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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(205) 730-2000
------------------
(Telephone Number)
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
Common stock, par value $.10 per share: 47,963,570 shares
outstanding as of June 30, 1997
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INTERGRAPH CORPORATION
FORM 10-Q
June 30, 1997
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1997 and 2
December 31, 1996
Consolidated Statements of Operations for the quarters
ended June 30, 1997 and 1996 3
Consolidated Statements of Operations for the six months
ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16 - 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
PART I. FINANCIAL INFORMATION
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- -------------------------------------------------------------------------------
June 30, December 31,
1997 1996
- -------------------------------------------------------------------------------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 40,484 $ 50,674
Accounts receivable, net 308,803 326,117
Inventories 104,534 89,411
Other current assets 38,428 37,718
- -------------------------------------------------------------------------------
Total current assets 492,249 503,920
Investments in affiliates 15,853 19,102
Other assets 58,287 59,106
Property, plant, and equipment, net 159,577 174,219
- -------------------------------------------------------------------------------
Total Assets $725,966 $756,347
===============================================================================
Liabilities and Shareholders' Equity
Trade accounts payable $ 57,420 $ 51,205
Accrued compensation 50,503 50,364
Other accrued expenses 70,380 72,798
Billings in excess of sales 60,696 62,869
Short-term debt and current
maturities of long-term debt 27,857 35,880
- -------------------------------------------------------------------------------
Total current liabilities 266,856 273,116
Deferred income taxes 6,043 6,204
Long-term debt 54,157 29,764
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Total liabilities 327,056 309,084
- -------------------------------------------------------------------------------
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 227,618 229,675
Retained earnings 297,363 339,679
Unrealized holding gain on
securities of affiliate 2,209 6,858
Cumulative translation adjustment 2,950 6,049
- -------------------------------------------------------------------------------
535,876 587,997
Less - cost of 9,397,792 treasury
shares at June 30, 1997 and
9,656,295 treasury shares at
December 31, 1996 (136,966) (140,734)
- -------------------------------------------------------------------------------
Total shareholders' equity 398,910 447,263
- -------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $725,966 $756,347
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
- -------------------------------------------------------------------------------
Quarter Ended June 30, 1997 1996
- -------------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues
Systems $199,883 $174,915
Maintenance and services 88,726 93,251
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Total revenues 288,609 268,166
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Cost of revenues
Systems 127,500 112,973
Maintenance and services 51,994 53,823
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Total cost of revenues 179,494 166,796
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Gross profit 109,115 101,370
Product development 25,171 25,914
Sales and marketing 65,518 67,076
General and administrative 25,753 23,129
- -------------------------------------------------------------------------------
Loss from operations ( 7,327) (14,749)
Interest expense ( 1,612) ( 1,182)
Arbitration award ( 6,126) ---
Other income (expense) - net ( 962) 752
- -------------------------------------------------------------------------------
Loss before income taxes (16,027) (15,179)
Income taxes --- ---
- -------------------------------------------------------------------------------
Net loss $(16,027) $(15,179)
===============================================================================
Net loss per share $( .33) $( .32)
===============================================================================
Weighted average shares outstanding 47,888 46,922
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
- -------------------------------------------------------------------------------
Six Months Ended June 30, 1997 1996
- -------------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues
Systems $368,926 $338,099
Maintenance and services 172,441 186,773
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Total revenues 541,367 524,872
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Cost of revenues
Systems 237,738 218,481
Maintenance and services 106,904 109,620
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Total cost of revenues 344,642 328,101
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Gross profit 196,725 196,771
Product development 51,130 51,249
Sales and marketing 125,221 129,454
General and administrative 50,810 47,554
Nonrecurring operating charge 1,095 ---
- -------------------------------------------------------------------------------
Loss from operations (31,531) (31,486)
Interest expense ( 2,847) ( 2,405)
Arbitration award ( 6,126) ---
Gain on sale of investment in affiliate --- 9,373
Other income (expense) - net ( 1,812) 2,948
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Loss before income taxes (42,316) (21,570)
Income taxes --- ---
- -------------------------------------------------------------------------------
Net loss $(42,316) $(21,570)
===============================================================================
Net loss per share $( .88) $( .46)
===============================================================================
Weighted average shares outstanding 47,823 46,947
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended June 30, 1997 1996
- -------------------------------------------------------------------------------
(In thousands)
Cash Provided By (Used For):
Operating Activities:
Net loss $(42,316) $(21,570)
Adjustments to reconcile net loss to net
cash provided by (used for) operating
activities:
Depreciation and amortization 31,511 38,211
Arbitration award 6,126 ---
Gain on sale of investment in affiliate --- ( 9,373)
Net changes in current assets and liabilities (12,117) ( 2,026)
- -------------------------------------------------------------------------------
Net cash provided by (used for)
operating activities (16,796) 5,242
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Investing Activities:
Purchase of property, plant, and equipment (11,679) (17,092)
Capitalized software development costs ( 4,371) ( 9,882)
Proceeds from sale of division and
investment in affiliate 891 9,761
Other ( 2,037) ( 652)
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Net cash used for investing activities (17,196) (17,865)
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Financing Activities:
Gross borrowings 36,565 10,197
Debt repayment (17,424) (19,636)
Proceeds of employee stock purchases
and exercise of stock options 1,620 2,066
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Net cash provided by (used for)
financing activities 20,761 ( 7,373)
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Effect of exchange rate changes on cash 3,041 670
- -------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (10,190) (19,326)
Cash and cash equivalents at beginning of period 50,674 56,407
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $40,484 $37,081
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments (consisting of normal recurring items)
necessary for a fair presentation of results for the
interim periods presented.
Certain reclassifications have been made to the previously
reported consolidated statements of operations and cash
flows for the quarter and six months ended June 30, 1996
to provide comparability with the current period
presentation.
NOTE 2: As further described in the Company's Form 10-K filing
for its year ended December 31, 1996, the Company has been
party to certain arbitration proceedings with its 50%-
owned affiliate, 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. In May 1997, the Company received notice of
the adverse determination of an arbitration proceeding
with BSI in which the Company had alleged that BSI had
inappropriately and without cause terminated a contractual
arrangement with the Company, and in which BSI had 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. The arbitrator's award against the
Company was in the amount of $6,126,000 ($.13 per share).
This charge is included in "Arbitration award" in the
consolidated statements of operations for the quarter and
six months ended June 30, 1997. The cash position of the
Company was not significantly adversely affected by this
arbitration award, as the Company has offset approximately
$5,800,000 in fees otherwise owed the Company by BSI
against the amount awarded BSI. In addition, the
contractual arrangement that was the subject of this
arbitration has been terminated effective with the award
and, as a result, the Company will no longer sell the
related software support services under this agreement.
The Company and BSI have entered into a new agreement
which establishes a single support services agreement
between the two companies. The Company believes that
neither the arbitration related change in BSI software
support services or its new agreement with BSI relative to
such services will have a material impact on the Company's
financial position, results of operations, or cash flows
in future periods.
The Company has one other arbitration proceeding in
process related to its business relationship with BSI.
The Company is vigorously defending its positions in that
proceeding, but at present is unable to predict its
outcome. Separately, the Company has engaged an
investment banking firm to value and sell its ownership
interest in BSI. See "Management's Discussion and
Analysis" and "Part II., Item 1., Legal Proceedings"
included in this Form 10-Q and the Company's Form 10-K for
the year ended December 31, 1996 for further details of
the Company's business relationship with BSI, its sales of
MicroStation, and the financial effects on the Company of
changes in this business relationship.
The Company also has ongoing litigation with Zydex, Inc.,
a company with which it jointly developed its plant design
software application, on which it is at present unable to
predict an outcome. There have been no material
developments in this proceeding during the first half of
1997. See the Company's Form 10-K filing for its year
ended December 31, 1996 for further description of the
Zydex matter.
