Information or Innovations, without the express, prior written
consent of an UGSI officer, except as may be necessary to perform Executive's
duties for the benefit of UGSI during Executive's employment with UGSI. The
restrictions set forth in this paragraph 5.1 will last throughout Executive's
employment with UGSI and for a period of 10 years following the termination of
Executive's employment, with the exception of trade secrets, trademarks,
copyrights and patents, for which the restrictions herein regarding disclosure
or use shall last in perpetuity or for such other maximum period as the law
allows.
5.2 Return of UGSI Property. Upon termination of Executive's employment,
Executive will promptly return to UGSI any UGSI hardware or software in
Executive's possession or control, and all documents, information and materials
of any nature pertaining to Executive's work with UGSI, or relating to the
business of UGSI. Furthermore, Executive will not take any software, documents
or materials or copies thereof containing Confidential Information or
Innovations.
5.3 Disclosure of Innovations. Executive will promptly disclose to UGSI,
or its designees, in writing, all Innovations that Executive, alone or jointly
with others, creates or first reduces to practice during the period of
Executive's employment with UGSI.
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5.4 UGSI's Ownership of Proprietary Rights. Executive hereby assigns and
agrees to assign to UGSI, its successors and assigns, Executive's entire right,
title and interest in and to: (a) any worldwide patents, patent applications,
copyrights, trade secrets and other intellectual property rights in any
Innovations; and (b) any Moral Rights that Executive may have in or with respect
to any Innovations. Executive also waives and agrees never to assert any Moral
Rights Executive may have in or with respect to any Innovations, even after
termination of Executive's employment with UGSI.
5.5 Protection of Proprietary Rights. Executive shall do all lawful
things to assist UGSI in obtaining and enforcing patents, copyrights, trade
secret rights, and other legal protections of UGSI's Innovations in any country.
Executive will execute any documents that UGSI may reasonably request for use in
obtaining or enforcing such patents, copyrights, trade secret rights and other
legal protections. Executive's obligations under this paragraph will continue
beyond the termination of Executive's employment with UGSI.
5.6 Use of Executive's Likeness. Executive authorizes UGSI to use, reuse,
and to reasonably grant others the right to use and reuse, without additional
compensation, Executive's name, photograph, likeness (including caricature),
voice, and biographical information, and any reproduction or simulation thereof,
in any media now known or hereafter developed, for valid business purposes of
UGSI.
5.7 Executive Acknowledgment of Reasonable Limitations. Executive
acknowledges that the limitations set forth in Section 5 of this Agreement are
reasonable and necessary to protect the valid business interests and goodwill of
UGSI. Executive further acknowledges that UGSI is in an industry in which both
the creation and use of information and innovation is critical to business
success, and that the protection of that information/innovation is a valid
interest of UGSI. Executive further acknowledges that signing this Agreement is
required for his having access to UGSI's confidential business and technological
information.
5.8 Definitions. As used in this Section 5, "Confidential Information"
means all business information, technological information, intellectual
property, trade secrets and other information belonging to UGSI, its parent,
subsidiaries or affiliates or relating to UGSI's business, technology,
customers, vendors, or any other party with whom UGSI agrees to hold information
of such party in confidence, which is not generally available to the public.
Also, as used in this Section 5, "Innovations" means all developments,
improvements, designs, original works of authorship, formulas, processes,
software programs, databases and trade secrets that relate to any services,
product, systems or other business(es) of UGSI, whether or not patentable,
copyrightable or protectable as trade secrets, that Executive, alone or jointly
with others, creates or first reduces to practice during the period of
Executive's employment with UGSI. Furthermore, "Moral Rights" means any right
to claim authorship of a work of authorship, to object to or prevent the
modification of any such work of authorship, or to withdraw from circulation or
control the publication or distribution of any such work of authorship. For
purposes of all provisions in this Section 5, "UGSI" mean UGSI, its parent,
subsidiaries or affiliates.
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SECTION 6. MISCELLANEOUS
6.1 Exclusion of Property of Others. Executive will not bring to UGSI or
use in the performance of his duties any documents or materials of a former
employer that are not generally available to the public or that have not been
legally transferred to UGSI.
6.2 Agreement to Testing for Controlled Substances. Executive understands
and agrees that, from time to time, Executive may be reasonably tested to detect
the presence or absence of any illegal drugs or controlled substances and that
the results of any such tests shall be released to UGSI.
6.3 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of UGSI
by any means whether direct or indirect, by purchase, merger, consolidation, or
otherwise, in the same manner and to the same extent that UGSI would be
obligated under this Agreement if no succession had taken place. Executive's
rights and obligations under this Agreement are personal and such rights,
benefits, and obligations of Executive shall not be voluntarily or involuntarily
assigned, alienated, or transferred by Executive, whether by operation of law or
otherwise, without the prior, written consent of an officer of UGSI.
6.4 Authorization to Deduct Amounts Owed. Upon Executive's separation from
employment, UGSI is authorized to deduct from Executive's final wages or other
monies due Executive any debts or amounts owed to UGSI by Executive.
6.5 Enforcement to Full Extent Permissible. If the scope of any provision
contained in this Agreement is too broad to permit enforcement of such provision
to its full extent, then such provision shall be enforced to the maximum extent
permitted by law, and the parties hereby consent that such provision may be
reformed or modified accordingly, and enforced as reformed or modified, in any
proceeding brought to enforce such provision.
6.6 Extraordinary Relief and Remedies. Executive understands and agrees
that UGSI would be irreparably damaged and that money damages cannot fully
compensate UGSI in the event that the provisions of Sections 4 or 5 of this
Agreement are violated, and agrees that UGSI shall be entitled (in addition to
any other remedy to which it may be entitled, at law or in equity) to an
injunction or injunctions to redress breaches of this Agreement and to
specifically enforce the terms and provisions hereof.
6.7 Severability. Each provision of this Agreement will be interpreted
in such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision, to the extent of such prohibition or invalidity,
shall be deemed not to be a part of this Agreement, and shall not invalidate the
remainder of such provision or the remaining provisions of this Agreement.
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6.8 Jurisdiction. Any action or proceeding arising out of or relating to
this Agreement may be commenced in any court of competent jurisdiction in Collin
County, Texas, and shall be governed by and interpreted under the laws of Texas.
6.9 Modification or Amendment. This Agreement may not be modified or
amended except by a written instrument executed by Executive and an authorized
officer of UGSI.
IN WITNESS WHEREOF, Unigraphic Solutions Inc. and Donald E. Davidson have
executed this Personal Service Agreement to be effective as of the Effective
Date.
Agreed to this 1st day of March, 1998 by and among:
EXECUTIVE
By: /s/ DONALD E. DAVIDSON
---------------------------
Donald E. Davidson
UNIGRAPHIC SOLUTIONS INC.
By: /s/ JOHN J. MAZZOLA
---------------------------
John J. Mazzola, President
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EXHIBIT 10.16
PERSONAL SERVICES AGREEMENT
THIS PERSONAL SERVICES AGREEMENT ("Agreement") is entered into between
UNIGRAPHIC SOLUTIONS INC. ("UGSI") and JAMES DUNCAN ("Executive"), to be
effective the 1st day of March, 1998 ("Effective Date").
RECITALS
WHEREAS, UGSI desires to employ Executive pursuant to the terms and
conditions and for the consideration set forth in this Agreement, and Executive
desires to enter the employ of UGSI pursuant to such terms and conditions and
for such consideration;
WHEREAS, The provisions of this Agreement are a condition of Executive's
being employed by UGSI, of Executive's having access to confidential business
and technological information, and Executive's being eligible to receive certain
benefits at UGSI. This Agreement is entered into, and is reasonably necessary,
to protect confidential information and customer relationships to which
Executive may have access, and to protect the goodwill and other business
interests of UGSI; and,
WHEREAS, The provisions of this Agreement are also a condition of
Executive's agreeing to provide personal services to UGSI.
NOW, THEREFORE, in consideration of the mutual promises and covenants
agreed to herein, the receipt and sufficiency of which are hereby acknowledged,
UGSI and Executive agree as follow:
SECTION 1. EMPLOYMENT DUTIES
1.1 UGSI agrees to employ Executive, and Executive agrees to be employed
by UGSI, beginning as of the Effective Date and continuing throughout the term
as specified in paragraph 3.1 (the "Term"). Executive shall be employed in the
position of Vice President-Europe for UGSI. Executive shall faithfully and
diligently render such services and perform such related duties and
responsibilities as are customarily performed by a person holding such corporate
title and as otherwise may from time to time be reasonably assigned to
Executive. Executive shall comply with provisions of this Agreement and shall
at all times be subject to such UGSI policies and procedures, including, but not
limited to, the UGSI Code of Conduct, as UGSI may from time to time establish as
pertaining to Executive.
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SECTION 2. COMPENSATION AND BENEFITS
2.1 For the term of this Agreement, UGSI shall pay Executive a salary of
not less than THIRTEEN THOUSAND THREE HUNDRED THIRTY-FOUR AND 00/100 DOLLARS
($13,334.00) per month to be paid in semi-monthly payments.
2.2 Executive shall be entitled to annual bonuses, payable as follows:
2.2.1 Executive shall be eligible for a performance-based bonus equal
to NINETY THOUSAND AND 00/100 DOLLARS ($90,000.00) to be paid on or before
the first anniversary of the Effective Date of this Agreement. The bonus
will be based upon the actual financial performance of UGSI in relation to
the projected approved business plan.
2.2.2 Executive shall be eligible to participate in UGSI's Executive
Bonus Plan, for the first calendar year following the Effective Date.
2.1.3 All bonus payments in excess of the first year bonus specified
in paragraph 2.2.1 are contingent upon Executive's not having been
discharged for Cause (as such term is defined in paragraph 3.1) by UGSI or
Executive's not having voluntarily terminated his employment under
paragraph 3.1.2 at the time each particular payment is due.
2.3 In the event that there is an initial public offering of the common
stock of UGSI (an "IPO"), then UGSI agrees to grant stock options to Executive
in accordance with a stock option plan to be maintained by UGSI. Such grant
shall be for an option to purchase 40,000 (40,000) shares of the Class A common
stock of UGSI (which is the class of common stock which would be issued in
connection with an IPO). Executive shall become vested in such shares over a
three-year period, with one-third of the options vesting on January 1, 1999;
one-third of the options vesting on January 1, 2000; and the balance of all
unvested options shall vest on January 1, 2001. Any unvested options shall be
forfeited immediately upon Executive's termination of employment for any reason
other than death, termination without Cause as defined in paragraph 3.1.3, or
termination by Executive for Cause as defined in paragraph 3.1.5, in each of
which events vesting shall continue in accordance with the vesting schedule set
forth herein. For purposes of determining the number of shares in which the
Executive will vest, all numbers shall be rounded up to the next highest whole
number so that options will not vest in fractions. Executive shall have 10
years from the Effective Date of this Agreement to exercise his purchase option.
The exercise price of the option shares awarded to Executive shall be the IPO
price of a share of UGSI Class A Common Stock (as stated on a registration
statement on Form S-1 filed by UGSI with, and declared effective by, the
Securities and Exchange Commission).
2.4 EDS Incentive Plan. For so long as Executive is an employee of UGSI,
Executive shall continue to vest in any and all grants through the Effective
Date awarded to Executive
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under the 1996 Incentive Plan of the Electronic Data Systems Corporation or any
predecessor plan ("Incentive Plan"). Notwithstanding anything to the contrary
herein, after the Effective Date Executive shall not be eligible for any awards
under the Incentive Plan.
SECTION 3. TERM AND TERMINATION
3.1 Executive's employment under this Agreement may not be terminated by
the parties except as follows:
3.1.1 Termination and Extension. Unless extended in accordance with
the provisions of this paragraph, this Agreement shall automatically
terminate two years from the Effective Date. This Agreement shall
automatically extend for additional one-year terms unless either party
delivers to the other party, at least 60 days prior to the expiration of
the Agreement, written notice of such party's intent to terminate the
Agreement. Such notice to Executive must be delivered to Executive's
address then on record with the UGSI. Notice to UGSI must be delivered to
the then Chief Executive Officer at the designated headquarters of UGSI.
3.1.2 Executive's Voluntary Termination. Executive may terminate his
employment with UGSI at any time for any reason whatsoever, by giving 60
days' written notice to UGSI.
3.1.3 Termination With Notice. UGSI may terminate Executive's
employment at any time for any reason whatsoever by giving 60 days' written
notice to Executive.
3.1.4 Termination for Cause. UGSI may terminate Executive's employment
at any time for Cause. For purposes of this paragraph, the term "Cause"
shall mean (a) gross or habitual neglect of duties or misconduct in the
performance of the duties and services required of Executive pursuant to
this Agreement; (b) conduct of Executive which is materially detrimental to
UGSI's reputation or business operations or its ability to secure or renew
future contracts; (c) Executive's conviction of a felony or of a
misdemeanor involving moral turpitude; (d) Executive's breach of a material
provision of this Agreement which remains uncorrected for 30 days following
written notice to the Executive by UGSI of such breach; (e) continued
failure or refusal of Executive to faithfully, diligently and competently
perform the usual and customary duties of his employment; or (f) failure or
refusal of Executive to materially comply with the policies, standards and
regulations of UGSI as from time to time may be made known to Executive.
