<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, par value
$.01 per share(1)............... $125,000,000 $36,875
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</TABLE>
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(1) In accordance with Rule 457(o) under the Securities Act the number of
shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
---------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 March 19, 1998
Shares
Unigraphics Solutions Inc.
CLASS A COMMON STOCK
-----------
OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED, SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND
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.
UPON COMPLETION OF THE OFFERING, EDS WILL OWN 100% OF THE OUTSTANDING
CLASS B COMMON STOCK OF THE COMPANY, WHICH WILL REPRESENT APPROXIMATELY
% OF THE COMBINED VOTING POWER OF ALL CLASSES OF VOTING STOCK IN THE
COMPANY (APPROXIMATELY % IF THE U.S. UNDERWRITERS' OVER-ALLOTMENT
OPTION IS EXERCISED IN FULL). SEE "RELATIONSHIP WITH EDS AND CERTAIN
TRANSACTIONS." PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET
FOR THE CLASS A COMMON STOCK OR CLASS B COMMON STOCK. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE OF CLASS A
COMMON STOCK WILL BE BETWEEN $ AND $ . 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."
-----------
APPLICATION WILL BE MADE TO LIST THE CLASS A COMMON STOCK FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "UGSI."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 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 has 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 $ .
(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 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 , 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.
, 1998
<PAGE>
[PICTURES/GRAPHICS TO COME.]
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>
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
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 11
Special Note Regarding Forward-
Looking Statements................. 18
Use of Proceeds..................... 19
Dividend Policy..................... 19
Capitalization...................... 20
Dilution............................ 21
Pro Forma Financial Information..... 22
Selected Financial and Operating
Data............................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 27
Business............................ 36
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management............................................................. 51
Security Ownership of Management and Principal Stockholder............. 60
Relationship with EDS and Certain Transactions......................... 61
Description of Capital Stock........................................... 64
Shares Eligible for Future Sale........................................ 73
Certain Federal Income Tax Consequences for Non-United States Holders.. 75
Underwriters........................................................... 77
Legal Matters.......................................................... 80
Experts................................................................ 80
Additional Information................................................. 81
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.
3
<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"), Denso Co., Ltd.
("Denso") 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 is expected to be 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
4
<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. Upon the release of Solid Edge 5.0, both it and
Unigraphics will be 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 converted 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.
5
<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 transfer of certain non-
U.S. assets and personnel of the Solid Edge/EMS Business is expected to be
completed on or about March 31, 1998, subject to receipt of relevant foreign
government approvals. 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. Beginning with Version 5.0, the Company will replace Solid
Edge's existing core modeler with Parasolid. Intergraph will continue to
distribute Version 4.0 of Solid Edge (at no cost to the Company and with all
proceeds for the benefit of the Company) in order to comply with the terms of
Intergraph's license for the existing solid modeling kernel in Version 4.0 of
Solid Edge. 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.
6
<PAGE>
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 % of the combined voting power of all classes of voting stock of
the Company (approximately % if the U.S. Underwriters' over-allotment option
is exercised in full). As long as EDS beneficially owns a majority of the
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 $107 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"). 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.
7
<PAGE>
THE OFFERING
The offering hereby of 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 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: shares(1)
U.S. Offering.........
International
Offering.............. shares
shares(1)
Total..............
Common Stock to Be
Outstanding After the
Offering:
Class A Common shares(1)(2)
Stock.................
Class B Common shares
Stock.................
Total.............. shares(1)(2)
Use of Proceeds........... The net proceeds to the Company from the Offering
are estimated to be approximately $ million.
Such net proceeds will be used to repay
indebtedness outstanding under the Intercompany
Credit Agreement and any remaining proceeds will
be applied to reduce amounts outstanding 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 Nasdaq National
Market Symbol............. UGSI
- --------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised.
(2) Does not include 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.
8
<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 are derived from the
financial statements of the Company prepared in accordance with generally
accepted accounting principles. The summary historical statement of income 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 balance sheet data
presented below as of December 31, 1995 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 financial information 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 with respect to the income
statement data and at December 31, 1997 with respect to the balance sheet data.
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,
----------------------------------------
PRO FORMA
1995 1996 1997 1997(1)
-------- --------- --------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
Software............................ $ 89,103 $ 209,480 $ 115,479 $134,463
Services............................ 111,575 121,528 137,794 154,028
Hardware............................ 66,944 83,201 61,320 61,320
-------- --------- --------- --------
Total revenue..................... $267,622 $ 414,209 $ 314,593 $349,811
======== ========= ========= ========
Gross profit(2)....................... $158,557 $ 274,389 $ 185,469 $203,981
Operating income ..................... 29,872 134,779 34,731 17,888
Other income, net(3).................. 129 106 5,092 (108)
Net income............................ 18,376 83,336 25,013 11,166
Diluted earnings per share(4)......... $
Weighted average diluted common shares
outstanding..........................
OTHER DATA:
Non-GM software revenue............... $ 73,484 $ 89,328 $ 115,479 $134,463
GM software revenue(5)................ 15,619 120,152 -- --
-------- --------- --------- --------
Total software revenue............ $ 89,103 $ 209,480 $ 115,479 $134,463
======== ========= ========= ========
BALANCE SHEET DATA (END OF PERIOD):
Working capital(6).................... $ 34,091 $ 87,835 $ 52,958 53,178
Total assets.......................... 146,907 231,206 166,790 238,028
Long-term debt........................ -- -- --
Stockholder's net
investment/stockholders' equity...... 90,770 132,147 88,350 88,974
</TABLE>
(footnotes appear on following page)
9
<PAGE>
- --------
(1) The pro forma information does not include a write-off of acquired in-
process research and development costs of $42 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 Unigraphics in 1991.
(3) The increase in other income, net in 1997 is due to gains on the sale of
investment securities.
(4) Diluted earnings per share has not been presented for 1995, 1996 and 1997
since the Company was operated within several business units of EDS and not
as a separate legal division or subsidiary. For purposes of the calculation
of pro forma earnings per share, weighted average diluted common shares
outstanding assumes shares of Class A Common Stock issued in the
Offering are outstanding for the entire period. Employee stock options for
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>
10
<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,
although the transfer of certain assets located outside the United States is
expected to occur on or about March 31, 1998, subject to the receipt of
relevant governmental approvals. 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.
Since the version of Solid Edge available at the time of the Solid Edge
Acquisition incorporates the core modeling kernel of another company, the
Company and Intergraph have agreed that Intergraph will make all license sales
of Solid Edge and remit the proceeds thereof to the Company until the Company
releases Solid Edge 5.0 (expected in May 1998), which will contain the
Company's Parasolid solid modeling kernel. 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 % of the combined voting power of all classes of
voting stock of the Company (approximately % 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
11
<PAGE>
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 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
12
<PAGE>
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 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 60% 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."
13
<PAGE>
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 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 intends to introduce a number of new product innovations in the
first half of 1998. The Company will introduce its Parasolid solid modeling
kernel in Solid Edge 5.0 (expected in May 1998), replacing Solid Edge's
current 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
14
<PAGE>
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 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
15
<PAGE>
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."
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.
16
<PAGE>
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 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."
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."
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.
17
<PAGE>
DILUTION
Purchasers of the Class A Common Stock in the Offering will experience
immediate and substantial dilution in the amount of $ in the net tangible
book value 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."
18
<PAGE>
USE OF PROCEEDS
The Company will receive approximately $ million from the sale of Class A
Common Stock in the Offering (approximately $ million if the U.S.
Underwriters' option is exercised in full) after deducting underwriting
commissions and estimated expenses payable by the Company, assuming an initial
public offering price of $ per share (the mid-point of the filing range
appearing on the cover of this Prospectus). Approximately $ million of the
net proceeds of the Offering will be used to repay outstanding indebtedness
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%. Approximately $ million of the net proceeds of the
Offering will be used to repay amounts outstanding under the Intercompany
Note. 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.
19
<PAGE>
CAPITALIZATION
The following table sets forth information regarding the consolidated long-
term debt and capitalization of the Company (i) at December 31, 1997, (ii) as
adjusted for the pro forma effects of the Reorganization, the Solid Edge
Acquisition and the issuance of the Intercompany Note and (iii) as further
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>
DECEMBER 31, 1997
---------------------------------
PRO FORMA
PRO FORMA COMBINED
HISTORICAL COMBINED AS ADJUSTED
---------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Intercompany Note (1)......................... $ -- $ 73,000 $
Intercompany Credit Agreement (1)............. -- 107,000
Stockholders' equity/net investment:
Class A Common Stock: $.01 par value;
shares authorized; shares issued and
outstanding, as adjusted (2)(3)............ --
Class B Common Stock: $.01 par value;
shares issued and outstanding, as
adjusted................................... -- --
Additional paid-in capital.................... -- (11,026)
Stockholder's net investment.................. 88,350 -- --
------- -------- ---
Total stockholders' equity/net
investment............................... 88,350 168,974
------- -------- ---
Total capitalization.................... $88,350 $168,974 $
======= ======== ===
</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 January 1, 1998
through the date of the Offering.
(2) Assumes the U.S. Underwriters' over-allotment option is not exercised.
(3) Does not include 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>
DILUTION
The pro forma net tangible book value of the Company at December 31, 1997,
giving effect to the Reorganization, the Solid Edge Acquisition and the
Intercompany Note, was approximately $(99.7) million, or $ per share of
Common Stock. Net tangible book value 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 value per share of Common Stock immediately after
the completion of the Offering. After giving effect to the sale of
approximately million shares of Class A Common Stock at an assumed price of
$ per share by the Company in the Offering and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of December 31, 1997 would have been approximately $ million, or
$ per share of Common Stock. This represents an immediate dilution in pro
forma net tangible book value per share of $ 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>
Assumed initial public offering price per share........................
Pro forma net tangible book value per share as of December 31, 1997
after giving effect to the Reorganization and the Solid Edge
Acquisition...........................................................
Increase in net tangible book value per share attributable to new
investors (1).........................................................
Pro forma net tangible book value per share as of December 31, 1997
after giving effect to the Offering (1)...............................
Dilution in net tangible book value per share to new investors.........
</TABLE>
- --------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised.
21
<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
December 31, 1997 and the related unaudited Condensed Combined Statement of
Operations for the year ended December 31, 1997 (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 Solid Edge Acquisition, the Reorganization, the issuance of
the Intercompany Note and the Offering and the application of the estimated
proceeds therefrom occurred on December 31, 1997, 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.
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.
22
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
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)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets.......... $122,012 $ 220 $ -- $122,232 $ 100,000 (e) $122,232
(100,000)(f)
Property and equipment,
net.................... 19,821 1,066 -- 20,887 -- 20,887
Deferred income taxes... 6,238 (b) 6,238 -- 6,238
Software, goodwill and
other intangibles,
net.................... 24,957 81 63,633 (b) 88,671 -- 88,671
-------- ------ -------- -------- --------- --------
Total assets.......... $166,790 $1,367 $ 69,871 $238,028 $ -- $238,028
======== ====== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities..... $ 69,054 $ -- $ -- $ 69,054 $ -- $ 69,054
Intercompany debt....... -- -- 107,000 (b) 180,000 (100,000)(f) 80,000
73,000 (d)
Deferred income taxes... 9,386 -- (9,386)(b) -- -- --
Stockholders' equity.... -- -- 88,350 (a) (11,026) 100,000 (e) 88,974
(26,376)(b)
(73,000)(d)
Stockholder's net
investment/net assets.. 88,350 1,367 (88,350)(a) -- -- --
(1,367)(c)
-------- ------ -------- -------- --------- --------
Total liabilities and
stockholders'
equity............... $166,790 $1,367 $ 69,871 $238,028 $ -- $238,028
======== ====== ======== ======== ========= ========
</TABLE>
See accompanying notes to Pro Forma Statements.
23
<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)
<S> <C> <C> <C> <C> <C> <C>
Total revenue........... $314,593 $35,218 $ -- $349,811 $ -- $349,811
-------- ------- -------- -------- ------ --------
Cost of revenue......... 129,124 3,979 12,727 (g) 145,830 -- 145,830
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 12,727 331,923 -- 331,923
-------- ------- -------- -------- --------
Operating income...... 34,731 (4,116) (12,727) 17,888 -- 17,888
Other income, net....... 5,092 -- (11,700)(h) (6,608) 6,500(j) (108)
-------- ------- -------- -------- ------ --------
Income before income
taxes................ 39,823 (4,116) (24,427) 11,280 6,500 17,780
Provision for income
taxes.................. 14,810 -- (10,614)(i) 4,196 2,418(i) 6,614
-------- ------- -------- -------- ------ --------
Net income (loss)..... $ 25,013 $(4,116) $(13,813) $ 7,084 $4,082 $ 11,166
======== ======= ======== ======== ====== ========
Earnings per share(k)... $ --
========
Weighted average diluted
common shares
outstanding(k).........
</TABLE>
See accompanying notes to Pro Forma Statements.
24
<PAGE>
NOTES TO PRO FORMA STATEMENTS
The accompanying Pro Forma Condensed Combined Balance Sheet as of December
31, 1997 reflects the following pro forma adjustments for the Acquisition, the
Reorganization, the issuance of the Intercompany Note and the Offering and the
application of the estimated net proceeds therefrom as if such transactions
had occurred on December 31, 1997.
(a) To record the contribution of EDS's net investment in its MCAD businesses
and divisions to the Company.
(b) To record the purchase of the Solid Edge/EMS Business for $107 million,
including acquisition costs. The transaction has been accounted for as a
purchase. The purchase price has been allocated to the assets acquired on
a preliminary basis based on estimated fair values at the date of
acquisition. Such values are estimated to be as follows (in thousands):
<TABLE>
<S> <C>
Current assets..................................................... $ 220
Property and equipment............................................. 1,066
Intangibles:
Software, goodwill and other intangibles......................... 63,714
In-process research and development costs........................ 42,000
--------
Total purchase price........................................... $107,000
========
</TABLE>
Amounts assigned to in-process research and development costs were expensed
upon acquisition and are shown net of related deferred income taxes of
$15.6 million.
(c) To eliminate the historical net assets balance relating to the Solid
Edge/EMS Business.
(d) To record the issuance of the Intercompany Note in the principal amount of
$73.0 million to EDS as a dividend effective March 6, 1998.
(e) To record the issuance of Class A Common Stock of the Company pursuant to
the Offering, resulting in net proceeds of approximately $100 million, and
the issuance of Class B Common Stock in exchange for all the outstanding
shares of the Company's Common Stock owned by EDS immediately prior to the
Offering. Such net proceeds assume that the U.S. Underwriters' over-
allotment option is not exercised.
(f) To record the repayment of a portion of the outstanding borrowings under
the Intercompany Credit Agreement with the net proceeds from the Offering.
The accompanying Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1997 reflects 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.
(g) To reflect additional amortization expense on $63.7 million of intangibles
acquired in the Solid Edge Acquisition, assuming a weighted average useful
life of five years. 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 does not reflect the write-off
of in-process research and development costs of $42.0 million in
connection with the Solid Edge Acquisition.
(h) To record interest expense resulting from borrowings under the
Intercompany Credit Agreement of $107.0 million in connection with the
Solid Edge Acquisition and the $73.0 million Intercompany Note issued as a
dividend to EDS. All such indebtedness is assumed to bear interest at 6.5%
for the year ended December 31, 1997.
(i) To record the estimated tax impact of pre-tax income statement adjustments
at the Company's 1997 effective tax rate of 37.2%.
(j) 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 with the net proceeds
of the Offering.
(k) Diluted earnings per share has not been presented for the Company's
historical statement of operations as the Company was operated within
several business units of EDS and not as a separate legal division or
subsidiary. The pro forma earnings per common share data is calculated
using the total shares of Common Stock expected to be outstanding after
the Offering ( million shares). Employee stock options for 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 are derived
from the financial statements of the Company prepared in accordance with
generally accepted accounting principles. The selected historical statement of
income 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 income and balance sheet data presented below as of December 31, 1993, 1994
and 1995 and for the years ended December 31, 1993 and 1994 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>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
Software...................... $ 64,359 $ 63,750 $ 89,103 $ 209,480 $115,479
Services...................... 79,761 95,888 111,575 121,528 137,794
Hardware...................... 65,143 71,578 66,944 83,201 61,320
-------- -------- -------- --------- --------
Total revenue............... 209,263 231,216 267,622 414,209 314,593
-------- -------- -------- --------- --------
Cost of revenue:
Software...................... 22,672 19,839 27,495 38,485 27,953
Services...................... 30,950 26,115 34,328 41,721 57,059
Hardware...................... 45,572 48,995 47,242 59,614 44,112
-------- -------- -------- --------- --------
Total cost of revenue....... 99,194 94,949 109,065 139,820 129,124
-------- -------- -------- --------- --------
Gross profit(1)................. 110,069 136,267 158,557 274,389 185,469
Operating expenses:
Selling, general and
administrative............... 81,346 77,229 85,031 92,444 102,759
Research and development...... 44,000 42,623 43,654 47,166 47,979
-------- -------- -------- --------- --------
Total operating expenses.... 125,346 119,852 128,685 139,610 150,738
-------- -------- -------- --------- --------
Operating income (loss)......... (15,277) 16,415 29,872 134,779 34,731
Other income, net(2)............ 59 341 129 106 5,092
-------- -------- -------- --------- --------
Income before income taxes...... (15,218) 16,756 30,001 134,885 39,823
Provision for income taxes...... (4,355) 6,133 11,625 51,549 14,810
-------- -------- -------- --------- --------
Net income (loss)............... $(10,863) $ 10,623 $ 18,376 $ 83,336 $ 25,013
======== ======== ======== ========= ========
OTHER DATA:
Non-GM software revenue......... $ 56,272 $ 52,121 $ 73,484 $ 89,328 $115,479
GM software revenue(3).......... 8,087 11,629 15,619 120,152 --
-------- -------- -------- --------- --------
Total software revenue ..... $ 64,359 $ 63,750 $ 89,103 $ 209,480 $115,479
======== ======== ======== ========= ========
BALANCE SHEET DATA (END OF
PERIOD):
Working capital(4).............. $ 26,635 $ 33,460 $ 34,091 $ 87,835 $ 52,958
Total assets.................... 171,363 162,956 146,907 231,206 166,790
Long-term debt.................. -- -- -- -- --
Stockholder's net investment.... 119,176 107,272 90,770 132,147 88,350
</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 Unigraphics in 1991.
(2) The increase in other income, net in 1997 is due to gains on the sale of
investment securities.
(3) 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.
(4) 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, the Company's parent, EDS, entered into the EDS/GM Site 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
27
<PAGE>
services for an initial term of three years. 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.
As a result of the EDS/GM Site License Agreement, the Company recognized
software revenue of $110.3 million in the second half of 1996, primarily in
the fourth quarter. Maintenance revenue relating to the EDS/GM Site License
Agreement is being recognized by the Company over the maintenance period.
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. 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 $107 million from EDS pursuant to the
Intercompany Credit Agreement. The cost of the Solid Edge Acquisition will be
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 of the assets. Based on a preliminary purchase price allocation, costs
were allocated to in-process research and development in the amount of $42.0
million and will be expensed in the three month period ended March 31, 1998.
The excess of purchase price over fair value of identifiable assets acquired
will be recorded as software and other intangibles and amortized on a
straight-line basis over its useful life. On a preliminary basis, the Company
has allocated the purchase price as follows: $1.3 million to computer
equipment, furniture and other assets; $63.7 million to software and other
intangibles; and $42.0 million to in-process research and development costs.
Such allocation is subject to change upon receipt of an independent appraisal.
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.
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
28
<PAGE>
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 by revenue type and geographic region.
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Software.......................................... $ 89,103 $209,480 $115,479
Services.......................................... 111,575 121,528 137,794
Hardware.......................................... 66,944 83,201 61,320
-------- -------- --------
Total revenue................................... $267,622 $414,209 $314,593
======== ======== ========
Revenue by Geographic Region (1):
United States..................................... $135,555 $249,049 $144,529
Europe............................................ 96,364 117,172 112,785
Other (2)......................................... 35,703 47,988 57,279
-------- -------- --------
Total revenue................................... $267,622 $414,209 $314,593
======== ======== ========
</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. These operating results are not necessarily indicative of results for
any future periods.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenue:
Software.................................................... 33% 51% 37%
Services.................................................... 42 29 44
Hardware.................................................... 25 20 19
--- --- ---
Total revenue............................................. 100% 100% 100%
=== === ===
Costs of revenue:
Software.................................................... 10% 10% 9%
Services.................................................... 13 10 18
Hardware.................................................... 18 14 14
--- --- ---
Total cost of revenue..................................... 41 34 41
--- --- ---
Gross profit.................................................. 59% 66% 59%
=== === ===
Operating expenses:
Selling, general and administrative......................... 32% 22% 33%
Research and development.................................... 16 11 15
--- --- ---
Total operating expenses.................................. 48 33 48
--- --- ---
Operating income.......................................... 11 33 11
Other income, net............................................. -- -- 2
--- --- ---
Income before income taxes................................ 11 33 13
Provision for income taxes.................................... 4 13 5
--- --- ---
Net income................................................ 7% 20% 8%
=== === ===
</TABLE>
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
30
<PAGE>
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, 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.
31
<PAGE>
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
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.
32
<PAGE>
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.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain quarterly information for the Company
for the years ended December 31, 1996 and 1997. 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,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
<S> <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
Services............... 28,108 30,305 28,643 34,472 30,547 35,847 33,297 38,103
Hardware............... 18,337 23,748 16,228 24,888 12,344 16,645 18,408 13,923
------- ------- ------- -------- ------- ------- ------- -------
Total revenue........ 68,526 81,335 75,020 189,328 69,127 81,272 76,356 87,838
------- ------- ------- -------- ------- ------- ------- -------
Cost of revenue:
Software............... 6,829 9,635 6,524 15,497 6,457 7,452 6,736 7,308
Services............... 9,402 11,537 9,804 10,978 13,759 12,810 15,283 15,207
Hardware............... 13,118 17,275 11,405 17,816 8,391 10,688 13,399 11,634
------- ------- ------- -------- ------- ------- ------- -------
Total cost of revenue 29,349 38,447 27,733 44,291 28,607 30,950 35,418 34,149
------- ------- ------- -------- ------- ------- ------- -------
Gross profit............ 39,177 42,888 47,287 145,037 40,520 50,322 40,938 53,689
Selling, general and
administrative......... 21,381 22,578 22,430 26,055 22,934 26,398 24,660 28,767
Research and
development............ 11,989 10,912 11,809 12,456 10,945 11,505 12,105 13,424
------- ------- ------- -------- ------- ------- ------- -------
Operating income........ 5,807 9,398 13,048 106,526 6,641 12,419 4,173 11,498
Other income (expense),
net.................... (11) (104) (11) 232 11 3 3,795 1,283
------- ------- ------- -------- ------- ------- ------- -------
Income before income
taxes.................. 5,796 9,294 13,037 106,758 6,652 12,422 7,968 12,781
Provision for income
taxes.................. 2,214 3,551 4,982 40,802 2,473 4,619 2,964 4,754
------- ------- ------- -------- ------- ------- ------- -------
Net income.............. $ 3,582 $ 5,743 $ 8,055 $ 65,956 $ 4,179 $ 7,803 $ 5,004 $ 8,027
======= ======= ======= ======== ======= ======= ======= =======
</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.
33
<PAGE>
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 as to the impact of the EDS/GM
Site License Agreement.
The Company expects that net income for the first quarter of 1998 will be
significantly less than in prior years as a result of the Solid Edge
Acquisition. The Company expects to allocate approximately $42 million of the
purchase price of the Solid Edge/EMS Business to in-process research and
development which the Company will expense in the first quarter of 1998. The
Company's results of operations for the first quarter of 1998 will also
reflect amortization of acquired software of approximately $1 million
associated with the Solid Edge Acquisition. Such amortization will be 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 $107.0
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. At December 31, 1997, the Company had an unbilled
receivable from GM of $55.2 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 in the foreseeable future.
34
<PAGE>
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.
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.
35
<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, Denso
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
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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 decision by the
Company 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
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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. Upon the release of Solid Edge 5.0, both it and
Unigraphics will be 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 converted 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
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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, 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 is expected to be released in April
1998, the Company plans to expand 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 will also be 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 July 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 May 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. In 1997, approximately 25% of new software licenses sold
by the Company were bundled with hardware. 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
five 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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<PAGE>
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 Corp.
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 Corp.
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 reduced the number of parts required from
approximately 37,000 parts to 17,000 parts and decreased the time from
inception to market by 26 months, from 60 months to 34 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 used by Boeing in the design of the F/A-18E/F
fighter aircraft and, according to internal Boeing statistics, the use of
Unigraphics for an all digital design 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.
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 has entered into joint marketing agreements with each of these
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.
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<PAGE>
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 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
The Company's corporate headquarters is located in St. Louis, Missouri,
where it subleases from EDS approximately 84,000 square feet of office space
for corporate general and administrative, marketing, research and development
and consulting services activities. That sublease will expire in October 2001.
The Company subleases approximately 127,000 square feet of office space in
Cypress, California from EDS, until the expiration of EDS' lease in 2002. 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
49
<PAGE>
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. 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 4,453 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 17,077 square feet
of office space from EDS until the expiration of EDS' master lease facility in
2001. 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. The
terms of all sublease agreements between the Company and EDS incorporate the
financial and other material terms of EDS' lease agreements for the subject
property.
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."
50
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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.......... 60 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.
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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<PAGE>
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 1988 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. In addition, the Compensation Committee will make
recommendations to the Board of Directors concerning suitable candidates for
election to the Board of Directors and with respect to assignments to
committees of the Board of Directors. In making recommendations for suitable
candidates for election to the Board of Directors, the Compensation Committee
will consider nominees for election recommended by stockholders.
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 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.
53
<PAGE>
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.
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 shares of Class A Common Stock, of which shares will be
available for Director Awards and the remainder will be available for Employee
Awards. 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 of 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 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.
54
<PAGE>
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. 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 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
shares of Class A Common Stock. A Non-employee Director who is elected
otherwise than
55
<PAGE>
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) 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.
ANTICIPATED OPTION AND SAR GRANTS TO THE EXECUTIVE OFFICERS FOR 1998
On the date of the consummation of the Offering, the Company will make one-
time grants of an aggregate of NQSOs to certain key employees of the
Company in connection with the Offering including the following grants to the
named executive officers:
56
<PAGE>
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.............
Anthony J. Affuso...........
Donald E. Davidson..........
James Duncan................
Dennis P. Kruse.............
</TABLE>
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 Stock Incentive Plan). Benefits under the EDS
Retirement 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.
57
<PAGE>
EDS STOCK PURCHASE PLAN
Under the terms of the Management Services Agreement entered into between
the Company and EDS, 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
The Company plans to enter into employment agreements with Messrs. Mazzola,
Affuso, Barnett, Davidson, Duncan and Kruse prior to the consummation of the
Offering.
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
58
<PAGE>
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.
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>
LONG-TERM COMPENSATION
-----------------------------
AWARDS PAYOUTS
OTHER --------------------- -------
ANNUAL COMPENSATION 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 2006.
(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.
59
<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 the Class B 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 Class B Common Stock and by the Company's directors
and executive officers.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BEFORE OFFERING BENEFICIAL OWNERSHIP AFTER OFFERING
--------------------------------------- ------------------------------------------------
PERCENT
PERCENT OF PERCENT PERCENT
PERCENT OF PERCENT OF OF CLASS B OF OF
NUMBER OF COMMON ECONOMIC VOTING NUMBER OF COMMON ECONOMIC VOTING
NAME OF BENEFICIAL OWNER SHARES STOCK INTEREST POWER SHARES STOCK INTEREST POWER
- ------------------------ --------- ---------- ---------- ------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electronic Data Systems -- 100% 100% 100% -- 100% %(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 % of the economic interest and % 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%).
60
<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 $107 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 % of the combined
voting power of the Company's outstanding Common Stock (approximately % 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.
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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.
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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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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of shares of Class A
Common Stock, shares of Class B Common Stock and shares of Preferred
Stock. None of the Class A Common Stock or Preferred Stock is outstanding as
of the date hereof. Of the shares of Class A Common Stock authorized,
are being offered in the Offering ( shares if the U.S. Underwriters' over-
allotment option is exercised in full), shares will be reserved for
issuance upon conversion of Class B Common Stock into Class A Common Stock and
shares have been reserved for issuance pursuant to the 1998 Incentive
Plan. See "Management--Compensation of Directors" and "Management--1998
Incentive Plan." Of the shares of Class B Common Stock authorized,
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
Application will be made to list the Class A Common Stock on the Nasdaq
National Market under the symbol "UGSI."
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 shares of Class A
Common Stock issued and outstanding ( if the U.S. Underwriters' over-
allotment option is exercised in full) and 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 or otherwise transfer, lend 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 (x)
the sale of Shares to the Underwriters, (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, 1999 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, 1999, 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, 1999, 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.......................................................
International Underwriters:
Morgan Stanley & Co. International Limited.......................
Donaldson, Lufkin & Jenrette Securities Corporation..............
Hambrecht & Quist LLC............................................
J.P. Morgan Securities Ltd.......................................
Subtotal.......................................................
---
Total..........................................................
===
</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
78
<PAGE>
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
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.
Application will be made to list the Class A Common Stock for quotation on
the Nasdaq National Market under the symbol "UGSI."
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 or
otherwise transfer, lend 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
79
<PAGE>
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 (x) the sale of Shares to the Underwriters, (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 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.
80
<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.
81
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF UNIGRAPHICS SOLUTIONS INC.
Report of Independent Auditors......................................... F-2
Statements of Income and Stockholder's Net Investment for the Years
Ended December 31, 1995, 1996 and 1997................................ F-3
Balance Sheets as of December 31, 1996 and 1997........................ F-4
Statements of Cash Flows for the Years Ended December 31, 1995, 1996
and 1997.............................................................. F-5
Notes to Financial Statements.......................................... F-6
FINANCIAL STATEMENTS OF THE SOLID EDGE AND ENGINEERING MODELING SYSTEMS
SOFTWARE PRODUCT LINES OF INTERGRAPH CORPORATION
Report of Independent Auditors......................................... F-17
Statements of Assets Sold as of December 31, 1996 and 1997............. F-18
Statements of Revenues and Direct Expenses for the Years Ended December
31, 1995, 1996 and 1997............................................... F-19
Notes to Statements of Assets Sold and Statements of Revenues and
Direct Expenses....................................................... F-20
</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 income and stockholder's 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 INCOME AND STOCKHOLDER'S NET INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Software...................................... $ 89,103 $209,480 $115,479
Services...................................... 111,575 121,528 137,794
Hardware...................................... 66,944 83,201 61,320
-------- -------- --------
Total revenue............................... 267,622 414,209 314,593
-------- -------- --------
Cost of revenue:
Software...................................... 27,495 38,485 27,953
Services...................................... 34,328 41,721 57,059
Hardware...................................... 47,242 59,614 44,112
-------- -------- --------
Total cost of revenue....................... 109,065 139,820 129,124
-------- -------- --------
Gross profit.................................... 158,557 274,389 185,469
-------- -------- --------
Operating expenses:
Selling, general and administrative........... 85,031 92,444 102,759
Research and development...................... 43,654 47,166 47,979
-------- -------- --------
Total operating expenses.................... 128,685 139,610 150,738
-------- -------- --------
Operating income............................ 29,872 134,779 34,731
Other income, net............................... 129 106 5,092
-------- -------- --------
Income before income taxes.................. 30,001 134,885 39,823
Provision for income taxes...................... 11,625 51,549 14,810
-------- -------- --------
Net income.................................. 18,376 83,336 25,013
Stockholder's net investment at beginning of
year........................................... 107,272 90,770 132,147
Net advances to affiliates...................... (35,882) (41,489) (70,160)
Foreign currency translation adjustment......... 1,004 (470) (395)
Unrealized gain on marketable securities, net of
tax............................................ -- -- 1,745
-------- -------- --------
Stockholder's net investment at end of the
year........................................... $ 90,770 $132,147 $ 88,350
======== ======== ========
</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,
-----------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................... $ 1 $ 11
Marketable securities....................................... -- 2,685
Accounts receivable, net.................................... 171,427 115,692
Prepaids and other.......................................... 1,809 3,624
-------- --------
Total current assets...................................... 173,237 122,012
Property and equipment, net................................... 18,380 19,821
Software, and other intangibles, net.......................... 39,589 24,957
-------- --------
Total assets.............................................. $231,206 $166,790
======== ========
LIABILITIES AND STOCKHOLDER'S NET INVESTMENT
Current liabilities
Accounts payable and accrued liabilities.................... $ 45,203 $ 41,759
Deferred revenue............................................ 7,740 7,798
Deferred income taxes--current.............................. 32,459 19,497
-------- --------
Total current liabilities................................. 85,402 69,054
Deferred income taxes......................................... 13,657 9,386
Commitments and contingent liabilities
Stockholder's net investment.................................. 132,147 88,350
-------- --------
Total liabilities and stockholder's net investment........ $231,206 $166,790
======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income..................................... $ 18,376 $ 83,336 $ 25,013
-------- -------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes........................ 1,647 30,653 (18,174)
Depreciation and amortization................ 21,266 22,923 22,134
Allowance for bad debts...................... 2,994 1,251 2,425
Gain on sale of marketable equity
securities.................................. -- -- (5,097)
Changes in operating assets and liabilities:
Accounts receivable........................ 3,150 (98,952) 51,126
Prepaids and other......................... (1,523) 2,464 (1,783)
Accounts payable and accrued liabilities... (3,190) 11,344 (1,630)
Deferred revenue........................... 542 829 254
-------- -------- --------
Total adjustments........................ 24,886 (29,488) 49,255
-------- -------- --------
Net cash provided by operating activities...... 43,262 53,848 74,268
-------- -------- --------
Cash Flows from Investing Activities
Proceeds from sales of marketable securities... -- -- 5,126
Payments for purchases of property and
equipment..................................... (6,559) (12,319) (9,073)
Payments for purchases of software and other
intangibles................................... (821) (40) (122)
Payments for purchases of marketable
securities.................................... -- -- (29)
-------- -------- --------
Net cash used in investing activities.......... (7,380) (12,359) (4,098)
-------- -------- --------
Cash Flows from Financing Activities--
Net advances to affiliates..................... (35,882) (41,489) (70,160)
-------- -------- --------
Net Increase in Cash and Cash Equivalents........ -- -- 10
Cash and Cash Equivalents at Beginning of Year... 1 1 1
-------- -------- --------
Cash and Cash Equivalents at End of Year......... $ 1 $ 1 $ 11
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<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
income statements 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-6
<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 income, amortization is included in cost
of software for capitalized software development costs and in cost of software
or selling, general and administrative expenses for purchased software, as
determined by the nature of the software. 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 has shipped the products 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-7
<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-8
<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.
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
F-9
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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 income 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. Costs related to
these plans are allocated to the Company 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. In accordance with the
provisions of the Management Services Agreement (Note 10), pension obligations
to Company employees under these plans at December 31, 1997 will be funded by
EDS.
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.
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-10
<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-11
<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-12
<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-13
<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
transfer of certain non-U.S. assets and personnel of the business is expected
to be completed on or about March 31, 1998, subject to receipt of relevant
government approvals. The Company borrowed $107.0 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 $42.0 million relating to the
write off of acquired in-process research and development costs.
NOTE 10: REORGANIZATION AND AFFILIATE AGREEMENTS (UNAUDITED)
The following transactions were consummated in connection with the
Reorganization:
CAPITALIZATION--In addition to the $107.0 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 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.
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
F-14
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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
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 $107.0
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.
F-15
<PAGE>
UNIGRAPHICS SOLUTIONS INC.
(A SUBSIDIARY OF ELECTRONIC DATA SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-16
<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-17
<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-18
<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-19
<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, including customer contracts (except for certain
contracts between Intergraph and the United States government and contracts
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-20
<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, 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-21
<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 March 19, 1998
[LOGO]
Shares
Unigraphics Solutions Inc.
CLASS A COMMON STOCK
-----------
OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED, SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND 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. UPON COMPLETION OF THE OFFERING, EDS WILL OWN 100% OF THE
OUTSTANDING CLASS B COMMON STOCK OF THE COMPANY, WHICH WILL REPRESENT
APPROXIMATELY % OF THE COMBINED VOTING POWER OF ALL CLASSES OF VOTING
STOCK IN THE COMPANY (APPROXIMATELY % IF THE U.S. UNDERWRITERS' OVER-
ALLOTMENT OPTION IS EXERCISED IN FULL). SEE "RELATIONSHIP WITH EDS AND
CERTAIN TRANSACTIONS." PRIOR TO THE OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE CLASS A COMMON STOCK OR CLASS B COMMON STOCK.
IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
PER SHARE OF CLASS A COMMON STOCK WILL BE BETWEEN $ AND $ .
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."