NOTE 3: Inventories are stated at the lower of average cost or
market and are summarized as follows:
------------------------------------------------------------------------
June 30, December 31,
1997 1996
------------------------------------------------------------------------
(In thousands)
Raw materials $ 29,791 $ 26,601
Work-in-process 37,556 24,008
Finished goods 15,323 12,945
Service spares 21,864 25,857
------------------------------------------------------------------------
Totals $104,534 $ 89,411
========================================================================
NOTE 4: Property, plant, and equipment - net includes
allowances for depreciation of $290,241,000 and
$307,536,000 at June 30, 1997 and December 31, 1996,
respectively.
NOTE 5: In first quarter 1997, the Company sold an
unprofitable business unit to a third party. The total
loss on the sale was $8,100,000, of which $7,000,000 ($.15
per share) had been recorded as an asset revaluation in
fourth quarter 1996. The remaining loss of $1,100,000
($.02 per share) was recorded upon final determination of
the loss and closure of the sale in first quarter 1997,
and is included in "Nonrecurring operating charge" in the
consolidated statement of operations for the six months
ended June 30, 1997. In addition, the Company
discontinued the operations of a second unprofitable
business unit. This business unit was sold to a third
party during the second quarter of 1997. This business
closure and sale did not materially affect the Company's
results of operations for the quarter or six months ended
June 30, 1997.
Revenues and losses of these two business units totaled
$24,000,000 and $16,000,000, respectively, for the full
year 1996. Assets of the business units totaled
$14,000,000 at December 31, 1996.
NOTE 6: In first quarter 1996, the Company sold its stock
investment in an affiliated company at a gain of
$9,373,000 ($.20 per share). The gain is included in
"Gain on sale of investment in affiliate" in the
consolidated statement of operations for the six months
ended June 30, 1996.
NOTE 7: Supplementary cash flow information is summarized as
follows:
Changes in current assets and liabilities, net of the
effects of business divestitures, in reconciling net loss
to net cash provided by operations are as follows:
-----------------------------------------------------------------------
Cash Provided By (Used For) Operations
Six Months Ended June 30, 1997 1996
-----------------------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable, net $( 512) $ 23,187
Inventories (20,986) 8,718
Other current assets ( 552) 3,196
Increase (decrease) in:
Trade accounts payable 7,231 (17,036)
Accrued compensation and other
accrued expenses 2,091 (11,079)
Billings in excess of sales 611 ( 9,012)
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Net changes in current assets
and liabilities $(12,117) $( 2,026)
=======================================================================
Cash payments for income taxes totaled $2,299,000 and
$2,784,000 for the six months ended June 30, 1997 and
1996, respectively. Cash payments for interest during
those periods totaled $2,763,000 and $2,286,000,
respectively.
Investing and financing transactions in the first half of
1997 that did not require cash included the sale of two
noncore business units of the Company in part for notes
receivable and future royalties totaling $3,950,000 and a
$4,649,000 unfavorable mark-to-market adjustment of an
investment in an affiliated company.
There were no significant non-cash investing and financing
transactions in the first half of 1996.
NOTE 8: Net loss per share is computed by dividing net loss by
the weighted average number of common and equivalent
common shares outstanding. Employee stock options are the
only common stock equivalent and are included in the
weighted average number of common shares only if dilutive.
Weighted average common and equivalent common shares
outstanding for both the primary and fully diluted loss
per share calculations for the quarters ended June 30,
1997 and 1996 were 47,888,000 and 46,922,000,
respectively. For the six months ended June 30, 1997 and
1996, weighted average common and equivalent common shares
outstanding were 47,823,000 and 46,947,000, respectively.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
128, Earnings Per Share, which establishes standards for
computing and presenting earnings per share data for
publicly held entities. The Statement is effective for
fiscal years ending after December 15, 1997. Upon
adoption, the Statement requires restatement of prior
periods' earnings per share data. The Company will adopt
this Statement for its fiscal year ending December 31,
1997 and does not expect the adoption of this new standard
to materially affect previously reported or future
earnings per share data.
INTERGRAPH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
- -------
Earnings. In the second quarter of 1997, the Company incurred a
net loss of $.33 per share on revenues of $288.6 million,
including a $6.1 million ($.13 per share) charge for an adverse
contract arbitration award to Bentley Systems, Inc. (BSI) (see
"Litigation" and "MicroStation" below.) The second quarter 1996
loss was $.32 per share on revenues of $268.2 million. The
Company's loss from operations was $.15 per share for the second
quarter of 1997 as compared to $.31 per share for the second
quarter of 1996. The improvement is the result of an 8% increase
in revenues. For the first half of 1997, the Company lost $.88
per share on revenues of $541.4 million, including the $.13 per
share adverse contract arbitration award. The first half 1996
loss totaled $.46 per share on revenues of $524.9 million,
including a $9.4 million ($.20 per share) gain on the sale of an
investment in an affiliated company. The first half 1997 loss
from operations was $.66 per share versus a loss of $.67 per
share for the first half of 1996. The Company's continuing
operating losses are the result of declining margins and
operating expenses that are too high for the level of revenue
being generated by the Company.
Disposition of Noncore Business Units. In the first quarter of
1997, the Company sold an unprofitable business unit to a third
party. The total loss on the sale was $8,100,000, of which
$7,000,000 ($.15 per share) had been recorded as an asset
revaluation in fourth quarter 1996. The remaining loss of
$1,100,000 ($.02 per share) was recorded upon final determination
of the loss and closure of the sale in first quarter 1997 and is
included in "Nonrecurring operating charge" in the consolidated
statement of operations for the six months ended June 30, 1997.
In addition, during the first quarter the Company discontinued
the operations of a second unprofitable business unit and sold
the unit to a third party during the second quarter of 1997.
This business closure and sale did not materially affect the
results of operations of the Company in the first half of 1997.
Revenues and losses of these two business units totaled
$24,000,000 and $16,000,000, respectively, for the full year
1996. Assets of the business units totaled $14,000,000 at
December 31, 1996.
Litigation. As further described in the Company's Form 10-K
filing for its year ended December 31, 1996, the Company has been
party to certain arbitration proceedings with BSI, a 50%-owned
affiliate and 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.
In May 1997, the Company received notice of the adverse
determination of an arbitration proceeding with BSI in which the
Company had alleged that BSI had inappropriately and without
cause terminated a contractual arrangement with the Company, and
in which BSI had 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. The arbitrator's award against the Company was in the
amount of $6,126,000 ($.13 per share). This charge is included
in "Arbitration award" in the consolidated statements of
operations for the quarter and six months ended June 30, 1997.
The cash position of the Company was not significantly adversely
affected by this arbitration award, as the Company has offset
approximately $5,800,000 in fees otherwise owed the Company by
BSI against the amount awarded BSI. In addition, the contractual
arrangement that was the subject of this arbitration has been
terminated effective with the award and, as a result, the Company
will no longer sell the related software support services under
this agreement. The Company and BSI have entered into a new
agreement which establishes a single support services agreement
between the two companies. The Company believes that neither the
arbitration related change in BSI software support services or
its new agreement with BSI relative to such services will have a
material impact on the Company's financial position, results of
operations, or cash flows in future periods.
The Company has one other arbitration proceeding in process
related to its business relationship with BSI. The Company is
vigorously defending its positions in that proceeding, but at
present is unable to predict its outcome. Separately, the
Company has engaged an investment banking firm to value and sell
its ownership interest in BSI. See "MicroStation" below, "Part
II., Item 1., Legal Proceedings" included in this Form 10-Q, and
the Company's Form 10-K for the year ended December 31, 1996 for
further details of the Company's business relationship with BSI,
its sales of MicroStation, and the financial effects on the
Company of changes in this business relationship.
