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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-14155
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Unigraphics Solutions Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2728894
- ------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
13736 Riverport Drive, Maryland Heights, Missouri 63043
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(Address of principal executive offices)
(Zip Code)
(314) 344-5900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X].
As of July 31, 1998, there were outstanding 5,000,000 shares of the
registrant's Class A Common Stock, $.01 par value per share, and 31,265,000
shares of the registrant's Class B Common Stock, $.01 par value per share.
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I -- Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Operations....................................................... 3
Consolidated Balance Sheets................................................................. 4
Consolidated Statements of Cash Flows....................................................... 5
Notes to Consolidated Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ 8
Part II -- Other Information
Item 4. Submission of Matters to a Vote of Security Holders.................................. 14
Item 6. Exhibits and Reports on Form 8-K..................................................... 14
Signatures....................................................................................... 15
Exhibit 10.10 Unigraphics Solutions Inc. 1998
Exhibit 27 Financial Data Schedule (for SEC information only)
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
-------- ------- -------- --------
Revenue:
<S> <C> <C> <C> <C>
Software $ 38,620 $28,780 $ 70,180 $ 55,016
Services 46,378 35,847 84,263 66,394
Hardware 16,903 16,645 33,986 28,989
-------- ------- -------- --------
Total revenue 101,901 81,272 188,429 150,399
Cost of revenue:
Software:
Amortization 5,550 3,672 10,146 7,344
Royalties, distribution and other 4,374 3,780 7,651 6,565
Services 19,836 12,810 34,562 26,569
Hardware 14,321 10,688 28,226 19,079
-------- ------- -------- --------
Total cost of revenue 44,081 30,950 80,585 59,557
-------- ------- -------- --------
Gross profit 57,820 50,322 107,844 90,842
Operating expenses:
Selling, general and administrative 34,885 26,398 62,115 49,332
Research and development 15,563 11,505 29,851 22,450
In-process research and development -- -- 42,468 --
-------- ------- -------- --------
Total operating expenses 50,448 37,903 134,434 71,782
-------- ------- -------- --------
Operating income 7,372 12,419 (26,590) 19,060
Other income (expense), net (1,993) 3 7,699 14
-------- ------- -------- --------
Income (loss) before income taxes 5,379 12,422 (18,891) 19,074
Provision for income taxes 1,936 4,619 (8,251) 7,092
-------- ------- -------- --------
Net income (loss) $ 3,443 $ 7,803 $(10,640) $ 11,982
======== ======= ======== ========
Comprehensive income (loss) $ 4,623 $ 8,037 $ (4,591) $ 10,332
======== ======= ======== ========
Earnings (loss) per share:
Basic $ 0.11 $ 0.25 $ (0.34) $ 0.38
======== ======= ======== ========
Diluted $ 0.11 $ 0.25 $ (0.34) $ 0.38
======== ======= ======== ========
Weighted average number of
Common shares outstanding:
Basic 31,979,286 31,265,000 31,626,111 31,265,000
========== ========== ========== ==========
Diluted 31,979,286 31,265,000 31,626,111 31,265,000
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
UNAUDITED Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------------ -------------------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents $ 16,793 $ 11
Marketable securities 12,024 2,685
Accounts receivable, net 107,514 115,692
Prepaids and other 5,653 3,624
-------- --------
Total current assets 141,984 122,012
-------- --------
Property and equipment, net 21,871 19,821
-------- --------
Operating and other assets
Software, goodwill, and other intangibles, net 77,912 24,957
Deferred income taxes 10,028 --
-------- --------
Total operating and other assets 87,940 24,957
-------- --------
Total assets $251,795 $166,790
======== ========
Liabilities and Stockholders' Equity/Net Investment
Current liabilities
Accounts payable and accrued liabilities $ 58,600 $ 41,759
Deferred revenue 11,726 7,798
Income taxes payable 13,424 --
Deferred income taxes - current portion 19,224 19,497
--------- --------
Total current liabilities 102,974 69,054
--------- --------
Intercompany credit agreement 1,962 --
Intercompany note 73,000 --
Deferred income taxes -- 9,386
Stockholders' equity/net investment
Preferred stock, $.01 par value; authorized
20,000,000 shares, none issued --
Class A common stock, $.01 par value; 168,735,000
shares authorized; 5,000,000 shares issued and 50 --
outstanding at June 30, 1998
Class B common stock, $.01 par value; 31,265,000
shares authorized; 31,265,000 shares issued and
outstanding at June 30, 1998 313 --
Additional paid-in capital 148,676 --
Retained earnings (deficit) (83,640) --
Accumulated other comprehensive income 8,460 2,410
Stockholder's net investment -- 85,940
--------- --------
Total stockholders' equity/net investment 73,859 88,350
--------- --------
Total liabilities and stockholders' equity/net investment $ 251,795 $166,790
========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
UNAUDITED Consolidated StatementS of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1998 1997
------------------ -----------------
<S> <C> <C>
Net cash provided by operating activities $ 50,367 $ 49,605
--------- --------
Cash Flows from Investing Activities
Proceeds from sale of marketable securities 10,145 --
Payments related to Solid Edge acquisition (104,993) --
Payments for purchases of property and equipment (5,117) (2,675)
Payments for purchases of software and other intangibles (883) (114)
Payments for purchases of marketable securities (51) --
--------- --------
Net cash used in investing activities (100,899) (2,789)
--------- --------
Cash Flows from Financing Activities
Borrowings under Intercompany credit agreement 111,204 --
Payments on Intercompany credit agreement (108,851) --
Proceeds from sale of stock 65,100 --
Net advances to affiliates -- (46,816)
--------- --------
Net cash provided by (used in) financing activities 67,453 (46,816)
--------- --------
Effect of exchange rate changes on cash and cash equivalents (139) --
--------- --------
Net increase in cash and cash equivalents 16,782 --
--------
Cash and cash equivalents at beginning of period 11 1
--------- --------
Cash and cash equivalents at end of period $ 16,793 $ 1
========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of
Unigraphics Solutions Inc. ("Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments (consisting of only normal recurring
items) which are necessary for a fair presentation have been included. The
results of interim periods are not necessarily indicative of results which may
be expected for any other interim period or for the full year.
Note 2. Earnings Per Share
Basic earnings per share of common stock is computed by dividing net
income by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share is calculated in the same manner as basic
earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding, assuming
the exercise of all employee stock options and the vesting of restricted stock
units that would have had a dilutive effect on earnings per share. There were no
employee stock options or vesting of restricted stock units which had a dilutive
effect as of June 30, 1998.