3.1.5 Executive's Termination for Cause. Executive may terminate his
employment with UGSI at any time for Cause. For purposes of this paragraph
3.1.5, the term "Cause" shall mean a material breach of a material
provision of this Agreement
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which remains uncorrected for 30 days following written notice to UGSI by
Executive of such breach.
3.1.6 Termination Upon Death or Incapacity. Executive's employment
will also terminate immediately upon Executive's death or incapacity by
reason of accident, sickness, or other circumstance which renders Executive
mentally or physically incapable of performing the duties and services
required hereunder.
3.2 The effects of termination of the employment relationship shall be as
follows:
3.2.1 Termination of Benefits. In the event of Executive's voluntary
termination of employment pursuant to paragraph 3.1.2 or the termination of
Executive's employment by UGSI for Cause pursuant to paragraph 3.1.4, UGSI
shall have no further obligation to provide Executive with any benefits
and/or payments, except as required by law or the terms of a controlling
benefit or stock plan or policy and the payment of any salary or bonus
accrued to the Termination Date.
3.2.2 Death and Disability Benefits. In the event of the termination
of the employment relationship by reason of death or incapacity under
paragraph 3.1.6, UGSI shall pay Executive his salary to the date of his
death or incapacity and the right of Executive or Executive's heirs to
compensation thereafter shall be governed by the applicable death,
disability, pension, insurance or other written benefit plans or policy.
3.2.3 Salary Continuation Under Limited Circumstances. In the event
UGSI terminates the employment of Executive with notice as set forth in
paragraph 3.1.3, or Executive terminates the employment relationship for
Cause under paragraph 3.1.5, UGSI will pay to Executive an amount equal to
one year of his salary and any bonus to which Executive might otherwise be
entitled. Any unvested UGSI stock options shall continue to vest in
accordance with the vesting schedule set forth in paragraph 2.3.
3.2.4 Employment at Will After Termination of Agreement. If, upon the
termination of this Agreement pursuant to paragraph 3.1.1, the parties to
this Agreement agree that Executive shall remain employed by UGSI, then
Executive's employment with UGSI will continue in accordance with, and
subject to, the terms and conditions of this Agreement, except that
Executive's continued employment will not be for any specific term but will
be at-will and either UGSI or Executive may terminate the employment
relationship at any time for any reason whatsoever. If UGSI then terminates
the employment of Executive pursuant to paragraph 3.1.3 or Executive
terminates the relationship for Cause pursuant to paragraph 3.1.5,
Executive shall be entitled to his salary and bonus through the date of
termination. If UGSI terminates the employment of Executive for Cause
pursuant to paragraph 3.1.4 or Executive voluntarily terminates his
employment pursuant to paragraph 3.1.2, Executive shall be entitled to his
salary through the date of termination and no bonus payments.
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3.2.5 Termination Date. Executive's termination of employment shall be
effective on the date coincident with the occurrence of a terminating event
as described in this Section 3, or such other date as determined by the
Board of Directors of UGSI. The effective date of Executive's termination
of employment shall be the "Termination Date."
SECTION 4. EXECUTIVE'S NON-COMPETITION AND NON-SOLICITATION OBLIGATIONS
4.1 Executive's Services for Exclusive Benefit of UGSI. While employed by
UGSI, Executive shall devote Executive's full business time and best efforts to
the performance of his duties and responsibilities hereunder and shall not
engage in any other employment or business venture without the prior, written
consent of an officer of UGSI.
4.2 Surviving Covenants. If Executive's employment at UGSI is terminated
by either UGSI or Executive for any reason except Executive's death, all
covenants set forth in this Section 4 shall survive such termination. While
employed by UGSI and for a period of twelve (12) months thereafter, Executive
shall not directly or indirectly, individually or as an employee, contractor,
consultant, partner, officer, director or stockholder (other than as a holder of
less than five percent of the equity of a publicly traded company) or in any
other capacity, engage in any of the following conduct:
4.2.1 Non-Compete and Proprietary Rights. Perform duties as or for a
Competitor of UGSI (i) which are in either the industry(ies) or geographic
location(s) in which Executive performed services for UGSI in the most
recent five years of Executive's UGSI employment and which are the same or
substantially similar to the duties performed by Executive at UGSI; or (ii)
which involve the use of any Confidential Information or Innovations (as
defined in paragraph 5.8, below) which Executive has received, obtained or
acquired during, or as a consequence of, Executive's employment with UGSI;
or
4.2.2 Employment by Customer. Perform duties for any current customer
or prospective customer of UGSI with which Executive has had business
contact during the most recent five years of his employment at UGSI.
4.2 Impermissible Conduct Without Proper Approval. During the time of
Executive's employment with UGSI and for a period of twelve (12) months
thereafter, without the express, prior written consent of an UGSI officer,
Executive shall not engage in any of the following conduct:
4.3.1 Hiring Away UGSI Employees. Hire, attempt to hire, or assist any
other person or entity in hiring or attempting to hire any current employee
of UGSI or any person who was an UGSI employee within the six-month period
prior to the termination of Executive's employment; or
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4.3.2 Competition. Solicit, divert, or take away, in competition with
UGSI, the business or patronage of any current UGSI customer or any
prospective customer with which Executive has had business contact during
his employment at UGSI. This restriction shall not apply to any person or
entity who is no longer a customer or prospective customer at the time of
any such solicitation by Executive.
4.3 Automatic Extension of Restrictive Period. Executive agrees that if
he acts in violation of paragraph 4.2 or paragraph 4.3 of this Agreement, the
number of days that such violation exists will be added to any period of
limitations on the specific activities.
4.4 Executive's Acknowledgment of Reasonableness of Limitations.
Executive acknowledges that the limitations set forth in Section 4 of this
Agreement, are reasonable and necessary to protect the valid business interests
and goodwill of UGSI. Executive further acknowledges that UGSI is engaged in
the business of providing information technology and related services to
customers located throughout the United States and the World, and that UGSI
actively solicits business and services customers throughout this territory.
4.5 Competitor Defined. As used in this paragraph 4, the term
engaged in, or having publicly announced its intent to engage in business that
is substantially similar to UGSI's business, or the business of UGSI's parent,
subsidiaries or affiliates.
SECTION 5. UGSI'S PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
5.1 Prohibited Use of Confidential Information or Innovations After
Termination. If Executive's employment at UGSI is terminated by either UGSI or
Executive for any reason (including Executive's death), this Section 5 shall
survive such termination. Both during and after the term of Executive's
employment, Executive will not, directly or indirectly, use or disclose any
Confidential Information or Innovations, without the express, prior written
consent of an UGSI officer, except as may be necessary to perform Executive's
duties for the benefit of UGSI during Executive's employment with UGSI. The
restrictions set forth in this paragraph 5.1 will last throughout Executive's
employment with UGSI and for a period of 10 years following the termination of
Executive's employment, with the exception of trade secrets, trademarks,
copyrights and patents, for which the restrictions herein regarding disclosure
or use shall last in perpetuity or for such other maximum period as the law
allows.
5.2 Return of UGSI Property. Upon termination of Executive's employment,
Executive will promptly return to UGSI any UGSI hardware or software in
Executive's possession or control, and all documents, information and materials
of any nature pertaining to Executive's work with UGSI, or relating to the
business of UGSI. Furthermore, Executive will not take any software, documents
or materials or copies thereof containing Confidential Information or
Innovations.
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5.3 Disclosure of Innovations. Executive will promptly disclose to UGSI,
or its designees, in writing, all Innovations that Executive, alone or jointly
with others, creates or first reduces to practice during the period of
Executive's employment with UGSI.
5.4 UGSI's Ownership of Proprietary Rights. Executive hereby assigns and
agrees to assign to UGSI, its successors and assigns, Executive's entire right,
title and interest in and to: (a) any worldwide patents, patent applications,
copyrights, trade secrets and other intellectual property rights in any
Innovations; and (b) any Moral Rights that Executive may have in or with respect
to any Innovations. Executive also waives and agrees never to assert any Moral
Rights Executive may have in or with respect to any Innovations, even after
termination of Executive's employment with UGSI.
5.5 Protection of Proprietary Rights. Executive shall do all lawful
things to assist UGSI in obtaining and enforcing patents, copyrights, trade
secret rights, and other legal protections of UGSI's Innovations in any country.
Executive will execute any documents that UGSI may reasonably request for use in
obtaining or enforcing such patents, copyrights, trade secret rights and other
legal protections. Executive's obligations under this paragraph will continue
beyond the termination of Executive's employment with UGSI.
5.6 Use of Executive's Likeness. Executive authorizes UGSI to use, reuse,
and to reasonably grant others the right to use and reuse, without additional
compensation, Executive's name, photograph, likeness (including caricature),
voice, and biographical information, and any reproduction or simulation thereof,
in any media now known or hereafter developed, for valid business purposes of
UGSI.
5.7 Executive Acknowledgment of Reasonable Limitations. Executive
acknowledges that the limitations set forth in Section 5 of this Agreement are
reasonable and necessary to protect the valid business interests and goodwill of
UGSI. Executive further acknowledges that UGSI is in an industry in which both
the creation and use of information and innovation is critical to business
success, and that the protection of that information/innovation is a valid
interest of UGSI. Executive further acknowledges that signing this Agreement is
required for his having access to UGSI's confidential business and technological
information.
5.8 Definitions. As used in this Section 5, "Confidential Information"
means all business information, technological information, intellectual
property, trade secrets and other information belonging to UGSI, its parent,
subsidiaries or affiliates or relating to UGSI's business, technology,
customers, vendors, or any other party with whom UGSI agrees to hold information
of such party in confidence, which is not generally available to the public.
Also, as used in this Section 5, "Innovations" means all developments,
improvements, designs, original works of authorship, formulas, processes,
software programs, databases and trade secrets that relate to any services,
product, systems or other business(es) of UGSI, whether or not patentable,
copyrightable or protectable as trade secrets, that Executive, alone or jointly
with others, creates
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or first reduces to practice during the period of Executive's employment with
UGSI. Furthermore, "Moral Rights" means any right to claim authorship of a work
of authorship, to object to or prevent the modification of any such work of
authorship, or to withdraw from circulation or control the publication or
distribution of any such work of authorship. For purposes of all provisions in
this Section 5, "UGSI" mean UGSI, its parent, subsidiaries or affiliates.
SECTION 6. MISCELLANEOUS
6.1 Exclusion of Property of Others. Executive will not bring to UGSI or
use in the performance of his duties any documents or materials of a former
employer that are not generally available to the public or that have not been
legally transferred to UGSI.
6.2 Agreement to Testing for Controlled Substances. Executive understands
and agrees that, from time to time, Executive may be reasonably tested to detect
the presence or absence of any illegal drugs or controlled substances and that
the results of any such tests shall be released to UGSI.
6.3 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of UGSI
by any means whether direct or indirect, by purchase, merger, consolidation, or
otherwise, in the same manner and to the same extent that UGSI would be
obligated under this Agreement if no succession had taken place. Executive's
rights and obligations under this Agreement are personal and such rights,
benefits, and obligations of Executive shall not be voluntarily or involuntarily
assigned, alienated, or transferred by Executive, whether by operation of law or
otherwise, without the prior, written consent of an officer of UGSI.
6.4 Authorization to Deduct Amounts Owed. Upon Executive's separation from
employment, UGSI is authorized to deduct from Executive's final wages or other
monies due Executive any debts or amounts owed to UGSI by Executive.
6.5 Enforcement to Full Extent Permissible. If the scope of any provision
contained in this Agreement is too broad to permit enforcement of such provision
to its full extent, then such provision shall be enforced to the maximum extent
permitted by law, and the parties hereby consent that such provision may be
reformed or modified accordingly, and enforced as reformed or modified, in any
proceeding brought to enforce such provision.
6.6 Extraordinary Relief and Remedies. Executive understands and agrees
that UGSI would be irreparably damaged and that money damages cannot fully
compensate UGSI in the event that the provisions of Sections 4 or 5 of this
Agreement are violated, and agrees that UGSI shall be entitled (in addition to
any other remedy to which it may be entitled, at law or in equity)
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to an injunction or injunctions to redress breaches of this Agreement and to
specifically enforce the terms and provisions hereof.
6.7 Severability. Each provision of this Agreement will be interpreted
in such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision, to the extent of such prohibition or invalidity,
shall be deemed not to be a part of this Agreement, and shall not invalidate the
remainder of such provision or the remaining provisions of this Agreement.
