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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 0-9722
INTERGRAPH CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 63-0573222
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 730-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
As of January 31, 1997, there were 47,758,544 shares of
Intergraph Corporation Common Stock $0.10 par value outstanding.
The aggregate market value of the voting stock held by
nonaffiliates of the registrant was approximately
$362,316,000 based on the closing sale price of such stock as
reported by NASDAQ on January 31, 1997, assuming that all shares
beneficially held by executive officers and members of the
registrant's Board of Directors are shares owned by "affiliates,"
a status which each of the executive officers and directors
individually disclaims.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
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Portions of the Annual Report to Shareholders for the
year ended December 31, 1996 Part I, Part II, Part IV
Portions of the Proxy Statement for the May 15, 1997
Annual Shareholders' Meeting Part III
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PART I
ITEM 1. BUSINESS
Overview
Intergraph Corporation (the "Company" or "Intergraph"), founded
in 1969, is a vendor of hardware, software, and services for
technical, creative, and information technology (IT) professionals
found in a range of industry and government sectors. Intergraph
offers open, industry standard solutions, including Microsoft
Corporation's Windows-based software, Intel Corporation's
microprocessor-based hardware, and related services, to meet
engineering, design, modeling, analysis, mapping, IT, and creative
computing needs. The Company's products are sold through direct
and indirect channels worldwide, with United States and European
revenues representing approximately 78% of total revenues for
1996.
Intel/Windows-Based Products for High Performance Computing
Until the mid 1990s, the unique demands of high end technical
computing required tremendous processing and graphics capabilities
that could only be performed using reduced instruction set
computing (RISC) workstations for the UNIX operating system.
These systems cost considerably more than the Intel
microprocessor/Windows-based personal computers (PCs) currently
used widely for word processing, spreadsheets, and other less
demanding applications.
In late 1992, the Company concluded that systems with Intel
microprocessors and Windows operating systems would become capable
of supporting high end computing and other enterprisewide computing
environments, while at the same time maintaining interoperability
with existing UNIX-based systems. The Company, therefore, chose to
migrate products from its own Clipper RISC microprocessor to the
Intel microprocessor and from the UNIX operating system to
Microsoft's Windows NT, a 32 bit operating system powerful enough
to run both technical and business applications on a less expensive
hardware platform. At the end of 1994, the Company completed a two
year development effort to port its technical software applications
to the Windows NT operating system, and to make Windows NT
available on all Intergraph workstations. In addition, the
transition from a proprietary hardware architecture (Clipper) to
that of Intel Corporation was substantially completed during this
same period. See Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 3 of Notes to
Consolidated Financial Statements contained in the Company's 1996
Annual Report, portions of which are incorporated by reference in
this Form 10-K Annual Report, for further discussion of the effects
of these strategic decisions on the Company.
Today, the Company offers a range of Intel/Windows-based
solutions for technical, IT, and creative professionals, including
low to high end workstations, servers, software applications,
peripherals, and consulting, networking, system migration,
training, and maintenance and support services. Depending on user
requirements, the Company's products and services can be provided
as point solutions or as integrated solutions that include all
necessary hardware, software, and services.
Intergraph Hardware
During the last half of 1993, the Company began to offer a
hardware platform (in addition to its own) based on Intel
microprocessors. Previously, the Company's hardware platform
offering had been based on its own microprocessor. The Company
ceased design of its microprocessor at the end of 1993, and Intel-
based systems grew to represent 74% of hardware unit sales in
1994, 95% in 1995, and 99% in 1996. Currently, Intergraph markets
and sells a complete line of workstations and servers based on
Intel's Pentium and Pentium Pro microprocessors and the Windows NT
operating system. See "Manufacturing and Sources of Supply"
below.
The Company offers workstation products for a range of users.
The TD line of computer systems offers Pentium and Pentium Pro
microprocessors, Windows NT and Windows 95 operating systems,
leading edge graphics, and other industry standard components. TD
personal computers are intended for 2D design and drafting users,
as well as office automation and business management tasks. TD
personal workstations are for 3D design, engineering analysis,
image processing, and rendering. TDZ 3D graphics workstations
offer high end, industry standard graphics and computing power on
price competitive Pentium Pro-based systems running Windows NT.
All Intergraph systems offer numerous options that permit
customers to order systems that meet their unique needs, including
a selection of display monitors, upgradeable memory, and
specialized peripherals.
The Company offers Intel/Windows-based InterServe symmetric
multiprocessing servers for workgroups, departments, or an entire
enterprise. These systems come with fully integrated optical disk
products, backup solutions, and networking capabilities, as well
as with consultation, installation, and other services to assure
customer success.
Other systems are available for specialized needs. The Company's
StudioZ workstations are Pentium Pro/Windows NT-based systems for
creating computer generated images and digital betacam quality
video for the entertainment and broadcast markets. Intel/Windows
NT-based web servers are solutions for establishing and managing
customers' sites on the World Wide Web. Industry standard 3D
graphics accelerators are available, including RealiZm, providing
3D graphics for Windows NT; Intense 3D, an add-in graphics card
available to third party PC and workstation vendors; and Intense
3D 100, a retail market 3D games card.
The Company offers large format production scanners, imaging
systems for scanning and plotting images, and laser imagesetters
for electronic publishing. Additional special purpose peripherals
such as disk and tape drives, printers, and other devices may be
manufactured in house or sold as original equipment from third
parties.
Intergraph System Software
In November 1992, the Company announced its decision to port its
technical software applications to Microsoft Corporation's Windows
NT operating system and to make Windows NT available on Intergraph
workstations. The effect of this decision has been to expand the
availability of the Company's workstations and software
applications to Windows-based computing environments not
previously addressed by the Company, including the availability of
Intergraph software applications operating across a variety of
both the Intergraph proprietary hardware architecture and the
hardware architectures of other vendors that use the Windows NT
operating system. Prior to this decision, the Company's software
applications operated principally on Intergraph hardware
platforms. The Company has continued to maintain products in the
UNIX operating system environment, the foundation for its software
applications prior to Windows NT. Limited shipments of Windows NT-
based software began in the fourth quarter of 1993. As of the end
of 1994, the Company had completed the port of its applications
software to Windows NT, and sales of Windows-based software grew
to represent 48% of software revenues in 1994, 70% in 1995, and
78% in 1996.
While the Company believes the industry is accepting Windows NT
and that it will become the dominant operating system in the
markets served by the Company, acceptance of this system by
customers has been slower than anticipated and the timing of such
acceptance is unpredictable, since adoption of any new operating
system requires considerable effort and expense. Competing
operating systems are available in the market, and several
competitors of the Company offer or are adopting Windows NT as the
operating system for their products. There can be no assurance
that the Windows NT operating system will become dominant in the
markets served by the Company or that the Company's operating
system and hardware strategies will result in the restoration of
profitability.
At the systems software level, Intergraph develops software to
provide graphics and database management capabilities on
Intergraph systems, advanced compilers for Intergraph systems, and
utilities to enable interoperability with systems from other
vendors. The Company also offers a line of UNIX to Windows
interoperability products.
The graphics software foundation for many Intergraph Windows 95-
, Windows NT-, and UNIX-based software applications is
MicroStation, a graphics software product owned by Bentley
Systems, Inc., an Intergraph affiliate. MicroStation provides
fundamental graphics element creation, maintenance, and display
functions for Intergraph's UNIX- and Intel-based workstations.
See Item 3, Legal Proceedings, below and Management's Discussion
and Analysis of Financial Condition and Results of Operations and
Note 12 of Notes to Consolidated Financial Statements contained in
the Company's 1996 Annual Report, portions of which are
incorporated by reference in this Form 10-K Annual Report, for
further discussion of the Company's affiliation with Bentley
Systems, Inc.
In late 1995, the Company introduced its Jupiter technology, a
Windows-based component software architecture that is the
foundation of many new computer-aided-design/computer-aided-
manufacturing/computer-aided-engineering (CAD/CAM/CAE) and
geographic information systems (GIS) applications software
products under development by the Company. This technology
creates a Windows native environment where information from
competing CAD systems comes together without translation to form
unified design models and drawings. The first two products built
on Jupiter technology began shipping in mid-1996, including a 32
bit two dimensional technical drawing and concept tool and a three
dimensional system for mechanical assembly and part modeling.
Initial orders for these products have not met Company
expectations and have not contributed substantially to 1996
revenues. Initial releases of these products were delayed until
late in the year and contained certain performance problems. The
Company believes these problems have been resolved in subsequent
releases of the products, which began in the fourth quarter of 1996.
Other Jupiter-based software applications will be introduced in
1997.
Intergraph Applications Software
Intergraph develops, markets, and supports Windows NT-,
Windows 95-, and UNIX-based software products for professionals who
work in CAD/CAM/CAE, mapping/GIS, asset and information management,
utilities, facilities management, shipbuilding, mechanical and
electronics design, public safety, and architecture, engineering,
and construction (AEC).
In terms of broad market segments, the Company's mapping/GIS,
AEC, and mechanical design, engineering, and manufacturing product
applications continue to dominate the Company's product mix at
approximately 51%, 28%, and 13%, respectively, of total systems
sales in 1996 (43%, 34%, and 14%, respectively, for 1995).
Following is a brief description of these major product
application areas.
Mapping and GIS. Intergraph offers a range of mapping and
GIS solutions to assist businesses, government, and academic
institutions in solving geography-based problems. Intergraph's
mapping/GIS software tools address the life cycle of
mapping/GIS projects, from project and data management through
data collection and integration, spatial query and analysis,
output, and map production.
Intergraph's mapping/GIS solutions help companies address
workflows in government and several major industries. These
products support solutions for all levels of government
including infrastructure management, planning, growth
management, economic development, land information management,
public safety and security, public works, redistricting,
tactical and strategic defense applications (such as land-based
command and control operations), and hydrographic and
aeronautical charting systems. Transportation industry
applications range from decision support activities such as
policy, planning, and programming to the creation of operations
systems that support day-to-day tasks. Utility companies
utilize Intergraph's mapping/GIS products to automate
management and analysis applications such as market analyses,
long range planning and forecasting, corridor evaluation and
selection, right-of -way analysis, and environmental impact
studies for siting, permitting, contaminant studies, and risk
evaluation. Environmental and natural resource management
applications include monitoring, evaluating and managing,
conservation and remediation of the environment. Energy
exploration and production products assist geoscientists in
geological analysis related to energy exploration and
production and mineral extraction.
Intergraph also provides solutions for end-to-end digital map
and chart publishing, digital image processing, orthophoto
production, and digital photogrammetry.
Architecture, Engineering, and Construction. Intergraph's
architectural, facility management, and engineering product
line automates the project design and management process. With
this software, users can develop and model building concepts,
produce construction documents, and manage space and assets in
a finished facility. The system serves the needs of
architecture/engineering firms and corporate or governmental
facility management offices. Included are capabilities for
producing three dimensional models of design concepts,
architectural drawings, reports, engineering plans, and
construction drawings. Packages are also offered for space
planning, facility layout, maintenance management, lease
management and asset tracking.
Intergraph's civil engineering software includes capabilities
for coordinate geometry and for site, water resources, bridge,
structural, geotechnical and transportation engineering.
Structural engineering software is used to create two and
three dimensional structural models that serve as the basis for
frame- and finite element-based structural design and analysis
of steel and concrete structures. For construction needs, the
products support traditional drafting and report requirements.
The Company's highway, rail, site, and hydraulic/hydrologic
engineering products link traditional workflow activities from
data collection to plan and profile production to the
generation of construction drawings.
The Company's plant design software addresses the needs of
process and power plant design efforts. The plant design
system product supports process flow diagrams, piping and
instrumentation diagrams, instrumentation data management,
piping, equipment, heating/ventilation/air conditioning,
electrical, structural, and other design aspects of a plant.
Three dimensional modeling capabilities are also provided. The
system performs interference checking and provides reports,
materials lists, and drawings. A supporting product provides
"walk throughs" of three dimensional plant models.
Mechanical Design, Engineering and Manufacturing. For the
mechanical design and manufacturing market, Intergraph offers
software to automate the product development cycle from design
through analysis, manufacturing, and documentation. Customers
use the system to design mechanical parts and assemblies,
utilizing solid modeling software. Detailing, dimensioning,
and drafting capabilities are included for the production of
engineering drawings.
Engineering software evaluates product designs for
functional and structural integrity, predicting behavior under
service or test conditions. Finite element modeling and
analysis software evaluates designs by simulating stresses
encountered in end use. Intergraph's manufacturing products
assist in optimizing material usage and cutting cycles for
metalworking and fabrication. In addition, a data management
system organizes shared product databases for coordination and
management of product cycle phases.
Product Development
The Company believes a strong commitment to ongoing product
development is critical to success in the interactive computer
graphics industry.
Product development expenditures include all costs related to
designing new or improving existing equipment and software.
During the year ended December 31, 1996, the Company spent $103.4
million (9.4% of revenues) for product development activities
compared to $111.6 million (10.2% of revenues) in 1995, and $137.2
million (13.2% of revenues) in 1994. See Management's Discussion
and Analysis of Financial Condition and Results of Operations
contained in the Company's 1996 Annual Report, portions of which
are incorporated by reference in this Form 10-K Annual Report, for
further discussion of product development expenses, including
portions capitalized and their recoverability.
The industry in which the Company competes continues to be
characterized by rapidly changing technologies, a move to higher
performance, lower priced product offerings, intense price and
performance competition, shorter product cycles, and development
and support of software standards that result in less specific
hardware and software dependencies by customers. The Company
believes the life cycle of its products to be less than two years,
and it is therefore engaged in continuous product development
activity. The operating results of the Company and others in the
industry will continue to depend on the ability to accurately
anticipate customer requirements and technological trends and to
rapidly and continuously develop and deliver new hardware and
software products that are competitively priced, offer enhanced
performance, and meet customers' requirements for standardization
and interoperability.
Manufacturing and Sources of Supply
The Company's primary manufacturing activities consist of the
manufacture of printed circuit boards used in the Company's
workstations and servers and the assembly and testing of
components and subassemblies manufactured by the Company and
others.
Substantially all of the Company's microprocessor needs are
currently supplied by Intel Corporation. The Company does not
have a fixed quantity commitment for microprocessors in its
agreements with Intel, but believes it has a good relationship
with Intel and is unaware of any reason that Intel might encounter
difficulties in meeting the Company's microprocessor needs for the
long term. Other microprocessors are available in the market, but
a change by the Company from Intel to another microprocessor would
significantly disrupt the Company's development and manufacturing
activities and result in delayed or lost sales, which would have a
significant adverse effect on the Company's results of operations
and financial position.
The Company is not required to carry extraordinary amounts of
inventory to meet customer demands or to ensure allotment of parts
from its suppliers.
Sales and Support
Sales. The Company's systems are sold through a combination of
direct and indirect channels in approximately 60 countries
worldwide. Direct channel sales, which represent the majority of
the Company's systems revenues, are generated by the Company's
direct sales force through sales offices in over 40 countries
worldwide. The efforts of the direct sales force are augmented by
sales through indirect channels, including dealers, value added
resellers, distributors, and system integrators. Sales through
indirect channels represented approximately 18% of total Company
systems revenues in 1996 and 13% in 1995.
The Company's selling efforts are organized along key industry
lines (transportation and local government, utilities, process and
building, manufacturing, federal government, etc.) for its major
product applications. The Company believes an industry focus
better enables it to meet the specialized needs of customers. In
general, the Company's direct sales force is compensated through a
combination of base salary and commission. Sales quotas are
established along with certain incentives for exceeding quota.
Additional specific incentive programs may be established
periodically.
Customer Support. The Company believes that a high level of
customer support is important to the sale of interactive graphics
systems. Customer support includes preinstallation guidance,
customer training, onsite installation, hardware preventive
maintenance, repair service, software help desk and technical
support services in addition to consultative professional
services. The Company employs engineers and technical specialists
to provide customer assistance, maintenance, and training.
Maintenance and repair of systems are covered by standard
warranties and by maintenance agreements to which most users
subscribe. The trend in the industry toward lower priced products
and longer warranty periods has resulted in reduced levels of
maintenance revenue for the Company. The Company believes this
trend will continue in the future, though it may be partially
offset by growth in the Company's professional services business.
International Operations
International markets, particularly Europe, continue in
importance to the industry and to the Company. Sales outside the
U.S. represented approximately 55% of total revenues in 1996 and
in 1995. European and Asia Pacific revenues represented 33% and
13%, respectively, of total revenues in 1996 (36% and 8%,
respectively, in 1995). The Company's operations are subject to
and may be adversely affected by a variety of risks inherent in
doing business internationally, such as government policies or
restrictions, currency exchange fluctuations, and other factors.
There are currently wholly-owned sales and support subsidiaries
of the Company located in every major European country. European
subsidiaries are supported by service and technical assistance
operations located in The Netherlands. Outside of Europe,
Intergraph systems are sold and supported through a combination of
subsidiaries and distributorships. At December 31, 1996, the
Company had approximately 1,400 employees in Europe, 800 employees
in the Asia Pacific area, and 700 employees in other international
locations.
Fluctuations in the value of the U.S. dollar in international
markets can have a significant impact on the Company's results of
operations. The Company conducts business in all major markets
outside the U.S., but the most significant of these operations
with respect to currency risk are located in Europe (specifically
Germany, U.K., The Netherlands, France and Italy) and Australia.
Primarily, but not exclusively in these locations, the Company has
certain currency related asset and liability exposures against
which certain measures, primarily hedging, are taken to reduce
currency risk. With respect to these exposures, the objective of
the Company is to protect against financial statement volatility
arising from changes in exchange rates with respect to amounts
denominated for balance sheet purposes in a currency other than
the functional currency of the local entity. The Company enters
into forward exchange contracts primarily related to these balance
sheet items (intercompany receivables, payables, and formalized
intercompany debt). Periodic changes in the value of these
contracts offset exchange rate related changes in the financial
statement value of these balance sheet items. Forward exchange
contracts are purchased with maturities reflecting the expected
settlement dates of these balance sheet items (generally three
months or less) and only in amounts sufficient to offset possible
significant currency rate related changes in the recorded values
of these balance sheet items, which represent a calculable
exposure for the Company from period to period. The Company's
positions in these derivatives are continuously monitored to
ensure protection against the known balance sheet exposures
described above. The Company is prohibited by policy from taking
currency positions exceeding its known balance sheet currency
exposures and from otherwise trading in currencies.
The Company has historically experienced slower collection
periods for its international accounts receivable than for similar
sales to customers in the United States. In addition, in 1994 the
Company wrote off a receivable from a Middle Eastern customer in
the amount of $5.5 million, and is experiencing slow collection
periods throughout that region, particularly in Saudi Arabia.
Total accounts receivable from Middle Eastern customers as of the
end of 1996 was $20.7 million ($13.6 million at December 31,
1995).
See Management's Discussion and Analysis of Financial Condition
and Results of Operations and Notes 1, 4, and 11 of Notes to
Consolidated Financial Statements contained in the Company's 1996
Annual Report, portions of which are incorporated by reference in
this Form 10-K Annual Report, for further discussion of the
Company's international operations.
U.S. Government Business
Total revenue from the United States government was
approximately $161 million in 1996, $159 million in 1995, and $167
million in 1994, approximately 15% of total revenue in all three
years. The Company sells to the U.S. government under long-term
contractual arrangements, primarily indefinite delivery,
indefinite quantity (IDIQ) and cost plus award fee contracts, and
through commercial sales of products not covered by long-term
contracts.
Approximately 40% of total federal government revenues are
earned under long-term contracts. The Company believes its
relationship with the federal government to be good. While it is
fully anticipated that these contracts will remain in effect
through their expiration, the contracts are subject to termination
(with damages paid to the Company) at the election of the
government. Any loss of a significant government contract would
have an adverse impact on the results of operations of the
Company.
The Company has historically experienced slower collection
periods for its U.S. government accounts receivable than for its
commercial customers. At December 31, 1996, accounts receivable
from the U.S. government was $48 million.
Backlog
An order is entered into backlog only when the Company receives
a firm purchase commitment from a customer. The Company's backlog
of unfilled systems orders at December 31, 1996, was $181 million.
At December 31, 1995, backlog was $197 million. Substantially all
of the December 1996 backlog of orders is expected to be shipped
during 1997.
The Company does not consider its business to be seasonal,
though typically fourth quarter orders and revenues exceed those
of other quarters.
The Company does not ordinarily provide return of merchandise or
extended payment terms to its customers.
Competition
The industry in which the Company competes continues to be
characterized by price and performance competition. To compete
successfully, the Company and others in the industry must
accurately anticipate customer requirements and technological
trends and continuously develop products with enhanced performance
that can be offered at competitive prices. The Company, along
with other companies in the industry, engages in the practice of
price discounting to meet competitive industry conditions. Other
important competitive factors include quality, reliability, and
customer service, support, and training. Management of the
Company believes that competition will remain intense,
particularly in product pricing.
Competition in the interactive computer graphics industry varies
among the different product application areas. The Company
considers its principal competitors in the interactive computer
graphics market to be IBM, Computervision Corporation, Hewlett
Packard Corporation, Digital Equipment Corporation (DEC), Sun
MicroSystems,Inc., Silicon Graphics, Inc., and Mentor Graphics, Inc.
In the hardware market, Intergraph also competes with personal
computer vendors, such as Compaq Computer Corporation, who sell high
end systems. In the low end graphics market, Intergraph competes with
the software products of Autodesk, Inc., Computervision, Softdesk,
Inc., and several smaller companies. Several companies with
greater financial resources than the Company, including IBM,
Hewlett Packard, Sun, and Compaq, are active in the industry.
The Company provides point solutions and solutions which are
integrated -- workstations, servers, peripherals, and software
configured by the Company to work together and satisfy customers'
requirements. By delivering such integration, the Company
believes it has an advantage over other vendors who provide only
hardware or software, leaving system integration to the customer.
In addition, the Company believes that its experience and
extensive worldwide customer service and support infrastructure
represent a competitive advantage.
Environmental Affairs
The Company's manufacturing facilities are subject to numerous
laws and regulations designed to protect the environment,
particularly from plant wastes and emissions. In the opinion of
the Company, compliance with these laws and regulations has not
had, and should not have, a material effect on the capital
expenditures, earnings, or competitive position of the Company.
Licenses, Copyrights, Trademarks, and Patents
The Company develops its own graphics, data management, and
applications software as part of its continuing product
development activities. The Company has standard license
agreements with Microsoft Corporation for use and distribution of
the Windows NT operating system and with UNIX Systems Laboratories
for use and distribution of the UNIX operating system. The
license agreements are perpetual and allow the Company to
sublicense the operating systems software upon payment of required
sublicensing fees. The Company also has an extensive program for
the licensing of third-party application and general utility
software for use on systems and workstations.
Through the end of 1994, the Company had an exclusive license
agreement with Bentley Systems, Inc. (BSI), a 50%-owned affiliate
of the Company, under which the Company distributed MicroStation,
a software product developed and maintained by BSI and utilized in
many of the Company's software applications. As a result of
settlement of a dispute between the companies relative to the
exclusivity of the Company's distribution license, effective
January 1, 1995, the Company has a nonexclusive license to sell
MicroStation via its direct sales force, and to sell MicroStation
via its indirect sales channels if MicroStation is sold with other
Intergraph products. See Item 3, Legal Proceedings, below and
Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 12 of Notes to Consolidated
Financial Statements contained in the Company's 1996 Annual
Report, portions of which are incorporated by reference in this
Form 10-K Annual Report, for further discussion of the Company's
affiliation with BSI.
The Company owns and maintains a number of registered patents
and registered and unregistered copyrights, trademarks, and
service marks. The patents and copyrights held by the Company are
the principal means by which the Company preserves and protects
the intellectual property rights embodied in the Company's
hardware and software products. Similarly, trademark rights held
by the Company are used to preserve and protect the goodwill
represented by the Company's registered and unregistered
trademarks, such as the federally registered trademark
"Intergraph".
As industry standards proliferate, there is a possibility that
the patents of others may become a significant factor in the
Company's business. Personal computer technology is widely
available, and many companies are attempting to develop patent
positions concerning technological improvements related to
personal computers and workstations. At present, it does not
appear that the Company will be prevented from using the
technology necessary to compete successfully, since patented
technology is typically available in the industry under royalty
bearing licenses or patent cross licenses, or the technology can
be purchased on the open market. Any increase in royalty payments
or purchase costs would increase the Company's costs of
manufacture, however, and it is possible that some key improvement
necessary to compete successfully in markets served by the Company
may not be available.
An inability to retain significant third party license rights,
in particular the Microsoft license, to protect the Company's
copyrights, trademarks, and patents, or to obtain any required
patent rights of others through licensing or purchase would
significantly reduce the Company's revenues and adversely affect
its results of operations.
Risks and Uncertainties
In addition to those described above, the Company has risks and
uncertainties related to its business and operating environment.
See Management's Discussion and Analysis of Financial Condition
and Results of Operations and Note 2 of Notes to Consolidated
Financial Statements contained in the Company's 1996 Annual
Report, portions of which are incorporated by reference in this
Form 10-K Annual Report, for further discussion of these risks and
uncertainties.
Employees
At December 31, 1996, the Company had approximately 8,200
employees. Of these, approximately 2,900 were employed outside
the United States. The Company's employees are not subject to
collective bargaining agreements, and there have been no work
stoppages due to labor difficulties. Management of the Company
believes its relations with employees to be good.
ITEM 2. PROPERTIES
The Company's corporate offices and primary manufacturing
facility are located in Huntsville, Alabama. Sales and support
facilities are maintained throughout the world.
The Company owns over 1,900,000 square feet of space in
Huntsville that is utilized for manufacturing, product
development, sales and administration. The Huntsville facilities
also include over 500 acres of unoccupied land. The Company
maintains subsidiary company facilities and sales and support
locations in major U.S. cities outside of Huntsville, primarily
through operating leases.
Outside the U.S., the Company owns approximately 430,000 square
feet of space, primarily its Nijmegen distribution center and
European headquarters facility. Sales and support facilities are
leased in most major international locations.
The Company considers its facilities to be adequate for the
immediate future.
ITEM 3. LEGAL PROCEEDINGS
The Company is the 50% owner of Bentley Systems, Inc. (BSI), the
developer and owner of MicroStation, a software product utilized
in many of the Company's software applications and for which the
Company serves as a nonexclusive distributor. The Company's
business relationship with BSI is the subject of two arbitration
proceedings. In December 1995, the Company commenced an
arbitration proceeding against BSI with the American Arbitration
Association, Philadelphia, Pennsylvania, alleging that BSI
inappropriately and without cause terminated a contractual
arrangement between BSI and the Company. In response, BSI in
January 1996, filed a counterclaim against the Company seeking
significant damages as the result of the Company's alleged failure
to use best efforts to sell software support services pursuant to
terms of the contractual arrangement terminated by BSI. In March
1996, BSI commenced arbitration against the Company alleging that
the Company failed to properly account for and pay to BSI certain
royalties on the sale of BSI software products by the Company, and
seeking unspecified damages. This matter is currently pending
with the American Arbitration Association, Atlanta, Georgia. The
Company denies that it has breached any of its contractual
obligations to BSI and is defending vigorously in both
proceedings, but at present is unable to predict the outcome of
the proceedings. See the discussion under Results of Operations
set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's
1996 Annual Report, portions of which are incorporated by
reference in this Form 10-K Annual Report, for further details
relative to the Company's business relationship with BSI, its
sales of MicroStation, and the financial effects on the Company of
changes in the business relationship.
The Company filed a legal action in August 1995, in the U.S.
District Court of Alabama, Northeast Division, seeking to dissolve
and wind up its business arrangement with Zydex, Inc. (Zydex), a
company with which it jointly developed its plant design software
application ("PDS"), and seeking an order allowing the Company to
continue the business of that arrangement without further
responsibility or obligation to Zydex. In response, Zydex filed a
counterclaim against the Company in November 1995, alleging
wrongful dissolution of the business relationship and seeking both
sole ownership of PDS and significant compensatory and punitive
damages. The Company denies and is defending these allegations
vigorously, but at present is unable to predict the outcome of the
proceedings. The Company's sales of PDS products during the year
ended December 31, 1996 were approximately $36 million.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
Certain information with respect to the executive officers of
the Company is set forth below. Officers serve at the discretion
of the Board of Directors.
Officer
Name Age Position Since
- ---- --- -------- -----
James W. Meadlock 63 Chairman of the Board and
Chief Executive Officer 1969
Larry J. Laster 45 Executive Vice President, Chief
Financial Officer and Director 1986
James F. Taylor Jr. 52 Executive Vice President and Director 1977
Robert E. Thurber 56 Executive Vice President and Director 1977
Lawrence F. Ayers Jr. 64 Executive Vice President 1987
Edward F. Boyle 48 Executive Vice President 1986
Penman R. Gilliam 59 Executive Vice President 1994
Neil E. Keith 51 Executive Vice President 1985
Richard H. Lussier 51 Executive Vice President 1996
Nancy B. Meadlock 58 Executive Vice President 1969
Wade C. Patterson 35 Executive Vice President 1994
Stephen J. Phillips 55 Executive Vice President 1987
William E. Salter 55 Executive Vice President 1984
Tommy D. Steele 56 Executive Vice President 1992
Edward A. Wilkinson 63 Executive Vice President 1987
Allan B. Wilson 48 Executive Vice President 1982
Manfred Wittler 56 Executive Vice President 1989
James W. Meadlock, a founder of the Company, has served as
Chairman of the Board of Directors since the Company's inception
in 1969 and is Chief Executive Officer. Mr. Meadlock received a
degree in electrical engineering from North Carolina State
University in 1956. Mr. Meadlock and Nancy B. Meadlock are
husband and wife.
Larry J. Laster joined the Company in June 1981 and has held
several managerial positions in the Company's Finance Department
and Federal Systems Division. He was elected Vice President in
December 1986, named Chief Financial Officer in February 1987,
elected to the Board of Directors in April 1987, and is currently
Executive Vice President. Mr. Laster holds a bachelor's degree in
accounting and is a certified public accountant.
James F. Taylor Jr. joined the Company in July 1969, shortly
after its formation, and is considered a founder. He has served
as a Director since 1973. Mr. Taylor was responsible for the
design and development of the Company's first commercial computer-
aided-design products and for many application specific products.
Mr. Taylor was elected Vice President in 1977. He is currently an
Executive Vice President of the Company and President of the
International Public Safety business unit. Mr. Taylor holds a
bachelor's degree in mathematics.
Robert E. Thurber, a founder of the Company, has been a Director
since 1972. In June 1977, Mr. Thurber was elected Vice President
and is currently Executive Vice President and Chief Engineer. He
is responsible for developing requirements and strategic
directions for application solutions. Mr. Thurber holds a
master's degree in engineering.
Lawrence F. Ayers Jr. joined the Company in September 1987 after
32 years in federal government mapping where he became the
Civilian Director of the Defense Mapping Agency. He served as
Vice President for International Federal Marketing until February
1993. From 1993 to October 1995, he served as Executive Vice
President for the Utility and Mapping Sciences application group.
At present, he is serving on the Intergraph Software Solutions
business unit staff as Executive Vice President. Mr. Ayers holds
a bachelor's degree in civil engineering and a master's degree in
public administration.
Edward F. Boyle joined the Company in June 1981 and has been
responsible for several of the Company's software products. Prior
to joining Intergraph, he spent nine years in the steel industry
where he developed graphic software applications. He was elected
Vice President in 1986 and became Vice President of Intergraph's
Utilities Division in May 1987. From 1993 through the fall of
1995, he was Vice President of the Solutions Engineering Division.
He was then given charge of Enterprise Support Systems, comprised
of utilities products and professional services. He was elected
Executive Vice President in July 1996 and is currently responsible
for the Infrastructure and Utilities Division. Dr. Boyle holds
bachelor and doctoral degrees in civil engineering.
Penman R. Gilliam joined the Company in April 1994 as Executive
Vice President responsible for Federal Programs. Mr. Gilliam is
the manager responsible for the Federal Mapping and Information
Systems organization and the Intergraph Midworld Operations. Mr.
Gilliam came to Intergraph from Hughes Aircraft Company where he
was Vice President of Hughes Communications and Data Systems
Division. From late 1987 through early 1993, Mr. Gilliam served
as Deputy Director of the Defense Mapping Agency (DMA), the senior
civilian responsible for overall production, operations, and
research. Mr. Gilliam also held a number of other positions with
DMA, including production management positions in St. Louis and
Washington D.C. and a program director's position for DMA's
digital production system. Mr. Gilliam holds a bachelor's degree
in mathematics and geology.
Neil E. Keith joined the Company in December 1981. He was
elected Vice President in September 1985 and is currently
Executive Vice President. He has extensive experience in
manufacturing management and is responsible for the Company's
manufacturing operations. Mr. Keith holds a bachelor's degree in
management.
Richard H. Lussier joined the Company in 1979. He was promoted
to Vice President of Sales in 1981 and was later promoted to
Executive Vice President of Worldwide Sales and Support. Mr.
Lussier left Intergraph in 1990 to pursue personal business
interests. He rejoined the Company in 1996 as Executive Vice
President of U.S. Sales and is currently responsible for sales in
the Company's five U.S. sales regions. Mr. Lussier holds a
master's degree in business administration.
Nancy B. Meadlock, a founder of the Company, served as a
Director from 1969 until May 1996, excluding the period from
February 1970 to February 1972. Mrs. Meadlock served as Secretary
for 10 years, was elected Vice President in 1979, and is currently
Executive Vice President. She holds a master's degree in business
administration. Mrs. Meadlock and James W. Meadlock are wife and
husband.
Wade C. Patterson joined the Company in 1984 as a design
engineer developing UNIX and central processing unit (CPU)
subsystems for Intergraph workstation products. In 1992, Mr.
Patterson managed Windows NT workstation projects as the Company
made the transition from reduced instruction set computing CPUs to
Intel microprocessor-based CPUs. Mr. Patterson has been
responsible for hardware development and marketing for Intergraph
Computer Systems, the Company's hardware business unit, since
August 1994. He was elected Vice President in August 1994 and is
currently an Executive Vice President of the Company and President
of the Intergraph Computer Systems business unit. He holds a
bachelor's degree in electrical engineering.
Stephen J. Phillips joined the Company as Vice President and
General Counsel in November 1987 when Intergraph purchased the
Advanced Processor Division of Fairchild Semiconductor, where Mr.
Phillips was General Patent Counsel. He was elected Executive
Vice President in August 1992. Mr. Phillips holds a master's
degree in electrical engineering and a juris doctor in law.
William E. Salter joined the Company in April 1973. Since that
time, he has served in several managerial positions in the
Company's Federal Systems Division and as Director of Marketing
Communications. Dr. Salter was elected Vice President in August
1984 and is currently an Executive Vice President of the Company
and President of the Intergraph Federal Systems business unit. He
holds a doctorate in electrical engineering.
Tommy D. Steele joined the Company in June 1992 and is
responsible for managing the Intergraph Software Solutions
business unit. This includes all Intergraph software, except that
from VeriBest and International Public Safety, and all associated
professional services. He is currently an Executive Vice
President of the Company and President of the Intergraph Software
Solutions business unit. Mr. Steele came to Intergraph from IBM
Corporation, where he was employed for more than 28 years. During
his tenure at IBM, he worked on the Saturn, Apollo, Skylab, and
space shuttle programs as well as a number of Department of
Defense programs. Mr. Steele's last ten years at IBM were spent
in the personal computer software business managing products for
communications, databases, office automation, and operating
systems. The last four of those years were spent managing
personal computer operating systems (OS/2, DOS, and AIX). He
holds a bachelor's degree in electrical engineering.
Edward A. Wilkinson joined the Company in 1985 as Director of
Government Relations. He was elected Vice President of Federal
Systems in 1987 and Executive Vice President in 1994. Prior to
joining Intergraph, Mr. Wilkinson served for 34 years in the U.S.
Navy, retiring with the rank of Rear Admiral. He holds a master's
degree in mechanical engineering.
Allan B. Wilson joined the Company in 1980 and was responsible
for the development of international operations outside of Europe
and North America. He was elected Vice President in May 1982 and
Executive Vice President in November 1982. Mr. Wilson is
currently responsible for sales and support for the Company's Asia
Pacific region. He holds bachelor's and master's degrees in
electrical engineering.
Manfred Wittler joined the Company in 1989 as Vice President.
In 1991, he was elected Executive Vice President and is currently
responsible for sales and support for Europe, Canada, and Latin
America. From 1983 through 1989, Mr. Wittler held several
positions with Data General Corporation in Europe, including
Division Vice President. He holds a doctorate in engineering.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The information appearing under "Dividend Policy" and "Price
Range of Common Stock" on page 46 of the Intergraph Corporation
1996 Annual Report to Shareholders is incorporated by reference in
this Form 10-K Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31,
1996, appearing under "Five Year Financial Summary" on page
1 of the Intergraph Corporation 1996 Annual Report to Shareholders
are incorporated by reference in this Form 10-K Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing on pages 12 to 22 of the
Intergraph Corporation 1996 Annual Report to Shareholders is
incorporated by reference in this Form 10-K Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and report of independent
auditors appearing on pages 23 to 45 of the Intergraph
Corporation 1996 Annual Report to Shareholders are incorporated by
reference in this Form 10-K Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information appearing under "Election of Directors" on page
4 of the Intergraph Corporation Proxy Statement relative to
the Annual Meeting of Shareholders to be held May 15, 1997, is
incorporated by reference in this Form 10-K Annual Report.
Directors are elected for terms of one year at the Annual Meeting
of the Company's shareholders.
Information relating to the executive officers of the Company
appearing under "Executive Officers of the Company" on pages 10
to 12 in this Form 10-K Annual Report is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Executive Compensation" on
pages 5 to 11 of the Intergraph Corporation Proxy Statement
relative to the Annual Meeting of Shareholders to be held May 15,
1997, is incorporated by reference in this Form 10-K Annual
Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information appearing under "Common Stock Outstanding and
Principal Shareholders" on pages 2 to 3 of the Intergraph
Corporation Proxy Statement relative to the Annual Meeting of
Shareholders to be held May 15, 1997, is incorporated by reference
in this Form 10-K Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Certain Relationships and
Related Transactions" on page 5 of the Intergraph Corporation
Proxy Statement relative to the Annual Meeting of Shareholders to
be held May 15, 1997, is incorporated by reference in this Form 10-
K Annual Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
Page in
Annual
Report *
--------
(a) 1) The following consolidated financial statements of
Intergraph Corporation and subsidiaries and the
report of independent auditors thereon are incorporated by
reference from the Intergraph Corporation 1996 Annual Report
to Shareholders:
Consolidated Balance Sheets at December 31, 1996 and 1995 23
Consolidated Statements of Operations for the three years
ended December 31, 1996 24
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996 25
Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 1996 26
Notes to Consolidated Financial Statements 27 - 44
Report of Independent Auditors 45
* Incorporated by reference from the indicated pages of the 1996
Annual Report to Shareholders.
Page in
Form 10-K
---------
2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts and
Reserves for the three years ended December 31, 1996 17
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
Financial statements of 20%- to 50%-owned companies have been
omitted because the registrant's proportionate share of income
before income taxes of the companies is less than 20% of
consolidated income before income taxes, and the investments in
and advances to the companies are less than 20% of consolidated
total assets.
3) Exhibits
Page in
Number Description Form 10-K
------ ----------- ---------
3(a) Certificate of Incorporation, Bylaws, and
Certificate of Merger. (1)
3(b) Amendment to Certificate of Incorporation. (2)
3(c) Restatement of Bylaws. (3)
Page in
Number Description Form 10-K
------ ----------- ---------
4 Shareholder Rights Plan, dated August 25, 1993.(4)
10(a)* Employment contracts of Allan B. Wilson dated
May 3, 1995. (5)
10(b)* Loan program for executive officers of the Company
as amended, dated May 1, 1996.
10(c) Loan and Security Agreement, by and between
Intergraph Corporation and Foothill Capital
Corporation, dated December 20, 1996 and amendment.
10(d)* Intergraph Corporation 1997 Stock Option Plan.
11 Computations of Loss Per Share 18
13 Portions of the Intergraph Corporation 1996 Annual
Report to Shareholders incorporated by reference
in this Form 10-K Annual Report
21 Subsidiaries of the Company 19
23 Consent of Independent Auditors 20
27 Financial Data Schedule
99 Consent of Director Nominee 21
*Denotes management contract or compensatory plan, contract, or
arrangement required to be filed as an Exhibit to this Form 10-K
- ---------------
(1) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1984,
under the Securities Exchange Act of 1934, File No. 0-9722.
(2) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1987,
under the Securities Exchange Act of 1934, File No. 0-9722.
(3) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993,
under the Securities Exchange Act of 1934, File No. 0-9722.
(4) Incorporated by reference to exhibits filed with the Company's
Current Report on Form 8-K dated August 25, 1993, under the
Securities Exchange Act of 1934, File No. 0-9722.