-----------
APPLICATION WILL BE MADE TO LIST THE CLASS A COMMON STOCK FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "UGSI."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 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 has 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 $ .
(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
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 , 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.
, 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..................................... $36,875
NASD filing fee..................................................... 13,000
Blue sky qualification fees and expenses............................ *
Printing and engraving fees and expenses............................ *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Transfer agent and registrar fees and expenses...................... *
Nasdaq National Market listing fee.................................. *
Miscellaneous....................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
* To be completed by amendment.
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. Prior to the
consummation of the Offering the 1,000 shares of common stock will be
reclassified into 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.
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* --Employment Agreement, dated as of , 1998, between the Company
and John J. Mazzola.
10.13* --Employment Agreement, dated as of , 1998, between the Company
and Anthony J. Affuso.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14* --Employment Agreement, dated as of , 1998, between the Company
and Douglas Barnett.
10.15* --Employment Agreement, dated as of , 1998, between the Company
and Donald E. Davidson.
10.16* --Employment Agreement, dated as of , 1998, between the Company
and James Duncan.
10.17* --Employment Agreement, dated as of , 1998, between the Company
and Dennis P. Kruse.
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.
(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 REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MARYLAND HEIGHTS, STATE
OF MISSOURI, ON MARCH 19, 1998.
Unigraphics Solutions Inc.
/s/ John J. Mazzola
By: _________________________________
JOHN J. MAZZOLA
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Unigraphics Solutions Inc., a Delaware corporation, which is
filing a Registration Statement on Form S-1 with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), hereby constitutes and appoints Gary J. Fernandes, Gary B.
Moore and D. Gilbert Friedlander, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, and in any and all
capacities, to sign and file (i) any and all amendments (including post-
effective amendments) to this Registration Statement, with all exhibits
thereto, and other documents in connection therewith, and (ii) a registration
statement, and any and all amendments thereto, relating to the offering
covered hereby filed pursuant to Rule 462(b) under the Securities Act, with
the Securities and Exchange Commission, it being understood that said
attorneys-in-fact and agents, and each of them, shall have full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person and that each of the undersigned
hereby ratifies and confirms all that said attorneys-in-fact as agents or any
of them, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ John J. Mazzola President and Chief March 19, 1998
_________________________ Executive Officer
JOHN J. MAZZOLA (Principal Executive
Officer)
/s/ Douglas E. Barnett Vice President and Chief March 19, 1998
_________________________ Financial Officer
DOUGLAS E. BARNETT (Principal Financial and
Accounting Officer)
/s/ Gary J. Fernandes Chairman of the Board of March 19, 1998
_________________________ Directors
GARY J. FERNANDES
/s/ Gary B. Moore Vice Chairman of the March 19, 1998
_________________________ Board of Directors
GARY B. MOORE
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* --Employment Agreement, dated as of , 1998, between the Company
and John J. Mazzola.
10.13* --Employment Agreement, dated as of , 1998, between the Company
and Anthony J. Affuso.
10.14* --Employment Agreement, dated as of , 1998, between the Company
and Douglas Barnett.
10.15* --Employment Agreement, dated as of , 1998, between the Company
and Donald E. Davidson.
10.16* --Employment Agreement, dated as of , 1998, between the Company
and James Duncan.
10.17* --Employment Agreement, dated as of , 1998, between the Company
and Dennis P. Kruse.
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.
<PAGE>
EXHIBIT 10.9
ASSET PURCHASE AGREEMENT
BY
AND
AMONG
INTERGRAPH CORPORATION
AND THE OTHER SELLING ENTITIES SPECIFIED HEREIN
AND
UNIGRAPHICS SOLUTIONS INC.
AND THE OTHER ACQUIRING ENTITIES SPECIFIED HEREIN
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
1.1 Certain Definitions..................................................1
1.2 Other...............................................................16
ARTICLE II
THE PRINCIPAL CLOSING; INTERNATIONAL CLOSINGS
2.1 Time and Place of Principal Closing.................................16
2.2 Time and Place of International Closings............................16
2.3 Acquisition of the Acquired Assets..................................17
2.4 Closing Deliveries by Acquiring Entities............................19
2.5 Closing Deliveries by the Selling Entities..........................21
2.6 Other Deliveries....................................................24
2.7 Responsibility for the Retained Liabilities.........................24
2.8 Allocation of the Consideration for the Acquired Assets.............24
2.9 Waiver of Bulk Sales Compliance.....................................25
2.10 Waivers of Deliveries or Conditions Precedent.......................25
2.11 Customer Contracts..................................................25
2.12 Distributor Contracts...............................................26
2.13 Consents............................................................26
2.14 Interim Operation for International Selling Entities................27
ARTICE III
REPRESENTATIONS AND WARRANTIES OF THE SELLING ENTITIES
3.1 Corporate Existence and Authority...................................28
3.2 Authorization and Effect of Agreement, Etc..........................29
3.3 No Violation........................................................29
3.4 Consents............................................................30
3.5 General Warranty....................................................30
3.6 Challenges To This Agreement........................................30
3.7 Financial Statements................................................30
3.8 Accounts Receivable.................................................31
3.9 Customer Discounts..................................................31
3.10 SEC Reports.........................................................31
3.11 Absence of Changes..................................................32
3.12 Books and Records...................................................32
3.13 Taxes...............................................................32
3.14 Disputes and Litigation.............................................33
3.15 Environmental Matters...............................................34
3.16 Bank Accounts.......................................................34
3.17 Year 2000 Compliance................................................34
3.18 Rights Used; Certain Relationships..................................34
3.19 Title to Properties and Absence of Liens............................34
3.20 Real Property.......................................................35
i
<PAGE>
3.21 Contracts...........................................................35
3.22 Contract Status.....................................................36
3.23 Certain Contracts...................................................37
3.24 Employees...........................................................38
3.25 Employee Benefit Matters............................................39
3.26 Compliance with Export Laws.........................................41
3.27 Inventories.........................................................41
3.28 Master Purchase Agreements..........................................41
3.29 Compliance with Law.................................................41
3.30 Projections.........................................................42
3.31 Intellectual Property...............................................42
3.32 Software............................................................46
3.33 Development and Protection of the Owned IP..........................47
3.34 Accuracy of Consent Schedules.......................................48
3.35 Confidential Information............................................48
3.36 Brokers.............................................................49
3.37 Commercial Software.................................................49
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING ENTITIES
4.1 Corporate Existence and Authority...................................50
4.2 Authorization and Effect of Agreement, Etc..........................50
4.3 No Violation........................................................51
4.4 Challenges To This Agreement........................................51
4.5 Consents............................................................51
4.6 Brokers.............................................................51
ARTICLE V
COVENANTS OF THE SELLING ENTITIES
5.1 Consummation of Transactions........................................51
5.2 Conduct of Business.................................................52
5.3 Preservation of Business............................................52
5.4 Access to Information...............................................54
5.5 Notification of Certain Matters.....................................55
5.6 Furnishing of Information...........................................55
5.7 Non-Solicitation....................................................55
5.8 Use of Owned Software...............................................56
5.9 Expenses of Transaction.............................................56
5.10 Further Assurances..................................................56
5.11 Period of Exclusivity...............................................56
5.12 Noncompetition......................................................57
5.13 Certain Employee Benefit Matters....................................57
5.14 Intergraph Guaranty.................................................61
5.15 Enforcement of Confidentiality Agreement............................61
5.16 Confidential Information............................................62
5.17 Assistance and Cooperation..........................................62
5.18 Product Serial Numbers..............................................63
ii
<PAGE>
ARTICLE VI
COVENANTS OF THE ACQUIRING ENTITIES
6.1 Consummation of Transactions........................................63
6.2 Notification of Certain Matters.....................................63
6.3 Employment..........................................................63
6.4 Assistance with Specified Contracts and Litigation Contracts........64
6.5 Trade Names and Service Marks.......................................64
6.6 EDS and USI Guaranty................................................64
6.7 Assistance and Cooperation..........................................65
ARTICLE VII
CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF THE ACQUIRING ENTITIES
7.1 Representations and Warranties......................................65
7.2 Performance by the Selling Entities.................................65
7.3 Prohibitions, Restrictions and Litigation...........................66
7.4 Consents............................................................66
7.5 Governmental Clearances.............................................66
7.6 Satisfactory Proceedings............................................66
7.7 Certificate of Intergraph and Certain Officers......................66
7.8 Waiver of Conditions................................................66
7.9 New Collateral Contracts............................................67
7.10 Absence of Material Adverse Change..................................67
ARTICLE VIII
CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF THE SELLING ENTITIES
8.1 Representations and Warranties......................................67
8.2 Performance by the Acquiring Entities...............................67
8.3 Prohibitions, Restrictions and Litigation...........................67
8.4 Consents............................................................68
8.5 Governmental Clearances.............................................68
8.6 Certificate of USI and Certain Officers.............................68
8.7 Waiver of Conditions................................................68
8.8 New Collateral Contracts............................................68
ARTICLE IX
INDEMNIFICATION; OFFSET
9.1 Indemnification by the Acquiring Entities...........................68
9.2 Indemnification by the Selling Entities.............................70
9.3 Satisfaction of Claims..............................................72
9.4 Matters Which May Give Rise to Claims...............................73
ARTICLE X
GENERAL
10.1 Survival of Representations and Agreements..........................74
10.2 Termination.........................................................75
10.3 HSR Filings; Other Filings..........................................76
10.4 Expenses of Transaction.............................................76
iii
<PAGE>
10.5 Public Disclosure...................................................76
10.6 Notices.............................................................76
10.7 Assignment..........................................................77
10.8 Amendments; Waivers, Etc............................................77
10.9 Governing Law.......................................................78
10.10 Consent to Jurisdiction.............................................78
10.11 Arbitration.........................................................78
10.12 Specific Performance................................................80
10.13 Tax Matters.........................................................80
10.14 Number and Gender...................................................83
10.15 Section Headings, Schedules, Etc....................................83
10.16 Complete Agreement; Counterparts....................................83
10.17 Severability........................................................83
10.18 No Third Party Beneficiaries........................................84
10.19 Inconsistencies.....................................................84
iv
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of March 2, 1998, by and among INTERGRAPH CORPORATION, a Delaware corporation
("Intergraph"), and the other Selling Entities (as defined below), and
UNIGRAPHICS SOLUTIONS INC., a Delaware corporation ("USI"), and the other
Acquiring Entities (as defined below).
W I T N E S S E T H:
-------------------
WHEREAS, the Selling Entities desire to sell and transfer to the Acquiring
Entities, and the Acquiring Entities desire to purchase and acquire from the
Selling Entities, the Acquired Assets (as defined below), all on the terms and
conditions set forth in this Agreement;
WHEREAS, as more fully described in this Agreement, in addition to the
transfer of certain of the Acquired Assets to occur at the Principal Closing (as
defined below) concurrently with the execution of this Agreement, at one or more
concurrent or subsequent International Closings (as defined below) provided for
herein, certain Selling Entities and certain Acquiring Entities will execute and
deliver Closing Agreements (as defined below), pursuant to which each applicable
Selling Entity will sell and transfer certain of the Acquired Assets to each
applicable Acquiring Entity at such International Closing or Closings, all upon
the terms and conditions set forth in this Agreement and in each applicable
Closing Agreement;
NOW, THEREFORE, in consideration of the premises, the respective covenants,
representations and warranties set forth below, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto warrant, represent,
covenant and agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. In addition to other terms defined in this
-------------------
Agreement, the following terms, as used herein, shall have the respective
meanings set forth below:
"Accounts Receivable" as of any specified date shall mean the accounts,
notes and other receivables (including without limitation any "accounts" as
defined under the Uniform Commercial Code) of any Selling Entity relating to the
Business as of such date, including any indebtedness arising from the sale or
license of products or merchandise or the provision of services by any such
Selling Entity relating to the Business and the right to payment of any interest
or finance charges or similar fees or charges relating thereto.
"Acquired Assets" shall mean all of the business, assets, properties and
goodwill of every kind and description (real, personal, mixed, tangible and
intangible) of the Selling Entities constituting the Business as a going
concern, wherever located, and whether or not reflected in the
<PAGE>
Books and Records of Intergraph, to which, or in which, any of the Selling
Entities have any right, title or interest as of the Principal Closing Date or
the applicable International Closing Date, as the case may be, by reason of
ownership, use or otherwise; including, without limitation, (i) the assets
reflected on the Balance Sheet, (ii) the Transferred Intellectual Property
Interests and, solely with respect to the Transferred Intellectual Property
Interests assigned to the Acquiring Entities pursuant to the General Bill of
Sale, the Copyright Assignment, the Trademark Assignment, a Closing Agreement or
any document equivalent to the Copyright Assignment or Trademark Assignment
entered into in connection with an International Closing, any and all claims for
damages and other relief by reason of any past infringement or misappropriation
thereof, (iii) all Contract rights related to the Business, including, without
limitation, maintenance, distributor, value added reseller or business partner
agreements and the rights of any Selling Entity under the Purchase and Sale
Agreement between Intergraph (Deutschland) GmbH, Norsk Data GmbH and Norsk Data
A.S. dated April 30, 1992 related to the acquisition of the Technovision
Software and all rights under the agreement related to the acquisition of the
ProRen Software, (iv) customer and supplier lists, (v) sales and promotional
literature, (vi) machinery, equipment, computer hardware, workstations,
furniture and replacement parts which are used in the Business, (vii) production
manuals, correspondence and research; (viii) personnel, financial and other
Books and Records, (ix) inventories, supplies, work in progress and supplies,
prepaid expenses and similar items; (x) Accounts Receivable attributable to
products or services furnished on or following the Principal Closing Date and
(xi) trade association memberships that are used exclusively or primarily in
connection with the Business; provided, however, that the Acquired Assets shall
-------- -------
not include the Retained Assets.
"Acquiring Entities" shall mean those Persons listed as Acquiring Entities
on the signature pages hereof and "Acquiring Entity" shall mean any of such
Persons.
"Affiliate" shall mean any Person that directly or indirectly through one
or more intermediaries controls, is controlled by or is under common control
with the Person specified (for purposes of this definition, a Person will be
deemed to have control of a corporation or other entity if it holds, directly or
indirectly, a greater than 50% voting interest in that corporation or other
entity).
"Agreed Courts" shall have the meaning ascribed thereto in Section 10.10.
-------------
"Arbitration Panel" shall have the meaning ascribed thereto in Section
-------
10.11(a)(iii).
- -------------
"Assumed Contracts" shall mean (i) those Contracts of any of the Selling
Entities relating to the Business and listed in Section 2 of Schedule 3.23(a),
--------- ----------------
Schedule 3.31(b) or Schedule 3.32(b) (excluding those Contracts specifically
- ---------------- ----------------
identified on Schedules 3.31(b) or 3.32(b) as not being included within the
----------------- -------
Acquired Assets), (ii) any Successor Distributor Contract entered into pursuant
to Section 2.12 hereof, and (iii) outstanding bids and accepted customer orders
of the Selling Entities, in each case made in the ordinary course of business,
as of the relevant Closing Date for new business with respect to the Business
made in the ordinary course of business under the standard terms and conditions
of the Selling Entities; provided, however, that notwithstanding any provision
-------- -------
in this Agreement or in any instrument of assignment or transfer, certificate or
other document executed and delivered pursuant to this Agreement to the
contrary, if any of such
2
<PAGE>
Contracts referenced above is a Specified Contract or a Litigation Contract,
then (i) such Specified Contract or Litigation Contract, as the case may be,
shall be deemed not to be an Assumed Contract for any reason whatsoever under or
by reason of this Agreement or any such instrument of assignment or transfer,
certificate or other document, and (ii) no Acquiring Entity shall be deemed to
have assumed any debt, liability or obligation whatsoever under such Specified
Contract or Litigation Contract.
"Assumed Liabilities" shall mean all executory obligations of the
respective Selling Entities under the Assumed Contracts arising from and after
the applicable Closing Date; provided, however, that the Assumed Liabilities
-------- -------
shall not include any of the Retained Liabilities.
"BAG Products License Agreement" shall have the meaning ascribed thereto in
Section 2.4.
- -----------
"BAG Tools" shall have the meaning set forth in the BAG Products License
Agreement.
"Balance Sheet" shall have the meaning ascribed thereto in the definition
of Financial Statements.
"Balance Sheet Date" shall mean December 31, 1997.
"Bill of Sale Transaction" shall mean the transaction at the Principal
Closing with respect to which USI and Intergraph will execute and deliver the
General Bill of Sale and the Transferred Intellectual Property License
Agreements pursuant to which the Acquired Assets held by Intergraph are
transferred and conveyed by Intergraph to USI.
"Books and Records" shall mean all accounting, financial reporting, Tax,
business, marketing, corporate and other files, documents, instruments, papers,
books and records of a specified Person, including without limitation financial
statements, budgets, projections, ledgers, journals, titles, manuals, Contracts,
agency lists, customer lists, supplier lists, reports, computer files, retrieval
programs and operating data or plans.
"Business" shall mean the three-dimensional mechanical CAD/CAM/CAE business
conducted by Intergraph and its direct and indirect subsidiaries (and/or a
branch of Intergraph or any such subsidiary) through the SolidEdge and EMS
product lines and which include, without, limitation, the software and related
maintenance businesses for the SolidEdge, EMS, Technovision and ProRen products.
"Business Day" shall mean a day on which federally chartered banks located
in Dallas, Texas are required or authorized to open for business (other than a
Saturday or Sunday) under the Legislative Enactments of the United States.
"Bylaws" shall mean the bylaws or, as appropriate, other generally
recognized body of comparable written statements (other than a Charter or its
equivalent) establishing the internal organization of a Person and/or its
primary relationships with its management and with its shareholders or other
owners.
3
<PAGE>
"CAD II Agreements" shall mean the following Contracts between Intergraph
and the Government of the United States of America: (i) Contract Number N66032-
91-D-0003, dated April 8, 1991; (ii) Contract Number N66032-93-D-0021, dated
August 30, 1993; and (iii) Contract Number N66032-94-D-0012, dated July 13,
1994.
"CAD II Trademark Agreement" shall have the meaning ascribed thereto in
Section 2.4.
- -----------
"Charter" shall mean the Articles of Incorporation, Certificate of
Incorporation, Memorandum and Articles of Association and/or other charter of
any Person.
"Claim" shall have the meaning ascribed thereto in Section 9.3.
-----------
"Closing" shall mean those events which occur on the Principal Closing Date
(or, with respect to International Closings, on the respective International
Closing Dates) for the purpose of consummating the transactions contemplated by
this Agreement in accordance with Article II.
----------
"Closing Agreement" shall have the meaning ascribed thereto in Section
-------
2.3(a).
- ------
"Closing Date" shall mean the date on which occurs the Principal Closing or
an International Closing, as the case may be.
"COBRA" shall mean the Congressional Omnibus Budget Reconciliation Act of
1985, together with any amendments and supplements thereto, providing for health
care continuation coverage under Section 4980B of the Code or Section 601 et
seq. of ERISA.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended, including without limitation any successor revenue code of the United
States federal government, together with the rules and regulations promulgated
thereunder.
"Competitive Activity" shall have the meaning ascribed thereto in Section
-------
5.12(b).
- -------
"Compliance Group" shall mean the Selling Entities and any predecessors to
each of the Selling Entities.
"Compliance Property" shall mean any real or personal property, including,
without limitation the Real Property, presently or previously owned, leased or
used by any Person in the Compliance Group.
"Confidentiality Contracts" shall have the meaning ascribed thereto in
Section 3.33(b).
- ---------------
"Confidential Software" shall have the meaning ascribed thereto in Section
-------
3.33(b).
- -------
"Consideration" shall have the meaning ascribed thereto in Section 2.3.
-----------
"Consents" shall mean consents, waivers, permits, clearances, approvals and
other authorizations.
4
<PAGE>
"Contract" shall mean any binding contract, agreement, understanding,
lease, sublease, license, sublicense, distribution agreement, promissory note,
evidence of indebtedness, indenture, instrument, mortgage, insurance policy,
annuity or other binding commitment, whether written or oral.
"Copyright Assignment" shall have the meaning ascribed thereto in Section
-------
2.5.
- ---
"Copyrights" shall mean all copyright interests comprising a part of the
Business, including, without limitation, all moral rights, all common-law
rights, and all rights to register and obtain renewals and extensions of
copyright registrations, together with all other copyright interests accruing by
reason of international copyright convention, and the right to sue for past,
present, or future infringement and to collect and retain all damages and
profits therefor.
"Customer Contracts" shall have the meaning ascribed thereto in Section
-------
3.23(a).
- -------
"Distributor Contracts" shall have the meaning ascribed thereto in Section
-------
3.23(b).
- -------
"EDS" shall mean Electronic Data Systems Corporation, a Delaware
corporation and the parent corporation of USI.
"Employee Matter" shall mean personnel policies or practices and any
employee program, plan, arrangement or understanding, whether written or oral,
including all matters relating to a Contract of employment, in each case with
respect to periods on or prior to the Principal Closing Date.
"Employee Pension Benefit Plans" shall have the meaning ascribed thereto in
Section 3.25(b)(i).
- ------------------
"Employee Welfare Benefit Plans" shall have the meaning ascribed thereto in
Section 3.25(a)(i).
- ------------------
"EMS Code" shall have the meaning set forth in the EMS License Agreement.
"EMS License Agreement" shall have the meaning ascribed thereto in Section
-------
2.4.
- ---
"Environmental Laws" shall mean (a) all Legislative Enactments and Official
Actions relating to industrial hygiene, environmental protection, air emissions,
water discharges, or the use, analysis, manufacture, transportation, generation,
handling, treatment, storage or disposal of any Hazardous or Toxic Substances or
the cleanup or remediation of any contamination, together with all rules and
regulations promulgated with respect to any of the foregoing; and (b) all
Legislative Enactments and Official Actions with respect to property transfer
limitations with respect to Hazardous or Toxic Substances, whether or not
conditioned upon disclosure or upon permit or approval.
5
<PAGE>
"Environmental Liabilities" shall mean any obligation or liability arising
under an applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974.
"Escrow Agreement" shall have the meaning ascribed thereto in Section
-------
2.3(c).
- ------
"Financial Statements" shall mean the consolidated balance sheets for the
Business at December 31, 1996 and 1997 (the "Balance Sheet") and the
consolidated statements of revenues and direct expenses for the Business for the
years ended December 31, 1995, 1996 and 1997, together with an audit "comfort
letter" of Ernst & Young dated the Principal Closing Date with respect to the
consolidated statements of revenues and direct expenses; provided that the audit
report of Ernst & Young as independent auditors, on the Financial Statements
(which report may be with respect to the statement of assets purchased referred
to in Section 5.6 hereof in lieu of the Balance Sheet) shall be delivered as
soon as practicable following the Principal Closing Date pursuant to such
Section 5.6 rather than at the Principal Closing.
"GAAP" shall mean generally accepted accounting principles and practices
which are recognized as such by the American Institute of Certified Public
Accountants acting through its Accounting Principles Board or other appropriate
board or committee (other than the Emerging Standards Committee), and which are
consistently applied for all periods so as to fairly reflect the financial
condition, the results of operations and the cash flows of the relevant Person
or Persons.
"General Bill of Sale" shall have the meaning ascribed thereto in Section
-------
2.3.
- ---
"Hazardous or Toxic Substances" shall mean: all elements, compounds,
substances, matrices or mixtures ("Materials or Substances") that are hazardous,
toxic, ignitable, reactive or corrosive including without limitation the
following: (i) all Materials or Substances (whether or not wastes, contaminants
or pollutants) that are or become regulated by any of the Environmental Laws;
(ii) all Materials or Substances which are or become defined or described by any
of the Environmental Laws as "hazardous" or "toxic" or a "hazardous waste,"
"extremely hazardous waste," "acutely hazardous waste" or "acute hazardous
waste"; (iii) all Materials or Substances which, after release into the
environment and exposure thereto (including contact, ingestion, inhalation,
uptake or assimilation), in any organism (directly or indirectly, immediately or
after any period of any duration) does or will cause or significantly contribute
to (or may be anticipated to cause or to significantly contribute to) death,
disease, disability, psychological deformations or dysfunctions, psychological
or behavioral abnormalities, cancerous or pre-cancerous conditions, neurological
disorders or dysfunctions, or genetic mutation or damage; (iv) all Materials or
Substances listed in the U.S. Department of Transportation Hazardous Materials
Table (49 CFR (S)172.101); (v) all Materials or Substances listed as a
"hazardous substance" by the Environmental Protection Agency in 40 CFR (S)302.4;
(vi) petroleum and petroleum products and derivatives; (vii) phenols,
polychlorinated phenols (including polychlorinated biphenols (PCBs)), asbestos
or radon; (viii) all Materials or Substances that are regulated under the Atomic
Energy Act of 1954, 42 USC (S)(S)2011 et seq., or otherwise by the Nuclear
-- ---
Regulatory Commission; and (ix) all Materials or Substances (whether raw or
processed, active or spent) that include any of the foregoing as constituents.
6
<PAGE>
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Indemnified Party" shall have the meaning ascribed thereto in Section 9.3.
-----------
"Indemnifying Party" shall have the meaning ascribed thereto in Section
-------
9.3.
- ---
"India Support Agreement" shall have the meaning ascribed thereto in
Section 2.4.
- -----------
"INGR Tools" shall have the meaning set forth in the INGR Tools License
Agreement.
"INGR Tools License Agreement" shall have the meaning ascribed thereto in
Section 2.4.
- -----------
"Intellectual Property" shall mean and include (a) Patents, (b) Trademarks,
(c) Copyrights and registrations of claim to Copyright, including moral rights
(if any), (d) Inventions, (e) Software, (f) Trade Secrets and (g) Know-How.
"Intergraph Fields" shall mean the following specific fields: (a) three-
dimensional products, without significant capability for use as a three-
dimensional mechanical system, intended primarily for data capture, design,
analysis and management of infrastructure systems, such as Intergraph's highway
design, utility distribution and mapping systems; and (b) three-dimensional
products, without significant capability for use as a three-dimensional
mechanical system, for modeling, designing (including design of component
parts), analyzing, drawing production, or operation of any of the following
systems which are utilized in chemical and process industry plants, ships,
marine vessels, or offshore platforms, including without limitation (i) piping,
(ii) heating, ventilation and air conditioning (HVAC), (iii) cable routing, (iv)
structural support systems for marine vessels, ships and offshore platforms, and
(v) process and/or instrument diagrams.
"Intergraph Indemnitees" shall have the meaning ascribed thereto in Section
-------
9.1.
- ---
"Intergraph Losses" shall have the meaning ascribed thereto in Section 9.1.
-----------
"International Closing Date" shall mean any date other than the Principal
Closing Date upon which an International Closing occurs.
"International Closings" shall mean the Closings with respect to such
portion of the Business conducted outside the United States as to which all
conditions to such Closing have been satisfied.
"International Selling Entity" shall mean any Selling Entity organized
under the laws of a jurisdiction outside of the United States.
"Inventions" shall mean and include novel devices, processes, compositions
of matter, methods, techniques, observations, discoveries, apparatuses, designs,
expressions, theories and ideas, whether or not patentable.
7
<PAGE>
"IP" shall have the meaning ascribed thereto in Section 3.31(b).
---------------
"IRS" shall mean the United States Internal Revenue Service.
"Joint Fields" shall mean the following specific fields: (a) two-
dimensional drafting systems (including those which may have application to the
mechanical drafting market); (b) two-dimensional modeling systems (including
those which may have application to the mechanical drafting market); (c)
creation, publication or distribution of technical manuals; and (d) electrical
CAD, CAM or CAE systems (or combinations thereof) without significant capability
for use as a three-dimensional mechanical system.
"Know-How" shall mean scientific, engineering, mechanical, electrical,
marketing or practical knowledge or experience used in the operation of any of
the Business.
"Lease" shall have the meaning ascribed thereto in Section 3.20(a).
---------------
"Lease Agreement" shall have the meaning ascribed thereto in Section 2.4.
-----------
"Legal Expenses" of a Person shall mean any and all reasonable out-of-
pocket fees, costs and expenses of any kind (including attorneys' and experts'
fees) incurred by a Person and its counsel in investigating, preparing for,
prosecuting, defending against or providing evidence, producing documents or
taking other action with respect to any threatened or asserted Claim.
"Legislative Enactments" shall mean domestic, foreign and international
laws (including without limitation common law), treaties, ordinances,
regulations and rules at any international, national, federal, state, local or
regional level, both as presently existing and as may become effective in the
future.
"License Transactions" shall mean the transactions at the Principal Closing
pursuant to which USI and Intergraph will execute and deliver the SolidEdge
Common Code License Agreement, the BAG Products License Agreement, the INGR
Tools License Agreement, the Trademark License Agreement and the Patent License
Agreement pursuant to which certain of the Transferred Intellectual Property
Interests are licensed to USI, subject to the terms set forth in such
agreements.
"Lien" shall mean any lien, mortgage, security interest, tax lien,
financing statement, pledge, assessment, lease, sublease, adverse claim, levy,
charge, hypothecation or other encumbrance of any kind or nature whatsoever
including without limitation any conditional sale Contract, title retention
Contract or other Contract to give any of the foregoing.
"Litigation Contract" shall mean any Contract relating to the Business
pursuant to which a suit, action, litigation or proceeding exists as of the
applicable Closing Date between the applicable Selling Entity and one or more of
the other Persons that are party thereto in or before any Tribunal.
"Loss Amount" shall have the meaning ascribed thereto in Section 2.14.
------------
8
<PAGE>
"Losses" shall have the meaning ascribed thereto in Section 9.1.
-----------
"LTS Tools" shall mean the Third Party Software described on Schedule
--------
3.31(b)F.2. hereof.
- -----------
"Master Purchase Agreements" shall have the meaning ascribed thereto in
Section 3.28.
- ------------
"Materials or Substances" shall have the meaning ascribed thereto in the
definition of Hazardous or Toxic Substances.
"Miscellaneous Software Components" shall have the meaning ascribed thereto
in the definition of "Software."
"Non-Compete Covenant" shall mean any provision, covenant or obligation
binding on any Selling Entity that limits or restricts in any manner whatsoever
(whether during any particular period of time from and after the applicable
Closing Date, in certain geographic areas or otherwise) the ability of any of
the Acquiring Entities, any of their Affiliates or any of the employees, acting
in his or her capacity as an employee of an Acquiring Entity or an Affiliate of
the same, of any of the Acquiring Entities or their Affiliates (a) to engage in
any line of business or to sell any products or services, or (b) to compete with
or to obtain products or services from any Person, in each case during any
period of time after the applicable Closing Date.
"Not-Owned IP" shall have the meaning ascribed thereto in Section 3.31(b).
---------------
"Not-Owned Software" shall have the meaning ascribed thereto in Section
-------
3.32(b).
- -------
"Official Action" shall mean any domestic or foreign decision, order, writ,
injunction, decree, judgment, award or any determination, both as presently
existing or as may become effective in the future, by any Tribunal.
"Owned IP" shall have the meaning ascribed thereto in Section 3.31(a).
---------------
"Owned Software" shall have the meaning ascribed thereto in Section
-------
3.32(a).
- -------
"Ownership Interests" shall mean the ownership interests in any Person,
whether classified as debt, equity, profit-sharing or some other type of
ownership interest, including without limitation capital stock, bonds, notes or
other securities.
"Patent License Agreement" shall have the meaning ascribed thereto in
Section 2.4.
- -----------
"Patents" shall mean all domestic and foreign patents (including, without
limitation, certificates of invention, utility models, and other patent
equivalents), provisional applications, patent applications and patents issuing
therefrom, as well as any division, continuation, continuation in part, reissue,
extension, reexamination certification, revival or renewal of any patent, all
inventions and subject matter related to such patents, in any and all forms, and
all patents and applications for patents related to such patents, including the
right to sue for past,
9
<PAGE>
present, or future infringement and to collect and retain all damages and
profits therefor.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, an agency of
the United States government.
"Permits and Orders" shall have the meaning ascribed thereto in Section
-------
3.15(e).
- -------
"Permitted Encumbrance" shall have the meaning ascribed thereto in Section
-------
3.19.
- ----
"Person" shall mean any natural person, corporation, limited liability
company, general partnership, limited partnership, joint venture,
proprietorship, trust, association, unincorporated association, Tribunal or
other entity of any kind.
"Powers of Attorney" shall mean the separate powers of attorney executed
and delivered by each of the Selling Entities substantially in the form of
Exhibit A hereto and each of the Acquiring Entities substantially in the form of
- ---------
Exhibit B hereto, in each case effective as of the Principal Closing Date.
- ---------
"Prepaid Maintenance Contracts" shall have the meaning set forth in Section
-------
3.23(a).
- -------
"Prime Rate" shall mean a fluctuating rate of interest equal to the prime
rate or reference rate of interest announced or published from time to time, at
the rate in effect immediately before the first business day in each month at
Citibank, N.A. in New York, New York; provided, however, that in no event shall
such interest rate exceed the maximum rate of interest allowed by applicable
law.
"Principal Closing" shall mean the Closing of the Bill of Sale Transaction
and any International Closing occurring concurrently therewith.
"Principal Closing Date" shall have the meaning ascribed thereto in Section
-------
2.1.
- ---
"Proceedings" shall have the meaning ascribed thereto in Section 10.10.
-------------
"Profit Amount" shall have the meaning ascribed thereto in Section 2.14.
------------
"Projections " shall have the meaning ascribed thereto in Section 3.30.
------------
"Real Property" shall mean that real property (together with the fixtures
and improvements thereon) owned or leased (as lessor, sublessor, lessee or
sublessee) by any of the Selling Entities and used in the current conduct of the
Business, as more fully described in Section 1 of Schedule 3.20(a).
--------- ----------------
"Request" shall have the meaning ascribed thereto in Section 9.3.
-----------
"Retained Assets" shall mean (a) the Charter, Bylaws, corporate seal,
minute books, stock certificates and stock record books, and stock transfer
ledgers of the Selling Entities; (b) the
10
<PAGE>
Customer Contracts; provided, however, that the retention of such Contracts
-------- -------
shall not diminish the rights of the Acquiring Entities under Section 2.11
hereof; (c) the Distributor Contracts; other than those Distributor Contracts
which will have been amended prior to the Principal Closing to relate
exclusively to the Business as contemplated by Section 2.12 hereof; (d) the
Master Purchase Agreements and any general corporate or administrative assets or
services furnished by Intergraph for the benefit of all of its business units,
subsidiaries or divisions and not principally to the Business, including,
without limitation, accounting and legal support and the services provided under
the Transition Services Agreement; (e) employee benefit agreements, plans or
arrangements maintained by any of the Selling Entities, except with respect to
those transfers contemplated by Section 5.13 hereof; (f) all Accounts Receivable
of the Business, except to the extent any such Accounts Receivable are
attributable to products or services furnished on or following the Principal
Closing Date; (g) the Selling Entities Tax Returns and such other tax returns
and reports, general ledgers and any other books, records, files or
correspondence not directly and exclusively pertaining to the Business; (h)
personnel Books and Records not relating to the Transitioned Employees; (i)
except as otherwise expressly provided in Section 6.5, the name and mark
-----------
"Intergraph Corporation"; (j) solely with respect to the Transferred
Intellectual Property Interests which are not assigned to an Acquiring Entity
pursuant to the General Bill of Sale, the Copyright Assignment, the Trademark
Assignment, a Closing Agreement or any document equivalent to the Copyright
Assignment or Trademark Assignment entered into in connection with an
International Closing, any and all claims for damages and other relief by reason
of any past infringement or misappropriation thereof; (k) the Intellectual
Property subject to the Transferred Intellectual Property License Agreements, in
each case subject to the licenses granted to the Acquiring Entities or their
assignees thereunder and the restrictions on use contained therein; (l) all
Contract rights relating to the CAD II Agreements; (m) all rights of Intergraph
under its Contracts with Spatial Technology relating to its use of the ACIS
Software, subject to the rights granted to USI under the Version 4 Reseller
Agreement; (n) all Contracts related to real property of the Selling Entities,
and all real property other than the interest in real property transferred under
the Lease Agreement; (o) building security systems and telephone systems,
subject to the rights of the Acquiring Entities under the Lease Agreement and
the Transition Services Agreement; (p) customer Contracts for the sale and
maintenance of Software used principally in the design and manufacturing of
structural support systems for ships and other marine vessels; (p) the assets
used by the employees providing services under the India Support Agreement
(provided that such assets will be deemed Acquired Assets in the event USI shall
exercise its option during or following the term of the India Support Agreement
to offer to employ such persons); and (r) Contract rights relating to (i) that
certain agreement dated April 1992 between Steve Richards (d/b/a Marcomp) and
Intergraph, (ii) that certain Non-Exclusive License Agreement for Dimensional
Constraint Manager between D-Cubed Limited and Intergraph executed by D-Cubed
Limited on July 1, 1994, and (iii) that certain Agreement Licensing Digital
Typefaces dated September 26, 1985 between Bitstream, Inc. and Intergraph, as
amended.