The Company also has ongoing litigation with Zydex, Inc., a
company with which it jointly developed its plant design software
application, on which it is at present unable to predict an
outcome. There have been no material developments in this
proceeding during the first half of 1997. See the Company's Form
10-K filing for its year ended December 31, 1996 for further
description of the Zydex matter.
Remainder of the Year. Industry conditions and changes in
operating system and hardware architecture strategies (as more
fully described in the Company's Form 10-K filing for its year
ended December 31, 1996) 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
expects that industry trends toward higher performance and lower
priced products, intense competition, rapidly changing
technologies, shorter product cycles, and development and support
of software standards that result in less specific hardware and
software dependencies by customers will continue in 1997 and
beyond. The Company continues to believe that its operating
system and hardware architecture strategies are the correct
choices, that the industry is accepting Windows-NT, and that
Windows-NT will become the dominant operating system in markets
served by the Company. However, acceptance of this system and
the Company's new products built around this system has been
slower than anticipated, and the timing of such acceptance is
unpredictable. Competing operating systems and products 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 markets served by the
Company or that the Company's product strategies will result in
restoration of profitability. Improvement in the Company's
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, offer enhanced
performance, and meet customers' requirements for standardization
and interoperability. To achieve and maintain profitability, the
Company must continue to increase sales volume and further align
its operating expenses with the level of revenue being generated.
ORDERS/REVENUES
- ---------------
Orders. Second quarter and first half 1997 systems orders
totaled $217.5 million and $376.5 million, respectively, an
increase of approximately 17% and 14%, respectively, from the
same prior year periods. U.S. systems orders were strong,
increasing 53% and 41%, respectively, from the second quarter and
first half 1996 levels due in part to a significant increase in
orders from the federal government. Additionally, orders for the
Company's hardware products were strong, including orders for the
Company's graphics cards. International systems orders declined
by 10% and 7%, respectively, from the second quarter and first
half 1996 levels due primarily to an orders decline in the Asia
Pacific region (first half 1996 Asia Pacific orders included four
unusually large individual orders).
New Products. During the first quarter of 1997, the Company
added a line of Intel/Windows-based personal workstations priced
to compete in the PC market. The workstations have features and
performance required by professional users and provide 3D
graphics that the Company believes will be required by users in
the future. In second quarter, the Company added twelve new
workstations in its TD and TDZ lines, including the first Windows-
NT-based workstations using dual Pentium II processors. Also
introduced were two new InterServe servers, the ImageStation Z
digital photogrammatic workstation, and the first 28-inch, high
resolution, wide-format monitor. The majority of these products
began shipping in the second quarter, with the remainder
scheduled for third quarter. The Company does not expect that
introduction of these new products will adversely affect the carrying
value of its existing inventories.
The Company has introduced two new software products for shipment
in second quarter, Solid Edge 3.0 and GeoMedia 1.0, both based on
the Company's Jupiter technology. Solid Edge 3.0 is a solid
modeling system for designing mechanical parts and assemblies.
The Company believes it removes the obstacles that once prevented
companies from using 3D solid modeling as a mainstream design
tool. GeoMedia allows users to access data warehouses virtually
anywhere in the world and simultaneously perform analyses with
varying data types and formats. The Company believes that these
products have been well accepted in the marketplace and that
sales of these products should increase during the remainder of
the year.
Revenues. Total revenues for second quarter and first half 1997
were $288.6 million and $541.4 million, respectively, up 8% and
3%, respectively, from the comparable prior year periods. Sales
outside the U.S. represented 52% of total revenues in the first
half of 1997, compared to approximately 55% for the first half
and full year 1996. European revenues were 32% of total revenues
for the first half of 1997, down 2 points from the first half
1996 and unchanged from the full year 1996 levels.
Systems. Systems revenue for the second quarter and first half
of 1997 was $199.9 million and $368.9 million, respectively, up
14% and 9%, respectively, from the same prior year periods. U.S.
revenues were up 24% from second quarter 1996 and 15% from first
half 1996 levels (up 22% for the first half excluding the effect
of disposal of two unprofitable business units). The factors
that affected U.S. order growth have similarly affected U.S.
revenue growth. International systems revenues were up
approximately 4% from both the second quarter and first half 1996
levels. European revenues increased by 11% and 7%, respectively,
from the second quarter and first half 1996 levels. Other
international revenues declined by 3% and 1%, respectively, from
these same periods.
First half 1997 total hardware revenues increased 27% from the
prior year period. Unit sales of workstations and servers were
up 69% (workstation and server average per unit selling price
declined 37%), while sales of peripheral hardware products
increased by 90% from the first half 1996 due primarily to sales
of graphics cards introduced during the third quarter of 1996.
Additionally, during second quarter the Company established a new
sales channel which allows customers to order select low end
hardware products via the Internet. The volume produced through
this channel has been insignificant during the start-up phase;
however, the Company has increased its inventory of these
products in anticipation of a sales volume increase. Software
revenues were relatively flat with the prior year level, despite
a 27% decline in MicroStation revenues (see further details
below). Excluding MicroStation, software revenues increased 4%
from the first half 1996 level due primarily to an increase in
plant design and ship building software applications sales,
partially offset by declines in sales of infrastructure and
database software. Sales of Windows-based software represented
approximately 80% of total software revenues in the first half of
1997, up from approximately 75% in the first half of 1996.
The Company is unable to predict the level of success of its
products in the marketplace; however, it expects systems revenue
levels to increase sequentially throughout the remainder of the
year through growth in core product sales and sales of new
hardware and software product offerings.
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 had 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. The Company's sales of MicroStation
have declined each year since the change in the license
agreement. During the first half of 1997, the Company's sales of
MicroStation declined by approximately 27% from the same prior
year period. The Company estimates that this decline increased
second quarter and first half 1997 net loss by approximately $4.3
million ($.09 per share) and $6.2 million ($.13 per share),
respectively. The Company is unable to predict the level of
MicroStation sales that will occur in the future, but it is
possible such sales will be further reduced.
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 $88.7 million for the second quarter and
$172.4 million for the first half of 1997, down 5% and 8%,
respectively, from the comparable prior year periods.
Maintenance revenues for the first half of 1997 totaled $126.5
million, down 13% from the same prior year period. 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 represents approximately 8% of total first half
1997 revenues and has increased 11% from the same prior year
period. 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 for the second quarter was
37.8%, flat with the second quarter of 1996. For the first half
of 1997, total gross margin was 36.3%, down 1.2 points from the
first half of 1996 and .5 points from the full year 1996 level.
Systems margin for the second quarter was 36.2%, an increase of
.8 points from the second quarter 1996 level. First half 1997
margin was 35.6%, up slightly from both the first half and full
year 1996 levels. Since the end of 1994, the Company's systems
margin has declined by approximately 4 points, due primarily to
price competition in the industry.
In general, the Company's systems margin 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. 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. 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.
Maintenance and services margin for the second quarter and first
half of 1997 were 41.4% and 38.0% (38.8% for the full year 1996),
respectively, down .9 points and 3.3 points, respectively, from
the comparable prior year periods. The Company's maintenance
revenue has declined at a faster rate than cost associated with
that form of revenue. Additionally, services cost has increased
more rapidly than the associated revenue. The Company continues
to closely monitor maintenance and services cost and has taken
certain measures, including reductions in headcount, to more
closely align cost with the current revenue level. The Company
believes that the trend in the industry toward lower priced products
and longer warranty periods will continue to reduce its maintenance
revenue, which will pressure maintenance margin in the absence of
corresponding cost reductions.
OPERATING EXPENSES
- ------------------
Operating expenses for the second quarter and first half of 1997
were flat with the comparable prior year periods. Total employee
headcount has declined 8% from that same period.
