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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 730-2000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
As of January 31, 1998, there were 48,220,459 shares of
Intergraph Corporation Common Stock $0.10 par value outstanding.
The aggregate market value of the voting stock held by
nonaffiliates of the registrant was approximately $400,159,000
based on the closing sale price of such stock as reported by
NASDAQ on January 31, 1998, assuming that all shares beneficially
held by executive officers and members of the registrant's
Board of Directors are shares owned by "affiliates," a status
which each of the executive officers and directors individually
disclaims.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
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Portions of the Annual Report to
Shareholders for the year ended
December 31, 1997 Part I, Part II, Part IV
Portions of the Proxy Statement
for the May 28, 1998 Annual
Shareholders' Meeting Part III
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PART I
ITEM 1. BUSINESS
Overview
Intergraph Corporation (the "Company" or "Intergraph"), founded
in 1969, is a vendor of automated business solutions including
hardware, software, consulting and support services for technical,
creative, and information technology (IT) professionals found in a
variety of industry sectors and government.
Effective for 1998 management and reporting purposes, the
Company's business organization is comprised of Intergraph
Corporation, the parent company (also referred to as
"Intergraph Industry Solutions"), Intergraph Computer Systems, Inc.,
Intergraph Public Safety, Inc., and VeriBest, Inc. The Company
believes that this business structure will provide greater focus
and provide clear accountability of each as a business
enterprise. Industry Solutions supplies automated
business solutions, including hardware, software, consulting and
support services, to three primary industries: process and
building, infrastructure (including transportation, utilities and
state and local governments), and federal government. Computer
Systems supplies high performance Windows NT-based graphics
workstations and personal computers (PCs), three dimensional (3D)
graphics subsystems, servers, and other hardware products. Public
Safety develops, markets, and implements systems for public safety
agencies. VeriBest serves the electronics design automation
market, providing software design tools, design processes, and
consulting services for developers of electronic systems.
Intergraph offers open, industry standard solutions, including
Microsoft Corporation's Windows-based software, Intel Corporation's
microprocessor-based hardware, and related services to meet engineering,
design, modeling, analysis, mapping, IT, and creative computing needs.
The Company's products are sold through direct and indirect channels
worldwide, with United States and European revenues representing
approximately 77% of total revenues for 1997.
Until the mid 1990s, the unique demands of high end technical
computing required tremendous processing and graphics capabilities
that could only be performed using reduced instruction set
computing (RISC) workstations for the UNIX operating system.
These systems cost considerably more than the Intel
microprocessor/Windows-based PCs currently used widely for word
processing, spreadsheets, and other less demanding applications.
In 1992 the Company began evaluation of a transition from its
own Clipper RISC microprocessor to the Intel microprocessor and
from the UNIX operating system to Microsoft's Windows NT, a 32 bit
operating system powerful enough to run both technical and
business applications on a less expensive hardware platform. In
late 1992, the Company concluded that systems with Intel
microprocessors and Windows operating systems would become capable
of supporting high end computing and other enterprise wide
computing environments, while at the same time maintaining
interoperability with existing UNIX-based systems. The Company,
therefore, chose to migrate products from its own Clipper
microprocessor to Intel's and from the UNIX operating system to
Windows NT. The effect of this decision has been to expand the
availability of the Company's workstations and software
applications to Windows-based computing environments not
previously addressed by the Company, including the availability of
Intergraph software applications operating across a variety of
hardware architectures of other vendors that use the Windows NT
operating system. Prior to this decision, the Company's software
applications operated principally on Intergraph hardware
platforms. The Company has continued to maintain products in the
UNIX operating system environment, the foundation for its software
applications prior to Windows NT.
At the end of 1994, the Company completed a two year development
effort to port its technical software applications to the Windows
NT operating system, and to make Windows NT available on all
Intergraph workstations. Sales of Windows-based software grew to
represent 48% of software revenues in 1994, 70% in 1995, 78% in
1996, and 87% in 1997.
The Company ceased development of its microprocessor at the end
of 1993 and made a substantial investment in the redesign of its
hardware platform for utilization of Intel's microprocessor.
Intergraph chose to use only Intel microprocessors and to focus
its efforts and image creation toward its core capabilities, which
are very high performance computation and graphics. This high end
market place in the Windows NT environment is only supported by
Intel products. The transition from its proprietary hardware
architecture to that of Intel was substantially completed during
1994. Intel based systems grew to represent 74% of hardware unit
sales in 1994, 95% in 1995, and approximately 100% in 1996 and
1997. See "Manufacturing and Sources of Supply" and Item 3, Legal
Proceedings following for discussion regarding litigation between
the Company and Intel, and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the
Company's 1997 annual report, portions of which are incorporated
by reference in this Form 10-K annual report, for discussion of
effects of the Intel dispute on operating results of the Company.
Currently, Intergraph markets and sells a complete line of
workstations and servers based on Intel's Pentium, Pentium Pro,
and Pentium II microprocessors and the Windows NT operating
system. The Company's Intel/Windows-based solutions include low
to high end workstations, servers, software applications,
peripherals, and consulting, networking, system migration,
training, and maintenance and support services. Depending on user
requirements, the Company's products and services can be provided
as point solutions or as integrated solutions that include all
necessary hardware, software, and support services.