Note 3. Solid Edge Acquisition
On March 2, 1998, the Company acquired the mechanical computer-aided
design ("CAD"), computer-aided engineering ("CAE"), and computer-aided
manufacturing ("CAM") business of Intergraph Corporation consisting of the
Solid Edge and EMS product lines (the "Solid Edge Acquisition") for a purchase
price of $105 million (excluding approximately $2 million of acquisition costs).
The Company borrowed $105 million from EDS (hereinafter defined) pursuant to the
Intercompany Credit Agreement (hereinafter defined). The cost of the Solid Edge
Acquisition was allocated to identifiable assets based on estimated fair values.
Costs allocated to identifiable intangible assets will be amortized on a
straight-line basis over the remaining estimated useful lives of the assets.
Costs allocated to in-process research and development in the amount of $42.5
million were expensed in the three month period ended March 31, 1998. The excess
of purchase price over fair value of identifiable assets acquired was recorded
as goodwill and will be amortized on a straight-line basis over its useful life
of seven years. The Company has allocated the purchase price as follows: $1.3
million to computer equipment, furniture and other assets; $3.4 million to
software; $4.0 million to acquired workforce; $42.5 million to in-process
research and development costs; and $55.8 million to goodwill. As a result of
the write-off of in-process research and development costs and additional
amortization expense resulting from the Solid Edge Acquisition, the Company
expects that net income in 1998 will be significantly less than in prior years.
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The following summary presents selected unaudited pro forma consolidated
information for the Company assuming the Solid Edge Acquisition and related
financing under the Intercompany Credit Agreement had occurred on January 1,
1997 (in thousands, except for earnings per share):
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1998 1997
-------------------------------
<S> <C> <C>
Revenues $193,208 $166,589
======== ========
Net Income $ 12,737 $ 4,194
Earnings per share $ 0.40 $ 0.13
======== ========
</TABLE>
The pro forma information does not include the write off of $42.5 million of in-
process research and development costs acquired in connection with the Solid
Edge Acquisition.
Note 4. Public Offering of Common Stock and Issuance of Options
On June 23, 1998, the Company completed an initial public offering of
5,000,000 shares of Class A Common Stock, $.01 par value per share, of the
Company. The net proceeds of the offering were used to repay $65.1 million of
indebtedness outstanding under the Intercompany Credit Agreement between the
Company and EDS. Currently there are a total of 36,265,000 outstanding shares
of Company Common Stock, including 5,000,000 share of Class A Common Stock and
31,265,000 shares of Class B Common Stock. EDS currently owns 100% of the Class
B Common Stock. EDS' holdings represent 86.2% of the outstanding shares of all
classes of Common Stock and 98.4% of the combined voting power of all classes of
voting stock of the Company.
Employee stock options for the purchase of approximately 800,000 shares of
Class A Common Stock were issued upon completion of the offering at the initial
public offering price of $14.00 per share. These securities have not been
included in the computation of diluted earnings per share because to do so would
have been antidilutive for the periods presented.
7
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company provides scalable, integrated, enterprise-level mechanical
computer-aided design solutions that are used for virtual product development
principally in the automotive and transportation, aerospace, consumer products,
equipment and machinery, and electronics industries. For further information,
refer to the Company's Registration Statement on Form S-1 (File No. 333-48261).
Pursuant to a reorganization consummated as of January 1, 1998 (the
"Reorganization"), the Company became the successor to the mechanical
CAD/CAM/CAE ("MCAD") business of Electronic Data Systems Corporation, a Delaware
corporation ("EDS"), which business was formerly 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.
In connection with the Reorganization, effective as of January 1, 1998 the
Company entered into a Management Services Agreement with EDS pursuant to which
EDS performs various management services for the Company, including treasury,
risk management, tax and similar administrative services. The agreement
provides for the payment 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 .5% of the Company's
total revenues. In addition, pursuant to the Intercompany Credit Agreement
dated January 1, 1998 between the Company and EDS entered into in connection
with the Reorganization (the "Intercompany Credit Agreement"), 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. Since the closing
of the initial public offering of the Company's Class A Common Stock referred to
below, the maximum amount available to the Company under this facility is $70
million. Effective as of March 6, 1998, the Company issued to EDS as a dividend
an Intercompany Note in the principal amount of $73 million (the "Intercompany
Note"). See "Liquidity and Capital Resources" for further discussion.
On June 23, 1998, the Company completed the initial public offering of
5,000,000 shares of Class A Common Stock, $.01 par value per share, of the
Company. The net proceeds of the offering were used to repay $65.1 million of
indebtedness outstanding under the Intercompany Credit Agreement.
Solid Edge Acquisition
On March 2, 1998, the Company completed the Solid Edge Acquisition for a
purchase price of $105 million (excluding approximately $2 million of
acquisition costs). The Company borrowed $105 million from EDS pursuant to the
Intercompany Credit Agreement. The cost of the Solid Edge Acquisition was
allocated to identifiable assets based on estimated fair values. Costs
allocated to identifiable intangible assets will be amortized on a straight-line
basis over the remaining estimated useful lives of the assets. Costs allocated
to in-process research and development in the amount of $42.5 million were
expensed in the three month period ended March 31, 1998. The excess of purchase
price over fair value of identifiable assets acquired was recorded as goodwill
and will be amortized on a straight-line basis over its useful life of seven
years. The Company has allocated the purchase price as follows: $1.3 million to
computer equipment, furniture and other assets; $3.4 million to software; $4.0
million to acquired workforce; $42.5 million to in-process research and
development costs; and $55.8 million to goodwill. As a result of the write-off
of in-process research and development costs and additional amortization expense
resulting from
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the Solid Edge Acquisition, the Company expects that net income in 1998 will be
significantly less than in prior years.
Financial performance for the Solid Edge product is consistent with the
projections utilized in the allocation of the purchase price for the Solid Edge
Acquisition.
Forward-looking Statements
All statements other than historical statements contained in this Report on
Form 10-Q constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Without limitation, these
forward-looking statements include statements regarding future income gains to
be realized from the exercise of warrants and subsequent sale of related re-
marketable securities, the Company's effective tax rate for the remainder of
calendar year 1998, and the Company's Year 2000 exposure. Any Form 10-K, Annual
Report to Shareholders, Form 10-Q or Form 8-K of the Company may include
forward-looking statements. In addition, other written or oral statements which
constitute forward-looking statements have been made or may in the future be
made by the Company, including statements regarding future operating
performance, short- and long-term revenue and earnings growth, the value of new
contract signings, and MCAD industry growth rates and the Company's performance
relative thereto. These forward-looking statements rely on a number of
assumptions concerning future events, and are subject to a number of
uncertainties and other factors, many of which are outside of the Company's
control, that could cause actual results to differ materially from such
statements. These include, but are not limited to: competition in the MCAD
industry and the impact of such competition on pricing, revenues and margins;
market acceptance of new Company product or service offerings and costs
associated with the development and marketing of such offerings; the financial
performance of current and future customer contracts; general economic
conditions in the United States and abroad; the cost of attracting and retaining
highly skilled personnel; the ability of the Company to successfully integrate
its operations into a single, effective and efficient entity; and the
significant quarterly fluctuations in the Company's operating results caused by,
among other factors, the timing of orders and shipments. Such factors are
described in more detail in the Company's most recent Registration Statement
(File No. 333-48261) under "Risk Factors" beginning on page 10.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
Results of Operations
Revenues. Revenues were $101.9 million during the three months ended June
30, 1998, an increase of $20.6 million from $81.3 million for the corresponding
period in 1997. Revenues were $188.4 million during the six months ended June
30, 1998, an increase of $38.0 million from $150.4 million for the corresponding
period in 1997.