6.8 Jurisdiction. Any action or proceeding arising out of or relating to
this Agreement may be commenced in any court of competent jurisdiction in Collin
County, Texas, and shall be governed by and interpreted under the laws of Texas.
6.9 Modification or Amendment. This Agreement may not be modified or
amended except by a written instrument executed by Executive and an authorized
officer of UGSI.
IN WITNESS WHEREOF, Unigraphic Solutions Inc. and James Duncan have
executed this Personal Service Agreement to be effective as of the Effective
Date.
Agreed to this 1ST day of March, 1998 by and among:
EXECUTIVE
By: /s/ JAMES DUNCAN
---------------------------
James Duncan
UNIGRAPHIC SOLUTIONS INC.
By: /s/ JOHN J. MAZZOLA
---------------------------
John J. Mazzola, President
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EXHIBIT 10.17
PERSONAL SERVICES AGREEMENT
THIS PERSONAL SERVICES AGREEMENT ("Agreement") is entered into between
UNIGRAPHIC SOLUTIONS INC. ("UGSI") and DENNIS P. KRUSE ("Executive"), to be
effective the 1st day of March, 1998 ("Effective Date").
RECITALS
WHEREAS, UGSI desires to employ Executive pursuant to the terms and
conditions and for the consideration set forth in this Agreement, and Executive
desires to enter the employ of UGSI pursuant to such terms and conditions and
for such consideration;
WHEREAS, The provisions of this Agreement are a condition of Executive's
being employed by UGSI, of Executive's having access to confidential business
and technological information, and Executive's being eligible to receive certain
benefits at UGSI. This Agreement is entered into, and is reasonably necessary,
to protect confidential information and customer relationships to which
Executive may have access, and to protect the goodwill and other business
interests of UGSI; and,
WHEREAS, The provisions of this Agreement are also a condition of
Executive's agreeing to provide personal services to UGSI.
NOW, THEREFORE, in consideration of the mutual promises and covenants
agreed to herein, the receipt and sufficiency of which are hereby acknowledged,
UGSI and Executive agree as follow:
SECTION 1. EMPLOYMENT DUTIES
1.1 UGSI agrees to employ Executive, and Executive agrees to be employed
by UGSI, beginning as of the Effective Date and continuing throughout the term
as specified in paragraph 3.1 (the "Term"). Executive shall be employed in the
position of Vice President-Americas for UGSI. Executive shall faithfully and
diligently render such services and perform such related duties and
responsibilities as are customarily performed by a person holding such corporate
title and as otherwise may from time to time be reasonably assigned to
Executive. Executive shall comply with provisions of this Agreement and shall
at all times be subject to such UGSI policies and procedures, including, but not
limited to, the UGSI Code of Conduct, as UGSI may from time to time establish as
pertaining to Executive.
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SECTION 2. COMPENSATION AND BENEFITS
2.1 For the term of this Agreement, UGSI shall pay Executive a salary of
not less than THIRTEEN THOUSAND THREE HUNDRED THIRTY-FOUR DOLLARS ($13,334.00)
per month to be paid in semi-monthly payments.
2.2 Executive shall be entitled to annual bonuses, payable as follows:
2.2.1 Executive shall be eligible for a performance-based bonus equal
to NINETY THOUSAND AND 00/100 DOLLARS ($90,000.00) to be paid on or before
the first anniversary of the Effective Date of this Agreement. The bonus
will be based upon the actual financial performance of UGSI in relation to
the projected approved business plan.
2.2.2 Executive shall be eligible to participate in UGSI's Executive
Bonus Plan, for the first calendar year following the Effective Date.
2.1.3 All bonus payments in excess of the first year bonus specified
in paragraph 2.2.1 are contingent upon Executive's not having been
discharged for Cause (as such term is defined in paragraph 3.1) by UGSI or
Executive's not having voluntarily terminated his employment under
paragraph 3.1.2 at the time each particular payment is due.
2.3 In the event that there is an initial public offering of the common
stock of UGSI (an "IPO"), then UGSI agrees to grant stock options to Executive
in accordance with a stock option plan to be maintained by UGSI. Such grant
shall be for an option to purchase FORTY THOUSAND (40,000) shares of the Class A
common stock of UGSI (which is the class of common stock which would be issued
in connection with an IPO). Executive shall become vested in such shares over a
three-year period, with one-third of the options vesting on January 1, 1999;
one-third of the options vesting on January 1, 2000; and the balance of all
unvested options shall vest on January 1, 2001. Any unvested options shall be
forfeited immediately upon Executive's termination of employment for any reason
other than death, termination without Cause as defined in paragraph 3.1.3, or
termination by Executive for Cause as defined in paragraph 3.1.5, in each of
which events vesting shall continue in accordance with the vesting schedule set
forth herein. For purposes of determining the number of shares in which the
Executive will vest, all numbers shall be rounded up to the next highest whole
number so that options will not vest in fractions. Executive shall have 10
years from the Effective Date of this Agreement to exercise his purchase option.
The exercise price of the option shares awarded to Executive shall be the IPO
price of a share of UGSI Class A Common Stock (as stated on a registration
statement on Form S-1 filed by UGSI with, and declared effective by, the
Securities and Exchange Commission).
2.4 EDS Incentive Plan. For so long as Executive is an employee of UGSI,
Executive shall continue to vest in any and all grants awarded through the
Effective Date to Executive
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under the 1996 Incentive Plan of the Electronic Data Systems Corporation or any
predecessor plan ("Incentive Plan"). Notwithstanding anything to the contrary
herein, after the Effective Date Executive shall not be eligible for any awards
under the Incentive Plan.
SECTION 3. TERM AND TERMINATION
3.1 Executive's employment under this Agreement may not be terminated by
the parties except as follows:
3.1.1 Termination and Extension. Unless extended in accordance with
the provisions of this paragraph, this Agreement shall automatically
terminate two years from the Effective Date. This Agreement shall
automatically extend for additional one-year terms unless either party
delivers to the other party, at least 60 days prior to the expiration of
the Agreement, written notice of such party's intent to terminate the
Agreement. Such notice to Executive must be delivered to Executive's
address then on record with the UGSI. Notice to UGSI must be delivered to
the then Chief Executive Officer at the designated headquarters of UGSI.
3.1.2 Executive's Voluntary Termination. Executive may terminate his
employment with UGSI at any time for any reason whatsoever, by giving 60
days' written notice to UGSI.
3.1.3 Termination With Notice. UGSI may terminate Executive's
employment at any time for any reason whatsoever by giving 60 days' written
notice to Executive.
3.1.4 Termination for Cause. UGSI may terminate Executive's
employment at any time for Cause. For purposes of this paragraph, the term
"Cause" shall mean (a) gross or habitual neglect of duties or misconduct in
the performance of the duties and services required of Executive pursuant
to this Agreement; (b) conduct of Executive which is materially detrimental
to UGSI's reputation or business operations or its ability to secure or
renew future contracts; (c) Executive's conviction of a felony or of a
misdemeanor involving moral turpitude; (d) Executive's breach of a material
provision of this Agreement which remains uncorrected for 30 days following
written notice to the Executive by UGSI of such breach; (e) continued
failure or refusal of Executive to faithfully, diligently and competently
perform the usual and customary duties of his employment; or (f) failure or
refusal of Executive to materially comply with the policies, standards and
regulations of UGSI as from time to time may be made known to Executive.
3.1.5 Executive's Termination for Cause. Executive may terminate his
employment with UGSI at any time for Cause. For purposes of this paragraph
3.1.5, the term "Cause" shall mean a material breach of a material
provision of this Agreement which remains uncorrected for 30 days following
written notice to UGSI by Executive of such breach.
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3.1.6 Termination Upon Death or Incapacity. Executive's employment
will also terminate immediately upon Executive's death or incapacity by
reason of accident, sickness, or other circumstance which renders Executive
mentally or physically incapable of performing the duties and services
required hereunder.
3.2 The effects of termination of the employment relationship shall be as
follows:
3.2.1 Termination of Benefits. In the event of Executive's voluntary
termination of employment pursuant to paragraph 3.1.2 or the termination of
Executive's employment by UGSI for Cause pursuant to paragraph 3.1.4, UGSI
shall have no further obligation to provide Executive with any benefits
and/or payments, except as required by law or the terms of a controlling
benefit or stock plan or policy and the payment of any salary or bonus
accrued to the Termination Date.
3.2.2 Death and Disability Benefits. In the event of the termination
of the employment relationship by reason of death or incapacity under
paragraph 3.1.6, UGSI shall pay Executive his salary to the date of his
death or incapacity and the right of Executive or Executive's heirs to
compensation thereafter shall be governed by the applicable death,
disability, pension, insurance or other written benefit plans or policy.
3.2.3 Salary Continuation Under Limited Circumstances. In the event
UGSI terminates the employment of Executive with notice as set forth in
paragraph 3.1.3, or Executive terminates the employment relationship for
Cause under paragraph 3.1.5, UGSI will pay to Executive an amount equal to
one year of his salary and any bonus to which Executive might otherwise be
entitled. Any unvested UGSI stock options shall continue to vest in
accordance with the vesting schedule set forth in paragraph 2.3.
3.2.4 Employment at Will After Termination of Agreement. If, upon the
termination of this Agreement pursuant to paragraph 3.1.1, the parties to
this Agreement agree that Executive shall remain employed by UGSI, then
Executive's employment with UGSI will continue in accordance with, and
subject to, the terms and conditions of this Agreement, except that
Executive's continued employment will not be for any specific term but will
be at-will and either UGSI or Executive may terminate the employment
relationship at any time for any reason whatsoever. If UGSI then terminates
the employment of Executive pursuant to paragraph 3.1.3 or Executive
terminates the relationship for Cause pursuant to paragraph 3.1.5,
Executive shall be entitled to his salary and bonus through the date of
termination. If UGSI terminates the employment of Executive for Cause
pursuant to paragraph 3.1.4 or Executive voluntarily terminates his
employment pursuant to paragraph 3.1.2, Executive shall be entitled to his
salary through the date of termination and no bonus payments.
3.2.5 Termination Date. Executive's termination of employment shall
be effective on the date coincident with the occurrence of a terminating
event as described in
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this Section 3, or such other date as determined by the Board of Directors
of UGSI. The effective date of Executive's termination of employment shall
be the "Termination Date."
SECTION 4. EXECUTIVE'S NON-COMPETITION AND NON-SOLICITATION OBLIGATIONS
4.1 Executive's Services for Exclusive Benefit of UGSI. While employed by
UGSI, Executive shall devote Executive's full business time and best efforts to
the performance of his duties and responsibilities hereunder and shall not
engage in any other employment or business venture without the prior, written
consent of an officer of UGSI.
4.2 Surviving Covenants. If Executive's employment at UGSI is terminated
by either UGSI or Executive for any reason except Executive's death, all
covenants set forth in this Section 4 shall survive such termination. While
employed by UGSI and for a period of twelve (12) months thereafter, Executive
shall not directly or indirectly, individually or as an employee, contractor,
consultant, partner, officer, director or stockholder (other than as a holder of
less than five percent of the equity of a publicly traded company) or in any
other capacity, engage in any of the following conduct:
4.2.1 Non-Compete and Proprietary Rights. Perform duties as or for a
Competitor of UGSI (i) which are in either the industry(ies) or geographic
location(s) in which Executive performed services for UGSI in the most
recent five years of Executive's UGSI employment and which are the same or
substantially similar to the duties performed by Executive at UGSI; or (ii)
which involve the use of any Confidential Information or Innovations (as
defined in paragraph 5.8, below) which Executive has received, obtained or
acquired during, or as a consequence of, Executive's employment with UGSI;
or
4.2.2 Employment by Customer. Perform duties for any current
customer or prospective customer of UGSI with which Executive has had
business contact during the most recent five years of his employment at
UGSI.
4.2 Impermissible Conduct Without Proper Approval. During the time of
Executive's employment with UGSI and for a period of twelve (12) months
thereafter, without the express, prior written consent of an UGSI officer,
Executive shall not engage in any of the following conduct:
4.3.1 Hiring Away UGSI Employees. Hire, attempt to hire, or assist
any other person or entity in hiring or attempting to hire any current
employee of UGSI or any person who was an UGSI employee within the
six-month period prior to the termination of Executive's employment; or
4.3.2 Competition. Solicit, divert, or take away, in competition
with UGSI, the business or patronage of any current UGSI customer or any
prospective customer with which Executive has had business contact during
his employment at UGSI. This
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restriction shall not apply to any person or entity who is no longer a
customer or prospective customer at the time of any such solicitation by
Executive.
4.3 Automatic Extension of Restrictive Period. Executive agrees that if
he acts in violation of paragraph 4.2 or paragraph 4.3 of this Agreement, the
number of days that such violation exists will be added to any period of
limitations on the specific activities.