The Company believes that its operating system and hardware
architecture strategies are the correct choices, that the industry
has accepted Windows NT, and that Windows NT is becoming the
dominant operating system in the majority of markets served by the
Company. Competing operating systems and products are available
in the market, and competitors of the Company offer or are
adopting Windows NT and Intel as the systems for their products.
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.
In terms of broad market segments, the Company's
mapping/geographic information systems (GIS), architectural,
engineering and construction (AEC), and mechanical design,
engineering, and manufacturing product applications continue to
dominate the Company's product mix at approximately 57%, 27%, and
14%, respectively, of total systems sales in 1997 (52%, 27%, and
13%, respectively, for 1996).
Business Entities
Intergraph Industry Solutions
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Intergraph Industry Solutions develops, markets, and supports
total solutions which offer technical professionals open,
interdisciplinary software applications, specialized industry
specific hardware, consulting, and support services. Industry
Solutions provides business solutions to three primary industries:
process and building, infrastructure (including transportation,
utilities, and state and local government), and federal
government.
The graphics software foundation for certain Industry Solutions'
software applications is MicroStation, graphics software owned by
Bentley Systems, Inc., an Intergraph affiliate. MicroStation
provides fundamental graphics element creation, maintenance, and
display functions for Industry Solutions' UNIX- and Intel-based
workstations. See Item 3, Legal Proceedings following and
Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 12 of Notes to Consolidated
Financial Statements contained in the Company's 1997 annual
report, portions of which are incorporated by reference in this
Form 10-K annual report, for discussion of the Company's
arbitration proceedings and business relationship with Bentley
Systems, Inc.
Process and Building. Industry Solutions' plant design software
addresses the needs of process and power plant design efforts.
The plant design system product supports process flow diagrams,
piping and instrumentation diagrams, instrumentation data
management, piping, equipment, heating/ventilation/air
conditioning, electrical, structural, and other design aspects of
a plant. Three dimensional modeling capabilities are also
provided. The system performs interference checking and provides
reports, materials lists, and drawings. A supporting product
provides "walk throughs" of three dimensional plant models.
Industry Solutions' architectural, facility management, and
engineering product line automates the project design and
management process. With this software, users can develop and
model building concepts, produce construction documents, and
manage space and assets in a finished facility. The system serves
the needs of architecture/engineering firms and corporate or
governmental facility management offices. Included are
capabilities for producing three dimensional models of design
concepts, architectural drawings, reports, engineering plans, and
construction drawings. Products are also offered for space
planning, facility layout, maintenance management, lease
management, and asset tracking.
Engineering software evaluates product designs for functional
and structural integrity, predicting behavior under service or
test conditions. Finite element modeling and analysis software
evaluates designs by simulating stresses encountered in end use.
Infrastructure. To help agencies strategically and efficiently
manage transportation networks, Industry Solutions' transportation
solutions integrate maps, photos, property records, survey and
engineering data, inspection reports, traffic safety, and
congestion statistics. Industry Solutions' mapping, civil
engineering, and photogrammetry products provide transportation
solutions including imaging, training, reprographics, plotting,
and integration and professional services.
The dominant mapping/GIS solution for transportation agencies is
Industry Solutions' GeoMedia and MGE, a high end software for base
map analysis. GeoMedia offers dynamic segmentation in a
client/server environment while accessing legacy data, providing
open access to spatial data and information, and distributing
spatial data and information across the World Wide Web. Industry
Solutions' ImageStation Z photogrammetric workstation, an end-to-
end digital photogrammetry production system on Windows NT, offers
tools for aerotriangulation, mapping, automatic digital terrain
model collection, and orthophoto generation. Industry Solutions'
InRoads suite of civil engineering software addresses
transportation engineering, site design, data reduction,
coordinate geometry, rail design, and water resources. InRoads
includes Windows-based standalone applications, as well as
software that can be used simultaneously for AutoCAD and
MicroStation.
For state and local governments, Industry Solutions develops and
implements mapping & geographic information systems and civil
engineering solutions for land records and mapping, asset
management, public works, public safety, transportation
engineering, infrastructure modeling, planning, and other
functions. Industry Solutions' mapping/GIS solutions help
governments improve public service, respond more efficiently to
legislated and political mandates, implement successful GIS
systems quickly, and reduce the total cost of GIS ownership.
Industry Solutions' civil engineering software helps governments
design and analyze projects from site design to water resources to
transportation. The easy to use software is based upon an
enterprise wide data warehouse for collection and dissemination of
information (including GIS data) to all participants in the
government organization.
For more than 25 years, Industry Solutions' Infrastructure
business unit has provided state of the art software to the
telecommunications, electric, gas, pipeline, and water industries.
The unit's full spectrum solutions integrate geo-based data
with core information technology systems, giving a broad base of
users access to spatial information.
Environmental and natural resource management applications
address monitoring, evaluating and managing, conservation and
remediation of the environment. Energy exploration and production
products assist geoscientists in geological analysis for energy
exploration and production and mineral extraction.
Industry Solutions also provides solutions for end-to-end
digital map and chart publishing, digital image processing,
orthophoto production, and digital photogrammetry.
Federal Systems. The Federal Systems business unit of Industry
Solutions markets and sells commercial off-the-shelf and specially
developed products and services to government agencies around the
world. Federal Systems' major offerings include mapping and
information systems and integrated ship design and production
software products. Industry Solutions has been a top provider of
computer graphics solutions to the U.S. government for a number of
years.