(5) Incorporated by reference to exhibits filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 1995,
under the Securities Exchange Act of 1934, File No. 0-9722.
- ---------------
(b) No reports on Form 8-K were filed during the fourth quarter of
the fiscal year ended December 31, 1996.
(c) Exhibits - the response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial statement schedules - the response to this portion of
Item 14 is submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTERGRAPH CORPORATION
By /s/ James W. Meadlock Date: March 24, 1997
---------------------------- --------------
James W. Meadlock
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.
Date
----
/s/ James W. Meadlock Chief Executive Officer and March 24, 1997
- -------------------------- Chairman of the Board
James W. Meadlock (Principal Executive Officer)
/s/ Larry J. Laster Executive Vice President,Chief March 24, 1997
- -------------------------- Financial Officer, and Director
Larry J. Laster (Principal Financial Officer)
Executive Vice President and March 24, 1997
- -------------------------- Director
James F. Taylor Jr.
/s/ Robert E. Thurber Executive Vice President and March 24, 1997
- -------------------------- Director
Robert E. Thurber
/s/ Roland E. Brown Director March 24, 1997
- --------------------------
Roland E. Brown
Director March 24, 1997
- --------------------------
Keith H. Schonrock Jr.
/s/ John W. Wilhoite Vice President and Controller March 24, 1997
- -------------------------- (Principal Accounting Officer)
John W. Wilhoite
INTERGRAPH CORPORATION AND SUBSIDIARIES
SCHEDULE II ---- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
- ----------------------- ---------- ---------- ---------- -------------
Additions
Balance at charged to
beginning costs and Balance at
Description of period expenses Deductions end of period
- ----------------------- ---------- ---------- ---------- -------------
Allowance for doubtful
accounts deducted from
accounts receivable in
the balance sheet
1996 $20,399,000 (2,049,000)(3) 1,647,000(1) $16,703,000
1995 $20,309,000 4,945,000 4,855,000(1) $20,399,000
1994 $20,791,000 10,536,000 11,018,000(1) $20,309,000
Allowance for obsolete
inventory deducted
from inventories in
the balance sheet
1996 $34,441,000 24,189,000 15,407,000(2) $43,223,000
1995 $31,033,000 17,455,000 14,047,000(2) $34,441,000
1994 $24,560,000 20,137,000 13,664,000(2) $31,033,000
(1)Uncollectible accounts written off, net of recoveries.
(2)Obsolete inventory reduced to net realizable value.
(3)The Company provides its allowance for doubtful accounts on a
specific identification basis. In 1996, significant improvement
in collection prospects on several large accounts occurred,
resulting in reversal of amounts previously provided in the
allowance for doubtful accounts.
INTERGRAPH CORPORATION AND SUBSIDIARIES
EXHIBIT 11 ---- COMPUTATIONS OF LOSS PER SHARE
Year ended December 31, 1996 1995 1994
- ------------------------------------ ------------- ------------- -------------
Primary:
Weighted average common shares
outstanding 47,195,000 46,077,000 44,860,000
Net common shares issuable
on exercise of certain
stock options (1) --- --- ---
------------- ------------- -------------
Average common and equivalent
common shares outstanding 47,195,000 46,077,000 44,860,000
============= ============= =============
Net loss $(69,112,000) $(45,348,000) $(70,220,000)
============= ============= =============
Net loss per share $(1.46) $( .98) $(1.56)
============= ============= =============
Fully diluted:
Weighted average common shares
outstanding 47,195,000 46,077,000 44,860,000
Net common shares issuable
on exercise of certain
stock options (1) --- --- ---
------------- ------------- -------------
Average common and equivalent
common shares outstanding 47,195,000 46,077,000 44,860,000
============= ============= =============
Net loss $(69,112,000) $(45,348,000) $(70,220,000)
============= ============= =============
Net loss per share $(1.46) $( .98) $(1.56)
============= ============= =============
(1) Net common shares issuable on exercise of certain stock
options is calculated based on the treasury stock method using
the average market price for the primary calculation and the
ending market price, if higher than the average, for the fully
diluted calculation.
INTERGRAPH CORPORATION AND SUBSIDIARIES
EXHIBIT 21 ---- SUBSIDIARIES OF REGISTRANT
State or Other Percentage of
Jurisdiction of Voting Securities
Name Incorporation Owned by Parent
- ------------------------------------------ --------------- -----------------
InterCAP Graphics Systems, Inc. Delaware 100
Intergraph European Manufacturing, L.L.C. Delaware 100
Intergraph (Italia), L.L.C. Delaware 100
Intergraph (Middle East), L.L.C. Delaware 100
International Public Safety Delaware 100
VeriBest, Inc. Delaware 100
Intergraph Benelux B.V. The Netherlands 100
Intergraph CAD/CAM (Danmark) A/S Denmark 100
Intergraph CR s.r.o. Czech Republic 100
Intergraph (Deutschland) GmbH Germany 100
Intergraph Espana, S.A. Spain 100
Intergraph Europe (POLSKA) s.p.z.o.o. Poland 100
Intergraph Finland Oy Finland 100
Intergraph (France) SA France 100
Intergraph GmbH (Osterreich) Austria 100
Intergraph Hungary, Ltd. Hungary 100
Intergraph Ireland, Ltd. Ireland 100
Intergraph Norge A/S Norway 100
Intergraph (Portugal) Sistemas
de Computacao Grafica, S.A. Portugal 100
Intergraph SR s.r.o. Slovac Republic 100
Intergraph (Sverige) AB Sweden 100
Intergraph (Switzerland) A.G. Switzerland 100
Intergraph (UK), Ltd. United Kingdom 100
VeriBest GmbH Germany 100
VeriBest International, Ltd. United Kingdom 100
VeriBest S.A. France 100
Intergraph Asia Pacific Limited Hong Kong 100
Intergraph BEST (Vic) Pty. Ltd. Australia 100
Intergraph Computer (Shenzhen) Co. Ltd. China 100
Intergraph Corporation (N.Z.) Limited New Zealand 100
Intergraph Corporation Pty. Ltd. Australia 100
Intergraph Corporation Taiwan Taiwan, R.O.C. 100
Intergraph Hong Kong Limited Hong Kong 100
Intergraph Japan K.K. Japan 100
Intergraph Korea, Ltd. Korea 100
Intergraph Systems Singapore Pte Ltd. Singapore 100
VeriBest K.K. Japan 100
Computer Services Industry & Trade, A.S. Turkey 97
Intergraph Canada, Ltd. Canada 100
Intergraph de Mexico, S.A. de C.V. Mexico 100
Intergraph Electronics Ltd. Israel 100
Intergraph Servicios de Venezuela C.A. Venezuela 100
Intergraph Saudi Arabia Ltd. Saudi Arabia 75
EXHIBIT 23 ---- CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Intergraph Corporation and subsidiaries of
our report dated January 30, 1997, included in the 1996 Annual
Report to Shareholders of Intergraph Corporation.
Our audits also included the financial statement schedule of
Intergraph Corporation listed in Item 14(a)(2). This schedule
is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth herein.
We also consent to the incorporation by reference in the
Registration Statement (Form S-3 No. 33-25880) pertaining to the
Stock Bonus Plan dated December 22, 1988; in the Registration
Statement (Form S-8 No. 33-53849) pertaining to the Intergraph Corporation
1992 Stock Option Plan dated May 27, 1994; in the Registration
Statement (Form S-8 No. 33-57211) pertaining to the Assumption
of Options under the InterCAP Graphics Systems, Inc. 1989 Stock
Option Plan and 1994 Nonqualified Stock Option Program dated
January 10, 1995; in the Registration Statement (Form S-8 No. 33-59621)
pertaining to the 1995 Intergraph Corporation Employee Stock Purchase
Plan dated May 26, 1995; and in the related Prospectuses of our report
dated January 30, 1997 with respect to the consolidated
financial statements and schedule of Intergraph Corporation and
subsidiaries included or incorporated by reference in the Annual
Report (Form 10-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 24, 1997
EXHIBIT 99 --CONSENT OF DIRECTOR NOMINEE
I hereby consent to being named as a nominee for director of
Intergraph Corporation in the proxy statement prepared for the
May 15, 1997 annual shareholders' meeting, and to serve as a
director of Intergraph Corporation if elected.
Date: March 18, 1997 /s/ Thomas J. Lee
-----------------
Thomas J. Lee
EXECUTIVE OFFICER LOAN AGREEMENT
--------------------------------
This Agreement is between _________________________ ("the
Borrower") and Intergraph Corporation ("Intergraph"). The Borrower
hereby agrees to all of the terms and conditions contained in this
Agreement.
Establishment of the Program. On January 7, 1993, the Board of
Directors established a loan program for corporate officers who
are required to report Intergraph stock transactions to the SEC.
The purpose of the loan program is to assist such officers at
such times that stock transactions would be prohibited,
restricted, or otherwise impractical.
Program Amendments. In March 1994, the Board amended the program
by extending the original termination date from May 1, 1994 to
May 1, 1995. In April 1995, the Board again amended the program
by extending it to May 1, 1996. On December 19, 1995, the Board
amended the program by modifying the stock price used in the
definition of the Program End Date from $20 per share to $25 per
share, and by changing the repayment requirement from the date
that "the Borrower sells any Intergraph stock " to the date that
"the Borrower sells a cumulative amount of more than 100,000
shares of Intergraph stock". Effective May 1, 1996, the Board
extended the loan until April 30, 1997. These amendments are
reflected in the provisions of this Agreement contained below.
Program Beginning/End. The program will commence on January 7,
1993. The program will cease on the Program End Date, which is
the earlier of April 30, 1997, or the date that the Intergraph
common stock price reaches or exceeds $25 per share; provided,
however, that such determination shall not be made during a
restricted trading period (as announced from time-to-time by the
corporate legal department). The Intergraph common stock price
shall be based on the reported closing price as listed in the
Wall Street Journal (or similar publication).
Repayment. All principal and interest outstanding under the
program must be repaid in full within fifteen (15) business
days following the earlier of (i) the date of employment termination
with Intergraph and (ii) the date the Borrower sells a cumulative
amount of more than 100,000 shares of Intergraph stock, or (iii)
the Program End Date. Full or partial pre-payments of principal
are permitted at any time. All interest shall be paid with the
final principal payment.
Interest Rate. Interest on the amounts outstanding hereunder
shall accrue for each calendar month or portion thereof at a rate
equal to the Prime Rate as published in the "Money Rates" section
of the Wall Street Journal (or similar publication) on the last
business day of each calendar month (calculated on the basis of a
year of 365 (or 366 as the case may be) days and actual days
elapsed; provided, however, that if any amount shall not be paid
when due (at maturity, by acceleration or otherwise), such amount
shall bear interest at the rate stated above plus two percent
(2%) from the date such amount was due and payable until the date
such amount is paid in full.
Promissory Note. Loans made under this Agreement shall be
evidenced by a promissory note (below). The Borrower's signature
on the promissory note shall indicate agreement with all terms
and conditions of this Agreement.
I hereby certify that I am an officer of Intergraph Corporation and
that I am required to report Intergraph stock transactions to the
SEC. I further certify that (i) I am the owner or beneficial owner
of Intergraph common stock with a current market value of at least
the amount of any loans made under this Agreement, and/or (ii) I
have currently exercisable options to purchase Intergraph common
stock with a net value (current market price less exercise price)
of at least the amount of any loans made under this Agreement. I
agree to provide suitable evidence of the foregoing upon request.
I request a loan in the amount set forth in the promissory note
shown below.
PROMISSORY NOTE
---------------
$___________________ Date:__________
FOR VALUE RECEIVED, the Borrower promises to pay to the order of
Intergraph Corporation at any such place as Intergraph may
designate, the sum of $____________ together with interest thereon,
in accordance with the Agreement set forth above.
In the event that any payment due hereunder is not received when
due, this Note shall be deemed in default and the entire principal
and interest due hereunder shall be immediately due and payable.
In the event of default hereunder, the Borrower shall pay all costs
of collection, including, without limitation, reasonable attorney's
fees and legal expenses incurred by Intergraph in endeavoring to
collect any amounts payable hereunder. The Borrower hereby
expressly waives presentment, demand for payment, dishonor, notice
of dishonor, protest and notice of protest.
IN WITNESS WHEREOF, the Borrower has caused this Note to be made,
executed and delivered as of the date and year written above.
_________________________
Signature of the Borrower
Witness:
____________________________________________
===============================================================================
LOAN AND SECURITY AGREEMENT
by and between
INTERGRAPH CORPORATION
and
FOOTHILL CAPITAL CORPORATION
Dated as of December 20, 1996
===============================================================================
TABLE OF CONTENTS
-----------------
Page(s)
-------
1. DEFINITIONS AND CONSTRUCTION. 1
1.1 Definitions 1
1.2 Accounting Terms 24
1.3 Code 25
1.4 Construction 25
1.5 Schedules and Exhibits. 25
2. LOAN AND TERMS OF PAYMENT. 25
2.1 Revolving Advances. 25
2.2 Letters of Credit. 26
2.3 Term Loan 29
2.4 [Intentionally omitted]. 29
2.5 Overadvances 29
2.6 Interest and Letter of Credit Fees: Rates,
Payments, and Calculations. 29
2.7 Collection of Accounts 30
2.8 Crediting Payments; Application of
Collections 31
2.9 Designated Account. 31
2.10 Maintenance of Loan Account; Statements of
Obligations. 32
2.11 Fees. 32
3. CONDITIONS; TERM OF AGREEMENT. 33
3.1 Conditions Precedent to the Initial Advance,
and Letter of Credit, and the Term Loan. 33
3.2 Conditions Precedent to all Advances, all
Letters of Credit, and the Term Loan. 36
3.3 Condition Subsequent. 36
3.4 Term. 39
3.5 Effect of Termination. 39
3.6 Early Termination by Borrower. 39
3.7 Termination Upon Event of Default. 40
4. CREATION OF SECURITY INTEREST. 40
4.1 Grant of Security Interest. 40
4.2 Negotiable Collateral. 41
4.3 Collection of Accounts, General Intangibles,
and Negotiable Collateral. 42
4.4 Delivery of Additional Documentation
Required. 42
4.5 Power of Attorney. 43
4.6 Right to Inspect. 43
5. REPRESENTATIONS AND WARRANTIES. 44
5.1 No Encumbrances. 44
5.2 Eligible Accounts. 44
5.3 Eligible Domestic Inventory. 44
5.4 Equipment. 44
5.5 Location of Inventory and Equipment. 44
5.6 Inventory Records. 44
5.7 Location of Chief Executive Office; FEIN. 45
5.8 Due Organization and Qualification;
Subsidiaries. 45
5.9 Due Authorization; No Conflict. 45
5.10 Litigation. 46
5.11 No Material Adverse Change. 47
5.12 Solvency. 47
5.13 Employee Benefits. 47
5.14 Environmental Condition. 47
5.15 Securities Accounts. 48
6. AFFIRMATIVE COVENANTS. 48
6.1 Accounting System. 48
6.2 Collateral Reporting. 48
6.3 Financial Statements, Reports, Certificates. 49
6.4 Tax Returns. 50
6.5 Guarantor Reports. 51
6.6 Returns. 51
6.7 Title to Equipment. 51
6.8 Maintenance of Equipment. 51
6.9 Taxes. 51
6.10 Insurance. 52
6.11 No Setoffs or Counterclaims. 53
6.12 Location of Inventory and Equipment. 53
6.13 Compliance with Laws. 54
6.14 Employee Benefits. 54
6.15 Leases. 55
7. NEGATIVE COVENANTS. 55
7.1 Indebtedness. 55
7.2 Liens. 56
7.3 Restrictions on Fundamental Changes. 56
7.4 Disposal of Assets. 57
7.5 Change Name. 57
7.6 [intentionally omitted]. 57
7.7 Nature of Business. 57
7.8 Prepayments and Amendments. 57
7.9 Change of Control. 57
7.10 Consignments. 57
7.11 Distributions. 58
7.12 Accounting Methods. 58
7.13 Investments. 58
7.14 Transactions with Affiliates. 58
7.15 Suspension. 58
7.16 [intentionally omitted]. 58
7.17 Use of Proceeds. 58
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees. 59
7.19 No Prohibited Transactions Under ERISA 59
7.20 Financial Covenants. 60
7.21 Capital Expenditures. 60
8. EVENTS OF DEFAULT. 60
9. FOOTHILL'S RIGHTS AND REMEDIES. 62
9.1 Rights and Remedies. 62
9.2 Remedies Cumulative. 65
10. TAXES AND EXPENSES. 65
11. WAIVERS; INDEMNIFICATION 66
11.1 Demand; Protest; etc. 66
11.2 Foothill's Liability for Collateral. 66
11.3 Indemnification. 66
12. NOTICES. 66
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. 68
14. DESTRUCTION OF BORROWER'S DOCUMENTS. 68
15. GENERAL PROVISIONS. 69
15.1 Effectiveness. 69
15.2 Successors and Assigns. 69
15.3 Section Headings. 69
15.4 Interpretation. 69
15.5 Severability of Provisions. 69
15.6 Amendments in Writing. 69
15.7 Counterparts; Telefacsimile Execution. 69
15.8 Revival and Reinstatement of Obligations. 70
15.9 Integration. 70
15.10 Confidentiality. 71
SCHEDULES AND EXHIBITS
----------------------
Schedule E-1 Eligible Domestic Inventory Locations
Schedule P-1 Permitted Liens
Schedule P-2 Permitted Other Investments
Schedule R-1 Real Property Collateral
Schedule 5.8 Subsidiaries -- Capitalization and Assets
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.14 Environmental Condition
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Indebtedness
Exhibit A-1 Form of Aircraft Security Agreement
Exhibit C-1 Form of Compliance Certificate
Exhibit C-2 Form of Copyright Security Agreement
Exhibit P-1 Form of Patent Security Agreement
Exhibit P-2 Form of Pledge Agreement
Exhibit T-1 Form of Trademark Security Agreement
Exhibit V-1 Form of VCOC Letter
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is
entered into as of December 20, 1996, between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a
place of business located at 11111 Santa Monica Boulevard,
Suite 1500, Los Angeles, California 90025-3333, and INTERGRAPH
CORPORATION, a Delaware corporation ("Borrower"), with its
chief executive office located at One Madison Industrial Park,
Huntsville, Alabama 35894.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the
following terms shall have the following definitions:
"Account Debtor" means any Person who is or who
may become obligated under, with respect to, or on account of,
an Account.
"Accounts" means all presently existing and
hereafter arising accounts, contract rights, and all other
forms of obligations owing to Borrower arising out of the
sale, license, or lease of goods or software or the rendition
of services by Borrower, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or
security therefor.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person,
any other Person who directly or indirectly controls, is
controlled by, is under common control with or is a director
or officer of such Person. For purposes of this definition,
"control" means: (a) solely when "Affiliate" is used in
determining Eligible Accounts, the possession, directly or
indirectly, of the power to vote 5% or more of the securities
having ordinary voting power for the election of directors or
the direct or indirect power to direct the management and
policies of a Person; and (b) in all other cases, the
possession, directly or indirectly, of the power to vote 10%
or more of the securities having ordinary voting power for the
election of directors or the direct or indirect power to
direct the management and policies of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Aircraft Security Agreement" means an Aircraft
Security Agreement, in the form of Exhibit A-1 attached
hereto, dated as of even date herewith, between Borrower and Foothill.
"AnaTech Division" means the AnaTech Division of Borrower.
"AnaTech Accounts" means Accounts created by
the AnaTech Division.
"Appraised Assets" means items of Equipment
that are the subject of that certain appraisal, dated December
11, 1996, performed by Acuval Associates, Inc. or any
subsequent appraisal performed by a qualified appraiser
satisfactory to Foothill.
"Asset Disposition" means any sale, license,
lease, exchange, transfer, or other disposition (including any
disposition as part of a sale and lease-back transaction),
directly or indirectly, by Borrower of any of the properties
or assets of Borrower.
"Authorized Person" means any officer or other
employee of Borrower.
"Average Unused Portion of Maximum Revolving
Amount" means, as of any date of determination, (a) the
Maximum Revolving Amount, less (b) the sum of (i) the average
Daily Balance of Advances that were outstanding during the
immediately preceding month, plus (ii) the average Daily
Balance of the Letter of Credit Usage during the immediately
preceding month.
"Availability" means the amount of money that
Borrower is entitled to borrow as Advances under Section 2.1,
such amount being the difference derived when (a) the sum of
the principal amount of Advances then outstanding (including
any amounts that Foothill may have paid for the account of
Borrower pursuant to any of the Loan Documents and that have
not been reimbursed by Borrower) is subtracted from (b) the
lesser of (i) the Maximum Revolving Amount less the Letter of
Credit Usage, or (ii) the Borrowing Base less the Letter of
Credit Usage.
"Bankruptcy Code" means the United States
Bankruptcy Code (11 U.S.C. Section 101 et seq.), as amended, and
any successor statute.
"Benefit Plan" means a "defined benefit plan"
(as defined in Section 3(35) of ERISA) for which Borrower, any
Subsidiary of Borrower, or any ERISA Affiliate has been an
"employer" (as defined in Section 3(5) of ERISA) within the
past six years.
"Bentley Equity Interests" means the equity
interests in Bentley Systems, Inc. owned of record by Borrower
and the rights of Borrower related thereto under that certain
Stockholders' Agreement, dated June 11, 1987, by and among
Bentley Systems, Inc., Borrower, and the "Management
Stockholders" party thereto (as amended).
"Bestinfo" means Bestinfo, Inc., a Delaware corporation.
"Books" means all of Borrower's books and
records including: ledgers; records indicating, summarizing,
or evidencing Borrower's properties or assets (including the
Collateral) or liabilities; all information relating to
Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or
other computer prepared information.
"Borrower" has the meaning set forth in the
preamble to this Agreement.
"Borrowing Base" has the meaning set forth in
Section 2.1(a). For purposes of this definition, any amount
that is denominated in a currency other than Dollars shall be
valued in Dollars based on the applicable Exchange Rate for
such currency as of the date 1 Business Day prior to the date
of determination.
"Business Day" means any day that is not a
Saturday, Sunday, or other day on which national banks are
authorized or required to close.
"Change of Control" shall be deemed to have
occurred at such time as a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of more than 25% of the total
voting power of all classes of stock then outstanding of
Borrower entitled to vote in the election of directors.
"Chelmsford Property" means the Real Property
(and related improvements thereto) of Borrower located in or
about Chelmsford, Massachusetts.
"Closing Date" means the date of the first to
occur of the making of the initial Advance, the issuance of
the initial Letter of Credit, or the funding of the Term Loan.
"Code" means the California Uniform Commercial Code.
"Collateral" means all right, title, or
interest of Borrower with respect to the following:
(a) the Accounts,
(b) the Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Real Property Collateral,
(h) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of Foothill, and
(i) the proceeds and products, whether
tangible or intangible, of any of the foregoing, including
proceeds of insurance covering any or all of the Collateral,
and any and all Accounts, Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, Real Property,
money, deposit accounts, or other tangible or intangible
property resulting from the sale, exchange, collection, or
other disposition of any of the foregoing, or any portion
thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord
waiver, mortgagee waiver, bailee letter, or acknowledgement
agreement of any warehouseman, processor, lessor, consignee,
or other Person in possession of, having a Lien upon, or
having rights or interests in the Equipment or Inventory, in
each case, in form and substance reasonably satisfactory to
Foothill.
"Collections" means all cash, checks, notes,
instruments, and other items of payment (including, insurance
proceeds, proceeds of cash sales, rental proceeds, and tax
refunds).
"Compliance Certificate" means a certificate
substantially in the form of Exhibit C-1 and delivered by the
chief financial officer or the chief accounting officer of
Borrower to Foothill.
"Consolidated Current Assets" means, as of any
date of determination, the aggregate amount of all current
assets of Borrower and its Subsidiaries that would, in
accordance with GAAP, be classified on a balance sheet as
current assets.
"Consolidated Current Liabilities" means, as of
any date of determination, the aggregate amount of all current
liabilities of Borrower and its Subsidiaries that would, in
accordance with GAAP, be classified on a balance sheet as
current liabilities. For purposes of this definition, all
Obligations outstanding under this Agreement shall be deemed
to be current liabilities without regard to whether they would
be deemed to be so under GAAP.
"Copyright Security Agreement" means a
Copyright Security Agreement, in the form of Exhibit C-2
attached hereto, dated as of even date herewith, between
Borrower and Foothill.
"Currency Protection Agreement" shall mean any
currency swap, cap, or collar agreement or other similar
insurance-type agreement in connection with hedging against
foreign currency rate fluctuations.
"Daily Balance" means the amount of an
Obligation owed at the end of a given day.
"deems itself insecure" means that the Person
deems itself insecure in accordance with the provisions of
Section 1208 of the Code.
"Default" means an event, condition, or default
that, with the giving of notice, the passage of time, or both,
would be an Event of Default.
"Designated Account" means account number 4068-
0637 of Borrower maintained with Borrower's Designated Account
Bank, or such other deposit account of Borrower (located
within the United States) which has been designated, in
writing and from time to time, by Borrower to Foothill.
"Designated Account Bank" means Citibank, N.A.,
whose office is located at 399 Park Avenue, New York, New York
10043, and whose ABA number is 021-000-089.
"Dilution" means, in each case based upon the
experience of the immediately prior 90 days, the result of
dividing the Dollar amount of (a) bad debt write-downs,
discounts, returns, credits, or other dilution with respect to
the Accounts, by (b) Collections with respect to Accounts (in
each case, excluding intercompany Accounts and extraordinary
items) plus the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of
determination pursuant to the report of Dilution delivered
under Section 6.2, an amount sufficient to reduce Foothill's
advance rate against Eligible Accounts by 1 percentage point
for each percentage point by which Dilution is in excess of
8%.
"Disbursement Letter" means an instructional
letter executed and delivered by Borrower to Foothill
regarding the extensions of credit to be made on the Closing
Date, the form and substance of which shall be reasonably
satisfactory to Foothill.
"Dollars or $" means United States dollars.
"Domestic Accounts" means Accounts with respect
to which the Account Debtor maintains its chief executive
office in the United States or is organized under the laws of
the United States or any State thereof.
"Early Termination Premium" has the meaning set
forth in Section 3.6.
"Eligible Accounts" means Eligible Domestic
Accounts and Eligible Unbilled Accounts.
"Eligible Domestic Accounts" means those
Accounts created by Borrower in the ordinary course of
business, that arise out of Borrower's sale, license, or lease
of goods or software or rendition of services, and that
strictly comply with each and all of the representations and
warranties respecting Accounts made by Borrower to Foothill in
the Loan Documents; provided, however, that standards of
eligibility may be fixed and revised from time to time by
Foothill in Foothill's reasonable credit judgment. Eligible
Domestic Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay
within 60 days of due date (or, in the case of Federal
Accounts, 90 days of due date) or Accounts with selling terms
of more than 60 days;
(b) Accounts owed by an Account Debtor or its Affiliates
where 50% or more of all Accounts owed by that Account Debtor
(or its Affiliates) are deemed ineligible under clause (a)
above;
(c) Accounts with respect to which the Account Debtor is
an employee, Affiliate, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on
approval, bill and hold, or other terms by reason of which the
payment by the Account Debtor may be conditional;
(e) Accounts that are not payable in Dollars or with
respect to which the Account Debtor: (i) does not maintain its
chief executive office in the United States, or (ii) is not
organized under the laws of the United States or any State
thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department,
agency, public corporation, or other instrumentality thereof,
unless (y) the Account is supported by an irrevocable letter
of credit that is satisfactory to Foothill (as to form,
substance, and issuer or domestic confirming bank) and that,
upon the occurrence and during the continuance of an Event of
Default, has been delivered to Foothill and is directly
drawable by Foothill (provided, however, that nothing herein
shall limit Foothill's right to not make an Advance or issue a
Letter of Credit upon the occurrence and during the
continuance of an Event of Default), or (z) the Account is
covered by credit insurance in form and amount, and by an
insurer, satisfactory to Foothill;
(f) Accounts with respect to which the Account Debtor is
a creditor of Borrower, has or has asserted a right of setoff,
has disputed its liability (whether pursuant to a contractual
discrepancy or otherwise), or has made any claim with respect
to the Account; provided, however, that the foregoing only
shall apply to the extent of such right of setoff, disputed
liability, or other claim giving rise to such contra-account.
(g) Accounts with respect to an Account Debtor whose
total obligations owing to Borrower exceed 10% of all Eligible
Accounts, to the extent of the obligations owing by such
Account Debtor in excess of such percentage; provided,
however, that in the case of the United States and its
departments, agencies, and instrumentalities, taken as a
whole, the foregoing percentage shall be fifty percent (50%)
before the excess would be deemed ineligible;
(h) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or
goes out of business;
(i) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason
of the Account Debtor's financial condition and with respect
to which Foothill has notified Borrower of such belief;
(j) Accounts (other than Eligible Unbilled Accounts)
with respect to which the goods giving rise to such Account
have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed
and accepted by the Account Debtor, or the Account otherwise
does not represent a final sale;
(k) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or
West Virginia (or any other state that requires a creditor to
file a Business Activity Report or similar document in order
to bring suit or otherwise enforce its remedies against such
Account Debtor in the courts or through any judicial process
of such state), unless Borrower has qualified to do business
in New Jersey, Minnesota, Indiana, West Virginia, or such
other states, or has filed a Notice of Business Activities
Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as
appropriate, for the then-current year, or is exempt from such
filing requirement;
(l) At such times as Foothill may determine in its sole
discretion, Federal Accounts (exclusive, however, of Accounts
with respect to which Borrower has complied, to the
satisfaction of Foothill and subject to Section 4.4(c) hereof,
with the Assignment of Claims Act, 31 U.S.C. Section 3727);
(m) At such times as Foothill may determine in its sole
discretion, Accounts with respect to which the Account Debtor
is any State of the United States (exclusive, however, of: (i)
Accounts owed by any State that does not have a statutory
counterpart to the Assignment of Claims Act; and (ii) Accounts
owed by any State that has a statutory counterpart to the
Assignment of Claims Act and with respect to which Borrower
has complied, to the satisfaction of Foothill and subject to
Section 4.4(c) hereof, with such statutory counterpart);
(n) Federal Accounts arising under any one underlying
contract or any series of related underlying contracts, the
total amount of which obligations owing Borrower exceeds 10%
of all Eligible Accounts, to the extent of the obligations
owing under such contract or contracts in excess of such
percentage;
(o) Federal Accounts in respect of which the subject
contract for goods and services is designated by the Account
Debtor as "classified" (i.e., the ability of Foothill to
receive information regarding such contract or such Account is
restricted by rules or regulations of the United States or any
department, agency, or instrumentality of the United States in
respect of classified information);
(p) Optronics Accounts or AnaTech Accounts;
(q) Accounts which represent progress payments or other
advance billings that are due prior to the completion of
performance by Borrower of the subject contract for goods or
services, except to the extent that such progress payments or
other advance billings are expressly permitted by the terms of
the subject contract (including so-called "maintenance
contracts"); or
(r) Accounts with respect to which a surety or other
bond has been issued in respect of the performance by Borrower
of the subject contract for goods or services.
"Eligible Domestic Inventory" means Eligible
Domestic Finished Goods Inventory and Eligible Domestic Raw
Materials Inventory.
"Eligible Domestic Finished Goods Inventory"
means Inventory consisting of first quality finished goods
held for sale or license in the ordinary course of Borrower's
business, that are located at or in-transit between Borrower's
premises identified on Schedule E-1, and that strictly comply
with each and all of the representations and warranties
respecting Inventory made by Borrower to Foothill in the Loan
Documents; provided, however, that standards of eligibility
may be fixed and revised from time to time by Foothill in
Foothill's reasonable credit judgment. In determining the
amount to be so included, Inventory shall be valued at the
lower of cost or market on a basis consistent with Borrower's
current and historical accounting practices. An item of
Inventory shall not be included in Eligible Domestic Finished
Goods Inventory if:
(a) it is not owned solely by Borrower or
Borrower does not have good, valid, and marketable title thereto;
(b) it is not located at one of the locations
set forth on Schedule E-1;
(c) it is not located on property owned or
leased by Borrower or in a contract warehouse, in each case,
subject to a Collateral Access Agreement executed by the
mortgagee, lessor, the warehouseman, or other third party, as
the case may be, and segregated or otherwise separately
identifiable from goods of others, if any, stored on the
premises;
(d) it is not subject to a valid and perfected
first priority security interest in favor of Foothill;
(e) it consists of goods returned or rejected
by Borrower's customers or goods in transit;
(f) it is Inventory of the Optronics Division
or the AnaTech Division; or
(g) it is obsolete or slow moving, a
restrictive or custom item, raw materials, work-in-process, a
component that is not part of finished goods, or constitutes
spare parts (other than spare parts located at the Huntsville
Property), packaging and shipping materials, supplies used or
consumed in Borrower's business, Inventory subject to a Lien
in favor of any third Person, bill and hold goods, defective
goods, "seconds," or Inventory acquired on consignment.
"Eligible Domestic Raw Materials Inventory"
means Inventory that does not qualify as Eligible Domestic
Finished Goods Inventory solely because it constitutes raw
materials consisting of components used as a part of first
quality finished goods held for sale in the ordinary course of
Borrower's business.
"Eligible Unbilled Accounts" means those
Domestic Accounts created by Borrower that would qualify as
Eligible Domestic Accounts except for the fact that they
constitute Unbilled Accounts.
"Equipment" means all of Borrower's present and
hereafter acquired machinery, machine tools, motors,
equipment, furniture, furnishings, fixtures, vehicles
(including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory),
wherever located, including, (a) any interest of Borrower in
any of the foregoing, and (b) all attachments, accessories,
accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income
Security Act of 1974, 29 U.S.C. Section 1000 et seq., amendments
thereto, successor statutes, and regulations or guidance
promulgated thereunder.
"ERISA Affiliate" means (a) any corporation
subject to ERISA whose employees are treated as employed by
the same employer as the employees of Borrower under IRC
Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer
as the employees of Borrower under IRC Section 414(c), (c)
solely for purposes of Section 302 of ERISA and Section 412 of
the IRC, any organization subject to ERISA that is a member of
an affiliated service group of which Borrower is a member
under IRC Section 414(m), or (d) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any party
subject to ERISA that is a party to an arrangement with
Borrower and whose employees are aggregated with the employees
of Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with
respect to any Benefit Plan or Multiemployer Plan, (b) the
withdrawal of Borrower, any of its Subsidiaries or ERISA
Affiliates from a Benefit Plan during a plan year in which it
was a "substantial employer" (as defined in Section 4001(a)(2)
of ERISA), (c) the providing of notice of intent to terminate
a Benefit Plan in a distress termination (as described in
Section 4041(c) of ERISA), (d) the institution by the PBGC of
proceedings to terminate a Benefit Plan or Multiemployer Plan,
(e) any event or condition (i) that provides a basis under
Section 4042(a)(1), (2), or (3) of ERISA for the termination
of, or the appointment of a trustee to administer, any Benefit
Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A
of ERISA, (f) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of Borrower, any
of its Subsidiaries or ERISA Affiliates from a Multiemployer
Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any
of their ERISA Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Exchange Rate" means the nominal rate of
exchange available to Foothill in a chosen foreign exchange
market for the purchase of the applicable non-Dollar currency
at 12:00 noon, local time, 1 Business Day prior to any date of
determination, expressed as the number of units of such
currency per Dollar.
"Excluded Foreign Portion" means, with respect
to any Foreign Subsidiary, the portion (if any) of the equity
securities of such Subsidiary owned of record by Borrower with
voting power that is in excess of 65% of the total combined
voting power of issued and outstanding stock of such
Subsidiary entitled to vote.
"Excluded Foreign Subsidiary Securities" means
(a) the Excluded Foreign Portion (if any) of the equity
securities of any Foreign Subsidiary of Borrower identified in
Schedule II of the Pledge Agreement (as the same may be
amended or supplemented from time to time), and (b) subject to
the last paragraph of Section 6.3, 100% of the fully diluted
issued and outstanding equity securities of any other Foreign
Subsidiary of Borrower.
"Existing Lender" means Citicorp USA, Inc., as
the representative of certain banks and other financial
institutions.
"Federal Accounts" means Accounts where the
United States or any department, agency, or instrumentality of
the United States is the Account Debtor.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the
preamble to this Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
"Foothill Expenses" means all: costs or
expenses (including taxes, and insurance premiums) required to
be paid by Borrower under any of the Loan Documents that are
paid or incurred by Foothill; fees or charges paid or incurred
by Foothill in connection with Foothill's transactions with
Borrower, including, fees or charges for photocopying,
notarization, couriers and messengers, telecommunication,
public record searches (including tax lien, litigation, and
UCC (or equivalent) searches and including searches with the
patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication,
appraisal (including periodic Personal Property Collateral or
Real Property Collateral appraisals), real estate surveys,
real estate title policies and endorsements, and environmental
audits; costs and expenses incurred by Foothill in the
disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting
from the dishonor of checks; costs and expenses paid or
incurred by Foothill to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Personal
Property Collateral or the Real Property Collateral, or any
portion thereof, irrespective of whether a sale is
consummated; costs and expenses paid or incurred by Foothill
in examining Borrower's Books; costs and expenses of third
party claims or any other suit paid or incurred by Foothill in
enforcing or defending the Loan Documents or in connection
with the transactions contemplated by the Loan Documents or
Foothill's relationship with Borrower (or any of its
Subsidiaries party to one or more Loan Documents); and
Foothill's reasonable attorneys fees and expenses incurred in
advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing (including attorneys fees and
expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning
Borrower), defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"Foreign Subsidiary" means any Subsidiary
organized under the laws of a jurisdiction other than the
United States or any State thereof.
"GAAP" means generally accepted accounting
principles as in effect from time to time in the United
States, consistently applied.
"General Intangibles" means all of Borrower's
present and future general intangibles and other personal
property (including contract rights, rights arising under
common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks,
servicemarks, copyrights, blueprints, drawings, purchase
orders, customer lists, monies due or recoverable from pension
funds, route lists, rights to payment and other rights under
any royalty or licensing agreements, infringement claims,
computer programs, information contained on computer disks or
tapes, literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable
Collateral.
"Governing Documents" means the certificate or
articles of incorporation, by-laws, or other organizational or
governing documents of any Person.
"Hazardous Materials" means (a) substances that
are defined or listed in, or otherwise classified pursuant to,
any applicable laws or regulations as "hazardous substances,"
"hazardous materials," "hazardous wastes," "toxic substances,"
or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity", (b) oil, petroleum,
or petroleum derived substances, natural gas, natural gas
liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with the exploration, development, or
production of crude oil, natural gas, or geothermal resources,
(c) any flammable substances or explosives or any radioactive
materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of 50 parts per
million.
"Huntsville Property" means the Real Property
(and related improvements thereto) of Borrower located in or
about Huntsville, Alabama.
"IG Australia" means Intergraph Corporation
Pty., Ltd.. a corporation organized under the laws of Australia.
"IG Australia Existing Lender" means National
Bank of Australia.
"IG Australia Existing Lender Pay-Off Letter"
means a letter, in form and substance reasonably satisfactory
to Foothill, from IG Australia Existing Lender respecting the
amount necessary to repay in full all of the obligations of
Borrower or IG Australia owing to IG Australia Existing Lender
and obtain a termination or release of all of the Liens
existing in favor of IG Australia Existing Lender in and to
the properties or assets of Borrower and its Subsidiaries.
"IG Benelux" means Intergraph Benelux B.V., a
corporation organized under the laws of The Netherlands.
"IG Benelux Existing Lender" means ING Bank, N.V..
"IG Delaware" means Intergraph Delaware, Inc.,
a Delaware corporation.
"Indebtedness" means: (a) all obligations of
Borrower for borrowed money, (b) all obligations of Borrower
evidenced by bonds, debentures, notes, or other similar
instruments and all reimbursement or other obligations of
Borrower in respect of letters of credit, bankers acceptances,
interest rate swaps, or other financial products, (c) all
obligations of Borrower under capital leases, (d) all
obligations or liabilities of others secured by a Lien on any
property or asset of Borrower, irrespective of whether such
obligation or liability is assumed, and (e) any obligation of
Borrower guaranteeing or intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any indebtedness, lease, dividend,
letter of credit, or other obligation of any other Person;
provided, however, that the term "Indebtedness" shall not
include (i) liabilities or obligations arising out of or
relating to guarantees, warranties, or other commitments that
products or systems sold by Borrower or any of its Affiliates
will meet particular performance or operating specifications
("Commercial Performance Guarantees"), or (ii) liabilities
arising out of or relating to agreements or commitments of
Borrower to maintain the financial condition or solvency of
any Affiliate of Borrower that are made, in the ordinary
course of Borrower's business consistent with past practices,
in connection with or in fulfillment of any Commercial
Performance Guarantee.