4.4 Executive's Acknowledgment of Reasonableness of Limitations.
Executive acknowledges that the limitations set forth in Section 4 of this
Agreement, are reasonable and necessary to protect the valid business interests
and goodwill of UGSI. Executive further acknowledges that UGSI is engaged in
the business of providing information technology and related services to
customers located throughout the United States and the World, and that UGSI
actively solicits business and services customers throughout this territory.
4.5 Competitor Defined. As used in this paragraph 4, the term
"Competitor" means an individual, business or any other entity or enterprise
engaged in, or having publicly announced its intent to engage in business that
is substantially similar to UGSI's business, or the business of UGSI's parent,
subsidiaries or affiliates.
SECTION 5. UGSI'S PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
5.1 Prohibited Use of Confidential Information or Innovations After
Termination. If Executive's employment at UGSI is terminated by either UGSI or
Executive for any reason (including Executive's death), this Section 5 shall
survive such termination. Both during and after the term of Executive's
employment, Executive will not, directly or indirectly, use or disclose any
Confidential Information or Innovations, without the express, prior written
consent of an UGSI officer, except as may be necessary to perform Executive's
duties for the benefit of UGSI during Executive's employment with UGSI. The
restrictions set forth in this paragraph 5.1 will last throughout Executive's
employment with UGSI and for a period of 10 years following the termination of
Executive's employment, with the exception of trade secrets, trademarks,
copyrights and patents, for which the restrictions herein regarding disclosure
or use shall last in perpetuity or for such other maximum period as the law
allows.
5.2 Return of UGSI Property. Upon termination of Executive's employment,
Executive will promptly return to UGSI any UGSI hardware or software in
Executive's possession or control, and all documents, information and materials
of any nature pertaining to Executive's work with UGSI, or relating to the
business of UGSI. Furthermore, Executive will not take any software, documents
or materials or copies thereof containing Confidential Information or
Innovations.
5.3 Disclosure of Innovations. Executive will promptly disclose to UGSI,
or its designees, in writing, all Innovations that Executive, alone or jointly
with others, creates or first reduces to practice during the period of
Executive's employment with UGSI.
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5.4 UGSI's Ownership of Proprietary Rights. Executive hereby assigns and
agrees to assign to UGSI, its successors and assigns, Executive's entire right,
title and interest in and to: (a) any worldwide patents, patent applications,
copyrights, trade secrets and other intellectual property rights in any
Innovations; and (b) any Moral Rights that Executive may have in or with respect
to any Innovations. Executive also waives and agrees never to assert any Moral
Rights Executive may have in or with respect to any Innovations, even after
termination of Executive's employment with UGSI.
5.5 Protection of Proprietary Rights. Executive shall do all lawful
things to assist UGSI in obtaining and enforcing patents, copyrights, trade
secret rights, and other legal protections of UGSI's Innovations in any country.
Executive will execute any documents that UGSI may reasonably request for use in
obtaining or enforcing such patents, copyrights, trade secret rights and other
legal protections. Executive's obligations under this paragraph will continue
beyond the termination of Executive's employment with UGSI.
5.6 Use of Executive's Likeness. Executive authorizes UGSI to use, reuse,
and to reasonably grant others the right to use and reuse, without additional
compensation, Executive's name, photograph, likeness (including caricature),
voice, and biographical information, and any reproduction or simulation thereof,
in any media now known or hereafter developed, for valid business purposes of
UGSI.
5.7 Executive Acknowledgment of Reasonable Limitations. Executive
acknowledges that the limitations set forth in Section 5 of this Agreement are
reasonable and necessary to protect the valid business interests and goodwill of
UGSI. Executive further acknowledges that UGSI is in an industry in which both
the creation and use of information and innovation is critical to business
success, and that the protection of that information/innovation is a valid
interest of UGSI. Executive further acknowledges that signing this Agreement is
required for his having access to UGSI's confidential business and technological
information.
5.8 Definitions. As used in this Section 5, "Confidential Information"
means all business information, technological information, intellectual
property, trade secrets and other information belonging to UGSI, its parent,
subsidiaries or affiliates or relating to UGSI's business, technology,
customers, vendors, or any other party with whom UGSI agrees to hold information
of such party in confidence, which is not generally available to the public.
Also, as used in this Section 5, "Innovations" means all developments,
improvements, designs, original works of authorship, formulas, processes,
software programs, databases and trade secrets that relate to any services,
product, systems or other business(es) of UGSI, whether or not patentable,
copyrightable or protectable as trade secrets, that Executive, alone or jointly
with others, creates or first reduces to practice during the period of
Executive's employment with UGSI. Furthermore, "Moral Rights" means any right
to claim authorship of a work of authorship, to object to or prevent the
modification of any such work of authorship, or to withdraw from circulation or
control the publication or distribution of any such work of authorship. For
purposes of all provisions in this Section 5, "UGSI" mean UGSI, its parent,
subsidiaries or affiliates.
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SECTION 6. MISCELLANEOUS
6.1 Exclusion of Property of Others. Executive will not bring to UGSI or
use in the performance of his duties any documents or materials of a former
employer that are not generally available to the public or that have not been
legally transferred to UGSI.
6.2 Agreement to Testing for Controlled Substances. Executive understands
and agrees that, from time to time, Executive may be reasonably tested to detect
the presence or absence of any illegal drugs or controlled substances and that
the results of any such tests shall be released to UGSI.
6.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of any other person, association, or entity which may
hereafter acquire or succeed to all or substantially all of the business or
assets of UGSI by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise, in the same manner and to the same extent that UGSI
would be obligated under this Agreement if no succession had taken place.
Executive's rights and obligations under this Agreement are personal and such
rights, benefits, and obligations of Executive shall not be voluntarily or
involuntarily assigned, alienated, or transferred by Executive, whether by
operation of law or otherwise, without the prior, written consent of an officer
of UGSI.
6.4 Authorization to Deduct Amounts Owed. Upon Executive's separation
from employment, UGSI is authorized to deduct from Executive's final wages or
other monies due Executive any debts or amounts owed to UGSI by Executive.
6.5 Enforcement to Full Extent Permissible. If the scope of any provision
contained in this Agreement is too broad to permit enforcement of such provision
to its full extent, then such provision shall be enforced to the maximum extent
permitted by law, and the parties hereby consent that such provision may be
reformed or modified accordingly, and enforced as reformed or modified, in any
proceeding brought to enforce such provision.
6.6 Extraordinary Relief and Remedies. Executive understands and agrees
that UGSI would be irreparably damaged and that money damages cannot fully
compensate UGSI in the event that the provisions of Sections 4 or 5 of this
Agreement are violated, and agrees that UGSI shall be entitled (in addition to
any other remedy to which it may be entitled, at law or in equity) to an
injunction or injunctions to redress breaches of this Agreement and to
specifically enforce the terms and provisions hereof.
6.7 Severability. Each provision of this Agreement will be interpreted
in such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision, to the extent of such prohibition or invalidity,
shall be deemed not to be a part of this Agreement, and shall not invalidate the
remainder of such provision or the remaining provisions of this Agreement.
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6.8 Jurisdiction. Any action or proceeding arising out of or relating to
this Agreement may be commenced in any court of competent jurisdiction in Collin
County, Texas, and shall be governed by and interpreted under the laws of Texas.
6.9 Modification or Amendment. This Agreement may not be modified or
amended except by a written instrument executed by Executive and an authorized
officer of UGSI.
IN WITNESS WHEREOF, Unigraphic Solutions Inc. and Dennis P. Kruse have
executed this Personal Service Agreement to be effective as of the Effective
Date.
Agreed to this 1st day of March, 1998 by and among:
EXECUTIVE
By: /s/ DENNIS P. KRUSE
---------------------------
Dennis P. Kruse
UNIGRAPHIC SOLUTIONS INC.
By: /s/ JOHN J. MAZZOLA
---------------------------
John J. Mazzola, President
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EXHIBIT 10.18
ELECTRONIC DATA SYSTEMS CORPORATION
STANDARD SUB-SUBLEASE AGREEMENT
THIS SUB-SUBLEASE AGREEMENT (the "Sub-Sublease") is entered into as of 1st
the day of January, 1998, by and between the Sub-Sublandlord and Sub-Subtenant
hereinafter named. Upon the terms and conditions hereinafter set forth, the
Sub-Sublandlord and Sub-Subtenant agree as follows:
1. DEFINITIONS AND BASIC PROVISIONS. The following definitions and basic
provisions shall be used in conjunction with and limited by the reference
thereto in the provisions of this Sub-Sublease:
A. "Sub-Sublandlord": ELECTRONIC DATA SYSTEMS
CORPORATION, a Delaware corporation,
formerly a Texas corporation
B. Address of Sub-Sublandlord: 5400 Legacy Drive, H3-2F-53
Plano, Texas 75024-3105
Attn.: Real Estate Leasing
C. "Sub-Subtenant": UNIGRAPHIC SOLUTIONS INC., a Delaware
corporation
D. Address of Sub-Subtenant: 13736 Riverport Drive
Maryland Heights, MO 63043
Attention: President
E. Sub-Subtenant Federal Tax ID: 75-2728894
F. "Sublandlord": MCDONNELL DOUGLAS CORPORATION, a
Maryland corporation
G. Address of Sublandlord:
If mailed: P.O. Box 516
St. Louis, Missouri 63166-0516
If delivered: 325 McDonnell Boulevard
Hazelwood, Missouri 63042
Attn: Real Estate Management
H. "Master Landlord": DUKE REALTY INVESTMENTS, INC., a
_________ limited partnership
I. Address of Master Landlord: 12312 Olive Boulevard, Suite 255
St. Louis, MO 63141
J. "Sub-Sublease Premises": All space to be occupied by Sub-Subtenant
as shown on EXHIBIT "A", attached hereto and made a part of this
Sub-Sublease, containing approximately 86,415 square feet of rentable
area (the "Sublease Premises"), being 27.75% of the Premises
(hereafter defined) in the amount of 311,319 square feet of rentable
area, located in that
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certain building located at Riverport Building, 13736 Riverport
Drive, Maryland Heights, Missouri 63043 (the "Building").
K. "Sub-Sublease Term": A period of three (3) years nine (9) months,
commencing effective as of the 1st day of January, 1998 (the
"Commencement Date") and expiring on September 30, 2001 (the
"Expiration Date").
L. "Base Rent": Base Rent shall be composed of base rent and all rent
escalations, pass-through utility charges, operating expenses, taxes
and insurance payable by Sub-Sublandlord to Sublandlord under the
Sublease (hereafter defined). Base Rent shall in no event include
costs related to after hours HVAC which shall be the responsibility
of Sub-Subtenant. Base Rent shall be payable in the following amounts
throughout the Sublease Term:
Rate per
Year Square Foot Annual Rent Monthly Rent
---- ------------- ----------- ------------
1998 $20.50 $1,771,507.50 $147,625.63
1999 $21.01 $1,815,579.15 $151,298.26
2000 $21.54 $1,861,379.10 $155,114.93
2001 $22.08 $1,908,043.20 $159,003.60
M. "Security Deposit": $ -0- , payable by Sub-Subtenant to
Sub-Sublandlord upon the execution and delivery by Sub-Subtenant of
this Sub-Sublease. Notwithstanding the foregoing, if Sub-Sublandlord
maintains less than 50% interest in the stock of Sub-Subtenant at any
time during the term or any renewal term, if any, Sub-Subtenant shall
be required to pay a Security Deposit in the amount of $147,625.63,
payable to Sub-Sublandlord. The Security Deposit shall be managed as
more particularly described in Paragraph 9 herein.
N. "Property": That certain real property more particularly described
on EXHIBIT "A-1" attached hereto and incorporated herein by
reference.
2. GRANTING CLAUSE. Sub-Sublandlord, in consideration of the covenants and
agreements to be performed by Sub-Subtenant and upon the terms and
conditions hereinafter stated, does hereby lease, demise and let unto
Sub-Subtenant, and Sub-Subtenant in consideration of the covenants and
agreements to be performed by Sub-Sublandlord and upon the terms and
conditions in this Sub-Sublease, does hereby take and lease from
Sub-Sublandlord, the Sub-Sublease Premises, subject to all laws, statutes,
codes, rules, regulations and zoning ordinances promulgated by any
governmental authority having jurisdiction now in affect or adopted in the
further (collectively, the "Law"), to have and to hold for the Sub-Sublease
Term (except as the Commencement Date and the Expiration Date may be
adjusted as herein provided, or unless sooner terminated as provided in
this Sub-Sublease, the Sublease or the Master Lease).