"Retained Liabilities" shall mean any liability or obligation of the
Selling Entities which is not specifically included in the Assumed Liabilities,
including without limitation: (a) any liability or obligation of any Person
under any Customer Contract or Distributor Contract (other than any Successor
Distributor Contracts); (b) any liability or obligation of any Person under any
lease or sublease of Real Property (other than the obligations of USI under the
Lease Agreement); (c) any pending suit, action, litigation or proceeding
affecting or against any Selling Entity with respect to
11
<PAGE>
the Business or any of the Acquired Assets in or before any Tribunal (including,
without limitation, any liability or obligation relating to the matters
disclosed on Schedule 3.14); (d) any liability or obligation of the Business
-------------
evidenced by checks written against the account of the applicable Selling
Entity; (e) any liability or obligation of the Selling Entities or Affiliates
thereof with respect to the operation of the Business prior to the Principal
Closing Date (other than the obligations under the Assumed Contracts to be
performed in accordance with the terms thereof following the applicable Closing
Date); (f) any liability or obligation (including any liability or obligation
for Taxes) in connection with or relating to any of the Retained Assets; (g) any
liability or obligation existing as of the applicable Closing Date of the
Selling Entities for vacation, sick leave, holidays and similar benefits for
Transitioned Employees; (h) any liability or obligation in connection with or
relating to any Employee Matter (including any liability or obligation for
Taxes, contributions or premiums); (i) any liability or obligation of the
Selling Entities under this Agreement or any certificate or other document or
instrument entered into in connection with this Agreement or the consummation of
the transactions contemplated hereby (including, without limitation, the Closing
Agreement); (j) any liability or obligation of a Selling Entity to Intergraph or
any of its Affiliates; (k) any Environmental Liability (except those for which
USI shall be specifically responsible under the terms of the Lease Agreement as
a result of actions taken by USI following the Principal Closing Date); (l) any
liability or obligation of the Selling Entities or Affiliates for Taxes; (m) any
liability or obligation of the Selling Entities or Affiliates for Taxes of any
Person under Treas. Reg. Sec. 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract, or otherwise; and
(n) except as otherwise provided in Section 10.13 hereof with respect to
Transaction Taxes, any Taxes attributable to the transfers and other actions or
events required to consummate the transactions contemplated hereby (including
federal state, local, and foreign income, franchise, gross receipts and net
worth taxes).
"Selling Entities" shall mean those Persons listed as Selling Entities on
the signature pages hereof, and "Selling Entity" shall mean any of such Persons.
"SolidEdge Common Code" shall have the meaning set forth in the SolidEdge
Common Code License Agreement.
"SolidEdge Common Code License Agreement" shall have the meaning ascribed
thereto in Section 2.4.
-----------
"SolidEdge License Agreement" shall have the meaning ascribed thereto in
Section 2.4.
- -----------
"SolidEdge Reseller Agreement" shall have the meaning ascribed thereto in
Section 2.4.
- -----------
"SolidEdge Specific Code" shall have the meaning set forth in the SolidEdge
License Agreement.
"Software" shall mean the expression of an organized set of instructions in
a natural or coded language which is contained on a physical media of any nature
(e.g., written, electronic, magnetic, optical or otherwise) and which may be
used with a computer or other automated data processing equipment device of any
nature which is based on digital technology, to make such computer or other
device operate in a particular manner and for a certain purpose, as well as any
12
<PAGE>
related documentation for such set of instructions. The term shall include
computer programs in source and object code, test or other significant data
libraries, documentation for computer programs, and any of the following
("Miscellaneous Software Components") which is contained on a physical media of
any nature and which is used in the design, development, modification,
enhancement, testing, installation, maintenance, diagnosis or assurance of the
performance of a computer program: narrative descriptions, notes,
specifications, designs, flowcharts, parameter descriptions, logic flow
diagrams, masks, input and output formats, file layouts, database formats, test
programs, test or other data, user guides, manuals, installation and operating
instructions, diagnostic and maintenance instructions, source code, object code
and other similar materials and information; provided, however, that such term
shall not include Patents.
"Specified Contract" shall mean any Contract that contains any Non-Compete
Covenant.
"Subcontract Period" shall have the meaning ascribed thereto in Section
-------
2.11(b).
- -------
"Successor Customer Contract" shall have the meaning ascribed thereto in
Section 2.11(a).
- ---------------
"Successor Distributor Contract" shall have the meaning ascribed thereto in
Section 2.12.
- ------------
"Taxes" shall mean all taxes, charges, fees, levies or other similar
assessments or liabilities, including, without limitation, any federal, state,
local or foreign income, receipts, ad valorem, value added, purchases, premium,
excise, real property, personal property, windfall profit, sales, stamp, use,
consumption, licensing, withholding, employment, payroll, share, capital,
surplus, franchise, occupational, net proceeds, estimated, alternative or add-on
minimum, production, severance, lease, excise, duty, net worth, transfer, fuel,
excess profits, interest equalization or other taxes of any kind whatsoever, and
any recording, registration or notary fees, together with any interest, fines,
penalties, assessments or additions to tax resulting from, attributable to or
incurred in connection with, any such tax or any contest or dispute thereof;
"Tax" means any of the foregoing.
"Tax Return" shall mean any report, return, information returns, estimates
or other information, including any schedule or attachment thereto, required to
be supplied to, or filed with, the IRS or any other Tax Tribunal (as defined in
Section 3.13), and any amendment thereto, with respect to Taxes.
- ------------
"Third Party Matter" shall have the meaning ascribed thereto in Section
-------
9.4(a).
- ------
"Trade Secrets" shall mean any formula, design, device or compilation of
information which comprises a part of the Business, which gives the holder
thereof an advantage or opportunity for advantage over competitors which do not
have or use the same, and which is not generally known by the public. Trade
Secrets can include, by way of example, Software (including, without limitation,
source code for the Owned Software), information contained on drawings and other
documents, and information relating to the research, development, testing,
marketing plans, business strategy, finances or employees of a business.
"Trademark Assignment" shall have the meaning ascribed thereto in Section
-------
2.5.
- ---
13
<PAGE>
"Trademark License Agreement" shall have the meaning ascribed thereto in
Section 2.4.
- -----------
"Trademarks" shall mean all domestic and foreign trademarks, trade dress,
service marks, trade names, icons, logos, slogans, and any other indicia of
source or sponsorship of goods and services, designs and logotypes related to
the above, in any and all forms, and all trademark registrations and
applications for registration related to such trademarks (including, but not
limited to intent to use applications), including the right to sue for past,
present, or future infringement and to collect and retain all damages and
profits therefor, which comprise a part of the Business, and all designs and
logotypes related to such trademarks, in any and all forms, and all trademark
registrations and applications for registration related to such trademarks,
including those registrations and applications listed on Schedule 3.31 attached
-------------
hereto.
"Transaction Taxes" shall mean any federal, state, foreign or local
transfer, sales, use, value added tax (VAT), registration tax, consumption tax,
documentary stamp, conveyance or any other similar Taxes, together with any
interest, fines, penalties, assessments, or additions to tax resulting from,
attributable to or incurred in connection with any such Transaction Taxes or any
contest or dispute thereof, and any recording, registration or notary fees, and
any fees for appraisals ordered by an Acquiring Entity, in each case arising
solely out of the sale, conveyance, transfer and/or delivery of the Acquired
Assets to the appropriate Acquiring Entity and the assumption of the Assumed
Liabilities by the appropriate Acquiring Entity. Transaction Taxes shall not
include any income, receipts, payroll, surplus, franchise, net proceeds,
estimated, alternative or add on minimum, net worth or similar taxes of the
Selling Entities.
"Transferred Intellectual Property Interests" shall mean:
(i) all Intellectual Property transferred, assigned and conveyed to
a Selling Entity pursuant to (A) the General Bill of Sale, (B) the
Copyright Assignment, (C) the Trademark Assignment, (D) a Closing
Agreement, and (E) any document equivalent to the Copyright Assignment or
Trademark Assignment entered into in connection with an International
Closing, and in each case any and all claims for damages and other relief
by reason of any past infringement or misappropriation thereof;
(ii) the rights to Intellectual Property transferred pursuant to the
Transferred Intellectual Property License Agreements;
(iii) the Intellectual Property listed on Schedule 1.1,
------------
(iv) All Know-How, Trade Secrets, Copyrights and Software comprising
a part of the Business, other than that comprising or used to produce the
Solid Edge Common Code, the INGR Tools and the BAG Tools;
(v) any invention comprising a part of the Business that was
conceived or reduced to practice prior to the Effective Date other than
inventions comprising or used to produce the Solid Edge Common Code, the
INGR Tools or the BAG Tools;
(vi) applications for Trademark registration and unregistered
Trademarks;
14
<PAGE>
(vii) the Intellectual Property and rights thereto identified on
Schedules 3.31(b) and 3.32(b), except for such Intellectual Property
specifically identified on such schedules as not constituting Acquired
Assets or Transferred Intellectual Property Interests; and
(viii) all Intellectual Property comprising a part of the
Technovision and ProRen businesses of the Selling Entities.
"Transferred Intellectual Property License Agreements" shall mean,
collectively, the SolidEdge Common Code License Agreement, the BAG Products
License Agreement, the INGR Tools License Agreement, the Patent License
Agreement and the Trademark License Agreement.
"Transition Services Agreement" shall have the meaning ascribed thereto in
Section 2.4.
- -----------
"Transitioned Employee" means any person who was employed by any Selling
Entity immediately prior to the applicable Closing Date and is hired by any
Acquiring Entity as of such Closing Date, including any person so hired as an
employee by any Acquiring Entity for any period of time and thereafter
terminated.
"Tribunal" shall mean any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States or any foreign or domestic state, province,
commonwealth, nation, territory, possession, country, parish, town, township,
village or municipality.
"Undertaking and Assumption Agreements" shall have the meaning ascribed
thereto in Section 2.3(a).
--------------
"USI" shall mean Unigraphics Solutions Inc., a Delaware corporation.
"USI Indemnitees" shall have the meaning ascribed thereto in Section 9.2.
-----------
"USI Losses" shall have the meaning ascribed thereto in Section 9.2.
-----------
"Validated Licenses" shall have the meaning ascribed thereto in Section
-------
3.35.
- ----
"VAT" shall have the meaning ascribed thereto in Section 10.13.
-------------
"Version 4 Reseller Agreement" shall have the meaning ascribed thereto in
Section 2.4.
- -----------
"WARN Act" shall mean the Federal Workers Adjustment and Retraining Act,
P.L. 100-379, 102 Stat. 890.
"Year 2000 Compliant" with respect to any item shall mean that such item:
(i) from now until January 1, 2000, must correctly operate, store, process and
produce data containing dates before January 1, 2000; (ii) from now until 1
January 2000, must correctly operate, store, process
15
<PAGE>
and produce data containing dates after December 31, 1999; (iii) from January 1,
2000, must correctly operate, store, process and produce data containing dates
before January 1, 2000; (iv) from January 1, 2000, must correctly operate,
store, process and produce data containing dates after December 31, 1999; (v)
must be able to handle the date January 1, 2001 correctly; (vi) must recognize
the year 2000 as a leap year (February 2000 is recognized as a valid date,
Julian date 00060 is recognized as February 29, 2000, Julian date 00366 is
recognized as December 31, 2000, arithmetic operations performed recognize that
the year 2000 has 366 days and binary date 36584 is recognized as February 29,
2000); and (vii) must be able to correctly process data containing the date
September 9, 1999. For purposes of this definition, "correctly" shall mean
accurately and without delay, corruption, interruption or error relating to the
time at which or the date on which such items are operating.
1.2 Other. All references in this document to this "Agreement" include
-----
all documents, schedules and exhibits (including without limitation the Closing
Agreements) referred to herein. The transactions contemplated by this Agreement
and all references in this Agreement to "the transactions contemplated hereby"
and similar phrases shall be deemed to include without limitation all
transactions contemplated by the Closing Agreements. All terms defined in this
Agreement shall have such meanings ascribed thereto when used in any
certificate, schedule, exhibit, report or other document made or delivered
pursuant to this Agreement, unless the context shall otherwise clearly require.
ARTICLE II
PRINCIPAL CLOSING; INTERNATIONAL CLOSINGS
2.1 Time and Place of Principal Closing. The Principal Closing will take
-----------------------------------
place on March 2, 1998, at 10:00 a.m., Dallas, Texas time, at the offices of
EDS, 5400 Legacy Drive, Plano, Texas 75024 (the "Principal Closing Date"). The
Principal Closing shall be effective as of 12:01 a.m. on the Principal Closing
Date.
2.2 Time and Place of International Closings. Each International Closing
----------------------------------------
will take place on the Principal Closing Date or an International Closing Date
at such time and place as may be specified in the applicable Closing Agreement,
and each International Closing shall be effective as of 12:01 a.m. on the
Principal Closing Date or an International Closing Date, as the case may be,
unless otherwise specified in the applicable Closing Agreement. Each
International Closing not occurring on the Principal Closing Date shall take
place on the later of (a) March 31, 1998 or (b) the date which is five Business
Days after the last to occur of the dates on which all conditions set forth in
Articles VII and Article VIII with respect to such International Closing are
- ------------ ------------
satisfied or waived by the applicable party, or such earlier date as USI and
Intergraph may agree upon in writing.
2.3 Acquisition of the Acquired Assets.
----------------------------------
(a) Unless otherwise indicated in the applicable Closing Agreement, the
Acquired Assets shall be acquired, and the Assumed Liabilities shall be assumed,
generally on a country-by-country basis, by the one or more Acquiring Entities
specified below in Section 2.3(b) below from
16
<PAGE>
the corresponding Selling Entity specified in Section 2.3(b) below, as of such
Closing Date. Physical delivery of the Acquired Assets to the Acquiring Entities
generally will be made at the current location of each Acquired Asset or as
otherwise provided in the General Bill of Sale or any Closing Agreement. In
connection with the consummation of the Bill of Sale Transaction, Intergraph and
USI shall execute and deliver a General Bill of Sale and Assignment,
substantially in the form of Exhibit C (the "General Bill of Sale"), and an
---------
Undertaking and Assumption Agreement, substantially in the form of Exhibit D
---------
(the "Undertaking and Assumption Agreement"), with respect to the transfer and
conveyance of the applicable Acquired Assets pursuant thereto and the assumption
of any related Assumed Liabilities. In connection with the transfer and
conveyance of any Acquired Assets at the Principal Closing or any International
Closing other than pursuant to the Bill of Sale Transaction, each applicable
Selling Entity and each applicable Acquiring Entity shall execute and deliver a
closing agreement or such other agreements as are appropriate in any applicable
foreign jurisdiction to consummate the transactions contemplated thereby
(together with all instruments of transfer, conveyance and assignment and other
documents attached thereto or referred to therein, the "Closing Agreement"),
substantially in the form attached hereto as Exhibit E, as such form shall be
---------
revised to the extent required to reflect applicable law. At any Closing, on the
terms and subject to the conditions set forth in this Agreement and any
applicable Closing Agreement, and on the basis of the representations and
warranties, covenants and agreements set forth in this Agreement and any
applicable Closing Agreement, each Selling Entity participating in such Closing
shall assign, transfer and sell, or cause to be assigned, transferred and sold,
to the applicable Acquiring Entity participating in such Closing, and each such
Acquiring Entity shall acquire from the applicable Selling Entity, the
applicable Acquired Assets in exchange for (i) the applicable Consideration set
forth in Section 2.3(b) below and (ii) the assumption by such Acquiring Entity
of the obligation to pay, perform, satisfy and discharge the applicable Assumed
Liabilities. At each Closing the applicable Acquiring Entity shall deliver to
the applicable Selling Entity a wire or intrabank transfer of immediately
available funds in the amount of the applicable Consideration set forth in
Section 2.3(b) below. With respect to any payments made to a designated
Intergraph bank account on behalf of a Selling Entity, such Selling Entity
agrees that Intergraph shall receive such payment as agent and on behalf and for
the direct benefit of such Selling Entity. In each such case, Intergraph shall
provide USI written instructions at least two Business Days prior to the Closing
Date as to the routing of the wire or intrabank transfer and the designated
Intergraph bank account to which payment shall be made.
(b) The consideration shall be One Hundred and Five Million United States
Dollars ($105,000,000.00), subject to the withholding and payments into escrow
pursuant to the terms of the Escrow Agreement, payable as follows (the
"Consideration"):
<TABLE>
<CAPTION>
Selling Entity Acquiring Entity U.S. Dollars
- -------------- ---------------- ------------
<S> <C> <C>
Intergraph USI $103,669,000
Intergraph GmbH (Osterreich) Unigraphics Solutions 5,000
Handelsgesellschaft m.b.H.
Intergraph Benelux BV Unigraphics Solutions N.V. 11,000
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Selling Entity Acquiring Entity U.S. Dollars
- -------------- ---------------- ------------
<S> <C> <C>
Intergraph Canada Ltd. Unigraphics Solutions Canada Ltd. 14,000
Intergraph CR s.r.o. Unigraphics Solutions s.r.o. * 8,000
Intergraph CAD/CAM (Danmark) A/S Unigraphics Solutions Danmark A/S 10,000
Intergraph Finland Oy UG Solutions AB (branch to be formed 5,000
in Finland) **
Intergraph France SA Unigraphics Solutions France SAS 46,000
Intergraph (Deutschland) GmbH Unigraphics Solutions GmbH 636,000
Intergraph (Italia) L.L.C. Unigraphics Solutions S.p.A. 145,000
Intergraph Japan K.K. Unigraphics Solutions Japan Ltd. 220,000
Intergraph Korea Ltd. Unigraphics Solutions (Korea) Ltd. * 23,000
Intergraph de Mexico, S.A. de Unigraphics Solutions de Mexico, S.A. 18,000
C.V. de C.V.
Intergraph Benelux B.V. and Unigraphics Solutions B.V. 20,000
Intergraph European
Manufacturing L.L.C.
Intergraph Norge AS Unigraphics Solutions Norge AS 11,000
Intergraph Europe (Polska) Unigraphics Solutions Sp.z.o.o. * 6,000
Sp.z.o.o.
Intergraph Systems Pte. Ltd. Unigraphics Solutions Pte. Limited 4,000
Intergraph (Portugal) Sistemas Unigraphics Solutions Espana, S.A. 7,000
de Computacao Grafica S.A. (branch to be formed in Portugal) **
Intergraph Espana, S.A. Unigraphics Solutions Espana, S.A. 29,000
Intergraph (Sverige) AB UG Solutions AB 46,000
Intergraph (UK) Ltd. Unigraphics Solutions Ltd. 67,000
------------
$105,000,000
</TABLE>
18
<PAGE>
___________
* As of the date of this Agreement the incorporation process for these entities
has not been completed. Therefore, such entities have not executed this
Agreement but will, pursuant to the Closing Agreement to be entered into by
such entity at the applicable Closing, agree to be bound by the terms of this
Agreement as an Acquiring Entity in accordance with the terms hereof.
** As of the date of this Agreement the formation of these branches has not been
completed. However, the Acquiring Entities which are forming these branches
have executed this Agreement as Acquiring Entities.
(c) At the Principal Closing, the Selling Entities and the Acquiring
Entities shall enter into the Escrow Agreement (the "Escrow Agreement")
substantially in the form attached hereto as Exhibit F.
---------
2.4 Closing Deliveries by Acquiring Entities. USI shall deliver to
----------------------------------------
Intergraph the following:
(a) At the applicable Closing, the Consideration specified in Section 2.3
(subject to the withholding and payments into escrow pursuant to the terms
of the Escrow Agreement) to be paid with respect to the Assets Acquired at
that Closing, portions of which will be paid by each Acquiring Entity to
each Selling Entity as provided in Section 2.3 above;
(b) At the Principal Closing, a copy of the resolutions of the Boards of
Directors of each of USI and EDS authorizing the execution, delivery and
performance by USI of this Agreement and by EDS and USI of the other
agreements contemplated hereby to which such Person is a party, and the
consummation of the transactions contemplated hereby and thereby, certified
as of the Closing Date by the Secretary or Assistant Secretary (or other
appropriate officer) of USI and EDS, respectively;
(c) At the Principal Closing, duly executed certificates of the Secretary
or Assistant Secretary of each of EDS and USI, certifying as of the Closing
Date as to the incumbency and signature of the officers of such
corporations who have executed this Agreement and the documents delivered
at such Closing on behalf of such corporation;
(d) At the Principal Closing, the Undertaking and Assumption Agreement,
duly executed by USI;
(e) At the Principal Closing, the SolidEdge Reseller Agreement in the form
attached hereto as Exhibit G pursuant to which Intergraph will become a
---------
reseller of the SolidEdge product of the Business to purchasers under the
CAD II Agreements (the "SolidEdge Reseller Agreement"), duly executed by
USI;
(f) At the Principal Closing, the SolidEdge License Agreement in the form
attached hereto as Exhibit H-1 pursuant to which USI will license certain
-----------
Intellectual Property related to the current SolidEdge product of the
Business to Intergraph for distribution pursuant to the CAD II Agreements
(the "SolidEdge License Agreement"), the EMS
19
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License Agreement in the form attached hereto as Exhibit H-2 pursuant to
-----------
which USI will license certain Intellectual Property related to the current
EMS product of the Business to Intergraph for distribution pursuant to the
CAD II Agreements (the "EMS License Agreement"), and the Trademark License
for CAD II and Ship Building Contracts in the form attached hereto as
Exhibit H-3 pursuant to which USI would license certain Trademarks for the
-----------
uses described therein in connection with Intergraph's performance of the
CAD II Agreements (the "CAD II Trademark Agreement"), each duly executed by
USI;
(g) At the Principal Closing, the SolidEdge Common Code License Agreement
in the form attached hereto as Exhibit I pursuant to which Intergraph will
---------
grant a perpetual, royalty-free license to USI and its Affiliates to use
the Intellectual Property described therein (the "SolidEdge Common Code
License Agreement"), duly executed by USI;
(h) At the Principal Closing, the BAG Products License Agreement in the
form attached hereto as Exhibit J pursuant to which Intergraph will grant a
---------
perpetual, royalty-free license to USI and its Affiliates for certain
Software described therein (the "BAG Products License Agreement"), duly
executed by USI;
(i) At the Principal Closing, the INGR Tools License Agreement in the form
attached hereto as Exhibit K pursuant to which Intergraph will grant a
---------
perpetual, royalty-free license to USI and its Affiliates for certain
Software described therein (the "INGR Tools License Agreement"), duly
executed by USI;
(j) At the Principal Closing, the Lease Agreement in the form attached
hereto as Exhibit L related to certain office space occupied by the
---------
Business at Intergraph's Huntsville, Alabama headquarters (the "Lease
Agreement"), duly executed by USI;
(k) At the Principal Closing, the Agreement for Engineering Services in
the form attached hereto as Exhibit M providing for, among other things,
---------
the services of Intergraph's Software engineers in India to be provided to
USI under the terms thereof (the "India Support Agreement"), duly executed
by USI;
(l) At the Principal Closing, the Transition Services Agreement in the
form attached hereto as Exhibit N pursuant to which Intergraph will provide
---------
certain support services to USI on a transition basis following the
Principal Closing (the "Transition Services Agreement"), duly executed by
the Acquiring Entities;
(m) At the Principal Closing, the Version 4 Reseller Agreement in the form
attached hereto as Exhibit O pursuant to which USI will be designated as a
---------
reseller of Version 4 of SolidEdge (which version contains the ACIS
Software referred to in clause (m) of the definition of Retained Assets)
(the "Version 4 Reseller Agreement"), duly executed by USI;
(n) At the Principal Closing, the Trademark License Agreement in the form
attached hereto as Exhibit P pursuant to which Intergraph will grant a
---------
perpetual, royalty-free license to USI and its Affiliates to use certain
Trademarks described therein (the "Trademark License Agreement"), duly
executed by USI;
20
<PAGE>
(o) At the Principal Closing, the Patent License Agreement in the form
attached hereto as Exhibit Q pursuant to which Intergraph will grant a
---------
perpetual, royalty-free license to USI and its Affiliates to use certain
Patents described therein (the "Patent License Agreement"), duly executed
by USI;
(p) At the Principal Closing, the Escrow Agreement, duly executed by USI;
and
(q) At the applicable Closing, other documents or instruments as the
Selling Entities participating in the Closing may reasonably request;
provided, however, that any such request shall be subject to any
limitations or restrictions expressly provided in this Agreement.
2.5 Closing Deliveries by Selling Entities.
--------------------------------------
Intergraph shall deliver to USI the following:
(a) At the applicable Closing, a copy of the Charter (as in effect on the
Closing Date) of each Selling Entity participating in the Closing certified
as of a recent date to the Closing Date (or, if such certification is not
obtainable in a particular jurisdiction, a certified copy as of the nearest
practicable date to the Closing Date) by the Secretary of State (or other
appropriate official) of the respective State or other jurisdiction of its
incorporation or organization;
(b) At the applicable Closing, a copy of the Bylaws (as in effect on the
Closing Date) of such Selling Entity participating in the Closing,
certified as of such Closing Date by the Secretary or Assistant Secretary
(or other appropriate officer) of such Selling Entity;
(c) At the applicable Closing, a copy of all resolutions adopted by the
Board of Directors or other governing body of such Selling Entity
participating in the Closing (together with a copy of all resolutions
adopted by the shareholders of such Selling Entity where legally required),
authorizing the execution, delivery and performance by the Selling Entity
of this Agreement and the other agreements contemplated hereby to which
such Person is a party (and any applicable Power of Attorney), and the
consummation of the transactions contemplated hereby and thereby, certified
as of the Closing Date by the Secretary or Assistant Secretary (or other
appropriate officer) of such Selling Entity;
(d) At the applicable Closing, appropriate evidence of all Consents
referred to in Schedule 2.5(d) relating to such Closing;
---------------
(e) At the applicable Closing, certificates of existence and, to the
extent available in the appropriate jurisdiction, good standing (including
evidence of payment of any franchise Taxes), and bring down telegrams or
telexes if issued in such jurisdiction, dated, to the extent practicable,
within the five-day period preceding the Closing Date (i) with respect to
Intergraph, from the appropriate Tribunals in the States of Delaware and
Alabama and (ii) with respect to any other Selling Entity participating in
the Closing, from the appropriate Tribunals in such Selling Entity's
jurisdiction of incorporation or other organization;
21
<PAGE>
(f) At the applicable Closing, duly executed certificates of the Secretary
or Assistant Secretary (or other appropriate officer) of such Selling
Entity participating in the Closing, certifying as of the Closing Date as
to the incumbency and signature of the officers of such Selling Entity who
have executed this Agreement and the documents delivered at such Closing on
behalf of such Person (or any applicable Power of Attorney);
(g) At the Principal Closing, a duly executed legal opinion of
Intergraph's corporate counsel as to the matters set forth on Exhibit R;
---------
(h) At the Principal Closing, the General Bill of Sale, duly executed by
Intergraph, dated the Principal Closing Date;
(i) At the Principal Closing, a Copyright Assignment in the form attached
hereto as Exhibit S-1 ("Copyright Assignment") and a Trademark Assignment
-----------
in the form attached hereto as Exhibit S-2 ("Trademark Assignment"), each
-----------
duly executed by Intergraph and dated the Principal Closing Date;
(j) At the applicable Closing, appropriate evidence, satisfactory to USI,
that the Successor Distributor Contracts identified in Schedule 2.5(j) have
---------------
been entered into by the appropriate Selling Entity participating in the
Closing, in each case upon the terms and conditions previously agreed to by
the parties, and that such Contracts can be assigned to the appropriate
Acquiring Entity without any further consent or notification;
(k) At the Principal Closing, copies of any and all releases, termination
statements and other documents and instruments as are necessary to remove
and release any Liens which may encumber any of the Acquired Assets to be
transferred at any Closing (regardless of whether such Closing is occurring
concurrently with the Principal Closing);
(l) At the Principal Closing, the SolidEdge Reseller Agreement, duly
executed by Intergraph;
(m) At the Principal Closing, the SolidEdge License Agreement, the EMS
License Agreement and the CAD II Trademark Agreement, each duly executed by
Intergraph;
(n) At the Principal Closing, the SolidEdge Common Code License Agreement,
duly executed by Intergraph;
(o) At the Principal Closing, the BAG Products License Agreement, duly
executed by Intergraph;
(p) At the Principal Closing, the INGR Tools License Agreement, duly
executed by Intergraph;
(q) At the Principal Closing, the Lease Agreement, duly executed by
Intergraph;
(r) At the Principal Closing, the India Support Agreement, duly executed
by Intergraph;
22
<PAGE>
(s) At the Principal Closing, the Transition Services Agreement, duly
executed by the Selling Entities;
(t) At the Principal Closing, the Version 4 Reseller Agreement, duly
executed by Intergraph;
(u) At the Principal Closing, the Trademark License Agreement, duly
executed by Intergraph;
(v) At the Principal Closing, the Patent License Agreement, duly executed
by Intergraph;
(w) At the Principal Closing, the Escrow Agreement, duly executed by
Intergraph;
(x) At the applicable Closing, such other instruments of assignment or
transfer as the applicable Acquiring Entity may reasonably request and
shall be necessary or appropriate in order to more effectively convey and
transfer the Acquired Assets to be transferred at such Closing to the
applicable Acquiring Entity or for aiding and assisting, collecting and
reducing to possession, and exercising, any rights with respect thereto;
provided, however, that any such request shall be subject to any
-------- -------
limitations or restrictions expressly provided in this Agreement;
(y) Concurrently with the Principal Closing, CD-ROMs and tapes containing
the SolidEdge Common Code, the SolidEdge Specific Code, the BAG Tools, and
the EMS Code, the delivery of which will occur at the site of the principal
operations of the Business in Alabama; and
(z) At the applicable Closing, other documents or instruments as the
Acquiring Entities participating in such Closing may reasonably request;
provided, however, that any such request shall be subject to any
-------- -------
limitations or restrictions expressly provided in this Agreement.
2.6 Other Deliveries. With respect to any aspect of the Principal
----------------
Closing or any International Closing other than the Bill of Sale Transaction,
each Selling Entity and each Acquiring Entity participating in such Closing
shall deliver to the other applicable parties on the Closing Date a duly
executed copy of a Closing Agreement, together with a duly executed copy of such
other instruments of transfer, conveyance and assignment and other documents
attached thereto or referred to therein, in each case dated as of the applicable
Closing Date.
2.7 Responsibility for the Retained Liabilities. Notwithstanding anything
-------------------------------------------
in this Agreement, any closing document or otherwise to the contrary:
(a) None of the Acquiring Entities or any of their Affiliates,
individually or collectively, shall be responsible for, or shall assume or
undertake to pay, perform, satisfy or discharge, any of the Retained
Liabilities or any other liability or obligation, other than the Assumed
23
<PAGE>
Liabilities and those Transaction Taxes, if any, specified in Section
10.13, of any Selling Entity.
(b) Intergraph and its Affiliates (including the Selling Entities) and
their respective successors and assigns shall be and remain responsible for
the Retained Liabilities.
2.8 Allocation of the Consideration for the Acquired Assets. The
-------------------------------------------------------
Consideration for the Acquired Assets shall generally be allocated in accordance
with the following guidelines:
(a) The portion of the Consideration which is allocated among the Acquired
Assets located outside the United States shall equal the respective fair
market values of each of such assets, which amounts are more particularly
set forth on Schedule 2.8 hereto.
------------
(b) The remaining amount of the Consideration shall be allocated to
Acquired Assets located within the United States, in accordance with their
respective fair market values as set forth on Schedule 2.8 hereto. The
------------
value of the Acquired Assets located and to be delivered within the United
States will be set forth on Schedule I to the General Bill of Sale, and USI
and Intergraph agree that such allocation shall be adopted by them in
preparing, and shall be reflected on, (i) any statements and any tax
returns required to be filed with any state or local taxing authority and
(ii) any invoice or other documentation prepared with respect to
Transaction Taxes.
As soon as practicable after the Principal Closing, USI shall prepare and
furnish to Intergraph detailed allocations that are consistent with the
allocations set forth on Schedule 2.8 and Intergraph shall furnish USI with such
------------
information and documentation as is reasonably requested by USI in order to
enable USI to prepare such detailed allocations. Such agreed allocation shall
be adopted by each of the Selling Entities and Acquiring Entities in preparing,
and shall be reflected on, (i) the completed Form 8594 (Asset Acquisition
Statement under Section 1060 of the Code) which is required to be filed pursuant
to the requirements of Section 1060(b) of the Code, (ii) any similar statements
and any tax returns required to be filed with any state, local or foreign taxing
authority, (iii) each bill of sale or similar document delivered by a Selling
Entity to an Acquiring Entity, and (iv) any invoice or other documentation
prepared with respect to Transaction taxes.
2.9 Waiver of Bulk Sales Compliance. The Acquiring Entities and the
-------------------------------
Selling Entities hereby waive compliance with the bulk transfer or bulk sales
provisions of the applicable state Uniform Commercial Code provisions or any
other Legislative Enactment; provided, however, that such waiver shall not
-------- -------
constitute a limitation of the rights of the Acquiring Entities under Article
-------
IX.
- --
2.10 Waivers of Deliveries or Conditions Precedent. Notwithstanding any
---------------------------------------------
provision to the contrary in this Agreement or in any certificate, document or
instrument delivered pursuant to this Agreement (including without limitation
any Closing Agreement), any express or implied waiver by the Acquiring Entities
of the requirement of the Selling Entities to deliver any item or Consent to be
delivered at any Closing (including without limitation those items referenced in
Section 2.5 or in any Closing Agreement) or to satisfy any conditions precedent
- -----------
shall not abrogate,
24
<PAGE>
diminish or otherwise affect any rights of the Acquiring Entities under this
Agreement, including without limitation those rights set forth in Section 9.2.
-----------
2.11 Customer Contracts.
------------------
(a) As soon as practicable following the Principal Closing Date, the
applicable Selling Entity and the applicable Acquiring Entity shall jointly
notify each customer under a Customer Contract (other than those identified on
Section 2 of Schedule 3.23(a) which are being assigned to the Acquiring
----------------
Entities) that effective as of the Principal Closing Date the Business has been
transferred to the Acquiring Entities pursuant to this Agreement, and such
Selling Entity shall use its best efforts to assist the applicable Acquiring
Entity in obtaining a successor Customer Contract with the applicable Acquiring
Entity with respect to the products and services of the Business on
substantially the same terms as the Customer Contract (a "Successor Customer
Contract"). In the event that a Successor Contract is not entered into by the
customer and the applicable Acquiring Entity under terms acceptable to both
Persons prior to the termination of a Customer Contract (under the current terms
of the Customer Contract without giving effect to any automatic renewal or
"evergreen" provisions thereof), the applicable Selling Entity shall continue
the performance of such Contract as contemplated in Section 2.11(b) below.
(b) During the period from the Principal Closing Date through the earlier
of (i) the termination of a Customer Contract under the terms thereof (not
giving effect to any automatic renewal provisions thereof) and (ii) the date a
Successor Contract to a Customer Contract is entered into between the customer
and an Acquiring Entity as contemplated by Section 2.11(a) above (such period
being referred to hereinafter as the "Subcontract Period"), Intergraph and each
other applicable Selling Entity shall cause the benefits of their respective
right, title and interest (or the economic equivalent thereof) under such
Customer Contracts to be provided to the applicable Acquiring Entity and shall
cooperate with such Acquiring Entity to provide such Acquiring Entity with such
benefits, which cooperation shall include without limitation: (A) maintenance by
Intergraph and each other applicable Selling Entity of rights under such
Customer Contract in their name in trust for the benefit of such Acquiring
Entity; (B) payment to the applicable Acquiring Entity of amounts collected in
respect of such Customer Contract as follows: for payments received by a Selling
Entity during March 1998, by wire transfer to an account designated by USI not
later than 12:00 noon on the Wednesday following the week during which such
payment was received by a Selling Entity; and for payments received by a Selling
Entity after March 1998, by wire transfer to an account designated by USI not
later than 12:00 noon on the second Business Day following receipt thereof; and
(C) at the sole option and subject to the control of such Acquiring Entity,
enforcement for its benefit of any and all such rights against a third party in
the event such rights can not be enforced by the Acquiring Entity. Unless not
permitted under any Assumed Contract with respect to which rights are made
available to an Acquiring Entity and except to the extent contemplated by the
Version 4 Reseller Agreement, the performance of such Selling Entity's
obligations thereunder shall be subcontracted or sublicensed to such Acquiring
Entity from the time such rights are made available to such Acquiring Entity
through the termination of the Subcontract Period and the applicable Acquiring
Entity shall perform such obligations in accordance with their terms. If such
assignment, subcontracting or sublicensing is not permitted, such Acquiring
Entity will use commercially reasonable efforts to perform and complete such
Assumed Contract in accordance with its terms from and after the time such
rights are made available; provided,
--------
25
<PAGE>
however, that in connection with the foregoing, such Acquiring Entity shall have
- -------
all rights and remedies against the other party to such Assumed Contracts,
including without limitation the right to cease providing products and services
thereunder if the other party thereto fails to perform its obligations
thereunder.