"Insolvency Proceeding" means any proceeding
commenced by or against any Person under any provision of the
Bankruptcy Code or under any other bankruptcy or insolvency
law, assignments for the benefit of creditors, formal or
informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement,
or other similar relief.
"Interest Rate Agreement" shall mean any
interest rate swap agreement or any other similar insurance-
type agreement in connection with any interest "cap" or
"collar" transaction or any other interest rate hedging
transaction.
"InterCAP" means InterCAP Graphic Systems,
Inc., a Delaware corporation.
"Intercompany Notes" means promissory notes, if
any, evidencing loan obligations between Borrower and any of
its Subsidiaries that constitute loans qualifying under the
definition of "Permitted Subsidiary Loans and Capital
Contributions" or that are permitted under Section 7.1(d).
"Inventory" means all present and future
inventory in which Borrower has any interest, including goods
held for sale, license, or lease or to be furnished under a
contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing
and shipping materials, wherever located.
"Inventory Advance Rate" means 25%; provided,
however, that the Inventory Advance Rate shall at no time
exceed the quotient, expressed as a percentage, equal to 100%
of the Liquidation Value based upon the most recent third
party appraisal of Borrower's Inventory located in the United
States conducted by an appraiser selected by Foothill, divided
by the value of Eligible Domestic Inventory on the date of
such appraisal.
"IRC" means the Internal Revenue Code of 1986,
as amended, and the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Letter of Credit" means an L/C or an L/C
Guaranty, as the context requires.
"Letter of Credit Usage" means the sum of (a)
the undrawn amount of Letters of Credit, plus (b) the amount
of unreimbursed drawings under Letters of Credit.
"Lien" means any interest in property securing
an obligation owed to, or a claim by, any Person other than
the owner of the property, whether such interest shall be
based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such
interest shall be contingent upon the occurrence of some
future event or events or the existence of some future
circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance,
pledge, hypothecation, assignment, deposit arrangement,
security agreement, adverse claim or charge, conditional sale
or trust receipt, or from a lease, consignment, or bailment
for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Liquidation Value" means, in respect of any
item of Inventory or Equipment, the net orderly liquidation
value of such item of Inventory or Equipment as determined by
a qualified appraiser selected by Foothill.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the
Disbursement Letter, the Letters of Credit, the Lockbox
Agreements, the Mortgages, the Aircraft Security Agreement,
the Copyright Security Agreement, the Patent Security
Agreement, the Pledge Agreement, the Trademark Security
Agreement, the VCOC Letter, any note or notes executed by
Borrower and payable to Foothill, and any other agreement
entered into, now or in the future, in connection with this
Agreement.
"Lockbox Account" shall mean a depositary
account established pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain
Lockbox Operating Procedural Agreements and those certain
Depository Account Agreements, in form and substance
reasonably satisfactory to Foothill, each of which is among
Borrower, Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means Citibank, N.A., First
National Bank of Chicago, and NationsBank of Georgia.
"Lockboxes" has the meaning set forth in Section 2.7.
"M&S" means M&S Computing Investments, Inc., a
Delaware corporation.
"Material Adverse Change" means (a) a material
adverse change in the business, operations, results of
operations, assets, liabilities or condition of Borrower, (b)
the material impairment of Borrower's ability to perform its
obligations under the Loan Documents to which it is a party or
of Foothill to enforce the Obligations or to realize upon the
Collateral, (c) a material adverse effect on the value of the
Collateral or the amount that Foothill would be likely to
receive (after giving consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral,
or (d) a material impairment of the priority of Foothill's
Liens with respect to the Collateral; provided, however, that
the determination of any Material Adverse Change shall be made
after giving effect to the reserves, if any, created by
Foothill against the Borrowing Base, or the reduction, if any,
made by Foothill of the applicable advance rates based upon
the Borrowing Base, in each case, in respect of the event or
circumstance giving rise to such material adverse change,
material impairment, or material adverse effect.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Amount" means $100,000,000.
"Maximum Revolving Amount" means, as of any
date of determination, the result of (a) the Maximum Amount,
minus (b) the then outstanding principal balance of the Term Loan.
"Meadlock Note" means that certain promissory
note, dated May 1, 1996, made by James Meadlock to the order
of Borrower in the original principal amount of approximately
$4,400,000.
"Mortgage Policies" means mortgagee title
insurance policies (or marked commitments to issue the same)
for the Real Property Collateral issued by a title insurance
company reasonably satisfactory to Foothill in amounts
reasonably satisfactory to Foothill.
"Mortgages" means one or more mortgages, deeds
of trust, or deeds to secure debt, executed by Borrower in
favor of Foothill, the form and substance of which shall be
reasonably satisfactory to Foothill, that encumber the Real
Property Collateral and the related improvements thereto.
"Multiemployer Plan" means a "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA) to which
Borrower, any of its Subsidiaries, or any ERISA Affiliate has
contributed, or was obligated to contribute, within the past
six years.
"Negotiable Collateral" means all of Borrower's
present and future letters of credit, notes (including the
Meadlock Note), drafts, instruments, investment property,
security entitlements, securities (including the shares of
stock of Subsidiaries of Borrower, but expressly excluding the
Excluded Foreign Subsidiary Securities and the Bentley Equity
Interests), documents, personal property leases (wherein
Borrower is the lessor), chattel paper, and Borrower's Books
relating to any of the foregoing.
"Net Worth" means, as of any date of
determination, Borrower's total stockholder's equity.
"Obligations" means all loans, Advances, debts,
principal, interest (including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued),
contingent reimbursement obligations under any outstanding
Letters of Credit, premiums (including Early Termination
Premiums), liabilities (including all amounts charged to
Borrower's Loan Account pursuant hereto), obligations, fees,
charges, costs, or Foothill Expenses (including any fees or
expenses that, but for the provisions of the Bankruptcy Code,
would have accrued), lease payments, guaranties, covenants,
and duties owing by Borrower to Foothill of any kind and
description (whether pursuant to or evidenced by the Loan
Documents or pursuant to any other agreement between Foothill
and Borrower, and irrespective of whether for the payment of
money), whether direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising, and
including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by
assignment or otherwise, and further including all interest
not paid when due and all Foothill Expenses that Borrower is
required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Obligor" means any of Borrower or any of its Subsidiaries
party to one or more Loan Documents, including M&S and IG Delaware.
"Optronics Division" means the Optronics
Division of Borrower.
"Optronics Accounts" means Accounts created by
the Optronics Division.
"Ordinary Course Dispositions" means Asset
Dispositions of (a) Inventory in the ordinary course of
business, (b) Equipment that is substantially worn, damaged,
or obsolete in the ordinary course of business, (c) Equipment
that is a so-called "internal equipment item" that is replaced
by Borrower in the ordinary course of business and consistent
with past practices with another such item of equal or greater
value, and (d) Equipment that is a so-called "demonstration
item" in the ordinary course of business and consistent with
past practices.
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" means any Person to which
Foothill has sold a participation interest in its rights under
the Loan Documents.
"Patent Security Agreement" means a Patent
Security Agreement, in the form of Exhibit P-1 attached
hereto, dated as of even date herewith, between Borrower and
Foothill.
"Pay-Off Letter" means a letter, in form and
substance reasonably satisfactory to Foothill, from Existing
Lender respecting the amount necessary to repay in full all of
the obligations of Borrower owing to Existing Lender and
obtain a termination or release of all of the Liens existing
in favor of Existing Lender in and to the properties or assets
of Borrower.
"PBGC" means the Pension Benefit Guaranty
Corporation as defined in Title IV of ERISA, or any successor thereto.
"Permitted AnaTech Dispositions" means, subject
to the prior or concurrent satisfaction of the Release
Condition therefor, Asset Dispositions of the assets of the
AnaTech Division, free and clear of Foothill's Lien thereon
(other than Foothill's Lien in the proceeds of such Asset Disposition).
"Permitted Appraised Assets Dispositions"
means, subject to the prior or concurrent satisfaction of the
Release Condition therefor, Asset Dispositions of Appraised
Assets (in the ordinary course of Borrower's business and
consistent with past practices), free and clear of Foothill's
Lien thereon (other than Foothill's Lien in the proceeds of
such Asset Disposition), so long as: (a) Borrower replaces the
Appraised Asset that is the subject of such Asset Disposition
(the "Disposed Appraised Asset") with a newly acquired item of
Equipment of equal or greater comparable value than the
appraised value of the Disposed Appraised Asset set forth in
the most recent appraisal thereof and reports such Asset
Disposition and replacement pursuant to Section 6.2; and (b)
in the case of any single Asset Disposition or series of
integrated Asset Dispositions involving one or more Disposed
Appraised Assets with an aggregate appraised value of $100,000
or more, the chief financial officer of Borrower shall deliver
to Foothill a certificate, in form and substance satisfactory
to Foothill, demonstrating in reasonable detail that the value
of such newly acquired item or items of Equipment are of equal
or greater comparable value than the appraised value of the
relevant Disposed Appraised Asset set forth in the most recent
appraisal thereof.
"Permitted Bentley Disposition" means, subject
to the prior or concurrent satisfaction of the Release
Condition therefor, Asset Dispositions of the Bentley Equity Interests.
"Permitted Bestinfo Disposition" means, subject
to the prior or concurrent satisfaction of the Release
Condition therefor, Asset Dispositions of the capital stock of
Bestinfo, free and clear of Foothill's Lien thereon (other
than Foothill's Lien in the proceeds of such Asset
Disposition).
"Permitted Disposition" means (a) Ordinary
Course Dispositions, (b) Permitted Optronics Dispositions,
Permitted AnaTech Dispositions, the Permitted Bentley
Disposition, and the Permitted Bestinfo Disposition, (c) the
Reston Sale/Leaseback, (d) subject to the prior or concurrent
satisfaction of the applicable Release Condition therefor,
Asset Dispositions of the assets that are the subject of
Permitted Toehold Investments and Permitted Other Investments,
(e) Permitted Appraised Assets Dispositions, and (f) subject
to the prior or concurrent satisfaction of the applicable
Release Condition therefor, other Asset Dispositions (but
excluding Asset Dispositions of Equipment constituting
Appraised Assets) not in the ordinary course of Borrower's
business that do not exceed, on a book value basis, $1,000,000
in the aggregate in any fiscal year and do not exceed, on a
book value basis, $250,000 in any one transaction or series of
related transactions.
"Permitted Investments" means: (a) Permitted
Ordinary Course Investments; (b) Permitted Repayment
Investments; (c) Permitted Toehold Investments; (d) Permitted
Subsidiary Loans and Capital Contributions; and (e) Permitted
Other Investments.
"Permitted Liens" means (a) Liens held by
Foothill, (b) Liens for unpaid taxes that either (i) are not
yet due and payable or (ii) are the subject of Permitted
Protests, (c) Liens set forth on Schedule P-1, (d) purchase
money Liens in respect of Equipment and the interests of
lessors under operating leases and of lessors under capital
leases to the extent that the acquisition or lease of the
underlying asset is permitted under Section 7.21 and so long
as the Lien only attaches to the asset purchased or acquired
and only secures the purchase price of the asset, (e) Liens
arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or
suppliers, incurred in the ordinary course of business of
Borrower and not in connection with the borrowing of money,
and which Liens either (i) are for sums not yet due and
payable, or (ii) are the subject of Permitted Protests, (f)
Liens arising from deposits made in connection with obtaining
worker's compensation or other unemployment insurance, (g)
Liens or deposits to secure performance of bids, tenders, or
leases (to the extent permitted under this Agreement),
incurred in the ordinary course of business of Borrower and
not in connection with the borrowing of money, (h) Liens
arising by reason of security for surety or appeal bonds in
the ordinary course of business of Borrower, (i) Liens of or
resulting from any judgment or award that would not have a
Material Adverse Effect and as to which the time for the
appeal or petition for rehearing of which has not yet expired,
or in respect of which Borrower is in good faith prosecuting
an appeal or proceeding for a review, and in respect of which
a stay of execution pending such appeal or proceeding for
review has been secured, (j) Liens with respect to the Real
Property Collateral that are exceptions to the commitments for
title insurance issued in connection with the Mortgages, as
accepted by Foothill, (k) with respect to any Real Property
that is not part of the Real Property Collateral, easements,
rights of way, zoning and similar covenants and restrictions,
and similar encumbrances that customarily exist on properties
of Persons engaged in similar activities and similarly
situated and that in any event do not materially interfere
with or impair the use or operation of the Collateral by
Borrower or the value of Foothill's Lien thereon or therein,
or materially interfere with the ordinary conduct of the
business of Borrower, (l) software escrow arrangements entered
into in the ordinary course of business consistent with past
practice, and (m) if and to the extent required under the
Payoff Letter, cash collateral pledged to Existing Lender to
secure the outstanding obligations, as of the Closing Date,
under letters of credit issued by Existing Lender or the
financial institutions for which it is acting as
representative in respect of the Indebtedness that is the
subject of the Payoff Letter.
"Permitted Optronics Dispositions" means,
subject to the prior or concurrent satisfaction of the Release
Condition therefor, (a) Asset Dispositions of the assets of
the Optronics Division, free and clear of Foothill's Lien
thereon (other than Foothill's Lien in the proceeds of such
Asset Disposition) to any Person other than a Subsidiary of
Borrower, or (b) the capital contribution by Borrower to
Scansystems of the operating assets of the Optronics Division.
"Permitted Ordinary Course Investment" means
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the
United States of America with a maturity not exceeding one
year, (b) certificates of deposit, time deposits, banker's
acceptances or other instruments of a bank having a combined
capital and surplus of not less than $500,000,000 with a
maturity not exceeding one year, (c) investments in commercial
paper rated at least A-1 or P-1 maturing within one year after
the date of acquisition thereof, (d) money market accounts
maintained at a bank having combined capital and surplus of no
less than $500,000,000 or at another financial institution
reasonably satisfactory to Foothill, (e) loans and advances to
officers and employees of Borrower (exclusive of loans
evidenced by the Meadlock Note) in the ordinary course of
business in an aggregate amount at any one time outstanding
not to exceed $3,000,000, (f) loans evidenced by the Meadlock
Note, (g) investments in negotiable instruments for
collection, (h) advances in connection with purchases of goods
or services in the ordinary course of business, and (i)
deposits required in connection with leases.
"Permitted Other Investments" means the equity
investments of Borrower as of the Closing Date identified on Schedule P-2.
"Permitted Protest" means the right of Borrower
to protest any Lien other than any such Lien that secures the
Obligations, tax (other than payroll taxes or taxes that are
the subject of a United States federal tax lien), or rental
payment, provided that (a) a reserve with respect to such
obligation is established on the books of Borrower in
accordance with GAAP (or, if higher, in an amount that
Foothill in good faith and in its reasonable credit judgment
believes to be appropriate under the circumstances), (b) any
such protest is instituted and diligently prosecuted by
Borrower in good faith, and (c) Foothill is satisfied that,
while any such protest is pending, there will be no impairment
of the enforceability, validity, or priority of any of the
Liens of Foothill in and to the Collateral.
"Permitted Repayment Investment" means (a) the
contribution or loan by Borrower to IG Benelux of
approximately $15,000,000 to enable IG Benelux to repay, in
full, all of its indebtedness owing to the IG Benelux Existing
Lender, or (b) subject to the timely satisfaction of the
condition set forth in Section 3.3(f), the contribution or
loan by Borrower to IG Australia of approximately $24,000,000
to enable IG Australia to repay, in full, all of its
indebtedness owing to the IG Australia Existing Lender.
"Permitted Subsidiary Loans and Capital
Contributions" means loans and capital contributions made
after the Closing Date by Borrower to any Subsidiary of
Borrower; provided, however, that all such loans and capital
contributions made by Borrower shall not exceed, in the
aggregate, (a) $20,000,000 during the 1997 calendar year, (b)
$25,000,000 during the 1998 calendar year, and (c) $30,000,000
during the 1999 calendar year.
"Permitted Toehold Investment" means the
acquisition of an equity interest in a Person other than a
Subsidiary of Borrower (but not to exceed 10% of all of the
issued and outstanding equity interests of such Person on a
fully diluted basis) so long as (a) no Default or Event of
Default shall have occurred and be continuing or would result
from the consummation of the proposed acquisition, (b) the
Person, in whom the equity interest is being acquired, is
engaged in the same business as that of Borrower or any of its
Subsidiaries or in a business reasonably related thereto, (c)
the relevant equity interest being acquired in such Person is
acquired directly by Borrower, (d) to the extent required
under Section 4.2, Borrower shall have executed and delivered
a supplement to the Pledge Agreement and shall have perfected
Foothill's security interest in the acquired equity interest,
and (e) the aggregate amount expended by Borrower in respect
of all such Permitted Toehold Investments does not exceed
$1,000,000 in any fiscal year.
"Person" means and includes natural persons,
corporations, limited liability companies, limited
partnerships, general partnerships, limited liability
partnerships, joint ventures, trusts, land trusts, business
trusts, or other organizations, irrespective of whether they
are legal entities, and governments and agencies and political
subdivisions thereof.
"Personal Property Collateral" means all
Collateral other than the Real Property Collateral.
"Plan" means any employee benefit plan,
program, or arrangement maintained or contributed to by
Borrower or with respect to which it may incur liability.
"Pledge Agreement" means a Pledge Agreement, in
the form of Exhibit P-2 attached hereto, dated as of even date
herewith, among Borrower, IG Delaware, M&S, and Foothill.
"Real Property" means any estates or interests
in real property now owned or hereafter acquired by Borrower.
"Real Property Collateral" means the parcel or
parcels of Real Property and the related improvements thereto
now owned by Borrower and identified on Schedule R-1, and any
Real Property hereafter acquired by Borrower.
"Reference Rate" means the variable rate of
interest, per annum, most recently announced by Norwest Bank
Minnesota, National Association, or any successor thereto, as
its "base rate," irrespective of whether such announced rate
is the best rate available from such financial institution.
"Release Condition" means, in respect of any
Asset Disposition, that (a) no Default or Event of Default has
occurred and is continuing or would result therefrom, and (b)
Borrower is receiving at least fair value (as determined in
accordance with Section 3439 of the California Civil Code, as
amended) for the property or assets that are the subject of
the Asset Disposition.
"Reportable Event" means any of the events
described in Section 4043(c) of ERISA or the regulations
thereunder other than a Reportable Event as to which the
provision of 30 days notice to the PBGC is waived under
applicable regulations.
"Reserve" means, as of any date of
determination, an amount equal the product of (a) $238,000
times (b) the number of months separating such date from the
Closing Date.
"Reston Property" means the Real Property (and
related improvements thereto) of Borrower located in or about
Reston, Virginia.
"Reston Sale/Leaseback" means the sale and
lease-back transaction in respect of the Reston Property.
"Retiree Health Plan" means an "employee
welfare benefit plan" within the meaning of Section 3(1) of
ERISA that provides benefits to individuals after termination
of their employment, other than as required by Section 601 of
ERISA.
"Scansystems" means Scansystems, Inc., a Delaware corporation.
"Securities Account" means a "securities
account" as that term is defined in Section 8-501 of official
text of the Uniform Commercial Code and as defined in
California Senate Bill 1591 which was approved by the Governor
on September 14, 1996 and will be effective on January 1, 1997.
"Solvent" means, with respect to any Person on
a particular date, that on such date (a) at fair valuations,
all of the properties and assets of such Person are greater
than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the
amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured,
(c) such Person is able to realize upon its properties and
assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal
course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such
Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such
Person's properties and assets would constitute unreasonably
small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the
amount that, in light of all the facts and circumstances
existing at such time, represents the amount that reasonably
can be expected to become an actual or matured liability.
"Subsidiary" of a Person means a corporation,
partnership, limited liability company, or other entity in
which that Person directly or indirectly owns or controls the
shares of stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors (or
appoint other comparable managers) of such corporation,
partnership, limited liability company, or other entity.
Anything to the contrary notwithstanding, Bentley Systems,
Inc. shall not be deemed to be a Subsidiary of Borrower.
"Term Loan" has the meaning set forth in Section 2.3.
"Trademark Security Agreement" means a
Trademark Security Agreement, in the form of Exhibit T-1
attached hereto, dated as of even date herewith, between
Borrower and Foothill.
"Triggering Event" means any of (a) the
occurrence and continuation of an Event of Default, or (b)
Foothill deems itself insecure.
"Unbilled Accounts" means Domestic Accounts
that are fully earned by performance, but have not yet been
billed to the Account Debtor and that, as of any date of
determination, arise from the sale of goods or rendition of
services within the prior 60 days.
"United States" means the United States of
America, or any department, agency, or instrumentality of any
of the foregoing.
"VCOC Letter" means a letter agreement between
Borrower and Foothill's Participants that meets the Venture
Capital Operating Company requirements and that is in
substantially the form of Exhibit V-1.
"VeriBest" means VeriBest, Inc., a Delaware corporation.
"Voidable Transfer" has the meaning set forth in Section 15.8.
1.2 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance
with GAAP. When used herein, the term "financial statements"
shall include the notes and schedules thereto. Whenever the
term "Borrower" is used in respect of a financial covenant or
a related definition, it shall be understood to mean Borrower
on a consolidated basis unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are
defined in the Code shall be construed and defined as set
forth in the Code unless otherwise defined herein.
1.4 Construction. Unless the context of this Agreement
clearly requires otherwise, references to the plural include
the singular, references to the singular include the plural,
the term "including" is not limiting, and the term "or" has,
except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of
Default has been waived in writing by Foothill. Section,
subsection, clause, schedule, and exhibit references are to
this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or
any of the Loan Documents shall include all alterations,
amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and
thereof, as applicable.
1.5 Schedules and Exhibits. All of the schedules and
exhibits attached to this Agreement shall be deemed
incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make advances ("Advances") to
Borrower in an amount outstanding not to exceed at any one
time the lesser of (i) the Maximum Revolving Amount less the
Letter of Credit Usage, or (ii) the Borrowing Base less the
Letter of Credit Usage. For purposes of this Agreement,
"Borrowing Base", as of any date of determination, shall mean
the result of:
(x) the lesser of (i) the result of
(A) 80% of Eligible Domestic Accounts, plus (B) the
lowest of (1) 80% of Eligible Unbilled Accounts, (2)
40% of the amount of credit availability created by
this clause (x), and (3) $20,000,000, minus (C) the
amount, if any, of the Dilution Reserve, and (ii) an
amount equal to the Collections with respect to the
Accounts of Borrower for the immediately preceding
60 day period, plus
(y) the lowest of (i) $30,000,000,
(ii) the product of (A) the Inventory Advance Rate
times (B) the value (calculated at the lower of cost
or market) of Eligible Domestic Inventory, and (iii)
30% of the amount of credit availability created by
clause (x) above, minus
(z) the sum of (i) prior to the full
satisfaction of the condition subsequent set forth
in Section 3.3(b), $20,000,000, and (ii) the Reserve.
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may create reserves against or
reduce its advance rates based upon Eligible Domestic
Accounts, Eligible Unbilled Accounts, or Eligible Domestic
Inventory without declaring an Event of Default if it
determines in good faith and in its reasonable credit judgment
that there has occurred a Material Adverse Change.
(c) Foothill shall have the right to have the Inventory
reappraised by a qualified appraiser selected by Foothill from
time to time after the Closing Date for the purpose of
redetermining the Liquidation Value of the Inventory. In the
absence of the occurrence and continuation of an Event of
Default, such appraisals shall occur annually.
(d) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding
Obligations (other than under the Term Loan) to exceed the
Maximum Revolving Amount.
(e) Amounts borrowed pursuant to this Section 2.1 may be
repaid and, subject to the terms and conditions of this
Agreement, reborrowed at any time during the term of this Agreement.
2.2 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue letters of credit for the
account of Borrower (each, an "L/C") or to issue guarantees of
payment (each such guaranty, an "L/C Guaranty") with respect
to letters of credit issued by an issuing bank for the account
of Borrower. Foothill shall have no obligation to issue a
Letter of Credit if any of the following would result:
(i) the Letter of Credit Usage
would exceed the Borrowing Base less the amount of
outstanding Advances, or
(ii) the Letter of Credit Usage
would exceed the lower of (y) the Maximum Revolving
Amount less the amount of outstanding Advances, or
(z) $60,000,000, or
(iii) the outstanding Obligations
(other than under the Term Loan) would exceed the
Maximum Revolving Amount.
Borrower and Foothill acknowledge and agree that certain of
the letters of credit that are to be the subject of L/C
Guarantees may be outstanding on the Closing Date. Each
Letter of Credit shall have an expiry date no later than 60
days prior to the date on which this Agreement is scheduled to
terminate under Section 3.4 and all such Letters of Credit
shall be in form and substance acceptable to Foothill in its
sole discretion. If Foothill is obligated to advance funds
under a Letter of Credit, Borrower immediately shall reimburse
such amount to Foothill and, in the absence of such
reimbursement, the amount so advanced immediately and
automatically shall be deemed to be an Advance hereunder and,
thereafter, shall bear interest at the rate then applicable to
Advances under Section 2.6.
(b) Borrower hereby agrees to indemnify, save, defend,
and hold Foothill harmless from any loss, cost, expense, or
liability, including payments made by Foothill, expenses, and
reasonable attorneys fees incurred by Foothill arising out of
or in connection with any Letter of Credit. Borrower agrees
to be bound by the issuing bank's regulations and
interpretations of any Letters of Credit guarantied by
Foothill and opened to or for Borrower's account or by
Foothill's interpretations of any L/C issued by Foothill to or
for Borrower's account, even though this interpretation may be
different from Borrower's own, and Borrower understands and
agrees that Foothill shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the
Letter of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that the L/C
Guarantees may require Foothill to indemnify the issuing bank
for certain costs or liabilities arising out of claims by
Borrower against such issuing bank. Borrower hereby agrees to
indemnify, save, defend, and hold Foothill harmless with
respect to any loss, cost, expense (including reasonable
attorneys fees), or liability incurred by Foothill under any
L/C Guaranty as a result of Foothill's indemnification of any
such issuing bank.
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to
Foothill all instruments, documents, and other writings and
property received by the issuing bank pursuant to such letter
of credit, and to accept and rely upon Foothill's instructions
and agreements with respect to all matters arising in
connection with such letter of credit and the related
application. Borrower may or may not be the "applicant" or
"account party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs
incurred by Foothill relating to the letters of credit
guaranteed by Foothill shall be considered Foothill Expenses
for purposes of this Agreement and immediately shall be
reimbursable by Borrower to Foothill.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either (i) provide cash collateral to be
held by Foothill in an amount equal to 102% of the maximum
amount of Foothill's obligations under Letters of Credit, or
(ii) cause to be delivered to Foothill releases of all of
Foothill's obligations under outstanding Letters of Credit.
At Foothill's discretion, any proceeds of Collateral received
by Foothill after the occurrence and during the continuation
of an Event of Default may be held as the cash collateral
required by this Section 2.2(e).
(f) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the
interpretation or application by any governmental authority of
any such applicable law, treaty, rule, or regulation, or (ii)
compliance by the issuing bank or Foothill with any direction,
request, or requirement (irrespective of whether having the
force of law) of any governmental authority or monetary
authority including, without limitation, Regulation D of the
Board of Governors of the Federal Reserve System as from time
to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement is or
shall be imposed or modified in respect of any Letters of
Credit issued hereunder, or
(B) there shall be imposed on the issuing bank or
Foothill any other condition regarding any letter of credit,
or Letter of Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or
indirectly, the cost to the issuing bank or Foothill of
issuing, making, guaranteeing, or maintaining any letter of
credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or
Foothill, then, and in any such case, Foothill may, at any
time within a reasonable period after the additional cost is
incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as the issuing
bank or Foothill may specify to be necessary to compensate the
issuing bank or Foothill for such additional cost or reduced
receipt, together with interest on such amount from the date
of such demand until payment in full thereof at the rate set
forth in Section 2.6(a)(i) or (c)(i), as applicable. The
determination by the issuing bank or Foothill, as the case may
be, of any amount due pursuant to this Section 2.2(f), as set
forth in a certificate setting forth the calculation thereof
in reasonable detail, shall, in the absence of manifest or
demonstrable error, be final and conclusive and binding on all
of the parties hereto.
2.3 Term Loan. Foothill has agreed to make a term loan
(the "Term Loan") to Borrower in the original principal amount
of $20,000,000. The outstanding principal balance and all
accrued and unpaid interest under the Term Loan shall not be
due and payable until the earlier to occur of (a) the Maturity
Date, and (b) the date of termination of this Agreement,
whether by its terms, by acceleration, or otherwise. The
unpaid principal balance of the Term Loan may not be prepaid
in whole or in part. All amounts outstanding under the Term
Loan shall constitute Obligations.
2.4 [Intentionally omitted].
2.5 Overadvances. If, at any time or for any reason,
the amount of Obligations owed by Borrower to Foothill
pursuant to Sections 2.1 and 2.2 is greater than either the
Dollar or percentage limitations set forth in Sections 2.1 or
2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by
Foothill first, to repay Advances outstanding under Section
2.1 and, thereafter, to be held by Foothill as cash collateral
to secure Borrower's obligation to repay Foothill for all
amounts paid pursuant to Letters of Credit.
2.6 Interest and Letter of Credit Fees: Rates,
Payments, and Calculations.
(a) Interest Rate. Except as provided in clause (b)
below, all Obligations (except for undrawn Letters of Credit)
shall bear interest at a per annum rate of 0.625 percentage
points above the Reference Rate.
(b) Letter of Credit Fee. Borrower shall pay Foothill a
fee (in addition to the charges, commissions, fees, and costs
set forth in Section 2.2(d)) equal to 1.0% per annum times the
aggregate undrawn amount of all outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, all Obligations (except
for undrawn Letters of Credit) shall bear interest at a per
annum rate equal to 3.625 percentage points above the
Reference Rate, and (ii) the Letter of Credit fee provided in
Section 2.6(b) shall be increased to 4.0% per annum times the
amount of the undrawn Letters of Credit that were outstanding
during the immediately preceding month.
(d) Minimum Interest. In no event shall the rate of
interest chargeable hereunder for any day be less than 7.0%
per annum. To the extent that interest accrued hereunder at
the rate set forth herein would be less than the foregoing
minimum daily rate, the interest rate chargeable hereunder for
such day automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest and Letter of Credit fees
payable hereunder shall be due and payable, in arrears, on the
first day of each month during the term hereof. Borrower
hereby authorizes Foothill, at its option, without prior
notice to Borrower, to charge such interest and Letter of
Credit fees, all Foothill Expenses (as and when incurred), the
charges, commissions, fees, and costs provided for in Section
2.2(d) (as and when accrued or incurred), the fees and charges
provided for in Section 2.11 (as and when accrued or
incurred), and all installments or other payments due under
the Term Loan or any Loan Document to Borrower's Loan Account,
which amounts thereafter shall accrue interest at the rate
then applicable to Advances hereunder. Any interest not paid
when due shall be compounded and shall thereafter accrue
interest at the rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of
this Agreement is 8.25% per annum. In the event the Reference
Rate is changed from time to time hereafter, the applicable
rate of interest hereunder automatically and immediately shall
be increased or decreased by an amount equal to such change in
the Reference Rate. All interest and fees chargeable under
the Loan Documents shall be computed on the basis of a 360 day
year for the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this
Agreement, plus any other amounts paid in connection herewith,
exceed the highest rate permissible under any law that a court
of competent jurisdiction shall, in a final determination,
deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the
rate or rates of interest and manner of payment stated within
it; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or
manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto as of the date of this
Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum,
whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.
2.7 Collection of Accounts. Borrower shall at all times
maintain lockboxes (the "Lockboxes") and, immediately after
the Closing Date, shall instruct all Account Debtors with
respect to the Accounts, General Intangibles, and Negotiable
Collateral of Borrower to remit all Collections in respect
thereof to such Lockboxes. Borrower, Foothill, and the
Lockbox Banks shall enter into the Lockbox Agreements, which
among other things shall provide for the opening of a Lockbox
Account for the deposit of Collections at a Lockbox Bank.
Borrower agrees that all Collections and other amounts
received by Borrower from any Account Debtor or any other
source immediately upon receipt shall be deposited into a
Lockbox Account. No Lockbox Agreement or arrangement
contemplated thereby shall be modified by Borrower without the
prior written consent of Foothill. Upon the terms and subject
to the conditions set forth in the Lockbox Agreements, all
amounts received in each Lockbox Account shall be wired each
Business Day into an account (the "Foothill Account")
maintained by Foothill at a depositary selected by Foothill.
2.8 Crediting Payments; Application of Collections. The
receipt of any Collections by Foothill (whether from transfers
to Foothill by the Lockbox Banks pursuant to the Lockbox
Agreements or otherwise) immediately shall be applied
provisionally to reduce the Obligations outstanding under
Section 2.1, but shall not be considered a payment on account
unless such Collection item is a wire transfer of immediately
available federal funds and is made to the Foothill Account or
unless and until such Collection item is honored when
presented for payment. From and after the Closing Date,
Foothill shall be entitled to charge Borrower for 1 Business
Days of `clearance' or `float' at the rate set forth in
Section 2.6(a)(i) or Section 2.6(c)(i), as applicable, on all
Collections that are received by Foothill (regardless of
whether forwarded by the Lockbox Banks to Foothill, whether
provisionally applied to reduce the Obligations under Section
2.1, or otherwise). This across-the-board 1 Business Day
clearance or float charge on all Collections is acknowledged
by the parties to constitute an integral aspect of the pricing
of Foothill's financing of Borrower, and shall apply
irrespective of the characterization of whether receipts are
owned by Borrower or Foothill, and whether or not there are
any outstanding Advances, the effect of such clearance or
float charge being the equivalent of charging 1 Business Days
of interest on such Collections. Should any Collection item
not be honored when presented for payment, then Borrower shall
be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained
herein notwithstanding, any Collection item shall be deemed
received by Foothill only if it is received into the Foothill
Account on a Business Day on or before 11:00 a.m. California
time. If any Collection item is received into the Foothill
Account on a non-Business Day or after 11:00 a.m. California
time on a Business Day, it shall be deemed to have been
received by Foothill as of the opening of business on the
immediately following Business Day.
2.9 Designated Account. Foothill is authorized to make
the Advances, the Letters of Credit, and the Term Loan under
this Agreement based upon telephonic or other instructions
received from anyone purporting to be an Authorized Person, or
without instructions if pursuant to Section 2.6(e). Borrower
agrees to establish and maintain the Designated Account with
the Designated Account Bank for the purpose of receiving the
proceeds of the Advances requested by Borrower and made by
Foothill hereunder. Unless otherwise agreed by Foothill and
Borrower, any Advance requested by Borrower and made by
Foothill hereunder shall be made to the Designated Account.
2.10 Maintenance of Loan Account; Statements of
Obligations. Foothill shall maintain an account on its books
in the name of Borrower (the "Loan Account") on which Borrower
will be charged with all Advances and the Term Loan made by
Foothill to Borrower or for Borrower's account, including,
accrued interest, Foothill Expenses, and any other payment
Obligations of Borrower. In accordance with Section 2.8, the
Loan Account will be credited with all payments received by
Foothill from Borrower or for Borrower's account, including
all amounts received in the Foothill Account from any Lockbox
Bank. Foothill shall render statements regarding the Loan
Account to Borrower, including principal, interest, fees, and
including an itemization of all charges and expenses
constituting Foothill Expenses owing, and such statements
shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrower and Foothill
unless, within 30 days after receipt thereof by Borrower,
Borrower shall deliver to Foothill written objection thereto
describing the error or errors contained in any such
statements.
2.11 Fees. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. On the Closing Date, a closing fee of
$500,000;
(b) Unused Line Fee. On the first day of each month
after the Closing Date during the term of this Agreement, an
unused line fee in an amount equal to 0.25% per annum times
the Average Unused Portion of the Maximum Revolving Amount;
(c) Annual Facility Fee. On the Closing Date and each
anniversary of the Closing Date, an annual facility fee in an
amount equal to 0.15% of the Maximum Amount;
(d) Financial Examination, Documentation, and Appraisal
Fees. Foothill's customary fee of $650 per day per examiner,
plus out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of Borrower performed by personnel
employed by Foothill; Foothill's customary appraisal fee of
$1,500 per day per appraiser, plus out-of-pocket expenses for
each appraisal of the Collateral performed by personnel
employed by Foothill; and, the actual charges paid or incurred
by Foothill if it elects to employ the services of one or more
third Persons to perform such financial analyses and
examinations (i.e., audits) of Borrower or to appraise the
Collateral; and
(e) Agency Fee. On the first day of each month after
the Closing Date during the term of this Agreement, an agency
fee in an amount equal to $12,500.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Advance, and
Letter of Credit, and the Term Loan. The obligation of
Foothill to make the initial Advance, to issue the initial
Letter of Credit, or to make the Term Loan is subject to the
fulfillment, to the satisfaction of Foothill and its counsel,
of each of the following conditions on or before the Closing
Date:
(a) the Closing Date shall occur on or before January 17, 1997;
(b) Foothill shall have received confirmation of the
filing of its financing statements and fixture filings;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force
and effect:
(1) if and to the extent available on or
before the Closing Date, the Lockbox Agreements;
(2) the Disbursement Letter;
(3) the Pay-Off Letter, together with UCC
termination statements and other documentation evidencing
the termination by Existing Lender of its Liens in and to
the properties and assets of Borrower and its Subsidiaries
and the termination of any lockbox or other dominion
account arrangements in favor of Existing Lender;
(4) either (y) the IG Australia Existing
Lender Pay-Off Letter, together with termination statements
and other documentation evidencing the termination by IG
Australia Existing Lender of its Liens in and to the
properties and assets of Borrower and its Subsidiaries, or
(z) satisfactory evidence of the consent of IG Australia
Existing Lender to the refinancing by Borrower of its
Indebtedness owed to Existing Lender pursuant hereto and
the transactions contemplated hereby;
(5) the Mortgage on the Huntsville Property,
and such Mortgage shall have been recorded in the office of
the county recorder for Madison County, Alabama; and, if
and to the extent available on or before the Closing Date,
a Mortgage Policy in respect of the Huntsville Property
assuring Foothill that the Mortgage on the Huntsville
Property is a valid and enforceable first priority mortgage
Lien on the Huntsville Property free and clear of all
defects and encumbrances except Permitted Liens, and such
Mortgage Policy shall otherwise be in form and substance
reasonably satisfactory to Foothill;
(6) the Aircraft Security Agreement;
(7) the Copyright Security Agreement;
(8) the Patent Security Agreement;
(9) the Trademark Security Agreement;
(10) the Pledge Agreement; and
(11) the VCOC Letter;
(d) if and to the extent available on or before the
Closing Date, Foothill shall have received the original
certificates representing or evidencing all of the Pledged
Shares (as defined in the Pledge Agreement), together with
stock powers or equivalent assignments with respect thereto
duly endorsed in blank;
(e) Foothill shall have received originals of the
Meadlock Note and the Intercompany Notes, together with
endorsements with respect thereto duly endorsed in blank;
(f) Foothill shall have received a certificate from the
Secretary of each Obligor attesting to the resolutions of such
Obligor's Board of Directors authorizing its execution,
delivery, and performance of the Loan Documents to which it is
a party and authorizing specific officers of such Obligor to
execute the same;
(g) Foothill shall have received copies of each
Obligor's Governing Documents, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary
of such Obligor;
(h) Foothill shall have received a certificate of status
with respect to each Obligor, dated within 10 days of the
Closing Date, such certificate to be issued by the appropriate
officer of the jurisdiction of organization of such Obligor,
which certificate shall indicate that such Obligor is in good
standing in such jurisdiction;
(i) Foothill shall have received certificates of status
with respect to Borrower, each dated within 15 days of the
Closing Date, such certificates to be issued by the
appropriate officer of the jurisdictions in which its failure
to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that
Borrower is in good standing in such jurisdictions;
(j) Foothill shall have received a certificate of
insurance, together with the endorsements thereto, as are
required by Section 6.10, the form and substance of which
shall be reasonably satisfactory to Foothill and its counsel;
(k) Foothill shall have received an opinion of the
Obligors' counsel in form and substance reasonably
satisfactory to Foothill in its sole discretion;
(l) after giving effect to the payment of fees due to
Foothill on or before the Closing Date and the payment of the
"Payoff Amount" (under and as defined in the Payoff Letter) to
the Existing Lender, the sum of Borrower's Availability plus
Borrower's unrestricted cash and cash equivalents shall not be
less than Twenty Million Dollars ($20,000,000);
(m) Foothill shall have received appraisals of the Real
Property Collateral and appraisals of the Equipment, in each
case satisfactory to Foothill;
(n) Foothill shall have completed "field surveys" and
location inspections of the Inventory, and the results of each
of them shall be satisfactory to Foothill;
(o) Foothill shall have completed reference checks
regarding key employees and executive officers of Borrower,
the results of which shall be satisfactory to Lender;
(p) Foothill shall have received satisfactory evidence
(which evidence may be in the form of a Certificate of the
chief accounting officer or the chief financial officer of
Borrower) that all tax returns required to be filed by
Borrower have been timely filed and all taxes upon Borrower or
its properties, assets, income, and franchises (including real
property taxes and payroll taxes) have been paid prior to
delinquency, except such taxes that are the subject of a
Permitted Protest; and
(q) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall
have been delivered, executed, or recorded and shall be in
form and substance reasonably satisfactory to Foothill and its
counsel.