3. MASTER LEASE. This Sub-Sublease is subject to that certain (a) MDSI
Riverport Lease (the "Original Lease"), dated June 20, 1990, by and between
McDonnell Douglas Riverport Building Joint Venture, a Missouri general
partnership ("McDonnell Riverport"), as landlord, and McDonnell Douglas
Corporation, a Maryland corporation ("McDonnell"), as tenant, as assigned
by Assignment (the "Assignment"), dated effective ________, 1997, from
McDonnell Riverport to Master Landlord (the Original Lease and the
Assignment are collectively, the "Master Lease"), covering certain premises
(the "Premises"), more particularly described in the Master Lease; and (b)
Sublease (the "Sublease"), dated November 1, 1991,
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by and between McDonnell, as sublandlord, and Sub-Sublandlord, as
subtenant; covering certain sublease premises (the "Sublease Premises")
more particularly described in the Sublease. This Sub-Sublease is made
subject to all applicable covenants, restrictions, agreements, terms and
conditions of the Master Lease and the Sublease, which are incorporated
into and made a part of this Sub-Sublease, as if: i) Sub-Sublandlord were
Master Landlord or Sublandlord, as appropriate, insofar as Sub-Sublandlord
has the rights or right by law to act as so, and ii) Sub-Subtenant were
tenant or Subtenant, as appropriate, except as otherwise provided to the
contrary herein. Sub-Subtenant shall in no case have any rights with
respect to the Sub-Sublease Premises greater than Sub-Sublandlord's rights
as tenant under the Master Lease and the Sublease, and Sub-Sublandlord
shall have no liability to Sub-Subtenant for any matter or thing for which
Sub-Sublandlord does not have co-extensive rights as tenant under the
Master Lease or subtenant under the Sublease. In the event the specific
terms of this Sub-Sublease are in conflict with the terms of the Master
Lease and the Sublease, then the specific terms of this Sub-Sublease shall
prevail.
4. MASTER LANDLORD'S AND SUBLANDLORD'S CONSENT. Pursuant to the Master Lease
and the Sublease, this Sub-Sublease is subject to Master Landlord's and
Sublandlord's written consent, and shall not be valid until Master
Landlord's and Sublandlord's written consent is obtained and delivered to
each party. Sub-Sublandlord shall diligently pursue obtaining Master
Landlord's and Sublandlord's written consent to this Sub-Sublease.
5. WARRANTY BY SUB-SUBLANDLORD. Sub-Sublandlord warrants and represents to
Sub-Subtenant, to the knowledge of Sub-Sublandlord, that the Master Lease
nor the Sublease has not been amended or modified, except as provided
above, that Sub-Sublandlord is not now, and as of the Commencement Date of
the Sub-Sublease Term hereof, will not be in default or breach of any of
the provisions of the Master Lease and the Sublease, and that
Sub-Sublandlord has no knowledge of any claim by Master Landlord or
Sublandlord that Sub-Sublandlord is in default or breach of any of the
provisions of the Master Lease or the Sublease.
6. CONDITION OF THE SUB-SUBLEASE PREMISES. Sub-Subtenant shall accept
possession of the Sub-Sublease Premises on an "AS IS, WHERE IS" basis, in
whatever physical condition the same may be, and Sub-Sublandlord makes no
representations or warranties of any kind or nature, express, implied, or
otherwise, or any covenants of any kind or nature, with regard to the
condition of the Sub-Sublease Premises or with respect to the fitness
thereof for Sub-Subtenant's intended uses or the quality of or manner of
any services provided or to be provided by Master Landlord, and any such
representations, warranties or covenants are hereby expressly disclaimed.
Without limitation of the foregoing, Sub-Sublandlord shall have no
obligation to construct or pay for any tenant improvements to the
Sub-Sublease Premises or make any repairs or modifications thereto for the
benefit of Sub-Subtenant.
7. USE.
A. Sub-Subtenant shall use the Sub-Sublease Premises for the uses set
forth in the Master Lease and the Sublease, unless specifically approved by
Sub-Sublandlord, Master Landlord and Sublandlord. Sub-Subtenant shall
additionally comply with the rules and regulations of the Building as set
forth on EXHIBIT "C", attached to the Master Lease and the Sublease, which
Master Landlord and Sublandlord may reasonably amend from time to time
during the term of this Sub-Sublease.
B. Sub-Subtenant shall not do nor permit anything to be done in or about
the Sub-Sublease Premises nor bring or keep anything therein which will in
any way increase the existing rate or affect any
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fire or other insurance upon the Building or any of its contents (unless
Sub-Subtenant shall pay an increased premium as a result of such use or
acts), or cause a cancellation of any insurance policy covering the
Building or any part thereof or any of its contents, nor shall
Sub-Subtenant sell or permit to be kept, used or sold in or about the
Sub-Sublease Premises any articles which may be prohibited by a standard
form policy of fire insurance.
C. Sub-Subtenant shall not do or permit anything to be done in or about
the Sub-Sublease Premises which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Building or injure or annoy
them or use or allow the Sub-Sublease Premises to be used for any unlawful
or objectionable purpose, nor shall Sub-Subtenant cause, maintain or permit
any nuisance in or about the Sub-Sublease Premises. Sub-Subtenant shall not
commit or suffer to be committed any waste in or upon the Sub-Sublease
Premises.
D. Sub-Subtenant shall not knowingly use the Sub-Sublease Premises or
knowingly permit anything to be done in or about the Sub-Sublease Premises
which will in any way conflict with the Law. Sub-Subtenant shall at its
sole cost and expense promptly comply with the Law and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or
occupancy of the Sub-Sublease Premises, excluding structural changes not
relating to or affecting the condition, use or occupancy of the
Sub-Sublease Premises, or not related or afforded by Sub-Subtenant's
improvements or acts. The judgment of any court of competent jurisdiction
or the admission of Sub-Subtenant, in any action against Sub-Subtenant,
whether Sub-Sublandlord be a party thereto or not, that Sub-Subtenant has
violated the Law and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to
or affecting the condition, use or occupancy of the Sub-Sublease Premises,
excluding structural changes not relating to or affecting the condition,
use or occupancy of the Sub-Sublease Premises, or not related or afforded
by Sub-Subtenant's improvements or acts, shall be conclusive of the fact as
between Sub-Sublandlord and Sub-Subtenant.
8. RENT.
A. Base Rent. Sub-Subtenant agrees to pay equal monthly installments of
Base Rent at the address indicated in Paragraph 1 above, or such
other address as Sub-Sublandlord may from time to time notify
Sub-Subtenant. Such monthly installments shall be payable on or
before the first (1st) day of each calendar month (without demand,
set-off or deduction) commencing as of the Commencement Date. Base
Rent for any fractional month at the beginning or end of the
Sub-Sublease Term shall be prorated on actual days.
B. Late Charge. In the event that any monthly installment of the Base
Rent and any other additional rent (collectively, the "Rent"), or any
other payment required to made by Sub-Subtenant under this
Sub-Sublease is not received within 5 business days after the due
date, Sub-Subtenant agrees to pay a late charge (the "Late Charge")
in the amount of 3% of the installment of the Rent due and unpaid. It
is hereby understood and acknowledged that the Late Charge shall
constitute liquidated damages and such liquidated damages shall be
solely for the purpose of reimbursing Sub-Sublandlord for the
additional costs and expenses Sub-Sublandlord presently expects to
incur in connection with the handling and processing of late payments
of Rent and any other additional rent due and payable under this
Sub-Sublease. Sub-Sublandlord and Sub-Subtenant agree that in the
event of any such late payment by Sub-Subtenant, the damages
resulting to Sub-Sublandlord will be difficult to ascertain
precisely, and that the Late Charge constitutes a reasonable and good
faith estimate by the parties of
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the extent of such damages. If the payment of the Rent and any other
additional rent continues not to be paid by Sub-Subtenant within 30
days after the due date thereof, Sub-Subtenant shall additionally pay
interest on such unpaid Rent or any other additional rent, at the
rate of 10% per annum (but in no event in excess of the highest
interest rate provided by law) which interest shall accrue from the
due date to the date of payment.
C. Non-Waiver of Rights. If Sub-Sublandlord, at any time or times,
shall accept Rent or any other sum due to it hereunder after the same
shall become due and payable, such acceptance shall not excuse delay
upon subsequent occasions, or constitute, or be construed as, a
waiver of any of Sub-Sublandlord's rights hereunder.
9. SECURITY DEPOSIT. As security for the faithful performance by
Sub-Subtenant of all of its obligations under this Sub-Sublease and for the
payment of any damages to which Sub-Sublandlord may be entitled in the
event of a default by Sub-Subtenant hereunder, Sub-Subtenant will deposit
with Sub-Sublandlord the Security Deposit. The Security Deposit shall be
returned to Sub-Subtenant by Sub-Sublandlord without interest, 30 days
after the expiration of the Sub-Sublease Term, or renewal thereof, if
applicable, provided that Sub-Subtenant has fully and faithfully carried
out all of the terms, covenants and conditions under this Sub-Sublease, the
Master Lease and the Sublease. If Sub-Subtenant defaults with respect to
any provision of this Sub-Sublease, including, but not limited to, the
provisions relating to the payment of the Rent, Sub-Sublandlord shall have
the right, but shall not be required to, at any time during the
Sub-Sublease Term to use, apply or retain all or any part of the Security
Deposit: a) for the payment of any of the Rent or any other sum in
default; and/or b) for the payment of any other amount which
Sub-Sublandlord may spend or become obligated to spend by reason of
Sub-Subtenant's default, and/or c) to cure any default of Sub-Subtenant,
and if Sub-Sublandlord does so, Sub-Subtenant shall, upon demand,
immediately deposit with Sub-Sublandlord an additional sum to make the sum
equal to the original Security Deposit amount, so that Sub-Sublandlord
shall have the full Security Deposit available throughout the Sub-Sublease
Term.
10. ASSIGNMENT AND SUBLETTING. Sub-Subtenant shall not assign this
Sub-Sublease or further sublet all or any part of the Sub-Sublease Premises
without the prior written consent of Sub-Sublandlord (and the consent of
Master Landlord and Sublandlord), which may be withheld without cause.
Sub-Subtenant shall not be in default under the terms and conditions of
this Sub-Sublease, the Master Lease or the Sublease at the time of any
request for consent or through the period of time prior to the consent is
granted by Master Landlord and Sublandlord. Any request by Sub-Subtenant
for Sub-Sublandlord's consent to a specific assignment or Sub-Sublease
shall include d) the name of the proposed assignee, sublessee, or occupant,
e) the nature of the proposed assignee's, sublessee's or occupant's
business to be carried on in the Sub-Sublease Premises, f) a copy of the
proposed assignment or Sub-Sublease, and g) such financial information and
such other information as Sub-Sublandlord may reasonably request concerning
the proposed assignee, sublessee or occupant or its business. Any
assignment or Sub-Sublease approved by Sub-Sublandlord, Sublandlord and
Master Landlord shall be subject to the Master Lease, the Sublease and this
Sub-Sublease. Sub-Subtenant shall pay to Sub-Sublandlord all reasonable
costs incurred related to the review of the subletting or assignment
documents and costs incurred in obtaining Master Landlord's and
Sublandlord's consent. Additionally, for purposes of this Sub-Sublease, the
following transactions relating to Sub-Subtenant shall be deemed an
assignment of this Sub-Sublease and shall give rise to the requirement of
approval or consent by Sub-Sublandlord, and may result in the right to
terminate or alter this Sub-Sublease. based upon the above: any merger
(including, without limitation, a reincorporation merger), consolidation,
reorganization, stock exchange, sale of stock or substantially all of the
assets or other similar or related transaction in which Sub-Subtenant is
the surviving entity or, if Sub-Subtenant is not the
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surviving entity, the surviving entity continues to conduct the business
conducted by Sub-Subtenant prior to consummation of the transaction.
11. SUB-SUBTENANT'S INSURANCE. Sub-Subtenant shall, at its sole cost and
expense, obtain and maintain commercial general liability insurance,
including blanket contractual liability coverage, with limits of not less
than $2,000,000.00 combined single limit for personal injury and property
damage; comprehensive automobile liability insurance covering all owned,
non-owned and hired vehicles with limits of not less than $1,000,000.00
combined single limit for personal injury and property damage; and
statutory workers compensation and employers liability coverage with limits
of not less than $250,000.00, and naming Sub-Sublandlord, Sublandlord and
Master Landlord as additional insureds, as their interest may appear. The
insurance policy shall be written by good and solvent insurance companies
able to do business in Missouri, and reasonably satisfactory to
Sub-Sublandlord, Sublandlord and Master Landlord, if required by the
Sublease and the Master Lease. On or before the Commencement Date of the
Sub-Sublease Term, and within 30 days prior to the expiration of any such
policy, Sub-Subtenant shall deliver to Sub-Sublandlord a certificate of
insurance evidencing such coverages. Such insurance policies shall provide
for no cancellation or material alteration without 30 days' prior written
notice to Sub-Sublandlord.