Intergraph Computer Systems
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On January 1, 1998, Intergraph Computer Systems began operating
as an independent entity, with full transition to be
completed by the end of 1998. Intergraph plans to build Computer
Systems into the leading supplier of high performance,
Intel/Windows NT-based graphics workstations and PCs, servers, and
3D graphics subsystems. As a separate company with profit and
loss responsibility, the Company believes Intergraph Computer
Systems is positioned to respond and grow quickly in its rapidly
evolving target markets.
Computer Systems offers workstation products for a range of
users. The TD line of computer systems offers Intel Pentium,
Pentium Pro, and Pentium II microprocessors, Windows NT and
Windows 95 operating systems, leading edge graphics, and other
industry standard components. TD personal computers are intended
for 2D design and drafting users, as well as office automation and
business management tasks. TD personal workstations are for 3D
design, engineering analysis, image processing, and rendering.
TDZ 3D graphics workstations offer high end, industry standard
graphics and computing power on price competitive Pentium II-based
systems running Windows NT. All computer systems offer numerous
options that permit customers to select systems that meet their
unique needs, including a selection of display monitors,
upgradeable memory, and specialized peripherals.
Computer Systems also offers Intel/Windows-based InterServe
symmetric multiprocessing servers for work groups, departments, or
an entire enterprise. These systems come with fully integrated
optical disk products, backup solutions, and networking
capabilities, as well as with consultation, installation, and
other services to assure customer success.
Other systems are available for specialized needs. StudioZ
workstations are Pentium II/Windows NT-based systems for creating
computer generated images and digital betacam quality video for
the entertainment and broadcast markets. Intel/Windows NT-based
web servers are solutions for establishing and managing customers'
sites on the World Wide Web. ExtremeZ 2D graphics workstations
are Pentium II-based systems for prepress and publishing
professionals. Industry standard 3D graphics accelerators are
available, including RealiZm II 3D Graphics with DirectBurst
technology, a patented 3D graphics subsystem, Intense 3D Pro 1000,
an original professional OpenGL add-in card that is based on
RealiZm 3D graphics technology for Windows NT, and Intense 3D 100,
a mainstream graphics accelerator ideal for general purpose
Windows 95/Windows NT PC productivity.
Computer Systems also offers large format production scanners,
imaging systems for scanning and plotting images, and laser
imagesetters for electronic map publishing. Additional special
purpose peripherals such as disk and tape drives, printers, and
other devices may be manufactured in house or sold as original
equipment from third parties.
Intergraph Public Safety
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In January of 1997, Intergraph Public Safety became a
subsidiary corporation wholly owned by Intergraph.
Headquartered in Huntsville, Alabama with a staff of approximately
500 people worldwide, Public Safety is the only company providing
total public safety solutions on a global basis. Public Safety
solutions include computer hardware and software systems,
training, maintenance, customer support, and outsourcing services.
Public Safety develops, markets and implements computer-based
systems for public safety agencies such as emergency medical and
rescue units, fire departments and law enforcement organizations
around the world. The computer solutions offered by Public Safety
feature its proprietary technology and rely on the Windows NT
operating system, Intel-based workstations, and Oracle
Corporation's relational data bases. By incorporating industry
standard hardware and software with its products, Public Safety is
able to provide customers with the best price and performance
features available. Public Safety is aggressively expanding its
products and services to address other industries, such as
utilities, automobile club roadside assistance, airport security,
campus security and military base security.
The computer aided dispatch system is the foundation product for
Public Safety. This product fully integrates interactive,
intelligent mapping with dispatching, records management, and
state of the art communications capabilities. Designed
specifically to support command and control operations, the system
is composed of high performance graphics workstations and
software. Records management is enhanced by a database that
includes geographic map information as well as address, incident
history, and traffic pattern data.
All Public Safety products are designed to participate in a
comprehensive, integrated public safety information system. The
Public Safety product offering includes CAD dispatch, police,
fire, and emergency management systems, records management
systems, jail management systems, civil process and mug shot
systems, mobile computer systems, integrated radio and telephony
solutions, interfaces to alarm systems, management information
reporting systems, personnel rostering systems, and training
management systems. Public Safety's strategy is to provide
products representing a complete solution for public safety
agencies, with approximately 45 products currently offered.
VeriBest
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In January 1996, VeriBest became a subsidiary corporation
wholly owned by Intergraph. Formerly the Electronics division
of Intergraph, VeriBest employs approximately 300 people
worldwide with concentrations at its headquarters in Boulder,
Colorado and development centers in Huntsville, Alabama and
Mountain View, California.
The first electronic design automation (EDA) company to port its
tools to Windows NT and fully support computer-aided-
engineering/computer-aided-design/printed circuit board tools in
the Intel/Windows environment, VeriBest is a provider of
electronic system design solutions to the computer,
telecommunications, automotive, industrial control, and consumer
industries. Core competencies include simulation, signal
integrity, PCB implementation, and enterprise wide design process
management. This technology foundation leverages the Windows NT
platform, the fastest growing operating system within the
mainstream EDA industry segment, and provides users with excellent
price and performance. VeriBest has over 15,000 seats installed
worldwide.
In 1997, VeriBest made a strategic decision to pursue a
multichannel distribution strategy that leverages its core
technologies to create greater market access and market awareness
through the development of alternate channels such as telesales,
original equipment manufacturer (OEM), and value added reseller
relationships. This effort resulted in the signing of VeriBest's
first multi-year OEM agreement to resell the VeriBest VHSIC
hardware description language (VHDL) simulator, a high-
performance, high-capacity VHDL simulation system for application
specific integrated circuit, field programmable gate array (FPGA),
and board-level design.