3.2 Conditions Precedent to all Advances, all Letters of
Credit, and the Term Loan. The following shall be conditions
precedent to all Advances, all Letters of Credit, and the Term Loan hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and
correct in all respects on and as of the date of such
extension of credit, as though made on and as of such date
(except to the extent that such representations and warranties
relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred
and be continuing on the date of such extension of credit, nor
shall either result from the making thereof; and
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the
extending of such credit shall have been issued and remain in
force by any governmental authority against Borrower,
Foothill, or any of their Affiliates.
3.3 Condition Subsequent. As a condition subsequent to
initial closing hereunder, Borrower shall perform or cause to
be performed the following (the failure by Borrower to so
perform or cause to be performed constituting an Event of Default):
(a) within 30 days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance,
together with the endorsements thereto, as are required by
Section 6.10, the form and substance of which shall be
reasonably satisfactory to Foothill and its counsel.
(b) on or as soon as possible after the Closing Date
(and, in any event, within 30 days of the Closing Date):
(i) to the extent not available on or
before the Closing Date under Section 3.1, Foothill shall have
received a Mortgage Policy in respect of the Huntsville
Property assuring Foothill that the Mortgage on the Huntsville
Property is a valid and enforceable first priority mortgage
Lien on the Huntsville Property free and clear of all defects
and encumbrances except Permitted Liens, and such Mortgage
Policy shall otherwise be in form and substance reasonably
satisfactory to Foothill; and
(ii) Foothill shall have received a phase-
I environmental report and a real estate survey shall have
been completed with respect to the Huntsville Property and
copies thereof delivered to Foothill; the environmental
consultants and surveyors retained for such reports or
surveys, the scope of the reports or surveys, and the results
thereof shall be acceptable to Foothill in its sole
discretion; and
(iii) to the extent not available on or
before the Closing Date under Section 3.1, Foothill shall have
received the Lockbox Agreements, duly executed, and each such
document shall be in full force and effect.
(c) upon the request of Foothill (if ever) after the
Closing Date, within 60 days after the date of such request:
(i) the Mortgage on the Chelmsford
Property shall have been duly executed and delivered by
Borrower, and the same shall be in full force and effect, and
such Mortgage shall have been recorded in the office of the
county recorder for Middlesex County, Massachusetts;
(ii) Foothill shall have received
supplemental opinions of Borrower's counsel, in form and
substance satisfactory to Foothill in its sole discretion, in
respect of the Mortgage on the Chelmsford Property;
(iii) Foothill shall have received a
preliminary title report in respect of the Chelmsford Property
in form and substance reasonably satisfactory to Foothill; and
(iv) Foothill shall have received a phase-
I environmental report and a real estate survey shall have
been completed with respect to the Chelmsford Property and
copies thereof delivered to Foothill; the environmental
consultants and surveyors retained for such reports or
surveys, the scope of the reports or surveys, and the results
thereof shall be acceptable to Foothill in its sole
discretion.
(d) upon the request of Foothill (if ever) after the
Closing Date, within 30 days after the date of such request:
(i) a Mortgage on any Real Property
acquired by Borrower after the Closing Date shall have been
duly executed and delivered by Borrower, and the same shall be
in full force and effect, and such Mortgage shall have been
recorded in the office of the county recorder for the county
in which such Real Property is located;
(ii) Foothill shall have received
supplemental opinions of Borrower's counsel, in form and
substance satisfactory to Foothill in its sole discretion, in
respect of the Mortgage on such Real Property;
(iii) Foothill shall have received a
preliminary title report in respect of such Real Property in
form and substance reasonably satisfactory to Foothill; and
(iv) Foothill shall have received a phase-
I environmental report and a real estate survey shall have
been completed with respect to the such Real Property and
copies thereof delivered to Foothill; the environmental
consultants and surveyors retained for such reports or
surveys, the scope of the reports or surveys, and the results
thereof shall be acceptable to Foothill in its sole
discretion.
(e) in the event the Reston Sale/Leaseback is not
consummated within 180 days of the Closing Date:
(i) the Mortgage on the Reston Property
shall have been duly executed and delivered by Borrower, and
the same shall be in full force and effect, and such Mortgage
shall have been recorded in the office of the county recorder
for Fairfax County, Virginia;
(ii) Foothill shall have received
supplemental opinions of Borrower's counsel, in form and
substance satisfactory to Foothill in its sole discretion, in
respect of the Mortgage on the Reston Property;
(iii) Foothill shall have received a
preliminary title report in respect of the Reston Property in
form and substance reasonably satisfactory to Foothill; and
(iv) Foothill shall have received a phase-
I environmental report and a real estate survey shall have
been completed with respect to the Reston Property and copies
thereof delivered to Foothill; the environmental consultants
and surveyors retained for such reports or surveys, the scope
of the reports or surveys, and the results thereof shall be
acceptable to Foothill in its sole discretion.
(f) within 60 days of either (i) the date that Borrower
makes the Permitted Repayment Investment in respect of the
indebtedness of IG Australia owing to the IG Australia
Existing Lender or (ii) one or more Letters of Credit are
issued to IG Australia Existing Lender in support of the
indebtedness of IG Australia owing to IG Australia Existing
Lender and IG Australia Existing Lender releases its Lien on
the capital stock of IG Australia (in either case, the "IG
Australia Payoff Date"), execute and deliver an appropriate
supplement to the Pledge Agreement and deliver to Foothill
possession of the original stock certificates, respecting 65%
of the issued and outstanding shares of stock of IG Australia,
together with stock powers with respect thereto endorsed in
blank; provided, however, that to the extent, if any, that
such shares are required to be pledged to the holder of any
project financing indebtedness of IG Australia incurred after
the IG Australia Payoff Date as security for such
indebtedness, then, upon Borrower's written request therefor
and with Foothill's prior written consent thereto (not to be
unreasonably withheld), Foothill agrees to release its Lien on
such shares; provided further, that if such holder will permit
such subordination, then, notwithstanding the foregoing
proviso, Foothill's Lien on such shares will not be released
and will become a subordinate Lien pursuant to documentation
in form and substance reasonably satisfactory to Foothill and
such holder.
(g) within 90 days of the Closing Date, Foothill shall
have completed appraisals of the Equipment and the results of
such appraisals shall be satisfactory to Foothill.
(h) to the extent not available on or before the Closing
Date under Section 3.1, Foothill shall have received, within
30 days of the Closing Date, the original certificates
representing or evidencing all of the Pledged Shares (as
defined in the Pledge Agreement), together with stock powers
or equivalent assignments with respect thereto duly endorsed in blank;
(i) from and after the Closing Date up until the date
that is 90 days after the Closing Date, Borrower shall use its
continued best efforts to obtain Collateral Access Agreements
from lessors, warehousemen, bailees, and other third persons
as Foothill may require.
3.4 Term. This Agreement shall become effective upon
the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on
January 7, 2000 (the "Maturity Date"). The foregoing
notwithstanding, Foothill shall have the right to terminate
its obligations under this Agreement immediately and without
notice upon the occurrence and during the continuation of an
Event of Default.
3.5 Effect of Termination. On the date of termination
of this Agreement, all Obligations (including contingent
reimbursement obligations of Borrower with respect to any
outstanding Letters of Credit) immediately shall become due
and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of
Borrower's duties, Obligations, or covenants hereunder, and
Foothill's continuing security interests in the Collateral
shall remain in effect until all Obligations have been fully
and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated.
3.6 Early Termination by Borrower. Borrower has the
option, at any time prior to the Maturity Date and upon 60
days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash, the Obligations
(including an amount equal to 102% of the undrawn amount of
the Letters of Credit), in full, together with a premium (the
"Early Termination Premium") equal to (a) during the first 18
months after the Closing Date, the product of (i) 0.10% times
(ii) the Maximum Amount times (iii) the number of months
(including partial months) remaining until the Maturity Date,
(b) during the next 6 months, $1,000,000, and (c) thereafter, $500,000.
3.7 Termination Upon Event of Default. If Foothill
terminates this Agreement upon the occurrence of an Event of
Default that intentionally is caused by Borrower for the
purpose, in Foothill's reasonable judgment, of avoiding
payment of the Early Termination Premium provided in Section
3.7, then, in view of the impracticability and extreme
difficulty of ascertaining actual damages and by mutual
agreement of the parties as to a reasonable calculation of
Foothill's lost profits as a result thereof, Borrower shall
pay to Foothill upon the effective date of such termination, a
premium in an amount equal to the Early Termination Premium.
The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the
early termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The Early
Termination Premium provided for in this Section 3.7 shall be
deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. (a) Borrower hereby
grants to Foothill a continuing security interest in all
currently existing and hereafter acquired or arising Personal
Property Collateral in order to secure prompt repayment of any
and all Obligations and in order to secure prompt performance
by Borrower of each of its covenants and duties under the Loan
Documents. Foothill's security interests in the Personal
Property Collateral shall attach to all Personal Property
Collateral without further act on the part of Foothill or
Borrower. Anything contained in this Agreement or any other
Loan Document to the contrary notwithstanding, except for
Permitted Dispositions, Borrower has no authority, express or
implied, to dispose of any item or portion of the Personal
Property Collateral or the Real Property Collateral.
Concurrent with the consummation of any Permitted Disposition,
Foothill agrees to release its Liens on the subject property
or asset (but not the proceeds from the Asset Disposition).
(b) Anything in this Agreement and the other
Loan Documents to the contrary notwithstanding, the foregoing
grant of a security interest shall not extend to, and the term
"Personal Property Collateral" shall not include, any General
Intangible, Federal Account, or Permitted Other Investment
that is now or hereafter held by Borrower as licensee, lessee,
or otherwise, solely in the event and to the extent that: (i)
as the proximate result of the foregoing grant of a security
interest, Borrower's rights in or with respect to such General
Intangible, Federal Account, or Permitted Other Investment
would be forfeited or would become void, voidable, terminable,
or revocable, or if Borrower would be deemed to have breached,
violated, or defaulted the underlying license, lease, or other
agreement that governs such General Intangible, Federal
Account, or Permitted Other Investment, in each case, pursuant
to the restrictions in the underlying lease, license, or other
agreement that governs such General Intangible, Federal
Account, or Permitted Other Investment; (ii) any such
restriction shall be effective and enforceable under
applicable law, including Section 9318(4) of the Code; and
(iii) any such forfeiture, voidness, voidability,
terminability, revocability, breach, violation, or default
cannot be remedied by Borrower using its best efforts (but
without any obligation to make any material expenditures of
money or to commence legal proceedings); provided, however,
that the foregoing grant of security interest shall extend to,
and the term "Personal Property Collateral" shall include, (y)
any and all proceeds of such General Intangible, Federal
Account, or Permitted Other Investment to the extent that the
assignment or encumbering of such proceeds is not so
restricted, and (z) upon any such licensor, lessor, or other
applicable party's consent with respect to any such otherwise
excluded General Intangible, Federal Account, or Permitted
Other Investment being obtained, thereafter such General
Intangible, Federal Account, or Permitted Other Investment as
well as any proceeds thereof that might theretofore have been
excluded from such grant of a security interest and the term
"Personal Property Collateral."
(c) Anything in this Agreement or the other
Loan Documents to the contrary notwithstanding and subject to
Section 4.1(b), (i) the security interest granted in the
Permitted Other Investments under Section 4.1(a) shall not
attach unless and until a Triggering Event has occurred, at
which time such security interest immediately and
automatically shall attach without notice or demand or further
act on the part of Foothill or Borrower, and (ii) Foothill
agrees that Borrower need not deliver any Negotiable
Collateral in respect of the Permitted Other Investments under
Section 4.2 unless and until a Triggering Event has occurred.
(d) Anything in this Agreement and the other
Loan Documents to the contrary notwithstanding, the foregoing
grant of a security interest shall not extend to, and the term
"Personal Property Collateral" shall not include, any Excluded
Foreign Subsidiary Securities or the assets or properties of
any Foreign Subsidiary.
4.2 Negotiable Collateral. In the event that any
Collateral, including proceeds, is evidenced by or consists of
Negotiable Collateral, Borrower, immediately upon the request
of Foothill, shall endorse and deliver (or cause to be
endorsed and delivered) physical possession of such Negotiable
Collateral to Foothill. The foregoing notwithstanding,
Borrower need not deliver any Negotiable Collateral in respect
of any Permitted Toehold Investment with a value less than or
equal to $500,000 unless and until there is a Triggering Event.
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral. During a Triggering Event, Foothill or
Foothill's designee may (a) notify customers or Account
Debtors of Borrower that the Accounts, General Intangibles, or
Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein, and (b) collect the
Accounts, General Intangibles, and Negotiable Collateral
directly and charge the collection costs and expenses to the
Loan Account. Borrower agrees that it will hold in trust for
Foothill, as Foothill's trustee, any Collections that it
receives and immediately will deliver said Collections to
Foothill in their original form as received by it.
4.4 Delivery of Additional Documentation Required. (a)
At any time upon the request of Foothill, Borrower shall (and
shall cause its Subsidiaries to) execute and deliver to
Foothill all financing statements, continuation financing
statements, fixture filings, security agreements, pledges,
assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other
documents (including documents required for compliance with
the Assignment of Claims Act, 31 U.S.C. Section 3727 or any State's
statutory counterpart thereto) that Foothill reasonably may
request, in form reasonably satisfactory to Foothill, to
perfect and continue perfected Foothill's security interests
in the Collateral and the other properties and assets of
Borrower and its Subsidiaries, and in order to fully
consummate all of the transactions contemplated hereby and
under the other Loan Documents.
(b) In respect of each of the Securities
Accounts of Borrower, if any, Foothill, Borrower, and each
applicable financial intermediary or depositary shall enter
into a control agreement that, among other things, provides
that, from and after the giving of notice by Foothill to such
financial intermediary or depositary, it shall take
instructions solely from Foothill with respect to the
applicable Securities Account and related securities
entitlements or deposit account, as applicable. Foothill
agrees that it will not give such notice unless a Triggering
Event has occurred. Borrower agrees that it will not transfer
assets out of such Securities Accounts or deposit accounts
other than in the ordinary course of business and, if to
another financial intermediary or depositary, unless Borrower,
Foothill, and the substitute financial intermediary or
depositary have entered into a control agreement of the type
described above. No arrangement contemplated hereby shall be
modified by Borrower without the prior written consent of
Foothill. Upon the occurrence of a Triggering Event, Foothill
may elect to notify the financial intermediary to liquidate
the securities entitlements in such Securities Account and may
elect to notify the financial intermediary or depositary to
remit the proceeds in the Securities Account or deposit
account to the Foothill Account.
(c) Anything in this Agreement to the contrary
notwithstanding, Foothill agrees that: (i) so long as no
Triggering Event has occurred and is continuing, (y) Borrower
need not execute and deliver to Foothill documents required
for compliance with the Assignment of Claims Act, 31 U.S.C.
Section 3727 or any State's statutory counterpart thereto in respect
of any one underlying contract or series of related underlying
contracts giving rise to less than $1,000,000 of Accounts of
Borrower, and (z) Foothill agrees not to file notices or
copies of assignments under the Assignment of Claims Act or
any State's statutory counterpart thereto; and (ii) after the
occurrence and during the continuance of a Triggering Event,
(y) Borrower shall execute and deliver to Foothill all
documents that Foothill may request, in form satisfactory to
Foothill, required for compliance with the Assignment of
Claims Act or any State's statutory counterpart thereto,
irrespective of the amount of Accounts arising out of any
underlying contract, and (z) Foothill may file any notices or
copies of assignments under the Assignment of Claims Act or
any State's statutory counterpart thereto.
4.5 Power of Attorney. Borrower hereby irrevocably
makes, constitutes, and appoints Foothill (and any of
Foothill's officers, employees, or agents designated by
Foothill) as Borrower's true and lawful attorney, with power
to (a) if Borrower refuses to, or fails timely to execute and
deliver any of the documents described in Section 4.4, sign
the name of that Borrower on any of the documents described in
Section 4.4, (b) if there is a Triggering Event, sign that
Borrower's name on any invoice or bill of lading relating to
any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and
notices to Account Debtors, (c) send requests for verification
of Accounts, (d) endorse Borrower's name on any Collection
item that may come into Foothill's possession, (e) at any time
that an Event of Default has occurred and is continuing or
Foothill deems itself insecure, notify the post office
authorities to change the address for delivery of Borrower's
mail to an address designated by Foothill, to receive and open
all mail addressed to Borrower, and to retain all mail
relating to the Collateral and forward all other mail to
Borrower, (f) if there is a Triggering Event, make, settle,
and adjust all claims under Borrower's policies of insurance
and make all determinations and decisions with respect to such
policies of insurance, and (g) if there is a Triggering Event,
settle and adjust disputes and claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms that
Foothill determines to be reasonable, and Foothill may cause
to be executed and delivered any documents and releases that
Foothill determines to be necessary. The appointment of
Foothill as Borrower's attorney, and each and every one of
Foothill's rights and powers, being coupled with an interest,
is irrevocable until all of the Obligations have been fully
and finally repaid and performed and Foothill's obligation to
extend credit hereunder is terminated.
4.6 Right to Inspect. Foothill (through any of its
officers, employees, or agents) shall have the right, from
time to time hereafter to inspect Borrower's Books and to
check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this
Agreement, Borrower makes the following representations and
warranties which shall be true, correct, and complete in all
respects as of the Closing Date, and at and as of the date of
the making of each Advance or Letter of Credit made
thereafter, as though made on and as of the date of such
Advance or Letter of Credit (except to the extent that such
representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive
the execution and delivery of this Agreement:
5.1 No Encumbrances. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens except for Permitted Liens.
5.2 Eligible Accounts. The Eligible Accounts are bona
fide existing obligations created by the sale and delivery of
Inventory or the rendition of services to Account Debtors in
the ordinary course of Borrower's business, unconditionally
owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. The
property giving rise to such Eligible Accounts has been
delivered to the Account Debtor, or to the Account Debtor's
agent for immediate shipment to and unconditional acceptance
by the Account Debtor (except for returns, in the ordinary
course of business, of products that fail to conform with
standard specifications). Borrower has not received notice of
actual or imminent bankruptcy, insolvency, or material
impairment of the financial condition of any Account Debtor
regarding any Eligible Account.
5.3 Eligible Domestic Inventory. All Eligible Domestic
Inventory is of good and merchantable quality, free from defects.
5.4 Equipment. All of the Equipment is used or held for
use in Borrower's business and is fit for such purposes.
5.5 Location of Inventory and Equipment. The Inventory
and Equipment are not stored with a bailee, warehouseman, or
similar party (without Foothill's prior written consent) and
are located only at the locations identified on Schedule 6.12
or otherwise permitted by Section 6.12.
5.6 Inventory Records. Borrower keeps correct and
accurate records itemizing and describing the kind, type,
quality, and quantity of the Inventory, and Borrower's cost therefor.
5.7 Location of Chief Executive Office; FEIN. The chief
executive office of Borrower is located at the address
indicated in the preamble to this Agreement. Borrower's FEIN is 63-0573222.
5.8 Due Organization and Qualification; Subsidiaries.
(a) Each Borrower is duly organized and existing and in
good standing under the laws of the jurisdiction of its
incorporation and qualified and licensed to do business in,
and in good standing in, any state where the failure to be so
licensed or qualified reasonably could be expected to have a
Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and
accurate list of Borrower's direct and indirect Subsidiaries,
showing: (i) the jurisdiction of their organization; (ii) the
number of shares or units of each class of common and
preferred stock or other equity securities authorized for each
of such Subsidiaries; and (iii) the number and the percentage
of the outstanding shares or units of each such class owned
directly or indirectly by Borrower. All of the outstanding
capital stock or other equity securities of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no capital
stock or other equity securities (or any securities,
instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character
convertible into or exercisable for capital stock or other
equity securities) of any direct or indirect Subsidiary of
Borrower is subject to the issuance of any security,
instrument, warrant, option, purchase right, conversion or
exchange right, call, commitment or claim of any right, title,
or interest therein or thereto.
(d) Set forth on Schedule 5.8 are, with respect to each
Subsidiary of Borrower that is not a Foreign Subsidiary: (i) a
description of the direct and indirect stockholders (or
holders of equivalent equity interests) of each such
Subsidiary; (ii) the total assets of each such Subsidiary;
(iii) the amount of the net value of Borrower's direct or
indirect investment in such Subsidiary; and (iv) a true,
correct, and complete statement regarding whether each such
Subsidiary's assets are comprised principally of (x) foreign
assets, (y) securities of other Subsidiaries of Borrower, or
(z) other operating assets.
5.9 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a
party have been duly authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a
party do not and will not (i) violate any provision of
federal, state, or local law or regulation (including
Regulations G, T, U, and X of the Federal Reserve Board)
applicable to Borrower, the Governing Documents of Borrower,
or any order, judgment, or decree of any court or other
Governmental Authority binding on Borrower, (ii) conflict
with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any material
contractual obligation or material lease of Borrower,
(iii) result in or require the creation or imposition of any
Lien of any nature whatsoever upon any properties or assets of
Borrower, other than Permitted Liens, or (iv) require any
approval of stockholders or any approval or consent of any
Person under any material contractual obligation of Borrower.
(c) Other than the filing of appropriate financing
statements, fixture filings, and mortgages, the execution,
delivery, and performance by Borrower of this Agreement and
the Loan Documents to which Borrower is a party do not and
will not require any registration with, consent, or approval
of, or (except for Borrower's filings with the Securities
Exchange Commission in the ordinary course of Borrower's
business) notice to, or other action with or by, any federal,
state, foreign, or other Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which
Borrower is a party, and all other documents contemplated
hereby and thereby, when executed and delivered by Borrower
will be the legally valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their
respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganiza
tion, moratorium, or similar laws relating to or limiting
creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to
its properties and assets pursuant to this Agreement and the
other Loan Documents are validly created, perfected, and first
priority Liens, subject only to Permitted Liens.
5.10 Litigation. There are no actions or proceedings
pending by or against Borrower before any court or
administrative agency and Borrower does not have knowledge or
belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions,
or prosecutions involving Borrower or any guarantor of the
Obligations, except for: (a) ongoing collection matters in
which Borrower is the plaintiff; (b) matters disclosed on
Schedule 5.10; and (c) matters arising after the date hereof
that, if decided adversely to Borrower, would not have a
Material Adverse Change.
5.11 No Material Adverse Change. All financial
statements relating to Borrower or any guarantor of the
Obligations that have been delivered by Borrower to Foothill
have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and
fairly present Borrower's (or such guarantor's, as applicable)
financial condition as of the date thereof and Borrower's
results of operations for the period then ended. There has
not been a Material Adverse Change with respect to Borrower
(or such guarantor, as applicable) since the date of the
latest financial statements submitted to Foothill.
5.12 Solvency. Borrower is Solvent. No transfer of
property is being made by Borrower and no obligation is being
incurred by Borrower in connection with the transactions
contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
5.13 Employee Benefits. None of Borrower, any of its
Subsidiaries, or any of their ERISA Affiliates maintains or
contributes to any Benefit Plan, other than those listed on
Schedule 5.13. Borrower, each of its Subsidiaries and each
ERISA Affiliate have satisfied the minimum funding standards
of ERISA and the IRC with respect to each Benefit Plan to
which it is obligated to contribute. No ERISA Event has
occurred nor has any other event occurred that may result in
an ERISA Event that reasonably could be expected to result in
a Material Adverse Change. None of Borrower or its
Subsidiaries, or any ERISA Affiliate, is subject to any direct
or indirect liability with respect to any Plan under any
applicable law, treaty, rule, regulation, or agreement. None
of Borrower or its Subsidiaries or any ERISA Affiliate is
required to provide security to any Plan under Section
401(a)(29) of the IRC.
5.14 Environmental Condition. None of Borrower's
properties or assets has ever been used by Borrower or, to the
best of Borrower's knowledge, by previous owners or operators
in the disposal of, or to produce, store, handle, treat,
release, or transport, any Hazardous Materials, except in
compliance with all applicable laws and regulations in respect
thereof. None of Borrower's properties or assets has ever
been designated or identified in any manner pursuant to any
environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any
environmental protection statute. No Lien arising under any
environmental protection statute has attached to any revenues
or to any real or personal property owned or operated by
Borrower. Except as set forth on Schedule 5.14, Borrower has
not received a summons, citation, notice, or directive from
the Environmental Protection Agency or any other federal or
state governmental agency concerning any action or omission by
Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.
5.15 Securities Accounts. Borrower does not have or
maintain any Securities Accounts.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final
payment of the Obligations, and unless Foothill shall
otherwise consent in writing, Borrower shall do all of the following:
6.1 Accounting System. Maintain one or more systems of
accounting that enable Borrower to produce financial
statements in accordance with GAAP, and maintain records
pertaining to the Collateral that contain information as from
time to time may be requested by Foothill. Borrower also
shall keep a modern inventory reporting system that shows all
additions, sales, claims, returns, and allowances with respect
to the Inventory.
6.2 Collateral Reporting. Provide Foothill with the
following documents at the following times in form
satisfactory to Foothill: (a) on a monthly basis and, in any
event, by no later than the 15th day of each month during the
term of this Agreement (or, in the event that Borrower's then
Availability is less than $10,000,000, on such more frequent
basis as Foothill may require), a monthly accounts receivable
roll-forward report and a detailed calculation of the
Borrowing Base as of such date; (b) on a monthly basis and, in
any event, by no later than the 15th day of each month during
the term of this Agreement, a detailed aging, by total, of the
Accounts, together with a reconciliation to the detailed
calculation of the Borrowing Base previously provided to
Foothill; (c) on a monthly basis and, in any event, by no
later than the 15th day of each month during the term of this
Agreement, a listing of Borrower's accounts payable, by
vendor; (d) on a monthly basis and, in any event, by no later
than the 15th day of each month during the term of this
Agreement (or, in the event that Borrower's then Availability
is less than $10,000,000, on such more frequent basis as
Foothill may require), Inventory reports specifying Borrower's
cost and the wholesale market value of its Inventory by
category, including a monthly Inventory roll-forward report;
(e) upon Foothill's reasonable request, copies of invoices in
connection with the Accounts, credit memos, and remittance
advices and reports in connection with the Accounts and for
Inventory and Equipment acquired by Borrower, purchase orders
and invoices; (f) in the event that Borrower's then
Availability is less than $10,000,000, then upon Foothill's
reasonable request, a sales journal, collection journal, and
credit register since the last such schedule and copies of
deposit slips, shipping and delivery documents in connection
with the Accounts and for Inventory and Equipment acquired by
Borrower; (g) on a quarterly basis, a detailed list of
Borrower's customers; (h) on a monthly basis, a calculation of
the Dilution for the prior month; (i) on a quarterly basis, a
detailed report specifying each Permitted Toehold Investment,
including the book value and market value thereof; (j) on a
monthly basis, a detailed report specifying each Permitted
Appraised Assets Disposition and Equipment replacement in
respect thereof consummated since the last such report; (k) on
a quarterly basis, a detailed report specifying the aggregate
amount of Permitted Subsidiary Loans and Capital Contributions
made by Borrower to date during the then current calendar year
and the aggregate amount of Indebtedness then outstanding and
permitted under Section 7.1(b), and (l) such other reports as
to the Collateral or the financial condition of Borrower as
Foothill may request from time to time. Original sales
invoices evidencing daily sales shall be mailed by Borrower to
each Account Debtor and, at Foothill's direction if there is a
Triggering Event, the invoices shall indicate on their face
that the Account has been assigned to Foothill and that all
payments are to be made directly to Foothill.
6.3 Financial Statements, Reports, Certificates.
Deliver to Foothill: (a) as soon as available, but in any
event within 30 days after the end of each month during each
of Borrower's fiscal years, a company prepared balance sheet,
income statement, and statement of cash flow covering
Borrower's operations during such period; and (b) as soon as
available, but in any event within 90 days after the end of
each of Borrower's fiscal years, financial statements of
Borrower for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Foothill
and certified, without any qualifications, by such accountants
to have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating
that such accountants do not have knowledge of the existence
of any Default or Event of Default. Such audited financial
statements shall include a balance sheet, profit and loss
statement, and statement of cash flow and, if prepared, such
accountants' letter to management. If Borrower is a parent
company of one or more Subsidiaries, or Affiliates, or is a
Subsidiary or Affiliate of another company, then, in addition
to the financial statements referred to above, Borrower agrees
to deliver such other information relative to such related
entity as Foothill reasonably may request and, solely to the
extent available, such financing statements on a consolidating
basis so as to present Borrower and each such related entity
separately.
Together with the above, Borrower also shall
deliver to Foothill Borrower's Form 10-Q Quarterly Reports,
Form 10-K Annual Reports, and Form 8-K Current Reports, and
any other filings made by Borrower with the Securities and
Exchange Commission, if any, within 1 Business Day of the date
that the same are filed, or any other information that is
provided by Borrower to its shareholders, and any other report
reasonably requested by Foothill relating to the financial
condition of Borrower.
Each month, together with the financial
statements provided pursuant to Section 6.3(a), Borrower shall
deliver to Foothill a certificate signed by its chief
financial officer to the effect that: (i) all financial
statements delivered or caused to be delivered to Foothill
hereunder have been prepared in accordance with GAAP (except,
in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and
fairly present the financial condition of Borrower, (ii) the
representations and warranties of Borrower contained in this
Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such
certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate
solely to an earlier date), (iii) for each month that also is
the date on which a financial covenant in Section 7.20 is to
be tested, a Compliance Certificate demonstrating in
reasonable detail compliance at the end of such period with
the applicable financial covenants contained in Section 7.20,
and (iv) on the date of delivery of such certificate to
Foothill there does not exist any condition or event that
constitutes a Default or Event of Default (or, in the case of
clauses (i), (ii), or (iii), to the extent of any non-
compliance, describing such non-compliance as to which he or
she may have knowledge and what action Borrower has taken, is
taking, or proposes to take with respect thereto).
Borrower shall have issued written instructions
to its independent certified public accountants authorizing
them to communicate with Foothill and to release to Foothill
whatever financial information concerning Borrower that
Foothill may request. Borrower hereby irrevocably authorizes
and directs all auditors, accountants, or other third parties
to deliver to Foothill, at Borrower's expense, copies of
Borrower's financial statements, papers related thereto, and
other accounting records of any nature in their possession,
and to disclose to Foothill any information they may have
regarding Borrower's business affairs and financial
conditions.
Each year, together with the financial
statements provided pursuant to Section 6.3(b), Borrower shall
deliver to Foothill a certificate signed by its chief
financial officer specifying, as to each Foreign Subsidiary of
Borrower, the amounts of assets and liabilities and
stockholder's equity of such Foreign Subsidiary as of the end
of the year then ended. Borrower hereby agrees that, in
respect of any Foreign Subsidiary whose capitalization has
materially improved (in Foothill's reasonable determination)
and upon Foothill's reasonable request therefor, Borrower
shall execute and deliver to Foothill a supplement to the
Pledge Agreement pursuant to which Borrower shall pledge to
Foothill all of Borrower's right, title, and interest in and
to such Foreign Subsidiary's equity securities (other than the
Excluded Foreign Portion) and deliver to Foothill all
Negotiable Collateral, if any, in respect of same, unless and
to the extent that doing so would, in any material respect,
violate applicable law or cause a breach or default under any
material contract, agreement, or arrangement binding on such Subsidiary.
6.4 Tax Returns. Deliver to Foothill copies of each of
Borrower's future federal income tax returns, and any
amendments thereto, within 30 days of the filing thereof with
the Internal Revenue Service.
6.5 Guarantor Reports. Cause any guarantor of any of
the Obligations to deliver its annual financial statements at
the time when Borrower provides its audited financial
statements to Foothill and copies of all federal income tax
returns as soon as the same are available and in any event no
later than 30 days after the same are required to be filed by law.
6.6 Returns. Cause returns and allowances, if any, as
between Borrower and its Account Debtors to be on the same
basis and in accordance with the usual customary practices of
Borrower, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower, Borrower promptly shall
determine the reason for such return and, if Borrower accepts
such return, issue a credit memorandum (with, upon reasonable
request, a copy to be sent to Foothill) in the appropriate
amount to such Account Debtor. If, at a time when an Event of
Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower, Borrower promptly shall
determine the reason for such return and, if Foothill consents
(which consent shall not be unreasonably withheld), issue a
credit memorandum (with a copy to be sent to Foothill) in the
appropriate amount to such Account Debtor.
6.7 Title to Equipment. Upon Foothill's request after
the occurrence of an Event of Default, Borrower immediately
shall deliver to Foothill, properly endorsed, any and all
evidences of ownership of, certificates of title, or
applications for title to any items of Equipment; provided,
however, that the foregoing shall not be deemed to prevent
Permitted Dispositions to the extent otherwise permitted hereunder.
6.8 Maintenance of Equipment. Maintain the Equipment in
good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that
the value and operating efficiency thereof shall at all times
be maintained and preserved. Other than those items of
Equipment that constitute fixtures on the Closing Date,
Borrower shall not permit any item of Equipment to become a
fixture to real estate or an accession to other property, and
such Equipment shall at all times remain personal property.
6.9 Taxes. Cause all assessments and taxes, whether
real, personal, or otherwise, due or payable by, or imposed,
levied, or assessed against Borrower or any of its property to
be paid in full, before delinquency or before the expiration
of any extension period, except to the extent that the
validity of such assessment or tax shall be the subject of a
Permitted Protest. Borrower shall make due and timely payment
or deposit of all such federal, state, and local taxes,
assessments, or contributions required of it by law, and will
execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with
respect thereto. Borrower will make timely payment or deposit
of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Foothill with
proof satisfactory to Foothill indicating that Borrower has
made such payments or deposits.
6.10 Insurance.
(a) At its expense, keep the Personal Property
Collateral insured against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks, and in
such amounts, as are ordinarily insured against by other
owners in similar businesses. Borrower also shall maintain
business interruption, public liability, product liability,
and property damage insurance relating to Borrower's ownership
and use of the Personal Property Collateral, as well as
insurance against larceny, embezzlement, and criminal
misappropriation.
(b) At its expense, obtain and maintain (i) insurance of
the type necessary to insure the Improvements and Chattels (as
such terms are defined in the Mortgages), for the full
replacement cost thereof, against any loss by fire, lightning,
windstorm, hail, explosion, aircraft, smoke damage, vehicle
damage, earthquakes, elevator collision, and other risks from
time to time included under "extended coverage" policies, in
such amounts as Foothill may require, but in any event in
amounts sufficient to prevent Borrower from becoming a
co-insurer under such policies, (ii) combined single limit
bodily injury and property damages insurance against any loss,
liability, or damages on, about, or relating to each parcel of
Real Property Collateral, in an amount satisfactory to
Foothill; (iii) business rental insurance covering annual
receipts for a 12 month period for each parcel of Real
Property Collateral; and (iv) insurance for such other risks
as Foothill may require. Replacement costs, at Foothill's
option, may be redetermined by an insurance appraiser,
satisfactory to Foothill, not more frequently than once every
12 months at Borrower's cost.
(c) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be
reasonably satisfactory to Foothill. All hazard insurance and
such other insurance as Foothill shall specify, shall contain
a Form 438BFU mortgagee endorsement, or an equivalent
endorsement satisfactory to Foothill, showing Foothill as sole
loss payee thereof, and shall contain a waiver of warranties.
Every policy of insurance referred to in this Section 6.10
shall contain an agreement by the insurer that it will not
cancel such policy except after 30 days prior written notice
to Foothill and that any loss payable thereunder shall be
payable notwithstanding any act or negligence of Borrower or
Foothill which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and
notwithstanding (i) occupancy or use of the Real Property
Collateral for purposes more hazardous than permitted by the
terms of such policy, (ii) any foreclosure or other action or
proceeding taken by Foothill pursuant to the Mortgages upon
the happening of an Event of Default, or (iii) any change in
title or ownership of the Real Property Collateral. Borrower
shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor.
(d) Original policies or certificates thereof
satisfactory to Foothill evidencing such insurance shall be
delivered to Foothill at least 10 days prior to the expiration
of the existing or preceding policies. Borrower shall give
Foothill prompt notice of any loss covered by such insurance,
and, upon the occurrence and during the continuance of an
Event of Default, Foothill shall have the right to adjust any
loss. Foothill shall have the exclusive right to adjust all
losses payable under any such insurance policies without any
liability to Borrower whatsoever in respect of such
adjustments. Any monies received as payment for any loss
under any insurance policy including the insurance policies
mentioned above, shall be paid over to Foothill to be applied
at the option of Foothill either to the prepayment of the
Obligations without premium, in such order or manner as
Foothill may elect, or shall be disbursed to Borrower under
stage payment terms satisfactory to Foothill for application
to the cost of repairs, replacements, or restorations. All
repairs, replacements, or restorations shall be effected with
reasonable promptness and shall be of a value at least equal
to the value of the items or property destroyed prior to such
damage or destruction. Upon the occurrence of an Event of
Default, Foothill shall have the right to apply all prepaid
premiums to the payment of the Obligations in such order or
form as Foothill shall determine.
(e) Borrower shall not take out separate insurance
concurrent in form or contributing in the event of loss with
that required to be maintained under this Section 6.10, unless
Foothill is included thereon as named insured with the loss
payable to Foothill under a standard California 438BFU
(NS) Mortgagee endorsement, or its local equivalent. Borrower
immediately shall notify Foothill whenever such separate
insurance is taken out, specifying the insurer thereunder and
full particulars as to the policies evidencing the same, and
originals of such policies immediately shall be provided to Foothill.
6.11 No Setoffs or Counterclaims. Make payments
hereunder and under the other Loan Documents by or on behalf
of Borrower without setoff or counterclaim and free and clear
of, and without deduction or withholding for or on account of,
any federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep the
Inventory and Equipment only at the locations identified on
Schedule 6.12; provided, however, that Borrower may amend
Schedule 6.12 so long as such amendment occurs by written
notice to Foothill not less than 30 days prior to the date on
which the Inventory or Equipment is moved to such new
location, so long as such new location is within the
continental United States, and so long as, at the time of such
written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and
continue perfected Foothill's security interests in such
assets and also provides to Foothill a Collateral Access Agreement.
6.13 Compliance with Laws. Comply with the requirements
of all applicable laws, rules, regulations, and orders of any
governmental authority, including the Fair Labor Standards Act
and the Americans With Disabilities Act, other than laws,
rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not have and could not
reasonably be expected to have a Material Adverse Change.
6.14 Employee Benefits.
(a) Promptly, and in any event within 10 Business Days
after Borrower or any of its Subsidiaries knows or has reason
to know that an ERISA Event has occurred that reasonably could
be expected to result in a Material Adverse Change, a written
statement of the chief financial officer of Borrower
describing such ERISA Event and any action that is being
taking with respect thereto by Borrower, any such Subsidiary
or ERISA Affiliate, and any action taken or threatened by the
IRS, Department of Labor, or PBGC. Borrower or such
Subsidiary, as applicable, shall be deemed to know all facts
known by the administrator of any Benefit Plan of which it is
the plan sponsor, (ii) promptly, and in any event within 3
Business Days after the filing thereof with the IRS, a copy of
each funding waiver request filed with respect to any Benefit
Plan and all communications received by Borrower, any of its
Subsidiaries or, to the knowledge of Borrower, any ERISA
Affiliate with respect to such request, and (iii) promptly,
and in any event within 3 Business Days after receipt by
Borrower, any of its Subsidiaries or, to the knowledge of
Borrower, any ERISA Affiliate, of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to
administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's
request, each of the following: (i) a copy of each Plan (or,
where any such plan is not in writing, complete description
thereof) (and if applicable, related trust agreements or other
funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that
have been distributed to employees or former employees of
Borrower or its Subsidiaries; (ii) the most recent
determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years,
annual reports on Form 5500 Series required to be filed with
any governmental agency for each Benefit Plan; (iv) all
actuarial reports prepared for the last three plan years for
each Benefit Plan; (v) a listing of all Multiemployer Plans,
with the aggregate amount of the most recent annual
contributions required to be made by Borrower or any ERISA
Affiliate to each such plan and copies of the collective
bargaining agreements requiring such contributions; (vi) any
information that has been provided to Borrower or any ERISA
Affiliate regarding withdrawal liability under any
Multiemployer Plan; and (vii) the aggregate amount of the most
recent annual payments made to former employees of Borrower or
its Subsidiaries under any Retiree Health Plan.