12. SUB-SUBLANDLORD'S OBLIGATIONS. Sub-Sublandlord shall have no obligation to
perform any of Master Landlord's obligations under the Master Lease and
Sublandlord under the Sublease, including, without limitation, (i)
providing any of the services that Master Landlord has agreed to provide
pursuant to the Master Lease (or required by law); or (ii) furnishing the
electricity to the Sub-Sublease Premises that Master Landlord has agreed to
furnish pursuant to the Master Lease (or required by law); or (iii) making
any of the repairs or restorations that Master Landlord has agreed to make
pursuant to the Master Lease (or required by law); or iv) complying with
any laws or requirements of any governmental authorities, unless
Sub-Sublandlord occupies a portion of the Original Premises which would
affect the Sub-Sublease Premises; or v) take any other action that Master
Landlord and Sublandlord has agreed to provide, furnish, make, comply with,
or take, or cause to be provided, furnished, made, complied with or taken
under the Master Lease and the Sublease. Sub-Subtenant shall have no rights
against Sub-Sublandlord arising out of the Master Landlord's or
Sublandlord's failure to perform any of its obligations under the Master
Lease or the Sublease. Sub-Subtenant shall have the right to institute an
action under the provisions of the Master Lease and the Sublease to the
extent such action relates to the Sub-Sublease Premises, provided Sub-
Subtenant gives Sub-Sublandlord at least 30 days prior written notice and
Sub-Sublandlord has failed to take action within that time. Notwithstanding
the foregoing, if an action or cure cannot be completed within 30 days
after receipt, however, such action or cure is commenced within 30 days
after receipt of notice, and is diligently being pursued, Sub-Subtenant
shall have no right to pursue Master Landlord, Sublandlord or
Sub-Sublandlord. If Sub-Subtenant subsequently pursues such action,
Sub-Subtenant agrees to reimburse Sub-Sublandlord for its proportionate
share of any costs incurred by Sub-Sublandlord in connection with
Sub-Subtenant instituting any such action. Sub-Sublandlord shall give
reasonable assistance to Sub-Subtenant in enforcing the terms of the Master
Lease and the Sublease, and will execute all documents reasonably necessary
to enable Sub-Subtenant to pursue Master Landlord and the Sublandlord in
its failure to perform any of its obligations under the Master Lease and
the Sublease.
13. CONSENTS. Wherever consent by Master Landlord and Sublandlord is required
under the Master Lease and the Sublease, Sub-Sublandlord's consent shall
also be required. Except as specifically set forth herein, Sub-Sublandlord
agrees that whenever its consent or approval is required hereunder, or
where something must be done to Sub-Sublandlord's satisfaction, it shall
not unreasonably withhold or delay such consent or approval; provided,
however, that whenever the consent or approval of Master
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Landlord, Sublandlord, the landlord under a superior lease, or the
mortgagee under a mortgage shall withhold its consent or approval for any
reason whatsoever, Sub-Sublandlord shall not be deemed to be acting
unreasonably if it shall also withhold its consent or approval.
14. LIMITATION OF LIABILITY OF SUB-SUBLANDLORD. In the event Sub-Sublandlord
shall be liable to Sub-Subtenant for any matter relating to or arising in
connection with this Sub-Sublease, whether based upon an action or claim in
contract, equity, negligence, intended conduct, tort or otherwise, the
amount of damages recoverable against Sub-Sublandlord for all events, acts
or omissions will not exceed, in the aggregate, the total amount actually
to be paid by Sub-Subtenant to Sub-Sublandlord under this Sub-Sublease
during the term of this Sub-Sublease. In no event will the measure of
damages include, nor will Sub-Sublandlord be liable for, any amounts for
loss of profits, income or savings or indirect, consequential, speculative
or punitive damages of any party, including third parties. Further, no
cause of action may be asserted against Sub-Sublandlord later than the
earlier of a) the applicable statute of limitations for notice of such
cause of action, or b) 2 years following the date after the date on which
the cause of action shall have accrued. Sub-Sublandlord and Sub-Subtenant
expressly acknowledge that the limitations contained in this Paragraph 15
have been the subject of active and complete negotiation between the
parties and represent the parties' agreement.
15. BUILDING COMPLIANCE. Except as otherwise specified in the Master Lease
with regard to repairs and alterations or building compliance, Subtenant
will be solely responsible for the compliance of the Sublease Premises with
the laws, statutes, ordinances, rules and regulations pertaining to
accessibility and accommodation for persons with disabilities, including
the removal of architectural and transportation barriers, if necessary. In
addition, Subtenant acknowledges and agrees not to use the Sublease
Premises in violation of any federal, state or local law, ordinance or
regulation relating to health and safety.
16. HAZARDOUS MATERIALS. a. Subtenant shall not transport, use, store,
maintain, generate, manufacture, handle, dispose, release, or discharge any
Hazardous Material (as hereinafter defined) upon or about the Sublease
Premises or the Building, nor permit Subtenant's employees, agents,
contractors and other occupants of the Sublease Premises to engage in such
activities upon or about the Sublease Premises or the Building. However,
the foregoing provisions shall not prohibit the transportation to and from,
and use, storage, maintenance, and handling within, the Sublease Premises
or the Building of substances customarily used in similar buildings
provided: (i) such substances shall be used and maintained only in such
quantities as are reasonably necessary for Subtenant's permitted use of the
Sublease Premises, strictly in accordance with the any and all applicable
laws, statutes, codes, ordinances, rules or regulations (the "Law") and the
manufacturers' instructions therefor; (ii) such substances may be disposed
of, released, or discharged at the Sublease Premises if permitted by and in
compliance with the Law and shall be transported to and from the Sublease
Premises in compliance with the Law and as Sublandlord or Master Landlord
shall reasonably require, (iii) if the Law or Master Landlord's trash
removal contractor requires that any such substances from the Sublease
Premises be disposed of separately from ordinary trash, Subtenant shall
make arrangements at Subtenant's expense for such disposal directly with a
qualified and licensed disposal company at a lawful disposal site (subject
to reasonable scheduling and approval by Master Landlord), and shall ensure
that disposal occurs frequently enough to prevent unnecessary storage or
accumulation of such substances in the Sublease Premises, and (iv) any
remaining such substances shall be completely, properly and lawfully
removed by Subtenant from the Sublease Premises and the Building upon
expiration or earlier termination of this Sublease or Subtenant's right to
possession.
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b. The term "Hazardous Materials" for purposes hereof shall mean any
chemical, substance, material, or waste, or component thereof, whether in a
solid, liquid or gaseous state, which is now or hereafter listed, defined,
or regulated as a hazardous or toxic chemical, substance, material, or
waste, or component thereof, by any federal, state, or local governing or
regulatory body having jurisdiction, or which would trigger any employee or
community "right-to-know" requirements adopted by any such body, or for
which any such body has adopted any requirements for the preparation or
distribution of any material safety data sheet, issued by the manufacturer
therefor, written information concerning the removal, transportation, and
disposal of the same, and such other information as the requesting party
may reasonably require or as may be required by the Law, including, without
limitation, (a) the Resource Conservation and Recovery Act of 1976, 42
U.S.C. (S) 6901 et seq, as amended from time to time, and regulations
promulgated thereunder; (b) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq, as
amended from time to time, and regulations promulgated thereunder; (c)
Federal Water Pollution Control Act/Clean Water Act, 33 U.S.C. (S) 1251 et
seq.; (d) Clean Air Act, 42 U.S.C. (S) 7901 et seq.; (e) Toxic Substances
Control Act, 15 U.S.C. (S) 2601 et seq.; (f) the Hazardous Materials
Transportation Act, 49 U.S.C. (S)(S) 1801 et seq.; and in the regulations
adopted and publications promulgated pursuant to said laws; and in any
revised or successor code thereto.
c. Subtenant shall indemnify, defend (using counsel approved by
Sublandlord) and hold harmless Sublandlord and Master Landlord, their
respective directors, officers, employees and agents, and any successors to
Sublandlord's interest in the Sublease Premises, Master Landlord's interest
in and to the Building (including the Sublease Premises) and the Property,
and , their directors, officers, employees and agents, from and against any
and all liability (i) including all foreseeable and all unforeseeable
consequential damages, directly or indirectly arising out of the use,
generation or storage of Hazardous Materials by Subtenant in or about the
Sublease Premises and (ii) including, without limitation, the cost of any
required or necessary repair, cleanup, or detoxification and the
preparation of any closure or other required plans, to the full extent that
such action is attributable, directly or indirectly, to the presence or
used, generation, storage, release, or threatened release or spill of
Hazardous Materials by any person in, on or around the Sublease Premises or
the Building or the Property. Subtenant's obligations pursuant to the
foregoing indemnity shall survive the expiration or earlier termination of
the Sublease Term.
IN WITNESS WHEREOF, this Sub-Sublease is executed as of the date first
written above.
SUB-SUBLANDLORD: SUB-SUBTENANT:
ELECTRONIC DATA SYSTEMS CORPORATION UNIGRAPHICS SOLUTIONS INC.
By: /S/ JOHN M. YEAMAN By: /S/ D. GILBERT FRIEDLANDER
-------------------------------- ----------------------------------
John M. Yeaman Printed Name: D. Gilbert Friedlander
Title: Director of Real Estate Title: Vice President
Dated: March 5, 1998 Dated: March 11, 1998
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<PAGE>
EXHIBIT 10.19
ELECTRONIC DATA SYSTEMS CORPORATION
STANDARD SUB-SUBLEASE AGREEMENT
THIS SUB-SUBLEASE AGREEMENT (the "Sub-Sublease") is entered into as of the
1st day of January, 1998, by and between the Sub-Sublandlord and Sub-Subtenant
hereinafter named. Upon the terms and conditions hereinafter set forth, the
Sub-Sublandlord and Sub-Subtenant agree as follows:
1. DEFINITIONS AND BASIC PROVISIONS. The following definitions and basic
--------------------------------
provisions shall be used in conjunction with and limited by the reference
thereto in the provisions of this Sub-Sublease:
A. "Sub-Sublandlord": ELECTRONIC DATA SYSTEMS
CORPORATION, a Delaware
corporation, formerly a Texas
corporation
B. Address of Sub-Sublandlord: 5400 Legacy Drive, H3-2F-53
Plano, Texas 75024-3105
Attn.: Real Estate Leasing
C. "Sub-Subtenant": UNIGRAPHIC SOLUTIONS INC., a
Delaware corporation
D. Address of Sub-Subtenant: 13736 Riverport Drive
Maryland Heights, MO 63043
Attention: President
E. Sub-Subtenant Federal Tax ID: 75-2728894
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F. "Sublandlord": ARROW ELECTRONICS, INC.,
SUCCESSOR IN INTEREST TO KIERULFF
ELECTRONICS
G. Address of Sublandlord: 25 Hub Drive
Melville, NY 11747
H. "Master Landlord": WARLAND INVESTMENTS, LTD., a
California limited partnership
I. Address of Master Landlord: c/o Paul, Hastings, Janofsky &
Walker
1299 Ocean Avenue,
Suite 300
Santa Monica, CA 90401
J. "Sub-Sublease Premises": All space to be occupied by Sub-Subtenant
as shown on EXHIBIT "A", attached hereto and made a part of this
Sub-Sublease, containing approximately 127,000 square feet of rentable
area in that certain building, containing approximately 127,000
rentable square feet of space, and located at 10824 Hope Street,
Cypress, California (the "Building").
K. "Sub-Sublease Term": A period of four (4) years six (6) months,
commencing effective as of the 1st day of January, 1998 (the
"Commencement Date") and expiring on June 30, 2002 (the "Expiration
Date").
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<PAGE>
L. "Base Rent": Base Rent shall be as follows:
1. From January 1, 1998 through June 30, 1999, the amount of
$1,841,500.00 per annum, payable in the amount of $153,458.33 per
month, based upon the annual rate of $14.50 per square foot of net
rentable space.
2. From July 1, 1999 through June 30, 2001, the amount of
$2,025,650.00 per annum, payable in the amount of $1168,804.17 per
month, based upon the annual rate of $15.95 per square foot of net
rentable space.
3. From July 1, 2001 through June 30, 2002, the amount of
$2,228,540.00 per annum, payable in the amount of $185,737.50 per
month, based upon the annual rate of $17.55 per square foot of net
rentable space.
M. "Sub-Subtenant's Proportionate Share": For the purpose of allocating
Sub-Subtenant's pro rata share of Operating Expenses, as defined in
the Master Lease (as hereafter defined), attributable to the
Sub-Sublease Premises, Sub-Subtenant's Proportionate Share shall be a
fraction, the numerator which is the total number of the rentable
square feet of the Sub-Sublease Premises and the denominator which is
the total of the rentable square feet covered by the Master Lease, it
being agreed that Sub-Subtenant's Proportionate Share is 100%.
N. "Security Deposit": $ -0- , payable by Sub-Subtenant to
-----
Sub-Sublandlord upon the execution and delivery by Sub-Subtenant of
this Sub-Sublease. Notwithstanding the foregoing, if Sub-Sublandlord
maintains less than 50% interest in the stock of Sub-Subtenant at any
time during the term or any renewal term, if any, Sub-Subtenant shall
be required to pay a Security Deposit in the amount of $153,459.33,
payable to Sub-Sublandlord. The Security Deposit shall be managed as
more particularly described in Paragraph 9 herein.