Software revenues increased $9.8 million, or 34%, to $38.6 million for the
three month period ended June 30, 1998, from $28.8 million for the corresponding
period in 1997. Software revenues increased $15.2 million, or 28%, to $70.2
million for the six month period ended June 30, 1998, from $55.0 million for the
corresponding period in 1997. This increase resulted from strong sales
performance in Europe and Asia Pacific and the addition of the Solid Edge/EMS
product line.
Services revenues increased $10.6 million, or 30%, to $46.4 million for the
three month period ended June 30, 1998, from $35.8 million for the corresponding
period in 1997. Services revenues increased $17.9 million, or 27%, to $84.3
million for the six month period ended June 30, 1998, from $66.4 million for the
corresponding period in 1997. This increase resulted from software maintenance
growth in all zones corresponding with the higher software sales activity.
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Hardware revenues increased $0.3 million, or 2%, to $16.9 million for the
three month period ended June 30, 1998, from $16.6 million for the corresponding
period in 1997. Hardware revenues increased $5.0 million, or 17%, to $34.0
million for the six month period ended June 30, 1998, from $29.0 million for the
corresponding period in 1997. This increase resulted from continued brisk
activity in the United States in the second quarter following a strong first
quarter in both the United States and Europe.
Revenues from international operations comprised 54% and 55% of total
revenue for the three months ended June 30, 1998 and 1997, respectively.
Revenues from international operations comprised 52% of total revenue for the
six months ended June 30, 1998 and 1997. Excluding revenues from General Motors,
international revenues comprised 60% and 58% of total revenues for the three
months ended June 30, 1998 and 1997, respectively, and 57% and 56% of total
revenues for the six months ended June 30, 1998 and 1997, respectively.
Gross Profit. Gross profit was $57.8 million during the three months ended
June 30, 1998, an increase of $7.5 million from $50.3 million for the
corresponding period in 1997. Gross profit was $107.8 million during the six
months ended June 30, 1998, an increase of $17.0 million from $90.8 million for
the corresponding period in 1997. Gross profit margin was 57% and 62% for the
three months ended June 30, 1998 and 1997, respectively, and 57% and 60% for the
six months ended June 30, 1998 and 1997, respectively.
Gross profit on software revenues increased $7.4 million, or 35%, to $28.7
million for the three month period ended June 30, 1998, from $21.3 million for
the corresponding period in 1997. Gross profit on software revenues increased
$11.3 million, or 27%, to $52.4 million for the six month period ended June 30,
1998, from $41.1 million for the corresponding period in 1997. This increase
resulted primarily from very strong revenue growth which offset the amortization
of goodwill and software intangibles arising from the Solid Edge Acquisition.
Gross profit on services revenues increased $3.5 million, or 15%, to $26.5
million for the three month period ended June 30, 1998, from $23.0 million for
the corresponding period in 1997. Gross profit on services revenues increased
$9.9 million, or 25%, to $49.7 million for the six month period ended June 30,
1998, from $39.8 million for the corresponding period in 1997. This increase
resulted from the growth of software maintenance revenues as a component of
services total revenues. The 1997 second quarter included a one-time benefit
from a performance-based contract. The 1998 second quarter also included a one-
time charge for maintenance resulting from the Company assuming a supplier's
maintenance obligations.
Gross profit on hardware revenues decreased $3.4 million, or 57%, to $2.6
million for the three month period ended June 30, 1998, from $6.0 million for
the corresponding period in 1997. Gross profit on hardware revenues decreased
$4.1 million, or 41%, to $5.8 million for the six month period ended June 30,
1998, from $9.9 million for the corresponding period in 1997. This decrease
resulted from reductions in finders fees paid to the Company by hardware vendors
in the first half of 1997 and a change in the mix of hardware sales to lower
margin computers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $34.9 million during the three months ended June
30, 1998, an increase of $8.5 million from $26.4 million for the corresponding
period in 1997. Selling, general and administrative expenses were $62.1 million
during the six months ended June 30, 1998, an increase of $12.8 million from
$49.3 million for the corresponding period in 1997. Selling, general and
administrative expenses represented 34% and 32% of total revenues for the three
months ended June 30, 1998 and 1997, respectively, and 33% of total revenues
for the six months ended June 30, 1998 and 1997. Selling costs are comprised of
salesperson salaries, commissions and benefits, travel, sales office occupancy
and other related costs. The higher selling, general and administrative expenses
resulted from increases in commissions and bonuses because of continued strong
sales growth over 1997, increased staffing requirements to support higher
revenue growth and additional employee costs associated with the Solid Edge
Acquisition.
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Research and Development Costs. Research and development costs were $15.6
million and $11.5 million for the three months ended June 30, 1998 and 1997,
respectively. Research and development costs were $29.9 million and $22.5
million for the six months ended June 30, 1998 and 1997, respectively. Research
and development costs as a percentage of total revenues were 15% and 14% for the
three months ended June 30, 1998 and 1997, respectively, and 16% and 15% for the
six months ended June 30, 1998 and 1997, respectively. The increase in research
and development costs resulted principally from the Solid Edge Acquisition.
In-process Research and Development Costs. In-process research and
development for the six months ended June 30, 1998 includes the write off of in-
process research and development costs of $42.5 million associated with the
Solid Edge Acquisition in the first quarter of 1998.
Operating Income (Loss). Operating income was $7.4 million and $12.4
million for the three months ended June 30, 1998 and 1997, respectively.
Operating income (loss) was $(26.6) million and $19.1 million for the six months
ended June 30, 1998 and 1997, respectively.
Other Income (Expense), Net. Other income (expense), net was $(2.0)
million and $3 thousand for the three months ended June 30, 1998 and 1997,
respectively. Other income (expense), net was $7.7 million and $14 thousand for
the six months ended June 30, 1998 and 1997, respectively. The increase in
other income (expense), net resulted from gains of $10.1 million realized in
the quarter ended March 31, 1998 from the exercise of warrants and subsequent
sale of related marketable equity securities. 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 continue to be reflected in its results of
operations in 1998. The amount of such gains will be dependent on existing
market conditions at the time of sale. Interest expense associated with the
Intercompany Credit Agreement and Intercompany Note was $2.0 million for the
three months ended June 30, 1998.