6.15 Leases. Pay when due all rents and other amounts
payable under any leases to which Borrower is a party or by
which Borrower's properties and assets are bound, unless such
payments are the subject of a Permitted Protest. To the
extent that Borrower fails timely to make payment of such
rents and other amounts payable when due under its leases,
Foothill shall be entitled, in its discretion, to reserve an
amount equal to such unpaid amounts against the Borrowing
Base.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final
payment of the Obligations, Borrower will not to do any of the
following without Foothill's prior written consent:
7.1 Indebtedness. Create, incur, assume, permit,
guarantee, or otherwise become or remain, directly or
indirectly, liable with respect to any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together
with Indebtedness to issuers of letters of credit that are the
subject of L/C Guarantees;
(b) (i) unsecured guarantees of indebtedness of
Borrower's Subsidiaries; and (ii) unsecured back-to-back
letters of credit or letter of credit guarantees to issuers of
underlying letters of credit, the account parties of which are
Borrower's Foreign Subsidiaries, that are not the subject of
L/C Guarantees; provided, however, that the aggregate amount
of such Indebtedness at any one time outstanding permitted
under this Section 7.1(b) shall not exceed $50,000,000;
(c) Indebtedness set forth on Schedule 7.1;
(d) unsecured Indebtedness of Borrower owing to one or
more of its Subsidiaries; provided, however, that upon the
request of Foothill, Borrower shall cause each of its
Subsidiaries that is a holder of such Indebtedness to execute
and deliver to Foothill a subordination agreement, in form and
substance satisfactory to Foothill, in respect of such Indebtedness;
(e) unsecured Indebtedness evidenced by Interest Rate
Agreements and Currency Protection Agreements entered into by
Borrower in the ordinary course of its business consistent
with past practices and entered into in connection with the
operational needs of Borrower's business and not for
speculative purposes;
(f) Indebtedness secured by Permitted Liens; and
(g) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (c), (e), and (f) of this
Section 7.1 (and continuance or renewal of any Permitted Liens
associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the
Obligations by Borrower, (ii) the net cash proceeds of such
refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness
so refinanced, renewed, or extended, (iii) such refinancings,
renewals, refundings, or extensions do not result in a
shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to
the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the
subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as
those applicable to the refinanced Indebtedness.
7.2 Liens. Create, incur, assume, or permit to exist,
directly or indirectly, any Lien on or with respect to any of
its property or assets, of any kind, whether now owned or
hereafter acquired, or any income or profits therefrom, except
for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness
is refinanced under Section 7.1(g) and so long as the
replacement Liens only encumber those assets or property that
secured the original Indebtedness). Without limiting the
generality of the foregoing, Borrower agrees not to create,
incur, assume, or permit to exist, directly or indirectly, any
Lien on or with respect to the equity securities of any
Subsidiary of Borrower and the equity securities evidencing
any Permitted Toehold Investment (except for Liens thereon in
favor of Foothill and Liens expressly permitted hereunder on
the equity securities of IG Australia).
7.3 Restrictions on Fundamental Changes. (a) Enter into
any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock; (b)
liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution); or (c) except for Permitted
Dispositions, convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its property or assets.
7.4 Disposal of Assets. Except for Permitted
Dispositions, make any Asset Disposition.
7.5 Change Name. Change Borrower's name, FEIN,
corporate structure (within the meaning of Section 9402(7) of
the Code), or identity, or add any new fictitious name.
7.6 [intentionally omitted].
7.7 Nature of Business. Make any change in the
principal nature of Borrower's business.
7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by
Section 7.1(g), prepay, redeem, defease, purchase, or
otherwise acquire any Indebtedness owing to any third Person,
other than the Obligations in accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any
agreement, instrument, document, indenture, or other writing
evidencing or concerning Indebtedness permitted under Sections
7.1(b), (c), (d), (e), or (f), except for any amendment,
modification, waiver, or consent the effect of which would be
to: (i) extend the maturity of all or part of the remaining
scheduled payments of principal outstanding thereunder;
(ii) make any covenant or default contained therein less
stringent; (iii) decrease the interest rate or interest rate
margin or the default interest rate or interest rate margin,
or both; (iv) amends or modify any other terms thereof so long
as the amendments or modifications referenced in this
clause (iv) are not in the aggregate materially more
expensive, burdensome, or otherwise adverse to Borrower or Foothill.
7.9 Change of Control. Cause, permit, or suffer,
directly or indirectly, any Change of Control.
7.10 Consignments. Consign any Inventory or sell any
Inventory on bill and hold, sale or return, sale on approval,
or other conditional terms of sale; provided, however, that
the foregoing shall not prevent Borrower from consigning
Inventory with a value not to exceed $500,000 at any one time
outstanding, in the ordinary course of Borrower's business,
consistent with past practices, so long as at the time of any
such consignment, Borrower shall take such steps as may be
necessary to ensure that such consigned Inventory is not
subject to the claims of the consignees' creditors or that
Borrower has priority over any perfected security interests in
the inventory of such consignee.
7.11 Distributions. Make any distribution or declare or
pay any dividends (in cash or other property, other than
capital stock) on, or purchase, acquire, redeem, or retire any
of Borrower's capital stock, of any class, whether now or
hereafter outstanding.
7.12 Accounting Methods. Modify or change significantly
its method of accounting or enter into, modify, or terminate
any agreement currently existing, or at any time hereafter
entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting
records without said accounting firm or service bureau
agreeing to provide Foothill information regarding the
Collateral or Borrower's financial condition. Borrower waives
the right to assert a confidential relationship, if any, it
may have with any accounting firm or service bureau in
connection with any information requested by Foothill pursuant
to or in accordance with this Agreement, and agrees that
Foothill may contact directly any such accounting firm or
service bureau in order to obtain such information.
7.13 Investments. Except for Permitted Investments and
Permitted Dispositions, directly or indirectly make, acquire,
or incur any liabilities (including contingent obligations)
for or in connection with (a) the acquisition of the
securities (whether debt or equity) of, or other interests in,
a Person, (b) loans, advances, capital contributions, or
transfers of property to a Person, or (c) the acquisition of
all or substantially all of the properties or assets of a Person.
7.14 Transactions with Affiliates. Except for Permitted
Investments, directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms, that are
fully disclosed to Foothill, and that are no less favorable to
Borrower than would be obtained in a comparable arm's length
transaction with a non-Affiliate.
7.15 Suspension. Suspend or go out of a substantial
portion of its business.
7.16 [intentionally omitted].
7.17 Use of Proceeds. Use the proceeds of the Advances
and the Term Loan made hereunder for any purpose other than
(a) on the Closing Date, (i) to repay in full the outstanding
principal, accrued interest, and accrued fees and expenses
owing to Existing Lender, and (ii) to pay transactional costs
and expenses incurred in connection with this Agreement, and
(b) thereafter, consistent with the terms and conditions
hereof, for its lawful and permitted corporate purposes.
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees. Relocate its chief
executive office to a new location without providing 30 days
prior written notification thereof to Foothill and so long as,
at the time of such written notification, Borrower provides
any financing statements or fixture filings necessary to
perfect and continue perfected Foothill's security interests
and also provides to Foothill a Collateral Access Agreement
with respect to such new location. The Inventory and
Equipment shall not at any time now or hereafter be stored
with a bailee, warehouseman, or similar party without
Foothill's prior written consent.
7.19 No Prohibited Transactions Under ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to
engage, in any prohibited transaction which is reasonably
likely to result in a civil penalty or excise tax described in
Sections 406 of ERISA or 4975 of the IRC for which a statutory
or class exemption is not available or a private exemption has
not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of
ERISA and 412 of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail,
to pay timely required contributions or annual installments
due with respect to any waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in
any liability of Borrower, any of its Subsidiaries or any
ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail,
to make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail,
to pay any required installment or any other payment required
under Section 412 of the IRC on or before the due date for
such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to
amend, a Plan resulting in an increase in current liability
for the plan year such that either of Borrower, any Subsidiary
of Borrower or any ERISA Affiliate is required to provide
security to such Plan under Section 401(a)(29) of the IRC; or
7.(yyyy) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is
reasonably likely to result in any liability of any such
entity under Title IV of ERISA;
which, individually or in the aggregate, results in or
reasonably would be expected to result in a claim against or
liability of Borrower, any of its Subsidiaries or any ERISA
Affiliate in excess of $1,500,000.
7.20 Financial Covenants. Fail to maintain:
(a) Current Ratio. A ratio of Consolidated Current
Assets divided by Consolidated Current Liabilities of at least
1.0: 1.0, measured on a fiscal quarter-end basis; and
(b) Net Worth. Net Worth of at least $325,000,000,
measured on a fiscal quarter-end basis.
7.21 Capital Expenditures. Make capital expenditures in
any fiscal year in excess of $80,000,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall
constitute an event of default (each, an "Event of Default")
under this Agreement:
8.1 If Borrower fails to pay when due and payable or
when declared due and payable, any portion of the Obligations
(whether of principal, interest (including any interest which,
but for the provisions of the Bankruptcy Code, would have
accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts
constituting Obligations);
8.2 (a) If Borrower fails or neglects to perform, keep,
or observe, in any material respect, any term, provision,
condition, covenant, or agreement contained in Sections 6.2
(Collateral Reports) or 6.3 (Financial Statements) of this
Agreement and such failure continues for a period of five (5)
days from the date Foothill sends Borrower telephonic or
written notice of such failure or neglect; (b) If Borrower
fails or neglects to perform, keep, or observe, in any
material respect, any term, provision, condition, covenant, or
agreement contained in Sections 6.4 (Tax Returns), 6.5
(Guarantor Reports), 6.7 (Title to Equipment), 6.12 (Location
of Inventory and Equipment), 6.13 (Compliance with Laws), 6.14
(Employee Benefits), or 6.15 (Leases) of this Agreement and
such failure continues for a period of fifteen (15) days from
the date of such failure or neglect; (c) If Borrower fails or
neglects to perform, keep, or observe, in any material
respect, any term, provision, condition, covenant, or
agreement contained in Sections 6.1 (Accounting System), 6.6
(Returns), or 6.8 (Maintenance of Equipment) of this Agreement
and such failure continues for a period of fifteen (15) days
from the date Foothill sends Borrower telephonic or written
notice of such failure or neglect; or (d) If Borrower fails or
neglects to perform, keep, or observe, in any material
respect, any other term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between
Borrower and Foothill (other than any such term, provision,
condition, covenant, or agreement that is the subject of
another provision of this Section 8);
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's properties or
assets is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of
any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against
Borrower and any of the following events occur: (a) such
Borrower consents to the institution of the Insolvency
Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely controverted; (c) the
petition commencing the Insolvency Proceeding is not dismissed
within 45 calendar days of the date of the filing thereof;
provided, however, that, during the pendency of such period,
Foothill shall be relieved of its obligation to extend credit
hereunder; (d) an interim trustee is appointed to take
possession of all or a substantial portion of the properties
or assets of, or to operate all or any substantial portion of
the business of, Borrower; or (e) an order for relief shall
have been issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any
material part of its business affairs;
8.8 (a) If a notice of Lien, levy, or assessment for
more than $1,500,000 is filed of record with respect to any of
Borrower's properties or assets by the United States, or if
any taxes or debts owing for an amount in excess of $1,500,000
at any time hereafter to the United States becomes a lien,
whether choate or otherwise, upon any of Borrower's properties
or assets; provided, however, that Foothill shall be entitled
to create a reserve against the Borrowing Base in an amount
sufficient to discharge such lien, levy, or assessment and any
and all penalties or interest payable in connection therewith; or
(b) If a notice of Lien, levy, or assessment
for more than $1,500,000 is filed of record with respect to
any of Borrower's properties or assets by any state, county,
municipal, or other non-federal governmental agency, or if any
taxes or debts owing for an amount in excess of $1,500,000 at
any time hereafter to any one or more of such entities becomes
a lien, whether choate or otherwise, upon any of Borrower's or
any of its Subsidiaries' properties or assets and, in any such
case, such taxes or debts are not the subject of a Permitted
Protest, and the lien, levy, or assessment is not released,
discharged, or bonded against before the earlier of 30 days of
the date it first arises or 5 days of the date when such
property or asset is subject to being forfeited; provided,
however, that Foothill shall be entitled to create a reserve
against the Borrowing Base in an amount sufficient to
discharge such lien, levy, or assessment and any and all
penalties or interest payable in connection therewith.
8.9 If a judgment or other claim for an amount in excess
of $1,500,000 becomes a Lien or encumbrance upon any material
portion of Borrower's properties or assets;
8.10 If there is a default in any material agreement to
which Borrower is a party with one or more third Persons and
such default (a) occurs at the final maturity of the
obligations thereunder, or (b) results in a right by such
third Person(s), irrespective of whether exercised, to
accelerate the maturity of Borrower's obligations thereunder
or to terminate the subject agreement;
8.11 If Borrower makes any payment on account of
Indebtedness that has been contractually subordinated in right
of payment to the payment of the Obligations, except to the
extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation
exists now or hereafter in any warranty, representation,
statement, or report made to Foothill by Borrower or any
officer, employee, agent, or director of Borrower, or if any
such warranty or representation is withdrawn; or
8.13 If the obligation of M&S or IG Delaware under the
Pledge Agreement is limited or terminated by operation of law
or by such Person thereunder, or any such Person becomes the
subject of an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and
during the continuation, of an Event of Default Foothill may,
at its election, without notice of its election and without
demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the
Loan Documents, or under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of
Foothill, but without affecting Foothill's rights and security
interests in the Personal Property Collateral or the Real
Property Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill
considers advisable, and in such cases, Foothill will credit
Borrower's Loan Account with only the net amounts received by
Foothill in payment of such disputed Accounts after deducting
all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in
trust for Foothill, segregate all returned Inventory from all
other property of Borrower or in Borrower's possession and
conspicuously label said returned Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower, make such
payments and do such acts as Foothill considers necessary or
reasonable to protect its security interests in the
Collateral. Borrower agrees to assemble the Personal Property
Collateral if Foothill so requires, and to make the Personal
Property Collateral available to Foothill as Foothill may
designate. Borrower authorizes Foothill to enter the premises
where the Personal Property Collateral is located, to take and
maintain possession of the Personal Property Collateral, or
any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or Lien that in Foothill's
determination appears to conflict with its security interests
and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned or leased premises,
Borrower hereby grants Foothill a license to enter into
possession of such premises and to occupy the same, without
charge, for up to 120 days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in
equity, or otherwise;
(g) Without notice to Borrower (such notice being
expressly waived by Borrower), and without constituting a
retention of any collateral in satisfaction of an obligation
(within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits
of Borrower held by Foothill (including any amounts received
in the Lockbox Accounts), or (ii) indebtedness at any time
owing to or for the credit or the account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts
received in the Lockbox Accounts, to secure the full and final
repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the
manner provided for herein) the Personal Property Collateral.
Borrower hereby grants to Foothill a license or other right to
use, without charge, Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Personal
Property Collateral, in completing production of, advertising
for sale, and selling any Personal Property Collateral and
Borrower's rights under all licenses and all franchise
agreements shall inure to Foothill's benefit;
(j) Sell the Personal Property Collateral at either a
public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such
manner and at such places (including any of Borrower's
premises) as Foothill determines is commercially reasonable.
It is not necessary that the Personal Property Collateral be
present at any such sale;
(k) Foothill shall give notice of the disposition of the
Personal Property Collateral as follows:
(1) Foothill shall give the applicable Borrower and each
holder of a security interest in the Personal Property
Collateral who has filed with Foothill a written request for
notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the
Personal Property Collateral, then the time on or after which
the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to such Borrower as provided in Section 12,
at least 5 days before the date fixed for the sale, or at
least 5 days before the date on or after which the private
sale or other disposition is to be made; no notice needs to be
given prior to the disposition of any portion of the Personal
Property Collateral that is perishable or threatens to decline
speedily in value or that is of a type customarily sold on a
recognized market. Notice to Persons other than such Borrower
claiming an interest in the Personal Property Collateral shall
be sent to such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice
one time at least 5 days before the date of the sale in a
newspaper of general circulation in the county in which the
sale is to be held;
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of the
Personal Property Collateral as provided above will be paid
immediately by Borrower. Any excess will be returned, without
interest and subject to the rights of third Persons, by
Foothill to Borrower.
9.2 Remedies Cumulative. Foothill's rights and remedies
under this Agreement, the Loan Documents, and all other
agreements shall be cumulative. Foothill shall have all other
rights and remedies not inconsistent herewith as provided
under the Code, by law, or in equity. No exercise by Foothill
of one right or remedy shall be deemed an election, and no
waiver by Foothill of any Event of Default shall be deemed a
continuing waiver. No delay by Foothill shall constitute a
waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased
properties or assets, rents or other amounts payable under
such leases) due to third Persons, or fails to make any
deposits or furnish any required proof of payment or deposit,
all as required under the terms of this Agreement, then, to
the extent that Foothill determines that such failure by such
Borrower could result in a Material Adverse Change, in its
discretion and without prior notice to Borrower, Foothill may
do any or all of the following: (a) make payment of the same
or any part thereof; (b) set up such reserves in Borrower's
Loan Account as Foothill deems necessary to protect Foothill
from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type described in Section
6.10, and take any action with respect to such policies as
Foothill deems prudent. Any such amounts paid by Foothill
shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make
similar payments in the future or a waiver by Foothill of any
Event of Default under this Agreement. Foothill need not
inquire as to, or contest the validity of, any such expense,
tax, or Lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same
was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand,
protest, notice of protest, notice of default or dishonor,
notice of payment and nonpayment, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of
accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill on which Borrower may
in any way be liable.
11.2 Foothill's Liability for Collateral. So long as
Foothill complies with its obligations, if any, under Section
9207 of the Code, Foothill shall not in any way or manner be
liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the
Collateral shall be borne by Borrower.
11.3 Indemnification. Borrower shall pay, indemnify,
defend, and hold Foothill, each Participant, and each of their
respective officers, directors, employees, counsel, agents,
and attorneys-in-fact (each, an "Indemnified Person") harmless
(to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees
and disbursements and other costs and expenses actually
incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any
time asserted against, imposed upon, or incurred by any of
them in connection with or as a result of or related to the
execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents
or the transactions contemplated herein, and with respect to
any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds
of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission,
event or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person
under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally
determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision
shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all
notices or demands by any party relating to this Agreement or
any other Loan Document shall be in writing and (except for
financial statements and other informational documents which
may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail
(postage prepaid, return receipt requested), overnight
courier, or telefacsimile to Borrower or to Foothill, as the
case may be, at its address set forth below:
If to Borrower: INTERGRAPH CORPORATION
One Madison Industrial Park
Huntsville, Alabama 35894
Attn: Mr. Larry J. Laster
Fax No. 205.730.2164
with copies to: BALCH & BINGHAM
1710 Sixth Avenue North
Birmingham, Alabama 35201
Attn: John F. Mandt, Esq.
Fax No. 205.226.8799
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
with copies to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.745.3345
The parties hereto may change the address at which
they are to receive notices hereunder, by notice in writing in
the foregoing manner given to the other. All notices or
demands sent in accordance with this Section 12, other than
notices by Foothill in connection with Sections 9504 or 9505
of the Code, shall be deemed received on the earlier of the
date of actual receipt or 3 days after the deposit thereof in
the mail. Borrower acknowledges and agrees that notices sent
by Foothill in connection with Sections 9504 or 9505 of the
Code shall be deemed sent when deposited in the mail or
personally delivered, or, where permitted by law, transmitted
telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN
ANOTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES
HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE
THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE
OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF
BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.
BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
OR STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,
A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other
papers delivered to Foothill may be destroyed or otherwise
disposed of by Foothill 4 months after they are delivered to
or received by Foothill, unless the applicable Borrower
requests, in writing, the return of said documents, schedules,
or other papers and makes arrangements, at Borrower's expense,
for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be binding and
deemed effective when executed by Borrower and Foothill.
15.2 Successors and Assigns. This Agreement shall bind
and inure to the benefit of the respective successors and
assigns of each of the parties; provided, however, that
Borrower may not assign this Agreement or any rights or duties
hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to
an assignment by Foothill shall release Borrower from its
Obligations. Foothill may assign this Agreement and its
rights and duties hereunder and no consent or approval by
Borrower is required in connection with any such assignment.
Foothill reserves the right to sell, assign, transfer,
negotiate, or grant participations in all or any part of, or
any interest in Foothill's rights and benefits hereunder. In
connection with any such assignment or participation, Foothill
may disclose all documents and information which Foothill now
or hereafter may have relating to Borrower or Borrower's
business, but such documents and information shall be subject
to the confidentiality provisions of Section 15.10. To the
extent that Foothill assigns its rights and obligations
hereunder to a third Person, Foothill thereafter shall be
released from such assigned obligations to the relevant
Borrower and such assignment shall effect a novation between
the relevant Borrower and such third Person.
15.3 Section Headings. Headings and numbers have been
set forth herein for convenience only. Unless the contrary is
compelled by the context, everything contained in each section
applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved
against Foothill or Borrower, whether under any rule of
construction or otherwise. On the contrary, this Agreement
has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words
used so as to fairly accomplish the purposes and intentions of
all parties hereto.
15.5 Severability of Provisions. Each provision of this
Agreement shall be severable from every other provision of
this Agreement for the purpose of determining the legal
enforceability of any specific provision.
15.6 Amendments in Writing. This Agreement can only be
amended by a writing signed by both Foothill and Borrower.
15.7 Counterparts; Telefacsimile Execution. This
Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an
original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile shall
be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also
shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
15.8 Revival and Reinstatement of Obligations. If the
incurrence or payment of the Obligations by Borrower or any
guarantor of the Obligations or the transfer by either or both
of such parties to Foothill of any property of either or both
of such parties should for any reason subsequently be declared
to be void or voidable under any state or federal law relating
to creditors' rights, including provisions of the Bankruptcy
Code relating to fraudulent conveyances, preferences, and
other voidable or recoverable payments of money or transfers
of property (collectively, a "Voidable Transfer"), and if
Foothill is required to repay or restore, in whole or in part,
any such Voidable Transfer, or elects to do so upon the
reasonable advice of its counsel, then, as to any such
Voidable Transfer, or the amount thereof that Foothill is
required or elects to repay or restore, and as to all
reasonable costs, expenses, and attorneys fees of Foothill
related thereto, the liability of Borrower or such guarantor
automatically shall be revived, reinstated, and restored and
shall exist as though such Voidable Transfer had never been made.
15.9 Integration. This Agreement, together with the
other Loan Documents, reflects the entire understanding of the
parties with respect to the transactions contemplated hereby
and shall not be contradicted or qualified by any other
agreement, oral or written, before the date hereof.
15.10 Confidentiality. Foothill agrees to treat all
material, non-public information regarding Borrower and its
Subsidiaries and their operations, assets, and existing and
contemplated business plans in a confidential manner; it being
understood and agreed by Borrower that in any event Foothill
may make disclosures (a) to counsel for and other advisors,
accountants, and auditors to Foothill, (b) reasonably required
by any bona fide potential or actual assignee, transferee, or
participant in connection with any contemplated or actual
assignment or transfer by Foothill of an interest herein or
any participation interest in Foothill's rights hereunder, (c)
of information that has become public by disclosures made by
Persons other than Foothill, or (d) as required or requested
by any court, governmental or administrative agency, pursuant
to any subpoena or other legal process, or by any law,
statute, regulation, or court order; provided, however, that,
unless prohibited by applicable law, statute, regulation, or
court order, Foothill shall notify Borrower of any request by
any court, governmental or administrative agency, or pursuant
to any subpoena or other legal process for disclosure of any
such non-public material information concurrent with, or where
practicable, prior to the disclosure thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
INTERGRAPH CORPORATION,
a Delaware corporation
By___________________________
Title:_______________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By___________________________
Title:_______________________
Schedule R-1
FACILITY ADDRESS CITY COUNTY STATE FOOTHILL NAME AMOUNT
NAME AND ZIP LIEN OF OF PRIOR
CODE POSITION PRIOR LIEN
LIENOR
Huntsville One Huntsville Madison Alabama First n/a n/a
Campus Madison
Industrial
Park
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER ONE TO LOAN AND SECURITY
AGREEMENT (this "Amendment") is entered into as of January 14,
1997, by and between Foothill Capital Corporation, a California
corporation ("Foothill"), on the one hand, and Intergraph
Corporation, a Delaware corporation ("Borrower"), with reference
to the following facts:
A. Foothill and Borrower heretofore have entered into that
certain Loan and Security Agreement, dated as of December 20,
1996 (as heretofore amended, supplemented, or otherwise modified,
the "Agreement");
B. Borrower has requested Foothill to amend the Agreement
to, among other things, permit a subfacility for indemnities in
respect of Borrower's Permitted F/X Contracts, as set forth in
this Amendment;
C. Foothill is willing to so amend the Agreement in
accordance with the terms and conditions hereof; and
D. All capitalized terms used herein and not defined
herein shall have the meanings ascribed to them in the Agreement,
as amended hereby.
NOW, THEREFORE, in consideration of the above recitals
and the mutual premises contained herein, Foothill and Borrower
hereby agree as follows:
1. Amendments to the Agreement.
a. Section 1.1 of the Agreement hereby is amended by
adding the following new defined terms in alphabetical order:
"First Amendment" means that certain Amendment
Number One to Loan and Security Agreement, dated as of
January 14, 1997, between Foothill and Borrower.
"F/X Bank" means Norwest Bank Minnesota, National
Association, or any successor thereto.
"F/X Bank Parameters Letter" means that certain
letter agreement, dated as of January 14, 1997, between F/X
Bank and Borrower, a copy of which is attached hereto as
Exhibit F-1, regarding the parameters under which F/X Bank
provides foreign exchange currency services to Borrower.
"F/X Line" has the meaning set forth in Section 2.4.
"F/X Reserve" means, as of any date of
determination, a reserve equal to the maximum amount of
obligations of Foothill to indemnify F/X Bank against losses
or expenses incurred by F/X Bank in connection with
Permitted F/X Contracts. As of January 14, 1997, the amount
of the F/X Reserve is $3,500,000.
"Permitted F/X Contracts" means foreign currency
exchange contracts between F/X Bank and Borrower that: (a)
are in respect of marked-to-market risk on foreign exchange
future trades or options; (b) are entered into by Borrower
in the ordinary course of its business; (c) are entered into
in connection with the operational needs of Borrower's
business and not for speculative purposes; (d) do not have a
maturity date that is after the date five (5) Business Days
prior to the Maturity Date; and (e) are provided by F/X Bank
pursuant to the F/X Bank Parameters Letter.
"Permitted Spot Trades" means foreign currency
exchange transactions between F/X Bank and Borrower that:
(a) are in respect of foreign exchange spot value trades;
(b) are entered into by Borrower in the ordinary course of
its business; and (c) are entered into in connection with
the operational needs of Borrower's business and not for
speculative purposes; and (d) are conducted pursuant to the
F/X Bank Parameters Letter.
b. The following definitions contained in Section 1.1 of
the Amendment are amended and restated in their entirety to read as follows:
"Availability" means the amount of money that
Borrower is entitled to borrow as Advances under Section
2.1, such amount being the difference derived when (a) the
sum of the principal amount of Advances then outstanding
(including any amounts that Foothill may have paid for the
account of Borrower pursuant to any of the Loan Documents
and that have not been reimbursed by Borrower) is subtracted
from (b) the lesser of (i) the Maximum Revolving Amount less
the sum of (y) the Letter of Credit Usage and (z) the F/X
Reserve, or (ii) the Borrowing Base less the sum of (y) the
Letter of Credit Usage and (z) the F/X Reserve.
c. The first sentence of Section 2.1(a) of the Agreement
hereby is amended and restated in its entirety to read as follows:
Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrower in
an amount outstanding not to exceed at any one time the
lesser of (i) the Maximum Revolving Amount less the sum of
the Letter of Credit Usage and the F/X Reserve, or (ii) the
Borrowing Base less the sum of the Letter of Credit Usage
and the F/X Reserve.
d. The second sentence of Section 2.2(a) of the Agreement
hereby is amended and restated in its entirety to read as follows:
Foothill shall have no obligation to issue a Letter of
Credit if any of the following would result:
(i) the Letter of Credit
Usage would exceed the Borrowing Base less the sum
of the amount of outstanding Advances and the F/X
Reserve, or
(ii) the Letter of Credit
Usage would exceed the lower of (y) the Maximum
Revolving Amount less the sum of the amount of
outstanding Advances and the F/X Reserve, or (z)
$60,000,000, or
(iii) the outstanding
Obligations (other than under the Term Loan) would
exceed the Maximum Revolving Amount.
e. Section 2.4 of the Agreement hereby is amended and
restated in its entirety to read as follows:
2.4 Subfacility for Borrower's Permitted F/X
Contracts (the "F/X Line").
(a) If requested to do so by Borrower,
Foothill may, in its sole discretion, enter into agreements
with F/X Bank pursuant to which Foothill would indemnify F/X
Bank against losses or expenses incurred by F/X Bank in
connection with Permitted F/X Contracts, notwithstanding any
objections by Borrower as to the amount of such losses or
expenses. If Foothill is obligated to advance funds under
an F/X Line indemnity, Borrower immediately shall reimburse
such amount to Foothill and, in the absence of such
reimbursement, the amount so advanced immediately and
automatically shall be deemed to be an Advance hereunder
and, thereafter, shall bear interest at the rate then
applicable to Advances under Section 2.6. If, upon the
maturity date of any Permitted F/X Contract, Borrower does
not have Availability in an amount sufficient to pay the
full amount of Borrower's obligations to F/X Bank under such
contract, Foothill may, in its sole discretion, instruct F/X
Bank to liquidate such Permitted F/X Contract, at Borrower's
sole expense, and to apply any amounts thereunder that would
have been payable to Borrower against the amounts owed to
F/X Bank by Borrower. Any amounts paid by Foothill to F/X
Bank and any other costs or expenses incurred by Foothill in
connection with any such Permitted F/X Contracts shall
constitute Advances, shall be secured by all of the
Collateral, and thereafter shall be payable by Borrower to
Foothill together with interest as provided for herein.
(b) Borrower hereby agrees to indemnify,
save, defend, and hold Foothill harmless from any loss,
cost, expense, or liability, including payments made by
Foothill, expenses, and reasonable attorneys fees incurred
by Foothill arising out of or in connection with any F/X
Line indemnity.
(c) Any and all charges, commissions, fees,
and costs incurred by Foothill relating to Permitted F/X
Contracts that are the subject of an F/X Line indemnity by
Foothill shall be considered Foothill Expenses for purposes
of this Agreement and immediately shall be reimbursable by
Borrower to Foothill.
(d) Immediately upon the termination of this
Agreement, Borrower agrees to either (i) provide cash
collateral to be held by Foothill in an amount equal to 105%
of the maximum amount of Foothill's obligations under the
F/X Line indemnities, or (ii) cause to be delivered to
Foothill releases of all of Foothill's obligations under
outstanding F/X Line indemnities. At Foothill's discretion,
any proceeds of Collateral received by Foothill after the
occurrence and during the continuation of an Event of
Default may be held as the cash collateral required by this
Section 2.4(d).
(e) The amount of the F/X Reserve may be
reduced from time to time by Foothill upon the receipt and
written acceptance by Foothill of an F/X Reserve Reduction
Certificate, in the form of that attached hereto as
Exhibit F-2, duly executed by both Borrower and F/X Bank,
not less than 2 Business Days prior to the requested
effective date of such reduction.
(f) So long as no Triggering Event has
occurred and is continuing or would result therefrom, the
amount of the F/X Reserve may be increased from time to time
by Foothill in its sole discretion upon the receipt and
written acceptance by Foothill of an F/X Reserve Increase
Certificate, in the form of that attached hereto as Exhibit
F-3, duly executed by both Borrower and F/X Bank, not less
than 2 Business Days prior to the requested effective date
of such increase.
(g) Anything in the Loan Documents to the
contrary notwithstanding, Permitted Spot Trades shall be
deemed to qualify as Permitted F/X Contracts eligible for
coverage under an F/X Line indemnity solely until such time,
if ever, as Foothill is obligated to advance funds under an
F/X Line indemnity to cover obligations owing but unpaid by
Borrower to F/X Bank in respect of Permitted Spot Trades
and, thereafter, Permitted Spot Trades shall no longer be
deemed to qualify as Permitted F/X Contracts eligible for
coverage under an F/X Line indemnity and F/X Line
indemnities shall no longer be permitted to be issued in
respect of Permitted Spot Trades.
f. The first sentence of Section 3.5 of the Agreement
hereby is amended and restated in its entirety to read as follows:
On the date of termination of this Agreement, all
Obligations (including contingent reimbursement obligations
of Borrower with respect to any outstanding Letters of
Credit or any outstanding F/X Line indemnities) immediately
shall become due and payable without notice or demand.
g. The preamble to Section 5 of the Agreement hereby is
amended and restated in its entirety to read as follows:
In order to induce Foothill to enter into this Agreement,
Borrower makes the following representations and warranties
which shall be true, correct, and complete in all respects
as of the Closing Date, and at and as of the date of the
making of each Advance or Letter of Credit or F/X Line
indemnity made thereafter, as though made on and as of the
date of such Advance or Letter of Credit or F/X Line
indemnity (except to the extent that such representations
and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution
and delivery of this Agreement:
h. Section 7.1(a) of the Agreement hereby is amended and
restated in its entirety to read as follows:
(a) Indebtedness evidenced by this
Agreement, together with Indebtedness to issuers of letters
of credit that are the subject of L/C Guarantees and
Indebtedness to F/X Bank under Permitted F/X Contracts;
i. The subsection of Section 7.19 of the Agreement that
reads "withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is
reasonably likely to result in any liability of any such entity
under Title IV of ERISA;" and that is numbered in Section 7.19 of
the Agreement as `subsection 7.(yyyy)' hereby is re-numbered as
`subsection (h)'.
j. A new subsection (n) hereby is added to Section 9.1 of
the Agreement in proper numerical order as follows:
(n) Foothill may, at its option, require
Borrower to deposit with Foothill funds in an amount equal
to the F/X Line Reserve (if any), and, if Borrower fails to
make such deposit promptly, Foothill may advance such amount
as an Advance (whether or not an Overadvance is created
thereby). Any such deposit or the proceeds of such Advance
shall be held by Lender as a reserve to fund indemnity
obligations owing to F/X Bank under the F/X Line. At such
time (if ever) as all such indemnity obligations have been
paid or terminated, any amounts remaining in such reserve
shall be applied against any outstanding Obligations or, if
all Obligations have been indefeasibly paid in full,
returned to Borrower.
2. Representations and Warranties. Borrower hereby
represents and warrants to Foothill that: (a) the execution,
delivery, and performance of this Amendment and of the Agreement,
as amended by this Amendment, are within its corporate powers,
have been duly authorized by all necessary corporate action, and
are not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of
its charter or bylaws, or of any contract or undertaking to which
it is a party or by which any of its properties may be bound or
affected; (b) this Amendment and the Agreement, as amended by
this Amendment, constitute Borrower's legal, valid, and binding
obligation, enforceable against Borrower in accordance with its
terms; and (c) attached hereto as Exhibit F-1 is a true, correct,
and complete copy of the F/X Bank Parameters Letter.
3. Conditions Precedent to Amendment. The satisfaction of
each of the following on or before, unless otherwise specified
below, the First Amendment Closing Date shall constitute
conditions precedent to the effectiveness of this Amendment:
a. Foothill shall have received the reaffirmation and
consent of each of the Obligors (other than Borrower) attached
hereto as Exhibit A, duly executed and delivered by the
respective authorized officials thereof;
b. Foothill shall have received a certificate from the
Secretary of Borrower attesting to the incumbency and signatures
of authorized officers of Borrower and to the resolutions of
Borrower's Board of Directors authorizing its execution and
delivery of this Amendment and the performance of this Amendment
and the Agreement as amended by this Amendment, and authorizing
specific officers of Borrower to execute and deliver the same;
c. Foothill shall have received all required consents of
Foothill's participants in the Obligations to Foothill's
execution, delivery, and performance of this Amendment;
d. The representations and warranties in this Amendment,
the Agreement as amended by this Amendment, and the other Loan
Documents shall be true and correct in all respects on and as of
the date hereof, as though made on such date (except to the
extent that such representations and warranties relate solely to
an earlier date);
e. No Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default
shall have occurred and be continuing on the date hereof, nor
shall result from the consummation of the transactions contemplated herein;
f. No injunction, writ, restraining order, or other order
of any nature prohibiting, directly or indirectly, the
consummation of the transactions contemplated herein shall have
been issued and remain in force by any governmental authority
against Borrower, Foothill, or any of their Affiliates;
g. The Collateral shall not have declined materially in
value from the values set forth in the most recent appraisals or
field examinations previously done by Foothill; and
h. All other documents and legal matters in connection
with the transactions contemplated by this Amendment shall have
been delivered or executed or recorded and shall be in form and
substance satisfactory to Foothill and its counsel.
4. Effect on Agreement. The Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with
its respective terms and hereby is ratified and confirmed in all
respects. The execution, delivery, and performance of this
Amendment shall not operate as a waiver of or, except as
expressly set forth herein, as an amendment, of any right, power,
or remedy of Foothill under the Agreement, as in effect prior to
the date hereof.
5. Further Assurances. Borrower shall execute and deliver
all agreements, documents, and instruments, in form and substance
satisfactory to Foothill, and take all actions as Foothill may
reasonably request from time to time, to perfect and maintain the
perfection and priority of Foothill's security interests in the
Collateral and the Real Property, and to fully consummate the
transactions contemplated under this Amendment and the Agreement,
as amended by this Amendment.
6. Miscellaneous.
a. Upon the effectiveness of this Amendment, each
reference in the Agreement to "this Agreement", "hereunder",
"herein", "hereof" or words of like import referring to the
Agreement shall mean and refer to the Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each
reference in the Loan Documents to the "Loan Agreement",
"thereunder", "therein", "thereof" or words of like import
referring to the Agreement shall mean and refer to the Agreement
as amended by this Amendment.
c. Upon the effectiveness of this Amendment, each
reference in the Agreement and the other Loan Documents to
Exhibit F-1, Exhibit F-2, or Exhibit F-3 of the Agreement shall
mean and refer to Exhibit F-1, Exhibit F-2, or Exhibit F-3
attached hereto, respectively.
d. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one
and the same instrument and any of the parties hereto may execute
this Amendment by signing any such counterpart.
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By____________________________
Title:________________________
INTERGRAPH CORPORATION, a Delaware corporation
By____________________________
Title:________________________
EXHIBIT A
----------
Reaffirmation and Consent
All capitalized terms used herein but not
otherwise defined herein shall have the meanings ascribed to them
in that certain Amendment Number One to Loan and Security
Agreement, dated as of January 14, 1997 (the "Amendment"). Each
of the undersigned hereby (a) represents and warrants to Foothill
that the execution, delivery, and performance of this
Reaffirmation and Consent are within its corporate powers, have
been duly authorized by all necessary corporate action, and are
not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of
its charter or bylaws, or of any contract or undertaking to which
it is a party or by which any of its properties may be bound or
affected; (b) consents to the amendment of the Agreement by the
Amendment; (c) acknowledges and reaffirms its obligations owing
to Foothill under the Pledge Agreement and any other Loan
Documents to which it is party; and (d) agrees that each of the
Pledge Agreement and any other Loan Documents to which it is a
party is and shall remain in full force and effect. Although
each of the undersigned has been informed of the matters set
forth herein and has acknowledged and agreed to same, it
understands that Foothill has no obligation to inform it of such
matters in the future or to seek its acknowledgement or agreement
to future amendments, and nothing herein shall create such a duty.
M&S COMPUTING INVESTMENTS, INC., a
Delaware corporation
By ___________________________
Title:________________________
INTERGRAPH DELAWARE, INC., a Delaware
corporation
By ___________________________
Title:________________________
Exhibit F-1
-----------
[TO BE ATTACHED]
Exhibit F-2
-----------
F/X RESERVE REDUCTION CERTIFICATE
Today's date:____________________
(1) FROM INTERGRAPH TO: NORWEST BANK MINNESOTA
ATTENTION: Mike Schaefer/Ann Johnson
FACSIMILE: (612) 667-0513
(2) FROM NORWEST TO: FOOTHILL CAPITAL CORPORATION
ATTENTION: Bryan Hamm
FACSIMILE: (617) 722-9485
(3) FROM FOOTHILL TO INTERGRAPH AND NORWEST:
Reference hereby is made to that certain Loan and Security
Agreement, dated as of December 20, 1996 (as amended,
supplemented, and modified, the "Loan Agreement"), between
Foothill Capital Corporation ("Foothill") and Intergraph
Corporation ("Borrower"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them
in the Loan Agreement.
Pursuant to Section 2.4 of the Agreement, Borrower hereby
requests a reduction in the F/X Reserve from the current amount
of $____________ to the new amount of $_____________, such
reduction to become effective on _____________,______.