Sales and marketing expense for the second quarter and first half
of 1997 declined 2% and 3%, respectively, from the same prior
year periods. These declines from 1996 levels are due primarily
to the sale of the two unprofitable business units described
above and to strengthening of the U.S. dollar in international
markets, primarily Europe. General and administrative expense
for the second quarter and first half of 1997 increased by 12%
and 7%, respectively, from the same prior year periods due to
increased legal expenses and provisions for U.S. and European bad
debts. Product development expense for the second quarter and
first half of 1997 was relatively flat with the same prior year
periods, although headcount has been reduced significantly.
Expense savings achieved through headcount reductions have been
offset by a decline in new software product development expenses
qualifying for capitalization.
NONOPERATING INCOME AND EXPENSE
- -------------------------------
Interest expense was $1.6 million for the second quarter and $2.8
million for the first half of 1997 versus $1.2 million and $2.4
million, respectively, for the comparable prior year periods.
The Company's average outstanding debt has increased in
comparison to the same prior year periods; however, the Company's
rate of interest on the debt has declined approximately 2 points
due primarily to a change in lenders under the Company's primary
credit facility. See "Liquidity and Capital Resources" below for
a discussion of the Company's current financing arrangements.
In the first quarter of 1996, the Company sold a stock investment
in an affiliated company, resulting in a gain of $9.4 million
($.20 per share). The gain is included in "Gain on sale of
investment in affiliate" in the consolidated statement of
operations for the six months ended June 30, 1996.
"Other income (expense) - net" in the consolidated statements of
operations consists primarily of foreign exchange gains and
losses, equity in earnings and losses of investee companies,
other miscellaneous items of nonoperating income and expense, and
nonrecurring charges/credits.
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 the first half of 1997, approximately 52% (55%
for the full year 1996) 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. For the first half
of 1997, the U.S. dollar strengthened on average from its first
half 1996 level, which decreased reported dollar revenues, orders,
and gross margin, but also decreased reported dollar operating
expenses in comparison to the prior year period. The Company
estimates that currency effects increased the Company's loss for
the first half of 1997 by approximately $.09 per share. Such
currency effects did not materially impact the Company's results
of operations for the comparable prior year period.
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. 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.
INCOME TAXES
- ------------
The Company incurred a loss before income tax benefit of $42.3
million in the first half of 1997 versus $21.6 million in the
first half of 1996. These losses generated minimal net financial
statement tax benefit, as the majority of available tax benefits
were offset by tax expenses in individual profitable
international subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1997, cash totaled $40.5 million compared to $50.7
million at December 31, 1996. Net cash used in operations in the
first half of 1997 totaled $16.8 million compared to net
generation of $5.2 million in the first half of 1996. An
inventory build-up in response to customer demand for faster
delivery of products and in anticipation of a volume increase in
sales of the Company's low end hardware products via its new
Internet sales channel has consumed approximately $15 million
since the beginning of the year. The Company does not anticipate
a further build-up of inventory.
Net cash used for investing activities totaled $17.2 million in
the first half of 1997 versus $17.9 million in the first half of
1996. Included in investing activities were capital expenditures
of $11.7 million ($17.1 million in the first half of 1996),
primarily for Intergraph products used in hardware and software
development and sales and marketing activities. The Company
expects that capital expenditures will require $25 to $35 million
for the full year 1997, primarily for these same purposes. The
Company's term loan and revolving credit agreement contains
certain restrictions on the level of the Company's capital
expenditures. Other significant investing activities included
$4.4 million for capitalizable software development costs ($9.9
million in the first half of 1996). Investing activities in the
first half of 1996 also included $9.8 million in proceeds from
the sale of an investment in an affiliated company.
Net cash provided by financing activities in the first half of
1997 totaled $20.8 million versus a net use of cash of $7.4
million in the first half of 1996. First half 1997 financing
activities included a $19.1 million net addition to short- and
long-term debt, compared with a net repayment of $9.4 million in
the first half of 1996.
In January 1997, the Company entered into a three year fixed term
loan and revolving credit agreement. Available borrowings are
determined by the amounts of eligible assets of the Company (the
"borrowing base"), 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
(8.5% at June 30, 1997) 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 June
30, 1997, the Company had outstanding borrowings of $28 million,
$20 million of which was classified as long-term debt in the
consolidated balance sheet, and an additional $35 million of the
available credit line was allocated to support letters of credit
issued by the Company. As of this same date, the borrowing base
under the credit line was $100 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.
In March of 1997, the Company entered into an agreement for the
sale and leaseback of one of its facilities. Based on the terms
of the agreement, the transaction has been accounted for as a
borrowing. The amount borrowed totals $8.4 million and is
included in "Long-term debt" in the 1997 consolidated balance
sheet. The borrowing will be repaid over a period of 20 years at
an implicit rate of interest of 10.7%.
At June 30, 1997, the Company had approximately $59 million in
debt on which interest is charged under various floating rate
arrangements, primarily under its three year term loan and
revolving credit agreement, an Australian term loan, and various
mortgages. 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 is not currently generating adequate cash to fund its
operations and build cash reserves, but believes that existing
cash balances, together with cash to be generated by operations
and cash available under its term loan and revolving credit
agreement will be adequate to meet cash requirements for the
remainder of 1997.
INTERGRAPH CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
As described in the Company's Form 10-K filing for its
year ended December 31, 1996, the Company has been
party to certain arbitration proceedings with Bentley
Systems, Inc. (BSI), a 50%-owned affiliate and 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. 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 May 1997, the Company received notice of the
adverse determination of this arbitration proceeding.
The arbitrator's award against the Company was in the
amount of $6,126,000 ($.13 per share). This charge is
included in "Arbitration award" in the consolidated
statements of operations for the quarter and six
months ended June 30, 1997. The cash position of the
Company was not significantly adversely affected by
this arbitration award, as the Company has offset
approximately $5,800,000 in fees otherwise owed the
Company by BSI against the amount awarded BSI.
In addition, the contractual arrangement that
was the subject of this arbitration has been
terminated effective with the award and, as a result,
the Company will no longer sell the related software
support services under this agreement. The Company
and BSI have entered into a new agreement which
establishes a single support services agreement
between the two companies. The Company believes that
neither the arbitration related change in BSI software
support services or its new agreement with BSI relative
to such services will have a material impact on the
Company's financial position, results of operations,
or cash flows in future periods.
Item 4: Submission of Matters to a Vote of Security Holders
Intergraph Corporation's Annual Meeting of
Shareholders was held on May 15, 1997. The results of
the meeting follow.
(1) Seven directors were elected to the Board of
Directors to serve for the ensuing year and until
their successors are duly elected and qualified.
All nominees, with the exception of Thomas J. Lee,
were serving as Directors of the Company at the
time of their nomination.
Votes
---------------------------------
For Against/Withheld
----------- ------------------
Roland E. Brown 41,490,232 1,350,554
Larry J. Laster 41,562,031 1,278,755
Thomas J. Lee 41,519,485 1,321,301
James W. Meadlock 41,561,038 1,279,748
Keith H. Schonrock, Jr. 41,449,561 1,391,225
James F. Taylor, Jr. 41,550,136 1,290,650
Robert E. Thurber 41,475,478 1,365,308
Mr. Brown resigned as Director of the Company June
25, 1997, for personal reasons. The Company
currently intends to replace Mr. Brown.
(2) Ratification of the appointment by the Board of
Directors of Ernst & Young LLP as the Company's
independent auditors for the current year was
approved by a vote of 42,178,573 for, 558,528
against, and 103,685 abstentions.