Provision for Income Taxes. The provision for income taxes was $1.9
million and $4.6 million for the three months ended June 30, 1998 and 1997,
respectively. The provision for income taxes was $(8.3) million and $7.1
million for the six months ended June 30, 1998 and 1997, respectively. The
Company's effective tax rate was 36.0% and 37.2% for the three months ended June
30, 1998 and 1997, respectively, and 43.7% and 37.2% for the six months ended
June 30, 1998 and 1997, respectively. The Company's effective tax rate was
higher than normal in the first quarter of 1998 as a result of the write-off of
in-process research and development costs discussed above. The Company expects
that its effective tax rate for the remaining quarters in 1998 will be
approximately 36%.
Net Income (Loss). Net income for the three months ended June 30, 1998,
was $3.4 million and $7.8 million for the corresponding quarter in 1997. Net
income (loss) for the six months ended June 30, 1998, was $(10.6) million and
$12.0 million for the corresponding period in 1997. Basic and diluted earnings
per share of common stock was $0.11 and $0.25 for the three months ended June
30, 1998 and 1997, respectively. Basic and diluted earnings (loss) per share of
common stock was $(0.34) and $0.38 for the six months ended June 30, 1998 and
1997, respectively.
Inflation. The Company believes that inflation generally had little effect
on its results of operations for the periods presented.
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,
11
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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
did not have a material adverse impact on the Company's financial statements.
In March 1998, Statement of Position (SOP) 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, was issued. This
SOP requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. The provisions of SOP 98-1 are effective for financial
statements issued for fiscal years beginning after December 15, 1998, although
early adoption is allowed. Initial application of SOP 98-1 is not expected to
have a material impact on the Company's financial statements. The Company has
not determined if it will adopt the provisions of this SOP prior to its
effective date.
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Liquidity and Capital Resources
The Company's central cash management function is performed by EDS. The
Company has an Intercompany Credit Agreement with EDS under which $2.0 million
was outstanding at June 30, 1998. 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) is $70 million. Amounts
outstanding under the Intercompany Credit Agreement bear interest, payable
quarterly at a rate equal to one-month LIBOR plus 0.5%. 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. The
Intercompany Credit Agreement terminates on December 31, 2002, unless terminated
earlier at the election of one of the parties upon occurrence of certain events,
and requires that the Company lend to EDS all excess cash of the Company at a
rate of one-month LIBID minus 0.5%.
The Company also has outstanding an Intercompany Note in the principal
amount of $73.0 million payable to EDS on March 6, 2001. The Intercompany Note
bears interest, payable semiannually, at a rate equal to one-month LIBID minus
0.5%.
The Company's net cash provided by operations for the six months ended June
30, 1998 increased $.8 million to $50.4 million from $49.6 million in the
comparable period in the prior year. The Company's net cash used in investing
activities for the six months ended June 30, 1998 increased $98.1 million to
$100.9 million from $2.8 million in the same prior year period. The increase was
primarily due to cash payments made in connection with the Solid Edge
Acquisition and increased purchases of property and equipment, partially offset
by proceeds received for the sale of marketable securities. Cash flows provided
by financing activities increased $114.3 million to $67.5 million for the six
months ended June 30, 1998, primarily due to $65.1 million of proceeds received
from the Company's initial public offering of Class A Common Stock as well as
decreases in cash payments on intercompany balances with EDS. The Company
believes currently available sources of liquidity, including the Intercompany
Credit Agreement and cash generated from operations, will be sufficient for its
operations for at least the next twelve months.
Year 2000 Issue
Current versions of the Company's products are designed to be Year 2000
compliant. The Company is in the process of determining the extent to which the
customized implementations of its software products are Year 2000 compliant as
well as the impact of any non-compliance on the Company and its customers. While
there can be no assurance that the Company will not be exposed to potential
claims resulting from system problems associated with the Year 2000 issue, the
Company does not currently believe that the effects of any Year 2000 non-
compliance in the Company's installed base of software will result in any
material adverse impact on the Company's business or results of operation.
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 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.
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 operation.
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PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 12, 1998, Electronic Data Systems Corporation, as the sole
stockholder of the Registrant, consented to the amendments to the Certificate of
Incorporation of the Registrant effected by the Restated Certificate of
Incorporation of the Registrant (which is filed as Exhibit 3.1 to the
Registration Statement on Form S-1 of the Registrant, File No. 333-48261).
On May 12, 1998, Electronic Data Systems Corporation, as the sole
stockholder of the Registrant, consented to the adoption of the 1998 Incentive
Plan of Unigraphics Solutions Inc. (which is filed as Exhibit 10.10 to the
Registration Statement on Form S-1 of the Registrant, File No. 333-48261).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
-----------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the Company
incorportaed by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File No. 333-48261)
filed May 21, 1998.
3.2 Amended and Restated Bylaws of the Company incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (File No. 333-48261) filed May 21,
1998.
10.10 Unigraphics Solutions Inc. 1998 Incentive Plan
27 Financial Data Schedule (for SEC information only)
(b) Reports on Form 8-K
None.
14
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UNIGRAPHICS SOLUTIONS INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNIGRAPHICS SOLUTIONS INC.
--------------------------------------
(Registrant)
By /s/ Douglas E. Barnett
-----------------------------------
(Douglas E. Barnett, Vice President
Date: August 13, 1998 and Chief Financial Officer)
15
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EXHIBIT 10.10
-------------
UNIGRAPHICS SOLUTIONS INC.
1998 INCENTIVE PLAN
1. Plan. This Unigraphics Solutions Inc. 1998 Incentive Plan (the "Plan") has
been adopted by Unigraphics Solutions Inc., a Delaware corporation (the
"Company"), to be effective as of the Effective Date stated below for the
purpose stated in paragraph 2 below.
2. Objectives. This Plan is designed to attract and retain key Employees (as
hereinafter defined), to attract and retain qualified directors of the
Company, to encourage the sense of proprietorship of such employees and
Directors, and to stimulate the active interest of such persons in the
development and financial success of the Company and its Subsidiaries. These
objectives are to be accomplished by making Awards (as hereinafter defined)
under this Plan and thereby providing Participants (as hereinafter defined)
with a proprietary interest in the growth and performance of the Company and
its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Annual Director Award Date" means, for each year beginning after the
Effective Date, the first business day of the month next succeeding the date
upon which the annual meeting of stockholders of the Company is held in such
year.
"Authorized Officer" means the Chairman of the Board of the Company (or any
other senior officer of the Company to whom the Chairman of the Board shall
delegate the authority to execute any Award Agreement).