(c) Intergraph shall deliver to USI amounts prepaid under Prepaid
Maintenance Contracts in respect of the period following the applicable Closing
Date as follows: (i) concurrently with the applicable Closing, Intergraph shall
deliver to USI the amounts prepaid under such Contracts in respect of the month
in which such Closing occurs (pro-rated from the applicable Closing Date); and
(ii) on the first day of each month thereafter, Intergraph shall deliver to USI
the amounts prepaid under such Contracts in respect of each such month.
2.12 Distributor Contracts. Prior to the Principal Closing Date, the
---------------------
Selling Entities shall use their best efforts to amend each Distributor Contract
to remove therefrom the products and services of the Business and, except with
respect to such Distributor Contracts covering a territory or territories
outside of the United States identified on Schedule 2.12, to enter into a
-------------
separate successor distributor contract (a "Successor Distributor Contract")
covering the products and services of the Business on terms reasonably
acceptable to USI. For purposes of this Agreement, terms consistent with those
contained in the existing Distributor Agreement shall be deemed to be reasonably
acceptable to USI. Each Successor Distributor Agreement shall be assignable to
USI or another applicable Acquiring Entity effective as of the Principal Closing
Date and shall be assigned at the Closing and be an Assumed Contract hereunder
(subject to the proviso set forth in the definition of "Assumed Contract" in
Section 1.1).
2.13 Consents. The parties will cooperate with each other in good
--------
faith to timely obtain all Consents from any and all Tribunals and other Persons
that are required (i) for the consummation of the transactions contemplated by
this Agreement; (ii) to permit the continued operation of that portion of the
Business conveyed on any Closing Date on or after such Closing Date in
substantially the same manner as it was carried on and conducted prior thereto,
including, without limitation, the execution of Successor Contracts pursuant to
Section 2.12 hereof; and (iii) to prevent a breach of, a default, penalty or
increase in payment under, or a termination of any Contract relating to the
Business. The cost of obtaining such Consents shall be borne by the party who
is required to obtain such Consent under the applicable Legislative Enactment or
under the terms of the relevant Contract, provided, however, that if the
applicable Legislative Enactment does not provide which party shall pay such
costs, the costs shall be borne equally by USI and Intergraph (although in all
cases each party shall pay the fees and expenses of its own counsel). The
parties hereto agree to use their best efforts to obtain such Consents in a cost
effective and efficient manner. Until all Consents referenced in this Section
-------
2.13 are obtained, the applicable Selling Entities shall provide the applicable
- ----
Acquiring Entity with the rights and benefits, and the Selling Entities shall in
any event continue to have the indemnity and hold harmless obligations set forth
in Article IX.
----------
2.14 Interim Operation for International Selling Entities.
----------------------------------------------------
(a) With respect to each International Selling Entity that does not
transfer and convey all of its respective portion of the Business and Acquired
Assets on the Principal Closing Date,
26
<PAGE>
from and after the Principal Closing Date USI may, at its option, designate one
or more employees or other representatives of the Acquiring Entities to serve as
managers of the Business of each such International Selling Entity to the extent
permitted by applicable law. The management of the Business of each respective
International Selling Entity shall report to, and be subject to the direction
of, such manager so designated by the Acquiring Entities. Such managers may
serve their functions on-site at such International Selling Entities. The
Acquiring Entities shall be free to make oral and written communications to the
employees of the International Selling Entities during the period following the
Principal Closing Date (provided that communications describing the terms of
this Section 2.14(a) shall be provided to Intergraph in advance of their release
for their prompt comment and review). During this period, USI may request that
the employment of any employee of the International Selling Entity who would be
a Transitioned Employee be terminated. In such event, no later than five days
following the date of such request Intergraph may either (i) continue the
employment of such person for Intergraph's benefit (which continuation would not
be a violation of Section 5.7 hereof), in which event USI shall not be obligated
to reimburse USI for such person's salary upon the occurrence of the applicable
International Closing, or (ii) terminate the employment of such person, in which
event USI will reimburse Intergraph for any required severance payments to any
such employee in accordance with Intergraph's severance policy.
(b) From and after the Principal Closing Date, the Business of each
International Selling Entity shall be conducted and operated for the account and
benefit of the applicable Acquiring Entities. At the applicable International
Closing for an International Selling Entity, the Closing Agreement shall provide
for (i) the payment by the applicable Selling Entity to the applicable Acquiring
Entity of all revenues derived by the portion of the Business attributable to
such Selling Entity (which revenues shall have been collected by the Selling
Entities and held for the benefit of the applicable Acquiring Entity) during the
period from and after the Principal Closing Date to the date of the applicable
International Closing (the "Interim Period"), (ii) the reimbursement by the
applicable Acquiring Entity to the applicable Selling Entity of all expenses
directly attributable to the operation of the Business by such Selling Entity
during the Interim Period (and excluding any expenses attributable to any other
business or businesses of the Selling Entities), including, without limitation,
costs and expenses associated with employment of the Transitioned Employees and
Taxes (other than Transaction Taxes) attributable to the operation of the
Business during the Interim Period, and (iii) the payment of any excess of the
amount described in clause (i) over the amount described in clause (ii) (a
"Profit Amount") from the applicable Selling Entity to the applicable Acquiring
Entity, or the payment of any excess of the amount described in clause (ii) over
the amount described in clause (i) (a "Loss Amount") from the applicable
Acquiring Entity to the applicable Selling Entity. The payment of any Profit
Amount or Loss Amount, as the case may be, shall be treated as an adjustment to
the Consideration payable in respect of such International Closing. Not later
than 15 Business Days following the applicable International Closing, the
applicable Selling Entity and Acquiring Entity shall adjust the Profit Amount or
Loss Amount, as the case may be, based on any revenues or expenses which were
unidentified at the time of the International Closing and, based on such post-
closing adjustment, any excess amounts delivered at the applicable International
Closing pursuant to the immediately preceding sentence shall be immediately
returned and/or any additional payments which would be required to have been
made at such International Closing pursuant to such sentence shall be
immediately paid by the applicable party. At an International Closing, the
applicable Selling Entity shall deliver to the applicable Acquiring Entity cash
in an
27
<PAGE>
amount equal to the accrued liability of such Selling Entity in respect of
employee benefits (such as severance, termination indemnities or vacation) which
benefits are required to be assumed by the Acquiring Entity as a matter of
applicable law, except to the extent that such liabilities are settled directly
with the relevant employees at the applicable Closing or are governed by Section
5.13(h) hereof.
(c) USI and Intergraph will use their commercially reasonable best efforts
to consummate all International Closings as soon as practicable following the
Principal Closing Date. Until such time as all International Closings have been
consummated, USI and Intergraph shall cause their representatives to confer
frequently (and in any event not less frequently than monthly) with each other
regarding the status of such International Closings.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLING ENTITIES
To induce the Acquiring Entities to enter into this Agreement and to
consummate the transactions contemplated hereby, the Selling Entities jointly
represent and warrant to the Acquiring Entities as follows and as may be
additionally provided in the applicable Closing Agreement:
3.1 Corporate Existence and Authority. Each Selling Entity is a
---------------------------------
corporation or other legal entity (as indicated on Schedule 3.1) duly organized,
------------
validly existing and to the extent such a concept or a similar concept exists in
the relevant jurisdiction, in good standing under the laws of the state or other
jurisdiction of its incorporation or other organization, as set forth on
Schedule 3.1. Each Selling Entity has all requisite power and authority to own
- ------------
and lease its properties and assets and to carry on the Business, as such
business is being conducted currently. Schedule 3.1 contains a true, complete
------------
and correct list of all jurisdictions in which any of the Selling Entities owns
or leases any real property or has employees or offices relating to the
Business. Each Selling Entity is duly qualified and licensed to do business as
a foreign corporation or entity and is in good standing in all jurisdictions in
which the nature of the business being conducted requires it to be so qualified
except where the failure so to qualify may reasonably be expected not to have a
material adverse effect on the Business or the Acquired Assets, taken as a
whole.
3.2 Authorization and Effect of Agreement, Etc. Each Affiliate of
------------------------------------------
Intergraph whose action is legally required to transfer to the Acquiring
Entities the Acquired Assets in accordance with this Agreement is listed as a
Selling Entity on the signature pages hereof. Each Selling Entity has all
requisite power and authority to enter into, execute and deliver this Agreement
and the other agreements contemplated hereby to which such Person is a party and
to perform its obligations hereunder and thereunder and to consummate the
respective transactions contemplated hereby and thereby for such Selling Entity.
The execution, delivery and performance of this Agreement by each of the Selling
Entities and the other agreements contemplated hereby to which such Person is a
party and the consummation by the Selling Entities of the transactions
contemplated hereby and thereby have been duly authorized by all corporate and
other entity action. This Agreement has been, and the other agreements
contemplated hereby to which any of the Selling Entities is a party will be,
duly executed and delivered by each of the Selling Entities (to the extent such
Person is a
28
<PAGE>
party thereto) and constitute, or when executed and delivered will constitute,
the valid and binding obligation of the Selling Entities, enforceable in
accordance with its respective terms, except that (a) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
Legislative Enactments now or hereafter in effect relating to creditors' rights
generally, and (b) the remedy of specific performance and injunctive relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding may be brought. This Agreement, the General Bill of Sale, the
Copyright Assignment, the Trademark Assignment, the Transferred Intellectual
Property License Agreements and the Closing Agreements, when executed and
delivered by the respective Selling Entities, will be sufficient to assign,
convey, transfer, vest, perfect and confirm in the appropriate Acquiring
Entities, good and marketable title in and to the Acquired Assets.
3.3 No Violation. Except as set forth on Schedule 3.3, neither the
------------ ------------
execution, delivery or performance by any of the Selling Entities of this
Agreement or of any other agreement contemplated hereby to which any of such
Persons is a party, nor the consummation by any of the Selling Entities of any
of the transactions contemplated hereby or thereby in accordance with the terms
hereof or thereof does or will (with the passage of time, the giving of notice
or otherwise), with respect to any Selling Entity (a) violate or conflict with
any provision of the Charter, Bylaws or other governance document of such
Selling Entity; (b) violate, conflict with, modify or cause any default under or
acceleration of (or give any party any right to declare any default or
acceleration, upon notice or passage of time or otherwise with respect to), in
whole or in part, any Contract related to the Business to which such Selling
Entity is a party or by which such Selling Entity or any of the Acquired Assets
is bound; (c) violate, conflict with or cause any default under (or give any
party any right to declare any default, upon notice or passage of time or
otherwise, under) any Legislative Enactments, Official Actions or any other
restriction of any kind or character to which such Selling Entity is a party or
by which such Selling Entity or any of its respective properties or any of the
Acquired Assets is bound; (d) result in the creation or imposition of any Lien,
proscription or restriction on any of the Acquired Assets; or (e) permit any
Tribunal to impose any material restrictions or limitations of any nature on
such Selling Entity or its properties or activities.
3.4 Consents.
--------
(a) Except as set forth in Schedule 3.4(a), no Consent of, or
----------------
registration, declaration or filing with, or permit from, any Tribunal, lessor,
lender or any other Person is required to be made or obtained by any Selling
Entity in connection with the execution, delivery and performance by any of the
Selling Entities of this Agreement or the other agreements contemplated hereby
or the consummation of the transactions contemplated hereby or thereby in
accordance with the terms hereof and thereof.
(b) After the Principal Closing, except with respect to those Acquired
Assets to be transferred at each International Closing (and with respect to such
Acquired Assets, after such International Closing related thereto) and except as
set forth on Schedule 3.4(b), the Acquiring Entities shall have the unrestricted
---------------
right to own, use, operate and sell all or any of the Acquired Assets and to
conduct the Business as it is currently conducted by the Selling Entities
without the payment of any royalty, license or other fee to any Person by USI or
any Affiliate of USI, including
29
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without limitation any transfer fee, relicensing fee or other fee with respect
to Software to be transferred or assigned.
3.5 General Warranty. All written statements, certificates or documents
----------------
furnished by any Selling Entity in accordance with this Agreement, taken as a
whole, are true, complete and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading, provided,
however, that the only representation or warranty made with respect to the
Projections is the representation and warranty set forth in Section 3.30.
3.6 Challenges To This Agreement. No suit, action, proceeding or
----------------------------
investigation against any Selling Entity challenging this Agreement or any of
the transactions contemplated hereby or claiming damages in connection with this
Agreement or any of the transactions contemplated hereby has been instituted or,
to the knowledge of the Selling Entities (without independent investigation),
threatened.
3.7 Financial Statements. The Selling Entities have provided to USI
--------------------
true, complete and correct copies of the Financial Statements, which are
attached hereto as Schedule 3.7. The Financial Statements fairly present,
------------
except for the presentation of footnote disclosures (which footnote disclosures
are not material to an understanding of the Financial Statements) which will be
provided as soon as practicable following the Principal Closing pursuant to
Section 5.6 hereof, the financial position of the Selling Entities with respect
to the Business and the related results of operations at the dates and for the
periods covered thereby, subject with respect to quarterly financial information
to normal, recurring year-end audit adjustments described in Section 1 of
---------
Schedule 3.7. The Financial Statements have been prepared in accordance with
- ------------
GAAP, other than the aforementioned footnote disclosures, applied on a
consistent basis during the periods involved. As of the Balance Sheet Date, (A)
none of the Selling Entities had any liability or expense of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
with respect to the Business which was not reflected in the Financial Statements
and which was of a nature required under GAAP to be reflected in the Financial
Statements or disclosed in the notes thereto when prepared, (B) all allowances
and reserves set forth in the Financial Statements were adequate for the
respective purposes for which they were established, and (C) there were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5) or contingent liabilities which were of a nature required under
GAAP to be reflected or disclosed and were not reflected in the Financial
Statements or will be disclosed in the notes thereto. Since the Balance Sheet
Date, except for liabilities that have been incurred in the ordinary course of
the Business consistent with past practices, none of the Selling Entities has
incurred any material liability of any nature (whether accrued, absolute,
contingent or otherwise) with respect to the Business. Except as set forth in
Schedule 3.7(a), none of the Selling Entities is liable upon or with respect to,
- ---------------
or obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any Person related to
the Business. The Financial Statements fairly reflect the liabilities accrued
for the annual incentive compensation benefits payable under the plans and
programs set forth in Schedule 3.25(c), consistent with prior application of the
----------------
terms of such plans and taking into account performance to date.
30
<PAGE>
3.8 Accounts Receivable. All of the Accounts Receivable reflected in
-------------------
the Balance Sheet have arisen in connection with bona fide sales and deliveries
of goods, performance of services or other bona fide business transactions in
the ordinary course of the Business, consistent with past practices (including
regular credit practices). All reserves reflected in the Balance Sheet against
doubtful accounts of, valid counterclaims or setoffs by, rebates, discounts and
allowances to, and returns from, customers were established in a manner
consistent with the collection experience of the Business in prior year s.
3.9 Customer Discounts. Except as set forth on Schedule 3.9, since
------------------ ------------
December 31, 1996, no Selling Entity has granted any rebates, discounts,
advances or allowances to any customers of the Business for products or
services, except in the ordinary course of business consistent with past
practice.
3.10 SEC Reports. Intergraph has previously furnished to USI true,
-----------
complete and correct copies of Intergraph's (i) Annual Report on Form 10-K for
the year ended December 31, 1996, and (ii) Quarterly Reports on Form 10-Q for
the quarters ended March 31, June 30, and September 30, 1997, each as filed with
the SEC. As of their respective filing dates and to the extent such reports and
statements relate to the Business, such reports and statements complied in all
material respects with all applicable requirements of the Exchange Act and the
rules and regulations promulgated thereunder, and such reports and statements as
of the date of their respective filing did not contain any 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 were made, not misleading.
3.11 Absence of Changes. Except as set forth in Schedule 3.11, since
------------------ -------------
December 31, 1997 there has not been, occurred or arisen any change in, or any
event (including without limitation any damage, destruction or loss whether or
not covered by insurance), condition or state of facts of any character that
individually or in the aggregate has or may be expected to have a material
adverse effect on the Acquired Assets or the Business, taken as a whole. Since
December 31, 1997, except as set forth in Schedule 3.11: (a) no Selling Entity
-------------
has taken or failed to take any action the taking of which or failure of which
to take, as the case may be, would have violated any of the provisions of
Sections 5.2 or 5.3 if they had then been applicable to any portion of the
- ------------ ---
Business; and (b) there has not been any damage, destruction or loss (whether or
not covered by insurance) affecting any of the Acquired Assets the result of
which individually or in the aggregate has or may reasonably be expected to have
a material adverse effect on the Business or the Acquired Assets, taken as a
whole.
3.12 Books and Records. Each Selling Entity makes and keeps Books and
-----------------
Records with respect to the Business which, in reasonable detail, accurately and
fairly reflect in all material respects its transactions and the acquisitions
and dispositions of its assets since the date of its organization. The present
system of internal accounting controls of each Selling Entity with respect to
the Business reasonably assures that: (a) transactions are executed only in
accordance with the general or specific authorization of its management, (b)
transactions are recorded as necessary to permit the preparation of financial
statements in conformity with GAAP and to maintain accountability for its
assets, (c) access to its assets is permitted only in accordance with the
general or specific authorization of its management, and (d) the recorded
accountability for its assets is
31
<PAGE>
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. No Selling Entity has used any
improper accounting practices with respect to the Business, including any
practices for the purposes of deceptively reflecting or not reflecting any of
its properties, assets, liabilities, revenues or expenses in any of its Books
and Records.
3.13 Taxes. Except as otherwise disclosed on Schedule 3.13:
----- -------------
(a) Each Selling Entity has timely filed or will file in a timely manner
with the appropriate Tax or revenue service, taxing authority, or taxing
Tribunal (collectively, "Tax Tribunal") all Tax Returns required to be filed
regarding any period up to but not including the applicable Closing Date which
relates to Taxes attributable to the Acquired Assets, and all such Tax Returns
were or will be correct and complete in all material respects.
(b) Each Selling Entity has paid or will pay on the applicable due date
all Taxes owing by any Selling Entity (whether or not shown on any Tax Return),
which are due and payable on or before the applicable Closing Date.
(c) Except for claims that were resolved more than three years ago, no
claim has been made by any Tax Tribunal in a jurisdiction where Intergraph,
Intergraph (Deutschland) GmbH, or Intergraph (Italia) L.L.C. did not file Tax
Returns, that any of such Persons is or may be subject to taxation by that
jurisdiction.
(d) Intergraph, Intergraph (Deutschland) GmbH, and Intergraph (Italia)
L.L.C. are neither presently under examination by any tax authorities, nor in
receipt of any notice of impending examination. There are no pending and, to the
best knowledge of Intergraph, threatened, examinations, audits, investigations,
suits, or other legal proceedings involving, or material assessments against,
Intergraph, Intergraph (Deutschland) GmbH, or Intergraph (Italia) L.L.C. with
respect to Taxes attributable to the Business, or any other material claims for
unpaid Taxes attributable to the Business, which have been or may be asserted
against any of those entities.
(e) There are no pending or threatened audits, investigations,
examinations, suits or other legal proceedings involving, or material
assessments against, any Selling Entity with respect to Taxes attributable to
the Business, or any other material claims for unpaid Taxes attributable to the
Business which may be asserted against any Selling Entity.
(f) There are no Liens for Taxes upon any assets of any Selling Entity,
except for statutory Liens disclosed on Schedule 3.13 for Taxes or assessments
not yet delinquent.
(g) All material amounts required to be withheld or collected by any
Selling Entity and paid to any Tax Tribunal for income, social security,
unemployment insurance, sales, excise, use, property and other Taxes have been
timely withheld or collected and, to the extent required, have been timely paid,
remitted or deposited to or with the relevant Tax Tribunal.
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<PAGE>
(h) There are no material proposed reassessments of the taxable value of
any of the Acquired Assets or similar matters pending with respect to any Tax
Tribunal.
(i) No Selling Entity that is transferring any interest in real property
located in the United States is a "foreign person" as that term is referred to
in Section 1445(f)(3) of the Code.
(j) Intergraph will provide to USI within sixty days of the Principal
Closing Date, a document which shall be deemed to be incorporated by reference
into this Agreement as Schedule 3.13(j) hereto extending the representations
----------------
made in Sections 3.13(c)-(e) above to all Selling Entities, with the same legal
effects as if included in this Agreement as of the date hereof. Should
Intergraph fail to timely deliver Schedule 3.13(j) to USI, then the
----------------
representations of Sections 3.13(c)-(e) above shall be deemed to be
representations by Intergraph with respect to all Selling Entities which are not
subject to any exceptions other than those contained in Schedule 3.13. It is
-------------
expressly acknowledged and agreed that this Section 3.13(j) is intended solely
to resolve a logistical difficulty in obtaining sufficient and reliable
information with which to make the representations under Sections 3.13(c)-(e)
with respect to all Selling Entities.
3.14 Disputes and Litigation. Except as set forth in Schedule 3.14,
----------------------- -------------
there is not existing or pending or, to the best knowledge of any of the Selling
Entities (without independent investigation), threatened (a) any suit, action,
litigation, proceeding, investigation, claim, complaint or accusation affecting
or against any Selling Entity with respect to the Business or any of the
Acquired Assets in or before any Tribunal or (b) any Official Actions which
individually or in the aggregate has or may reasonably be expected to have a
material adverse effect on the Business or the Acquired Assets or to which any
Selling Entity is a party with respect to the Business.
3.15 Environmental Matters. To the best knowledge of any of the
---------------------
Selling Entities, without independent investigation, the Compliance Group has
fully, completely and timely complied with, and are currently in compliance
with, all Environmental Laws and all related permits, licenses, orders,
approvals, waivers and variances. Except as set forth in Schedule 3.15, to the
-------------
best knowledge of the Selling Entities, without independent investigation, no
Hazardous or Toxic Substances are, or have been, used, generated, handled,
treated, stored or disposed of on, under or in, or transported from, the
Compliance Property except in full compliance with applicable Environmental
Laws. Except as set forth in Schedule 3.15, none of the Compliance Group has
-------------
ever received any complaint, order, citation or notice, public or private, with
respect to any possible violation of the Environmental Laws or obligation or
liability thereunder related to the Business.
3.16 Bank Accounts. No Selling Entity maintains any bank account, safe
-------------
deposit box or similar arrangement relating exclusively to the Business.
3.17 Year 2000 Compliance. All Software products included within the
--------------------
Business, including without limitation the BAG Tools, the INGR Tools, the
SolidEdge Common Code, the SolidEdge Specific Code and the SolidEdge and EMS
products, are Year 2000 Compliant. With respect to all such Software products,
Intergraph has completed the assessment stage for the determination of Year 2000
Compliance and concluded that no renovation is necessary.
33
<PAGE>
3.18 Rights Used; Certain Relationships. Except as set forth in
----------------------------------
Schedule 3.18, the Acquired Assets, including, without limitation, the
- -------------
Transferred Intellectual Property Interests, contain all rights, properties and
assets utilized or necessary in the conduct of the Business and are sufficient
in all respects to carry on and conduct the Business after each Closing in
substantially the same manner as it was carried on and conducted prior thereto.
No Affiliate of Intergraph other than the Selling Entities holds any assets
comprising a part of the Business. No officer or director of any Selling Entity
(or any relative of any such director or officer) has any material business or
other relationship (as creditor, lessor, lessee, supplier, dealer, distributor,
franchisee, customer or otherwise) with any Selling Entity with respect to the
Business. To the best knowledge of the Selling Entities, without independent
investigation, none of the Selling Entities or any of their respective
Affiliates, directors, officers, employees or agents has, directly or
indirectly, given or agreed to give any improper gift or similar benefit to any
creditor, lessor, lessee, supplier, dealer, distributor, franchisee, customer,
competitor or governmental employee or official (domestic or foreign) (a) that
could subject any of the Acquiring Entities or any of its Affiliates to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, or (b) the absence or discontinuation of which could have had a
material adverse effect on the Business or the Acquired Assets.
3.19 Title to Properties and Absence of Liens. Each Selling Entity has
----------------------------------------
good and marketable title or valid leasehold title to its respective Acquired
Assets, subject to no Liens or any other adverse interests or restrictions of
any kind except as disclosed in Schedule 3.19 (such Liens being hereinafter
-------------
collectively referred to as "Permitted Encumbrances"), all of which Permitted
Encumbrances will be removed prior to the Principal Closing.
3.20 Real Property.
-------------
(a) Section 1 of Schedule 3.20(a) sets forth the street address of all
--------- ----------------
Real Property used in the Business, the Selling Entity which holds the interest
in such Real Property and whether such interest is a leasehold interest or an
ownership interest. Section 2 of Schedule 3.20(a) sets forth the street address
--------- ----------------
of each parcel of Real Property occupied by the Business and with respect to
which the applicable Selling Entity and the applicable Acquiring Entity shall
enter into a lease. The respective Selling Entity enjoys peaceful possession of
its interest in all such Real Property. The Real Property used in the Business
and all material personal property owned or leased and included in the Acquired
Assets or comprising a part of the Business are in good operating condition and
repair (ordinary wear and tear excepted) and suitable and sufficient for the
purposes for which used.
(b) None of the buildings, structures or improvements located on the Real
Property subject to the Lease Agreement is the subject of any official complaint
or notice of violation of any material applicable zoning ordinance, building
code or regulation, and no such violation exists which materially detracts from
or interferes with the present use of such properties or materially detracts
from the value thereof or materially impairs the operations thereon; and there
is no zoning ordinance, building code, use or occupancy restriction or
condemnation action or proceeding pending, or, to the best knowledge of the
Selling Entities, without independent investigation, threatened with respect to
any such building, structure or improvement on any of the Real Property which
would materially detract from, or interfere with the present use of, such parcel
or materially
34
<PAGE>
detract from the value thereof or materially impair the operations of the
Business thereon, as presently conducted.
3.21 Contracts. Schedule 3.21 sets forth a true, complete and correct
--------- -------------
list, correlated with the applicable clauses of this Section 3.21, of the
------------
following (true, complete and correct copies, or if none, written descriptions,
of which have been provided or made available to USI, together with all
exhibits, amendments or modifications thereto):
(a) All Contracts relating to the Business containing any provision,
covenant or obligation limiting or restricting in any manner whatsoever the
ability of any of the Selling Entities or any of the employees of the
Selling Entities to engage in any line of business, to sell any products or
services or to compete with or to obtain products or services from any
Person or limiting the ability of any Person to compete with or to provide
products or services to any of the Selling Entities;
(b) All Contracts pursuant to which Intergraph or any of its Affiliates
may have granted, or agreed to grant, to another Person exclusive rights
with respect to any goods or services, items of Software or territory
relating to the Business;
(c) To the extent not covered in clause (b) above, all partnership, joint
venture, profit-sharing or similar Contracts with any Person relating to
the Business;
(d) All Contracts that involve the disposition or acquisition after the
date hereof of any assets of any of the Selling Entities relating to the
Business that do not relate to transactions entered into in the ordinary
course of business, consistent with past practices;
(e) All Contracts or arrangements (including without limitation those
relating to allocations of expenses, personnel, services, equipment or
facilities) between or among Intergraph or any of its Affiliates with
respect to the Acquired Assets or the Business;
(f) All other Contracts relating to the Business, to the extent not set
forth above, that were not entered into in the ordinary course of business,
consistent with past practices, and that individually involve the payment
or potential payment, pursuant to the terms of such Contracts, of more than
$10,000 individually or that are otherwise material to the Acquired Assets
or the Business;
(g) Each business name which has been used by any of the Selling Entities
with respect to any portion of the Business (separately listed for each
such portion or Person);
(h) All Contracts pursuant to which Intergraph or any of its Affiliates
may have granted, or agreed to grant (whether or not any requirement such
as the giving of notice, the lapse of time or the happening of any further
condition, event or act has been satisfied), to another Person the right to
sublicense or transfer any Software relating to the Business (other than to
an Affiliate of such Person);
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<PAGE>
(i) All Contracts pursuant to which Intergraph or any of its Affiliates
may have delivered to another Person, or granted or agreed to grant
(whether or not any requirement such as the giving of notice, the lapse of
time or the happening of any further condition, event or act has been
satisfied) to another Person the rights to obtain, any source code to any
Software relating to the Business;
(j) All Contracts pursuant to which Intergraph or any of its Affiliates
may have delivered to another Person, or granted or agreed to grant
(whether or not any requirement such as the giving of notice, the lapse of
time or the happening of any further condition, event or act has been
satisfied) to another Person the rights to obtain, any Software "keys"
allowing access to additional modules or programs of any Software relating
to the Business;
(k) All performance bonds posted by any of the Selling Entities in
connection with the Business; and
(l) All outstanding bids involving amounts exceeding $10,000 for new
business or projects submitted by any of the Selling Entities in connection
with the Business.
3.22 Contract Status. Schedules 3.21, 3.23, 3.24(g), 3.31(b) and
--------------- -------------- ---- ------- -------
3.32(b) set forth a true, complete and correct list of all Contracts (true,
- -------
complete and correct copies, or if none, written descriptions, of which have
been provided or made available to USI, together with all exhibits, amendments
and modifications thereto) used in the Business, other than the leases of Real
Property referred to in Section 3.20 and the Contracts listed on Schedule 3.22.
-------------
Each such Contract is in full force and effect and constitutes a valid, legal
and binding obligation of (i) the Selling Entity that is a party thereto,
enforceable against such Selling Entity in accordance with its terms and (ii) to
the knowledge of the Selling Entities, without independent investigation, the
other party thereto, enforceable in accordance with its terms. No Selling
Entity that is a party to any such Contract, and to the knowledge of the Selling
Entities, without independent investigation, no other party to such Contract, is
in breach or default thereunder, and no notice of default, defense, offset,
counterclaim, termination, cancellation or acceleration has been received by any
party with respect thereto. To the knowledge of the Selling Entities, without
independent investigation, (i) there exists no event or condition that (with or
without notice or lapse of time or both) would constitute a breach or violation
thereof, or a default thereunder, or give rise to any right of offset,
counterclaim, termination, cancellation or acceleration pursuant thereto, (ii)
there is no threat to cancel, or not to renew or extend, any such Contract which
by its terms may be renewed or extended, and (iii) there are no material
disputes with respect to any such Contract. No Selling Entity has any present
expectation or intention of not fully performing such Contract in accordance
with its terms.
3.23 Certain Contracts.
-----------------
(a) Customer Contracts. Section 1 of Schedule 3.23(a), sets forth a true,
------------------ --------- ----------------
complete and correct list of all executory Contracts providing for the sale,
lease or rental of products and services of the Business. Except as set forth on
Section 2 of Schedule 3.23(a), all such Contracts also relate to the sale of
- --------- ----------------
products and services of the Selling Entities not included within the Business
(such Contracts, other than those Contracts identified on such Section 2 which
---------
are being assigned to the Acquiring Entities, are referred to as the "Customer
Contracts"). As a result, the Customer
36
<PAGE>
Contracts are not being assigned by the Selling Entities to the Acquiring
Entities but the Acquiring Entities shall be entitled to the rights of the
Selling Entities under such Customer Contracts pursuant to the provisions of
Section 2.11 hereof. The enforceability of each such Customer Contract and the
rights and benefits of the Selling Entities thereunder will not be affected by
the execution and delivery of this Agreement or any of the other agreements
contemplated hereby, the performance by the parties of their obligations
hereunder and thereunder or the consummation of the transactions contemplated
hereby and thereby, other than as specifically provided for in Section 2.11
hereof. Each Contract identified on Section 2 of Schedule 3.23(a) is assignable
--------- ----------------
(and will be assigned and transferred) by the respective Selling Entity to the
appropriate Acquiring Entity pursuant to the transactions contemplated hereby
without requiring any payment to, or Consent from, any Person or any waiting
period, payment of any charge, fee or expense or any notice to any Person.
Section 3 of Schedule 3.23(a) sets forth a true and correct list as of the date
- --------- ----------------
hereof of all Customer Contracts, including, without limitation, any software
warranty upgrade agreements, under which a customer has prepaid a Selling Entity
for products or maintenance services ("Prepaid Maintenance Contracts"). The
Selling Entities will update the schedules set forth in this Section 3.23 prior
to an applicable Closing. The Selling Entities shall take all action necessary
so that the current term of any Customer Contract shall not be extended either
under the terms thereof or by operation of law. No Customer Contract has a
current term ending after the one-year anniversary of the date hereof (except
such Customer Contracts as may be terminated by the Selling Entities prior to
such date, and the Selling Entities agree to so terminate any such contract
before such date at the request of USI).
(b) Distributor, Reseller and Business Partner Contracts.
----------------------------------------------------
Schedule 3.23(b) sets forth a true, complete and correct list of all
distributor, reseller and business partner agreements related to the Business
(the "Distributor Contracts"), all of which as of the date of this Agreement
also relate to products and services of the Selling Entities not included within
the Business. Except as may be modified by the amendments contemplated by
Section 2.12 and except as set forth on Schedule 3.23(b), all Distributor
----------------
Contracts (i) are non-exclusive, (ii) with respect to Distributor Contracts
covering a territory or territories within the United States are terminable by
either party thereto on not greater 30 days notice, and (iii) with respect to
Distributor Contracts covering a territory or territories outside of the United
States are terminable by either party thereto on not greater than 90 days
notice.
3.24 Employees.
---------
(a) Schedule 3.24(a) sets forth a true, complete and correct list of each
----------------
manager, officer and employee of each of the Selling Entities whose primary
function relates to the Business, together with each such Person's name, job
title, current annual compensation, amounts and forms of special fringe
benefits, if any, and duration of employment with such entity. Each of the
Selling Entities with respect to the Business (i) is in substantial compliance
with all applicable Legislative Enactments and Official Actions regarding
employment, wages and hours with respect to their employees, consultants and
independent contractors and (ii) is not engaged in any unfair labor practice or
discriminatory employment practice. No lawsuit or complaint against any Selling
Entity with respect to the Business has been filed or, to the best knowledge of
the Selling Entities (without independent investigation), threatened to be
filed, with or by the National Labor Relations Board, the Equal Employment
Opportunity Commission or any other Tribunal that regulates labor or
37
<PAGE>
employment practices, and there is no grievance filed or, to the best knowledge
of the Selling Entities, threatened to be filed, against any Selling Entity with
respect to the Business by any employee pursuant to any collective bargaining or
other employment agreement. There is no consultant or independent contractor
who, individually or together with others, is material to the Business. None of
the managerial employees of the Selling Entities have any knowledge that any
employee, consultant or independent contractor with respect to the Business will
terminate his employment or cease to do business with the Business after
consummation of the transactions contemplated by this Agreement. To the best
knowledge of the Selling Entities (without independent investigation), there are
no material controversies pending or threatened between any Selling Entity and
any of its employees with respect to the Business, and no labor union or other
organization represents or claims to represent any of such employees' interests.
Except as set forth in Schedule 3.24(a), none of the Selling Entities has been a
----------------
party to any Contract with any union, labor organization or collective
bargaining unit with respect to any of its employees conducting the Business and
none of such employees outside of the United States is represented by a works
council. No union organizing or election activities involving any employees of
any Selling Entity with respect to the Business are in progress or, to the best
knowledge of the Selling Entities (without independent investigation),
threatened.
(b) All payments due from any of the Selling Entities on account of
employer's social security contributions and employee health and welfare
insurance under applicable Legislative Enactments with respect to the Business
in respect of years and periods (and portions thereof) ended on or prior to the
Balance Sheet Date were either paid prior to the Balance Sheet Date or accrued
in full as a liability on the Balance Sheet.
(c) All severance payments, if any, which as of the applicable Closing
Date would be payable by any of the Selling Entities with respect to any of the
Transitioned Employees under the terms of any oral or written agreement or
commitment have been or will be paid on or prior to such applicable Closing
Date.
(d) The Selling Entities have withheld proper amounts from the
Transitioned Employees (all of which has been timely remitted to the appropriate
Tax authority) and have timely filed or will timely file all Tax Returns with
respect to employee income Tax withholding and social security and unemployment
Taxes, all in compliance with the Tax withholding provisions of the Code and
other applicable Legislative Enactments.
(e) No Selling Entity has made any payments, or is or may become obligated
to make any payments to any Person with respect to the Business as a result of
the transactions contemplated by this Agreement which could result in "excess
parachute payments" (as defined in Section 280G(b) of the Code) to any such
Person.
(f) Through the Principal Closing Date, the Selling Entities shall have
taken all necessary actions (if any) to comply with the WARN Act, to the extent
they are subject to such act, and no Acquiring Entity shall have any disclosure
or announcement obligations under the WARN Act. As of the date hereof, and in
reliance upon the covenant of the Acquiring Entities in Section 6.3 hereof, none
of the Selling Entities subject to the WARN Act contemplates any "plant closing"
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or "employee layoff," as such terms are used in the WARN Act, with respect to
any employees of any of the Selling Entities.