(3) The Intergraph Corporation 1997 Stock Option
Plan was approved by a vote of 30,754,567 for,
5,328,123 against, 369,782 abstentions and
6,388,314 broker non-votes.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 10 (a), agreement between Intergraph
Corporation and Green Mountain, Inc.,
dated April 1, 1997. *(1)
Exhibit 10 (b), Indemnification Agreement between
Intergraph Corporation and each member of the Board
of Directors of the Company dated June 3, 1997.
Exhibit 10 (c), Employment Contract of Wade
Patterson dated May 30, 1997.*
Exhibit 27, Financial Data Schedule.
* Denotes management contract or compensatory
plan, contract, or arrangement.
(1) Incorporated by reference to exhibit filed with
the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, under the Securities
Exchange Act of 1934, File No. 0-9722.
(b) There were no reports on Form 8-K filed during the
quarter ended June 30, 1997.
INTERGRAPH CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
INTERGRAPH CORPORATION
----------------------
(Registrant)
By:/s/ Larry J. Laster By:/s/ John W. Wilhoite
--------------------- ---------------------
Larry J. Laster John W. Wilhoite
Executive Vice President, Vice President and Controller
Chief Financial Officer and (Principal Accounting Officer)
Director
Date: August 13, 1997 Date: August 13, 1997
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into this 3rd day of June,
1997 ("Agreement"), by and between Intergraph Corporation, a
Delaware corporation ("Company"), and ______________
("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant
to serve publicly-held corporations as directors or in other
capacities unless they are provided with adequate protection
through indemnification or similar arrangements protecting
against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the
Company; and
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that, under current market conditions, it is not
in the best interests of the Company to maintain director and
officer liability insurance given the high cost associated with
such insurance and the breadth of exclusions typically contained
in director and officer liability insurance policies; and
WHEREAS, directors, officers and other persons in service to
corporations or business entities are being increasingly
subjected to expensive and time-consuming litigation relating to,
among other things, matters that traditionally would have been
asserted only against corporations and other entities; and
WHEREAS, the prohibitive cost and limited coverages
associated with such insurance and the uncertainties relating to
indemnification have increased the difficulty of attracting and
retaining qualified persons to serve as corporate directors; and
WHEREAS, the Board has determined that the increased
difficulty in attracting and retaining such persons is
detrimental to the best interests of the Company's stockholders
and that the Company should act to assure such persons that there
will be increased certainty of indemnity protection in the
future; and
WHEREAS, it is reasonable, prudent and necessary for the
Company contractually to obligate itself to indemnify, and to
advance expenses on behalf of, such persons to the fullest extent
permitted by applicable law so that qualified individuals will
agree to serve or continue to serve the Company free from undue
concern that they will not be so indemnified; and
WHEREAS, this Agreement is a supplement to and in
furtherance of the Certificate of Incorporation and Restated
Bylaws of the Company and any resolutions adopted pursuant
thereto, and shall not be deemed a substitute therefore, nor to
diminish or abrogate any rights of indemnification afforded
thereunder; and
WHEREAS, each of Section 145 of the General Corporation Law
of the State of Delaware, the Company's Certificate of
Incorporation and the Company's Restated Bylaws is non-exclusive,
and therefore contemplates that contracts may be entered into
with respect to indemnification of directors, officers and
employees; and
WHEREAS, Indemnitee is willing to serve, continue to serve
or to take on additional service for or on behalf of the Company
on the condition that he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Company and Indemnitee do hereby
covenant and agree as follows:
Section 1. Services by Indemnitee. Indemnitee agrees
to serve as a director and/or executive officer of the Company.
Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or any
obligation imposed by operation of law), in which event the
Company shall have no obligation under this Agreement to continue
to permit Indemnitee to serve in such position. This Agreement
shall not be deemed an employment contract between the Company
(or any of its subsidiaries) and Indemnitee. Indemnitee
specifically acknowledges that Indemnitee's employment with the
Company (or any of its subsidiaries), if any, is at will, and the
Indemnitee may be discharged at any time for any reason, with or
without cause, except as may be otherwise provided in any written
employment contract between Indemnitee and the Company (or any of
its subsidiaries), other applicable formal severance policies
duly adopted by the Board, or, with respect to service as a
director of the Company, by the Company's Certificate of
Incorporation, the Company's Restated Bylaws, and the General
Corporation Law of the State of Delaware. The foregoing
notwithstanding, this Agreement shall continue in force after
Indemnitee has ceased to serve as a director and/or executive
officer of the Company in accordance with Section 12.
Section 2. Indemnification - General. The Company
shall indemnify, and advance Expenses (as hereinafter defined)
to, Indemnitee (a) as provided in this Agreement and (b) (subject
to the provisions of this Agreement) to the fullest extent
permitted by applicable law in effect on the date hereof and as
amended from time to time (but in the case of any such amendment,
only to the extent that such amendment permits the Company to
provide broader indemnification rights than such law permitted
the Company to provide prior to such amendment). The rights of
Indemnitee provided under the preceding sentence shall include,
but shall not be limited to, the rights set forth in the other
Sections of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in
the Right of the Company. Indemnitee shall be entitled to the
rights of indemnification provided in this Section 3 if, by
reason of his Corporate Status (as hereinafter defined), he is,
or is threatened to be made, a party to or a participant in any
threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the
Company. Pursuant to this Section 3, Indemnitee shall be
indemnified against all Expenses, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by
him or on his behalf in connection with such Proceeding, or any
claim, issue or matter therein, if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was
unlawful.
Section 4. Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of
indemnification provided in this Section 4 if, by reason of his
Corporate Status, he is, or is threatened to be made, a party to
or a participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a
judgment in its favor. Pursuant to this Section, Indemnitee
shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection with such
Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Company; provided, however, that, if applicable law so
provides, no indemnification against such Expenses shall be made
in respect of any claim, issue or matter in such Proceeding as to
which Indemnitee shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of his duties
to the Company unless and to the extent that the Court of
Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine
that such indemnification may be made.
Section 5. Indemnification for Expenses of a Party Who
is Wholly or Partly Successful. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a party to (or a participant in)
and is successful, on the merits or otherwise, in any Proceeding,
he shall be indemnified to the maximum extent permitted by law
against all Expenses actually and reasonably incurred by him or
on his behalf in connection therewith. If Indemnitee is not
wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims,
issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section
and without limitation, the termination of any claim, issue or
matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness.
Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a
witness in any Proceeding to which Indemnitee is not a party, he
shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
Section 7. Advancement of Expenses. Notwithstanding
any provision of this Agreement to the contrary, the Company
shall advance all reasonable Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding in which Indemnitee
is involved by reason of Indemnitee's Corporate Status within ten
days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of
such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by Indemnitee and shall include or
be preceded or accompanied by an undertaking by or on behalf of
Indemnitee to repay any Expenses advanced if it ultimately shall
be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Any advances and undertakings to repay
pursuant to this Section 7 shall be unsecured and interest free.
Section 8. Procedure for Determination of Entitlement
to Indemnification.
(a) To obtain indemnification under this
Agreement, Indemnitee shall submit to the Company a written
request, including therein or therewith such documentation and
information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the
Company shall, promptly upon receipt of such a request for
indemnification, advise the Board in writing that Indemnitee has
requested indemnification.
(b) Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 8(a)
hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in the
specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of
Directors, a copy of which shall be delivered to Indemnitee; or
(ii) if a Change in Control shall not have occurred, (A) by a
majority vote of the Disinterested Directors (as hereinafter
defined), even though less than a quorum of the Board, or (B) if
there are no such Disinterested Directors or, if such
Disinterested Directors so direct, by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered
to Indemnitee or (C) if so directed by the Board, by the
stockholders of the Company; and, if it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee
shall be made within ten (10) days after such determination.
Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such
person, persons or entity upon reasonable advance request any
documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to
Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements)
incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company
(irrespective of the determination as to Indemnitee's entitlement
to indemnification) and the Company hereby indemnifies and agrees
to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement
to indemnification is to be made by Independent Counsel pursuant
to Section 8(b) hereof, the Independent Counsel shall be selected
as provided in this Section 8(c). If a Change in Control shall
not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice
to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change in Control shall have occurred,
the Independent Counsel shall be selected by Indemnitee (unless
Indemnitee shall request that such selection be made by the Board
of Directors, in which event the preceding sentence shall apply),
and Indemnitee shall give written notice to the Company advising
it of the identity of the Independent Counsel so selected. In
either event, Indemnitee or the Company, as the case may be, may,
within 10 days after such written notice of selection shall have
been given, deliver to the Company or to Indemnitee, as the case
may be, a written objection to such selection; provided, however,
that such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 17 of this Agreement,
and the objection shall set forth with particularity the factual
basis of such assertion. Absent a proper and timely objection,
the person so selected shall act as Independent Counsel. If such
written objection is so made and substantiated, the Independent
Counsel so selected may not serve as Independent Counsel unless
and until such objection is withdrawn or a court has determined
that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification
pursuant to Section 8(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or
Indemnitee may petition the Court of Chancery of the State of
Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or
for the appointment as Independent Counsel of a person selected
by the Court or by such other person as the Court shall
designate, and the person with respect to whom all objections are
so resolved or the person so appointed shall act as Independent
Counsel under Section 8(b) hereof. Upon the due commencement of
any judicial proceeding or arbitration pursuant to Section 10(a)
of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then
prevailing).
(d) The Company shall not be required to obtain
the consent of the Indemnitee to the settlement of any Proceeding
which the Company has undertaken to defend if the Company assumes
full and sole responsibility for such settlement and the
settlement grants the Indemnitee a complete and unqualified
release in respect of the potential liability; provided, however,
that the Company shall not settle any Proceeding in any manner
that would require admission of personal wrongdoing by
Indemnitee, or impose any penalty or limitation on Indemnitee,
without Indemnitee's written consent, which consent shall not be
unreasonably withheld. The Company shall not be liable for any
amount paid by the Indemnitee in settlement of any Proceeding
that is not defended by the Company, unless the Company has
consented to such settlement, which consent shall not be
unreasonably withheld.
Section 9. Presumptions and Effect of Certain
Proceedings.
(a) In making a determination with respect to
entitlement to indemnification hereunder, the person or persons
or entity making such determination shall presume that Indemnitee
is entitled to indemnification under this Agreement if Indemnitee
has submitted a request for indemnification in accordance with
Section 8(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with
the making by any person, persons or entity of any determination
contrary to that presumption. Neither the failure of the Company
(including by its directors or independent legal counsel) to have
made a determination prior to the commencement of any action
pursuant to this Agreement that indemnification is proper in the
circumstances because Indemnitee has met the applicable standard
of conduct, nor an actual determination by the Company (including
by its directors or independent legal counsel) that Indemnitee
has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that Indemnitee has
not met the applicable standard of conduct.
(b) If the person, persons or entity empowered or
selected under Section 8 of this Agreement to determine whether
Indemnitee is entitled to indemnification shall not have made a
determination within sixty (60) days after receipt by the Company
of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made
and Indemnitee shall be entitled to such indemnification, absent
(i) a misstatement by Indemnitee of a material fact, or an
omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that
such 60-day period may be extended for a reasonable time, not to
exceed an additional thirty (30) days, if the person, persons or
entity making the determination with respect to entitlement to
indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information
relating thereto; and provided, further, that the foregoing
provisions of this Section 9(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by
the stockholders pursuant to Section 8(b) of this Agreement and
if (A) within fifteen (15) days after receipt by the Company of
the request for such determination the Board of Directors has
resolved to submit such determination to the stockholders for
their consideration at an annual meeting thereof to be held
within seventy five (75) days after such receipt and such
determination is made thereafter, or (B) a special meeting of
stockholders is called within fifteen (15) days after such
receipt for the purpose of making such determination, such
meeting is held for such purpose within sixty (60) days after
having been so called and such determination is made thereat, or
(ii) if the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 8(b) of this
Agreement.
(c) The termination of any Proceeding or of any
claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent,
shall not (except as otherwise expressly provided in this
Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not
act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Company or,
with respect to any criminal Proceeding, that Indemnitee had
reasonable cause to believe that his conduct was unlawful.
(d) Reliance as Safe Harbor. For purposes of any
determination of Good Faith, Indemnitee shall be deemed to have
acted in Good Faith if Indemnitee's action is based on the
records or books of account of the Enterprise, including
financial statements, or on information supplied to Indemnitee by
the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on
information or records given or reports made to the Enterprise by
an independent certified public accountant or by an appraiser or
other expert selected with the reasonable care by the Enterprise.
The provisions of this Section 9(d) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which
the Indemnitee may be deemed to have met the applicable standard
of conduct set forth in this Agreement.
(e) Actions of Others. The knowledge and/or
actions, or failure to act, of any director, officer, agent or
employee of the Enterprise shall not be imputed to Indemnitee for
purposes of determining the right to indemnification under this
Agreement.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made
pursuant to Section 8 of this Agreement that Indemnitee is not
entitled to indemnification under this Agreement, (ii)
advancement of Expenses is not timely made pursuant to Section 7
of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 8(b) of
this Agreement within 90 days after receipt by the Company of the
request for indemnification, (iv) payment of indemnification is
not made pursuant to Section 5,6, the last sentence of Section
8(b), or the last sentence of Section 17(h) of this Agreement
within ten (10) days after receipt by the Company of a written
request therefor, or (v) payment of indemnification pursuant to
Section 3 or 4 of this Agreement is not made within ten (10) days
after a determination has been made that Indemnitee is entitled
to indemnification, Indemnitee shall be entitled to an
adjudication by the Court of Chancery of the State of Delaware of
his entitlement to such indemnification or advancement of
Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator
pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration
within 180 days following the date on which Indemnitee first has
the right to commence such proceeding pursuant to this Section
10(a); provided, however, that the foregoing clause shall not
apply in respect of a proceeding brought by Indemnitee to enforce
his rights under Section 5 of this Agreement. The Company shall
not oppose Indemnitee's right to seek any such adjudication or
award in arbitration.
(b) In the event that a determination shall have
been made pursuant to Section 8(b) of this Agreement that
Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 10
shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced
by reason of that adverse determination.
(c) If a determination shall have been made
pursuant to Section 8(b) of this Agreement that Indemnitee is
entitled to indemnification, the Company shall be bound by such
determination in any judicial proceeding or arbitration commenced
pursuant to this Section 10, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification,
or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to
this Section 10, seeks a judicial adjudication of or an award in
arbitration to enforce his rights under, or to recover damages
for breach of, this Agreement, Indemnitee shall be entitled to
recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the
definition of Expenses in Section 17 of this Agreement) actually
and reasonably incurred by him in such judicial adjudication or
arbitration, but only if (and only to the extent) he prevails
therein. If it shall be determined in said judicial adjudication
or arbitration that Indemnitee is entitled to receive part but
not all of the indemnification or advancement of Expenses sought,
the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately
prorated.
(e) The Company shall be precluded from asserting
in any judicial proceeding or arbitration commenced pursuant to
this Section 10 that the procedures and presumptions of this
Agreement are not valid, binding and enforceable and shall
stipulate in any such court or before any such arbitrator that
the Company is bound by all the provisions of this Agreement.
Section 11. Non-Exclusivity; Survival of Rights;
Insurance; Subrogation.