"Award" means an Employee Award or a Director Award.
"Award Agreement" means any Employee Award Agreement or Director Award
Agreement.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation Committee of the Board or such other
committee of the Board as is designated by the Board to administer the Plan.
If at any time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board.
"Common Stock" means the Class A Common Stock, par value $.01 per share, of
the Company.
"Director" means an individual serving as a member of the Board.
"Director Award" means the grant of a Director Option.
"Director Award Agreement" means a written agreement between the Company
and a Participant who is a Nonemployee Director setting forth the terms,
conditions and limitations applicable to a Director Award.
"Director Options" means Nonqualified Options granted to Nonemployee
Directors pursuant to the applicable terms, conditions and limitations
specified in paragraph 9 hereof.
<PAGE>
"Disability" means, with respect to a Nonemployee Director, the inability
to perform the duties of a Director for a continuous period of more than
three months by reason of any medically determinable physical or mental
impairment.
"Dividend Equivalents" means, with respect to shares of Restricted Stock
that are to be issued at the end of the Restriction Period, an amount equal
to all dividends and other distributions (or the economic equivalent thereof)
that are payable to stockholders of record during the Restriction Period on a
like number of shares of Common Stock.
"Effective Date" means the closing date of the initial public offering of
the Common Stock.
"Employee" means an employee of the Company or any of its Subsidiaries or
any corporation which directly or indirectly owns shares representing more
than 50% of the combined voting power of the shares of all classes or series
of capital stock of the Company which have the right to vote generally on
matters submitted to a vote of the stockholders of the Company.
"Employee Award" means the grant of any Option, SAR, Stock Award, Cash
Award or Performance Award, whether granted singly, in combination or in
tandem, to a Participant who is an Employee pursuant to such applicable
terms, conditions and limitations as the Committee may establish in order to
fulfill the objectives of the Plan.
"Employee Award Agreement" means a written agreement between the Company
and a Participant who is an Employee setting forth the terms, conditions and
limitations applicable to an Employee Award.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" of a share of Common Stock means, as of the Effective
Date the Price to Public of the Common Stock in connection with the initial
public offering of the Common Stock, and as of any subsequent date, (i) if
shares of Common Stock are listed on a national securities exchange, the mean
between the highest and lowest sales price per share of Common Stock on the
consolidated transaction reporting system for the principal national
securities exchange on which shares of Common Stock are listed on that date,
or, if there shall have been no such sale so reported on that date, on the
last preceding date on which such a sale was so reported, (ii) if shares of
Common Stock are not so listed but are quoted on the Nasdaq National Market,
the mean between the highest and lowest sales price per share of Common Stock
reported by the Nasdaq National Market on that date, or, if there shall have
been no such sale so reported on that date, on the last preceding date on
which such a sale was so reported or (iii) if shares of Common Stock are not
so listed or quoted but are traded in the over-the-counter market, the mean
between the closing bid and asked price on that date, or, if there are no
quotations available for such date, on the last preceding date on which such
quotations shall be available, as reported by the Nasdaq Stock Market, or, if
not reported by the Nasdaq Stock Market, by the National Quotation Bureau
Incorporated.
"Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.
"Nonemployee Director" has the meaning set forth in paragraph 4(b) hereof.
"Nonqualified Stock Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of Common
Stock at a specified price.
"Participant" means an Employee or Director to whom an Award has been made
under this Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee that is subject to the attainment of one or
more Performance Goals.
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<PAGE>
"Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.
"Restricted Stock" means any Common Stock that is restricted or subject to
forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date upon
which an Award of Restricted Stock is made pursuant to this Plan and ending
as of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any
successor rule.
"SAR" means a right to receive a payment, in cash or Common Stock, equal to
the excess of the Fair Market Value or other specified valuation of a
specified number of shares of Common Stock on the date the right is exercised
over a specified strike price (in each case, as determined by the Committee).
"Stock Award" means an award in the form of shares of Common Stock or units
denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any corporation of
which the Company directly or indirectly owns shares representing more than
50% of the combined voting power of the shares of all classes or series of
capital stock of such corporation which have the right to vote generally on
matters submitted to a vote of the stockholders of such corporation and (ii)
in the case of a partnership or other business entity not organized as a
corporation, any such business entity of which the Company directly or
indirectly owns more than 50% of the voting, capital or profits interests
(whether in the form of partnership interests, membership interests or
otherwise).
4. Eligibility.
(a) Employees. Employees eligible for Employee Awards under this Plan are
those who hold positions of responsibility and whose performance, in the
judgment of the Committee, can have a significant effect on the success
of the Company and its Subsidiaries, or whose services to the Company
can, in the Committee's sole determination, be better recruited or
retained through participation in the Plan.
(b) Directors. Directors eligible for Director Awards under this Plan are
those who are not employees of the Company or any of its Subsidiaries or
any corporation which directly or indirectly owns shares representing
more than 50% of the combined voting power of the shares of all classes
or series of capital stock of the Company which have the right to vote
generally on matters submitted to a vote of the stockholders of the
Company ("Nonemployee Directors").
5. Common Stock Available for Awards. Subject to the provisions of paragraph 15
hereof, there shall be available for Awards under this Plan granted wholly or
partly in Common Stock (including rights or options that may be exercised for
or settled in Common Stock) an aggregate of 1,300,000 shares of Common Stock,
of which an aggregate of not more than 100,000 shares shall be available for
Director Awards and the remainder shall be available for Employee Awards.
The number of shares of Common Stock that are the subject of Awards under
this Plan, that are forfeited or terminated, expire unexercised, are settled
in cash in lieu of Common Stock or in a manner such that all or some of the
shares covered by an Award are not issued to a Participant or are exchanged
for Awards that do not involve Common Stock, shall again immediately become
available for Awards hereunder. The Committee may from time to time adopt
and observe such procedures concerning the counting of shares against the
Plan maximum as it may deem appropriate. The Board and the appropriate
officers of the Company shall from time to time take whatever actions are
necessary to file any required documents with governmental authorities, stock
exchanges and transaction reporting systems to ensure that shares of Common
Stock are available for issuance pursuant to Awards.
3
<PAGE>
6. Administration.
(a) This Plan, as it applies to Participants who are Employees but not with
respect to Participants who are Nonemployee Directors, shall be
administered by the Committee. To the extent required in order for
Employee Awards to be exempt from Section 16 of the Exchange Act by
virtue of the provisions of Rule 16b-3, the Committee shall consist of at
least two members of the Board who meet the requirements of the
definition of "Non-Employee Director" set forth in Rule 16b-3(b)(3)(i)
promulgated under the Exchange Act.