INTERGRAPH CORPORATION FACSIMILE: (205) 730-2742
ATTENTION: Roger Fulton
By:_______________________
Its:______________________
NORWEST BANK MINNESOTA, N.A.
By:_______________________
Its:______________________
FOOTHILL CAPITAL CORPORATION
By:_______________________
Its:______________________
Exhibit F-3
-----------
F/X RESERVE INCREASE CERTIFICATE
Today's date:____________________
(1) FROM INTERGRAPH TO: FOOTHILL CAPITAL CORPORATION
ATTENTION: Bryan Hamm
FACSIMILE: (617) 722-9485
(2) FROM FOOTHILL TO: NORWEST BANK MINNESOTA
ATTENTION: Mike Schaefer/Ann Johnson
FACSIMILE: (612) 667-0513
(3) FROM NORWEST TO INTERGRAPH AND FOOTHILL:
Reference hereby is made to that certain Loan and Security
Agreement, dated as of December 20, 1996 (as amended, restated,
supplemented, and modified from time to time, the "Loan
Agreement"), between Foothill Capital Corporation ("Foothill")
and Intergraph Corporation ("Borrower"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings
ascribed to them in the Loan Agreement.
Pursuant to Section 2.4 of the Agreement, Borrower hereby
requests an increase in the F/X Reserve from the current amount
of $____________ to the new amount of $_____________, such
increase to become effective on _____________,______.
INTERGRAPH CORPORATION FACSIMILE: (205) 730-2742
ATTENTION: Roger Fulton
By:_______________________
Its:______________________
FOOTHILL CAPITAL CORPORATION
By:_______________________
Its:______________________
NORWEST BANK MINNESOTA, N.A.
By:_______________________
Its:______________________
INTERGRAPH CORPORATION
1997 STOCK OPTION PLAN
1. PURPOSE
This 1997 Stock Option Plan of Intergraph Corporation (the
"Plan") is intended as an incentive for key employees which will
foster increased productivity, encourage them to remain in the
employ of Intergraph Corporation (the "Corporation"), and enable
them to acquire or increase their proprietary interest in the
Corporation. At the discretion of the Committee, as defined
below, options issued pursuant to this Plan may be either
incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended ("Incentive Options"),
or options which are not Incentive Options ("Non-Statutory
Options").
2. ADMINISTRATION
The Plan shall be administered by a committee (the
"Committee") composed of the entire Board of Directors or a
committee of the Board of Directors that is composed solely of
two or more Non-Employee Directors. For this purpose, the term
"Non-Employee Director" shall mean a person who is a member of
the Company's Board of Directors who (a) is not currently an
officer or employee of the Company or any parent or subsidiary of
the Company, (b) does not directly or indirectly receive
compensation for serving as a consultant or in any other non-
director capacity from the Company or any parent or subsidiary of
the Company that exceeds the dollar amount for which disclosure
would be required pursuant to Item 404(a) of Regulation S-K
promulgated under the Securities Act of 1933 and the Securities
Exchange Act of 1934 ("Regulation S-K"), (c) does not possess any
interest in any other transaction with the Company or any parent
or subsidiary of the Company for which disclosure would be
required pursuant to Item 404(a) of Regulation S-K, and (d) is
not engaged in a business relationship with the Company or any
parent or subsidiary of the Company which would be disclosable
under Item 404(b) of Regulation S-K. In the event the Committee
is a committee composed of two or more Non-Employee Directors,
the Board of Directors may from time to time remove members from,
add members to, and fill vacancies on, the Committee. A member
of the Committee shall be eligible to participate in the Plan and
receive options under the Plan.
The Committee shall select one of its members as Chairman, and
shall hold meetings at such times and places as it may determine.
Action taken by a majority of the Committee at which a quorum is
present, or action reduced to writing or approved in writing by a
majority of the members of the Committee, shall be valid acts of
the Committee.
The Committee may from time to time and at its discretion,
grant options to eligible employees. Subject to the terms of
this Plan, the Committee shall exercise its sole discretion in
determining which eligible employees shall receive options, and
the number of shares subject to each option granted.
The Committee's interpretation and construction of any
provision of the Plan, or any option granted under it, shall be
final. No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or
any option granted under the Plan.
3. ELIGIBILITY
Persons eligible to receive options shall be such key
employees (including officers) of the Corporation and its
subsidiaries as the Committee shall from time to time select.
The determination of whether a company is a subsidiary of the
Corporation shall be made in accordance with Section 425(f) of
the Internal Revenue Code, as amended. An option recipient may,
subject to the terms and restrictions set forth in the Plan, hold
more than one option. No person shall be eligible to receive an
option for a larger number of shares than is granted to him by
the Committee. In selecting the individuals to whom options
shall be granted, as well as determining the number of shares
subject to each option, the Committee shall weigh the position
and responsibility of the individual being considered, the nature
of his or her services, his or her present and potential
contributions to the Corporation, and such other factors as the
Committee deems relevant to accomplish the purposes of the Plan.
4. STOCK
The stock subject to options issued under the Plan shall be
shares of the Corporation's authorized but unissued, or
reacquired, ten cent ($.10) par value common stock (hereafter
sometimes called "Capital Stock" or "Common Stock"). The
aggregate number of shares which may be issued pursuant to option
exercises under the Plan shall not exceed 3,000,000 shares of
Capital Stock. The limitations established by each of the
preceding sentences shall be subject to adjustment as provided in
Article 5(g) of the Plan.
In the event that any outstanding option under the Plan for
any reason expires or is terminated, the shares of Capital Stock
allocable to the unexercised portion of such option may again be
subjected to an option under the Plan.
5. TERMS AND CONDITIONS OF THE PLAN
No obligation to retain an option recipient as an employee of
the Corporation or its subsidiaries, or to provide or continue
providing the option recipient with, or to permit the option
recipient to retain, any incident associated with or arising, out
of employment with the Corporation or its subsidiaries, including
but not limited to tenure, salary, benefits, title or position,
shall be imposed on the Corporation or its subsidiaries by virtue
of the adoption of the Plan, the grant or acceptance of an option
granted pursuant to the Plan, or the exercise of an option under
the Plan. Stock options granted under the Plan shall be
authorized by the Committee and shall be evidenced by agreements
in such form as the Committee shall from time to time approve.
Such agreements shall conform with, and be subject to, the
following terms and conditions:
(a) Number of Shares and Form of Option
Each option agreement shall state the number of shares to
which it pertains and whether the option granted is an Incentive
Option or a Non-Statutory Option.
(b) Option Price
Each option agreement shall state the option exercise
price. The per share exercise price for shares obtainable
pursuant to an Incentive Option shall not be less than 100% of
the Fair Market Value, as defined below, of the shares of Capital
Stock of the Corporation on the date the option is granted. The
per share exercise price for shares obtainable pursuant to a Non-
Statutory Option shall not be less than the par value of the
shares. For all purposes under the Plan, Fair Market Value shall
be deemed to be the closing sale price of the Common Stock as
reported on the Nasdaq National Market (or the mean between the
highest and lowest per share sales price should the Common Stock
be listed on an exchange) on a given day, or if such stock is not
traded on that day, then on the next preceding day on which such
stock was traded (the "Fair Market Value"). Subject to the
foregoing, the Committee shall have full authority and
discretion, and shall be fully protected, with respect to the
price fixed for shares obtainable pursuant to the exercise of
options. The aggregate Fair Market Value (determined at the time
the Incentive Option is granted) of the Common Stock with respect
to which Incentive Options are exercisable for the first time by
the option recipient during any calendar year (under all such
plans of the Corporation and its subsidiary corporations) shall
not exceed $100,000. If an option recipient is granted an
Incentive Option which exceeds this limitation, the Incentive
Option shall be null and void to the extent such limitation is
exceeded. Notwithstanding the foregoing, no Incentive Option
shall be granted to an employee who, immediately after such
option is granted, owns or has rights to stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation, unless such option is
granted at a price which is at least 10% greater than the Fair
Market Value of the stock subject to the Incentive Option and
such option by its terms is not exercisable after the expiration
of five (5) years from the date such option is granted.
(c) Medium and Time of Payment
The option recipient may pay the option exercise price in
cash, by means of unrestricted shares of the Corporation's Common
Stock, or in any combination thereof. The option recipient must
pay for shares received pursuant to an option exercise on or
before the date of delivery of the shares to the option
recipient. Subject to the requirements of rules promulgated by
the Securities and Exchange Commission and Regulation T
promulgated by the Federal Reserve Board, the Committee, in its
sole discretion, may establish procedures whereby an option
recipient may exercise an option or a portion thereof without
making a direct payment of the option price to the Corporation.
If the Committee so elects to establish a cashless exercise
program, the Committee shall determine, in its sole discretion,
and from time to time, such administrative procedures and
policies as it deems appropriate and such procedures and policies
shall be binding on any option recipient utilizing the cashless
exercise program. Payment in currency or by check, bank draft,
cashier's check, or postal money order shall be considered
payment in cash. In the event of payment in the Corporation's
Common Stock, the shares used in payment of the purchase price
shall be taken at the Fair Market Value of such shares on the
date they are tendered to the Corporation.
(d) Term and Exercise of Options
No option shall be exercisable either in whole or in part
prior to twenty-four (24) months from the date it is granted.
Subject to the right of accretion provided in the next to last
sentence of this Article 5(d), each option shall be exercisable
in four (4) installments, as follows: (1) up to one-fourth of
the total shares covered by the option may be purchased after
twenty-four (24) months from the date the option is granted; (2)
up to one-fourth of the total shares covered by the option may be
purchased after thirty-six (36) months from the date the option
is granted; (3) up to one-fourth of the total shares covered by
the option may be purchased after forty-eight (48) months from
the date the option is granted; and (4) up to one-fourth of the
total shares covered by the option may be purchased after sixty
(60) months from the date the option is granted. The Committee
may provide, however, for the exercise of an option after the
initial twenty-four month period, either as an increased
percentage of shares per year or as to all remaining shares, if
the option recipient dies, is or becomes disabled, or, with the
permission of the Committee, retires. During the option
recipient's lifetime, the option shall be exercisable only by the
option recipient, or the option recipient's guardian or legal
representative if one has been appointed, and shall not be
assignable or transferable other than by will or the laws of
descent and distribution. To the extent not exercised, option
installments shall accumulate and be exercisable, in whole or in
part, in any subsequent period but not later than ten (10) years
from the date the option is granted. No option is exercisable
after the expiration of ten (10) years from the date it is
granted.
(e) Termination of Employment Except Death
If an option recipient's employment with the Corporation
or its subsidiaries ceases for any reason other than the option
recipient's death, all options held by him pursuant to the Plan
and not previously exercised as of the date of such termination
shall terminate and become void and of no effect three (3) months
from the date the option recipient's employment is terminated,
provided that no option shall be exercisable after the expiration
of ten (10) years from the date it is granted. Authorized leaves
of absence or absence for military service shall not constitute
termination of employment for the purposes of the Plan.
(f) Death of Option Recipient and Transfer of Option
If an option recipient dies while employed by the
Corporation or its subsidiaries and has not fully exercised all
of his exercisable options, such options may be exercised, at any
time within three (3) months after death, by the option
recipient's executors or administrators, or by any person or
persons who shall have acquired the option directly from the
option recipient by bequest or inheritance. In no event,
however, shall the option be exercisable more than ten (10) years
after the date such option is granted. An option transferred to
an option recipient's estate or to a person to whom such right
devolves by reason of the option recipient's death shall be
nontransferable by the option recipient's executor or
administrator or by such person, except that the option may be
distributed by the option recipient's executors or administrators
to the distributees of the option recipient's estate entitled
thereto.
(g) Recapitalization
Subject to any required action by the shareholders, the
aggregate number of shares which may be issued pursuant to option
exercises, the number of shares of Capital Stock covered by each
outstanding option, and the price per share applicable to shares
under such option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Capital
Stock of the Corporation resulting from a subdivision or
consolidation of shares or the payment of a stock dividend (but
only on the Capital Stock), or any other increase or decrease in
the number of such shares effected without receipt of
consideration by the Corporation.
If the Corporation is merged with or consolidated into any
other corporation, or if all or substantially all of the business
or property of the Corporation is sold, or if the Corporation is
liquidated or dissolved, or if a tender or exchange offer is made
for all or any part of the Corporation's voting securities, or if
any other actual or threatened change in control of the
Corporation occurs, the Committee, with or without the consent of
the option recipient, may (but shall not be obligated to), either
at the time of or in anticipation of any such transaction, take
any of the following actions that the Committee may deem
appropriate in its sole and absolute discretion: (i) cancel any
option by providing for the payment to the option recipient of
the excess of the Fair Market Value of the shares subject to the
option over the exercise price of the option, (ii) substitute a
new option of substantially equivalent value for any option,
(iii) accelerate the exercise terms of any option, or (iv) make
such other adjustments in the terms and conditions of any option
as it deems appropriate.
In the event of a change in Capital Stock of the
Corporation as presently constituted, which is limited to a
change of all of its authorized shares with par value into the
same number of shares with a different par value or without par
value, the shares resulting from any change shall be deemed to be
the Capital Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments shall be
made by the Committee, whose determination in that respect shall
be final.
Except as otherwise expressly provided in this Article
5(g), the option recipient shall have no rights by reason of any
subdivision or consolidation of shares of stock of any class, or
the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, or by
reason of any dissolution, liquidation, merger or consolidation
or spin-off of assets or stock of another corporation. Any issue
by the Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect,
and no adjustment by reason thereof shall be made with respect
to, the number or price of shares of Capital Stock subject to the
option.
The grant of an option pursuant to the Plan shall not
affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations, or changes of
its capital or business structure, or to merge, consolidate,
dissolve, liquidate, sell, or transfer all or any part of its
business or assets.
(h) Rights as a Stockholder
An option recipient or a transferee of an option shall
have no rights as a stockholder with respect to any shares
subject to his option until a stock certificate is issued to him
for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities, or other
property), distributions, or other rights for which the record
date is prior to the date such stock certificate is issued,
except as provided in Article 5(g) of the Plan.
(i) Modification, Extension, and Renewal of Options
Subject to the terms of the Plan, the Committee may
modify, extend, or renew outstanding options granted under the
Plan, or accept the surrender of outstanding options (to the
extent not theretofore exercised) and authorize the granting of
new options in substitution therefor (to the extent not
theretofore exercised). The Committee shall not, however, modify
any outstanding Incentive Options so as to specify a lower price,
or accept the surrender of outstanding Incentive Options and
authorize the granting of new options in substitution therefor
specifying a lower price. Notwithstanding the foregoing,
however, no modification of an option shall, without the consent
of the option recipient, alter or impair any rights or
obligations under any option theretofore granted under the Plan.
(j) Withholding
Whenever the Corporation proposes or is required to issue
or transfer shares of Capital Stock under the Plan, the
Corporation shall have the right to require the option recipient,
prior to the issuance or delivery of any certificates for such
shares, to remit to the Corporation, or provide indemnification
satisfactory to the Corporation for, an amount sufficient to
satisfy any federal, state, local, and foreign withholding tax
requirements incurred as a result of an option exercise under the
Plan by such option recipient.
(k) Other Provisions
The option agreements authorized under the Plan shall
contain such other provisions, including, without limitation,
restrictions upon the exercise of the option, as the Committee
shall deem advisable. Limitations and restrictions shall be
placed upon the exercise of Incentive Options, in the Incentive
Option agreement, so that such option will be an "incentive stock
option" as defined in Section 422 of the Internal Revenue Code of
1986.
6. TERM OF PLAN
Incentive Options and Non-Statutory Options may be granted
pursuant to the Plan from time to time within a period of five
(5) years commencing on June 1, 1997, and continuing through May
31, 2002.
7. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they
may have as directors or as members of the Committee, the members
of the Committee shall be indemnified by the Corporation against
the reasonable expenses, including, attorney's fees, actually and
necessarily incurred in connection with the defense of any
action, suit, or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of
any action taken or failure to act under or in connection with
the Plan or any option granted hereunder, and against all amounts
paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any
such action, suit, or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit, or
proceeding, that such Committee member is liable for willful
misconduct in the performance of his duties; provided, that
within sixty (60) days after institution of any such action,
suit, or proceeding a Committee member shall in writing offer the
Corporation the opportunity, at its own expense, to handle and
defend the same.
8. AMENDMENT OF THE PLAN
The Board of Directors, insofar as permitted by law, shall
have the right from time to time with respect to any shares at
the time not subject to options, to suspend or discontinue the
Plan or revise or amend it in any respect whatsoever, except that
without approval of the shareholders of the Company, no such
revision or amendment shall: (a) change the number of shares for
which options may be granted under the Plan either in the
aggregate or to any individual employee, (b) change the
provisions relating to the determination of employees to whom
options shall be granted, (c) remove the administration of the
Plan from the Committee, or (d) decrease the price at which
Incentive Options may be granted.
9. APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of
Capital Stock pursuant to the exercise of options will be used
for general corporate purposes.
10. NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the
option recipient to exercise such option.
11. APPROVAL OF STOCKHOLDERS
This Plan shall take effect on June 1, 1997, subject to
approval by the affirmative vote of the holders of the majority
of the outstanding shares of Capital Stock of the Corporation
present, or represented, and entitled to vote at a meeting of the
shareholders, which approval must occur within the period
beginning twelve (12) months before and ending twelve (12) months
after the date the Plan is adopted by the Board of Directors.
Five Year Financial Summary
- ----------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues $1,095,333 $1,097,978 $1,041,403 $1,050,277 $1,176,661
Restructuring
charge (credit) --- 6,040 ( 4,826) 89,806 4,418
Nonrecurring
operating charges 10,545 --- --- --- ---
Gains on sales of
investments in
affiliates 11,173 6,493 5,815 --- ---
Net income (loss) (69,112) (45,348) (70,220) (116,042) 8,442
Net income (loss)
per share ( 1.46) ( .98) ( 1.56) ( 2.51) .18
Working capital 230,804 261,140 282,893 348,756 430,974
Total assets 756,347 826,045 839,618 855,329 986,663
Total debt 65,644 69,541 61,114 26,606 21,887
Shareholders' equity 447,263 504,064 522,337 588,710 736,863
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following summarized financial data sets forth the results
of operations of the Company for the three year period ended
December 31, 1996. The complete consolidated financial
statements of the Company, including footnote disclosures, are
presented on pages 23 to 44 of this annual report.
- ---------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------
(In millions except per share amounts)
Revenues $1,095 $1,098 $1,041
Cost of revenues 692 668 619
- ---------------------------------------------------------------
Gross profit 403 430 422
Operating expenses 461 478 500
Restructuring charge (credit) --- 6 ( 5)
Nonrecurring operating charges 11 --- ---
- ---------------------------------------------------------------
Loss from operations ( 69) ( 54) ( 73)
Gains on sales of investments
in affiliates 11 7 6
All other income (expense) - net ( 8) 2 ( 7)
- ---------------------------------------------------------------
Loss before income taxes ( 66) ( 45) ( 74)
Income tax benefit (expense) ( 3) --- 4
- ---------------------------------------------------------------
Net loss $( 69) $( 45) $( 70)
===============================================================
Net loss per share $(1.46) $( .98) $(1.56)
===============================================================
RESULTS OF OPERATIONS
Summary. The industry in which the Company competes continues
to be characterized by rapidly changing technologies, a move to
higher performance, lower priced product offerings, intense
price and performance competition, shorter product cycles, and
development and support of software standards that result in
less specific hardware and software dependencies by customers.
Strategic Decisions. Beginning in late 1992, the Company made
strategic decisions regarding its operating systems and
hardware architecture that were designed to better position the
Company to effectively compete under the industry conditions
described above. At the end of 1994, the Company completed a
two year development effort to port its technical software
applications to Microsoft Corporation's Windows NT operating
system, and to make Windows NT available on Intergraph
workstations. The effect of this effort has been to expand the
availability of the Company's workstations and software
applications to Windows-based computing environments not
previously addressed by the Company, including the availability
of Intergraph software applications operating across a variety
of both the Intergraph hardware architecture and the hardware
architectures of other vendors that use the Windows NT
operating system. In addition, the transition from a
proprietary hardware architecture to that of Intel Corporation
was substantially completed during this same period. Sales of
Windows-based software represented 48% of the Company's
software revenues in 1994 and grew to 70% in 1995 and 78% in
1996. Intel-based systems represented 74% of hardware unit
sales in 1994, 95% in 1995, and 99% in 1996.
Operating Results. Industry conditions and changes in
operating system and hardware architecture strategies resulted
in a transition period for the Company characterized by
revenues that declined from 1992 through 1994, by restructuring
charges in 1993 and 1995, and by annual net losses from 1993
through 1995. Although the Company substantially completed its
operating system and hardware architecture transition in 1995,
revenue to date associated with resulting new product offerings
has not met expectations, and gross margin on product sales has
continued to decline due primarily to price competition in the
industry.
The Company continues to believe its operating system and
hardware architecture strategies will prove to be the correct
choices. However, to achieve profitability, the Company must
substantially increase sales volume while continuing to control
cost. The Company believes that industry trends toward higher
performance and lower priced products, intense competition, and
rapidly changing technology will continue, and that improvement
in its operating results will depend on its ability to
accurately anticipate customer requirements and technological
trends and to rapidly and continuously develop and deliver new
hardware and software products that are competitively priced,
deliver enhanced performance, and meet customer requirements
for standardization and interoperability. In addition, while
the Company believes the industry is accepting Windows NT, and
that it will become the dominant operating system in the
markets served by the Company, acceptance of this system by
customers has been slower than anticipated, and the timing of
such acceptance is unpredictable, since adoption of any new
operating system requires considerable effort and expense.
Competing operating systems are available in the market, and
several competitors of the Company offer or are adopting
Windows NT as the operating system for their products. There
can be no assurance that the Windows NT operating system will
become dominant in the markets served by the Company or that
the Company's operating system and hardware strategies will
result in the restoration of profitability.
Restructuring and Nonrecurring Operating Charges. The
strategic decisions described above led to actions that
resulted in an $89.8 million ($1.34 per share) charge to
earnings in 1993. The 1993 restructuring plan and resulting
charge consisted of direct workforce reductions, elimination or
restructuring of certain business operations, and revaluation
of certain assets as the result of new product strategies. The
plan was completed in 1994 substantially as planned, with the
exception of disposition of the Company's European
manufacturing and distribution facility (IEM), which continues
to be utilized as a distribution center for Europe. Included
in the statement of operations for the year ended December 31,
1994, is a $4.8 million credit representing reversal of the
remaining unincurred portion of the restructuring charge
related to IEM. Cash outlays during 1994 related to the 1993
restructuring were approximately $10 million, all of which were
funded by cash from operations or borrowings under credit
facilities. Cash outlays in 1995 were insignificant.
During the second quarter of 1995, the Company undertook a
second restructuring plan designed to further adapt the
Company's cost structure to the changing industry and market
conditions described above. The plan as originally conceived
consisted of direct reductions in workforce, other workforce
reductions through attrition, and disposition of four
unprofitable business units over the twelve month period ended
June 30, 1996. The 1995 plan, had it been fully executed with
respect to the four business units, was expected to provide an
operating expense reduction of approximately $100 million
annually on a prospective basis. Of this total anticipated
annual savings, approximately $66 million was to be derived
from disposition of the four unprofitable business units.
During the fourth quarter of 1996, the Company determined that
two of the four business units included in the original 1995
plan should be retained based on their improving future
prospects and strategic value to other business units. The
Company has terminated this plan effective December 31, 1996.
However, it will continue to seek buyers for the two remaining
business units. Revenues and losses of the two units held for
sale totaled $24 million and $16 million, respectively, for
1996, $43 million and $7 million for 1995, and $43 million and
$16 million for 1994. Assets of the units totaled $14 million
and $26 million at December 31, 1996 and 1995, respectively.
The Company estimates that its operating expenses have been
reduced by approximately $35 million annually as a result of
employee headcount reductions under the 1995 plan.
The 1995 restructuring charge totaled $6 million, primarily for
employee severance pay and related costs. Approximately 450
positions were eliminated through direct reductions in
workforce, with approximately 350 others eliminated through
attrition. All employee groups were affected, but the majority
of eliminated positions derived from the research and
development, systems engineering and support, and sales and
marketing areas. Cash outlays related to the restructuring
totaled $3.6 million in 1995, funded by cash from operations
and borrowings under credit facilities. Cash required in 1996
to fund the 1995 plan was insignificant. The $6 million charge
is included in "Restructuring charge (credit)" in the 1995
consolidated statement of operations.
In 1996, the Company incurred a nonrecurring operating charge
of $10.5 million, consisting of a $7.2 million revaluation of
the assets of the two noncore business units held for sale and
a $3.3 million write-off of deferred financing costs due to
early termination of the Company's revolving credit agreement
with a group of lenders. See "Liquidity and Capital Resources,
Term Loan and Revolving Credit Agreements" below for further
discussion of the Company's refinancing. The $10.5 million
charge is included in "Nonrecurring operating charges" in the
1996 consolidated statement of operations.
Litigation and Other Risks and Uncertainties. The Company's
business is subject to risks and uncertainties, including those
described below.
The Company is the 50% owner of Bentley Systems, Inc. (BSI),
the developer and owner of MicroStation, a software product
utilized in many of the Company's software applications and for
which the Company serves as a nonexclusive distributor. The
Company's business relationship with BSI is the subject of two
arbitration proceedings. In December 1995, the Company
commenced an arbitration proceeding against BSI with the
American Arbitration Association, Philadelphia, Pennsylvania,
alleging that BSI inappropriately and without cause terminated
a contractual arrangement between BSI and the Company. In
response, BSI in January 1996, filed a counterclaim against the
Company seeking significant damages as the result of the
Company's alleged failure to use best efforts to sell software
support services pursuant to terms of the contractual
arrangement terminated by BSI. In March 1996, BSI commenced
arbitration against the Company alleging that the Company
failed to properly account for and pay to BSI certain royalties
on the sale of BSI software products by the Company, and
seeking unspecified damages. This matter is currently pending
with the American Arbitration Association, Atlanta, Georgia.
The Company denies that it has breached any of its contractual
obligations to BSI and is defending vigorously in both
proceedings, but at present is unable to predict the outcome of
the proceedings. Separately, the Company has engaged an
investment banking firm to value and sell its ownership
interest in BSI. At present, the investment banking firm is
not actively pursuing a buyer due to disagreement between the
Company and BSI regarding due diligence information to be
supplied to potential buyers. See "Revenues" section below for
further details relative to the Company's business relationship
with BSI, its sales of MicroStation, and the financial effects
on the Company of changes in the business relationship.
The Company filed a legal action in August 1995, in the U.S.
District Court of Alabama, Northeast Division, seeking to
dissolve and wind up its business arrangement with Zydex, Inc.
(Zydex), a company with which it jointly developed its plant
design software application ("PDS"), and seeking an order
allowing the Company to continue the business of that
arrangement without further responsibility or obligation to
Zydex. In response, Zydex filed a counterclaim against the
Company in November 1995, alleging wrongful dissolution of the
business relationship and seeking both sole ownership of PDS
and significant compensatory and punitive damages. The Company
denies and is defending these allegations vigorously, but at
present is unable to predict the outcome of the proceedings.
The Company's sales of PDS products during the year ended
December 31, 1996 were approximately $36 million.
The Company has certain business risks related to revenues
earned under long-term contractual arrangements, and to its
ability to obtain patents, trademarks, and copyrights on
products it develops, obtain the patented technology of other
companies if required as part of the Company's product
offerings, and obtain third party product licenses, all of
which are important to success in the industry in which the
Company does business. See Notes to Consolidated Financial
Statements for further discussion of these risks and
uncertainties.
Substantially all of the Company's microprocessor needs are
currently supplied by Intel. The Company does not have a fixed
quantity commitment for microprocessors in its agreements with
Intel, but believes it has a good relationship with Intel and
is unaware of any reason that Intel might encounter
difficulties in meeting the Company's microprocessor needs for
the long term. Other microprocessors are available in the
market, but a change by the Company from Intel to another
microprocessor would significantly disrupt the Company's
development and manufacturing activities and result in delayed
or lost sales, which would have a significant adverse effect on
the Company's results of operations and financial position.
Orders. Systems orders for 1996 were $723 million, a 1%
increase over the prior year after increases of 12% and 2% in
1995 and 1994, respectively. Product transition adversely
affected 1994 orders as did slower than anticipated customer
acceptance of the Windows NT operating system. The Company's
product transition carried over into 1995, but with growing
availability of new products and slowly increasing acceptance
of the Windows NT operating system, orders sequentially
improved with each quarter to end the year with a 12% increase
over 1994. Orders for the Company's systems in 1996 were
characterized by heavier demand for the Company's hardware
product offerings but with offsetting softer demand for its
software products. The Company introduced several new hardware
and software products during 1996. New software and certain of
the new hardware products did not generate significant orders
or revenues during the year. Initial releases of the Company's
new software products were delayed until late in the year and
contained certain performance problems. The Company believes
these problems have been resolved in subsequent releases of the
products which began in the fourth quarter of 1996. In
addition, the Company believes these products are now well
positioned within the marketplace and that increased orders and
revenues for these products should occur in 1997.
New Products. In late 1995, the Company announced its Jupiter
technology, a Windows-based component software architecture
that is the foundation of many new computer-aided-
design/computer-aided-manufacturing/computer-aided-engineering
(CAD/CAM/CAE) and geographic information systems (GIS)
applications software products under development by the
Company. The first two products built on Jupiter technology
began shipping in mid-1996. Initial orders for these products
have not met Company expectations and have not contributed
substantially to 1996 revenues.
During 1996, the Company introduced a complete line of
workstations and servers for the high end marketplace based on
Intel's Pentium Pro microprocessor. In addition, the Company
introduced a new add-in 3D graphics card which delivers
workstation class 3D graphics to the Pentium- or Pentium Pro-
based personal computer. These products began shipping at
various times throughout 1996. The Company believes these
products have been well accepted, are now well positioned in
the marketplace, and that sales of these products should
increase with full year availability for 1997.
Geographic Regions. International orders totaled $396 million
for the year, an increase of 9% after increases of 12% and 2%
in 1995 and 1994, respectively. Asia Pacific orders totaled
$112 million in 1996, an increase of 45%, after decreasing 7%
in 1995 and increasing 22% in 1994. Growth in that region in
1996 was due in large part to orders for the Company's public
safety products and related consulting services. European
orders totaled $221 million, a 5% decline from the prior year
after a 19% increase in 1995 and a 4% decline in 1994.
European orders for 1995 were strong as a result of winning
several large individual orders in the third and fourth
quarters of that year. U.S. orders, including federal
government orders, totaled $327 million for the year, down 7%
after increases of 11% and 1% in the two preceding years. The
decline in U.S. orders results primarily from a decrease in
orders in one of the Company's noncore business units held for
sale. Excluding this business unit, U.S. orders for the year
were flat with the prior year.
Revenues. Total revenues for 1996 were $1.1 billion, flat with
the previous year after a 5% increase in 1995 and a 1% decline
in 1994.
Systems. Sales of Intergraph systems in 1996 were $726
million, up 2% after a 7% increase in 1995 and a 1% decline in
1994. Factors previously cited as adversely affecting systems
orders also affected systems revenues over the three year
period. Competitive conditions manifested in declining per
unit sales prices continue to adversely affect the Company's
systems revenues; workstation and server unit volume increased
42% in 1996, 22% in 1995, and 41% in 1994, while workstation
and server revenue increased only 18% in 1996 and 4% in each of
the two preceding years.
Geographic Regions. U.S. systems sales, including sales to the
federal government, increased by 2% in 1996 after a decline of
6% in 1995 and an increase of 7% in 1994. Growth in U.S.
systems sales was depressed in 1996 by a revenue decline in one
of the Company's noncore business units held for sale.
Excluding this business unit, U.S. sales growth was 7% in 1996.
In 1995, U.S. systems sales were negatively impacted by the
continuation of product transition and weak demand in U.S.
indirect selling channels. European sales were down 6% in 1996
as a result of weak demand for the Company's software products,
after growth of 19% in 1995 and a 12% decline in 1994. Asia
Pacific systems sales were up 25% after increases of 22% in
1995 and 7% in 1994.
Software. Sales of the Company's software applications
declined by 9% in 1996 after a 4% decline in 1995 and
relatively flat sales in 1994. Declines in the last two years
are the result primarily of a decrease in sales of
MicroStation, the Company's second highest volume software
offering, which declined by approximately 39% in both years
(see "MicroStation" below for further discussion). However,
1996 sales of the Company's plant design and electronics
software applications increased by a combined 38% to soften the
effect of the loss in MicroStation sales. In terms of broad
market segments, the Company's mapping/geographic information
systems, architecture/engineering/construction, and mechanical
design, engineering and manufacturing product applications
continue to dominate the Company's product mix at approximately
52%, 27%, and 13%,respectively, of total systems sales in 1996
(43%, 34%, and 14%, respectively, for 1995). Sales of Windows-based
software represented approximately 80% of total software sales in 1996,
up from approximately 72% in 1995 and 50% in 1994. UNIX-based
software comprised approximately 20% of total 1996 software
sales, down from approximately 28% in 1995 and 50% in 1994.
Federal Government Sales. Total revenue from the United States
government was approximately $161 million in 1996, $159 million
in 1995, and $167 million in 1994, in all three years
representing approximately 15% of total revenue. The Company
sells to the U.S. government under long-term contractual
arrangements, primarily indefinite delivery, indefinite
quantity and cost-plus award fee contracts, and through
commercial sales of products not covered by long-term
contracts. Approximately 40% of total federal government
revenues are earned under long-term contracts. The Company
believes its relationship with the federal government to be
good. While it is fully anticipated that these contracts will
remain in effect through their expiration, the contracts are
subject to termination (with damages paid to the Company) at
the election of the government. Any loss of a significant
government contract would have an adverse impact on the results
of operations of the Company.
MicroStation. Through the end of 1994, the Company had an
exclusive license agreement with BSI, a 50%-owned affiliate of
the Company, under which the Company distributed MicroStation,
a software product developed and maintained by BSI and utilized
in many of the Company's software applications. As a result of
settlement of a dispute between the companies relative to the
exclusivity of the Company's distribution license, effective
January 1, 1995, the Company has a nonexclusive license to sell
MicroStation via its direct sales force and to sell
MicroStation via its indirect sales channels if MicroStation is
sold with other Intergraph products. Also as a result of the
settlement, the per copy royalty payable by the Company to BSI
was increased effective January 1, 1995 and again January 1,
1996 and, for 1995 only, BSI paid the Company a per copy
distribution fee based on BSI's MicroStation sales to resellers
(such fees were $7 million). See "Litigation and Other Risks
and Uncertainties" preceding for a description of arbitration
proceedings currently pending between the Company and BSI.
The Company's sales of MicroStation declined by approximately
39% in 1996 and 1995. The Company estimates this revenue
decline, the per copy royalty increase, and the discontinued
distribution fee adversely affected its results of operations
in 1996 by approximately $26 million, or $.52 per share (in
1995 by approximately $17 million, or $.37 per share). It is
possible that the Company's MicroStation sales will be further
reduced, but the Company is at present unable to predict the
level of MicroStation sales that will occur in future years.
Maintenance and Services. Maintenance and services revenue
consists of revenues from maintenance of Company systems and
from Company provided training, consulting and other services.
These forms of revenue totaled $370 million in 1996, down 5%
after essentially flat revenues in 1995 and 1994. Maintenance
revenues totaled $283 million in 1996, down 12% after a 2%
decrease in 1995 and a 1% increase in 1994. The trend in the
industry toward lower priced products and longer warranty
periods has resulted in reduced levels of maintenance revenue,
and the Company believes this trend will continue in the
future. Services revenue represented 8% of total revenues in
1996 and increased by 31% from the previous year. Growth in
services revenue has acted to partially offset the decline in
maintenance revenue. The Company is endeavoring to increase
revenues from its services business. Such revenues, however,
produce lower gross margins than maintenance revenues.
Gross Margin. The Company's total gross margin was 36.8% in
1996, down 2.3 points after a decline of 1.4 points in 1995 and
no substantial change in 1994.
Margin on systems sales declined 2.3 points in 1996, 1.6 points
in 1995, and 5.1 points in 1994. The decline in 1996 results
primarily from an increase in hardware content in the product
mix and from an increase in MicroStation product cost (see
"MicroStation" above for further discussion). Competitive
pricing conditions in the industry reduced margin on systems
sales in all three years, accounting for the majority of the
decline in 1995 and 1994.
In general, the Company's systems margin may be lowered by
price competition, a stronger U.S. dollar in international
markets, the effects of technological changes on the value of
existing inventories, and a higher mix of federal government
sales, which generally produce lower margins than commercial
sales. Systems margins may be improved by higher software
content in the product, a weaker dollar in international
markets, a higher mix of international systems sales to total
systems sales, and reductions in prices of component parts,
which generally tend to decline over time in the industry. The
Company is unable to predict the effects that many of these
factors may have, but expects continuing pressure on its
systems margin due primarily to industry price competition.
Margin on maintenance and services revenue declined by 2.2
points in 1996 after a decline of 1.1 points in 1995 and an
improvement of 8.6 points in 1994. The margin declines in 1996
and 1995 result primarily from a higher mix of services
revenues, which generally produce lower margins than
maintenance revenues. Improvement in 1994 was the result of
changes in product strategy in 1993, in which oldest generation
spare parts were revalued, resulting in lower obsolescence
charges. The Company believes the trend in the industry toward
lower priced products and longer warranty periods may continue
to reduce its maintenance revenues, which will pressure
maintenance and services margin in the absence of corresponding
cost reductions.
The industry in which the Company competes is characterized by
rapid technological change. This technological change is an
important consideration in the Company's overall inventory
management program, in which the Company endeavors to carry
only parts and systems utilizable with the technology of its
current product offerings and as spares for the contracted
maintenance of systems in its installed customer base. The
Company regularly estimates the degree of technological
obsolescence in its inventories and provides inventory reserves
on that basis. Though the Company believes it has adequately
provided to date for any such declines in inventory value, any
unanticipated change in technology could significantly affect
the value of the Company's inventories and thereby adversely
affect margins and reported results of operations.
Operating Expenses (exclusive of nonrecurring operating charges
and restructuring charges). Operating expenses declined by 3%
in 1996, 4% in 1995, and 1% in 1994. The total number of
employees of the Company has declined by 14% in the three year
period ended December 31, 1996.
Product development expense declined 7% in 1996 after declines
of 19% and 14% in the two preceding years. Employee headcount
in the development areas has been significantly reduced over
the last three years through the cessation of microprocessor
design activities, declining proprietary software development
activity resulting from migration to the Windows NT operating
system, restructuring actions, and attrition. In addition, new
product development costs qualifying for capitalization
substantially increased in 1995 as a result of development of
the Company's Jupiter technology. Sales and marketing expense
decreased 5% in 1996 after increases of 2% and 10% in the two
preceding years. The expense decline results from
restructuring actions taken in 1995 and from closer monitoring
of costs. The Company achieved substantial sales and marketing
headcount and related expense reductions in 1995, but those
gains were more than offset by weakness of the U.S. dollar in
international locations and by expenses of pursuit of new
business in the Asia Pacific region in that year. Increased
costs of presales support activities and advertising and
promotion costs of the Company's new product offerings resulted
in the increase in 1994 sales and marketing expense. General
and administrative expense increased by 4% in 1996 after
declines of 3% and 4% in the two preceding years. Installation
of new internal business systems, increased legal expenses, and
amortization of deferred financing costs related to the
Company's revolving line of credit (see "Liquidity and Capital
Resources, Term Loan and Revolving Credit Agreements" for
further discussion) increased general and administrative
expenses in 1996. The decline in 1995 was the result of
headcount reductions, but was limited by the weakness of the
U.S. dollar in international locations and by the increasing
level of business activity in the Asia Pacific region.
Workforce reductions and other cost control measures, partially
offset by a $5.5 million write-off of an account receivable
from a Middle Eastern customer, accounted for the 1994 savings.
The Company capitalizes a portion of the cost of development of
new products and amortizes those costs against revenues later
generated by those products. Though the Company regularly
reviews its capitalized development costs to ensure recognition
of any decline in value, it is possible that revenues will not
materialize in amounts anticipated due to industry conditions
that include intense price and performance competition, or that
product lives will be reduced due to shorter product cycles.
Should either of these events occur, the carrying amount of
capitalized development costs would be reduced, producing
adverse effects on product development expenses and results of
operations.
Nonoperating Income and Expense. Interest expense was $5.1
million in 1996, $4.2 million in 1995, and $2.4 million in
1994. Both the Company's average outstanding debt and average
rate of interest have increased over the period.