(g) Schedule 3.24(g) sets forth a true, complete and correct list of all
----------------
employment agreements to which any Selling Entity is a party with respect to any
of the Transitioned Employees.
(h) Schedule 3.24(h) sets forth a true, complete and correct list of all
----------------
employee manuals, policies, procedures and work related rules that apply to any
of the Transitioned Employees.
(i) No Selling Entity has made any representations or warranties or any
other statements or communications regarding any Acquiring Entity's right,
ability, plan or intention to dismiss any Transitioned Employee or the terms and
conditions upon which any such Transitioned Employee will be employed by any
Acquiring Entity, other than statements regarding the terms and conditions of
employment based on information provided by USI.
3.25 Employee Benefit Matters.
------------------------
(a) Employee Welfare Benefit Plans. Schedule 3.25(a) indicates therein
------------------------------ ----------------
each and every "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA) maintained, contributed to or to which contributions are required to be
made by any of the Selling Entities or any of their Affiliates with respect to
employees of the Business either presently or within the previous 12-month
period, or any such plan related to the Business to which any of the Selling
Entities or any of their Affiliates contributes, is required to contribute or
has contributed, including any such similar type of plan established,
maintained, or contributed to under the laws of any foreign country (such plans
being hereinafter collectively referred to as the "Employee Welfare Benefit
Plans"). Intergraph has delivered to USI true, complete and correct copies of
each and every Employee Welfare Benefit Plan, together with all documents and
instruments establishing or constituting any related trust, annuity contract or
other funding instrument, and including any summary plan descriptions or
substantive communication to employees concerning the establishment, operation
or termination of any such plan.
(b) Employee Pension Benefit Plans. Schedule 3.25(b) indicates therein
------------------------------ ----------------
each and every "employee pension benefit plan" (as defined in Section 3(2) of
ERISA) maintained, contributed to or to which contributions are required to be
made by any of the Selling Entities or any of their Affiliates with respect to
employees of the Business either presently or within the previous 12-months,
including any Multiemployer Pension Plan (as defined in either Section 3(37) or
Section 4001(a)(3) of ERISA) and including any such similar plan established,
maintained or contributed to under the laws of any foreign country (such
employee benefit plans being hereinafter collectively referred to as the
"Employee Pension Benefit Plans"). Intergraph has delivered to USI true,
complete and correct copies of each and every such Employee Pension Benefit
Plan, together with such copies of all documents or instruments establishing or
constituting any related trust, annuity contract or other funding instruments,
and including any summary plan descriptions or substantive description or
communication concerning such plan to employees or participants therein.
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(c) Other Employee Benefit Arrangements. Schedule 3.25(c) indicates
----------------------------------- ----------------
therein each and every stock option plan, pension plan, collective bargaining
agreement, bonus, incentive award, vacation pay, severance pay or any other
material personnel policy, employee benefit plan arrangement, agreement or
understanding which any of the Selling Entities or any of their Affiliates
presently maintains or has maintained in the previous 12-month period or to
which any of the Selling Entities or any such Affiliate contributes or has
contributed in such period, or has been required to contribute in such period,
with respect to employees of the Business and which is not required to be listed
in Schedule 3.25(a) or 3.25(b) (including with respect to any plans which are
---------------- -------
unwritten, a detailed written description of eligibility, participation,
benefits, funding arrangements, assets and any other matters which relate to the
obligations of the Selling Entities or their Affiliates). Intergraph has
delivered to USI a true, complete and correct copy of each such plan together
with copies of all documents or instruments establishing or constituting any
related trust, annuity contract or other funding instruments, and including any
substantive communication to employees or participants concerning such plans.
(d) PBGC and Other Liabilities. Neither EDS, USI nor any of their
--------------------------
Affiliates will have any liability of whatever nature or kind including with
respect to the establishment, maintenance, operation or termination of any
employee benefit plan, practice or program, including any Employee Welfare
Benefit Plan, Employee Pension Benefit Plan or other plan described in paragraph
(c) above, by reason of USI's acquisition of the Business, including any
liability to the PBGC, any employee benefit plan, the trustee of any employee
benefit plan or any employee or participant or any other corporation,
individual, trust, entity or government agency.
(e) COBRA. Neither USI, EDS nor any of their Affiliates will have any
-----
obligation to maintain any medical benefit plans, programs or practices, nor to
allow any individual, whether an employee, participant, former employee or
beneficiary of one of the foregoing, to participate in any health care plan, by
reason of the health care continuation requirements of COBRA except with respect
to those individuals who actually become employees of USI or its Affiliates, and
thereafter an event occurs entitling the employee, or some person related to the
employee, to such health care continuation coverage by reason of an employee's
employment with USI and participation in USI's medical benefit plans.
3.26 Compliance with Export Laws. Each of the Selling Entities
---------------------------
currently holds and is in compliance with the export licenses listed with
respect to such Person in Schedule 3.26; such export licenses ("Validated
-------------
Licenses") are the only export license documents issued with respect to the
Business and the Acquired Assets as of the date hereof. Each of the Selling
Entities is also in compliance with the general export licenses it relies upon
with respect to the Business and the Acquired Assets.
3.27 Inventories. As of the Balance Sheet Date, all of the inventories
-----------
and supplies that are reflected in the Balance Sheet were in good condition,
priced at the lower of cost (on the first-in, first-out basis) or market, and
(as to classes of items inventoried and methods of accounting and pricing)
determined in a manner consistent with prior years. All of such inventories and
supplies (together with the inventories and supplies which have been or will be
purchased or acquired by any Selling Entity with respect to the Business during
the period from the Balance Sheet Date to and including the applicable Closing
Date) which are included in the Acquired Assets were
40
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purchased or acquired in the ordinary course of the Business, consistent with
past practices. All of the inventory included in the Acquired Assets is in good
condition and is not obsolete or defective. Purchase commitments for merchandise
are not in excess of normal requirements and are not at prices in excess of
market prices. The Selling Entities have the types and quantities of inventory
appropriate, taken as a whole, to conduct the Business in accordance with past
practices.
3.28 Master Purchase Agreements. Schedule 3.28 sets forth a true and
-------------------------- -------------
correct list of those vendor agreements under which the Selling Entities make
purchases principally related to the Business (excluding those that relate to
assets or services furnished by Intergraph for the benefit of all of its
business units, subsidiaries or divisions and not principally to the Business,
including, without limitation, accounting and legal support and the services
provided under the Transition Services Agreement) (the "Master Purchase
Agreements").
3.29 Compliance with Law. To the best knowledge of the Selling
-------------------
Entities, without independent investigation, each of the Selling Entities (a)
has complied with all Legislative Enactments and Official Actions applicable to
its respective portion of the Business or the Acquired Assets, and (b) has duly
and timely made all filings and submissions that are required by Legislative
Enactments to be made with respect to such portion of the Acquired Assets or
such Business, and has provided the Acquiring Entities copies of all such
filings and submissions that have been made since January 1, 1993.
3.30 Projections. The financial projections for the Business prepared
-----------
by the Selling Entities and attached as Schedule 3.30 (the "Projections") were
-------------
prepared in good faith and, when prepared and furnished to USI, were based
solely upon assumptions that Intergraph believed to be reasonable. None of the
Selling Entities has any reason to believe that the Business will not so
substantially achieve the results described in the Projections (other than the
fact that the Business has not substantially achieved such results through the
date hereof and that the failure to achieve such results may impact the ability
of the Business to timely achieve the results described in the Projections),
although no assurance is given that the results set forth therein will be
achieved or that actual results will not differ materially from the results
reflected therein.
3.31 Intellectual Property.
---------------------
(a) Schedule 3.31(a), together with Schedule 3.32(a), set forth a true,
---------------- ----------------
complete and correct list of all items of Intellectual Property (i) which are
owned by a Selling Entity or an Affiliate of a Selling Entity, (ii) which also
comprise a part of the Business on the Principal Closing Date, and (iii) which
comprise a part of the Transferred Intellectual Property Interests (the "Owned
IP"). All patents, Trademark registrations and Copyright registrations which are
part of the Owned IP are in good standing, are valid and subsisting, and are in
full force and effect in accordance with their terms.
(b) Schedule 3.31(b), together with Schedule 3.32(b), set forth a true,
---------------- ----------------
complete and correct list of all items of Intellectual Property (i) which no
Selling Entity owns, but in which a Selling Entity has a right or rights (by
license or otherwise) and (ii) which also comprise a part of the Business on the
Principal Closing Date (the "Not-Owned IP"; the Owned IP and the Not-Owned IP
collectively referred to as the "IP"). All such items of Intellectual Property
comprise a
41
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part of the Transferred Intellectual Property Interests except as
specifically noted opposite the reference to any such item on Schedule 3.31(b)
----------------
or 3.32(b). The right of the Selling Entities to use the Not-Owned IP in the
-------
Business is solely under the written license agreements or other Contracts
listed on Schedules 3.31(b) and 3.32(b).
----------------- -------
(c) To the best knowledge of the Selling Entities, without independent
investigation, the development, license, use, sale, distribution and
modification of the Owned IP by the Selling Entities in connection with the
Business, and the use of the Not-Owned IP by the Selling Entities in connection
with the Business, has not infringed on or otherwise violated the rights of any
other Person or constituted an unlawful disclosure, use or misappropriation of
the right or rights of any other Person. The continued and future license, use,
sale and distribution of the Owned IP by the Acquiring Entities and their
agents, representatives or Affiliates from and after the Principal Closing in a
manner which is substantially identical to the license, use, sale and
distribution by the Selling Entities prior to the Principal Closing, and the
continued and future use of the Not-Owned IP by the Acquiring Entities and their
agents, representatives or Affiliates from and after the Principal Closing in a
manner which is substantially identical to the use by the Selling Entities prior
to the Principal Closing, shall not constitute an infringement or other
violation of the rights of any other Person or constitute an unlawful
disclosure, use or misappropriation of the right or rights of any other Person.
No Selling Entity is in material violation of, or in default under, any Contract
or other legal requirement relating to the IP.
(d) There is (i) no suit, action, complaint, proceeding, opposition,
petition to cancel, interference, re-examination or audit pending, or to the
best knowledge of the Selling Entities without independent investigation,
threatened, with respect to, (ii) to the best knowledge of the Selling Entities
without independent investigation, no presently existing factual basis that is
reasonably likely to result in any suit, action, complaint, proceeding or formal
audit contesting, and (iii) no outstanding Official Action concerning, any of
(A) the Owned IP or, to the best knowledge of any of the Selling Entities
without independent investigation, the Not-Owned IP, (B) any right of the
Selling Entities to develop, license, use, sell, distribute or modify the Owned
IP or (C) any right under a Contract or any other right of the Selling Entities
to use the Not-Owned IP.
(e) Except as set forth on Schedule 3.31(e), the Selling Entities have the
----------------
right, which is non-terminable and not subject to expiration or revocation, to
develop, license, control or regulate the use of, make, sell, have made, have
used, perform, copy, have sold, distribute and modify the Owned IP without any
valid legal or equitable claim by, or payment or other obligation owing to, or
Consent from, any Person, and the Acquiring Entities will acquire at the
Principal Closing (or at such other Closing as appropriate) all of such rights
in the Owned IP on the same basis and geographic scope as that enjoyed by the
Selling Entities immediately prior to the Principal Closing, without any
diminution or alteration as a result of the Principal Closing (or such other
appropriate Closing).
(f) Except as set forth on Schedule 3.31(f) (and subject only to the
----------------
express terms of those Contracts which are listed in Schedules 3.31(b) and
-----------------
3.32(b) to the extent that true and complete copies have been provided to USI),
- -------
the Selling Entities have the right, which is non-terminable and not subject to
expiration or revocation, to use the Not-Owned IP without any valid legal or
equitable claim by, or payment or other obligation owing to, any other Person,
and the
42
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Acquiring Entities will acquire at the Principal Closing (or at such
other Closing, as appropriate) all of such rights on the same basis as that
enjoyed by the Selling Entities immediately prior to the Principal Closing (or
such other appropriate Closing), without any diminution or alteration as a
result of such Closing. Schedule 3.31(f) sets forth a true and complete list of
----------------
all Consents required to permit the Acquiring Entities to make, license, use,
have sold, have made, have used, perform, copy, make derivative works of, sell,
distribute and modify the Not-Owned IP on the same basis as that enjoyed by the
Selling Entities immediately prior to the Principal Closing or at such other
appropriate Closing, without any diminution or alteration as a result of the
Closing or such other appropriate Closing (except with respect to Software which
may have been installed by a Transitioned Employee on an individual personal
computer included in the Acquired Assets which Software is not used by other
employees and is not material to the Business).
(g) Except as set forth on Schedule 3.31(g), the rights to develop, make,
----------------
license, use, have sold, have made, have used, perform, copy, make derivative
works of, sell, distribute, modify and exploit the Owned IP held by the
Acquiring Entities immediately after the Principal Closing (or such other
appropriate Closing) and the consummation of the transactions contemplated by
this Agreement will be the same rights to develop, make, license, use, sell,
have sold, have made, have used, perform, copy, make derivative works of,
distribute, modify and exploit the Owned IP held by the Selling Entities
immediately prior to the Principal Closing (or such other appropriate Closing)
and consummation of the transactions contemplated by this Agreement, without any
diminution or alteration as a result of the Closing or the consummation of any
of the transactions contemplated by this Agreement. The Transferred
Intellectual Property Interests set forth on Schedule 3.31(g) for which, to the
----------------
best of the Selling Entities' knowledge without independent investigation, there
is no functionally comparable equivalent publicly available have been so
designated.
(h) Except (i) with respect to rights under the agreements entered into
pursuant to this Agreement, (ii) as set forth in Schedule 3.31(h) or in Schedule
---------------- --------
3.21, and (iii) end-user licenses for INGR Tools and non-source code licenses
- ----
for BAG Tools, to the best knowledge of the Selling Entities without any
independent investigation, no Selling Entity has granted or obligated itself to
grant to any Person any license, option or other right to develop, make,
license, sell, have sold, have made, have used, perform, copy, make derivative
works of, distribute or modify in any manner any of the Owned IP, whether or not
requiring payment to any Selling Entity. To the knowledge of the Selling
Entities without independent investigation, no Person has either asserted any
right to develop, make, license, use, sell, have sold, have made, have used,
perform, copy, make derivative works of, distribute or modify the Owned IP
except in accordance with a license or other Contract described on Schedule
--------
3.31(h) or in Schedule 3.21, or offered to grant any Selling Entity a license or
- ------- -------------
any other right of use with respect to the Owned IP. No Selling Entity has any
obligation to compensate any Person for any development, license, use, sale,
distribution or modification of any of the Owned IP except as set forth in
Schedule 3.21. No consent, approval, or authorization of or by any other Person
- -------------
will be required after the Closing either (i) for the Acquiring Entities to
develop, license, make, use, sell, have sold, have made, have used, perform,
copy, make derivative works of, distribute, modify or exploit any of the Owned
IP or (ii) for the Acquiring Entities to use the Not-Owned IP. To the best
knowledge of the Selling Entities without any independent investigation, no
Person has or shall have any right to terminate or revoke any grant to or other
43
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acquisition by any Selling Entity of any right to develop, license, make, use,
sell, have sold, have made, have used, perform, copy, make derivative works of,
distribute, modify, or exploit any of the Owned IP. None of the Owned IP was
developed as part of the performance of any obligation for any Tribunal, or any
other Person which would require the taking of any action, whether or not
actually taken, in order for all rights to the Owned IP to become vested in, or
retained by, any Selling Entity. Other than the Owned IP and the rights of any
Selling Entity in the Not-Owned IP, except as set forth in Schedule 3.31(h) no
----------------
Intellectual Property right is used in any of the Business or is necessary for
the conduct of any of the Business as presently conducted.
(i) Schedule 3.31(i) sets forth a true, complete and accurate list of all
----------------
patents, patent applications, provisional applications, Trademark registrations,
applications for Trademark registration, Copyright registrations, applications
for Copyright registration and other registrations of and applications to
register Owned IP by or for any Selling Entity with any government or
governmental instrumentality. All such patents and registrations are in good
standing, valid and subsisting, and are in full force and effect in accordance
with their terms. To the best knowledge of the Selling Entities without any
independent investigation, no Person other than a Selling Entity has either
applied for any patent or registered any claim to Copyright with respect to any
part of the Owned Software.
(j) Except as set forth in Schedule 3.31(j) and to the best knowledge of
----------------
the Selling Entities without independent investigation, (i) none of the Owned IP
has been infringed by any other Person, and (ii) none of the Owned IP is being
used by any other Person except pursuant to a license agreement or other
Contract as set forth in Schedule 3.31(h).
----------------
(k) To the best knowledge of the Selling Entities without any independent
investigation, there are no moral rights that protect, affect, concern, or are
related to any of the Transferred Intellectual Property Interests, and no party
will assert any such rights.
44
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3.32 Software.
--------
(a) Schedule 3.32(a) sets forth a true, complete and correct list of all
items of Software (i) which are owned by a Selling Entity, (ii) which comprise a
part of the Business, and (iii) which comprise a part of the Transferred
Intellectual Property Interests (the "Owned Software") and specifically shall
include (by way of example and not implying any limitation) all of the Software
commonly known as or described as a part of the SolidEdge, EMS, Technovision and
Proren systems. The Owned Software shall include without limitation all earlier
or predecessor versions of any of such Software (whether or not released) if and
to the extent that such can be identified.
(b) Schedule 3.32(b) sets forth a true, complete and correct list of all
----------------
items of Software (i) which no Selling Entity owns but in which a Selling Entity
has a right or rights (by license or otherwise) and (ii) which also comprise a
part of the Business (the "Not-Owned Software"). All such items of the Owned
Software and the rights of the Selling Entities under the Not-Owned Software
comprise a part of the Transferred Intellectual Property Interests except as
specifically noted opposite the reference to any such item on Schedule 3.32(b).
----------------
The right of the Selling Entities to use the Not-Owned Software is solely under
the written license agreements or other Contracts listed in Schedule 3.32(b).
----------------
To the best knowledge of the Selling Entities without independent investigation,
the use by the Acquiring Entities of the Not-Owned Software subject to the
Contracts referred to in clause (r) of the definition of Retained Assets in
Section 1.1 hereof (which Contracts are not included in the Transferred
Intellectual Property Interests) pursuant to successor agreements entered into
by USI, to the extent that the Software covered thereby is the same as the Not-
Owned Software covered by such Contracts referred to in clause (r), will not
constitute an infringement or other violation of the rights of any other Person
or constitute an unlawful disclosure, use or misappropriation of the right or
rights of any other Person.
(c) All Owned Software is free from material defects in programming and
operation and performs in accordance with all normal industry expectations for
quality and relevant HELP files and published user manuals therefor and in
accordance with all technical, promotional and other written material used or
provided to any Person in connection with the Owned Software.
(d) Except as permitted under the EMS License Agreement or the SolidEdge
License Agreement, Intergraph will not copy, maintain, store, or archive any
computer software source code provided in the assets transferred to Unigraphics
by the concurrently executed Bill of Sale. Furthermore, except as contemplated
by the EMS License Agreement and the SolidEdge License Agreement, Intergraph
agrees that it will not have any access whatsoever to any such computer software
source code except through Unigraphics who has sole discretion whether to grant
such access.
(e) No Software comprising a part of the Business (1) contains any coded
instructions, routine, or other means (including but not limited to any back
door) that would enable any person or computer system, including authorized or
unauthorized users, to bypass any log-in and/or any security feature of the
Software or any computer on which the Software is installed; (2) contains any
coded instructions, routine or other means (including but not limited to any
time bomb or drop dead device) that, when activated in accordance with a
predetermined method, date, or event, causes the Software to cease to operate,
to operate in a degraded manner,
45
<PAGE>
to damage or destroy data or code, or otherwise deleteriously affect the
functioning of the Software, other programs, or the computer systems on which
the Software is installed, or with which such computer systems are in
communication (except demonstration versions or copies of Software which cease
to function at a predetermined date if not purchased or if other similar action
is not taken); (3) contains any coded instructions, routine or other means that
causes the Software, other software, or the computer system on which the
Software is installed to perform an unauthorized function or to operate in an
unauthorized manner; or (4) contains any coded instructions, routine or other
means (including any virus, trojan horse, or worm) that disables, erases, or
otherwise harms software, hardware or data or otherwise causes such actions.
3.33 Development and Protection of the Owned IP.
------------------------------------------
(a) The Owned IP consists exclusively of "works made for hire" as that
term is used in Title 17 of the United States Code, and a Selling Entity is
considered the author of each of such works. The Owned IP was developed entirely
by (i) full time employees working within the scope of their employment within
the meaning of 17USC(S)101 of a Selling Entity during the period (for each such
person, his "Engagement Period") in which either (I) (A) he was a full time
employee of a Selling Entity, (B) he was employed only by a Selling Entity and
(C) he was expressly employed for the purpose of or his written job description
in the employment of a Selling Entity at the time of such actions included as a
primary duty the development of part of the Owned IP or (II) he was subject to a
valid and enforceable written Contract (an "Employee IP Contract") which
assigned to such Selling Entity ownership of the work or works produced,
including, without limitation, all intellectual property rights therein (such
employee, solely when meeting all of these criteria, referred to as a
"Developer"), or (ii) independent contractors or consultants engaged by a
Selling Entity which have assigned to such Selling Entity their entire right,
title, and interest in and to the work or works produced, including without
limitation all intellectual property rights therein pursuant to a valid and
enforceable written Contract (an "Independent Contractor IP Contract") (such
contractor or consultant meeting these criteria also referred to as a
"Developer"). No material Owned IP includes (i) any Intellectual Property in
which any Person other than a Selling Entity has or may acquire any right of
ownership, control or compensation, or (ii) any invention made by (A) any
employee of a Selling Entity who was not hired to invent at any time other than
during his Engagement Period or (B) any independent contractor or consultant
engaged by a Selling Entity who is not subject to an Independent Contractor IP
Contract, or (iii) the product of any effort to develop independently, through a
"clean room" effort or otherwise, an expression in which any Person other than a
Selling Entity has intellectual property rights. None of the Owned IP is the
product of a joint invention or authorship by a Developer and any Person who is
not also a Developer. No right of any Person other than a Selling Entity to any
patent, patent application, Trademark or Copyright is embodied in any of the
Owned Software, except as set forth on Schedule 3.33(a).
----------------
(b) Each Selling Entity has diligently taken reasonable measures to
protect for the sole use and benefit of the Selling Entities the confidential
and proprietary nature of the Trade Secrets and the source code, object code and
access codes for the Software (the "Confidential Software"). Each Person,
including without limitation employees, agents, consultants, distributors and
licensees of the Selling Entities, who has had access to or otherwise been
exposed to any of the Trade Secrets or Confidential Software (including without
limitation any of the source code for the Owned
46
<PAGE>
Software) has been advised of the confidential and proprietary nature of the
Trade Secrets and the Confidential Software and any such agent, consultant,
distributor or licensee has been required to enter into a written agreement
("Confidentiality Contract") with the appropriate Selling Entity acknowledging
and agreeing that (i) the Owned IP is and shall remain the sole and exclusive
property of, and may be confidential to, such Selling Entity, and (ii) the Owned
IP is not to be used or disclosed to any Person other than as specifically
authorized by such Selling Entity. Each of the Confidentiality Contracts and
Employee IP Contracts relating to the Transferred Intellectual Property
Interests was and is in full force and effect, and constitutes the legal, valid
and binding obligation of each Selling Entity which is a party thereto and, to
the best knowledge of the Selling Entities without independent investigation,
each other Person which is a party thereto, enforceable in accordance with its
terms, except that (iii) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally, and (iv) the remedy of specific
performance and injunctive relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding may be brought. Each
Selling Entity has kept all of the Trade Secrets, including without limitation
all of the source code for the Owned Software, strictly confidential and secret.
The Trade Secrets are not and have not been a part of the public knowledge or
literature. No Selling Entity has disclosed, divulged or otherwise provided
access to any part of the source code for the Owned Software other than to
Persons which have entered into written Confidentiality Contracts with the
appropriate Selling Entity or who have a confidential relationship with the
Selling Entity or a duty to keep such source code for the Owned Software
confidential. To the best knowledge of the Selling Entities without independent
investigation, no Person which is a party to an IP Contract or confidentiality
agreement or has a confidential relationship with any Selling Entity is in
violation of, or in default under, any term or provision of such Contract which
relates to the Owned IP.
(c) All Know-How comprising a part of the Business is included in the
assets assigned to the Acquiring Entities by the Selling Entities in this
Agreement. Schedule 3.33(c) sets forth a true, complete and correct list of all
----------------
locations where the descriptions of any material Know-How comprising a part of
the Business is kept. Such descriptions explain the material Know-How
comprising a part of the Business. Each Selling Entity has taken all
commercially reasonable appropriate measures to protect in all material respects
the confidential and proprietary nature of the information related to the
business strategy, finances, marketing plans or employees of the Business which
has not been published and is not generally known to the public.
3.34 Accuracy of Consent Schedules. Schedules 2.5(d) and 7.4 set forth
----------------------------- ---------------- ---
a true, complete and correct list of all material Consents from any Tribunal or
other Person as may be necessary or appropriate to consummate the transactions
contemplated by this Agreement in accordance with this Agreement and to enable
the Acquiring Entities to carry on and conduct the Business, in all material
respects, subsequent to the applicable Closing in substantially the same manner
as was carried on and conducted prior to such Closing, or that are necessary to
prevent a breach of or a default or penalty, or increase in payments, under or a
termination of any material Contract relating to the Business.
3.35 Confidential Information. All confidential or proprietary
------------------------
information relating to any aspect of the Business which has been provided by
any Selling Entity to any Person that entered or proposed to enter into
negotiations for the sale of the Business (including a sale of capital stock of
47
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any Selling Entity) or any portion thereof, whether or not under a Contract or
other assurances of confidentiality, has been destroyed or returned to the
applicable Selling Entity.
3.36 Brokers. None of the Selling Entities has authorized any Person to
-------
act as a broker or finder or in any similar capacity in connection with this
Agreement or the transactions contemplated hereby in such a manner as to give
rise to a valid claim against EDS or any of the Acquiring Entities for any
brokers' or finders' fees or similar fees or expenses.
3.37 Commercial Software. The Software subject to each of the EMS
-------------------
License Agreement and the SolidEdge License Agreement are commercial computer
Software which is used regularly for other than government purposes and is sold,
licensed or leased in significant quantities to the general public at
established market or catalog prices.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING ENTITIES
To induce the Selling Entities to enter into this Agreement and to
consummate the transactions contemplated hereby, USI jointly represents and
warrants with respect to itself and each other Acquiring Entity, and each other
Acquiring Entity with respect to itself represents and warrants to the Selling
Entities as set forth in this Article IV and as may be additionally provided in
the applicable Closing Agreement. Notwithstanding anything to the contrary set
forth in this Agreement, Intergraph acknowledges that the representations and
warranties set forth in this Article IV are qualified by the fact that as of the
date of this Agreement the formation of the Portugese branch of Unigraphics
Solutions Espana, S.A., the Finnish branch of Unigraphics Solutions Sverige AB,
and the legal entities in Poland, Korea and the Czech Republic to consummate the
transactions contemplated hereby in those countries have not yet been completed.
4.1 Corporate Existence and Authority. Each Acquiring Entity is a
---------------------------------
corporation or (as indicated on Schedule 4.1) other legal entity duly organized,
------------
validly existing and, to the extent such a concept or similar concept exists in
the relevant jurisdiction, in good standing under the laws of the state or other
jurisdiction of its incorporation or other organization, as set forth on
Schedule 4.1. Each Acquiring Entity has all requisite power and all requisite
- ------------
franchises, license, permits and authority to own and lease its properties and
assets and to carry on its business, as such business has been conducted and is
being conducted currently. None of the Acquiring Entities is in breach or
violation of its Charter or Bylaws.
4.2 Authorization and Effect of Agreement, Etc. Each Acquiring Entity
------------------------------------------
has all requisite power and authority to enter into, execute and deliver this
Agreement and the other agreements contemplated hereby to which such Person is a
party and to perform its obligations hereunder and thereunder and to consummate
the respective transactions contemplated hereby and thereby for such Acquiring
Entity. The execution, delivery and performance of this Agreement by each of
the Acquiring Entities and the other agreements contemplated hereby to which
such Person is a party and the consummation by the Acquiring Entities of the
transactions contemplated hereby and thereby have been duly authorized by all
corporate and other entity action. This Agreement has been, and the other
agreements contemplated hereby to which any of the Acquiring Entities is a party
will be, duly executed and delivered by each of the Acquiring Entities (to the
extent such Person is a party thereto) and constitutes, or when executed and
delivered will constitute, the valid and binding obligation of the Acquiring
Entities, enforceable in accordance with its respective terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and (ii) the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding may be brought.
4.3 No Violation. Except as set forth in Schedule 4.3, neither the
------------ ------------
execution, delivery or performance by any of the Acquiring Entities of this
Agreement or any other agreement contemplated hereby to which any of such
Persons is a party, nor the consummation by any of the Acquiring Entities of any
of the transactions contemplated hereby or thereby in accordance with the terms
hereof or thereof, does or will (with the passage of time, the giving of notice
or otherwise)
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(a) violate or conflict with any provision of the Charter or Bylaws of any
Acquiring Entity; (b) violate, conflict with, modify or cause any default under
or acceleration of (or give any party any right to declare any default or
acceleration, upon notice or passage of time or otherwise, with respect to), in
whole or in part, any Lien or Contract to which any Acquiring Entity is a party
or by which it or any Acquiring Entity or any of its respective properties are
bound; (c) violate, conflict with or cause any default under (or give any party
any right to declare any default, upon notice or passage of time or otherwise,
under) any Legislative Enactments, Official Actions or any other restriction of
any kind or character to which any Acquiring Entity is a party or by which any
Acquiring Entity or any of its respective properties is bound; (d) result in the
creation or imposition of any Lien, proscription or restriction on any property
or asset; or (e) permit any Tribunal to impose any restrictions or limitations
of any nature on any Acquiring Entity or its respective properties or
activities.
4.4 Challenges To This Agreement. No suit, action, proceeding or
----------------------------
investigation against any Acquiring Entity challenging this Agreement or any of
the transactions contemplated hereby or claiming damages in connection with this
Agreement or any of the transactions contemplated hereby has been instituted or,
to the knowledge of the Acquiring Entities, without independent investigation,
threatened.
4.5 Consents. Except as set forth in Schedule 4.5, no Consent of, or
-------- ------------
registration, declaration or filing with, or permit from, any Tribunal, lessor,
lender or any other Person is required to be made or obtained by any Acquiring
Entity in connection with the execution, delivery and performance by any of the
Acquiring Entities of this Agreement or the other agreements contemplated hereby
or the consummation of the transactions contemplated hereby or thereby in
accordance with the terms hereof and thereof.
4.6 Brokers. Neither EDS nor any Acquiring Entity has authorized any
-------
Person to act as a broker or finder or in any similar capacity in connection
with this Agreement or the transactions contemplated hereby in such a manner as
to give rise to a valid claim against any of the Selling Entities for any
brokers' or finders' fees or similar fees or expenses, other than Morgan Stanley
& Co. Incorporated, the fees and expenses of which will be paid by USI.
ARTICLE V
COVENANTS OF THE SELLING ENTITIES
5.1 Consummation of Transactions. Subject to the terms and conditions
----------------------------
herein provided, from the date hereof through its applicable Closing Date, each
Selling Entity will take, or cause to be taken, all actions and do, and cause to
be done, all things necessary, proper or advisable to consummate and make
effective, as promptly as practicable, the transactions contemplated by this
Agreement in accordance with the terms of this Agreement applicable to such
Selling Entity. From the date hereof through its applicable Closing Date, no
Selling Entity shall voluntarily take, and Intergraph shall cause each Affiliate
of any Selling Entity not to take voluntarily, any action or course of action
inconsistent with the satisfaction of the respective conditions, terms and
provisions of this Agreement or the consummation of the respective transactions
contemplated by this Agreement in accordance with the terms of this Agreement
applicable to such Selling Entity.
50
<PAGE>
5.2 Conduct of Business. From the date hereof and through its applicable
-------------------
Closing Date, each Selling Entity will conduct such portions of the Business as
it may directly or indirectly control only in the ordinary course of its
respective portion of the Business, consistent with past practices, unless USI
shall otherwise consent in writing. Without limiting the generality of the
foregoing, unless USI has given its prior written consent otherwise, none of
such Selling Entities will take any action that would cause the breach of any
covenant of such Selling Entity in this Agreement (including in this Article V)
---------
or that would cause the representations and warranties of such Selling Entity in
this Agreement (including those set forth in Article III) to be untrue in any
-----------
respect at any time through the final Closing Date.
5.3 Preservation of Business. Without limiting the generality of
------------------------
Section 5.1 and Section 5.2, from the date hereof and through the applicable
- ----------- -----------
Closing Date, each Selling Entity will, with respect to such portions of the
Acquired Assets, the Assumed Liabilities and the Business it may directly or
indirectly control:
(a) use its best efforts to preserve intact its present business
organization and not alter or change its methods of operation;
(b) use its best efforts to preserve its goodwill and its present
business relationships with all Persons;
(c) use its best efforts to keep available the services of its present
officers and employees, except as USI may otherwise require or direct,
provided that the Selling Entities shall not be obligated to increase
compensation or benefits outside of the ordinary course of business in
order to retain such persons;
(d) maintain and keep its respective portion of the Acquired Assets in
good repair and condition, normal wear and tear excepted;
(e) pay and perform, when due, all obligations under its Contracts
relating to the Business and the Acquired Assets;
(f) comply with and perform all its obligations and duties imposed by all
Legislative Enactments and Official Actions, except as may be contested by
such Selling Entity in good faith by appropriate proceedings;
(g) maintain in full force and effect policies of insurance of the same
type, character and coverage as the policies of insurance listed with
respect to it in Schedule 5.3;
------------
(h) not amend or make other changes to its Charter or Bylaws in any
manner whatsoever that would inhibit or hinder its ability to consummate
the transactions contemplated hereby;
(i) not purchase, sell, lease, mortgage, pledge or otherwise acquire or
dispose of its respective portion of the Acquired Assets, except for
tangible personal property purchased,
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sold, leased or pledged in the ordinary course of its respective portion of
the Business, consistent with past practices;
(j) not enter into, or become obligated under, any Contract relating to
the Business, or change, amend, terminate or otherwise modify any such
Contract, except as contemplated by Section 2.12 and except for Customer
Contracts and other normal purchase, sale, license and lease agreements and
commitments for tangible personal property which are entered into in the
ordinary course of its respective portion of the Business, consistent with
past practices;
(k) not incur or commit to any capital expenditures, obligations or
liabilities, other than capital expenditures, obligations or liabilities
not in excess of $25,000 in the aggregate;
(l) not change its method of accounting from that in effect at the
Balance Sheet Date;
(m) not increase or otherwise change the rate or nature of the
compensation (including wages, salaries, bonuses, perquisites and benefits
under pension, profit sharing, deferred compensation and similar plans or
programs) which is paid or payable, directly or indirectly, to or for the
benefit of any of its officers or employees employed or engaged primarily
in connection with the Business or hire any such employee at an annual
salary in excess of $35,000, or terminate any such employee whose annual
compensation is in excess of $35,000;
(n) not establish any employee plan or program as described in Section
-------
3.24 or 3.25 nor make, or commit to make, any payment, contribution or
---- ----
award under or into any such employee plan or program except in the
ordinary course of business as required thereunder;
(o) not modify, release or cancel any obligations, indebtedness,
liabilities or Liens (unless such obligation, indebtedness, liability or
Lien has been paid in full to such Person at the time of release or
cancellation) with respect to the Business;
(p) not waive, compromise or settle any right or claim with respect to
the Business, or institute, settle or agree to settle any litigation,
action or proceeding with respect to the Business before any Tribunal;
(q) not subject any of the Acquired Assets to any newly created Lien or
other adverse interest or restriction, other than Permitted Encumbrances
and Liens for Taxes not yet due and payable that have been incurred in the
ordinary course of its respective portion of the Business, consistent with
past practices;
(r) not incur any indebtedness, obligation or liability, except those
arising in the ordinary course of its respective portion of the Business,
consistent with past practices;
(s) not assume, guaranty or endorse the obligations of any Person, except
in the ordinary course of its respective portion of the Business,
consistent with past practices;
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<PAGE>
(t) except in the ordinary course of its respective portion of the
Business, consistent with past practices, not extend any credit or commit
to extend credit to any Person;
(u) not grant any rebates, discounts, advances or allowances to any
customers except in the ordinary course of its respective portion of the
Business, consistent with past practices (without limiting the generality
of the foregoing, none of the Selling Entities shall provide any products
(including Software products) or services at discounted rates or free of
charge to any customer as a rebate, discount or advance, except in the
ordinary course of business consistent with past practices); and
(v) use or sell the inventories and supplies in its respective portion of
the ordinary course of the Business, consistent with past practices;
provided, however, that the Selling Entities shall not be in breach of this
Section 5.3 as a result of any act or omission to act pursuant to the direction
or approval of a USI manager serving pursuant to Section 2.14 hereof.