Also in 1997, to satisfy customer retooling needs driven by new
technologies and productivity requirements, VeriBest addressed two
of the fastest growing segments of the semiconductor industry:
the FPGA and signal integrity tools markets.
The FPGA marketplace is growing at an estimated rate of 30% per
year. To meet this demand, VeriBest teamed with EDA industry
leader Synopsys to provide the synthesis component for the FPGA
DeskTop Series. Powered by Synopsys FPGA Express, VeriBest FPGA
Synthesis provides the leading FPGA/complex programmable logic
device synthesis technology. Advanced architecture-specific
algorithms and state of the art simulation technology, coupled
with knowledge of the target place and route tools, minimize time
to market and maximize performance results.
To address the rapidly emerging market for signal integrity
tools, VeriBest introduced Signal Analyzer, Signal Vision, PCB
Planner and PCB Viewer, a tightly integrated, comprehensive design
solution that addresses the process of designing high speed
systems.
Product Development
The Company believes a strong commitment to ongoing product
development is critical to success in the interactive computer
graphics industry.
Product development expenditures include all costs related to
designing new or improving existing hardware and software. During
the year ended December 31, 1997, the Company spent $98.1 million
(8.7% of revenues) for product development activities compared to
$103.4 million (9.4% of revenues) in 1996, and $111.6 million
(10.2% of revenues) in 1995. See Management's Discussion and
Analysis of Financial Condition and Results of Operations
contained in the Company's 1997 annual report, portions of which
are incorporated by reference in this Form 10-K annual report, for
further discussion of product development expenses, including
portions capitalized and their recoverability.
The industry in which the Company competes continues to be
characterized by rapid technological change, which results in
shorter product cycles, higher performance and lower priced
product offerings, intense price and performance competition, and
development and support of software standards that result in less
specific hardware and software dependencies by customers. The
Company believes the life cycle of its products to be less than
two years, and it is therefore engaged in continuous product
development activity. The operating results of the Company and
others in the industry will continue to depend on the ability to
accurately anticipate customer requirements and technological
trends and to rapidly and continuously develop and deliver new
hardware and software products that are competitively priced,
offer enhanced performance, and meet customers' requirements for
standardization and interoperability.
Manufacturing and Sources of Supply
Intergraph Computer Systems is responsible for the Company's
manufacturing activities, which include the assembly and testing
of components and subassemblies manufactured by the Company and
others.
All of the Company's microprocessor needs are currently supplied
by Intel Corporation. See Item 3, Legal Proceedings following and
Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company's 1997 annual
report, portions of which are incorporated by reference in this
Form 10-K annual report, for a discussion of the Company's
litigation proceedings with Intel and its related effects on the
Company's microprocessor supply and results of operations.
The Company is not required to carry extraordinary amounts of
inventory to meet customer demands or to ensure allotment of parts
from its suppliers.
Sales and Support
Sales. The Company's systems are sold through a combination of
direct and indirect channels in approximately 65 countries
worldwide. Direct channel sales, which provide the majority of
the Company's systems revenues, are generated by the Company's
direct sales force through sales offices in over 40 countries
worldwide. The efforts of the direct sales force are augmented by
sales through indirect channels, including dealers, value added
resellers, distributors, and system integrators. Sales through
indirect channels provided approximately 22% of total Company
systems revenues in 1997 and 18% in 1996.
Each of the Company's four major entities maintains its own
sales force. Intergraph Industry Solutions' selling efforts are
organized along key industry lines (process and building, federal
government, and infrastructure, including transportation,
utilities, and state and local governments) for its major product
applications. Industry Solutions believes an industry focus
better enables it to meet the specialized needs of customers. In
general, the direct sales forces are compensated through a
combination of base salary and commission. Sales quotas are
established along with certain incentives for exceeding quota.
Additional specific incentive programs may be established
periodically.
Customer Support. The Company believes that a high level of
customer support is important to the sale of interactive graphics
systems. Customer support includes preinstallation guidance,
customer training, onsite installation, hardware preventive
maintenance, repair service, software help desk and technical
support services in addition to consultative professional
services. The Company employs engineers and technical specialists
to provide customer assistance, maintenance, and training.
Maintenance and repair of systems are covered by standard
warranties and by maintenance agreements to which most users
subscribe. The trend in the industry toward lower priced products
and longer warranty periods has resulted in reduced levels of
maintenance revenue for the Company. The Company believes this
trend will continue in the future, though it may be partially
offset by growth in the Company's professional services business.
International Operations
International markets, particularly Europe, continue in
importance to the industry and to the Company. Sales outside the
U.S. represented approximately 53% of total revenues in 1997 and
55% in 1996. European and Asia Pacific revenues represented 31%
and 12%, respectively, of total revenues in 1997 (33% and 13%,
respectively, in 1996). The Company's operations are subject to
and may be adversely affected by a variety of risks inherent in
doing business internationally, such as government policies or
restrictions, currency exchange fluctuations, and other factors.