O. "Property": That certain real property more particularly described
on EXHIBIT "A-1" attached hereto and incorporated herein by
reference.
2. GRANTING CLAUSE. Sub-Sublandlord, in consideration of the covenants and
---------------
agreements to be performed by Sub-Subtenant and upon the terms and
conditions hereinafter stated, does hereby lease, demise and let unto
Sub-Subtenant, and Sub-Subtenant in consideration of the covenants and
agreements to be performed by Sub-Sublandlord and upon the terms and
conditions in this Sub-Sublease, does hereby take and lease from
Sub-Sublandlord, the Sub-Sublease Premises, subject to all laws, statutes,
codes, rules, regulations and zoning ordinances promulgated by any
governmental authority having jurisdiction now in affect or adopted in the
further (collectively, the "Law"), to have and to hold for the Sub-Sublease
Term (except as the Commencement Date and the Expiration Date may be
adjusted as herein provided, or unless sooner terminated as provided in
this Sub-Sublease, the Sublease or the Master Lease).
3. MASTER LEASE. This Sub-Sublease is subject to that certain (a) lease (the
------------
"Original Lease"), dated June 1, 1984, by and between Master Landlord and
Kierulff Electronics, a division of Ducommun Incorporated, a Delaware
corporation, predecessor-in-interest to Sublandlord, as tenant, as amended
by First Amendment to Lease (the "First Amendment"), dated January 28, 1985
(the Original Lease and the First Amendment are collectively, the "Master
Lease"), covering certain premises (the "Premises") more particularly
described in the Master Lease; and (b) Sublease
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<PAGE>
Agreement (the "Sublease"), dated February 28, 1992, by and between
Sublandlord and Sub-Sublandlord, as subtenant, as amended by (i) First
Amendment to Sublease (the "First Amendment"), dated October 28, 1992; and
(ii) Second Amendment to Sublease (the "Second Amendment"), last dated
September 9, 1997, covering the Sublease Premises (defined in the
Sublease). This Sub-Sublease is made subject to all applicable covenants,
restrictions, agreements, terms and conditions of the Master Lease and the
Sublease, which are incorporated into and made a part of this Sub-Sublease,
excluding Subsections 5, 16, 17, 18 and 19 of the Sublease, as if: i)
Sub-Sublandlord were Master Landlord or Sublandlord, as appropriate,
insofar as Sub-Sublandlord has the rights or right by law to act as so, and
ii) Sub-Subtenant were Tenant or Subtenant, as appropriate, except as
otherwise provided to the contrary herein. Sub-Subtenant shall in no case
have any rights with respect to the Sub-Sublease Premises greater than
Sub-Sublandlord's rights as subtenant under the Sublease and Tenant's under
the Master Lease, and Sub-Sublandlord shall have no liability to
Sub-Subtenant for any matter or thing for which Sub-Sublandlord does not
have co-extensive rights as tenant under the Master Lease or the Sublease.
In the event the specific terms of this Sub-Sublease are in conflict with
the terms of the Master Lease or the Sublease, then the specific terms of
this Sub-Sublease shall prevail.
4. MASTER LANDLORD'S AND SUBLANDLORD'S CONSENT. Pursuant to the Master Lease
-------------------------------------------
and the Sublease, this Sub-Sublease is subject to Master Landlord's and
Sublandlord's written consent, and shall not be valid until Master
Landlord's and Sublandlord's written consent is obtained and delivered to
each party. Sub-Sublandlord shall diligently pursue obtaining Master
Landlord's and Sublandlord's written consent to this Sub-Sublease. I
5. WARRANTY BY SUB-SUBLANDLORD. Sub-Sublandlord warrants and represents to
---------------------------
Sub-Subtenant, to the knowledge of Sub-Sublandlord, that the Master Lease
and the Sublease have not been amended or modified, except as provided
above, that Sub-Sublandlord is not now, and as of the Commencement Date of
the Sub-Sublease Term hereof, will not be in default or breach of any of
the provisions of the Master Lease or the Sublease, and that
Sub-Sublandlord has no knowledge of any claim by Master Landlord or
Sublandlord that Sub-Sublandlord is in default or breach of any of the
provisions of the Master Lease or the Sublease.
6. CONDITION OF THE SUB-SUBLEASE PREMISES. Sub-Subtenant shall accept
--------------------------------------
possession of the Sub-Sublease Premises on an "AS IS, WHERE IS" basis, in
whatever physical condition the same may be, and Sub-Sublandlord makes no
representations or warranties of any kind or nature, express, implied, or
otherwise, or any covenants of any kind or nature, with regard to the
condition of the Sub-Sublease Premises or with respect to the fitness
thereof for Sub-Subtenant's intended uses or the quality of or manner of
any services provided or to be provided by Master Landlord or Sublandlord,
and any such representations, warranties or covenants are hereby expressly
disclaimed. Without limitation of the foregoing, Sub-Sublandlord shall
have no obligation to construct or pay for any tenant improvements to the
Sub-Sublease Premises or make any repairs or modifications thereto for the
benefit of Sub-Subtenant.
7. USE.
---
A. Sub-Subtenant shall use the Sub-Sublease Premises for the uses set
forth in the Master Lease and the Sublease, unless specifically approved by
Sub-Sublandlord, Master Landlord and Sublandlord. Sub-Subtenant shall
additionally comply with the rules and regulations of the Building as set
forth on EXHIBIT "C", attached to the Master Lease and the Sublease, which
Master Landlord and Sublandlord may reasonably amend from time to time
during the term of this Sub-Sublease.
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<PAGE>
B. Sub-Subtenant shall not do nor permit anything to be done in or about
the Sub-Sublease Premises nor bring or keep anything therein which will in
any way increase the existing rate or affect any fire or other insurance
upon the Building or any of its contents (unless Sub-Subtenant shall pay an
increased premium as a result of such use or acts), or cause a cancellation
of any insurance policy covering the Building or any part thereof or any of
its contents, nor shall Sub-Subtenant sell or permit to be kept, used or
sold in or about the Sub-Sublease Premises any articles which may be
prohibited by a standard form policy of fire insurance.
C. Sub-Subtenant shall not do or permit anything to be done in or about
the Sub-Sublease Premises which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Building or injure or annoy
them or use or allow the Sub-Sublease Premises to be used for any unlawful
or objectionable purpose, nor shall Sub-Subtenant cause, maintain or permit
any nuisance in or about the Sub-Sublease Premises. Sub-Subtenant shall not
commit or suffer to be committed any waste in or upon the Sub-Sublease
Premises.
D. Sub-Subtenant shall not knowingly use the Sub-Sublease Premises or
knowingly permit anything to be done in or about the Sub-Sublease Premises
which will in any way conflict with the Law. Sub-Subtenant shall at its
sole cost and expense promptly comply with the Law and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or
occupancy of the Sub-Sublease Premises, excluding structural changes not
relating to or affecting the condition, use or occupancy of the
Sub-Sublease Premises, or not related or afforded by Sub-Subtenant's
improvements or acts. The judgment of any court of competent jurisdiction
or the admission of Sub-Subtenant, in any action against Sub-Subtenant,
whether Sub-Sublandlord be a party thereto or not, that Sub-Subtenant has
violated the Law and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to
or affecting the condition, use or occupancy of the Sub-Sublease Premises,
excluding structural changes not relating to or affecting the condition,
use or occupancy of the Sub-Sublease Premises, or not related or afforded
by Sub-Subtenant's improvements or acts, shall be conclusive of the fact as
between Sub-Sublandlord and Sub-Subtenant.
8. RENT.
----
A. Base Rent. Sub-Subtenant agrees to pay equal monthly installments of
Base Rent at the address indicated in Paragraph 1 above, or such
other address as Sub-Sublandlord may from time to time notify
Sub-Subtenant. Such monthly installments shall be payable on or
before the first (1st) day of each calendar month (without demand,
set-off or deduction) commencing as of the Commencement Date. Base
Rent for any fractional month at the beginning or end of the
Sub-Sublease Term shall be prorated on actual days. Additional rent
shall include, without limitation, the Operating Expenses, as
described below, and any and all other charges, costs or expenses
otherwise as set forth in the Master Lease and the Sublease.
B. Building Taxes, Operating Expenses, Building Utilities and other
Additional Rent. Building Taxes, Operating Expenses, Building
Utilities and Additional Rent shall mean any and all costs and
expenses incurred through the ownership, operation, maintenance and
insurance of the Building, as more particularly set forth in the
Master Lease and the Sublease. Sub-Subtenant shall pay
Sub-Subtenant's Proportionate Share of Building Taxes, Operating
Expenses, Building Utilities and Additional Rent of any amounts as
provided in the Master Lease and the Sublease.
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<PAGE>
C. Late Charge. In the event that any monthly installment of the Base
Rent, Operating Expenses and any other additional rent (collectively,
the "Rent"), or any other payment required to made by Sub-Subtenant
under this Sub-Sublease is not received within 5 business days after
the due date, Sub-Subtenant agrees to pay a late charge (the "Late
Charge") in the amount of 3% of the installment of the Rent due and
unpaid. It is hereby understood and acknowledged that the Late
Charge shall constitute liquidated damages and such liquidated
damages shall be solely for the purpose of reimbursing
Sub-Sublandlord for the additional costs and expenses Sub-Sublandlord
presently expects to incur in connection with the handling and
processing of late payments of Rent and any other additional rent due
and payable under this Sub-Sublease. Sub-Sublandlord and
Sub-Subtenant agree that in the event of any such late payment by
Sub-Subtenant, the damages resulting to Sub-Sublandlord will be
difficult to ascertain precisely, and that the Late Charge
constitutes a reasonable and good faith estimate by the parties of
the extent of such damages. If the payment of the Rent and any other
additional rent continues not to be paid by Sub-Subtenant within 30
days after the due date thereof, Sub-Subtenant shall additionally pay
interest on such unpaid Rent or any other additional rent, at the
rate of 10% per annum (but in no event in excess of the highest
interest rate provided by law) which interest shall accrue from the
due date to the date of payment.
D. Non-Waiver of Rights. If Sub-Sublandlord, at any time or times,
shall accept Rent or any other sum due to it hereunder after the same
shall become due and payable, such acceptance shall not excuse delay
upon subsequent occasions, or constitute, or be construed as, a
waiver of any of Sub-Sublandlord's rights hereunder.
9. SECURITY DEPOSIT. As security for the faithful performance by
----------------
Sub-Subtenant of all of its obligations under this Sub-Sublease and for the
payment of any damages to which Sub-Sublandlord may be entitled in the
event of a default by Sub-Subtenant hereunder, Sub-Subtenant will deposit
with Sub-Sublandlord the Security Deposit. The Security Deposit shall be
returned to Sub-Subtenant by Sub-Sublandlord without interest, 30 days
after the expiration of the Sub-Sublease Term, or renewal thereof, if
applicable, provided that Sub-Subtenant has fully and faithfully carried
out all of the terms, covenants and conditions under this Sub-Sublease, the
Master Lease and the Sublease. If Sub-Subtenant defaults with respect to
any provision of this Sub-Sublease, including, but not limited to, the
provisions relating to the payment of the Rent, Sub-Sublandlord shall have
the right, but shall not be required to, at any time during the
Sub-Sublease Term to use, apply or retain all or any part of the Security
Deposit: a) for the payment of any of the Rent or any other sum in default;
and/or b) for the payment of any other amount which Sub-Sublandlord may
spend or become obligated to spend by reason of Sub-Subtenant's default,
and/or c) to cure any default of Sub-Subtenant, and if Sub-Sublandlord does
so, Sub-Subtenant shall, upon demand, immediately deposit with
Sub-Sublandlord an additional sum to make the sum equal to the original
Security Deposit amount, so that Sub-Sublandlord shall have the full
Security Deposit available throughout the Sub-Sublease Term.
10. ASSIGNMENT AND SUBLETTING. Sub-Subtenant shall not assign this
-------------------------
Sub-Sublease or further sublet all or any part of the Sub-Sublease Premises
without the prior written consent of Sub-Sublandlord (and the consent of
Master Landlord and Sublandlord, if such is required under the terms of the
Master Lease and the Sublease), which may be withheld without cause.