(a) The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not
be deemed exclusive of any other rights to which Indemnitee may
at any time be entitled under applicable law, the Company's
Certificate of Incorporation, the Company's Restated Bylaws, any
agreement, a vote of stockholders or a resolution of directors,
or otherwise. No amendment, alteration or repeal of this
Agreement or of any provision hereof shall limit or restrict any
right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior
to such amendment, alteration or repeal. To the extent that a
change in the General Corporation Law of the State of Delaware,
whether by statute or judicial decision, permits greater
indemnification or advancement of Expenses than would be afforded
currently under the Company's Certificate of Incorporation,
Restated Bylaws and this Agreement, it is the intent of the
parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change. No right or remedy
herein conferred is intended to be exclusive of any other right
or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder
or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or
employment of any other right or remedy.
(b) To the extent (if any) that the Company
maintains an insurance policy or policies providing liability
insurance for directors, officers, employees, or agents of the
Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be
covered by such policy or policies in accordance with its or
their terms to the maximum extent of the coverage available for
any such director, officer, employee or agent under such policy
or policies.
(c) In the event of any payment under this
Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee, who shall
execute all papers required and take all action necessary to
secure such rights, including execution of such documents as are
necessary to enable the Company to bring suit to enforce such
rights.
(d) The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable
(or for which advancement is provided hereunder) hereunder if and
to the extent that Indemnitee has otherwise actually received
such payment under any insurance policy, contract, agreement or
otherwise.
(e) The Company's obligation to indemnify or
advance Expenses hereunder to Indemnitee who is or was serving at
the request of the Company as a director, officer, employee or
agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise shall be reduced
by any amount Indemnitee has actually received as indemnification
or advancement of Expenses from such other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise.
Section 12. Duration of Agreement. This Agreement
shall continue until and terminate upon the later of: (a) 10
years after the date that Indemnitee shall have ceased to serve
as a director or executive officer of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served at the request
of the Company; or (b) the final termination of any Proceeding
pending at the end of such 10-year period in respect of which
Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Section 10 of this Agreement relating thereto. This
Agreement shall be binding upon the Company and its successors
and assigns and shall inure to the benefit of Indemnitee and his
heirs, executors and administrators.
Section 13. Severability. If any provision or
provisions of this Agreement shall be held to be invalid, illegal
or unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this
Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid,
illegal or unenforceable) shall not in any way be affected or
impaired thereby and shall remain enforceable to the fullest
extent permitted by law; (b) such provision or provisions shall
be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of
the parties hereto; and (c) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is
not itself invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested thereby.
Section 14. Exception to Right of Indemnification or
Advancement of Expenses. Notwithstanding any other provision of
this Agreement, but subject to Section 10(d) hereof, Indemnitee
shall not be entitled to indemnification or advancement of
Expenses under this Agreement with respect to any Proceeding
brought by Indemnitee, or any claim therein, unless the bringing
of such Proceeding or making of such claim shall have been
approved by the Board of Directors.
Section 15. Identical Counterparts. This Agreement
may be executed in one or more counterparts, each of which shall
for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. Only one
such counterpart signed by the party against whom enforceability
is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings. The headings of the paragraphs
of this Agreement are inserted for convenience only and shall not
be deemed to constitute part of this Agreement or to affect the
construction thereof.
Section 17. Definitions. For purposes of this
Agreement:
(a) "Change in Control" means a change in control
of the Company occurring after the Effective Date of a nature
that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar
item on any similar schedule or form) promulgated under the
Securities Exchange Act of 1934 (the "Act"), whether or not the
Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall
be deemed to have occurred if after the Effective Date (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Act) other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation
owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock
of the Company is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding
securities without the prior approval of at least two-thirds of
the members of the Board in office immediately prior to such
person attaining such percentage interest; (ii) there occurs a
proxy contest, or the Company is a party to a merger,
consolidation, sale of assets, plan of liquidation or other
reorganization not approved by at least two-thirds of the members
of the Board then in office, as a consequence of which members of
the Board in office immediately prior to such transaction or
event constitute less than a majority of the Board thereafter; or
(iii) during any period of two consecutive years, other than as a
result of an event described in clause (a)(ii) of this Section
17, individuals who at the beginning of such period constituted
the Board (including for this purpose any new director whose
election or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of
the Board.
(b) "Corporate Status" describes the status of a
person who is or was a director, officer, employee or agent of
the Company or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which
such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of
the Company who is not and was not a party to the Proceeding in
respect of which indemnification is sought by Indemnitee.
(d) "Effective Date" means the date upon which
this agreement was executed by the Company.
(e) "Enterprise" shall mean the Company and any
other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise of which Indemnitee is or was
serving at the express written request of the Company as a
director, officer, employee, agent or fiduciary.
(f) "Expenses" shall include all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees
of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery
service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, being
or preparing to be a witness in, or otherwise participating in, a
Proceeding.
(g) "Good Faith" shall mean Indemnitee having
acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal Proceeding, having had
no reasonable cause to believe Indemnitee's conduct was unlawful.
(h) "Independent Counsel" means a law firm, or a
member of a law firm, that is experienced in matters of
corporation law and neither presently is, nor in the past five
years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party (other
than with respect to matters concerning the Indemnitee under this
Agreement, or of other indemnitees under similar indemnification
agreements), or (ii) any other party to the Proceeding giving
rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to
determine Indemnitee's rights under this Agreement. The Company
agrees to pay the reasonable fees and expenses of the Independent
Counsel referred to above and to fully indemnify such counsel
against any and all Expenses, claims, liabilities and damages
arising out of or relating to this Agreement or its engagement
pursuant hereto.
(i) "Proceeding" includes any threatened, pending
or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative
hearing or any other actual, threatened or completed proceeding,
whether brought by or in the right of the Company or otherwise
and whether civil, criminal, administrative or investigative, in
which Indemnitee was, is or will be involved as a party or
otherwise, by reason of the fact that Indemnitee is or was a
director or officer of the Company, by reason of any action taken
by him or of any inaction on his part while acting as director or
officer of the Company, or by reason of the fact that he is or
was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, in each case whether or not
he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification or
advancement of Expenses can be provided under this Agreement;
except one initiated by an Indemnitee pursuant to Section 10 of
this Agreement to enforce his rights under this Agreement.
(j) References to "other enterprise" shall
include employee benefit plans; references to "fines" shall
include any excise tax assessed with respect to any employee
benefit plan; references to "serving at the request of the
Company" shall include any service as a director, officer,
employee or agent of the Company which imposes duties on, or
involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, as participants or
beneficiaries; and a person who acted in good faith and in the
manner he reasonably believed to be in the interests of the
participants and beneficiaries of an employee benefit plan shall
not be deemed to have acted in manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
Section 18. Enforcement.
(a) The Company expressly confirms and agrees
that it has entered into this Agreement and assumed the
obligations imposed on it hereby in order to induce Indemnitee to
continue to serve as a director or executive officer of the
Company, and the Company acknowledges that Indemnitee is relying
upon this Agreement in serving as such.
(b) This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and
understandings, oral, written and implied, between the parties
hereto with respect to the subject matter hereof.
Section 19. Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a
continuing waiver.
Section 20. Notice by Indemnitee. Indemnitee agrees
promptly to notify the Company in writing upon being served with
any summons, citation, subpoena, complaint, indictment,
information or other document relating to any Proceeding or
matter which may be subject to indemnification or advancement of
Expenses covered hereunder. The failure of Indemnitee to so
notify the Company shall not relieve the Company of any
obligation which it may have to the Indemnitee under this
Agreement or otherwise, except to the extent the Company is
materially prejudiced by such failure.
Section 21. Notices. All notices, requests, demands
and other communications hereunder shall be in writing and shall
be deemed to have been duly given if (i) delivered by hand and
receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third
business day after the date on which it is so mailed:
(a) If to Indemnitee, to:
Indemnitee
Mailing address
City, State Zip Code
(b) If to the Company, to:
Intergraph Corporation
Attention:Legal Department
HQ034
Huntsville, Alabama 35894
or to such other address as may have been furnished to Indemnitee
by the Company or to the Company by Indemnitee, as the case may
be.