There are currently wholly-owned sales and support subsidiaries
of the Company located in every major European country. European
subsidiaries are supported by service and technical assistance
operations located in The Netherlands. Outside of Europe,
Intergraph systems are sold and supported through a combination of
subsidiaries and distributorships. At December 31, 1997, the
Company had approximately 1,400 employees in Europe, 800 employees
in the Asia Pacific region, and 600 employees in other
international locations.
Fluctuations in the value of the U.S. dollar in international
markets can have a significant impact on the Company's results of
operations. The Company conducts business in all major markets
outside the U.S., but the most significant of these operations
with respect to currency risk are located in Europe and Asia.
Local currencies are the functional currencies for the Company's
European subsidiaries. The U.S. dollar is the functional currency
for all other international subsidiaries. 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 related to
certain balance sheet items, primarily 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 does not generally hedge exposures related to foreign
currency denominated assets and liabilities that are not of an
intercompany nature, unless a significant risk has been
identified. It is possible the Company could incur significant
exchange gains or losses in the case of significant, abnormal
fluctuations in a particular currency. By policy, the Company is
prohibited from market speculation via forward exchange contracts
and therefore does not take currency positions exceeding its known
financial statement exposures, and does not otherwise trade in
currencies.
The Company has historically experienced slower collection
periods for its international accounts receivable than for similar
sales to customers in the United States. The Company is
experiencing slow collection periods throughout the Middle East
region, particularly in Saudi Arabia. Total accounts receivable
from Middle Eastern customers was approximately $21 million at
December 31, 1997 and 1996.
See Management's Discussion and Analysis of Financial Condition
and Results of Operations and Notes 1, 4, and 11 of Notes to
Consolidated Financial Statements contained in the Company's 1997
annual report, portions of which are incorporated by reference in
this Form 10-K annual report, for further discussion of the
Company's international operations.
U.S. Government Business
Total revenue from the United States government was
approximately $177 million in 1997, $161 million in 1996, and $159
million in 1995, approximately 15% of total revenue in all three
years. The Company sells to the U.S. government under long term
contractual arrangements, primarily indefinite delivery,
indefinite quantity and cost plus award fee contracts, and through
commercial sales of products not covered by long term contracts.
Approximately 42% of total federal government revenues are
earned under long term contracts. The Company believes its
relationship with the federal government to be good. While it is
fully anticipated that these contracts will remain in effect
through their expiration, the contracts are subject to termination
at the election of the government. Any loss of a significant
government contract would have an adverse impact on the results of
operations of the Company.
The Company has historically experienced slower collection
periods for its U.S. government accounts receivable than for its
commercial customers. At December 31, 1997, accounts receivable
from the U.S. government was approximately $52.5 million.
Backlog
An order is entered into backlog only when the Company receives
a firm purchase commitment from a customer. The Company's backlog
of unfilled systems orders at December 31, 1997 and 1996 was $169
million and $181 million, respectively. Substantially all of the
December 1997 backlog of orders is expected to be shipped during
1998.
The Company does not consider its business to be seasonal,
though typically fourth quarter orders and revenues exceed those
of other quarters.
The Company does not ordinarily provide return of merchandise or
extended payment terms to its customers.
Competition
The industry in which the Company competes continues to be
characterized by price and performance competition. To compete
successfully, the Company and others in the industry must
accurately anticipate customer requirements and technological
trends and rapidly and continuously develop products with enhanced
performance that can be offered at competitive prices. The
Company, along with other companies in the industry, engages in
the practice of price discounting to meet competitive industry
conditions. Other important competitive factors include quality,
reliability, customer service and support, and training.
Management of the Company believes that competition will remain
intense, particularly in product pricing.
Competition in the interactive computer graphics industry varies
among the different product application areas. The Company
considers its principal competitors in the interactive computer
graphics market to be IBM, Hewlett Packard Corporation, Digital
Equipment Corporation, Sun MicroSystems, Inc., Silicon Graphics,
Inc., and Mentor Graphics, Inc. In the low end graphics market,
Intergraph competes with the software products of Autodesk, Inc.,
Bentley Systems, Inc. (an approximately 50%-owned affiliate of the
Company), Softdesk, Inc., and several smaller companies. In the
hardware market, Intergraph also competes with personal computer
vendors, such as Compaq Computer Corporation and Dell Computer
Corporation. The primary competitors of Intergraph Public Safety
are American TriTech, PRC, Inc., Tiburon, Inc., and Printrack
International Incorporated. VeriBest's primary competitors are
Cadence Design Systems, Inc., Viewlogic Systems, Inc., and Mentor
Graphics, Inc. Several companies with greater financial resources
than the Company, including IBM, Hewlett Packard, Sun, and Compaq
are active in the industry.
The Company provides point solutions and solutions which are
Windows compliant and integrated -- workstations, servers,
peripherals, and software configured by the Company to work
together and satisfy customers' requirements. By delivering such
integration, the Company believes it has an advantage over other
vendors who provide only hardware or software, leaving system
integration to the customer. In addition, the Company believes
that its experience and extensive worldwide customer service and
support infrastructure represent a competitive advantage.
Environmental Affairs
The Company's manufacturing facilities are subject to numerous
laws and regulations designed to protect the environment,
particularly from plant wastes and emissions. In the opinion of
the Company, compliance with these laws and regulations has not
had, and should not have, a material effect on the capital
expenditures, earnings, or competitive position of the Company.