5.4 Access to Information. From the date hereof to its applicable
---------------------
Closing Date, each Selling Entity shall furnish, and shall cause each Affiliate
of the Selling Entities which it directly or indirectly controls to furnish, the
officers, employees and agents of the Acquiring Entities reasonable access to
(a) the officers, employees, agents, properties, Books and Records as they
relate to its respective portion of the Business and (b) all of its financial,
operating and other data and information with respect to such portion of the
Business. The Acquiring Entities shall have the right to review the Books and
Records of each Selling Entity as they relate to its respective portion of the
Business prior to the final Closing Date. Each Selling Entity shall use its
best efforts to allow the Acquiring Entities to accomplish their reviews as
rapidly as possible. No such examination, inspection or audit by the Acquiring
Entities or their agents and representatives (whether in accordance with this
Section 5.4 or otherwise) shall in any way diminish, modify, terminate or
- -----------
otherwise affect the respective representations, warranties, covenants or
agreements of each Selling Entity contained in this Agreement or in any
certificate or other instrument furnished or to be furnished by any of the
Selling Entities or any Affiliate of any of the Selling Entities in connection
with this Agreement. Such access and information shall be afforded to the
officers, employees and agents of the applicable Acquiring Entities by the
applicable Selling Entities, who shall also cause their respective officers,
directors, employees and agents (including attorneys and accountants) to afford
such access and information.
5.5 Notification of Certain Matters. Prior to its applicable Closing
-------------------------------
Date, each Selling Entity shall give prompt notice to USI of (a) any threatened
or actual lawsuit, any proposed settlement of any threatened or actual lawsuit
and any pending or threatened governmental action or proceeding of any kind
known to such Selling Entity which relates to its respective portion of the
Business or the Acquired Assets or the transactions then contemplated by this
Agreement; and (b) any material failure of any of the Selling Entities to comply
with or satisfy any covenant, condition or agreement then remaining to be
complied with or satisfied by it hereunder.
5.6 Furnishing of Information. As soon as available but not later than
-------------------------
March 31, 1998, Intergraph will furnish to USI unaudited statements of revenues
and direct expenses of the Business
53
<PAGE>
for the period commencing on January 1, 1998 and ending on the Principal Closing
Date in the form and detail similar to those included within the Financial
Statements, certified by the chief financial officer or treasurer (or other
comparable officer) of Intergraph as being prepared in accordance with GAAP and
fairly presenting the results of operations of the Business for the period then
ended, subject to normal, recurring quarter-end and year-end audit adjustments,
as described therein. Following the Principal Closing Date and prior to the
consummation of each International Closing, Intergraph will furnish to USI, as
soon as available, but in any event not later than 30 days after the end of each
calendar month, an unaudited balance sheet for each Selling Entity which has not
yet consummated its International Closing with respect to the Business as of the
end of such month and the related unaudited statements of revenues and direct
expenses of such Selling Entity with respect to the Business for such month in
the form and detail similar to those included within the Financial Statements,
certified by the chief financial officer or treasurer (or other comparable
officer) of Intergraph as being prepared in accordance with GAAP and fairly
presenting the financial position of the Business conducted by the Selling
Entity as of the dates thereof and the results of operations of the same for the
period then ended, subject to normal, recurring quarter-end and year-end audit
adjustments, as described therein. All such financial statements described above
shall be true, complete and correct and shall be prepared in accordance with
GAAP applied consistently throughout the periods reflected therein and with
prior periods (except as approved by such officer and disclosed therein). The
Selling Entities have been advised that USI intends to include the Financial
Statements (and possibly the unaudited financial statements for the Business for
periods following January 1, 1998) in a Registration Statement on Form S-1 to be
filed with the Securities and Exchange Commission and consent to the inclusion
thereof in such Registration Statement (and similar financial statements for
subsequent periods depending on the timing of the filing of such Registration
Statement). USI has been advised by the Securities and Exchange Commission that
it may include a statement of assets purchased in such Registration Statement in
lieu of the Balance Sheet, and Intergraph agrees to promptly furnish such
Statement to USI for inclusion in any such Registration Statement. Intergraph
will obtain the consent of Ernst & Young to the inclusion of their report on the
Financial Statements in any such Registration Statement and will instruct Ernst
& Young to cooperate with a reasonable request for a "comfort letter" which may
be requested by the underwriters.
5.7 Non-Solicitation. From the date hereof and until the five-year
----------------
anniversary of the Principal Closing Date, neither Intergraph nor any Affiliate
of Intergraph shall, directly or indirectly, solicit for employment (other than
through public advertisements or other widely disseminated employment notices)
or hire any employee of any of the Selling Entities with respect to the Business
who is then currently employed by any of the Acquiring Entities or any of their
Affiliates, and during such period, without the prior written consent of USI,
Intergraph may not offer employment or employ any person who identified on
Schedule 6.3 who does not accept the offer of employment by the Acquiring
- ------------
Entities contemplated hereby.
5.8 Use of Owned Software. None of Intergraph, any other Selling Entity
---------------------
or any of their Affiliates shall access, operate, distribute, copy, use, or
modify any of the Owned Software, other than the Owned Software subject to the
Transferred Intellectual Property License Agreements and except as permitted
under the terms of the EMS License Agreement or the SolidEdge License Agreement.
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5.9 Expenses of Transaction. The Business has not incurred or paid and
-----------------------
will not incur or pay legal or consulting fees or expenses in connection with
any offer for sale of (a) the Acquired Assets or the Business, (b) all or
substantially all of the assets of any Selling Entity or (c) the negotiation,
preparation, execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
5.10 Further Assurances. If at any time after any Closing, any
------------------
Acquiring Entity shall consider or be advised that any further assignments,
conveyances, transfers or assurances in law, or any other actions or things, may
be necessary or appropriate to assign, convey, transfer, set over or deliver to,
or to vest, perfect or confirm in, the applicable Acquiring Entity any right,
title or interest of any Selling Entity, of record or otherwise, in or to the
Acquired Assets or the Business or to place the Acquiring Entities in operating
control of any of the Acquired Assets, the respective Selling Entities shall
promptly execute, deliver and record, or cause to be executed, delivered and
recorded, any and all such further instruments of assignment, conveyance and
transfer and take, or cause to be taken, all actions and do, or cause to be
done, all things, as may be reasonably requested by the applicable Acquiring
Entity to assign, convey, transfer, set over and deliver to, and to vest,
perfect and confirm in, the appropriate Acquiring Entity all right, title and
interest of the Selling Entities, of record and otherwise, in and to the
Acquired Assets and the Business or to place the Acquiring Entities in operating
control of any of the Acquired Assets, including, without limitation the
execution, delivery and filing of such documents and instruments as are
necessary in order to effectuate the transfer of the Transferred Intellectual
Property Interests to the applicable Acquiring Entities; provided, however, that
any such request shall be subject to any limitations or restrictions contained
in this Agreement.
5.11 Period of Exclusivity. Except with respect to the Acquiring
---------------------
Entities, during the period commencing on the date of this Agreement and ending
on the earliest to occur of (a) the final Closing or (b) termination of this
Agreement in accordance with Section 10.2, none of the Selling Entities shall
------------
provide, and each of the Selling Entities will cause its respective directors,
officers, employees and other representatives not to provide, any information
with respect to, or participate in any discussions concerning, any corporate
transaction relating to a sale or transfer (directly, indirectly or by operation
of law) of any or all of the Acquired Assets, any merger or corporate
reorganization relating to all or any of the Acquired Assets or any other
significant corporate transaction involving any of the Acquired Assets.
5.12 Noncompetition.
--------------
(a) The Selling Entities agree that during the seven-year period
commencing on the date of this Agreement they (i) will not, either directly or
indirectly (including through any Affiliate), own, manage, control or operate or
participate in the ownership, management, operation or control of, any business,
whether in corporate proprietorship or partnership form or otherwise, which
engages in a Competitive Activity in any location, whether inside or outside of
the United States; (ii) will not engage in a Competitive Activity at any place,
whether inside or outside of the United States, directly or indirectly
(including through an Affiliate), whether individually, in partnership, jointly,
or in conjunction with, or on behalf of, any Person; and (iii) will not,
directly or indirectly (including through an Affiliate), whether individually,
in partnership, jointly, or in conjunction with, or on behalf of, any Person,
solicit or accept any business which requires engagement in
55
<PAGE>
Competitive Activities; provided, however, the foregoing shall not be deemed to
prohibit the Selling Entities from the performance of its obligations under the
CAD II Contracts as contemplated by the SolidEdge License Agreement, the EMS
License Agreement and the SolidEdge Reseller Agreement.
(b) The term "Competitive Activity" means the maintenance, marketing or
selling, or the development for marketing or sale by a third party, of three-
dimensional modeling Software intended primarily for use in the automotive,
aerospace or manufacturing (including, without limitation, mechanical design of
consumer products, consumer electronics, computers and machine tooling)
industries for equipment design, machine design, product design, finite element
analysis, mechanism analysis or numerical control tool path creation, provided,
however, that the foregoing shall not be deemed to restrict Intergraph from the
maintenance, marketing, development or sale of Software intended to be used for
the Intergraph Fields or the Joint Fields.
(c) The parties hereto specifically acknowledge and agree that the remedy
at law for any breach of the foregoing will be inadequate and that the aggrieved
party, in addition to any other relief available to it, shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual damage. In the event that the provisions of this Section 5.12 should
ever be deemed to exceed limitations provided by applicable law, then the
parties hereto agree that such provisions shall be reformed to set forth the
maximum limitations permitted; provided, however, nothing in this Section 5.12
shall prevent a Selling Entity or any Affiliate thereof from acquiring less than
a 2% ownership interest in a company which is engaged in a Competitive Activity.
The provisions of this Section 5.12 shall not restrict Intergraph from engaging
in any activity not prohibited hereunder or by the exclusive nature of certain
of the Intellectual Property covered by the Transferred Intellectual Property
License Agreements.
5.13 Certain Employee Benefit Matters.
--------------------------------
(a) Intergraph Incentive Benefits. Not later than seven days following
-----------------------------
the Principal Closing Date, each Selling Entity will pay to the Transitioned
Employees identified on Schedule 5.13(a) any incentive compensation benefits due
----------------
to such Transitioned Employee through the Principal Closing Date and to the
other Transitioned Employees the pro rata portion of the bonus payments to such
persons through the Principal Closing Date in accordance with the bonus scheme
in effect for 1997.
(b) Intergraph Vacation Pay. Not later than seven days following the
-----------------------
Principal Closing Date, each Selling Entity will pay an amount in respect of all
accumulated vacation days and, with respect to non-U.S. Transitioned Employees
if required by applicable law, accumulated holiday or similar benefits (in each
case based on the then current salary of the Transitioned Employee or, outside
the United States, as may otherwise be required by law) as of the Principal
Closing to each Transitioned Employee who was employed immediately prior to such
Closing by such Selling Entity. Each of the Closing Agreements may set forth
additional obligations or procedures for effecting the foregoing obligations of
the Selling Entities organized outside the United States and each branch of a
Selling Entity organized under the laws of the United States but whose branch
operations are conducted outside the United States.
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(c) Intergraph Stock Incentive Plan. Intergraph shall extend, for a
-------------------------------
period of three months from the date of termination with respect to each
Transitioned Employee, the exercise periods under the Intergraph Corporation
1992 Stock Option Plan and the Intergraph Corporation 1997 Stock Option Plan for
all vested awards as of the date of termination of employment by a Selling
Entity of such Transitioned Employee.
(d) Intergraph 401(k) Plan. Effective as of the date of the termination
----------------------
of employment by a Selling Entity in connection with this Transaction,
Intergraph shall take all actions which are necessary and appropriate to fully
vest each Transitioned Employee in all amounts in such employee's individual
account in the Intergraph Corporation SavingsPlus Plan (the "Intergraph 401(k)
Plan"). Any Transitioned Employee who, as of the date of termination of such
employee's employment with a Selling Entity, has an outstanding balance on any
loan from the Intergraph 401(k) Plan, shall be eligible to transfer such loan,
along with all amounts vested in such employee's Intergraph 401(k) Plan
individual account, into the EDS Deferred Compensation Plan ("EDS 401(k) Plan")
pursuant to a trust-to-trust transfer ("Plan Asset Transfer") made in accordance
with the administrative policies and procedures of the Electronic Data Systems
Deferred Compensation Plan (the "EDS 401(k) Plan") and Section 414(l) of the
Code, provided that at the time of the Plan Asset Transfer Intergraph can
represent and warrant to EDS that the Intergraph 401(k) Plan (i) provides for
Plan Asset Transfers and (ii) is a qualified employee pension benefit plan in
compliance with Code Sections 401 et seq. The plan administrator of the
-------
Intergraph 401(k) Plan shall, upon reasonable request, promptly provide the plan
administrator of the EDS 401(k) Plan with any and all data, records and other
information pertaining to any Transitioned Employee, a beneficiary, dependent,
spouse or former spouse of any Transitioned Employee, the Intergraph 401(k) Plan
individual account for any Transitioned Employee, and any other information
considered necessary and appropriate for the plan administrator of the EDS
401(k) Plan to establish and administer an individual account for any
Transitioned Employee in the EDS 401(k) Plan. The plan administrator of the
Intergraph 401(k) Plan shall further cooperate to take all such reasonable
actions as are necessary or appropriate for such plan administrator to take to
effect the Plan Assets Transfer in a timely and efficient manner, including the
filing of any reports, notices or disclosures which may be required by any
governmental agency.
(e) Foreign Nationals. The Transitioned Employees identified on Schedule
----------------- --------
5.13(e) are foreign nationals working in the United States ("Foreign National
- -------
Employees"). Each Foreign National Employee shall remain employed by Intergraph
until such persons are granted permanent United States residency by the
Department of Immigration (the "Transition Date"). During the period from the
applicable Closing Date through the applicable Transition Date, each Foreign
National Employee shall be employed by Intergraph for the full-time benefit of
USI and the Acquired Business, and USI shall reimburse Intergraph for their
salaries at the rates set forth opposite their respective names on Schedule
--------
5.13(e), which rates are the current salaries of such persons, and for the
- -------
direct benefit costs of Intergraph attributable to such persons. During this
period, USI may request that the employment of any such person be terminated.
In such event, later than five days following the date of such request
Intergraph may either (i) continue the employment of such person for
Intergraph's benefit, in which event USI shall discontinue payments of salary
reimbursement, or (ii) terminate the employment of such person, in which event
USI will
57
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reimburse Intergraph for any required severance payments to any terminated
Foreign National Employee in accordance with Intergraph's severance policy.
(f) Employment Assistance. Each Selling Entity will cooperate with the
---------------------
applicable Acquiring Entity in (i) where the law so requires, the facilitation
of the transfer of the employees of the Selling Entity engaged in the Business
to the relevant Acquiring Entity, (ii) the performance by such Acquiring Entity
of its obligations under Section 6.3 to offer employment with USI or another
-----------
Acquiring Entity to such employees of the Business as such parties shall agree
upon prior thereto or in the applicable Closing Agreement and (iii) such
Acquiring Entity's effort to employ such employees. No Selling Entity will (A)
except with the written consent of USI, make any representations, promises or
other communications, whether written or oral, to such employees regarding
employment with any of the Acquiring Entities or employee benefits, plans or
practice of the Acquiring Entities, or (B) take any act that diminishes any
Acquiring Entity's right to dismiss, subject to applicable law, any such
employee with or without cause.
(g) Expense Report Reimbursement. Each Selling Entity will reimburse a
----------------------------
Transitioned Employee for any business related expenses incurred by that
Transitioned Employee with respect to a period prior to the Principal Closing in
accordance with the Selling Entities' standard expense reimbursement policy.
(h) Transfer of Certain Non-U.S. Pension Assets.
-------------------------------------------
(I) At or prior to the applicable International Closing, Intergraph
shall contribute in cash to the underlying trusts (or comparable funding
arrangements) of the EDS pension plans (the "EDS Pension Trusts") or in the
case of an unfunded book reserve maintained by Intergraph or an Affiliate
of Intergraph, to USI (which shall accept such funds on behalf of EDS) an
amount equal to the Projected Benefit Obligation value ("PBO") of the
benefits accrued for and in respect of the Transitioned Employees under the
applicable Intergraph pension plan as determined under the rules of the
respective Intergraph pension plan and applicable law as if the
Transitioned Employee's employment with a Selling Entity had terminated the
day before the applicable Closing Date. The PBO will be calculated using
the Intergraph pension plan rules as in effect on the applicable Closing
Date and the actuarial methodology and assumptions which were applicable
for the EDS annual disclosure under FAS87 as of December 31, 1997. For this
purpose, each Transitioned Employee shall be deemed to have a fully vested
benefit under the applicable Intergraph pension plan. Notwithstanding the
foregoing, to the extent that the applicable Intergraph pension plan is a
defined contribution plan, the PBO shall refer to each Transitioned
Employee's full account balance credited to him or her under the Intergraph
pension plan, consisting of both employee and employer contributions and
any adjustments thereon due to investment performance, as of the applicable
Closing Date.
(II) To the extent permitted by law, all payments will be made
directly from the underlying trust (or other comparable funding
arrangements) of each Intergraph pension plan (the "Intergraph Pension
Trusts") to the corresponding EDS Pension Trust in the respective country
and, to the extent so paid, Intergraph's obligation to pay the
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amounts referred to in (I) above shall be correspondingly reduced. If,
under applicable law the legally required minimum amount to be transferred
exceeds the PBO, then such payment will in no event be less than the amount
necessary to satisfy the requirements of any applicable law.
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(III) Intergraph shall pay interest on the amount payable to the EDS
Pension Trust or USI, as the case may be, accruing for the period beginning
on the day after the Principal Closing Date until the date the amount is
paid to the EDS Pension Trust at the discount rate per annum used to
calculate the PBO. To the extent permitted by law, this payment shall be
made from the Intergraph Pension Trusts to the EDS Pension Trusts.
(IV) For each Transitioned Employee, Intergraph will transfer from
the Intergraph Pension Trusts, and USI will assume (or cause the applicable
EDS pension plan to assume) as of the EDS plan eligibility date, an amount
of plan liabilities equal to the PBO under the Intergraph pension plan as
of the applicable Closing Date.
(V) All calculations contemplated herein shall be performed by an
actuary designated by USI, which may be reviewed by an actuary designated
by Intergraph prior to the transfer, and shall be performed within 30 days
after the applicable Closing Date, or as soon thereafter as practicable
(provided that to the extent permitted by law all payments to be made at
the applicable Closing shall be estimated in good faith by USI and
Intergraph with such estimates to be confirmed on a post-closing basis by
such actuary or actuaries). EDS shall cause the EDS Pension Trusts to
accept their respective transfer of plan assets and the corresponding EDS
Pension Plans to assume their respective transfer of liabilities (such
transfers of plan assets and liabilities and the acceptance of such assets
and assumption of such liabilities shall hereafter be referred to as the
"Transfers"). The Transfers will be accomplished in full compliance with
applicable law. Further, Intergraph and USI will file or cause to be filed
in a timely manner whatever reports, forms and notices as are necessary
under applicable law as a result of the Transfers. EDS and Intergraph agree
to cooperate with each other in providing the other on a timely basis with
employee data and other information which may be reasonably required to
effect the respective Transfers. Each Transfer will be accomplished by way
of a single transfer of plan assets and liabilities from the respective
Intergraph Pension Plan and will not occur until the PBO under the
respective Intergraph Pension Plan has been determined.
5.14 Intergraph Guaranty. Intergraph hereby guarantees to the Acquiring
-------------------
Entities the due and punctual performance by each of the other Selling Entities
of its respective obligations under this Agreement and each of the Closing
Agreements.
5.15 Enforcement of Confidentiality Agreement. The Selling Entities
----------------------------------------
agree to enforce, for the benefit of the Acquiring Entities any and all rights
of the Selling Entities under any Contract retained by the Selling Entities
pursuant to which any confidential or proprietary information relating to any
aspect of the Business was provided by any Selling Entity to any Person. The
Selling Entities shall promptly inform the Acquiring Entities of any breach of
which they become aware by any Person of the confidentiality obligations under
any such Contract relating to confidential or proprietary information relating
to the Business.
5.16 Confidential Information. Each of the Selling Entities hereby
------------------------
acknowledges that the Acquiring Entities would be irreparably damaged if any
proprietary or confidential information
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possessed by any of the Selling Entities concerning the Business, the Acquired
Assets or any of the Acquiring Entities (except for any information that is or
becomes generally known to the public, otherwise than through a breach of this
Agreement) were disclosed to or used by any Person engaged in competition with
the Business or any of the Acquiring Entities. Each of the Selling Entities
agrees that it will not, and will not permit any of its Affiliates, directors,
officers, employees, accountants, agents and other representatives to use or
disclose any such confidential or proprietary information, except as expressly
permitted hereunder or under any other agreement between such Selling Entity and
USI or any of its Affiliates. If any Selling Entity is requested or required by
any Tribunal to disclose any of such proprietary or confidential information,
then such Selling Entity will provide USI with prompt written notice of such
request or requirement unless prohibited by applicable law. USI may then either
seek appropriate protective relief from all or part of such request or
requirement or waive such Selling Entity's compliance with the provisions of
this Section 5.16 with respect to all or part of such request or requirement.
------------
Such Selling Entity will cooperate with USI in attempting to obtain any
reasonable protective relief that USI chooses to seek. If, after USI has had a
reasonable opportunity to seek such relief, USI fails to obtain such relief,
then such Selling Entity may disclose only that portion of such proprietary or
confidential information which its legal counsel advises it is compelled to
disclose.
5.17 Assistance and Cooperation. After each respective Closing Date, each
--------------------------
applicable Selling Entity agrees:
(a) to assist the applicable Acquiring Entities in preparing any tax
returns that such Acquiring Entities are responsible for preparing and
filing after such Closing Date with respect to that portion of the Business
and the Acquired Assets conveyed on such Closing Date to the extent such
tax returns require information not included within such Acquired Assets;
to reasonably cooperate at the Acquiring Entity's cost in preparing for any
audits of, or disputes with Tribunals regarding, any tax returns relating
to such portion of the Business and the Acquired Assets; and to make
available to the applicable Acquiring Entities and to any Tribunal as
reasonably requested all information, records and documents relating to
liabilities for taxes associated with such portion of the Business or the
Acquired Assets;
(b) to provide the Acquiring Entities with reasonable access to the
portions of the Selling Entities' tax records and reports, general ledgers
and any other books, records, files or correspondence which relate to the
Business and to preserve all such information, records and documents until
the expiration of any applicable statutes of limitation or extensions
thereof and as otherwise required by law; and
(c) to provide timely notice to the applicable Acquiring Entities in
writing of any pending or threatened tax audits or assessments related to
the Business or the Acquired Assets for periods beginning after such
Closing Date and of which such Selling Entity has knowledge and to furnish
such Acquiring Entities with copies of all correspondence received from any
Tribunal in connection with any tax audit or information request with
respect to any such period.
5.18 Product Serial Numbers. At or prior to the Principal Closing,
----------------------
Intergraph shall furnish to USI a block of not less than 100,000 serial numbers,
assigned in accordance with
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Intergraph's Gen Key internal system, which the Acquiring Entities may assign
following such Closing to the products of the Business. The Selling Entities
will not use any of such serial numbers assigned to USI for any purpose
following the Principal Closing.
ARTICLE VI
COVENANTS OF THE ACQUIRING ENTITIES
6.1 Consummation of Transactions. Subject to the terms and conditions
----------------------------
herein provided, from the date hereof through its applicable Closing Date, each
Acquiring Entity will use its best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective, as promptly as practicable, the
transactions contemplated by this Agreement in accordance with the terms of this
Agreement applicable to such Acquiring Entity. From the date hereof through its
applicable Closing Date, each Acquiring Entity shall not voluntarily take any
action or course of action inconsistent with the satisfaction of the respective
conditions, terms and provisions of this Agreement or the consummation of the
respective transactions contemplated by this Agreement in accordance with the
terms of this Agreement applicable to such Acquiring Entity.
6.2 Notification of Certain Matters. Prior to its applicable Closing
-------------------------------
Date, each Acquiring Entity shall give prompt notice to Intergraph of any
material failure of any of the Acquiring Entities or any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement then remaining to be complied with or satisfied by it hereunder.
6.3 Employment. Effective upon the Principal Closing, USI will offer
----------
employment with USI or such Acquiring Entity to those employees of the Business
in the U.S. identified on Schedule 6.3 at the salaries set forth opposite their
------------
name on such Schedule, which salaries were the rates in effect on December 31,
1997 (except for any increases approved by the President of USI). Such offer
shall be consistent with the hiring policies of USI and, with respect to
Transitioned Employees in the United States, shall include employee benefits
generally comparable to those of other United States USI employees. USI
reserves the right to revoke the offer and refuse to hire any employee who does
not satisfy USI's pre-employment requirements. Effective upon each
International Closing, USI or another Acquiring Entity will make a similar offer
to those employees of the Business outside of the U.S. identified on Schedule
--------
6.3. USI shall recognize the service with Intergraph of each United States
- ---
Transitioned Employee for purposes of its vacation policy. Nothing in this
Agreement shall diminish the right of USI or such other Acquiring Entity,
subject to any then applicable Legislative Enactments, to dismiss any of those
employees of the Selling Entities who become employees of USI or such other
Acquiring Entity with or without cause and to change the terms and conditions of
employment of any or all of such employees.
6.4 Assistance with Specified Contracts and Litigation Contracts. As
------------------------------------------------------------
referenced in the proviso to the definition of Assumed Contracts in Section 1.1,
-----------
no Specified Contract or Litigation Contract shall be considered to be an
Assumed Contract under or by reason of this Agreement. With respect to any
Specified Contract or Litigation Contract to which a Selling Entity is a party,
the performance of the applicable Selling Entity's obligations thereunder shall
be deemed to be subcontracted or sublicensed to the applicable Acquiring Entity
for the remainder of the term of the
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Specified Contract or Litigation Contract, as the case may be, unless (a) in the
case of a Specified Contract, such Acquiring Entity reasonably determines that
such a subcontracting or sublicensing arrangement effectively subjects such
Acquiring Entity or any of its Affiliates or any employees of such Acquiring
Entity or any of its Affiliates to a Non-Compete Covenant, (b) in the case of a
Litigation Contract, such Acquiring Entity reasonably determines that such a
subcontracting or sublicensing arrangement effectively subjects such Acquiring
Entity or any of its Affiliates or any employees of such Acquiring Entity or any
of its Affiliates to any pending suit, action, litigation or proceeding or (c)
in either such case, such a subcontracting or sublicensing arrangement is not
permitted by such Specified Contract or Litigation Contract, as the case may be.
In any such case, the applicable Acquiring Entity, at the expense of the
applicable Selling Entity, will use commercially reasonable efforts to otherwise
assist the Selling Entity that is party thereto in the performance of such
Selling Entity's contractual obligations thereunder; provided, however, that the
-------- -------
parties expressly acknowledge and agree that in no event shall such Acquiring
Entity be deemed to accept any obligation that could subject such Acquiring
Entity, any of its Affiliates or any employees of such Acquiring Entity or any
of its Affiliates to a Non-Compete Covenant or to any pending suit, action,
litigation or proceeding. The Selling Entities shall cause the benefits of each
Specified Contract and Litigation Contract (or the economic equivalent thereof)
to be provided to the applicable Acquiring Entity and shall cooperate in any
arrangement required to provide such Acquiring Entity with the same, including
without limitation (i) maintenance by the Selling Entity of the Specified
Contract or Litigation Contract, as the case may be, in its name in trust for
the benefit of the Acquiring Entity or (ii) at the option of the Acquiring
Entity and at its cost, enforcement for the benefit of such Acquiring Entity of
such Specified Contract or Litigation Contract, as the case may be against a
third party.
6.5 Trade Names and Service Marks. Each Acquiring Entity agrees that it
-----------------------------
will discontinue the use, directly or indirectly, in any manner or form, of the
name "Intergraph" and the corresponding logo thereof; provided, however, that
until the earlier of (i) the six-month anniversary of the Principal Closing Date
and (ii) the date on which all inventory and supplies of the Business
transferred at a Closing shall be depleted, the Acquiring Entities shall be
permitted to use such name and logo only in connection with the distribution of
such inventory and supplies; and provided further that at any time following the
Principal Closing Date, the Acquiring Entities shall be able to identify that
the Business was previously owned by the Selling Entities.
6.6 EDS and USI Guaranty. EDS hereby guarantees to the Selling Entities
--------------------
the due and punctual performance by each of the Acquiring Entities of its
respective obligations under this Agreement and each of the Closing Agreements,
provided, however, that the obligations of EDS under this Section 6.6 shall
terminate immediately following the Principal Closing. USI hereby guarantees to
the Selling Entities the due and punctual performance by each of the other
Acquiring Entities of its respective obligations under this Agreement and each
of the Closing Agreements.
6.7 Assistance and Cooperation. After the Principal Closing Date, the
--------------------------
Acquiring Entities shall, to the extent reasonably requested by the Selling
Entities, make available to the Selling Entities and to any Tribunal all
information, records and documents relating to (i) liabilities of the Selling
Entities for Taxes relating to the Business, (ii) matters disclosed on Schedule
--------
3.14, (iii) such other matters as the Selling Entities may reasonably request
- ----
relating to the Retained Assets or the performance of the Retained Liabilities.
Without limiting the
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generality of the foregoing, upon the request of the Selling Entities, the
Acquiring Entities shall use commercially reasonable efforts to permit certain
of the Transitioned Employees identified by the Selling Entities to appear as
witnesses or trial representatives, and to assist the Selling Entities in trial
preparation, in connection with any litigation or proceeding relating to the
matters disclosed on Schedule 3.14; provided, however, that the Selling Entities
------------- -------- -------
shall bear all reasonable out-of-pocket expenses (but without other expense or
hourly charges) incurred by such Transitioned Employees in providing any such
requested assistance to the Selling Entities.
ARTICLE VII
CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF THE ACQUIRING ENTITIES
The obligations of an Acquiring Entity under this Agreement to acquire the
Acquired Assets and to assume the Assumed Liabilities shall be subject to the
fulfillment of all of the following conditions at or before any Closing:
7.1 Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Selling Entities (or, in the case of an International
Closing subsequent to the Principal Closing, the representations and warranties
of the applicable Selling Entity) set forth herein or in any Schedule, Exhibit,
instrument or other document delivered to an Acquiring Entity pursuant to this
Agreement (including without limitation any applicable Closing Agreement) shall
be true and correct in all respects as of the date hereof and on and as of such
Closing Date, to the same extent and with the same effect as if made on and as
of such Closing Date, except where such representation clearly relates to
another date specified therein (in which case, such representation shall relate
to such specific date).
7.2 Performance by the Selling Entities. The Selling Entities shall have
-----------------------------------
fully performed and complied with all covenants and agreements required by this
Agreement and any applicable Closing Agreement to be performed or complied with
by each of them on or before such Closing.
7.3 Prohibitions, Restrictions and Litigation. On such Closing Date,
-----------------------------------------
there shall be no Official Action outstanding, and no proceeding or other
litigation shall be pending by any other Person, against any of the applicable
Acquiring Entities which prohibits or restricts, challenges or reasonably may be
expected to give rise to a material challenge to, consummation of the
transactions contemplated by this Agreement and any applicable Closing Agreement
with respect to such Closing or which claims (or reasonably may be expected to
give rise to a claim of) damages as a result of the consummation of the
transactions contemplated by this Agreement and any applicable Closing Agreement
or otherwise have a material adverse effect on the Business subsequent to such
Closing.
7.4 Consents. The Selling Entities participating in such Closing shall
--------
have received the Consents referred to in Schedule 7.4 that relate to such
------------
Closing and such other material Consents from any Tribunal or other Person as
may be necessary or appropriate (a) to consummate the transactions contemplated
by this Agreement and any applicable Closing Agreement with respect to such
Closing in accordance with this Agreement; (b) to enable the applicable
Acquiring Entities to
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carry on and conduct that portion of the Business to be conveyed at such Closing
subsequent to such Closing in substantially the same manner as was carried on
and conducted prior to such Closing; or (c) that are necessary to prevent a
breach of or a material default or penalty, or material increase in payments
under, or a termination of any material Contract relating to the Business.
7.5 Governmental Clearances. All required filings with Tribunals shall
-----------------------
have been made and all waiting periods, including any extensions thereof, which
may be applicable to the transactions contemplated by this Agreement shall have
expired or terminated.
7.6 Satisfactory Proceedings. All proceedings to be taken in connection
------------------------
with the consummation of the transactions contemplated by this Agreement and any
applicable Closing Agreement, and all certificates, documents and instruments
incidental hereto and required hereby, shall be reasonably satisfactory in form
and substance to the Acquiring Entities, and the applicable Acquiring Entities
shall have received copies of all such documents and instruments as such
Acquiring Entities may reasonably request in connection with such transactions.
7.7 Certificate of Intergraph and Certain Officers. USI shall have
----------------------------------------------
received a certificate, dated the applicable Closing Date, executed by
Intergraph and, with respect to the Selling Entities participating in each such
Closing, by the Chairman of the Board, President or any Vice President of each
such Selling Entity, to the effect that the conditions set forth in Sections
--------
7.1, 7.2, 7.3, 7.4 and 7.5 have been satisfied.
- --- --- --- --- ---
7.8 Waiver of Conditions. USI shall have the right and the authority, on
--------------------
behalf of each and all of the Acquiring Entities, to waive any or all of the
foregoing conditions precedent to the obligations of such Acquiring Entities;
provided, however, that no waiver by USI of any condition precedent to the
- -------- -------
obligations of the Acquiring Entities with respect to a particular Closing shall
constitute a waiver by the Acquiring Entities of any other condition precedent
or a waiver by the Acquiring Entities with respect to any other Closing.
7.9 New Collateral Contracts. With respect to an International Closing,
------------------------
the respective Acquiring Entities and the respective Selling Entities shall have
entered into the collateral Contracts identified in each applicable Closing
Agreement relating to such International Closing, all upon such terms and
conditions as are reasonably acceptable to the parties thereto.
7.10 Absence of Material Adverse Change. Since the date of this
----------------------------------
Agreement, there shall have occurred no materially adverse change in the
condition (financial or otherwise), assets (taken as a whole), liabilities
(taken as a whole), properties (taken as a whole), business or prospects of the
Business or the Acquired Assets.
ARTICLE VIII
CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF THE SELLING ENTITIES
The obligations of a Selling Entity under this Agreement to sell the
Acquired Assets shall be subject to the fulfillment of all of the following
conditions at or before any Closing:
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8.1 Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Acquiring Entities (or, in the case of an International
Closing subsequent to the Principal Closing, the representations and warranties
of the applicable Acquiring Entity) set forth herein or in any Schedule,
Exhibit, instrument or other document delivered to a Selling Entity pursuant to
this Agreement (including without limitation any applicable Closing Agreement)
shall be true and correct in all respects as of the date hereof and on and as of
such Closing Date, to the same extent and with the same effect as if made on and
as of such Closing Date, except where such representation clearly relates to
another date specified therein (in which case such representation shall relate
to such specified date).
8.2 Performance by the Acquiring Entities. The Acquiring Entities shall
-------------------------------------
have fully performed and complied with all covenants and agreements required by
this Agreement and any applicable Closing Agreement to be performed or complied
with by each of them on or before such Closing Date.
8.3 Prohibitions, Restrictions and Litigation. On such Closing Date,
-----------------------------------------
there shall be no Official Action outstanding, and no proceeding or other
litigation shall be pending by any other Person, against any of the applicable
Selling Entities which prohibits or restricts, challenges or reasonably may be
expected to give rise to a material challenge to consummation of the
transactions contemplated by this Agreement and any applicable Closing Agreement
with respect to such Closing or which claims (or reasonably may be expected to
give rise to a claim of) damages as a result of the consummation of the
transactions contemplated by this Agreement and any applicable Closing Agreement
or otherwise have a material adverse effect on Intergraph subsequent to such
Closing.
8.4 Consents. The Acquiring Entities participating in such Closing shall
--------
have received the Consents that relate to such Closing and such other material
Consents from any Tribunal or other Person as may be necessary or appropriate to
enable the Selling Entities participating in such Closing to consummate the
transactions contemplated by this Agreement and any applicable Closing Agreement
with respect to such Closing in accordance with this Agreement without any
conditions which Intergraph might reasonably consider to be material and adverse
to Intergraph or its business and operations after such Closing.
8.5 Governmental Clearances. All required filings with Tribunals shall
-----------------------
have been made and all waiting periods, including any extensions thereof, which
may be applicable to the transactions contemplated by this Agreement with
respect to such Closing shall have expired or terminated.