In 1996, the Company entered into an interest rate swap
agreement in the principal amount (approximately $19 million at
December 31, 1996) of its Australian floating rate term loan
agreement. The agreement is for a period of approximately six
years, and its expiration date coincides with that of the term
loan. The agreement was entered into to reduce the risk of
increase in interest rates. Under the agreement, the Company
pays a fixed rate of interest and receives payment based on a
variable rate of interest, and is thus exposed to market risk
of potential future decreases in interest rates. The weighted
average pay and receive rates of the agreement at December 31,
1996 were 9.58% and 7.06%, respectively. The agreement had an
insignificant effect on the total cash flows of the Company in
1996. The Company does no trading in this form of derivative
instrument. See "Liquidity and Capital Resources" below for
further description of the Company's borrowing arrangements.
The Company sold stock investments in affiliated companies at
gains of $11.2 million or $.23 per share in 1996, $6.5 million
or $.14 per share in 1995, and $5.8 million or $.12 per share
in 1994. These gains are included in "Gains on sales of
investments in affiliates" in the consolidated statements of
operations.
"Other income (expense) - net" in the consolidated statements
of operations consists primarily of interest income, foreign
exchange losses, other miscellaneous items of nonoperating
income and expense, and nonrecurring charges. Included in
these amounts are foreign exchange losses of $4.6 million in
1996 and $2.6 million in 1994, and a $3.4 million write-down of
investments in affiliated companies in 1994.
Income Taxes. The Company incurred a loss before income tax
expense of $66.1 million in 1996 and losses before income tax
benefit of $45.3 million in 1995 and $74.2 million in 1994.
Note 8 of Notes to Consolidated Financial Statements contains a
reconciliation of statutory to actual income tax benefit or
expense, and further details of the Company's tax position,
including net operating loss carryforwards.
Operating Results, Geographic Areas. International markets,
particularly Europe, continue in importance to the industry and
to the Company. The Company's operations are subject to and
may be adversely affected by a variety of risks inherent in
doing business internationally, such as government policies or
restrictions, currency exchange fluctuations, and other
factors. For 1996, sales outside the U.S. represented 55% of
total revenues versus 54% in 1995 and 49% in 1994. European
revenues were 33% of total revenues in 1996, 36% in 1995, and
33% in 1994. Asia Pacific revenues represented 13% of total
Company revenues in 1996 and approximately 8% in the two
previous years.
The Company incurred losses from operations of $68.7 million in
1996 (including $10.5 million in nonrecurring charges), $54.1
million in 1995 (including a restructuring charge of $6
million), and $72.6 million in 1994 (including a credit from
revision of the 1993 restructuring charge of $4.8 million).
The factors that have limited the Company's revenue growth and
reduced profitability over the past three years, including
declining per unit sales prices due to competitive conditions,
have similarly affected each of the geographic areas in which
the Company does business. The Company expects that intense
price competition will continue in the future. The increased
loss from operations in 1996 results primarily from flat
revenues and a decline in gross margin, partially offset by a
decline in product development and sales and marketing
expenses.
The U.S. region incurred a loss from operations of $30.3
million in 1996 (including $10.5 million in nonrecurring
charges) after operating losses of $12.3 million in 1995
(including a restructuring charge of $4.8 million) and $27.6
million in 1994. Systems revenue increased slightly during
1996, but systems margin declined by 2.5 points. The margin
decline, along with a 13% increase in general and
administrative expense due to implementation of new internal
business systems and higher legal expenses, resulted in
increased operating losses for the year. U.S. systems revenue
declined by 6% in 1995, and systems margin declined slightly,
reflecting continued product transition and weakness in
indirect selling channels. These negative factors were more
than offset by a 17% decline in product development expense in
1995, the result of employee headcount reductions and increased
development costs qualifying for capitalization.
The European region incurred losses from operations of $32.3
million in 1996, $27.7 million in 1995 (including a
restructuring charge of $1 million), and $33.1 million in 1994
(including a restructuring credit of $4.8 million from revision
of the 1993 restructuring charge). Revenues and gross margin
declined 7% and 1.7 points, respectively, during 1996, offset
to a degree by an approximate 6% decline in both sales and
marketing and general and administrative expenses. Software
sales were weak during the year, while maintenance revenues
were adversely impacted by lower priced products and longer
warranty periods. Operating expenses continue to decline as a
result of restructuring actions and other cost control
measures. Improvement in 1995 was the result of a 19% increase
in systems revenue (a portion of which relates to weakness of
the U.S. dollar in Europe for most of 1995), and reduced
operating expenses. Operations from 1994 through mid-1995 were
adversely affected by product transition but also by poor
economic conditions, particularly in 1994, in the Company's
primary German and U.K. markets.
The Asia Pacific region incurred losses from operations of $5.9
million in 1996, $10.8 million in 1995, and $5.7 million in
1994. This region is the Company's fastest growing with total
revenue increases in excess of approximately 30% in each of the
past two years. The increased 1995 operating loss resulted
from operating expenses incurred primarily in pursuit of new
business.
Other international regions, in total representing
approximately 9% of total Company revenues in 1996, are
comprised of operations in the Middle East, Canada, and Non-
U.S. Americas. These regions incurred operating losses of $5.4
million in 1996, $10.1 million in 1995, and $11.7 million in
1994 (including the write-off of a $5.5 million Middle Eastern
account receivable). The 1995 operating loss increase resulted
from cost increases associated with maintenance and
professional services revenues.
See Note 11 of Notes to Consolidated Financial Statements for
further details of operations by geographic area.
Impact of Currency Fluctuations and Currency Risk Management.
Fluctuations in the value of the U.S. dollar in international
markets can have a significant impact on the Company's results
of operations. For 1996, approximately 55% of the Company's
revenues were derived from customers outside the United States,
primarily through subsidiary operations. Most subsidiaries
sell to customers and incur and pay operating expenses in local
currency. These local currency revenues and expenses are
translated to dollars for U.S. reporting purposes. A stronger
U.S. dollar will decrease the level of reported U.S. dollar
orders and revenues, decrease the dollar gross margin, and
decrease reported dollar operating expenses of the
international subsidiaries. During 1996, the U.S. dollar
strengthened on average from its 1995 level, which decreased
reported dollar revenues, orders, and gross margin, but also
decreased reported dollar operating expenses in comparison to
the prior year period. Such currency effects did not
materially affect the Company's results of operations in 1996
or 1994. The Company estimates that weakness of the U.S.
dollar in 1995 in its international markets, primarily Europe,
improved 1995 results of operations by approximately $.22 per
share.
The Company conducts business in all major markets outside the
U.S., but the most significant of these operations with respect
to currency risk are located in Europe (specifically Germany,
U.K., The Netherlands, France and Italy) and Australia.
Primarily, but not exclusively in these locations, the Company
has certain currency related asset and liability exposures
against which certain measures, primarily hedging, are taken to
reduce currency risk. With respect to these exposures, the
objective of the Company is to protect against financial
statement volatility arising from changes in exchange rates
with respect to amounts denominated for balance sheet purposes
in a currency other than the functional currency of the local
entity. The Company therefore enters into forward exchange
contracts primarily related to these balance sheet items
(intercompany receivables, payables, and formalized
intercompany debt). Periodic changes in the value of these
contracts offset exchange rate related changes in the financial
statement value of these balance sheet items. Forward exchange
contracts are purchased with maturities reflecting the expected
settlement dates of these balance sheet items (generally three
months or less), and only in amounts sufficient to offset
possible significant currency rate related changes in the
recorded values of these balance sheet items, which represent a
calculable exposure for the Company from period to period.
Since this risk is calculable, and these contracts are
purchased only in offsetting amounts, neither the contracts
themselves nor the exposed foreign currency denominated balance
sheet items are likely to have a significant effect on the
Company's financial position or results of operations. Based
on the terms of contracts outstanding and the amount of the
Company's balance sheet exposures at December 31, 1996, the
Company's results of operations would not be materially
affected by a 10% increase or decrease in exchange rates
underlying the contracts and the exposures being hedged. The
Company's positions in these derivatives are continuously
monitored to ensure protection against the known balance sheet
exposures described above. By policy, the Company is
prohibited from market speculation via such instruments and
therefore does not take currency positions exceeding its known
financial statement exposures, and does not otherwise trade in
currencies.
At December 31, 1996, the Company had net outstanding forward
exchange contracts of approximately $47 million ($46 million at
December 31, 1995), maturing at various dates through February
13, 1997. The fair values of these contracts approximated
original contract amounts based on the insignificant amounts
the Company would pay or receive to transfer the contracts to
third parties at December 31, 1996. Neither the gains and
losses resulting from changes in exchange rates underlying the
exposed balance sheet amounts nor the offsetting gains and
losses from the Company's hedging activity were material to
results of operations in 1996, 1995, or 1994. Net negative
cash flow from forward contract activity, consisting of
realized gains and losses from settlement of exposed assets and
liabilities at exchange rates in effect at the settlement date
rather than at the time of recording, settlement of the forward
contracts purchased to mitigate these exposures, and payment of
bank fees on the forward contracts, was $1.7 million in 1996,
$825,000 in 1995, and $1.1 million in 1994. Deferred gains and
losses as of December 31, 1996 and 1995 were not significant.
See Notes 1 and 4 of Notes to Consolidated Financial Statements
for further information related to management of currency risk.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, cash totaled $50.7 million, down $5.7
million from year end 1995. Cash generated from operations in
1996 was $26 million versus $59.8 million in 1995 (including
$22.3 million in tax refunds) and $35.7 million in 1994
(including $34.5 million in tax refunds). Tax refunds in 1995
and 1994 resulted primarily from carryback of U.S. taxable
losses to prior years.
Net cash used for investing activities totaled $31.7 million in
1996, $83.0 million in 1995, and $54.4 million in 1994.
Included in investing activities were capital expenditures of
$30.6 million in 1996, $54.7 million in 1995, and $68 million
in 1994 primarily for Intergraph products used in hardware and
software development and sales and marketing activities. In
addition, investing activity in 1995 also included capital
expenditures for facilities and equipment utilized in a long-
term Australian public safety contract. Other significant
investing activities included expenditures of $15.5 million in
1996, $25.4 million in 1995, and $16.6 million in 1994 for
capitalizable software development activity, and proceeds from
sales of investments in affiliated companies of $11.6 million
in 1996, $7.9 million in 1995 and $7.3 million in 1994.
Net cash used for financing activities totaled $600,000 in 1996
versus a net positive generation of cash from financing
activities of $17.8 million in 1995 and $26.1 million in 1994.
Significant sources of cash included $8.3 million from exercise
of employee stock options in 1995 and a net borrowing of $32.5
million to fund capital expenditures and restructuring charges
in 1994. Cash used to purchase Company stock for the treasury
totaled $10.4 million in 1994.
The Company's collection period for accounts receivable was
approximately 83 days as of December 31, 1996, unchanged from
the prior year. Approximately 70% of the Company's 1996
revenues were derived from the U.S. government and
international customers, both of which traditionally carry
longer collection periods. The Company is experiencing slow
collection periods throughout the Middle East region,
particularly in Saudi Arabia. Total accounts receivable from
Middle Eastern customers was approximately $21 million at
December 31, 1996 ($13.6 million at December 31, 1995). Total
U.S. government accounts receivable was $48 million at December
31, 1996 and 1995. The Company endeavors to enforce its
payment terms with these and other customers, and grants
extended payment terms only in very limited circumstances.
Over the last nine years, the Board of Directors of the Company
has authorized the purchase of up to 20 million shares of the
Company's stock in the open market. As of December 31, 1996,
the Company had purchased approximately 18.8 million shares for
the treasury. There were no treasury stock purchases in 1996
or 1995. Under the provisions of its term loan and revolving
credit agreement, the Company is prohibited from further
purchases of its stock in the open market without the consent
of the lending organization.
The Company expects that capital expenditures will require $40
million to $50 million in 1997, primarily for Intergraph
products used in product development and sales and marketing
activities. The Company's revolving credit agreement contains
certain restrictions on the level of the Company's capital
expenditures.
Term Loan and Revolving Credit Agreements. In October 1995,
the Company entered into a three year revolving credit
agreement with a group of lenders. Borrowings available under
the agreement were determined by the amounts of eligible assets
of the Company, with maximum borrowings of $50 million. At
December 31, 1996, the Company had outstanding borrowings of
$20 million, and an additional $22 million of the available
credit line was allocated to support letters of credit issued
by the Company. Borrowings were secured by a pledge of
substantially all of the Company's assets in the U.S. and
Canada and, under certain circumstances, the accounts
receivable of some European subsidiaries of the Company. The
rate of interest on all borrowings under the agreement was, at
the Company's option, the Citibank base rate of interest plus
1.75% or the Eurodollar rate plus 2.75%. The average effective
rate of interest was 10.6% for the period of time in 1996
during which the Company had outstanding borrowings under the
agreement. The agreement required the Company to pay a
commitment fee at an annual rate of .5% of the average unused
daily portion of the revolving credit commitment. In addition,
the agreement contained certain financial and restrictive
covenants of the Company. In January 1997, the Company
terminated its agreement with this group of lenders and
replaced it with a term loan and revolving credit agreement
with another lender. As a result, the Company wrote off $3.3
million of deferred financing costs associated with the
previous agreement. The charge is included in "Nonrecurring
operating charges" in the 1996 consolidated statement of
operations.
Under the Company's January 1997 three year fixed term loan and
revolving credit agreement, available borrowings are determined
by the amounts of eligible assets of the Company, as defined in
the agreement, including accounts receivable, inventory, and
property, plant, and equipment, with maximum borrowings of $100
million. The term loan portion of the agreement is in the
principal amount of $20 million, with principal due at
expiration of the agreement. Borrowings are secured by a
pledge of substantially all of the Company's assets in the U.S.
The rate of interest on all borrowings under the agreement is
the greater of 7% or the Norwest Bank Minnesota National
Association base rate of interest (8.25% at inception of the
agreement) plus .625%. The agreement requires the Company to
pay a facility fee at an annual rate of .15% of the maximum
amount available under the credit line, an unused credit line
fee at an annual rate of .25% of the average unused portion of
the revolving credit line, and a monthly agency fee. At
February 21, 1997, the Company had outstanding borrowings of
$20 million, all of which was classified as long-term debt, and
an additional $33 million of the available credit line was
allocated to support letters of credit issued by the Company.
As of this same date, the maximum available credit under the
line was $83 million.
The term loan and revolving credit agreement contains certain
financial covenants of the Company, including minimum net
worth, minimum current ratio, and maximum levels of capital
expenditures. In addition, the agreement includes restrictive
covenants that limit or prevent various business transactions
(including repurchases of the Company's stock, dividend
payments, mergers, acquisitions of or investments in other
businesses, and disposal of assets including individual
businesses, subsidiaries, and divisions) and limit or prevent
certain other business changes.
At December 31, 1996, the Company had $65.6 million in debt on
which interest is charged under various floating rate
arrangements, primarily its revolving credit agreement,
mortgages, and Australian term loan (see Note 7 of Notes to
Consolidated Financial Statements). The Company is exposed to
market risk of future increases in interest rates on these
loans, with the exception of the Australian term loan, on which
the Company has entered into an interest rate swap agreement.
The Company believes that existing cash balances, together with
cash generated by operations and cash available under its term
loan and revolving credit agreement, will be adequate to meet
cash requirements for 1997.
FOURTH QUARTER 1996
Revenues for the fourth quarter were $294 million, down 2% from
fourth quarter 1995. The Company incurred a net loss of $33.6
million ($.71 per share) for the quarter, including a $10.5
million ($.21 per share) nonrecurring operating charge, versus
a fourth quarter 1995 net income of $7.1 million ($.15 per
share). In addition to the adverse effects of the revenue
decline and nonrecurring charge, the decline in fourth quarter
1996 earnings is due to a 6 point decline in gross margin
versus fourth quarter 1995, the result of continuation of the
factors cited in "Gross Margin" above as affecting full year
1996 margins.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------
December 31, 1996 1995
- --------------------------------------------------------------------------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 50,674 $ 56,407
Accounts receivable, net 326,117 324,051
Inventories 89,411 111,813
Other current assets 37,718 49,581
- --------------------------------------------------------------------------
Total current assets 503,920 541,852
Investments in affiliates 19,102 11,636
Other assets 59,106 59,900
Property, plant, and equipment, net 174,219 212,657
- --------------------------------------------------------------------------
Total Assets $756,347 $826,045
==========================================================================
Liabilities and Shareholders' Equity
Trade accounts payable $ 51,205 $ 54,352
Accrued compensation 50,364 51,301
Other accrued expenses 72,798 79,199
Billings in excess of sales 62,869 63,707
Short-term debt and current
maturities of long-term debt 35,880 32,153
- --------------------------------------------------------------------------
Total current liabilities 273,116 280,712
Deferred income taxes 6,204 3,881
Long-term debt 29,764 37,388
- --------------------------------------------------------------------------
Total liabilities 309,084 321,981
- --------------------------------------------------------------------------
Shareholders' equity:
Common stock, par value $.10 per share --
100,000,000 shares authorized;
57,361,362 shares issued 5,736 5,736
Additional paid-in capital 229,675 233,940
Retained earnings 339,679 408,791
Unrealized holding gain on securities
of affiliate 6,858 ---
Cumulative translation adjustment 6,049 8,650
- --------------------------------------------------------------------------
587,997 657,117
Less -- cost of 9,656,295 treasury shares
at December 31, 1996, and 10,501,309
treasury shares at December 31, 1995 (140,734) (153,053)
- --------------------------------------------------------------------------
Total shareholders' equity 447,263 504,064
- --------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $756,347 $826,045
==========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues
Systems $ 725,828 $ 710,168 $ 665,583
Maintenance and services 369,505 387,810 375,820
- ------------------------------------------------------------------------------
Total revenues 1,095,333 1,097,978 1,041,403
- ------------------------------------------------------------------------------
Cost of revenues
Systems 465,645 439,502 401,515
Maintenance and services 226,263 228,785 217,756
- ------------------------------------------------------------------------------
Total cost of revenues 691,908 668,287 619,271
- ------------------------------------------------------------------------------
Gross profit 403,425 429,691 422,132
Product development 103,397 111,587 137,247
Sales and marketing 256,482 268,702 262,322
General and administrative 101,725 97,507 100,031
Restructuring charge (credit) --- 6,040 ( 4,826)
Nonrecurring operating charges 10,545 --- ---
- ------------------------------------------------------------------------------
Loss from operations (68,724) (54,145) (72,642)
Interest expense ( 5,137) ( 4,198) ( 2,359)
Equity in earnings (losses) of affiliates 825 4,322 ( 3,055)
Gains on sales of investments in affiliates 11,173 6,493 5,815
Other income (expense) -- net ( 4,249) 2,180 ( 1,950)
- ------------------------------------------------------------------------------
Loss before income taxes (66,112) (45,348) (74,191)
Income tax benefit (expense) ( 3,000) --- 3,971
- ------------------------------------------------------------------------------
Net loss $ (69,112) $ (45,348) $ (70,220)
==============================================================================
Net loss per share $ ( 1.46) $ ( .98) $ ( 1.56)
==============================================================================
Weighted average shares outstanding 47,195 46,077 44,860
==============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
(In thousands)
Cash Provided By (Used For):
Operating Activities:
Net loss $(69,112) $(45,348) $(70,220)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 75,820 80,157 73,640
Noncash portion of nonrecurring
operating charges and restructuring
charge (credit) 10,545 2,449 ( 4,826)
Deferred income tax expense 2,496 3,175 15,625
Collection of income tax refunds 2,113 22,264 34,472
Gains on sales of investments
in affiliates (11,173) ( 6,493) ( 5,815)
Equity in (earnings) losses
of affiliates ( 825) ( 4,322) 3,055
Write-off of investments in affiliates --- --- 3,361
Net changes in current assets
and liabilities 16,149 7,951 (13,610)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 26,013 59,833 35,682
- ------------------------------------------------------------------------------
Investing Activities:
Purchases of securities --- --- (86,620)
Sales and maturities of securities --- 1,000 111,126
Proceeds from sales of investments
in affiliates 11,561 7,908 7,315
Purchase of property, plant, and equipment (30,563) (54,689) (67,967)
Capitalized software development costs (15,492) (25,370) (16,584)
Other 2,816 (11,799) ( 1,683)
- ------------------------------------------------------------------------------
Net cash used for investing activities (31,678) (82,950) (54,413)
- ------------------------------------------------------------------------------
Financing Activities:
Gross borrowings 18,366 65,652 44,609
Debt repayment (22,764) (59,844) (12,138)
Proceeds of employee stock purchases
and exercise of stock options 3,834 12,027 4,019
Acquisition of treasury stock --- --- (10,379)
- ------------------------------------------------------------------------------
Net cash provided by (used for)
financing activities ( 564) 17,835 26,111
- ------------------------------------------------------------------------------
Effect of exchange rate changes on cash 496 296 ( 1,963)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents ( 5,733) ( 4,986) 5,417
Cash and cash equivalents at beginning of year 56,407 61,393 55,976
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 50,674 $ 56,407 $ 61,393
==============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Unrealized
Holding
Additional Gain on Cumulative Total
Common Paid-in Retained Securities Translation Treasury Shareholders'
Stock Capital Earnings of Affiliate Adjustment Stock Equity
- -------------------------------------------------------------------------------------------------------------
(In thousands except share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $5,736 $246,642 $524,359 --- $(7,606) $(180,421) $588,710
Acquisition of 1,080,000
treasury shares --- --- --- --- --- ( 10,379) (10,379)
Issuance of 510,625 shares under
employee stock purchase plan --- (3,489) --- --- --- 7,508 4,019
Translation adjustments --- --- --- --- 10,064 --- 10,064
Issuance of 120 shares for other
purposes --- 142 --- --- --- 1 143
Net loss for the year --- --- (70,220) --- --- --- (70,220)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 5,736 243,295 454,139 --- 2,458 (183,291) 522,337
Issuance of 358,687 shares under
employee stock purchase plan --- (1,512) --- --- --- 5,228 3,716
Issuance of 836,469 shares upon
exercise of stock options --- (3,881) --- --- --- 12,192 8,311
Issuance of 797,931 shares upon
purchase of a business --- (4,130) --- --- --- 11,630 7,500
Translation adjustments --- --- --- --- 6,192 --- 6,192
Issuance of 81,686 shares for
other purposes --- 168 --- --- --- 1,188 1,356
Net loss for the year --- --- (45,348) --- --- --- (45,348)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,736 233,940 408,791 --- 8,650 (153,053) 504,064
Issuance of 352,759 shares under
employee stock purchase plan --- (1,594) --- --- --- 5,143 3,549
Issuance of 53,898 shares upon
exercise of stock options --- ( 501) --- --- --- 786 285
Issuance of 438,357 shares in
connection with a professional
services agreement --- (2,390) --- --- --- 6,390 4,000
Unrealized holding gain on
securities of affiliate --- --- --- $6,858 --- --- 6,858
Translation adjustments --- --- --- --- (2,601) --- ( 2,601)
Other --- 220 --- --- --- --- 220
Net loss for the year --- --- (69,112) --- --- --- (69,112)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $5,736 $229,675 $339,679 $6,858 $ 6,049 $(140,734) $447,263
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES.
Basis of Presentation: The consolidated financial statements
include the accounts of Intergraph Corporation and its majority-
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires that management
make estimates and assumptions that affect the amounts reported in
the financial statements and determine whether contingent assets
and liabilities, if any, are disclosed in the financial statements.
The ultimate resolution of issues requiring these estimates and
assumptions could differ significantly from the resolution
currently anticipated by management and on which the financial
statements are based.
The Company's business is principally in one industry segment - the
development, manufacturing, marketing, and service of interactive
computer graphics systems. Graphics workstations, servers, and
peripheral hardware manufactured by the Company and others are
combined with operating systems developed by others and application-
specific software programs developed by the Company and third-party
applications software developers. The Company's hardware products
and integrated software applications are used for computer-aided
design, manufacturing, and engineering, mapping and geographic
information services, public safety, and technical information
management in technical fields such as utilities, facilities
management, architecture, engineering, construction, mechanical and
electronics design, and mapping and geographic information systems.
The Company's products are sold worldwide, with United States and
European revenues representing approximately 78% of total revenues
for 1996. See Note 11.
Cash Equivalents: The Company's excess funds are generally
invested in short-term, highly liquid, interest-bearing securities,
which may include short-term municipal bonds, time deposits, money
market preferred stocks, commercial paper, and U.S. government
securities. The Company's investment policy limits the amount of
credit exposure to any single issuer of securities. All cash
equivalents are stated at fair market value based on quoted market
prices. Investments with original maturities of three months or
less are considered to be cash equivalents for purposes of
financial statement presentation.
The Company's investments in debt securities are valued at fair
market value with any unrealized gains and losses reported as a
component of shareholders' equity, net of tax. At December 31,
1996 and 1995, the Company held various debt securities, all within
three months of maturity at these dates, with fair market values of
$16,000,000 and $27,200,000, respectively. Gross realized gains
and losses on debt securities sold during the years ended December
31, 1996 and 1995, were not significant, and there were no
unrealized holding gains or losses on debt securities at December
31, 1996 or 1995.
Inventories: Inventories are stated at the lower of average cost
or market and are summarized as follows:
- -------------------------------------------------------------
December 31, 1996 1995
- -------------------------------------------------------------
(In thousands)
Raw materials $26,601 $ 36,336
Work-in-process 24,008 25,037
Finished goods 12,945 17,140
Service spares 25,857 33,300
- -------------------------------------------------------------
Totals $89,411 $111,813
=============================================================
The industry in which the Company competes is characterized by
rapid technological change. This technological change is an
important consideration in the Company's overall inventory
management program, in which the Company endeavors to carry only
parts and systems utilizable with the technology of its current
product offerings and as spares for the contracted maintenance of
systems in its installed customer base. The Company regularly
estimates the degree of technological obsolescence in its
inventories and provides inventory reserves on that basis. Though
the Company believes it has adequately provided for any such
declines in inventory value to date, any unanticipated change in
technology could significantly affect the value of the Company's
inventories and thereby adversely affect gross margins and reported
results of operations.
Investments in Affiliates: Investments in companies in which the
Company has the ability to influence operations or finances,
generally 20%- to 50%-owned companies, are accounted for by the
equity method. Investments in companies in which the Company does
not exert such influence, generally in less than 20%-owned
companies, are accounted for at fair value if such values are
readily determinable, and at cost if such values are not readily
determinable. The Company's investments accounted for by the cost
method are insignificant.
During 1996, a company in which the Company holds a minority
interest underwent an initial public offering of its stock. At
December 31, 1996, the remaining unrealized portion of this
investment at fair market value totaled $6,858,000 and is included
in "Investments in affiliates" and "Unrealized holding gain on
securities of affiliate" in the consolidated balance sheet at
December 31, 1996.
Property, Plant, and Equipment: Property, plant, and equipment,
summarized below, is stated at cost. Depreciation is provided
using the straight line method over the estimated useful lives
described below.
- -------------------------------------------------------------
December 31, 1996 1995
- -------------------------------------------------------------
(In thousands)
Land and improvements (15-30 years) $ 14,943 $ 15,256
Buildings and improvements (30 years) 146,251 152,759
Equipment, furniture, and
fixtures (3-8 years) 320,561 349,263
- -------------------------------------------------------------
481,755 517,278
Allowances for depreciation (307,536) (304,621)
- -------------------------------------------------------------
Totals $174,219 $212,657
=============================================================
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. For long-lived assets and certain intangible assets
to be held and used by an entity, the Statement requires a review
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An
impairment loss, based on comparison of carrying value to the fair
value of the asset, must be recognized if the sum of the expected
future cash flows from the asset is less than the carrying amount
of the asset. For long-lived assets and certain intangible assets
to be disposed of, the Statement requires financial statement
reporting at the lower of carrying amount or fair value of the
asset less cost to sell. Application of this Statement did not
materially affect the Company's results of operations or financial
position in 1996.
Treasury Stock: Treasury stock is accounted for by the cost
method. The Board of Directors of the Company has authorized the
purchase of up to 20,000,000 shares of the Company's common stock
in the open market. From the initial authorization in 1987 through
the end of 1996, the Company had purchased approximately 18,800,000
shares for the treasury. Further purchases of treasury stock are
restricted by terms of the Company's term loan and revolving credit
agreement. See Note 7. Treasury stock activity is presented in
the consolidated statements of shareholders' equity.
Revenue Recognition: Revenues from systems sales with no
significant post-shipment obligations are recognized as equipment
and software are shipped, with any post-shipment costs accrued at
that time. Revenues on systems sales with significant post-
shipment obligations are recognized by the percentage-of-completion
method with progress to completion measured on the basis of
completion of milestones, labor costs incurred currently versus the
total estimated cost of performing the contract over its term, or
other factors appropriate to the individual contract of sale. The
total amount of revenues to be earned under these contracts is
generally fixed by contractual terms. The Company regularly
reviews its progress on these contracts and revises the estimated
costs of fulfilling its obligations. Due to uncertainties inherent
in the estimation process, it is possible that completion costs
will be further revised on some of the Company's long-term
contracts, which could delay revenue recognition and decrease the
gross margin to be earned on these contracts. Any losses
identified in the review process are recognized in full in the
period in which determined. Revenues from certain contracts with
the U.S. government, primarily cost-plus award fee contracts, are
recognized monthly as costs are incurred and fees are earned under
the contracts.
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, arising primarily from commercial
sales with predetermined billing schedules, U.S. government sales
with billing at the end of a performance period, and U.S.
government cost-plus award fee contracts. Billings in excess of
sales occur when billing to the customer precedes revenue
recognition, arising primarily from maintenance revenue billed in
advance of performance of the maintenance activity and systems
revenue recognized on the percentage-of-completion method.
Product Development Costs: The Company capitalizes certain costs
of computer software development incurred after the technological
feasibility of the product has been established. Such capitalized
costs are amortized over a two-year period on a straight-line
basis. Amortization expense included in "Cost of revenues -
Systems" in the consolidated statements of operations amounted to
$16,100,000 in 1996, $14,700,000 in 1995, and $11,300,000 in 1994.
The unamortized balance of capitalized software development costs,
included in "Other assets" in the consolidated balance sheets,
totaled $26,400,000 and $27,000,000 at December 31, 1996 and 1995,
respectively.
Although the Company regularly reviews its capitalized development
costs to ensure recognition of any decline in value, it is possible
that revenues expected to be generated by these development
activities will not materialize in amounts anticipated due to
industry conditions that include intense price and performance
competition, or that product lives will be reduced due to shorter
product cycles. Should either of these events occur, the carrying
amount of capitalized development costs would be reduced, producing
adverse effects on product development expenses and results of
operations.
Foreign Currency Exchange and Translation: Local currencies are
the functional currencies for the Company's European subsidiaries.
The U.S. dollar is the functional currency for all other
international subsidiaries. Foreign currency gains and losses
resulting from remeasurement or settlement of receivables and
payables denominated in a currency other than the functional
currency, together with gains and losses and fees paid in
connection with the Company's forward exchange contracts, are
included in "Other income (expense) - net" in the consolidated
statements of operations. Net exchange losses totaled $4,600,000
in 1996, $300,000 in 1995, and $2,600,000 in 1994. Translation
gains and losses resulting from translation of subsidiaries'
financial statements from the functional currency into dollars for
U.S. reporting purposes and foreign currency gains and losses
resulting from remeasurement of intercompany advances of a long-
term investment nature are included in the "Cumulative translation
adjustment" component of shareholders' equity.
Derivative Financial Instruments: Derivatives utilized by the
Company consist of forward exchange contracts and interest rate
swap agreements.
Realized and unrealized gains and losses on forward exchange
contracts are recognized as offsets to gains and losses resulting
from the underlying hedged transactions in the period in which
exchange rates change. Bank fees charged on the contracts are
amortized over the period of the contract.
The Company accounts for its interest rate swap agreements as
hedges of its debt obligations. The difference in amounts paid and
received under the contracts is accrued and recognized as an
adjustment to interest expense on the debt. Deferred gains related
to terminated interest rate swap agreements, which are not
significant to the Company's results of operations, are amortized
to interest expense over the remaining terms of the agreements.
Amounts payable to or receivable from counterparties related to
derivative financial instruments are included in "Other accrued
expenses" or "Other current assets" in the consolidated balance
sheets. These amounts were not significant at December 31, 1996 or
1995. Cash flows from derivative financial instruments are
classified in the consolidated statements of cash flows consistent
with the cash flows from the assets and liabilities being hedged.
See Note 4 for further details of the Company's derivative
financial instruments.
Stock-Based Compensation Plans: The Company has two stock-based
compensation plans, a fixed stock option plan and a stock purchase
plan.
Under the fixed stock option plan, stock options may be granted to
employees at fair market value or at a price less than fair market
value at the date of grant. No compensation expense is recognized
for options granted at fair market value. Expense associated with
grants at less than fair market value, equal to the difference in
fair market value at the date of grant and exercise price, is
recognized over the vesting period of the options.
Under the stock purchase plan, employees purchase stock of the
Company at 85% of the closing market price of the Company's stock
as of the last pay date of each calendar month. No compensation
expense is recognized for the difference in price paid by employees
and the fair market value of the Company's stock at the date of
purchase.
Effective December 31, 1996, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. This Statement,
effective for transactions entered into during calendar year 1996
for the Company, establishes accounting and reporting standards for
stock-based employee compensation plans including, with respect to
the Company, stock options and employee stock purchase plans. The
Statement also establishes fair value as the measurement basis for
transactions in which goods or services are acquired from
nonemployees in exchange for equity instruments.
The Statement defines a fair value-based method of accounting for
employee stock options under which compensation cost is measured at
the date options are granted and recognized by charges to expense
over the employees' service periods, and it encourages entities to
adopt that method of accounting. It also allows entities to
continue to measure compensation cost using the method prescribed
under Accounting Principles Board (APB) Opinion No. 25, under which
compensation expense is recognized only for the excess, if any, of
the market price of the stock at grant date over the amount the
employee must pay to acquire stock. The Company has elected to
continue to account for its employee stock options and its employee
stock purchases under the provisions of APB No. 25. This decision
results in recognition of no compensation expense for employee
stock options that are granted at market price at the date of grant
or for employee stock purchases. However, in accordance with the
disclosure provisions of the Statement, the Company has provided
proforma basis information to reflect results of operations and
earnings per share had compensation expense been recognized for
these items. See Note 9.
Income Taxes: The provision for income taxes includes federal,
international, and state income taxes currently payable or
refundable and income taxes deferred because of temporary
differences between the financial statement and tax bases of assets
and liabilities. See Note 8.
Net Loss Per Share: Net loss per share is computed using the
weighted average number of common and equivalent common shares
outstanding. Stock options are the only common stock equivalent.
See Note 9.
Reclassifications: Certain reclassifications have been made to the
previously reported consolidated balance sheet at December 31, 1995
and to the consolidated statements of operations and cash flows for
the years ended December 31, 1995 and 1994 to provide comparability
with the current year presentation.
NOTE 2 -- LITIGATION AND OTHER RISKS AND UNCERTAINTIES.
In addition to those described in Notes 1, 4, 6, 7, and 11, the
Company has risks related to its business and economic environment,
including those described below.
The Company is the 50% owner of Bentley Systems, Inc. (BSI), the
developer and owner of MicroStation, a software product utilized in
many of the Company's software applications and for which the
Company serves as a nonexclusive distributor. The Company's
business relationship with BSI is the subject of two arbitration
proceedings. In December 1995, the Company commenced an
arbitration proceeding against BSI with the American Arbitration
Association, Philadelphia, Pennsylvania, alleging that BSI
inappropriately and without cause terminated a contractual
arrangement between BSI and the Company. In response, BSI in
January 1996, filed a counterclaim against the Company seeking
significant damages as the result of the Company's alleged failure
to use best efforts to sell software support services pursuant to
terms of the contractual arrangement terminated by BSI. In March
1996, BSI commenced arbitration against the Company alleging that
the Company failed to properly account for and pay to BSI certain
royalties on the sale of BSI software products by the Company, and
seeking unspecified damages. This matter is currently pending with
the American Arbitration Association, Atlanta, Georgia. The
Company denies that it has breached any of its contractual
obligations to BSI and is defending vigorously in both proceedings,
but at present is unable to predict the outcome of the proceedings.
Separately, the Company has engaged an investment banking firm to
value and sell its ownership interest in BSI. At present, the
investment banking firm is not actively pursuing a buyer due to
disagreement between the Company and BSI regarding due diligence
information to be supplied to potential buyers.
The Company filed a legal action in August 1995, in the U.S.
District Court of Alabama, Northeast Division, seeking to dissolve
and wind up its business arrangement with Zydex, Inc. (Zydex), a
company with which it jointly developed its plant design software
application ("PDS"), and seeking an order allowing the Company to
continue the business of that arrangement without further
responsibility or obligation to Zydex. In response, Zydex filed a
counterclaim against the Company in November 1995, alleging wrongful
dissolution of the business relationship and seeking both sole
ownership of PDS and significant compensatory and punitive damages.
The Company denies and is defending these allegations vigorously,
but at present is unable to predict the outcome of the proceedings.
The Company's sales of PDS products during the year ended December
31, 1996 were approximately $36,000,000.
Substantially all of the Company's microprocessor needs are
currently supplied by Intel Corporation. The Company does not have
a fixed quantity commitment for microprocessors in its agreements
with Intel, but believes it has a good relationship with Intel and
is unaware of any reason that Intel might encounter difficulties in
meeting the Company's microprocessor needs for the long term.
Other microprocessors are available in the market, but a change by
the Company from Intel to another microprocessor would
significantly disrupt the Company's development and manufacturing
activities and result in delayed or lost sales, which would have a
significant adverse effect on the Company's results of operations
and financial position.
The Company develops its own graphics, data management, and
applications software as part of its continuing product development
activities. The Company has standard license agreements with
Microsoft Corporation for use and distribution of the Windows NT
operating system and with UNIX Systems Laboratories for use and
distribution of the UNIX operating system. The license agreements
are perpetual and allow the Company to sublicense the operating
systems software upon payment of required sublicensing fees. The
Company also has an extensive program for the licensing of third-
party application and general utility software for use on systems
and workstations.
The Company owns and maintains a number of registered patents and
registered and unregistered copyrights, trademarks, and service
marks. The patents and copyrights held by the Company are the
principal means by which the Company preserves and protects the
intellectual property rights embodied in the Company's hardware and
software products. Similarly, trademark rights held by the Company
are used to preserve and protect the goodwill represented by the
Company's registered and unregistered trademarks.
As industry standards proliferate, there is a possibility that the
patents of others may become a significant factor in the Company's
business. Personal computer technology is widely available, and
many companies are attempting to develop patent positions
concerning technological improvements related to personal computers
and workstations. At present, it does not appear that the Company
will be prevented from using the technology necessary to compete
successfully, since patented technology is typically available in
the industry under royalty-bearing licenses or patent cross-
licenses, or the technology can be purchased on the open market.
Any increase in royalty payments or purchase costs would increase
the Company's costs of manufacture, however, and it is possible
that some key improvement necessary to compete successfully in
markets served by the Company may not be available.
An inability to retain significant third party license rights, in
particular the Microsoft license, to protect the Company's
copyrights, trademarks, and patents, or to obtain any required
patent rights of others through licensing or purchase could
significantly reduce the Company's revenues and adversely affect
its results of operations.
NOTE 3 -- RESTRUCTURING AND NONRECURRING OPERATING CHARGES.
1995 Charge: During the second quarter of 1995, the Company
undertook a second restructuring plan designed to further adapt the
Company's cost structure to changed industry and market conditions.
The program, as originally planned, consisted of direct reductions
in workforce, other workforce reductions through attrition, and
disposition of four unprofitable business units over the twelve
month period ended June 30, 1996. The program, had it been fully
executed with respect to the four business units, was expected to
provide an operating expense reduction of approximately
$100,000,000 annually on a prospective basis. Of this total
anticipated annual savings, approximately $66,000,000 was to be
derived from disposition of the business units. During the fourth
quarter of 1996, the Company determined that two of the four
business units included in the original plan should be retained
based on their improving future prospects and strategic value to
other business units. The Company has terminated this plan
effective December 31, 1996. However, it will continue to seek
buyers for the remaining two business units. Revenues and losses
of the two business units held for sale totaled $24,000,000 and
$16,000,000, respectively, for 1996, $43,000,000 and $7,000,000,
respectively, for 1995, and $43,000,000 and $16,000,000,
respectively, for 1994. Assets of the business units totaled
$14,000,000 and $26,000,000 at December 31, 1996 and 1995,
respectively. The 1996 loss and asset amounts reflect a $7,245,000
revaluation of the assets of these two units (see 1996 Nonrecurring
Operating Charge below). The Company estimates that its operating
expenses have been reduced by approximately $35,000,000 annually as
a result of employee headcount reductions under the 1995 plan.
The 1995 restructuring charge totaled $6,040,000, primarily for
employee severance pay and related costs. Approximately 450
positions were eliminated through direct reductions in workforce,
with approximately 350 others eliminated through attrition. All
employee groups were affected, but the majority of eliminated
positions derived from the research and development, systems
engineering and support, and sales and marketing areas. Cash
expenditures related to the restructuring totaled $3,600,000 in
1995, funded by cash from operations and borrowings under credit
facilities, with an insignificant amount paid in 1996. The
$6,040,000 charge is included in "Restructuring charge (credit)" in
the 1995 consolidated statement of operations.