Licenses, Copyrights, Trademarks, Patents, and Proprietary
Information
The Company develops its own graphics, data management, and
applications software as part of its continuing product
development activities. The Company has standard license
agreements with Microsoft Corporation for use and distribution of
the Windows NT operating system and with UNIX Systems Laboratories
for use and distribution of the UNIX operating system. The
license agreements are perpetual and allow the Company to
sublicense the operating systems software upon payment of required
sublicensing fees. The Company also has an extensive program for
the licensing of third party application and general utility
software for use on systems and workstations.
The Company has a non-exclusive license agreement with Bentley
Systems, Inc. (Bentley), an approximately 50%-owned affiliate of
the Company, under which the Company sells MicroStation, a
software product developed and maintained by Bentley and utilized
in many of the Company's software applications, via its direct
sales force, and via its indirect sales channels if MicroStation
is sold with other Intergraph products. See Item 3, Legal
Proceedings following and Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 12 of Notes
to Consolidated Financial Statements contained in the Company's
1997 annual report, portions of which are incorporated by
reference in this Form 10-K annual report, for further discussion
of the Company's affiliation with Bentley.
The Company owns and maintains a number of registered patents
and registered and unregistered copyrights, trademarks, and
service marks. The patents and copyrights held by the Company are
the principal means by which the Company preserves and protects
the intellectual property rights embodied in the Company's
hardware and software products. Similarly, trademark rights held
by the Company are used to preserve and protect the goodwill
represented by the Company's registered and unregistered
trademarks.
As industry standards proliferate, there is a possibility that
the patents of others may become a significant factor in the
Company's business. Personal computer technology is widely
available, and many companies, including Intergraph, are
attempting to develop patent positions concerning technological
improvements related to personal computers and workstations. With
the possible exception of its ongoing litigation with Intel (in
which the Company expects to prevail), it does not appear that the
Company will be prevented from using the patented technology
necessary to compete successfully, since patented technology is
typically available in the industry under royalty bearing licenses
or patent cross licenses, or the technology can be purchased on
the open market. Any increase in royalty payments or purchase
costs would increase the Company's costs of manufacture, however,
and it is possible that some key improvement necessary to compete
successfully in markets served by the Company may not be
available.
An inability to retain significant third party license rights,
in particular the Microsoft license, to protect the Company's
copyrights, trademarks, and patents, or to obtain current
technical information or any required patent rights of others
through licensing or purchase, all of which are important to
success in the industry in which the Company competes, could
significantly reduce the Company's revenues and adversely affect
its results of operations.
Technology significant to the Company is sometimes made
available in the form of proprietary information or trade secrets
of others. Prior to the dispute with Intel, Intel had made freely
available technical information used by the Company to design,
market and support its products that use Intel components. Such
information is claimed by Intel to be proprietary and is made
available by Intel only under nondisclosure agreements. At
present, Intel is withholding such information, attempting to
cancel existing agreements and refusing to enter into new nondisclosure
agreements with the Company. Intel's actions are the
subject matter of current litigation (See Item 3, Legal
Proceedings, following), and the Company has applied to the Court
for relief in the short term, as well as at the conclusion of the
lawsuit. Intel's actions are damaging the Company by slowing the
introduction of new products using Intel components and preventing
proper maintenance and support of Company products using Intel
components. The Company expects that relief will be forthcoming
from the Court. However, if relief is denied, the Company will be
materially affected and may be forced to alter its future business
plans or to accept unfavorable terms from Intel in settlement of
the lawsuit.
Risks and Uncertainties
In addition to those described above and in Item 3, Legal
Proceedings following, the Company has risks and uncertainties
related to its business and operating environment. See
Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 2 of Notes to Consolidated
Financial Statements contained in the Company's 1997 annual
report, portions of which are incorporated by reference in this
Form 10-K annual report, for further discussion of these risks and
uncertainties.
Employees
At December 31, 1997, the Company had approximately 7,700
employees. Of these, approximately 2,800 were employed outside
the United States. The Company's employees are not subject to
collective bargaining agreements, and there have been no work
stoppages due to labor difficulties. Management of the Company
believes its relations with employees to be good.
ITEM 2. PROPERTIES
The Company's corporate offices and primary manufacturing
facility are located in Huntsville, Alabama. Sales and support
facilities are maintained throughout the world.
The Company owns over 1,900,000 square feet of space in
Huntsville that is utilized for manufacturing, product
development, sales and administration. The Huntsville facilities
also include over 500 acres of unoccupied land. The Company
maintains subsidiary company facilities and sales and support
locations in major U.S. cities outside of Huntsville, primarily
through operating leases.
Outside the U.S., the Company owns approximately 450,000 square
feet of space, primarily its Nijmegen distribution center and
European headquarters facility. Sales and support facilities are
leased in most major international locations.
The Company considers its facilities to be adequate for the
immediate future.
ITEM 3. LEGAL PROCEEDINGS
Intel Corporation
- -----------------
Intergraph filed a legal action on November 17, 1997 in U.S.
District Court, the Northern District of Alabama, Northeastern
Division, charging Intel Corporation, the supplier of all of the
Company's microprocessor needs, with anticompetitive business
practices. In the lawsuit, Intergraph alleges that Intel is
attempting to coerce the Company into relinquishing to Intel
certain computer hardware patents through a series of wrongful
acts, including interference with business and contractual
relations, interference with technical assistance from third party
vendors, breach of contract, negligence, misappropriation of trade
secrets, and fraud based upon Intel's failure to promptly notify
the Company of defects in Intel's products and the timely
correction of such defects, and further alleging that Intel has
infringed upon the Company's patents. The Company's patents
define the architecture of the cache memory of an Intergraph
developed microprocessor. The Company believes this architecture
is at the core of Intel's entire Pentium line of microprocessors
and systems. On December 3, 1997, the Company amended its
complaint to include a count charging Intel with violations of
federal antitrust laws. Intergraph asserts claims for
compensatory and treble damages resulting from Intel's wrongful
conduct and infringing acts, and punitive damages in an amount
sufficient to punish and deter Intel's wrongful conduct.