8.6 Certificate of USI and Certain Officers. Intergraph shall have
---------------------------------------
received a certificate, dated such Closing Date, executed by USI and, with
respect to the Acquiring Entities participating in such Closing, the Chairman of
the Board, President or any Vice President of each such Acquiring Entity, to the
effect that the conditions set forth in Sections 8.1, 8.2, 8.3, 8.4 and 8.5 have
------------ --- --- --- ---
been satisfied.
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8.7 Waiver of Conditions. Intergraph shall have the right and the
--------------------
authority on behalf of the Selling Entities participating in such Closing, to
waive any or all of the foregoing conditions precedent to the obligations of
such Selling Entities; provided, however, that no waiver by Intergraph of any
-------- -------
condition precedent to the obligations of the Selling Entities with respect to a
particular Closing shall constitute a waiver by the Selling Entities of any
other condition precedent or a waiver by the Selling Entities with respect to
any other Closing.
8.8 New Collateral Contracts. With respect to an International Closing,
------------------------
the respective Acquiring Entities and the respective Selling Entities shall have
entered into the collateral Contracts identified in each applicable Closing
Agreement relating to such International Closing, all upon such terms and
conditions as are reasonably acceptable to the parties thereto.
ARTICLE IX
INDEMNIFICATION; OFFSET
9.1 Indemnification by the Acquiring Entities. USI jointly agrees with
-----------------------------------------
respect to itself and each other Acquiring Entity, and each other Acquiring
Entity agrees with respect to itself, to indemnify and hold harmless each of the
Selling Entities and their respective directors, officers, employees, advisors,
Affiliates, agents and representatives, stockholders, successors and assigns
(the "Intergraph Indemnitees") from and against any and all losses, damages,
liabilities, claims, costs and expenses, including without limitation Legal
Expenses (collectively, "Losses") arising out of, based upon or resulting from:
(a) any violation or breach by any of the Acquiring Entities of, or any
default by any of the Acquiring Entities under, this Agreement or any
certificate, Schedule, Exhibit or other document or instrument furnished or
to be furnished by any of the Acquiring Entities to any of the Selling
Entities in connection with this Agreement, including, without limitation,
the Transferred Intellectual Property License Agreements, or the
consummation of the transactions contemplated hereby or from any error,
inaccuracy or misrepresentation in any of the representations and
warranties made by, or on behalf of, any of the Acquiring Entities herein
or therein;
(b) the failure of the Acquiring Entities to pay, perform or discharge
when due any of the Assumed Liabilities and any of its obligations with
respect to Transaction Taxes, if any, to the extent provided for in Section
10.13 hereof;
(c) any condition, event or activity relating to that portion of the
Business or those Acquired Assets transferred and conveyed on any Closing
Date and that existed or occurred on or after the Principal Closing Date
(excluding any condition, event or activity that existed or occurred after
the Principal Closing Date as a result of any action taken by a Selling
Entity without USI's consent with respect to a non-U.S. Selling Entity
prior to the applicable International Closing);
(d) the termination of a Foreign National Employee's employment by
Intergraph pursuant to clause (ii) of the final sentence of Section 5.13(e)
or the employee of an
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International Selling Entity who would otherwise have been a Transitioned
Employee pursuant to Section 2.14(a), in each case in accordance with terms
set forth by USI in termination request delivered by USI pursuant to either
such Section;
(e) (i) any use or exploitation by USI of the Intellectual Property
subject to the Transferred Intellectual Property License Agreements not
permitted by the terms thereof; (ii) any amounts for which Intergraph shall
indemnify a USI Indemnitee pursuant to Section 9.2(b) hereof to the extent
that the Losses which resulted in such indemnification obligations arose
due to the failure by USI to use any modification, enhancement or
adaptation to any BAG Tool, INGR Tool or SolidEdge Common Code provided by
Intergraph to USI, provided that USI was given notice by Intergraph of such
modification, enhancement or adaptation (along with the reasons therefor),
that USI had reasonable opportunity to implement such modification,
enhancement or adaptation, and that Intergraph could demonstrate to USI
that such modification, enhancement or adaptation provided the same
functionality as the BAG Tool, INGR Tool or SolidEdge Common Code that
resulted in such Loss; or (iii) USI's use of any BAG Tool or the SolidEdge
Common Code in a modified form from that delivered to USI at the Principal
Closing to the extent that the Losses of the Intergraph Indemnitees
resulted from such modification; or
(f) any suit or action at law or in equity, arbitration proceeding,
interference or opposition proceeding, governmental or quasi-governmental
proceeding, complaint or investigation, or liability claim which arises (or
is claimed to arise) in connection with, or relates to (or is claimed to
relate to), any of the matters referred to above in this Section 9.1.
-----------
Notwithstanding the foregoing provisions of this Section 9.1, with respect to
-----------
any Losses arising out of, based upon or resulting from any error, inaccuracy or
misrepresentation in any of the representations and warranties contained in
Article IV or in any of the representations and warranties (but not covenants)
- ----------
of any of the Acquiring Entities contained in any certificate, document,
affidavit or instrument delivered pursuant to this Agreement (including without
limitation the Closing Agreements) (the "Intergraph Losses"), the foregoing
indemnity and hold harmless obligations of the Acquiring Entities relating to
such Intergraph Losses shall become operative and effective only if and when all
Intergraph Losses for which Intergraph Indemnitees are entitled to receive
indemnification under this Section 9.1 exceed, in the aggregate, $150,000 (it
-----------
being understood and agreed that all such Intergraph Losses shall accumulate
until such time as they exceed $150,000, at which time the Acquiring Entities
shall be obligated to indemnify any Intergraph Indemnitees seeking
indemnification under this Section 9.1 for the aggregate amount of such
-----------
Intergraph Losses, rather than the amount that exceeds $150,000). The parties
expressly acknowledge and agree that the immediately preceding sentence shall
not apply to any Losses other than the Intergraph Losses. The parties further
agree that the liability of the Acquiring Entities specified above with respect
to the Intergraph Losses shall be reduced to the extent of any insurance
proceeds actually received by any of the Intergraph Indemnitees for such
Intergraph Losses from any of the Acquiring Entities or any of their Affiliates
or any insurance carrier of the Acquiring Entities or any of their affiliates.
9.2 Indemnification by the Selling Entities. Intergraph jointly agrees
---------------------------------------
with respect to itself and each other Selling Entity, and each other Selling
Entity agrees with respect to itself, to
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indemnify and hold harmless each of the Acquiring Entities and each of their
respective directors, officers, employees, advisors, Affiliates, agents,
representatives, stockholders, successors and assigns (the "USI Indemnitees")
from and against any and all Losses arising out of, based upon or resulting
from:
(a) any violation or breach by any of the Selling Entities of, or default
by any of the Selling Entities under, this Agreement or any certificate or
other document or instrument furnished or to be furnished by any of the
Selling Entities to any of the Acquiring Entities in connection with this
Agreement, including, without limitation, the Transferred Intellectual
Property License Agreements, or the consummation of the transactions
contemplated hereby (including without limitation the Closing Agreements)
or from any error, inaccuracy or misrepresentation in any of the
representations and warranties (other than the representations and
warranties in Sections 3.31, 3.32 and 3.33 hereof) made by, or on behalf
of, any of the Selling Entities herein or therein;
(b) any error, inaccuracy or misrepresentation in any of the
representations and warranties made by the Selling Entities in Sections
3.31, 3.32 and 3.33 hereof, provided that for purposes of this Article IX,
the Selling Entities shall indemnify the USI Indemnitees in respect of
Sections 3.31, 3.32 and 3.33 viewing such Sections without reference to any
"knowledge of the Selling Entities" or similar qualification set forth
therein (i.e., the representation and warranty shall be viewed as if no
such knowledge or similar qualification was set forth therein);
(c) any of the Retained Assets (including, without limitation, any
Contract included within the Retained Assets) or any of the Retained
Liabilities;
(d) any condition, event or activity relating to that portion of the
Business or those Acquired Assets transferred and conveyed on any Closing
Date and that existed or occurred before the Principal Closing Date
(regardless of whether such condition, event or activity would have
constituted a breach of any representation or warranty hereunder);
(e) except as set forth in Section 9.1(d), any liability or obligation
arising out of the termination of employment of an employee of a Selling
Entity;
(f) any liability or obligation which related to any noncompliance with
any bulk sales in connection with the transactions contemplated by this
Agreement;
(g) any liability or obligation with respect to the payment of the
applicable Consideration to Intergraph as agent and on behalf of a Selling
Entity;
(h) any liability or obligation with respect to any income, franchise,
sales, use or other Taxes (and Transactions Taxes, if any, to the extent
provided in Section 10.13 hereof) and with respect to any social security
contributions (including both employers' and employees' contributions) of
any Selling Entity which are attributable periods ending prior to the
Principal Closing Date;
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(i) the enforcement, or the attempted enforcement, of any Non-Compete
Covenant contained in a Specified Contract against any of the Acquiring
Entities, any of their Affiliates or any of their employees, acting in his
or her capacity as an employee of an Acquiring Entity or an Affiliate of
the same;
(j) the transfer to the Acquiring Entities of the rights and obligations
of the Selling Entities arising with respect to periods prior to the
applicable Closing Date from the employment relationships of the Selling
Entities with the Transitioned Employees existing immediately prior to the
applicable Closing Date where, by virtue of applicable Legislative
Enactments of any Tribunal to implement EEC Council Directive 77/187, any
Transitioned Employee is not regarded as employed in the Business;
(k) the failure to transfer to the Acquiring Entities the rights and
obligations of the Selling Entities arising from the employment
relationships of the Selling Entities with any of their employees existing
immediately prior to the applicable Closing Date where, by virtue of
applicable Legislative Enactments of any Tribunal to implement EEC Council
Directive 77/187, any such employee is regarded as employed in the Business
(other than any such failure due to USI's breach of its obligation to offer
employment to such persons in accordance with Section 6.3);
(l) any liability or obligation arising under an applicable Environmental
Law relating to the Compliance Group or a Compliance Property (whether or
not such liability or obligation would constitute a breach of the
representation and warranty set forth in Section 3.15 hereof), except those
for which USI shall be specifically responsible under the terms of the
Lease Agreement as a result of actions taken by USI following the Principal
Closing Date;
(m) any liability or obligation arising out of the failure of the
Software products of the Business to be Year 2000 Compliant, regardless of
whether such non-compliance resulted in a breach of the representation and
warranty set forth in Section 3.17 hereof; or
(n) any suit or action at law or in equity, arbitration proceeding,
interference or opposition proceeding, governmental or quasi-governmental
proceeding, complaint or investigation, or liability claim which arises in
connection with, or relates to (or is claimed to relate to), any of the
matters referred to above in this Section 9.2.
-----------
Notwithstanding the foregoing provisions of this Section 9.2, with respect to
-----------
any Losses arising out of, based upon or resulting from any error, inaccuracy or
misrepresentation in any of the representations and warranties contained in
Article III or in any of the representations and warranties (but not covenants)
- -----------
of any of the Selling Entities contained in any certificate, document, affidavit
or instrument delivered pursuant to this Agreement (including without limitation
the Closing Agreements) (the "USI Losses"), the foregoing indemnity and hold
harmless obligations of the Selling Entities relating to such USI Losses shall
become operative and effective only if and when all USI Losses for which USI
Indemnitees are entitled to receive indemnification under this Section 9.2
-----------
exceed, in the aggregate, $150,000 (it being understood and agreed that all such
USI Losses shall accumulate until such time as they exceed $150,000, at which
time the Selling Entities shall be obligated to indemnify any USI Indemnitees
seeking indemnification under this Section 9.2
-----------
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for the aggregate amount of the USI Losses, rather than the amount that exceeds
$150,000). The parties expressly acknowledge and agree that the immediately
preceding sentence shall not apply to any Losses other than the USI Losses. The
parties further agree that the liability of the Selling Entities specified above
with respect to the USI Losses shall be reduced to the extent of any insurance
proceeds actually received by any of the USI Indemnitees for such USI Losses
from any of the Selling Entities or any of their Affiliates or any insurance
carrier of the Selling Entities or any of their affiliates.
9.3 Satisfaction of Claims. If any Person entitled to indemnification
----------------------
under this Article IX (an "Indemnified Party") desires to assert any claim for
----------
indemnification or to be held harmless under this Article IX (a "Claim"), the
----------
Indemnified Party shall deliver to the Person that is obligated to provide such
indemnification (the "Indemnifying Party") notice of its demand for satisfaction
of such Claim (a "Request"), specifying in reasonable detail the amount of such
Claim and, to the extent practicable under the circumstances, the basis for
asserting such Claim. Within 30 days after the Indemnifying Party has been given
a Request, the Indemnifying Party shall either (i) satisfy the Claim requested
to be satisfied in such Request by delivering to the Indemnified Party payment
by wire transfer or a certified or bank cashier's check payable to the
Indemnified Party in immediately available Federal Reserve Funds in an amount
equal to the amount of such Claim, or (ii) notify the Indemnified Party that the
Indemnifying Party contests such Claim by (A) delivering to the Indemnified
Party an objection to such Claim, specifying in reasonable detail, to the extent
practicable under the circumstances, the basis for contesting such Claim, and
(B) demanding arbitration of the Claim in accordance with Section 10.11. If the
-------------
Indemnifying Party fails to satisfy a Claim (or portion of a Claim) within 30
days after the Indemnifying Party has been given a Request with respect to such
Claim, and whether or not the Indemnifying Party has contested such Claim, the
Indemnifying Party shall pay the Indemnified Party asserting such Claim interest
on the unpaid amount of such Claim (or unpaid portion of a Claim) at the Prime
Rate, computed from the date such Request was given to the Indemnifying Party to
the date such Claim (or portion of a Claim) is satisfied; provided, however,
------------------
that the Indemnifying Party shall not be required to pay the Indemnified Party
- ----
interest on that part of any unpaid Claim (or portion of a Claim) which the
Indemnifying Party successfully contests.
9.4 Matters Which May Give Rise to Claims.
-------------------------------------
(a) Notice and Control. Within 20 days (or such earlier time as might be
------------------
required to avoid prejudicing the Indemnifying Party's capacity to defend) after
receipt by an Indemnified Party of notice of commencement of any action
evidenced by service of process or other legal pleading which it determines has
given or could give rise to a Claim (a "Third-Party Matter"), the Indemnified
Party shall give the Indemnifying Party written notice thereof (together with a
copy of such Claim, process or other legal pleading). The Indemnifying Party
shall assume the defense of such Claim and in connection therewith:
(i) such Indemnifying Party shall defend such Third-Party Matter at
its own expense, in good faith and in a manner consistent with the
best interests of the Indemnified Party;
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(ii) such Indemnifying Party shall keep the Indemnified Party fully
informed as to the status of the defense of such Third-Party Matter;
(iii) such Indemnifying Party shall employ legal counsel, accountants
and/or other experts reasonably satisfactory to the Indemnified Party
to represent the Indemnified Party in connection with such Third-
Party Matter;
(iv) the Indemnified Party shall have the right to observe and be
present (at its own expense) at any and all meetings, conferences and
other proceedings with respect to such Matter;
(v) the Indemnifying Party shall obtain the prior written approval
of the Indemnified Party before entering into any settlement of such
Third-Party Matter or ceasing to defend against such Third-Party
Matter, if, pursuant to or as a result of such settlement or
cessation, injunctive or other equitable relief would be imposed
against the Indemnified Party;
(vi) without the written consent of the Indemnified Party, the
Indemnifying Party shall not consent to the entry of any judgment or
enter into any settlement that does not include as an unconditional
term thereof the giving of a release from liability in respect of
such Third-Party Matter to each Indemnified Party by the claimant or
plaintiff; and
(vii) unless such Indemnifying Party is successful in defending such
Third-Party Matter on the merits, any and all losses, damages, costs,
and expenses which any Indemnified Party shall suffer or incur in
connection with such Third-Party Matter shall be conclusively deemed
to be losses, damages, costs and expenses as to which the Indemnified
Party shall have the right to be indemnified and held harmless under
this Article IX.
----------
Neither the observation or participation by any Indemnified Party in the
defense of any Third-Party Matter, nor the failure by any Indemnified Party to
observe or participate in the defense of any Third-Party Matter, shall affect in
any way the liabilities and obligations of the Indemnifying Party with respect
to such Third-Party Matter under this Article IX.
----------
If the Indemnifying Party does not assume the defense of such Third-Party
Matter with legal counsel reasonably satisfactory to the Indemnified Party
within 15 days after the Indemnifying Party has received notice of such Third-
Party Matter from the Indemnified Party, the Indemnified Party shall have the
right to undertake the defense, compromise and settlement of such Third-Party
Matter on behalf of and for the account and risk of the Indemnifying Party.
(b) Expenses. If the Indemnified Party undertakes the defense, compromise
--------
and settlement of such Third-Party Matter pursuant to Section 9.4(a), the
--------------
Indemnifying Party will promptly reimburse the Indemnified Party for all
reasonable fees, costs and expenses (including without limitation any Legal
Expenses) incurred by the Indemnified Party in respect of such Third-Party
Matter. The reimbursement of such fees, costs and expenses shall be made by
periodic
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payments during the course of any investigation or defense, as and when bills
are received or expenses incurred.
(c) Cooperation. The Indemnified Party and the Indemnifying Party shall
-----------
cooperate in the defense of a Third Party Matter that is defended in accordance
with this Section 9.4, and shall make available to the defending person or its
-----------
representative all records and materials required for its use in such defense.
ARTICLE X
GENERAL
10.1 Survival of Representations and Agreements. All representations and
------------------------------------------
warranties contained in this Agreement or in any certificate, document,
affidavit or instrument delivered pursuant to this Agreement (including without
limitation the Closing Agreements) shall survive the Principal Closing and each
International Closing and any investigation made at any time by or on behalf of
any of the parties or any other Person and shall continue in full force and
effect:
(a) forever and without any limit upon duration in the case of the
representations and warranties set forth in Sections 3.3, 3.14, 3.15, 3.19,
------------ ---- ---- ----
3.25, 3.31, 3.32, 3.33, 3.37 and 4.3;
---- ---- ---- ----- ---- ----
(b) until 60 days following the latest date on which any statute of
limitations (including any extensions thereof) expires with respect to any
taxable year or period up to and including any taxable year or period
ending on or which includes a Closing Date, in the case of the
representation and warranty of the Selling Entities set forth in Section
-------
3.13 hereof;
----
(c) in the case of a representation or warranty of the Selling Entities
set forth in Sections 3.26 and 3.29 hereof, until 60 days following the
------------- ----
expiration date of the statute of limitations underlying such
representation or warranty;
(d) until the expiration of the thirty-month period following the
applicable Closing Date in the case of all other representations and
warranties; and
(e) for the comparable periods of time set forth above in this Section
-------
10.1 in the case of each representation and warranty (but no covenant) set
----
forth in any certificate, document, affidavit or instrument delivered
pursuant to this Agreement (including, without limitation, the Closing
Agreements), based upon the nature of such representation and warranty when
compared to the most analagous representation and warranty set forth above.
10.2 Termination. This Agreement may be terminated at any time prior to
-----------
the final International Closing:
(a) by the mutual consent in writing of USI and Intergraph; or
(b) by USI or Intergraph if any court of competent jurisdiction in the
United States or other United States Tribunal shall have issued an Official
Action or taken any other action
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restraining, enjoining or otherwise prohibiting any part of the
transactions contemplated by this Agreement, and such order, decree, ruling
or other action shall have become final.
If, for any reason whatsoever the Principal Closing shall not have taken
place on or before March 15, 1998, either party may, by notice to the other,
terminate this Agreement, whereupon all of the rights and obligations of the
Selling Entities and the Acquiring Entities under this Agreement shall terminate
without any liability to any party or to its directors, officers, stockholders,
successors and assigns, except for the liability of any party for any breach of
this Agreement, provided that the right to terminate this Agreement pursuant to
this sentence shall not be available to any party whose failure to perform any
material covenant or obligation under this Agreement has been the cause of or
resulted in the failure of the Principal Closing to occur on or before such
date. Unless earlier terminated in accordance with the previous sentence, the
obligations of the Selling Entities and the Acquiring Entities to conduct any or
all International Closings shall terminate on December 31, 1998; provided,
--------
however, that the termination of such obligation shall not impair any rights or
- -------
obligations of the Selling Entities and the Acquiring Entities arising under
Article IX prior to December 31, 1998, with respect to International Closings
- ----------
contemplated by this Agreement or the transactions contemplated hereby.
10.3 HSR Filings; Other Filings. Each of Intergraph and USI has filed
--------------------------
with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice a Notification and Report Form and related material
required to be filed by it under the HSR Act with respect to the transactions
contemplated hereby. The Selling Entities and the Acquiring Entities shall
cooperate and use reasonable efforts to prepare and file as promptly as
practicable after the date hereof all requisite applications, notices and other
necessary instruments or documents in order to obtain the approvals, consents
and other authorizations referred to in Section 3.4 and agree to act with all
-----------
reasonable diligence to obtain all such approvals and licenses.
10.4 Expenses of Transaction. Each party shall be responsible for its
-----------------------
own costs associated with the negotiation and consummation of the transactions
contemplated hereby, including without limitation all legal, consulting and
accounting expenses and any fees or commissions due any broker as a consequence
of the consummation of such transactions. The filing fees incurred in connection
with the filings pursuant to the HSR Act have been borne by USI. Each of the
parties hereto is responsible for, and shall indemnify the other against, any
claim by any third party to a fee, commission or other remuneration arising by
reason of any services alleged to have been rendered to or at the instance of
said party with respect to this Agreement or any of the transactions
contemplated hereby.
10.5 Public Disclosure. No party shall issue any press release or
-----------------
otherwise make any public statement with respect to the transactions
contemplated hereby, except with the prior written consent of the other party;
provided, however, that such consent shall not be required for any disclosure or
- -------- -------
reporting obligations of any party, to the extent required by applicable
Legislative Enactments or other competent authority, but (as is practicable
under the circumstances) such disclosing party shall consult with the other
party in advance.
10.6 Notices. Any notices or other communications required or permitted
-------
hereunder or under any other agreement contemplated hereunder shall be deemed
given if sent by registered or
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certified mail (postage prepaid), overnight delivery via nationally recognized
courier, or facsimile transmission (provided that in the case of courier or
facsimile transmission, a copy is also sent by registered or certified mail,
postage prepaid); in each case addressed as follows:
If to any of the Selling Entities, to:
Intergraph Corporation
Huntsville, Alabama 35894-0001
Attention: John W. Wilhoite
Facsimile No.: (205)730-2408
with a copy (which shall not constitute notice) to:
Intergraph Corporation
Huntsville, Alabama 35894-0001
Attention: General Counsel
Facsimile No.: (205)730-2247
If to any of the Acquiring Entities, to:
Unigraphics Solutions Inc.
13736 Riverport Drive
Maryland Heights, Missouri 63043
Attention: President
Facsimile No.: (314) 232-1523
With a copy (which shall not constitute notice) to:
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024
Attention: General Counsel
Facsimile No.: (972) 605-5610
Each such Person may designate by notice to all other such Persons a new address
for its receipt of notices and other communications. The return receipt for
mail, the delivery receipt for such a courier or the answerback for facsimile
transmission shall be conclusive evidence of such delivery.
10.7 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties and their respective successors and permitted assigns.
No Acquiring Entity may assign any right under this Agreement or delegate any
obligations hereunder without the express prior written consent of Intergraph,
except to another Acquiring Entity or one or more other Affiliates of EDS;
provided, however, that any such delegation of obligations hereunder to another
- -------- -------
Acquiring Entity or to one or more Affiliates of USI shall not relieve USI of
any of its obligations under this Agreement. No Selling Entity may assign any
rights under this Agreement or delegate any obligations hereunder without the
express prior written consent of USI, provided that USI
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<PAGE>
acknowledges that Foothill Capital Corporation, Intergraph's lender, has a lien
on Intergraph's rights under this Agreement.
10.8 Amendments; Waivers, Etc. This Agreement may not be modified or
------------------------
amended except by a written instrument executed by or on behalf of each of the
parties to this Agreement. The observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term, but such waiver shall
be effective only if it is in writing signed by the party against which such
waiver is to be asserted. Unless otherwise expressly provided in this
Agreement, no delay or omission on the part of any party in exercising any right
or privilege under this Agreement shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any right or privilege under this
Agreement operate as a waiver of any other right or privilege under this
Agreement nor shall any single or partial exercise of any right or privilege
preclude any other or further exercise thereof or the exercise of any other
right or privilege under this Agreement.
10.9 Governing Law. Notwithstanding the place where this Agreement may be
-------------
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be governed by, and interpreted and construed
in accordance with, the substantive laws of the State of Delaware, without
giving effect to principles relating to conflict of laws.
10.10 Consent to Jurisdiction. In relation to any legal action, suit or
-----------------------
proceeding to which any Acquiring Entity or any Selling Entity is a party
arising out of or in connection with this Agreement or any of the transactions
contemplated by this Agreement, after the resolution of the related dispute,
controversy or claim pursuant to the arbitration proceedings contemplated by
Section 10.11 ("Proceedings"), each of the Acquiring Entities and each of the
- -------------
Selling Entities hereby irrevocably, for itself and on behalf of its Affiliates,
(a) submits to the non-exclusive jurisdiction of the courts of the United States
of America for the Eastern District of Missouri (such courts being herein
referred to as the "Agreed Courts") solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
herein, and (b) waives and agrees not to assert, as a defense in any Proceeding
for the interpretation or enforcement hereof or of any document referred to
herein, that it is not subject to the jurisdiction of the Agreed Courts, or that
such Proceeding may not be brought or is not maintainable in the Agreed Courts,
or that this Agreement or any of such documents may not be enforced in or by the
Agreed Courts, or that its property is exempt or immune from execution, or that
the Proceeding is brought in any inconvenient forum or that the venue of the
Proceeding is improper. Such submission to jurisdiction shall not affect any
right of any Acquiring Entity or any Selling Entity to commence Proceedings in
any other jurisdiction, and the commencement of Proceedings in any jurisdiction
shall not preclude any Acquiring Entity or any Selling Entity from commencing
Proceedings in any other jurisdiction. Service of any and all process that may
be served on any party hereto in any Proceeding arising out of this Agreement
may be made in the manner and to the addresses set forth in Section 10.6 and
------------
service thus made shall be taken and held to be valid personal service upon such
party by any party hereto on whose behalf such service is made. Nothing shall
affect the right to serve any process in any other manner permitted by law.
10.11 Arbitration.
-----------
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(a) In the event of any dispute, controversy or claim of any kind or
nature arising under or in connection with this Agreement or the other
agreements contemplated hereby that the parties are unable to resolve
through informal discussions or negotiations, the parties agree to submit
such dispute, controversy or claim to arbitration in accordance with the
following procedures:
(i) Either Intergraph or USI may demand arbitration by giving the
other party written notice to such effect, which notice will (i)
describe, in reasonable detail, the nature of the dispute, controversy
or claim, the amount, if any, involved and the remedy sought, and (ii)
name an independent arbitrator who is experienced in the resolution of
disputes, controversies or claims of such a nature. In addition, such
party demanding arbitration shall take such steps as are necessary to
commence arbitration proceedings under the rules of the American
Arbitration Association (including, without limitation, the payment of
any administrative fees provided thereunder).
(ii) Within 30 days after the other party's receipt of such demand,
such other party will name a second independent arbitrator who is
experienced in the resolution of disputes, controversies or claims of
such a nature.
(iii) The two arbitrators so named will promptly select a third
neutral arbitrator who is experienced in the resolution of disputes,
controversies and claims of such a nature. The arbitration will be
heard by a panel of the three arbitrators so chosen (the "Arbitration
Panel") in the United States, and the resolution of the dispute,
controversy or claim will be determined by a majority vote of the
Arbitration Panel. The Commercial Arbitration Rules of the American
Arbitration Association will govern the conduct of the arbitration and
the selection of the arbitrators. The arbitration proceedings shall be
conducted in the English language.
(iv) The Arbitration Panel may apportion between the parties as the
Arbitration Panel may deem equitable the fees, costs and expenses of
the arbitration incurred by the parties. The Arbitration Panel may
also award interest on any awards made by the Arbitration Panel. In
the assessment of any award of interest, the Arbitration Panel shall
consider any delay in the satisfaction of Claims by the Indemnifying
Party.
(v) The party demanding arbitration will request the Arbitration
Panel to (i) allow for the parties to request reasonable discovery
pursuant to the rules then in effect under the Federal Rules of Civil
Procedure for a period not to exceed 60 days prior to such arbitration
(all with the stated intent of establishing a fair, speedy and cost-
effective dispute resolution mechanism) and (ii) require the testimony
to be transcribed. No findings of fact or opinions of law will be
required to be made by the arbitrators.
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(vi) Any award rendered by the Arbitration Panel will be final,
conclusive and binding upon the parties and any judgment thereon may
be entered and enforced in any court of competent jurisdiction.
(b) Other than actions for temporary and permanent injunctive relief or
specific performance or any action necessary to enforce the award of the
Arbitration Panel, the provisions of this Section 10.11 will constitute the
-------------
exclusive remedy of the parties and a complete defense to any suit, action
or other proceeding instituted in any court or before any administrative
tribunal with respect to any dispute, controversy or claim arising under or
in connection with this Agreement or the other agreements contemplated
hereby. Nothing in this Section 10.11 will prevent the parties from
-------------
exercising their rights to terminate this Agreement in accordance with
Section 10.2.
------------
(c) Notwithstanding any other provision in this Section 10.11 to the
-------------
contrary, the Arbitration Panel will not have the authority to amend the
provisions of this Section 10.11 without obtaining the prior written
-------------
consent of each of the parties to this Agreement.
10.12 Specific Performance. In addition to any other remedy to which any
--------------------
party may be entitled, including arbitration as provided in Section 10.11, the
-------------
parties agree that temporary and permanent injunctive relief and specific
performance (which specific performance may take the form of delivery of any
assets which may inadvertently have been omitted from a Schedule hereto) may be
granted, to the extent permitted under applicable law, without proof of actual
damages or inadequacy of legal remedy in any proceeding that may be brought to
enforce any of the provisions of this Agreement; provided, however, that this
-------- -------
Section 10.12 shall not be deemed to abrogate the agreement of the parties
- -------------
provided in Section 10.11(b).
----------------
10.13 Tax Matters
-----------
(a) Tax Reporting for 1998. The Selling Entities will (i) prepare and
----------------------
timely file with each applicable tax or revenue service, taxing authority,
or taxing tribunal (where the operations of the Business are subject to
Tax) Tax Returns which include all income, gains, losses, deductions and
credits attributable to the operations of the Business for the period or
periods up to but not including the applicable Closing Date and (ii) make
timely payments of, and indemnify and hold the Acquiring Entities harmless
from and against, all Taxes required to be reflected on such Tax Returns.
The Acquiring Entities will (A) prepare and timely file with each
applicable tax or revenue service, taxing authority, or taxing tribunal
(where the operations of the Businesses are subject to Tax) Tax Returns
which include all income, gains, losses, deductions and credits
attributable to the operations of the Business for the period on or after
the applicable Closing Date and (B) make timely payments of, and indemnify
and hold the Selling Entities harmless from and against, all Taxes required
to be reflected on such Tax Returns.
(b) Transaction Taxes.
-----------------
(i) Liability, Indemnification and Payment. (A) Intergraph (Italia)
--------------------------------------
L.L.C. and Unigraphics Solutions S.p.A. agree to equally share and
pay the 3% Italian
78
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registration tax and the cost of the third party appraisal. (B) If,
contrary to the considered judgment of the parties' as set forth in
Section 10.13(b)(ii) below, any sales and use taxes are imposed by any
taxing authority, tax or revenue service, or tax tribunal within the
state of Alabama (the "Alabama Sales and Use Taxes"), the party upon
which such Alabama Sales and Use Taxes are legally imposed shall pay
such sales and use taxes and any related interest, penalty, etc. to
the applicable taxing authority and the other party shall promptly pay
to, indemnify and hold the paying party harmless from and against 50%
of such Alabama Sales and Use Taxes and any related interest, penalty,
etc. (C) The Acquiring Entities shall pay, and indemnify and hold the
Selling Entities harmless from and against, all other Transaction
Taxes ("Other Transaction Taxes"). (D) In every case where a payment
of Transaction Taxes is required to be made directly by the indemnitee
to the relevant taxing authority, (i) the indemnifying party shall pay
to the indemnitee the amount of such Transaction Taxes which are
required to be paid by the indemnitee within thirty (30) days of the
date that the indemnitee furnishes the indemnifying party with written
notice and documentation proving that such Transaction Taxes are due
and payable by the indemnitee to the applicable taxing authority and
(ii) such amount shall bear interest at 18% per annum if not paid
within such thirty (30) day period. In this regard, Transaction Taxes
shall not be deemed to be due and payable by the indemnitee during any
period in which such Transaction Taxes may legally be contested
without advance payment, unless the indemnifying party requests the
indemnitee to make payment of such Transaction Taxes.
(ii) Planning and Cooperation. Each of the Selling Entities and each
------------------------
of the Acquiring Entities (A) believe, based on their separate and
independent research, that each of the transfers provided for in this
Agreement are transfers of a business as a going concern, if and to
the extent allowable under applicable Legislative Enactments with
respect to value added taxes ("VAT") (if this belief proves to be in
error, the Selling Entities shall invoice the Acquiring Entities for
any such VAT.), (B) believe, based on their separate and independent
research, that each of the transfers provided for in this Agreement
qualify as transfers that are exempt from Alabama Sales and Use Taxes,
based on the casual sale and other allowable exemptions, and (C) shall
act in a manner consistent with the foregoing. In the event that
there is any assertion or determination that VAT, Alabama Sales and
Use Tax, or Other Transaction Tax applies or may apply in connection
with any transactions under this Agreement, or in connection with any
transactions under this Agreement as to which any type of Other
Transaction Tax does or may apply, the applicable Selling Entities and
the applicable Acquiring Entities shall, in consultation and
cooperation with each other and on a timely basis and commercially
reasonable basis, give such notices, make such filings and requests,
adopt such reporting positions, provide such information, and appear
before such tax or revenue service, taxing authority, or taxing
tribunal as are required, desirable, or reasonably requested by the
other party, in an effort to maintain that such transfers are exempt
or otherwise outside the scope of VAT, the Alabama Sales and Use Tax,
or Other Transaction Taxes (as the case may be), in order to
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obtain or perfect an exemption of such transactions from VAT, the
Alabama Sales and Use Tax, or Other Transaction Taxes (as the case may
be), in order to obtain a reduction in rates for VAT applicable to
such transactions, or in order to obtain a recovery of any VAT,
Alabama Sales and Use Tax, or Other Transaction Tax (as the case may
be) paid with respect to such transactions. Notwithstanding anything
in this Section 10.13(b)(ii) to the contrary, however, no party (the
"first party") shall be required to take any action requested by the
other party (the "requesting party") which results or could reasonably
result in an increase in the amount of Taxes or Transaction Taxes
imposed upon the first party or its Affiliates, unless the requesting
party agree to indemnify the first party and its Affiliates for the
amount of any such increase in Taxes or Transaction Taxes. Further, no
party will be required to take any action requested by the other party
that is not based on accepted tax practice and the legal requirements
regarding the Transaction Tax involved.
(iii) Audits, Litigation, and other Contests. (A) Each party shall
--------------------------------------
promptly provide the other party with 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 increased Transaction Taxes. (B) In the case of
Alabama Sales and Use Taxes, both Intergraph and USI shall jointly
control the contest of such sales and use taxes, both Intergraph and
USI shall keep each other fully informed of all proceedings relating
to Alabama Sales and Use Taxes, both Intergraph and USI shall take
such steps as are reasonably requested by the other party in order to
allow such other party to participate in any contest of such Alabama
Sales and Use Taxes, and neither Intergraph nor USI shall be permitted
to settle or compromise the dispute of Alabama Sales and Use Taxes
without the written consent of the other party. However, either party
can pay its 50% share of any disputed Alabama Sales and Use Taxes (and
any related interest, penalties, etc.) at any time by notifying and
paying to the other party such 50% share of disputed Alabama Sales and
Use Taxes and any related interest, penalties, etc. that have accrued
through such date of payment. In cases where a party (the
"surrendering party") pays its 50% share of disputed Alabama Sales and
Use Taxes in accordance with the preceding sentence, the surrendering
party shall provide the other party (the "continuing party") with
powers of attorney or other appropriate documents which will enable
the continuing party to fully control and continue the dispute, shall
not take any actions or disclose any information that would adversely
affect the continuing party's conduct or resolution of the dispute,
and shall be released of any further liability with respect to, and
shall not share in any favorable resolution of, the disputed Alabama
Sales and Use Taxes. (C) The Acquiring Entities shall, in their sole
discretion, control and direct the conduct of any audit or inquiry or
any administrative or judicial appeal or other proceeding regarding
Other Transaction Taxes, each Selling Entity shall provide any
Acquiring Entity who so requests with powers of attorney or other
appropriate documents which will enable the Acquiring Entity to
conduct any such proceeding, and each Selling Entity agrees to furnish
the Acquiring Entities with such information and documentation as is
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reasonably requested by the Acquiring Entities in connection with
such proceedings. The Acquiring Entity may, in its sole discretion,
agree to pay, settle, compromise, or concede any contest or claim
relating to Other Transaction Taxes.