1993 Charge: During late 1992 and 1993, the Company made several
changes in its product, sales, and manufacturing strategies
designed to make the Company more competitive in its industry and
economic environment. These strategic decisions resulted in the
Company's 1993 restructuring plan. The plan was completed in 1994
substantially as planned, with the exception of disposition of the
Company's European manufacturing and distribution facility (IEM),
which continues to be utilized as a distribution center for Europe.
Included in the statement of operations for the year ended December
31, 1994 is a $4,826,000 credit representing reversal of the
remaining unincurred portion of the restructuring charge related to
IEM. Cash outlays during 1994 related to the 1993 restructuring
were approximately $10,000,000, all of which were funded by cash
from operations or borrowings under credit facilities. Cash
outlays in 1995 were insignificant.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations for discussion of industry conditions and
strategic decisions leading to the 1993 and 1995 restructuring
plans.
1996 Nonrecurring Operating Charge: During 1996, the Company
incurred a nonrecurring operating charge of $10,545,000,
consisting of a $7,245,000 revaluation of the assets of the
Company's two noncore business units held for sale and a $3,300,000
write-off of deferred financing costs due to early termination of
the Company's revolving credit agreement with a group of lenders
(see Note 7). The $10,545,000 charge is included in "Nonrecurring
operating charges" in the 1996 consolidated statement of
operations.
NOTE 4 -- FINANCIAL INSTRUMENTS.
Information related to the Company's financial instruments other
than cash equivalents and stock investments in less than 20%-owned
companies is summarized below.
Short- and Long-Term Debt: The balance sheet carrying amounts of
the Company's floating rate debt (approximately $55,000,000 at
December 31, 1996), consisting of loans under a revolving credit
agreement, mortgages, and a term loan (see Note 7), approximate
fair market values since interest rates on the debt adjust
periodically to reflect changes in market rates of interest. With
the exception of the term loan (see Note 7), the Company is exposed
to market risk of future increases in interest rates on these
loans. The carrying amounts of fixed rate debt approximate fair
market values based on current interest rates for debt of the same
remaining maturities and character.
Forward exchange contracts: The Company has certain currency
related asset and liability exposures related to its international
operations against which certain measures, primarily hedging, are
taken to reduce currency risk. The Company conducts business in
all major markets outside the U.S., but the most significant of
these operations with respect to currency risk are located in
Europe (specifically Germany, U.K., The Netherlands, France, and
Italy) and Australia. With respect to these exposures, the
objective of the Company is to protect against financial statement
volatility arising from changes in exchange rates with respect to
amounts denominated for balance sheet purposes in a currency other
than the functional currency of the local entity. The Company
enters into forward exchange contracts primarily related to these
balance sheet items (intercompany receivables, payables, and
formalized intercompany debt). Periodic changes in the value of
these contracts offset exchange rate related changes in the
financial statement value of these balance sheet items. Forward
exchange contracts are purchased with maturities reflecting the
expected settlement dates of these balance sheet items, which are
generally less than three months. The Company is prohibited by
policy from taking currency positions exceeding its known balance
sheet currency exposures and from otherwise trading in currencies.
The Company had outstanding net forward exchange contracts of
$47,468,000 and $46,344,000 at December 31, 1996 and 1995,
respectively. Such amounts approximated the Company's currency
related asset and liability exposures at those dates. The table
below summarizes in U.S. dollars the face amounts of these
contracts by major currency. For purposes of presentation, foreign
currency amounts are translated to dollars at the rates in effect
at each balance sheet date. "Sell" amounts represent the U.S.
dollar equivalent of commitments to sell currencies, and "buy"
amounts represent the U.S. dollar equivalent of commitments to
purchase currencies.
- -------------------------------------------------------------------------
December 31, 1996 1995
-------------------------- ---------------------------
Net Forward Net Forward
Contract Contract
Sell Buy Position Sell Buy Position
- -------------------------------------------------------------------------
(In thousands)
German mark $18,127 $ 4,736 $13,391 $19,919 $2,016 $17,903
British pound 9,317 3,419 5,898 3,900 2,340 1,560
Swiss franc 7,638 235 7,403 3,487 1,928 1,559
Italian lira 6,754 395 6,359 8,055 302 7,753
French franc 6,018 656 5,362 6,831 --- 6,831
Belgian franc 2,186 75 2,111 3,550 345 3,205
Spanish peseta 2,081 1,059 1,022 4,778 --- 4,778
Other currencies 7,581 1,659 5,922 3,455 700 2,755
- -------------------------------------------------------------------------
Totals $59,702 $12,234 $47,468 $53,975 $7,631 $46,344
=========================================================================
Based on the terms of outstanding forward exchange contracts and
the amount of the Company's balance sheet exposures at December 31,
1996 and 1995, the Company's results of operations would not be
materially affected by a 10% increase or decrease in exchange rates
underlying the contracts and the exposures hedged. Cash
requirements of forward exchange contracts are limited to receipt
of an amount equal to the exchange gain or payment of an amount
equal to the exchange loss at the contract settlement date, and
payment of bank fees related to the contracts. Net negative cash
flow from forward contract activity, consisting of realized gains
and losses from settlement of exposed assets and liabilities at
exchange rates in effect at the settlement date rather than at the
time of recording, settlement of the forward contracts purchased to
mitigate the exposures, and payment of bank fees on the forward
contracts, was $1,700,000 in 1996, $825,000 in 1995, and $1,100,000
in 1994.
Interest rate swap agreements: The Company enters into interest
rate swap agreements to reduce the risk of increases in interest
rates on certain of its outstanding floating rate debt. The
Company pays a fixed rate of interest and receives payment based on
a variable rate of interest, and is thus exposed to market risk of
potential future decreases in interest rates. In 1996, the Company
entered into an interest rate swap agreement in the principal
amount of its Australian term loan agreement (approximately
$19,000,000 at December 31, 1996). The agreement is for a period
of approximately six years, and its expiration date coincides with
that of the term loan. Weighted average pay and receive rates
under this agreement were 9.58% and 7.06%, respectively, at
December 31, 1996. Through March 1995, the Company had interest
rate swap agreements in the principal amounts of its two European
mortgages (approximately $20,000,000). Weighted average pay and
receive rates at termination in 1995 were 7.36% and 5.22%,
respectively. Cash requirements of the agreements, which are not
significant, are limited to the differential between the fixed rate
paid and the variable rate received. The Company does no trading
in this form of derivative instrument.
The fair market values of the Company's forward exchange contracts
and interest rate swap agreements were determined by obtaining
quotes from banks, and are expressed in terms of amounts the
Company would receive or pay should the Company's obligations under
the instruments be transferred to a third party at the reporting
date. The fair values of the Company's forward exchange contracts
and interest rate swap agreements approximated the original
contract amounts on that basis.
NOTE 5 -- SUPPLEMENTARY CASH FLOW INFORMATION.
Changes in current assets and liabilities, net of the effects of
business acquisitions and divestitures, restructuring charges, and
nonrecurring operating charges, in reconciling net loss to net cash
provided by operations are as follows:
- -----------------------------------------------------------------------
Cash Provided By (Used For) Operations
Year Ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable $( 8,547) $27,440 $(20,738)
Inventories 21,299 11,915 8,331
Other current assets 10,522 (20,462) (26,501)
Increase (decrease) in:
Trade accounts payable ( 1,513) 2,720 8,013
Accrued compensation and other
accrued expenses ( 5,344) 3,008 2,461
Billings in excess of sales ( 268) (16,670) 14,824
- -----------------------------------------------------------------------
Net changes in current assets
and liabilities $16,149 $7,951 $(13,610)
=======================================================================
Cash payments for income taxes totaled $4,900,000, $4,800,000, and
$4,600,000 in 1996, 1995, and 1994, respectively. Cash payments
for interest in those years totaled $5,000,000, $4,100,000, and
$2,400,000, respectively.
Investing and financing transactions in 1996 that did not require
cash included the issuance of 438,357 shares of the Company's
common stock with a fair market value of $4,000,000 in connection
with a professional services agreement related to the Company's
efforts to build its public safety business in the Asia Pacific
region and a $6,858,000 favorable mark-to-market adjustment of an
investment in an affiliated company. See Note 1. Investing and
financing transactions in 1995 that did not require cash consisted
of acquisition of a business for total consideration of $7,500,000,
consisting of issuance of 797,931 shares of the Company's common
stock and the granting of stock options on 148,718 of the Company's
shares to employees of the acquired company. There were no
significant non-cash investing and financing transactions in 1994.
NOTE 6 -- ACCOUNTS RECEIVABLE.
Concentrations of credit risk with respect to accounts receivable
are limited due to the diversity of the Company's customer base.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
Historically, the Company has not experienced significant losses
related to trade receivables from individual customers or from
groups of customers in any geographic area, with the exception of
the 1994 write-off of a $5,500,000 receivable from a Middle Eastern
customer. The Company's total accounts receivable from Middle
Eastern customers at December 31, 1996 and 1995 was $20,700,000 and
$13,600,000, respectively.
Revenues from the U.S. government were $160,800,000 in 1996,
$159,300,000 in 1995, and $167,000,000 in 1994, representing
approximately 15% of total revenue in all three years. Accounts
receivable from the U.S. government was approximately $48,000,000
at December 31, 1996 and 1995. The Company sells to the U.S.
government under long-term contractual arrangements, primarily
indefinite delivery, indefinite quantity and cost-plus award fee
contracts, and through commercial sales of products not covered by
long-term contracts. Approximately 40% of total federal government
revenues are earned under long-term contracts. The Company
believes its relationship with the federal government to be good.
While it is fully anticipated that these contracts will remain in
effect through their expiration, the contracts are subject to
termination (with damages paid to the Company) at the election of
the government. Any loss of a significant government contract
would have an adverse impact on the results of operations of the
Company.
Included in accounts receivable are unbilled amounts of $82,300,000
and $75,800,000 at December 31, 1996 and 1995, respectively.
The Company maintained reserves for uncollectible accounts,
included in "Accounts receivable" in the consolidated balance
sheets at December 31, 1996 and 1995, of $16,700,000 and
$20,400,000, respectively.
NOTE 7 -- DEBT AND LEASES.
Short- and long-term debt is summarized as follows:
- ---------------------------------------------------------------
December 31, 1996 1995
- ---------------------------------------------------------------
(In thousands)
Revolving credit agreement $20,000 $15,000
Term loan 19,029 21,607
Long-term mortgages 12,889 12,626
Other secured debt 7,911 13,946
Short-term credit facilities 3,310 1,432
Other 2,505 4,930
- ---------------------------------------------------------------
Total debt 65,644 69,541
Less amounts payable within one year 35,880 32,153
- ---------------------------------------------------------------
Total long-term debt $29,764 $37,388
===============================================================
In October 1995, the Company entered into a three year revolving
credit agreement with a group of lenders. Borrowings available
under the agreement were determined by the amounts of eligible
assets of the Company, as defined in the agreement, including cash,
accounts receivable, inventory, and property, plant, and equipment,
with maximum borrowings of $50,000,000. Borrowings were secured by
a pledge of substantially all of the Company's assets in the U.S.
and Canada and, under certain circumstances, the accounts
receivable of some European subsidiaries of the Company. At
December 31, 1996 and 1995, the Company had outstanding borrowings
of $20,000,000 and $15,000,000, respectively, and approximately
$22,000,000 and $20,000,000, respectively, of the available credit
line was allocated to support letters of credit issued by the
Company. The rate of interest on all borrowings under the
agreement was, at the Company's option, the Citibank base rate of
interest plus 1.75% or the Eurodollar rate plus 2.75%. The
weighted average interest rate on combined debt outstanding under
short-term credit arrangements and revolving credit agreements for
1996 and 1995 was 9.7% and 10.4%, respectively. The agreement
required the Company to pay a commitment fee at an annual rate of
.5% of the average unused daily portion of the revolving credit
commitment. In addition, the agreement contained certain financial
and restrictive covenants of the Company.
In January 1997, the Company terminated its agreement with this
group of lenders and replaced it with a term loan and revolving
credit agreement with another lender. As a result, the Company
wrote off $3,300,000 million of deferred financing costs associated
with the previous agreement. The charge is included in
"Nonrecurring operating charges" in the 1996 consolidated statement
of operations.
Under the Company's January 1997, three year fixed term loan and
revolving credit agreement, available borrowings are determined by
the amounts of eligible assets of the Company, as defined in the
agreement, including accounts receivable, inventory, and property,
plant, and equipment, with maximum borrowings of $100,000,000. The
term loan portion of the agreement is in the principal amount of
$20,000,000, payable at expiration of the agreement. Borrowings
are secured by a pledge of substantially all of the Company's
assets in the U.S. The rate of interest on all borrowings under
the agreement is the greater of 7% or the Norwest Bank Minnesota
National Association base rate of interest (8.25% at inception of
the agreement) plus .625%. The agreement requires the Company to
pay a facility fee at an annual rate of .15% of the maximum amount
available under the credit line, an unused credit line fee at an
annual rate of .25% of the average unused portion of the maximum
revolving credit line, and a monthly agency fee. At February 21,
1997, the Company had outstanding borrowings of $20,000,000, all of
which was classified as long-term debt, and an additional
$33,000,000 of the available credit line was allocated to support
letters of credit issued by the Company. The effective interest
rate on this amount was 8.9%. As of this same date, maximum
available credit under the line was approximately $83,000,000.
The term loan and revolving credit agreement contains certain
financial covenants of the Company, including minimum net worth,
minimum current ratio, and maximum levels of capital expenditures.
In addition, the agreement includes restrictive covenants that
limit or prevent various business transactions (including
repurchases of the Company's stock, dividend payments, mergers,
acquisitions of or investments in other businesses, and disposal of
assets including individual businesses, subsidiaries, and
divisions) and limit or prevent certain other business changes.
In August 1995, the Company entered into a term loan agreement with
an Australian bank totaling 35,000,000 Australian dollars
(approximately $26,000,000). The loan is payable in varying
installments through August 2002 and bears interest at the bank's
variable short-term lending rate, which ranged from 6.8% to 9.6% in
1996 (7.5% to 8.2% in 1995). Letters of credit totaling
$19,100,000 are pledged as security under the loan agreement.
During 1996, the Company entered into a six year interest rate swap
agreement in the amount of the term loan to reduce the risk of
increases in interest rates, effectively converting the interest
rate on this loan to a fixed rate of 9.58%.
The Company has two long-term mortgages on certain of its European
facilities. Prior to refinancing in December 1995 and January
1996, the mortgages were payable in varying installments through
the year 2017 and bore interest at the floating Amsterdam Interbank
Offering Rate (AIBOR), which ranged from 3.9% to 4.6% in 1996 and
from 3.9% to 5.7% in 1995. The refinanced mortgages are payable in
varying installments through the year 2010 and bear interest at the
floating AIBOR rate plus 1%. During 1993, the Company entered into
two year interest rate swap agreements in the amounts of the
mortgages to reduce the risk of increases in interest rates,
effectively converting the interest rates on these mortgages to a
fixed rate of 7.4%. The agreements expired in first quarter 1995.
Other secured debt consists of debt to various financial
institutions payable in varying installments through 1999 and
secured by certain internally used computer equipment. The
weighted average interest rate on this debt was approximately 11.5%
for 1996 and 1995.
See Note 4 for discussion of fair values of the Company's debt and
interest rate swap agreements.
The Company leases various property, plant, and equipment under
operating leases as lessee. Rental expense for operating leases
was $34,200,000 in 1996, $38,200,000 in 1995, and $38,600,000 in
1994. Subleases and contingent rentals are not significant.
Future minimum lease payments, by year and in the aggregate, under
noncancelable operating leases with initial or remaining terms of
one year or more are as follows:
- ----------------------------------------------------------
Operating
Lease Commitments
- ----------------------------------------------------------
(In thousands)
1997 $26,300
1998 18,500
1999 11,900
2000 7,400
2001 2,500
Thereafter 23,600
- ----------------------------------------------------------
Total future minimum lease payments $90,200
==========================================================
NOTE 8 -- INCOME TAXES.
The components of loss before income taxes are as follows:
- -----------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------
(In thousands)
U.S. $(42,381) $(17,779) $(26,330)
International (23,731) (27,569) (47,861)
- -----------------------------------------------------------------------
Total loss before income taxes $(66,112) $(45,348) $(74,191)
=======================================================================
Income tax benefit (expense) consists of the following:
- -----------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------
(In thousands)
Current benefit (expense):
Federal $ 3,351 $ 5,251 $19,799
International ( 3,855) (2,076) ( 203)
- -----------------------------------------------------------------------
Total current ( 504) 3,175 19,596
- -----------------------------------------------------------------------
Deferred benefit (expense):
Federal ( 2,447) (2,685) (14,775)
International ( 49) ( 490) ( 850)
- -----------------------------------------------------------------------
Total deferred ( 2,496) (3,175) (15,625)
- -----------------------------------------------------------------------
Total income tax benefit (expense) $( 3,000) $ --- $ 3,971
=======================================================================
Deferred income taxes included in the Company's balance sheet
reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the carrying amounts for income tax return purposes.
Significant components of the Company's deferred tax assets and
liabilities are as follows:
- -----------------------------------------------------------------------
December 31, 1996 1995
- -----------------------------------------------------------------------
(In thousands)
Current Deferred Tax Assets (Liabilities):
Inventory reserves $23,356 $13,901
Vacation pay and other employee benefit accruals 3,624 6,413
Other financial statement reserves, primarily
allowance for doubtful accounts 4,000 9,078
Profit on uncompleted sales contracts
deferred for tax return purposes ( 4,297) ( 8,686)
Other current tax assets and liabilities, net 912 4,331
- -----------------------------------------------------------------------
27,595 25,037
Less asset valuation allowance (23,617) (21,209)
- -----------------------------------------------------------------------
Total net current asset (1) 3,978 3,828
- -----------------------------------------------------------------------
Noncurrent Deferred Tax Assets (Liabilities):
Net operating loss and tax credit carryforwards:
U.S. federal and state 47,019 29,577
International operations 38,132 28,964
Depreciation ( 9,256) ( 8,632)
Capitalized software development costs ( 9,198) ( 9,322)
Other noncurrent tax assets and liabilities, net ( 6,664) ( 1,165)
- -----------------------------------------------------------------------
60,033 39,422
Less asset valuation allowance (66,237) (43,303)
- -----------------------------------------------------------------------
Total net noncurrent liability ( 6,204) ( 3,881)
- -----------------------------------------------------------------------
Net deferred tax liability $( 2,226) $( 53)
=======================================================================
(1)Included in "Other current assets" in the consolidated balance sheets.
The valuation allowance for deferred tax assets, which consists
primarily of reserves against the tax benefit of net operating loss
carryforwards, increased by $25,342,000 in 1996 due to the
incurrence of additional losses that may be carried forward, the
future tax benefits of which cannot be assured. If realized, these
tax benefits will be applied to reduce income tax expense in the
year of realization.
Net operating loss carryforwards are available to offset future
earnings within the time periods specified by law. At December 31,
1996, the Company had a U.S. federal net operating loss
carryforward of approximately $92,000,000 expiring from the year
2009 through 2011. International net operating loss carryforwards
total approximately $102,000,000 and expire as follows:
- ------------------------------------------------------------
International
Net Operating Loss
December 31, 1996 Carryforwards
- ------------------------------------------------------------
(In thousands)
Expiration:
3 years or less $ 11,000
4 to 5 years 19,000
6 to 10 years 8,000
Unlimited carryforward 64,000
- ------------------------------------------------------------
Total $102,000
============================================================
Additionally, the Company has $3,500,000 of U.S. alternative
minimum tax credit carryforwards which have no expiration date.
U.S. research and development tax credit carryforwards of
$5,800,000 are available to offset regular tax liability through
2011.
A reconciliation from income tax benefit at the U.S. federal
statutory tax rate of 35% to the Company's income tax benefit
(expense) is as follows:
- -----------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------
(In thousands)
Income tax benefit at federal statutory rate $ 23,139 $15,872 $25,967
Benefit from Foreign Sales Corp. (FSC) 1,963 905 1,689
Tax effects of international operations, net ( 8,657) ( 8,629) (9,836)
Tax effect of U.S. tax loss carried forward (23,752) (10,967) (3,804)
Tax effect of U.S. tax credits carried forward --- --- (7,900)
Reduction of taxes provided in prior years 4,712 --- ---
Other - net ( 405) 2,819 (2,145)
- -----------------------------------------------------------------------------
Income tax benefit (expense) $( 3,000) $ --- $ 3,971
=============================================================================
The Company does not provide for federal income taxes or tax
benefits on the undistributed earnings or losses of its
international subsidiaries, because earnings are reinvested and, in
the opinion of management, will continue to be reinvested
indefinitely. At December 31, 1996, the Company had not provided
federal income taxes on earnings of individual international
subsidiaries of approximately $49,000,000. Should these earnings
be distributed in the form of dividends or otherwise, the Company
would be subject to both U.S. income taxes and withholding taxes in
the various international jurisdictions. Determination of the
related amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with its
hypothetical calculation. Withholding of approximately $2,700,000
would be payable if all previously unremitted earnings as of
December 31, 1996, were remitted to the U.S. company.
NOTE 9 -- STOCK-BASED COMPENSATION PLANS.
The Company has reserved a total of 3,000,000 shares of common
stock to grant as options to key employees under the Intergraph
Corporation 1992 Stock Option Plan. Options may be granted at fair
market value or at a price less than fair market value on the date
of grant. Options are not exercisable prior to twenty four months
from the date of grant or later than ten years after the date of
grant. At December 31, 1996, 1,151,641 shares were available for
future grants.
Under the 1995 Employee Stock Purchase Plan, 3,200,000 shares of
common stock were made available for purchase through a series of
five consecutive annual offerings each June beginning June 1, 1995.
In order to purchase stock, each participant may have up to 10% of
his or her pay, not to exceed $25,000 in any offering period,
withheld through payroll deductions. All full time employees,
except members of the Administrative Committee of the Plan, are
eligible to participate. The purchase price of each share is 85%
of the closing market price of the Company's common stock on the
last pay date of each calendar month. Employees purchased 352,759,
358,687, and 510,625 shares of stock in 1996, 1995, and 1994,
respectively, under the 1995 and predecessor Plans. At December
31, 1996, 2,655,727 shares were available for future purchases.
As allowed under the provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the Company has elected to apply Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related Interpretations in accounting for its
stock-based plans. Accordingly, the Company has recognized no
compensation expense for these plans. Had the Company accounted
for its stock-based compensation plans based on fair value of
awards at grant date consistent with the methodology of SFAS 123,
the Company's net loss and loss per share would have been increased
as indicated below. The effects of applying SFAS 123 on a pro
forma basis are not likely to be representative of the effects on
reported pro forma net income (loss) for future years as the
estimated compensation costs reflect only options granted
subsequent to December 31, 1994.
- ----------------------------------------------------------------------------
Year Ended December 31, 1996 1995
- ----------------------------------------------------------------------------
(In thousands except per share amounts)
Net loss As reported $(69,112) $(45,348)
Pro forma $(71,447) $(46,757)
Primary and fully diluted loss per share As reported $( 1.46) $( .98)
Pro forma $( 1.51) $( 1.01)
============================================================================
Under the methodology of SFAS 123, the fair value of the Company's
fixed stock options was estimated at the date of grant using the
Black-Scholes option pricing model. The multiple option approach
was used, with assumptions for expected option life of 1.39 years
after vest date and 40% expected volatility for the market price of
the Company's stock. Dividend yield is excluded from the
calculation since it is the present policy of the Company to retain
all earnings to finance operations. Risk free interest rates were
determined separately for each grant and are as follows:
- --------------------------------------------------------------
Risk Free Interest Rate
Expected Life -----------------------
(in years) 1996 1995
- --------------------------------------------------------------
3.39 6.55% 5.95%
4.39 6.67% 6.02%
5.39 6.74% 6.09%
6.39 6.79% 6.17%
==============================================================
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions, including expected stock price volatility. Because
the Company's employee stock options have characteristics
significantly different from those of traded options, and because
the subjectivity of assumptions can materially affect estimates of
fair value, the Company believes the Black-Scholes model does not
necessarily provide a reliable single measure of the fair value of
its employee stock options.
Shares issued under the Company's stock purchase plan were valued
at the difference between the market value of the stock and the
discounted purchase price of the shares on the date of purchase.
The date of grant and the date of purchase coincide for this plan.
The weighted average grant date fair values of options granted to
employees during 1996 and 1995 were $3.92 and $4.84, respectively,
under the 1992 stock option plan and $1.78 and $1.88, respectively,
under the 1995 stock purchase plan.
Activity in the Company's fixed stock option plan for the years
ended December 31, 1996, 1995, and 1994 is summarized as follows:
- -------------------------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------
Outstanding at
beginning of year 1,778,304 $10.42 1,260,637 $10.48 1,408,925 $11.01
Granted at fair value 290,018 9.47 1,244,000 11.12 70,000 9.50
Granted at less than
fair value --- --- 148,718 1.25 --- ---
Exercised ( 53,898) 5.28 (836,469) 9.94 --- ---
Expired ( 14,982) 9.23 --- --- (146,157) 15.00
Forfeited (168,025) 11.02 ( 38,582) 9.97 (72,131) 10.87
- -------------------------------------------------------------------------------
Outstanding at
end of year 1,831,417 $10.38 1,778,304 $10.42 1,260,637 $10.48
- -------------------------------------------------------------------------------
Exercisable at
end of year 247,874 $ 9.12 160,171 $ 7.68 598,814 $10.91
===============================================================================
<TABLE>
Further information relating to stock options outstanding at
December 31, 1996 is as follows:
<CAPTION>
- -----------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------- -------------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Exercise Prices Number Contractual Life Exercise Price Number Exercise Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .90 to $ 3.75 30,335 7.58 years $ 1.33 22,294 $ 1.40
$ 7.875 to $ 9.50 586,223 7.77 8.97 173,241 8.56
$11.125 to $16.00 1,214,859 8.29 11.28 52,339 14.23
- -----------------------------------------------------------------------------------------------
1,831,417 8.11 $10.38 247,874 $ 9.12
===============================================================================================
</TABLE>
Options shown above with a weighted average exercise price of $1.25
per share and a range of exercise prices of $.90 to $3.75 were
granted in 1995 as the result of a business acquisition in which
the Company assumed the total shares and price obligations under
the acquired company's stock option plans. All other option grants
during the three year period ended December 31, 1996 were at the
fair market value of the Company's stock at date of grant.
NOTE 10 -- EMPLOYEE BENEFIT PLANS.
The Intergraph Corporation Stock Bonus Plan was established in 1975
to provide retirement benefits to substantially all U.S. employees.
Effective January 1, 1987, the Company amended the Plan to qualify
it as an employee stock ownership plan (ESOP). The Company makes
contributions to the Plan in amounts determined at the discretion
of the Board of Directors, and the contributions are funded with
Company stock. Amounts are allocated to the accounts of
participants based on compensation. Benefits are payable to
participants subject to the vesting provisions of the Plan. The
Company has not made a contribution to the Plan since 1991.
In 1990, the Company established the Intergraph Corporation
SavingsPlus Plan, an employee savings plan qualified under Section
401(k) of the Internal Revenue Code, covering substantially all
U.S. employees. Employees can elect to contribute up to 15% of
their compensation to the Plan. The Company matches 50% of
employee contributions up to 6% of each employee's compensation.
Company contributions to the Plan were $5,687,000, $5,886,000, and
$6,169,000 in 1996, 1995, and 1994, respectively.
The Company maintains various retirement benefit plans for
employees of its international subsidiaries, primarily defined
contribution plans that cover substantially all employees.
Contributions to the plans are made in cash and are allocated to
the accounts of participants based on compensation. Benefits are
payable based on vesting provisions contained in each plan.
Contributions to the plans were $3,678,000, $3,856,000, and
$3,331,000 in 1996, 1995, and 1994, respectively.
NOTE 11-- OPERATIONS BY GEOGRAPHIC AREA.
International markets, particularly Europe, continue in importance
to the industry and to the Company. The Company's operations are
subject to and may be adversely affected by a variety of risks
inherent in doing business internationally, such as government
policies or restrictions, currency exchange fluctuations, and other
factors.
The following summary of operations by geographic area includes
both sales to unaffiliated customers and intercompany sales between
geographic areas. Sales between geographic areas are accounted for
under a transfer pricing policy. Loss from operations by
geographic areas reflects these sales.
- -----------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------
(In thousands)
Revenues
United States:
Unaffiliated customers - U.S. $ 488,759 $ 500,295 $ 526,082
Unaffiliated customers - export 42,061 49,035 38,908
Consolidated subsidiaries 232,871 217,171 199,663
- -----------------------------------------------------------------------
763,691 766,501 764,653
- -----------------------------------------------------------------------
Europe:
Unaffiliated customers 363,255 390,715 344,579
- -----------------------------------------------------------------------
Asia Pacific:
Unaffiliated customers 127,607 91,284 70,645
U.S. parent 2,257 2,252 2,250
- -----------------------------------------------------------------------
129,864 93,536 72,895
- -----------------------------------------------------------------------
Other International:
Unaffiliated customers 73,651 66,649 61,189
U.S. parent 1,320 770 370
- -----------------------------------------------------------------------
74,971 67,419 61,559
- -----------------------------------------------------------------------
Eliminations -- net ( 236,448) ( 220,193) ( 202,283)
- -----------------------------------------------------------------------
Total revenues $1,095,333 $1,097,978 $1,041,403
=======================================================================
Loss From Operations
United States $( 30,346) $( 12,261) $( 27,640)
Europe ( 32,299) ( 27,663) ( 33,147)
Asia Pacific ( 5,917) ( 10,799) ( 5,716)
Other International ( 5,424) ( 10,106) ( 11,687)
Eliminations -- net 5,262 6,684 5,548
- -----------------------------------------------------------------------
Total loss from operations $( 68,724) $( 54,145) $( 72,642)
=======================================================================
Identifiable Assets
United States $ 522,966 $ 558,446 $ 586,041
Europe 204,913 248,459 239,649
Asia Pacific 85,197 85,205 59,525
Other International 40,147 46,234 49,934
Eliminations -- net ( 96,876) ( 112,299) ( 95,531)
- -----------------------------------------------------------------------
Total identifiable assets $ 756,347 $ 826,045 $ 839,618
=======================================================================
Loss from operations in 1994 includes a restructuring credit
(reversal of the unincurred portion of the 1993 restructuring
charge) of $4,826,000 in Europe. Loss from operations in 1995
includes restructuring charges of $4,778,000 in the U.S., $978,000
in Europe, and $284,000 in Other International. Loss from
operations in 1996 includes a charge of $10,545,000 in the U.S. for
a $7,245,000 revaluation of the assets of two noncore business
units planned for disposal through sales to third parties and a
$3,300,000 write-off of deferred financing fees due to the
Company's early termination of its revolving credit agreement with
a group of lenders.
NOTE 12 -- RELATED PARTY TRANSACTIONS.
Bentley Systems, Inc.: Through December 31, 1994, the Company had
an exclusive license agreement with Bentley Systems, Inc. (BSI), a
50%-owned affiliate of the Company, under which the Company
distributed MicroStation, a software product developed and
maintained by BSI and utilized in many of the Company's software
applications. Under this agreement, the Company paid royalties to
BSI based on its sales of MicroStation. Royalties expense totaled
$21,820,000 in 1994.
Effective January 1, 1995, the Company has a nonexclusive license
to sell MicroStation via its direct sales force, and to sell
MicroStation via its indirect sales channels if MicroStation is
sold with other Intergraph products. In addition, effective
January 1, 1995 and 1996, the per copy fee payable by the Company
to BSI was increased and, for 1995 only, BSI paid the Company a per
copy distribution fee based on BSI's MicroStation sales to
resellers. See Note 2 and Management's Discussion and Analysis of
Financial Condition and Results of Operations for further
discussion of the Company's business relationship with BSI.
The Company's purchases from BSI totaled $14,244,000 in 1996 and
$39,329,000 in 1995, and the per copy distribution fees earned by
the Company from BSI totaled $7,414,000 in 1995. Amounts due from
BSI or for which the Company holds the right to delivery of BSI
products totaled $10,700,000 and $13,000,000 at December 31, 1996
and 1995, respectively.
Loan Program for Executive Officers: In order to encourage
retention of Company stock by executive officers, the Company
adopted a loan program effective January 1993, under which
executive officers may borrow from the Company, on an unsecured
basis, an amount not exceeding (1) the current market value of the
common stock of the Company owned by any such executive officer,
and/or (2) the net value (current market price less exercise price)
of currently exercisable stock options owned by any such executive
officer. Interest is charged on a monthly basis at the prevailing
prime rate. Principal and interest must be repaid by the earliest
to occur of termination of employment, the attainment of a
designated market price for the Company's stock or the sale of a
certain number of shares by loan recipients, or April 30, 1997. At
December 31, 1996 and 1995, James W. Meadlock, Chief Executive
Officer and Chairman of the Board of the Company, was indebted to
the Company in the amounts of $5,530,000 and $5,165,000,
respectively, under the program.
NOTE 13 -- SHAREHOLDER RIGHTS PLAN.
On August 25, 1993, the Company's Board of Directors adopted a
Shareholder Rights Plan. As part of this plan, the Board of
Directors declared a distribution of one common stock purchase
right (a "Right") for each share of the Company's common stock
outstanding on September 7, 1993. Each Right entitles the holder
to purchase from the Company one common share at a price of $50,
subject to adjustment. The Rights are not exercisable until the
occurrence of certain events related to a person or a group of
affiliated or associated persons acquiring, obtaining the right to
acquire, or commencing a tender offer or exchange offer, the
consummation of which would result in beneficial ownership by such
a person or group of 15% or more of the outstanding common shares
of the Company. Rights will also become exercisable in the event
of certain mergers or an asset sale involving more than 50% of the
Company's assets or earnings power. Upon becoming exercisable,
each Right will allow the holder, except the person or group whose
action has triggered the exercisability of the Rights, to either
buy securities of Intergraph or securities of the acquiring
company, depending on the form of the transaction, having a value
of twice the exercise price of the Rights. The Rights trade with
the Company's common stock. The Rights are subject to redemption
at the option of the Board of Directors at a price of $.01 per
Right until the occurrence of certain events, and are exchangeable
for the Company's common stock at the discretion of the Board of
Directors under certain circumstances. The Rights expire on
September 7, 2003.
NOTE 14 -- SUMMARY OF QUARTERLY INFORMATION -- UNAUDITED.
- -----------------------------------------------------------------------------
Quarter Ended March 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------
(In thousands except per share amounts)
Year ended December 31, 1996:
Revenues $256,706 $268,166 $276,313 $294,148
Gross profit 95,401 101,370 103,001 103,653
Net loss ( 6,391) (15,179) (13,930) (33,612)
Net loss per share ( .14) ( .32) ( .29) ( .71)
Weighted average shares outstanding 46,902 46,922 47,243 47,636
Year ended December 31, 1995:
Revenues $257,329 $260,167 $279,231 $301,251
Gross profit 98,148 101,387 105,972 124,184
Net income (loss) (22,472) (21,958) ( 8,049) 7,131
Net income (loss) per share ( .49) ( .48) ( .17) .15
Weighted average shares outstanding 45,601 45,929 46,146 46,616
==============================================================================
First quarter 1996 losses were reduced by a $.20 per share gain on
the sale of the Company's stock investment in an affiliated
company. Fourth quarter 1996 losses were increased by a $.21 per
share charge for nonrecurring operating expenses, primarily
revaluation of the assets of two noncore business units and write-
off of deferred financing fees.
Second quarter 1995 losses were increased by a restructuring charge
of $.16 per share and reduced by an $.11 per share gain on the sale
of a subsidiary. Fourth quarter 1995 earnings were increased by a
$.03 per share reversal of a portion of the restructuring charge
recognized in second quarter 1995.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Intergraph Corporation
We have audited the accompanying consolidated balance
sheets of Intergraph Corporation and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended
December 31, 1996. 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 consolidated
financial position of Intergraph Corporation and
subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
Birmingham, Alabama
January 30, 1997
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its
common stock. It is the present policy of the Company's Board of
Directors to retain all earnings to finance the Company's
operations. In addition, payment of dividends is restricted by the
Company's term loan and revolving credit agreement.
PRICE RANGE OF COMMON STOCK
Since April 1981, Intergraph common stock has traded on The NASDAQ
Stock Market under the symbol INGR. As of January 31, 1997, there
were 47,758,544 shares of common stock outstanding, held by 6,092
shareholders of record. The following table sets forth, for the
periods indicated, the high and low sale prices of the Company's
common stock as reported on The NASDAQ Stock Market.
- ----------------------------------------------------------
1996 1995
Period High Low High Low
- ----------------------------------------------------------
First Quarter $20 1/8 $14 5/8 $14 3/8 $ 8 1/8
Second Quarter 16 1/4 11 1/8 14 10
Third Quarter 13 1/8 8 5/8 13 10 7/8
Fourth Quarter 12 5/8 8 5/8 18 1/2 11 5/8
==========================================================
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank
Shareholder Services Division
311 W. Monroe Street
P. O. Box A-3504
Chicago, IL 60690-3504
CORPORATE COUNSEL
Lanier Ford Shaver & Payne P.C.
200 West Court Square, Suite 5000
Huntsville, AL 35801
INDEPENDENT AUDITORS
Ernst & Young LLP
AmSouth/Harbert Plaza, Suite 1900
Birmingham, AL 35203
FORM 10-K
A copy of the Company's Form 10-K filed with the Securities and
Exchange Commission is available without charge upon written
request to Shareholder Relations, Intergraph Corporation,
Huntsville, AL 35894-0001.
ANNUAL MEETING
The annual meeting of Intergraph Corporation will be held May 15,
1997, at the Corporate offices in Huntsville, Alabama.
BOARD MEMBERS AND OFFICERS
BOARD OF DIRECTORS EXECUTIVE VICE PRESIDENTS VICE PRESIDENTS
James W. Meadlock Wade C. Patterson Thomas G. Baybrook
Chief Executive Officer and President, Intergraph
Chairman of the Board Computer Systems Klaas Borgers
Roland E. Brown William E. Salter Roger O. Coupland
Director President, Intergraph
Federal Systems Jeffrey H. Edson
Larry J. Laster
Executive Vice President Tommy D. Steele Graeme J. Farrell
and Director President, Intergraph
Software Solutions Milford B. French
Keith H. Schonrock Jr.
Director Lawrence F. Ayers Jr. Jeffrey P. Heath
James F. Taylor Jr. Edward F. Boyle Fred D. Heddens
Executive Vice President,
President, International Penman R. Gilliam Rune Kahlbom
Public Safety, and Director
Neil E. Keith William H. McClure
Robert E. Thurber
Executive Vice President Richard H. Lussier Winston P. Newton
and Director
Nancy B. Meadlock John R. Owens
Stephen J. Phillips Robert Patience
Edward A. Wilkinson Stephen B. Rowles
Allan B. Wilson David K. Stinson Jr.
Manfred Wittler John W. Wilhoite
SECRETARY
John R. Wynn
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 50,674
<SECURITIES> 0
<RECEIVABLES> 342,817<F1>
<ALLOWANCES> 16,700
<INVENTORY> 89,411
<CURRENT-ASSETS> 503,920
<PP&E> 481,755
<DEPRECIATION> 307,536
<TOTAL-ASSETS> 756,347
<CURRENT-LIABILITIES> 273,116
<BONDS> 29,764
0
0
<COMMON> 5,736
<OTHER-SE> 441,527
<TOTAL-LIABILITY-AND-EQUITY> 756,347
<SALES> 725,828
<TOTAL-REVENUES> 1,095,333
<CGS> 465,645
<TOTAL-COSTS> 691,908
<OTHER-EXPENSES> 472,149<F2>
<LOSS-PROVISION> (2,049)<F3>
<INTEREST-EXPENSE> 5,137
<INCOME-PRETAX> (66,112)
<INCOME-TAX> (3,000)
<INCOME-CONTINUING> (69,112)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (69,112)
<EPS-PRIMARY> (1.46)
<EPS-DILUTED> (1.46)
<FN>
<F1>Accounts receivable in the Consolidated Balance Sheet is shown net of
allowance for doubtful accounts.
<F2>Other expenses include Product development expenses, Sales and marketing
expenses, General and administrative expenses, and Nonrecurring operating
charges.
<F3>The provision for doubtful accounts is included in Other expense above. The
Company provides its allowance for doubtful accounts on a specific
identification basis. In 1996, significant improvement in collection prospects
on several large accounts occurred, resulting in reversal of amounts previously
provided in the allowance for doubtful accounts.
</FN>
</TABLE>