(b) Subject to the provisions hereof, insofar as this Plan relates to the
Employee Awards, the Committee shall have full and exclusive power and
authority to administer this Plan and to take all actions that are
specifically contemplated hereby or are necessary or appropriate in
connection with the administration hereof. Insofar as this Plan relates
to Employee Awards, the Committee shall also have full and exclusive
power to interpret this Plan and to adopt such rules, regulations and
guidelines for carrying out this Plan as it may deem necessary or proper,
all of which powers shall be exercised in the best interests of the
Company and in keeping with the objectives of this Plan. The Committee
may, in its discretion, provide for the extension of the exercisability
of an Employee Award, accelerate the vesting or exercisability of an
Employee Award, eliminate or make less restrictive any restrictions
contained in an Employee Award, waive any restriction or other provision
of this Plan or an Employee Award or otherwise amend or modify an
Employee Award in any manner that is either (i) not adverse to the
Participant to whom such Employee Award was granted or (ii) consented to
by such Participant. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in this Plan or in any Employee
Award in the manner and to the extent the Committee deems necessary or
desirable to further the purposes of the Plan. Any decision of the
Committee in the interpretation and administration of this Plan shall lie
within its sole and absolute discretion and shall be final, conclusive
and binding on all parties concerned. The functions of the Committee
specified in the Plan shall be exercised by the Board, if and to the
extent that no Committee exists which has the authority to so administer
the Plan or the extent that the Committee is not comprised solely of Non-
Employee Directors for purposes of Rule 16b-3 promulgated under the
Exchange Act.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted to
be done by him or her, by any member of the Committee or by any officer
of the Company in connection with the performance of any duties under
this Plan, except for his or her own willful misconduct or as expressly
provided by statute.
7. Delegation of Authority. The Committee may delegate to the Chairman of the
Board and to other senior officers of the Company its duties under this Plan
pursuant to such conditions or limitations as the Committee may establish,
except that the Committee may not delegate to any person the authority to
grant Awards to, or take other action with respect to, Participants who are
subject to Section 16 of the Exchange Act or Section 162(m) of the Code.
8. Employee Awards.
(a) The Committee shall determine the type or types of Employee Awards to be
made under this Plan and shall designate from time to time the Employees
who are to be the recipients of such Awards. Each Employee Award may be
embodied in an Employee Award Agreement, which shall contain such terms,
conditions and limitations as shall be determined by the Committee in its
sole discretion and shall be signed by the Participant to whom the
Employee Award is made and by an Authorized Officer for and on behalf of
the Company. Employee Awards may consist of those listed in this
paragraph 8(a) hereof and may be granted singly, in combination or in
tandem. Employee Awards may also be made in combination or in tandem
with, in replacement of, or as alternatives to, grants or rights under
this Plan or any other employee plan of the Company or any of its
Subsidiaries, including the plan of any
4
<PAGE>
acquired entity; provided that no Option may be issued in exchange for
the cancellation of an Option with a lower exercise price. An Employee
Award may provide for the grant or issuance of additional, replacement or
alternative Employee Awards upon the occurrence of specified events,
including the exercise of the original Employee Award granted to a
Participant. All or part of an Employee Award may be subject to
conditions established by the Committee, which may include, but are not
limited to, continuous service with the Company and its Subsidiaries,
achievement of specific business objectives, increases in specified
indices, attainment of specified growth rates and other comparable
measurements of performance. Upon the termination of employment by a
Participant who is an Employee, any unexercised, deferred, unvested or
unpaid Employee Awards shall be treated as set forth in the applicable
Employee Award Agreement.
(i) Stock Option. An Employee Award may be in the form of an Option. An
Option awarded pursuant to this Plan may consist of an Incentive
Option or a Nonqualified Option. The price at which shares of Common
Stock may be purchased upon the exercise of an Incentive Option shall
be not less than the Fair Market Value of the Common Stock on the date
of grant. The price at which shares of Common Stock may be purchased
upon the exercise of a Nonqualified Option shall be not less than, but
may exceed, the Fair Market Value of the Common Stock on the date of
grant. Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Options awarded pursuant to this Plan,
including the term of any Options and the date or dates upon which
they become exercisable, shall be determined by the Committee.
(ii) Stock Appreciation Right. An Employee Award may be in the form of an
SAR. The terms, conditions and limitations applicable to any SARs
awarded pursuant to this Plan, including the term of any SARs and the
date or dates upon which they become exercisable, shall be determined
by the Committee.
(iii) Stock Award. An Employee Award may be in the form of a Stock Award.
The terms, conditions and limitations applicable to any Stock Awards
granted pursuant to this Plan shall be determined by the Committee.
(iv) Cash Award. An Employee Award may be in the form of a Cash Award.
The terms, conditions and limitations applicable to any Cash Awards
granted pursuant to this Plan shall be determined by the Committee.
(v) Performance Award. Without limiting the type or number of Employee
Awards that may be made under the other provisions of this Plan, an
Employee Award may be in the form of a Performance Award. A
Performance Award shall be paid, vested or otherwise deliverable
solely on account of the attainment of one or more pre-established,
objective Performance Goals established by the Committee prior to the
earlier to occur of (x) 90 days after the commencement of the period
of service to which the Performance Goal relates and (y) the elapse of
25% of the period of service (as scheduled in good faith at the time
the goal is established), and in any event while the outcome is
substantially uncertain. A Performance Goal is objective if a third
party having knowledge of the relevant facts could determine whether
the goal is met. Such a Performance Goal may be based on one or more
business criteria that apply to the individual, one or more business
units of the Company, or the Company as a whole, and may include one
or more of the following: increased revenue, net income, stock price,
market share, earnings per share, return on equity, return on assets
or decrease in costs. Unless otherwise stated, such a Performance
Goal need not be based upon an increase or positive result under a
particular business criterion and could include, for example,
maintaining the status quo or limiting economic losses (measured, in
each case, by reference to specific business criteria). In
interpreting Plan provisions applicable to Performance Goals and
Performance Awards, it is the intent of the Plan to conform with the
standards of Section 162(m) of the Code and Treasury Regulations (S)
1.162-27(e)(2)(i), and the Committee in establishing such goals and
interpreting the Plan shall be guided by such provisions. Prior to
the payment of any compensation based on the achievement of
Performance Goals,
5
<PAGE>
the Committee must certify in writing that applicable Performance
Goals and any of the material terms thereof were, in fact, satisfied.
Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Performance Awards made pursuant to this
Plan shall be determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this Plan, the
following limitations shall apply to any Employee Awards made hereunder:
(i) no Participant may be granted, during any one-year period, Employee
Awards consisting of Options or SARs that are exercisable for more
than 200,000 shares of Common Stock;
(ii) no Participant may be granted, during any one-year period, Employee
Awards consisting of shares of Common Stock or units denominated in
such shares (other than any Employee Awards consisting of Options or
SARs) covering or relating to more than 100,000 shares of Common Stock
(the limitation set forth in this clause (ii), together with the
limitation set forth in clause (i) above, being hereinafter
collectively referred to as the "Stock Based Awards Limitations"); and
(iii) no Participant may be granted Employee Awards consisting of cash or in
any other form permitted under this Plan (other than Employee Awards
consisting of Options or SARs or otherwise consisting of shares of
Common Stock or units denominated in such shares) in respect of any
one-year period having a value determined on the date of grant in
excess of $2,000,000.
9. Director Awards. Each Nonemployee Director of the Company shall be granted
Director Awards in accordance with this paragraph 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the
contrary contained herein, Director Awards shall not be made in any year in
which a sufficient number of shares of Common Stock are not available to make
such Awards under this Plan.
(a) Automatic Director Options. On the date of his or her initial election
to the Board, each Nonemployee Director shall be automatically awarded a
Director Option that provides for the purchase of 3000 shares of Common
Stock. In addition, on each Annual Director Award Date, each Nonemployee
Director shall automatically be granted a Director Option that provides
for the purchase of 3000 shares of Common Stock. In the event that a
Nonemployee Director is elected after the Effective Date otherwise than
by election at an annual meeting of stockholders of the Company, on the
date of his or her election, such Nonemployee Director shall
automatically be granted a Director Option that provides for the purchase
of a number of shares of Common Stock (rounded up to the nearest whole
number) equal to the product of (i) 3000 and (ii) a fraction the
numerator of which is the number of days between the election of such
Nonemployee Director and the next scheduled Annual Director Award Date
(or, if no such date has been scheduled, the first anniversary of the
immediately preceding Annual Director Award Date) and the denominator of
which is 365. Each Director Option shall have a term of ten years from
the date of grant, notwithstanding any earlier termination of the status
of the holder as a Nonemployee Director. The purchase price of each
share of Common Stock subject to a Director Option shall be equal to the
Fair Market Value of the Common Stock on the date of grant. All Director
Options shall vest and become exercisable in increments of one-third of
the total number of shares of Common Stock that are subject thereto
(rounded up to the nearest whole number) on the first and second
anniversaries of the date of grant and of all remaining shares of Common
Stock that are subject thereto on the third anniversary of the date of
grant. All unvested Director Options shall be forfeited if the
Nonemployee Director resigns as a Director without the consent of a
majority of the other Directors.
(b) Elective Director Options. In addition to the Director Options
automatically awarded pursuant to the immediately preceding paragraph, a
Nonemployee Director may make an annual election to receive, in lieu of
all or any portion of the Director's fees he would otherwise be entitled
to receive in cash during the next year (including both annual retainer
and meeting fees), Director Options that provide for the purchase of a
number of shares of Common Stock (rounded up to the nearest whole number)
equal to
6
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the product of (x) three times (y) a fraction the numerator of which is
equal to the dollar amount of fees the Nonemployee Director elects to
forego in the next year in exchange for Director Options and the
denominator of which is equal to the Fair Market Value of the Common
Stock on the effective date of the election. Each annual election made by
a Nonemployee Director pursuant to this paragraph 9(b), (i) shall take
the form of a written document signed by such Nonemployee Director and
filed with the Secretary of the Company, (ii) shall designate the dollar
amount of the fees the Nonemployee Director elects to forego in the next
year in exchange for Director Options and (iii) to the extent provided by
the Committee in order to ensure that the Award of the Director Options
is exempt from Section 16 by virtue of Rule 16b-3, shall be irrevocable
and shall be made prior to the date as of which such Award of Director
Options is to be effective. An Award of Director Options at the election
of a Nonemployee Director shall be effective on the next Annual Director
Award Date.
Any Award of Director Options shall be embodied in a Director Award
Agreement, which shall contain the terms, conditions and limitations set
forth above and shall be signed by the Participant to whom the Director
Options are granted and by an Authorized Officer for and on behalf of the
Company.
10. Payment of Awards.
(a) General. Payment of Employee Awards may be made in the form of cash
or Common Stock, or a combination thereof, and may include such
restrictions as the Committee shall determine, including, in the case
of Common Stock, restrictions on transfer and forfeiture provisions.
If payment of an Employee Award is made in the form of Restricted
Stock, the Employee Award Agreement relating to such shares shall
specify whether they are to be issued at the beginning or end of the
Restriction Period. In the event that shares of Restricted Stock are
to be issued at the beginning of the Restriction Period, the
certificates evidencing such shares (to the extent that such shares
are so evidenced) shall contain appropriate legends and restrictions
that describe the terms and conditions of the restrictions applicable
thereto. In the event that shares of Restricted Stock are to be
issued at the end of the Restricted Period, the right to receive such
shares shall be evidenced by book entry registration or in such other
manner as the Committee may determine.
(b) Deferral. With the approval of the Committee, payments in respect of
Employee Awards may be deferred, either in the form of installments or
a future lump-sum payment. The Committee may permit selected
Participants to elect to defer payment of some or all types of
Employee Awards in accordance with procedures established by the
Committee. Any deferred payment of an Employee Award, whether elected
by the Participant or specified by the Employee Award Agreement or by
the Committee, may be forfeited if and to the extent that the Employee
Award Agreement so provides.
(c) Dividends and Interest. Rights to dividends or Dividend Equivalents
may be extended to and made part of any Employee Award consisting of
shares of Common Stock or units denominated in shares of Common Stock,
subject to such terms, conditions and restrictions as the Committee
may establish. The Committee may also establish rules and procedures
for the crediting of interest on deferred cash payments and Dividend
Equivalents for Employee Awards consisting of shares of Common Stock
or units denominated in shares of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant who is an Employee may be offered an election to
substitute an Employee Award for another Employee Award or Employee
Awards of the same or different type.
11. Stock Option Exercise. The price at which shares of Common Stock may be
purchased under an Option shall be paid in full at the time of exercise
in cash or, if elected by the optionee, the optionee may purchase such
shares by means of tendering Common Stock or surrendering another Award,
including Restricted Stock, valued at Fair Market Value on the date of
exercise, or any combination thereof. The Committee shall determine
acceptable methods for Participants who are Employees to
7
<PAGE>
tender Common Stock or other Employee Awards; provided that any Common
Stock that is or was the subject of an Employee Award may be so tendered
only if it has been held by the Participant for six months. The Committee
may provide for procedures to permit the exercise or purchase of such
Awards by use of the proceeds to be received from the sale of Common
Stock issuable pursuant to an Employee Award. Unless otherwise provided
in the applicable Award Agreement, in the event shares of Restricted
Stock are tendered as consideration for the exercise of an Option, a
number of the shares issued upon the exercise of the Option, equal to the
number of shares of Restricted Stock used as consideration therefor,
shall be subject to the same restrictions as the Restricted Stock so
submitted as well as any additional restrictions that may be imposed by
the Committee.