(iv) Record Retention. Each party will retain all Tax Returns,
----------------
schedules, material records, workpapers or other documents relating
to Transaction Taxes until the expiration of the statute of
limitations (including extensions) for assessing or collecting such
Transactions Taxes. 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.
10.14 Number and Gender. Unless the context otherwise requires, the
-----------------
singular and plural forms in this Agreement shall be mutually inclusive, and the
masculine, feminine and neuter forms in this Agreement shall be mutually
inclusive.
10.15 Section Headings, Schedules, Etc. The cover page and table of
--------------------------------
contents preceding this Agreement and the headings of the various sections of
this Agreement and the Schedules hereof and Exhibits hereto are for convenience
of reference only and do not, and shall not be deemed to, modify, define, expand
or limit any of the terms or provisions hereof. Any item referenced in a
Schedule hereto is deemed to be disclosed only with respect to the specific
Section number of this Agreement which is explicitly referenced in the Schedule.
Any item referenced in a Schedule hereto is deemed to be disclosed only with
respect to the specific country corresponding to such Schedule. The absence of
any Schedule hereto, the purpose of which is set forth exceptions or other
qualifications to the representations and warranties hereunder, shall be deemed
to state that no such exceptions or qualifications exist.
10.16 Complete Agreement; Counterparts. This document and the documents
--------------------------------
(including Exhibits and Schedules) referred to herein, contain the complete
agreement and understanding of the parties hereto and thereto with respect to
the matters covered hereby and thereby, and they rescind and supersede any prior
agreements and understandings which may have in any way related to the subject
matter hereof and thereof, including without limitation those matters set forth
in those certain letters, dated October 10, 1997, November 4, 1997 and January
28, 1998, from EDS to Intergraph specifically therein agreed to be binding upon
EDS and Intergraph. The express terms hereof control and supersede any course
of performance or usage of the trade inconsistent with any of the terms hereof.
This Agreement may be executed by the parties hereto in several counterparts,
and, when so executed and delivered, shall be an original as against any party
whose signature appears thereon, but all such counterparts shall together
constitute but one and the same instrument. Each counterpart may consist of a
number of copies hereof each executed by less than all, but together executed by
all, of the parties hereto. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as the signatories. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart. Notwithstanding anything to
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the contrary contained in this Agreement, it is the explicit intention of the
parties hereto that no party is making any representation or warranty
whatsoever, express or implied, beyond those expressly given in Articles III and
IV hereof and those expressly set forth in any of the Exhibits hereto,
including, but not limited to, any implied warranty or representation as to
condition, merchantability, fitness for any particular purpose, or suitability
of the Acquired Assets.
10.17 Severability. If any provision of this Agreement or the application
------------
of any such provision to any Person or circumstance, shall be declared
judicially to be invalid, unenforceable or void, such decision shall not have
the effect of invalidating or voiding the remainder of this Agreement, it being
the intent and agreement of the parties that this Agreement shall be deemed
amended by modifying such provision to the extent necessary to render it valid,
legal and enforceable while preserving its intent or, if such modification is
not possible, by substituting therefor another provision that is legal and
enforceable and that achieves the same objective.
10.18 No Third Party Beneficiaries. Nothing in this Agreement is intended
----------------------------
or shall be construed to give any Person, other than the parties hereto, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
10.19 Inconsistencies. The provisions of the Closing Agreements supplement
---------------
the provisions of this Agreement; provided, however, that to the extent that the
-------- -------
provisions of any Closing Agreement are in any respect inconsistent with the
provisions of this Agreement, the provisions of this Agreement shall govern and
control; provided further that to the extent that the application of Section
-------- ------- -------
10.9 to any instrument of transfer, conveyance and assignment delivered pursuant
- ----
to a Closing Agreement would render the transfer, conveyance or assignment
contemplated thereby ineffective or invalid, any governing law provisions
otherwise specified in such instrument of transfer, conveyance and assignment
shall govern and control.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be duly executed by their respective duly authorized officers or
representatives, all as of the day and year first above written.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
INTERGRAPH CORPORATION
By: /s/ John W. Wilhoite
--------------------------------------
John W. Wilhoite, Vice President
INTERGRAPH GMBH (OSTERREICH)
INTERGRAPH BENELUX BV
INTERGRAPH CANADA LTD.
INTERGRAPH CR S.R.O.
INTERGRAPH CAD/CAM (DANMARK) A/S
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INTERGRAPH FINLAND OY
INTERGRAPH FRANCE SA
INTERGRAPH (DEUTSCHLAND) GMBH
INTERGRAPH (ITALIA) L.L.C.
INTERGRAPH JAPAN K.K.
INTERGRAPH KOREA LTD.
INTERGRAPH DE MEXICO, S.A. DE C.V.
INTERGRAPH EUROPEAN
MANUFACTURING L.L.C.
INTERGRAPH NORGE AS
INTERGRAPH EUROPE (POLSKA) SP.Z.O.O.
INTERGRAPH SYSTEMS PTE. LTD.
INTERGRAPH (PORTUGAL) SISTEMAS DE
COMPUTACAO GRAFICA S.A.
INTERGRAPH ESPANA, S.A.
INTERGRAPH (SVERIGE) AB
INTERGRAPH (SWITZERLAND) AG
INTERGRAPH (UK) LTD.
By: /s/ John W. Wilhoite
-------------------------------------
John W. Wilhoite,
as attorney in fact
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UNIGRAPHICS SOLUTIONS INC.
By: /s/ H. Timothy Hatfield
-------------------------------------
H. Timothy Hatfield, Vice President
UNIGRAPHICS SOLUTIONS
HANDELSGESELLSCHAFT M.B.H.
UNIGRAPHICS SOLUTIONS N.V.
UNIGRAPHICS SOLUTIONS CANADA LTD.
UNIGRAPHICS SOLUTIONS DANMARK
A/S
UNIGRAPHICS SOLUTIONS FRANCE SAS
UNIGRAPHICS SOLUTIONS GMBH
UNIGRAPHICS SOLUTIONS S.P.A.
UNIGRAPHICS SOLUTIONS JAPAN LTD.
UNIGRAPHICS SOLUTIONS DE MEXICO,
S.A. DE C.V.
UNIGRAPHICS SOLUTIONS B.V.
UNIGRAPHICS SOLUTIONS NORGE AS
UNIGRAPHICS SOLUTIONS PTE. LIMITED
UNIGRAPHICS SOLUTIONS ESPANA, S.A.
UG SOLUTIONS AB
UNIGRAPHICS SOLUTIONS AG
UNIGRAPHICS SOLUTIONS LTD.
By: /s/ H. Timothy Hatfield
-------------------------------------
H. Timothy Hatfield,
as attorney in fact
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<PAGE>
The undersigned is executing this Agreement to acknowledge its obligations under
Section 6.6.
ELECTRONIC DATA SYSTEMS
CORPORATION
By: /s/ D. Gilbert Friedlander
---------------------------------------------
D. Gilbert Friedlander, Senior Vice President
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EXHIBIT 10.11
UNIGRAPHICS SOLUTIONS INC.
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into as of [Date], 1998 ("Agreement"),
between Unigraphics Solutions Inc., a Delaware corporation (the "Company"), and
[Name] ("Indemnitee").
BACKGROUND STATEMENT AND RECITALS
Highly competent and experienced persons are becoming more reluctant
to serve corporations as directors or in other capacities unless they are
provided with adequate protection through insurance and adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation.
The Board of Directors of the Company (the "Board") has determined
that the inability to attract and retain such persons would be detrimental to
the best interests of the Company and its stockholders and that the Company
should act to assure such persons that there will be increased certainty of such
protection in the future.
The Board has also determined that it is reasonable, prudent and
necessary for the Company, in addition to making available directors' and
officers' liability insurance (or otherwise providing for adequate arrangements
of self-insurance), contractually to obligate itself to indemnify such persons
to the fullest extent permitted by applicable law so that they will serve or
continue to serve the Company free from undue concern that they will not be so
indemnified.
Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Company on the condition that he be
so indemnified.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used herein, the following words and terms shall have the following
respective meanings:
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"Change in Control" means a change in control of the Company occurring
after the Public Status Date of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to
any similar item on any similar schedule or form) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement; provided, however, that, without limiting
the generality of the foregoing, a Change in Control shall be deemed to have
occurred (irrespective of the applicability of the initial clause of this
definition) if at any time after the Public Status Date (a) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act, but excluding
(i) any employee benefit plan of the Company or of any subsidiary of the
Company, and (ii) any entity organized, appointed or established by the Company
pursuant to the terms of any such plan) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities without the prior approval of at
least two-thirds of the members of the whole Board in office immediately prior
to such person attaining such percentage interest; (b) the Company is a party to
a merger, consolidation, share exchange, sale of assets or other reorganization,
or a proxy contest, as a consequence of which members of the Board in office
immediately prior to such transaction or event constitute less than a majority
of the whole Board thereafter; or (c) during any period of two consecutive
years, individuals who at the beginning of such period constituted members of
the Board (including for this purpose any new member whose election or
nomination for election by the Company's stockholders was approved by at least
two-thirds of the members of the whole Board then still in office who were
members of the Board at the beginning of such period) cease for any reason to
constitute a majority of the whole Board. Notwithstanding the foregoing, a
Change in Control shall not be deemed to have occurred solely as a result of
Electronic Data Systems Corporation (or a successor corporation) remaining or
becoming the beneficial owner of 50% or more of the combined voting power of the
Company's then outstanding securities.
"Claim" means an actual or threatened claim or request for relief.
"Corporate Status" means the status of a person who is or was a
director, nominee for director, officer, employee, agent or fiduciary of the
Company or of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving at the
request of the Company.
"Disinterested Director," with respect to any request by Indemnitee
for indemnification hereunder, means a director of the Company who neither is
nor was a party to the Proceeding or subject to a Claim, issue or matter in
respect of which indemnification is sought by Indemnitee.
"DGCL" means the Delaware General Corporation Law and any successor
statute thereto as either of them may be amended from time to time.
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"Expenses" means all attorneys' fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery service
fees and all other disbursements or expenses of the types customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or participating in
(including on appeal), a Proceeding.
"Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither contemporaneously
is, nor in the five years theretofore has been, retained to represent (a) the
Company or Indemnitee in any matter material to either such party, (b) any other
party to the Proceeding giving rise to a claim for indemnification hereunder or
(c) the beneficial owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding voting securities (other than, in each such case, with respect to
matters concerning the rights of Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements). Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's rights under this Agreement.
"person" shall have the meaning ascribed to such term in Sections
13(d) and 14(d) of the Exchange Act.
"Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, administrative hearing or
any other proceeding, whether civil, criminal, administrative or investigative
and whether or not based upon events occurring, or actions taken, before the
date hereof (except any of the foregoing initiated by Indemnitee pursuant to
Article 6 or Section 7.8 to enforce his rights under this Agreement), and any
inquiry or investigation that could lead to, and any appeal in or related to,
any such action, suit, arbitration, alternative dispute resolution mechanism,
hearing or proceeding.
"Public Status Date" means the first date on which the Company has
outstanding a class of equity securities registered under the Exchange Act.
ARTICLE 2
SERVICES BY INDEMNITEE
Section 2.1 Services. Indemnitee agrees to serve, or continue to
serve, as a director of the Company. Indemnitee may from time to time also
agree to serve, as the Company may request from time to time, as a director,
officer, employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise. Indemnitee and the
Company each acknowledge that they have entered into this Agreement as a means
of inducing Indemnitee to serve, or continue to serve, the Company in such
capacities.
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Indemnitee may at any time and for any reason resign from such position or
positions (subject to any other contractual obligation or any obligation imposed
by operation of law). The Company shall have no obligation under this Agreement
to continue Indemnitee in any such position or positions.
ARTICLE 3
INDEMNIFICATION
Section 3.1 General. The Company shall indemnify, and advance
Expenses to, Indemnitee to the fullest extent permitted by applicable law in
effect on the date hereof and to such greater extent as applicable law may
thereafter from time to time permit. The rights of Indemnitee provided under
the preceding sentence shall include, but shall not be limited to, the right to
be indemnified and to have Expenses advanced in all Proceedings to the fullest
extent permitted by Section 145 of the DGCL. The provisions set forth in this
Agreement are provided in addition to and as a means of furtherance and
implementation of, and not in limitation of, the obligations expressed in this
Article 3.
Section 3.2 Proceedings Other Than by or in Right of the Company.
Indemnitee shall be entitled to indemnification pursuant to this Section 3.2 if,
by reason of his Corporate Status, he was, is or is threatened to be made, a
party to any Proceeding, other than a Proceeding by or in the right of the
Company. Pursuant to this Section 3.2, the Company shall indemnify Indemnitee
against Expenses, judgments, penalties, fines and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with any such Expenses, judgments, penalties, fines and amounts paid
in settlement) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any Claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Nothing in this Section 3.2 shall limit the benefits of Section 3.1 or any other
Section hereunder.
Section 3.3 Proceedings by or in Right of the Company. Indemnitee
shall be entitled to indemnification pursuant to this Section 3.3 if, by reason
of his Corporate Status, he was, is or is 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. Pursuant to this Section 3.3, the Company shall indemnify Indemnitee
against Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any Claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any Claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification against such Expenses shall nevertheless be made by the Company
in such event if and only to the extent that the Court
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<PAGE>
of Chancery of the State of Delaware or other court of competent jurisdiction
(the "Court"), or the court in which such Proceeding shall have been brought or
is pending, shall so determine. Nothing in this Section 3.3 shall limit the
benefits of Section 3.1 or any other Section hereunder.
ARTICLE 4
EXPENSES
Section 4.1 Expenses of a Party Who Is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement to the contrary (except as
set forth in Section 7.2(c) or 7.6), and without a requirement for any
determination described in Section 5.2, the Company shall indemnify Indemnitee
against all Expenses actually and reasonably incurred by him or on his behalf in
connection with any Proceeding to which Indemnitee was or is a party by reason
of his Corporate Status and in which Indemnitee is successful, on the merits or
otherwise. If Indemnitee is not wholly successful, on the merits or otherwise,
in a Proceeding but is successful, on the merits or otherwise, as to any Claim,
issue or matter in such Proceeding, the Company shall indemnify Indemnitee
against all Expenses actually and reasonably incurred by him or on his behalf
relating to each successfully resolved Claim, issue or matter. For purposes of
this Section 4.1 and without limitation, the termination of a Claim, issue or
matter in a Proceeding by dismissal, with or without prejudice, shall be deemed
to be a successful result as to such Claim, issue or matter.
Section 4.2 Expenses of a Witness or Non-Party. Notwithstanding any
other provision of this Agreement to the contrary, to the extent that Indemnitee
is, by reason of his Corporate Status, a witness or otherwise participates in
any Proceeding at a time when he is not a party in the Proceeding, the Company
shall indemnify him against all Expenses actually and reasonably incurred by him
or on his behalf in connection therewith.
Section 4.3 Advancement of Expenses. The Company shall pay all
reasonable Expenses incurred by or on behalf of 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
pursuant to Article 5 within 15 days after the receipt by the Company of a
written request from Indemnitee requesting such payment or payments from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee. Indemnitee hereby undertakes and agrees that he will reimburse and
repay the Company for any Expenses so advanced to the extent that it shall
ultimately be determined (in a final adjudication by a court from which there is
no further right of appeal or in a final adjudication of an arbitration pursuant
to Section 6.1 if Indemnitee elects to seek such arbitration) that Indemnitee is
not entitled to be indemnified by the Company against such Expenses.
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ARTICLE 5
PROCEDURE FOR DETERMINATION OF ENTITLEMENT
TO INDEMNIFICATION
Section 5.1 Request by Indemnitee. To obtain indemnification under
this Agreement, Indemnitee shall submit to the Company a written request,
including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Secretary or an Assistant Secretary of the Company shall, promptly upon receipt
of such a request for indemnification, advise the members of the Board in
writing that Indemnitee has requested indemnification.
Section 5.2 Determination of Request. Upon written request by
Indemnitee for indemnification pursuant to Section 5.1, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case as follows:
(a) If a Change in Control shall have occurred, by
Independent Counsel in a written opinion to the Board, a copy of which
shall be delivered to Indemnitee unless Indemnitee shall request that such
determination be made by the Disinterested Directors, in which case in the
manner provided for in clause (i) of paragraph (b) below;
(b) If a Change in Control shall not have occurred, (i) by
a majority vote of the Disinterested Directors, even though less than a
quorum of the Board, or (ii) if there are no Disinterested Directors, or if
such Disinterested Directors so direct, by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to the Indemnitee,
or (iii) if Indemnitee and the Company mutually agree, by the stockholders
of the Company; or
(c) As provided in Section 5.4(b).
If it is so determined that Indemnitee is entitled to indemnification hereunder,
payment to Indemnitee shall be made within 15 days after such determination.
Indemnitee shall cooperate with the person or persons making such determination
with respect to Indemnitee's entitlement to indemnification, including providing
to such person upon reasonable advance request any documentation or information
that is not privileged or otherwise protected from disclosure and that is
reasonably available to Indemnitee and reasonably necessary for such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person or
persons making such determination shall be borne by the Company (irrespective of
the determination as to Indemnitee's entitlement to indemnification), and the
Company shall indemnify and hold harmless Indemnitee therefrom.
Section 5.3 Independent Counsel. If a Change in Control shall not
have occurred and the determination of entitlement to indemnification is to be
made by Independent Counsel, the Independent Counsel shall be selected by (a) a
majority vote of the Disinterested
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Directors, even though less than a quorum of the Board or (b) if there are no
Disinterested Directors, by a majority vote of the Board, and the Company shall
give written notice to Indemnitee, within 10 days after receipt by the Company
of Indemnitee's request for indemnification, specifying the identity and address
of the Independent Counsel so selected. If a Change in Control shall have
occurred and the determination of entitlement to indemnification is to be made
by Independent Counsel, the Independent Counsel shall be selected by Indemnitee,
and Indemnitee shall give written notice to the Company, within 10 days after
submission of Indemnitee's request for indemnification, specifying the identity
and address of the Independent Counsel so selected (unless Indemnitee shall
request that such selection be made by the Disinterested Directors, in which
event the Company shall give written notice to Indemnitee, within 10 days after
receipt of Indemnitee's request for the Disinterested Directors to make such
selection, specifying the identity and address of the Independent Counsel so
selected). In either event, (i) such notice to Indemnitee or the Company, as the
case may be, shall be accompanied by a written affirmation of the Independent
Counsel so selected that it satisfies the requirements of the definition of
"Independent Counsel" in Article 1 and that it agrees to serve in such capacity
and (ii) Indemnitee or the Company, as the case may be, may, within seven days
after such written notice of selection shall have been given, deliver to the
Company or to Indemnitee, as the case may be, a written objection to such
selection. Any objection to selection of Independent Counsel pursuant to this
Section 5.3 may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of the definition of "Independent
Counsel" in Article 1, and the objection shall set forth with particularity the
factual basis of such assertion. If such written objection is timely made, the
Independent Counsel so selected may not serve as Independent Counsel unless and
until the Court has determined that such objection is without merit. In the
event of a timely written objection to a choice of Independent Counsel, the
party originally selecting the Independent Counsel shall have seven days to make
an alternate selection of Independent Counsel and to give written notice of such
selection to the other party, after which time such other party shall have five
days to make a written objection to such alternate selection. If, within 30 days
after submission of Indemnitee's request for indemnification pursuant to Section
5.1, no Independent Counsel shall have been selected and not objected to, either
the Company or Indemnitee may petition the Court for resolution of any objection
that shall have been made by the Company or Indemnitee to the other's selection
of Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom an objection is so resolved or
the person so appointed shall act as Independent Counsel under Section 5.2. The
Company shall pay any and all reasonable fees and expenses incurred by such
Independent Counsel in connection with acting pursuant to Section 5.2, and the
Company shall pay all reasonable fees and expenses incident to the procedures of
this Section 5.3, regardless of the manner in which such Independent Counsel was
selected or appointed. Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 6.1, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
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<PAGE>
Section 5.4 Presumptions and Effect of Certain Proceedings.
(a) Indemnitee shall be presumed to be entitled to
indemnification under this Agreement upon submission of a request for
indemnification pursuant to Section 5.1, and the Company shall have the
burden of proof in overcoming that presumption in reaching a determination
contrary to that presumption. Such presumption shall be used by
Independent Counsel (or other person or persons determining entitlement to
indemnification) as a basis for a determination of entitlement to
indemnification unless the Company provides information sufficient to
overcome such presumption by clear and convincing evidence.
(b) If the person or persons empowered or selected under this
Article 5 to determine whether Indemnitee is entitled to indemnification
shall not have made a determination within 60 days after receipt by the
Company of Indemnitee's request for indemnification, the requisite
determination of entitlement to indemnification shall be deemed to have
been made and Indemnitee shall be entitled to such indemnification, absent
(i) a knowing misstatement by Indemnitee of a material fact, or knowing
omission of a material fact necessary to make Indemnitee's statement not
materially misleading, in connection with Indemnitee's request for
indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended
for a reasonable time, not to exceed an additional 30 days, if the person
making the determination with respect to entitlement to indemnification in
good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating to such determination; provided
further, that the 60-day limitation set forth in this Section 5.4(b) shall
not apply and such period shall be extended as necessary (i) if within 30
days after receipt by the Company of Indemnitee's request for
indemnification under Section 5.1 Indemnitee and the Company have agreed,
and the Board has resolved, to submit such determination to the
stockholders of the Company pursuant to Section 5.2(b) for their
consideration at an annual meeting of stockholders to be held within 90
days after such agreement and such determination is made thereat, or a
special meeting of stockholders for the purpose of making such
determination to be held within 60 days after such agreement and such
determination is made thereat, or (ii) if the determination of entitlement
to indemnification is to be made by Independent Counsel, in which case the
applicable period shall be as set forth in clause (c) of Section 6.1.
(c) The termination of any Proceeding or of any Claim, issue
or matter by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere or its
equivalent, shall not by itself adversely affect the rights of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in
good faith or in a manner that he reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any
criminal Proceeding, that Indemnitee had reasonable cause to believe that
his conduct was unlawful. Indemnitee shall be deemed to have been found
liable in respect of any Claim, issue or matter only
-8-
<PAGE>
after he shall have been so adjudged by the Court after exhaustion of all
appeals therefrom.
ARTICLE 6
CERTAIN REMEDIES OF INDEMNITEE
Section 6.1 Indemnitee Entitled to Adjudication in an Appropriate
Court. If (a) a determination is made pursuant to Article 5 that Indemnitee is
not entitled to indemnification under this Agreement, (b) there has been any
failure by the Company to make timely payment or advancement of any amounts due
hereunder, or (c) the determination of entitlement to indemnification is to be
made by Independent Counsel and such determination shall not have been made and
delivered in a written opinion within 90 days after the latest of (i) such
Independent Counsel's being appointed, (ii) the overruling by the Court of
objections to such counsel's selection or (iii) expiration of all periods for
the Company or Indemnitee to object to such counsel's selection, Indemnitee
shall be entitled to commence an action seeking an adjudication in the Court of
his entitlement to such indemnification or advancement of Expenses.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the commercial arbitration rules of
the American Arbitration Association. Indemnitee shall commence such action
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such action pursuant to
this Section 6.1, or such right shall expire. The Company shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration.
Section 6.2 Adverse Determination Not to Affect any Judicial
Proceeding. If a determination shall have been made pursuant to Article 5 that
Indemnitee is not entitled to indemnification under this Agreement, any judicial
proceeding or arbitration commenced pursuant to this Article 6 shall be
conducted in all respects as a de novo trial or arbitration on the merits, and
Indemnitee shall not be prejudiced by reason of such initial adverse
determination. In any judicial proceeding or arbitration commenced pursuant to
this Article 6, Indemnitee shall be presumed to be entitled to indemnification
or advancement of Expenses, as the case may be, under this Agreement and the
Company shall have the burden of proof in overcoming such presumption and to
show by clear and convincing evidence that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
Section 6.3 Company Bound by Determination Favorable to Indemnitee in
any Judicial Proceeding or Arbitration. If a determination shall have been made
or deemed to have been made pursuant to Article 5 that Indemnitee is entitled to
indemnification, the Company shall be irrevocably bound by such determination in
any judicial proceeding or arbitration commenced pursuant to this Article 6 and
shall be precluded from asserting that such determination has not been made or
that the procedure by which such determination was made is not valid, binding
and enforceable, in each such case absent (a) a knowing misstatement by
Indemnitee of a material fact, or a knowing omission of a material fact
necessary to make a
-9-
<PAGE>
statement by Indemnitee not materially misleading, in connection with
Indemnitee's request for indemnification or (b) a prohibition of such
indemnification under applicable law.
Section 6.4 Company Bound by the Agreement. The Company shall be
precluded from asserting in any judicial proceeding or arbitration commenced
pursuant to this Article 6 that the procedures and presumptions of this
Agreement are not valid, binding and enforceable and shall stipulate in any such
court or before any such arbitrator that the Company is bound by all the
provisions of this Agreement.
Section 6.5 Indemnitee Entitled to Expenses of Judicial Proceeding.
If Indemnitee seeks a judicial adjudication of or an award in arbitration to
enforce his rights under, or to recover damages for breach of, this Agreement,
Indemnitee shall be entitled to recover from the Company, and the Company shall
indemnify Indemnitee against, any and all expenses (of the types described in
the definition of Expenses in Article 1) actually and reasonably incurred by him
in such judicial adjudication or arbitration but only if Indemnitee prevails
therein. If it shall be determined in such judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of expenses or other benefit sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
equitably allocated between the Company and Indemnitee. Notwithstanding the
foregoing, if a Change in Control shall have occurred, Indemnitee shall be
entitled to indemnification under this Section 6.5 regardless of whether
Indemnitee ultimately prevails in such judicial adjudication or arbitration.
ARTICLE 7
MISCELLANEOUS
Section 7.1 Non-Exclusivity.
(a) The rights of Indemnitee to receive indemnification and
advancement of Expenses under this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may at any time be entitled under
applicable law, the Certificate of Incorporation or Bylaws of the Company,
any other agreement, vote of stockholders or a resolution of directors, or
otherwise. No amendment or alteration of the Certificate of Incorporation
or Bylaws of the Company or any provision thereof shall adversely affect
Indemnitee's rights hereunder and such rights shall be in addition to any
rights Indemnitee may have under the Company's Certificate of
Incorporation, Bylaws and the DGCL or otherwise. To the extent that there
is a change in the DGCL or other applicable law (whether by statute or
judicial decision) that allows greater indemnification by agreement than
would be afforded currently under the Company's Certificate of
Incorporation or Bylaws and this Agreement, it is the intent of the parties
hereto that the Indemnitee shall enjoy by virtue of this Agreement the
greater benefit so afforded by such change.
-10-
<PAGE>
(b) The Company shall not amend the Bylaws of the Company
in a manner that adversely affects Indemnitee's rights to indemnification
thereunder existing as of the date hereof until the six-year anniversary of
the Public Status Date.
Section 7.2 Insurance and Subrogation.
(a) To the extent the Company maintains an insurance policy
or policies providing liability insurance for directors, officers,
employees, agents or fiduciaries of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise that such person serves at the request of the Company,
Indemnitee shall be covered by such policy or policies in accordance with
its or their terms to the maximum extent of the coverage available for any
such director, officer, employee, agent or fiduciary under such policy or
policies.
(b) In the event of any payment by the Company under this
Agreement, the Company shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, who shall execute all papers
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Company to bring
suit to enforce such rights.
(c) The Company shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under
the Company's Certificate of Incorporation or Bylaws or any insurance
policy, contract, agreement or otherwise.
Section 7.3 Certain Settlement Provisions. The Company shall have no
obligation to indemnify Indemnitee under this Agreement for amounts paid in
settlement of a Proceeding or Claim without the Company's prior written consent.
The Company shall not settle any Proceeding or Claim in any manner that would
impose any fine or other obligation on 12 Indemnitee without Indemnitee's prior
written consent. Neither the Company nor Indemnitee shall unreasonably withhold
their consent to any proposed settlement.
Section 7.4 Duration of Agreement. This Agreement shall continue for
so long as Indemnitee serves as a director, nominee for director, officer,
employee, agent or fiduciary of the Company or, at the request of the Company,
as a director, nominee for director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, and thereafter shall survive until and terminate upon the
latest to occur of (a) the expiration of 10 years after the latest date that
Indemnitee shall have ceased to serve in any such capacity; (b) the final
termination of all pending Proceedings in respect of which Indemnitee is granted
rights of indemnification or advancement of Expenses hereunder and of any
proceeding commenced by Indemnitee pursuant to Article 6 relating thereto; or
(c) the
-11-
<PAGE>
expiration of all statutes of limitation applicable to possible Claims arising
out of Indemnitee's Corporate Status.
Section 7.5 Notice by Each Party. Indemnitee shall promptly notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document or communication relating
to any Proceeding or Claim for which Indemnitee may be entitled to
indemnification or advancement of Expenses hereunder; provided, however, that
any failure of Indemnitee to so notify the Company shall not adversely affect
Indemnitee's rights under this Agreement except to the extent the Company shall
have been materially prejudiced as a direct result of such failure. The Company
shall notify promptly Indemnitee in writing, as to the pendency of any
Proceeding or Claim that may involve a claim against the Indemnitee for which
Indemnitee may be entitled to indemnification or advancement of Expenses
hereunder.
Section 7.6 Certain Persons Not Entitled to Indemnification.
Notwithstanding any other provision of this Agreement to the contrary,
Indemnitee shall not be entitled to indemnification or advancement of Expenses
hereunder with respect to any Proceeding or any Claim, issue or matter therein,
brought or made by Indemnitee against the Company or any affiliate of the
Company, except as specifically provided in Article 5 or Article 6.
Section 7.7 Indemnification for Negligence, Gross Negligence, etc.
Without limiting the generality of any other provision hereunder, it is the
express intent of this Agreement that Indemnitee be indemnified and Expenses be
advanced regardless of Indemnitee's acts of negligence, gross negligence or
intentional or willful misconduct to the extent that indemnification and
advancement of Expenses is allowed pursuant to the terms of this Agreement and
under applicable law.
Section 7.8 Enforcement. The Company agrees that its execution of
this Agreement shall constitute a stipulation by which it shall be irrevocably
bound in any court or arbitration in which a proceeding by Indemnitee for
enforcement of his rights hereunder shall have been commenced, continued or
appealed, that its obligations set forth in this Agreement are unique and
special, and that failure of the Company to comply with the provisions of this
Agreement will cause irreparable and irremediable injury to Indemnitee, for
which a remedy at law will be inadequate. As a result, in addition to any other
right or remedy he may have at law or in equity with respect to breach of this
Agreement, Indemnitee shall be entitled to injunctive or mandatory relief
directing specific performance by the Company of its obligations under this
Agreement.
Section 7.9 Successors and Assigns. All of the terms and provisions
of this Agreement shall be binding upon, shall inure to the benefit of and shall
be enforceable by the parties hereto and their respective successors, assigns,
heirs, executors, administrators, legal representatives. The Company shall
require and cause any direct or indirect successor (whether by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company, by written agreement in form and substance reasonably
satisfactory to
-12-
<PAGE>
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place.
Section 7.10 Amendment. This Agreement may not be modified or
amended except by a written instrument executed by or on behalf of each of the
parties hereto.
Section 7.11 Waivers. The observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively) by the party entitled to enforce such term only
by a writing signed by the party against which such waiver is to be asserted.
Unless otherwise expressly provided herein, no delay on the part of any party
hereto in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party hereto of any
right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
Section 7.12 Entire Agreement. This Agreement and the documents
expressly referred to herein constitute the entire agreement between the parties
hereto with respect to the matters covered hereby, and any other prior or
contemporaneous oral or written understandings or agreements with respect to the
matters covered hereby are expressly superseded by this Agreement.
Section 7.13 Severability. If any provision of this Agreement
(including any provision within a single section, paragraph or sentence) or the
application of such provision to any person or circumstance, shall be judicially
declared to be invalid, unenforceable or void, such decision will not have the
effect of invalidating or voiding the remainder of this Agreement or affect the
application of such provision to other persons or circumstances, it being the
intent and agreement of the parties that this Agreement shall be deemed amended
by modifying such provision to the extent necessary to render it valid, legal
and enforceable while preserving its intent, or if such modification is not
possible, by substituting therefor another provision that is valid, legal and
unenforceable and that achieves the same objective. Any such finding of
invalidity or unenforceability shall not prevent the enforcement of such
provision in any other jurisdiction to the maximum extent permitted by
applicable law.
Section 7.14 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon (a) transmitter's
confirmation of a receipt of a facsimile transmission, (b) confirmed delivery of
a standard overnight courier or when delivered by hand or (c) the expiration of
five business days after the date mailed by certified or registered mail (return
receipt requested), postage prepaid, to the parties at the following addresses
(or at such other addresses for a party as shall be specified by like notice):
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<PAGE>
If to the Company, to:
Unigraphics Solutions Inc.
13736 Riverport Drive
Maryland Heights, Missouri 63043
Attention: President
Facsimile:
If to Indemnitee, to:
Facsimile:
-----------------------
Section 7.15 Certain Construction Rules.
(a) The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. As used in this Agreement,
unless otherwise provided to the contrary, (i) all references to days shall
be deemed references to calendar days and (ii) any reference to a "Section"
or "Article" shall be deemed to refer to a section or article of this
Agreement. The words "hereof," "herein" and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." Unless
otherwise specifically provided for herein, the term "or" shall not be
deemed to be exclusive. Whenever the context may require, any pronoun used
in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall
include the plural and vice versa.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any
employee benefit plan; references to "serving at the request of the
Company" shall include any service as a director, nominee for director,
officer, employee or agent of the Company which imposes duties on, or
involves services by, such director, nominee, officer, employee or agent
with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in
a manner "not opposed to the best interests of the Company" as referred to
in this Agreement.
-14-
<PAGE>
Section 7.16 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without giving
effect to the conflicts of laws principles thereof.
Section 7.17 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument,
notwithstanding that both parties are not signatories to the original or same
counterpart.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered to be effective as of the date first above written.
UNIGRAPHICS SOLUTIONS INC.
By:
--------------------------------------
Name:
Title:
INDEMNITEE
[Signature]
------------------------------------------
Name: [Printed Name]
-------------------------------------
-15-
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES
------------
Unigraphics Solutions Asia/Pacific Incorporated Delaware
Unigraphics Solutions (Australia) Pty Ltd. Australia
Unigraphics Solutions Handelsgesellschaft m.b.H. Austria
Unigraphics Solutions N.V. Belgium
Unigraphics Solutions do Brasil Ltda. Brazil
Unigraphics Solutions Canada Ltd. Canada
Unigraphics Solutions Danmark A/S Denmark
Unigraphics Solutions Ltd. England
Unigraphics Solutions France SAS France
Unigraphics Solutions GmbH Germany
Unigraphics Solutions (HK) Limited Hong Kong
Unigraphics Solutions S.p.A. Italy
Unigraphics Solutions Japan Ltd. Japan
Unigraphics Solutions (Korea) Ltd. Korea
Unigraphics Solutions de Mexico, S.A. de C.V. Mexico
Unigraphics Solutions B.V. Netherlands
Unigraphics Solutions Norge AS Norway
Unigraphics Solutions Sp.z.o.o. Poland
Unigraphics Solutions Pte. Limited Singapore
Unigraphics Solutions Espana, S.A. Spain
Unigraphics Solutions Sverige AB Sweden
Unigraphics Solutions AG Switzerland
<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
March 19, 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 the Registration Statement (Form S-1) and
related Prospectus of Unigraphics Solutions Inc.
Ernst & Young LLP
Birmingham, Alabama
March 19, 1998
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
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<SECURITIES> 2,685 0 0
<RECEIVABLES> 121,110 176,334 79,234
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<CURRENT-ASSETS> 122,012 173,237 78,324
<PP&E> 55,109 53,973 40,504
<DEPRECIATION> 35,288 35,593 26,278
<TOTAL-ASSETS> 166,790 231,206 146,907
<CURRENT-LIABILITIES> 69,054 85,402 44,233
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<CGS> 72,065 98,099 74,737
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<LOSS-PROVISION> 2,425 1,251 2,994
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<INCOME-PRETAX> 39,823 134,885 30,001
<INCOME-TAX> 14,810 51,549 11,625
<INCOME-CONTINUING> 25,013 83,336 18,376
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