Section 22. Contribution. To the fullest extent
permissible under applicable law, if the indemnification provided
for in this Agreement is unavailable to Indemnitee for any reason
whatsoever, the Company, in lieu of indemnifying Indemnitee,
shall contribute to the amount incurred by Indemnitee, whether
for judgments, fines, penalties, excise taxes, amounts paid or to
be paid in settlement and/or for Expenses, in connection with any
claim relating to an indemnifiable event under this Agreement, in
such proportion as is deemed fair and reasonable in light of all
of the circumstances of such Proceeding in order to reflect
(i) the relative benefits received by the Company and Indemnitee
as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (ii) the relative fault of the Company
(and its directors, officers, employees and agents) and
Indemnitee in connection with such event(s) and/or
transaction(s).
Section 23. Governing Law. This Agreement and the
legal relations among the parties shall be governed by, and
construed and enforced in accordance with, the laws of the State
of Delaware, without regard to its conflict of laws rules.
Section 24. Miscellaneous. Use of the masculine
pronoun shall be deemed to include usage of the feminine pronoun
where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
INTERGRAPH CORPORATION
By:
Name:
Title:
Indemnitee:
Address:
May 30, 1997
Mr. Wade Patterson
117 Woodrow Balch Dr.
Huntsville, AL 35806
Dear Wade:
This letter sets forth terms and conditions for your continued
employment with Intergraph Corporation. When accepted and signed
by you, this letter will become your Employment Agreement.
1. This Agreement will expire December 31, 2002, unless earlier
terminated as set forth below.
2. You will continue in your position as Executive Vice-President
of Intergraph Corporation, and President, Intergraph Computer
System division, reporting to the CEO of Intergraph Corporation.
3. Within ninety days I will propose a plan to the Intergraph
Board of Directors along with my strong recommendation, by which
Intergraph Computer System division is spun off as a separate
corporate entity and a wholly-owned subsidiary of Intergraph
Corporation. As part of the proposal, you will be named as the
President and CEO and a Director of the new entity, and the terms
of this Agreement will continue in effect. Your work location
will remain in Huntsville, Alabama. The terms and conditions of
this Agreement will continue in effect, whether or not the Board
accepts the proposal.
4. For the remainder of 1997, your salary will be paid at the
annual rate of $250,000 per calendar year. You will receive
salary increases of $25,000 per calendar year beginning with the
first pay period for January, 1998, and again in January during
each succeeding year throughout the term of this Agreement.
5. You will receive bonus payments for 1997 totaling $250,000.
This 1997 bonus will be paid in three equal installments for the
final pay periods in the months of July 1997, October 1997 and
January 1998.
6. You will receive bonus payments for 1998 and each succeeding
year throughout the term of this Agreement based on revenue and
net income of ICS (defined below) calculated as follows:
0.01% of ICS revenue plus
0.20% of ICS net income (none if ICS net income is
negative);
calculated for each calendar quarter and paid in the second month
of each following quarter. For purposes of this Agreement, ICS
revenue and ICS net income shall mean the amounts as reported in
Intergraph management reports at the date of this letter, until
such time as ICS may become a wholly owned subsidiary. When and
if ICS becomes a functioning subsidiary, these terms shall mean
the amounts as reported by the ICS subsidiary.
7. During the term of this Agreement your employment will be
subject to the policies set forth in the Intergraph Policy Manual
as it may be modified from time-to-time for all employees.
8. At the expiration of this Agreement, if Intergraph fails to
offer you a new employment agreement with terms at least as
favorable as this Agreement, then Intergraph will pay to you the
sum of $500,000 as a severance benefit.
9. In the event that Intergraph materially breaches any term of
this Agreement and fails to cure within 30 days of written notice,
or in the event that Intergraph permits Cash and Cash Equivalents
reported in Intergraph's quarterly report to fall below
$25,000,000, or in the event that Intergraph Corporation or the
Intergraph Computer Systems corporate entity experiences a Change
of Control event (defined below), then you will have the right to
terminate this Agreement by written notice of termination
delivered to Intergraph's legal counsel within 15 business days of
the event, and you will have the right to payment of $2,000,000
within 30 days following the delivery of a timely written notice
of termination.
10. For purposes of this Agreement a Change of Control event
shall be defined to have occurred when (i) any person becomes the
beneficial owner of securities of Intergraph Corporation or the
Intergraph Computer Systems corporate entity (either being the
"Company"), having at least 20% of the voting power of either
Company's then outstanding securities (a "Controlling Person") and
(ii) the persons who were Directors of either Company prior to the
person becoming a Controlling Person cease to constitute a
majority of the Board of Directors of either Company, on account
of the vote of the Controlling Person or pursuant to an agreement
between the Controlling Person and either Company.
11. You agree to perform the duties of Executive Vice-President
of Intergraph and President , CEO and Director of ICS faithfully
and to be best of your ability on a full-time basis. If you are
unable or unwilling to perform those duties satisfactorily for a
period of more that 20 consecutive business days (annual vacation
and holidays excepted), or if you resign voluntarily before the
expiration of this Agreement, or if you materially violate the
terms of this Agreement and fail to cure within 30 days of written
notification, or if you are properly terminated for cause as
provided in the Policy Manual, then Intergraph shall have the
option to terminate this Agreement without further obligation to
you, other than payments required under applicable employment laws
for unused vacation, and the like.
12. It is understood and agreed that you are currently engaged in
outside business for Intellicomp Corporation, and that this
business is not a violation of Intergraph's policy on Conflicts of
Interest, so long as it does not interfere unduly with your ability
to perform your duties for Intergraph.
13. This offer is contingent upon your signing the attached
Proprietary Information and Inventions Agreement, the terms of
which are incorporated into and comprise a material part of this
Employment Agreement. Inventions made for Intellicomp Corporation
are not covered by the terms of the attached Proprietary
Information and Inventions Agreement.
14. You agree that for a period of one year after your employment
with Intergraph or its subsidiary ends for any reason, you will
not take employment with or act as a consultant to any Intergraph
competitor in the United States in any technical field in which
Intergraph has a business interest.
15. This Agreement supersedes all prior discussions and documents
that relate to the subject matter covered herein. This Agreement
can only be altered in writing signed by you and by the CEO of
Intergraph.
16. All amounts set forth in this Agreement shall be subject to
tax and other withholding under Intergraph's usual compensation
practices.
17. This Agreement will be interpreted under the laws of the
State of Alabama. Time is of the essence in all the terms of this
Agreement.
Intergraph Corporation
By/s/ James W. Meadlock
- -----------------------
James W. Meadlock, CEO
Accepted and agreed:
/s/ Wade C. Patterson
- ---------------------
Wade C. Patterson
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 40,484
<SECURITIES> 0
<RECEIVABLES> 308,803
<ALLOWANCES> 0
<INVENTORY> 104,534
<CURRENT-ASSETS> 38,428
<PP&E> 449,818
<DEPRECIATION> 290,241
<TOTAL-ASSETS> 725,966
<CURRENT-LIABILITIES> 266,856
<BONDS> 54,157
0
0
<COMMON> 5,736
<OTHER-SE> 393,174
<TOTAL-LIABILITY-AND-EQUITY> 725,966
<SALES> 368,926
<TOTAL-REVENUES> 541,367
<CGS> 237,738
<TOTAL-COSTS> 344,642
<OTHER-EXPENSES> 228,256<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,847
<INCOME-PRETAX> (42,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,316)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,316)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.88)
<FN>
<F1>Other expenses includes product development expenses, sales and marketing
expenses, general and administrative expenses, and nonrecurring operating
charges.
</FN>
</TABLE>