12. Tax Withholding. The Company shall have the right to deduct applicable
taxes from any Employee Award payment and withhold, at the time of
delivery or vesting of cash or shares of Common Stock under this Plan, an
appropriate amount of cash or number of shares of Common Stock or a
combination thereof for payment of taxes required by law or to take such
other action as may be necessary in the opinion of the Company to satisfy
all obligations for withholding of such taxes. The Committee may also
permit withholding to be satisfied by the transfer to the Company of
shares of Common Stock theretofore owned by the holder of the Employee
Award with respect to which withholding is required. If shares of Common
Stock are used to satisfy tax withholding, such shares shall be valued
based on the Fair Market Value when the tax withholding is required to be
made. The Committee may provide for loans, on either a short term or
demand basis, from the Company to a Participant who is an Employee to
permit the payment of taxes required by law.
13. Amendment, Modification, Suspension or Termination. The Board may amend,
modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose
permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant, and (ii) no amendment or alteration shall be effective prior
to its approval by the stockholders of the Company to the extent such
approval is then required pursuant to Rule 16b-3 in order to preserve the
applicability of any exemption provided by such rule to any Award then
outstanding (unless the holder of such Award consents) or to the extent
stockholder approval is otherwise required by applicable legal
requirements.
14. Assignability. Unless otherwise determined by the Committee and provided
in the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-1(c)
under the Exchange Act shall be assignable or otherwise transferable
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder.
The Committee may prescribe and include in applicable Award Agreements
other restrictions on transfer. Any attempted assignment of an Award or
any other benefit under this Plan in violation of this paragraph 14 shall
be null and void.
15. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other
changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock (whether or not such
issue is prior to, on a parity with or junior to the Common Stock) or
the dissolution or liquidation of the Company, or any sale or transfer
of all or any part of its assets or business, or any other corporate
act or proceeding of any kind, whether or not of a character similar
to that of the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding shares
of Common Stock, declaration of a dividend payable in shares of Common
Stock or other stock split, then (i) the
8
<PAGE>
number of shares of Common Stock reserved under this Plan, (ii) the
number of shares of Common Stock covered by outstanding Awards in the
form of Common Stock or units denominated in Common Stock, (iii) the
exercise or other price in respect of such Awards, (iv) the
appropriate Fair Market Value and other price determinations for such
Awards, (v) the number of shares of Common Stock covered by Director
Options automatically granted pursuant to paragraph 9 hereof, and (vi)
the Stock Based Awards Limitations shall each be proportionately
adjusted by the Board to reflect such transaction. In the event of any
other recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or
entity, the adoption by the Company of any plan of exchange affecting
the Common Stock or any distribution to holders of Common Stock of
securities or property (other than normal cash dividends or dividends
payable in Common Stock), the Board shall make appropriate adjustments
to (i) the number of shares of Common Stock covered by Awards in the
form of Common Stock or units denominated in Common Stock, (ii) the
exercise or other price in respect of such Awards, (iii) the
appropriate Fair Market Value and other price determinations for such
Awards, (iv) the number of shares of Common Stock covered by Director
Options automatically granted pursuant to paragraph 9 hereof, and (v)
the Stock Based Awards Limitations to give effect to such transaction
shall each be proportionately adjusted by the Board to reflect such
transaction; provided that such adjustments shall only be such as are
necessary to maintain the proportionate interest of the holders of the
Awards and preserve, without exceeding, the value of such Awards. In
the event of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the
Board shall be authorized to issue or assume Awards by means of a
substitution of new Awards, as appropriate, for previously issued
Awards or an assumption of previously issued Awards as part of such
adjustment.
16. Restrictions. No Common Stock or other form of payment shall be issued with
respect to any Award unless the Company shall be satisfied based on the
advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. It is the intent of the
Company that this Plan comply with Rule 16b-3 with respect to persons
subject to Section 16 of the Exchange Act unless otherwise provided herein
or in an Award Agreement, that any ambiguities or inconsistencies in the
construction of this Plan be interpreted to give effect to such intention,
and that if any provision of this Plan is found not to be in compliance with
Rule 16b-3, such provision shall be null and void to the extent required to
permit this Plan to comply with Rule 16b-3. Certificates evidencing shares
of Common Stock delivered under this Plan (to the extent that such shares
are so evidenced) may be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, any securities exchange or transaction reporting system upon
which the Common Stock is then listed or to which it is admitted for
quotation and any applicable federal or state securities law. The Committee
may cause a legend or legends to be placed upon such certificates (if any)
to make appropriate reference to such restrictions.
17. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock or
rights thereto, this Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Participants who are entitled to cash,
Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required
to segregate any assets that may at any time be represented by cash, Common
Stock or rights thereto, nor shall this Plan be construed as providing for
such segregation, nor shall the Company, the Board or the Committee be
deemed to be a trustee of any cash, Common Stock or rights thereto to be
granted under this Plan. Any liability or obligation of the Company to any
Participant with respect to an Award of cash, Common Stock or rights thereto
under this Plan shall be based solely upon any contractual obligations that
may be created by this Plan and any Award Agreement, and no such liability
or obligation of the Company shall be deemed to be secured by any pledge or
other encumbrance on any property of the Company. Neither the Company nor
the Board nor the Committee shall be required to give any security or bond
for the performance of any obligation that may be created by this Plan.
9
<PAGE>
18. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of
Delaware.
10
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 16,793 1
<SECURITIES> 12,024 0
<RECEIVABLES> 112,710 137,277
<ALLOWANCES> 5,196 4,415
<INVENTORY> 0 0
<CURRENT-ASSETS> 141,984 138,758
<PP&E> 58,909 54,025
<DEPRECIATION> 37,038 36,415
<TOTAL-ASSETS> 251,795 188,588
<CURRENT-LIABILITIES> 102,974 81,170
<BONDS> 74,962 0
0 0
0 0
<COMMON> 363 0
<OTHER-SE> 73,496 95,897
<TOTAL-LIABILITY-AND-EQUITY> 351,795 188,588
<SALES> 55,524 45,425
<TOTAL-REVENUES> 101,901 81,272
<CGS> 24,245 18,140
<TOTAL-COSTS> 44,081 30,950
<OTHER-EXPENSES> 50,448 37,903
<LOSS-PROVISION> 21 27
<INTEREST-EXPENSE> 1,993 0
<INCOME-PRETAX> 5,379 12,422
<INCOME-TAX> 1,936 4,619
<INCOME-CONTINUING> 3,443 7,803
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> 3,443 7,803
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