Sub-Subtenant shall not be in default under the terms and conditions of
this Sub-Sublease, the Master Lease or the Sublease at the time of any
request for consent or through the period of time prior to the consent is
granted by Master Landlord and Sublandlord. Any request by Sub-Subtenant
for Sub-Sublandlord's consent to a specific assignment or Sub-Sublease
shall include d) the name of the proposed
5
<PAGE>
assignee, sublessee, or occupant, e) the nature of the proposed assignee's,
sublessee's or occupant's business to be carried on in the Sub-Sublease
Premises, f) a copy of the proposed assignment or Sub-Sublease, and g) such
financial information and such other information as Sub-Sublandlord may
reasonably request concerning the proposed assignee, sublessee or occupant
or its business. Any assignment or Sub-Sublease approved by
Sub-Sublandlord, Master Landlord and Sublandlord shall be subject to the
Master Lease, the Sublease and this Sub-Sublease. Sub-Subtenant shall pay
to Sub-Sublandlord all reasonable costs incurred related to the review of
the subletting or assignment documents and costs incurred in obtaining
Master Landlord's and Sublandlord's consent. Additionally, for purposes of
this Sub-Sublease, the following transactions relating to Sub-Subtenant
shall be deemed an assignment of this Sub-Sublease and shall give rise to
the requirement of approval or consent by Sub-Sublandlord, and may result
in the right to terminate or alter this Sub-Sublease. based upon the above:
any merger (including, without limitation, a reincorporation merger),
consolidation, reorganization, stock exchange, sale of stock or
substantially all of the assets or other similar or related transaction in
which Sub-Subtenant is the surviving entity or, if Sub-Subtenant is not the
surviving entity, the surviving entity continues to conduct the business
conducted by Sub-Subtenant prior to consummation of the transaction.
11. SUB-SUBLANDLORD'S OBLIGATIONS. Sub-Sublandlord shall have no obligation to
-----------------------------
perform any of Master Landlord's or Sublandlord's obligations under the
Master Lease and the Sublease, including, without limitation, (i) providing
any of the services that Master Landlord or Sublandlord has agreed to
provide pursuant to the Master Lease the Sublease (or required by law);
or (ii) furnishing the electricity to the Sub-Sublease Premises that Master
Landlord and the Sublandlord have agreed to furnish pursuant to the Master
Lease and the Sublease (or required by law); or (iii) making any of the
repairs or restorations that Master Landlord and the Sublandlord has agreed
to make pursuant to the Master Lease and the Sublease (or required by law);
or iv) complying with any laws or requirements of any governmental
authorities, unless Sub-Sublandlord occupies a portion of the Original
Premises which would affect the Sub-Sublease Premises; or v) take any other
action that Master Landlord and the Sublandlord has agreed to provide,
furnish, make, comply with, or take, or cause to be provided, furnished,
made, complied with or taken under the Master Lease ad the Sublease.
Sub-Subtenant shall have no rights against Sub-Sublandlord arising out of
the Master Landlord's and the Sublandlord's failure to perform any of its
obligations under the Master Lease and the Sublease. Sub-Subtenant shall
have the right to institute an action under the provisions of the Master
Lease and the Sublease to the extent such action relates to the
Sub-Sublease Premises, provided Sub-Subtenant gives Sub-Sublandlord at
least 30 days prior written notice and Sub-Sublandlord has failed to take
action within that time. Notwithstanding the foregoing, if an action or
cure cannot be completed within 30 days after receipt, however, such action
or cure is commenced within 30 days after receipt of notice, and is
diligently being pursued, Sub-Subtenant shall have no right to pursue
Master Landlord, Sublandlord or Sub-Sublandlord. If Sub-Subtenant
subsequently pursues such action, Sub-Subtenant agrees to reimburse
Sub-Sublandlord for its proportionate share of any costs incurred by
Sub-Sublandlord in connection with Sub-Subtenant instituting any such
action. Sub-Sublandlord shall give reasonable assistance to Sub-Subtenant
in enforcing the terms of the Master Lease and the Sublease, and will
execute all documents reasonably necessary to enable Sub-Subtenant to
pursue Master Landlord or Sublandlord in its failure to perform any of its
obligations under the Master Lease or the Sublease.
12. CONSENTS. Wherever consent by Master Landlord and Sublandlord is required
--------
under the Master Lease or the Sublease, Sub-Sublandlord's consent shall
also be required. Except as specifically set forth herein, Sub-Sublandlord
agrees that whenever its consent or approval is required hereunder, or
where something must be done to Sub-Sublandlord's satisfaction, it shall
not unreasonably withhold or delay such consent or approval; provided,
however, that whenever the consent or approval of
6
<PAGE>
Master Landlord, Sublandlord, the landlord under a superior lease, or the
mortgagee under a mortgage shall withhold its consent or approval for any
reason whatsoever, Sub-Sublandlord shall not be deemed to be acting
unreasonably if it shall also withhold its consent or approval.
13. BUILDING COMPLIANCE. Except as otherwise specified in the Master Lease
-------------------
with regard to repairs and alterations or building compliance, Subtenant
will be solely responsible for the compliance of the Sublease Premises with
the laws, statutes, ordinances, rules and regulations pertaining to
accessibility and accommodation for persons with disabilities, including
the removal of architectural and transportation barriers, if necessary. In
addition, Subtenant acknowledges and agrees not to use the Sublease
Premises in violation of any federal, state or local law, ordinance or
regulation relating to health and safety.
14. HAZARDOUS MATERIALS. a. Subtenant shall not transport, use, store,
-------------------
maintain, generate, manufacture, handle, dispose, release, or discharge any
Hazardous Material (as hereinafter defined) upon or about the Sublease
Premises or the Building, nor permit Subtenant's employees, agents,
contractors and other occupants of the Sublease Premises to engage in such
activities upon or about the Sublease Premises or the Building. However,
the foregoing provisions shall not prohibit the transportation to and from,
and use, storage, maintenance, and handling within, the Sublease Premises
or the Building of substances customarily used in similar buildings
provided: (i) such substances shall be used and maintained only in such
quantities as are reasonably necessary for Subtenant's permitted use of the
Sublease Premises, strictly in accordance with the any and all applicable
laws, statutes, codes, ordinances, rules or regulations (the "Law") and the
manufacturers' instructions therefor; (ii) such substances may be disposed
of, released, or discharged at the Sublease Premises if permitted by and in
compliance with the Law and shall be transported to and from the Sublease
Premises in compliance with the Law and as Sublandlord or Master Landlord
shall reasonably require, (iii) if the Law or Master Landlord's trash
removal contractor requires that any such substances from the Sublease
Premises be disposed of separately from ordinary trash, Subtenant shall
make arrangements at Subtenant's expense for such disposal directly with a
qualified and licensed disposal company at a lawful disposal site (subject
to reasonable scheduling and approval by Master Landlord), and shall ensure
that disposal occurs frequently enough to prevent unnecessary storage or
accumulation of such substances in the Sublease Premises, and (iv) any
remaining such substances shall be completely, properly and lawfully
removed by Subtenant from the Sublease Premises and the Building upon
expiration or earlier termination of this Sublease or Subtenant's right to
possession.
b. The term "Hazardous Materials" for purposes hereof shall mean any
chemical, substance, material, or waste, or component thereof, whether in a
solid, liquid or gaseous state, which is now or hereafter listed, defined,
or regulated as a hazardous or toxic chemical, substance, material, or
waste, or component thereof, by any federal, state, or local governing or
regulatory body having jurisdiction, or which would trigger any employee or
community "right-to-know" requirements adopted by any such body, or for
which any such body has adopted any requirements for the preparation or
distribution of any material safety data sheet, issued by the manufacturer
therefor, written information concerning the removal, transportation, and
disposal of the same, and such other information as the requesting party
may reasonably require or as may be required by the Law, including, without
limitation, (a) the Resource Conservation and Recovery Act of 1976, 42
U.S.C. (S) 6901 et seq, as amended from time to time, and regulations
promulgated thereunder; (b) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq, as
amended from time to time, and regulations promulgated thereunder; (c)
Federal Water Pollution Control Act/Clean Water Act, 33 U.S.C. (S) 1251 et
seq.; (d) Clean Air Act, 42 U.S.C. (S) 7901 et seq.; (e) Toxic Substances
Control Act, 15 U.S.C. (S) 2601 et seq.; (f) the Hazardous Materials
7
<PAGE>
Transportation Act, 49 U.S.C. (S)(S) 1801 et seq.; and in the regulations
adopted and publications promulgated pursuant to said laws; and in any
revised or successor code thereto.
c. Subtenant shall indemnify, defend (using counsel approved by
Sublandlord) and hold harmless Sublandlord and Master Landlord, their
respective directors, officers, employees and agents, and any successors to
Sublandlord's interest in the Sublease Premises, Master Landlord's interest
in and to the Building (including the Sublease Premises) and the Property,
and , their directors, officers, employees and agents, from and against any
and all liability (i) including all foreseeable and all unforeseeable
consequential damages, directly or indirectly arising out of the use,
generation or storage of Hazardous Materials by Subtenant in or about the
Sublease Premises and (ii) including, without limitation, the cost of any
required or necessary repair, cleanup, or detoxification and the
preparation of any closure or other required plans, to the full extent that
such action is attributable, directly or indirectly, to the presence or
used, generation, storage, release, or threatened release or spill of
Hazardous Materials by any person in, on or around the Sublease Premises or
the Building or the Property. Subtenant's obligations pursuant to the
foregoing indemnity shall survive the expiration or earlier termination of
the Sublease Term.
15. LIMITATION OF LIABILITY OF SUB-SUBLANDLORD. In the event Sub-Sublandlord
------------------------------------------
shall be liable to Sub-Subtenant for any matter relating to or arising in
connection with this Sub-Sublease, whether based upon an action or claim in
contract, equity, negligence, intended conduct, tort or otherwise, the
amount of damages recoverable against Sub-Sublandlord for all events, acts
or omissions will not exceed, in the aggregate, the total amount actually
to be paid by Sub-Subtenant to Sub-Sublandlord under this Sub-Sublease
during the term of this Sub-Sublease. In no event will the measure of
damages include, nor will Sub-Sublandlord be liable for, any amounts for
loss of profits, income or savings or indirect, consequential, speculative
or punitive damages of any party, including third parties. Further, no
cause of action may be asserted against Sub-Sublandlord later than the
earlier of h) the applicable statute of limitations for notice of such
cause of action, or i) 2 years following the date after the date on which
the cause of action shall have accrued. Sub-Sublandlord and Sub-Subtenant
expressly acknowledge that the limitations contained in this Paragraph 14
have been the subject of active and complete negotiation between the
parties and represent the parties' agreement.
IN WITNESS WHEREOF, this Sub-Sublease is executed as of the date first
written above.
SUB-SUBLANDLORD: SUB-SUBTENANT:
ELECTRONIC DATA SYSTEMS CORPORATION UNIGRAPHICS SOLUTIONS INC.
By: /S/ JOHN M. YEAMAN By: /S/ D. GILBERT FRIEDLANDER
------------------------------ ---------------------------------
John M. Yeaman Printed Name: D. Gilbert Friedlander
Title: Director of Real Estate Title: Vice President
Dated: March 5, 1998 Dated: March 11, 1998
8
<PAGE>
EXHIBIT 23.1
CONSENT AND REPORT ON SCHEDULE OF INDEPENDENT AUDITORS
The Board of Directors
Electronic Data Systems Corporation:
The audits referred to in our report dated March 6, 1998, included the
related financial statement schedule as of December 31, 1996 and 1997, and for
each of the years in the three-year period ended December 31, 1997, included
in the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We consent to the use of our reports included herein and to the reference of
our firm under the heading "Summary Financial Data," "Selected Financial and
Operating Data" and "Experts" in the prospectus.
KPMG Peat Marwick LLP
Dallas, Texas
May 21, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Solid
Edge/EMS Financial Data" and "Experts" and to the use of our report dated
February 28, 1998 (except for Note 2, as to which the date is March 2, 1998),
with respect to the statements of assets sold and revenues and direct expenses
of Intergraph Corporation's Solid Edge and Engineering Modeling Systems
Software Product Lines included in Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-48261) and related Prospectus of Unigraphics
Solutions Inc.
Ernst & Young LLP
Birmingham, Alabama
May 21, 1998
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> MAR-31-1997 MAR-31-1998
<CASH> 1 14,624
<SECURITIES> 0 10,311
<RECEIVABLES> 154,164 115,527
<ALLOWANCES> 5,359 5,291
<INVENTORY> 0 0
<CURRENT-ASSETS> 153,774 140,621
<PP&E> 53,907 56,202
<DEPRECIATION> 35,690 35,484
<TOTAL-ASSETS> 208,186 254,591
<CURRENT-LIABILITIES> 77,215 92,400
<BONDS> 0 156,055
0 0
0 0
<COMMON> 0 313
<OTHER-SE> 118,381 5,823
<TOTAL-LIABILITY-AND-EQUITY> 208,186 254,591
<SALES> 38,580 48,643
<TOTAL-REVENUES> 69,127 86,528
<CGS> 14,848 21,779
<TOTAL-COSTS> 28,607 36,505
<OTHER-EXPENSES> 33,879 83,985
<LOSS-PROVISION> 337 181
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 6,652 (24,270)
<INCOME-TAX> 2,473 (10,187)
<INCOME-CONTINUING> 4,179 (14,083)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,179 (14,083)
<EPS-PRIMARY> 0.11 (0.38)
<EPS-DILUTED> 0.11 (0.38)
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