Additionally, the Company has requested that Intel be enjoined
from continuing the alleged wrongful conduct which is
anticompetitive and/or violates federal antitrust laws, so as to
permit Intergraph uninterrupted development and sale of Intel-
based products.
On November 21, 1997, the Company filed a motion in the Alabama
Court to enjoin Intel from disrupting or delaying its supply of
products and product information, pending resolution of
Intergraph's legal action. The Court has not entered a ruling on
this motion.
Intel filed a retaliatory legal action on November 17, 1997, in
the U.S. District Court, the Northern District of California,
requesting, among other things, i) that the Court declare
Intergraph's patents invalid and/or not infringed by Intel, ii)
that Intergraph be enjoined from making further assertions that
Intel's customers infringe Intergraph's patents through use of
Intel's microprocessors, iii) that the Court declare that Intel
has no obligation to disclose any of its trade secrets or other
confidential information to Intergraph, and iv) that the Court
declare that Intel's decision to discontinue the provision of
trade secrets and other confidential information to Intergraph
does not violate any doctrine of federal or state statutory or
common law. Intel filed a second legal action in the California
Court on November 24, 1997, charging Intergraph with breach of
contract related to wrongful retention of and failure to return
Intel information supplied under nondisclosure agreements, and
misappropriation of trade secrets as a result of the same. Intel
asserts claims for damages and awards of yet undetermined amounts
and requests a preliminary and permanent injunction under which
Intergraph would return and make no further use of Intel
confidential information.
On December 8, 1997, the Alabama Court directed the Company and
Intel to file joint motions in the California cases to stay the
two legal actions brought by Intel, pending the Court's
consideration of a motion to transfer and consolidate venue. The
joint motions were filed and stays were granted by the California
Court. On January 15, 1998, Intel filed a motion before the
Alabama Court for a change in venue to California. A decision to
transfer venue has not been reached.
The Company believes it was necessary to take legal action
against Intel in order to defend its growing workstation business,
its intellectual property, and the investments of its
shareholders. The Company is vigorously prosecuting its positions
and believes it will prevail in these matters, but at present is
unable to predict an outcome.
Bentley Systems, Inc.
- ---------------------
The Company is the owner of approximately 50% of the outstanding
stock of Bentley Systems, Inc. (Bentley), 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 Bentley with the
American Arbitration Association, Philadelphia, Pennsylvania,
alleging that Bentley inappropriately and without cause terminated
a contractual arrangement between Bentley and the Company. In
response, Bentley filed a counterclaim against the Company in
January 1996 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 Bentley. In May 1997, the Company received notice
of the adverse determination of this arbitration proceeding with
Bentley. The arbitrator's award against the Company was in the
amount of $6.1 million. In addition, the contractual arrangement
that was the subject of this arbitration has been terminated
effective with this award, and, as a result, the Company will no
longer sell the related software support services under this
agreement. The Company and Bentley have entered into a new
agreement which establishes single support services between the
two companies.
In a second proceeding, Bentley commenced arbitration against
the Company with the American Arbitration Association, Atlanta,
Georgia in March 1996, alleging that the Company failed to
properly account for and pay to Bentley certain royalties on its
sales of Bentley software products, and seeking significant
damages. Hearings on this matter are in process and may continue
through the end of the Company's third quarter of 1998. The
Company denies that it has breached any of its contractual
obligations to Bentley and is vigorously defending its position in
this proceeding, but at present is unable to predict an outcome.
Zydex, Inc.
- -----------
The Company filed a legal action in August 1995, in the U.S.
district court of Alabama, Northeast Division, seeking to dissolve
and wind up its business arrangement with Zydex, Inc. (Zydex), a
company with which it jointly developed its plant design software
application ("PDS"), and seeking an order allowing the Company to
continue the business of that arrangement without further
responsibility or obligation to Zydex. In November 1995, Zydex
filed a counterclaim against the Company alleging wrongful
dissolution of the business relationship and seeking both sole
ownership of PDS and significant compensatory and punitive
damages. In September 1997, the Court issued an order resolving
the disputed issues and requiring the parties to settle, and
dismissed the case. In November 1997, a hearing was held during
which the judge ordered both parties to sign the closing
documents. A closing of the final settlement agreement occurred
on January 15, 1998.
The final settlement included the purchase by Intergraph of 100%
of the common stock of Zydex for $26,292,000, with $15,979,000
paid at closing of the agreement and the remaining amount payable
in 15 equal monthly installments, including interest. The
deferred payment portion of the total purchase price is secured by
a subordinate interest in the PDS intellectual property and by an
irrevocable letter of credit in favor of the former owner of
Zydex. Interest on the unpaid amount accrues at a rate 1% less
than the rate charged by Intergraph's primary lender. The former
owner of Zydex will retain certain rights to use, but not sell or
sublicense, PDS products for a period of 15 years following the
date of closing. In addition to the purchase price of the common
stock, Intergraph was required to pay additional royalties to
Zydex in the amount of $1,027,000 at closing of the agreement.
See Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the company's 1997 annual
report, portions of which are incorporated by reference in this
Form 10-K annual report, for further discussion of the Company's
business relationship with Intel and Bentley and effects of
litigation and arbitration proceedings on the Company's financial
position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
Certain information with respect to the executive officers of
the Company is set forth below. Officers serve at the discretion
of the Board of Directors.
Officer
Name Age Position Since
- ---- --- -------- -----
James W. Meadlock 64 Chairman of the Board and
Chief Executive Officer 1969
James F. Taylor Jr. 53 Executive Vice President and
Director, Intergraph Corporation,
and Chief Executive Officer,
Intergraph Public Safety, Inc. 1977
Robert E. Thurber 57 Executive Vice President and
Director 1977
Lawrence F. Ayers Jr. 65 Executive Vice President 1987
Klaas Borgers 53 Executive Vice President 1994
Edward F. Boyle 49 Executive Vice President 1986
Penman R. Gilliam 60 Executive Vice President 1994
Richard H. Lussier 52 Executive Vice President 1996
Nancy B. Meadlock 59 Executive Vice President 1969
Wade C. Patterson 36 Executive Vice President,
Intergraph Corporation, and
Chief Executive Officer and
President, Intergraph Computer
Systems, Inc. 1994
Stephen J. Phillips 56 Executive Vice President 1987
Charles E. Robertson Jr. 44 Chief Executive Officer and
President, VeriBest, Inc. 1992
William E. Salter 56 Executive Vice President 1984
K. David Stinson Jr. 44 Executive Vice President 1996
Edward A. Wilkinson 64 Executive Vice President 1987
Allan B. Wilson 49 Executive Vice President 1982
Manfred Wittler 57 Executive Vice President 1989
James W. Meadlock, a founder of the Company, has served as
Chairman of the Board of Directors since the Company's inception
in 1969 and is Chief Executive Officer. Mr. Meadlock received a
degree in electrical engineering from North Carolina State
University in 1956. Mr. Meadlock and Nancy B. Meadlock are
husband and wife.
James F. Taylor Jr. joined the Company in July 1969, shortly
after its formation, and is considered a founder. He has served
as a Director since 1973. Mr. Taylor was responsible for the
design and development of the Company's first commercial computer-
aided-design products and for many application specific products.
Mr. Taylor was elected Vice President in 1977. He is currently an
Executive Vice President of the Company and Chief Executive
Officer of Intergraph Public Safety, Inc. Mr. Taylor holds a
bachelor's degree in mathematics.
Robert E. Thurber, a founder of the Company, has been a Director
since 1972. In June 1977, Mr. Thurber was elected Vice President
and is currently Executive Vice President and Chief Engineer. He
is responsible for development of requirements and strategic
direction for application solutions. Mr. Thurber holds a master's
degree in engineering.
Lawrence F. Ayers Jr. joined the Company in September 1987 after
32 years in federal government mapping where he became the
Civilian Director of the Defense Mapping Agency. He served as
Vice President for International Federal Marketing until February
1993. From 1993 to October 1995, he served as Executive Vice
President for the Utility and Mapping Sciences application group.
At present, he serves on the Intergraph Industry Solutions staff
as Executive Vice President. Mr. Ayers holds a bachelor's degree
in civil engineering and a master's degree in public
administration. Mr. Ayers has served on a number of national
policy committees for the National Academy of Science and the
National Academy of Public Administration, including the
Transportation Research and Highway Research committees.
Klaas Borgers joined the Company in 1991. He was elected Vice
President in 1994 and has served as Executive Vice President of
Intergraph Corporation and Chief Operating Officer for Intergraph
Computer Systems since 1997. A key person in the development and
growth of Intergraph Computer Systems worldwide operations, Mr.
Borgers directs the subsidiary's sales, services, manufacturing
and distribution operations.
Edward F. Boyle joined the Company in June 1981 and has been
responsible for several of the Company's software products. Prior
to joining Intergraph, he spent nine years in the steel industry
where he developed graphic software applications. He was elected
Vice President in 1986 and became Vice President of Intergraph's
utilities business in May 1987. From 1993 through the fall of
1995, he was Vice President for the Company's solutions
engineering business. He was then given charge of enterprise
support systems, comprised of utilities products and professional
services. He was elected Executive Vice President in July 1996
and is currently responsible for the infrastructure and utilities
business for Intergraph Industry Solutions. Dr. Boyle holds
bachelor and doctoral degrees in civil engineering.
Penman R. Gilliam joined the Company in April 1994 as Executive
Vice President responsible for federal programs. Mr. Gilliam is
the manager responsible for the federal mapping and information
systems organization and Intergraph's Midworld operations. Mr.
Gilliam came to Intergraph from Hughes Aircraft Company where he
was Vice President of Hughes Communications and Data Systems
Division. From late 1987 through early 1993, Mr. Gilliam served
as Deputy Director of the Defense Mapping Agency (DMA), the senior
civilian responsible for overall production, operations, and
research. Mr. Gilliam also held a number of other positions with
DMA, including production management positions in St. Louis and
Washington D.C. and a program director's position for DMA's
digital production system. Mr. Gilliam holds a bachelor's degree
in mathematics and geology.
Richard H. Lussier joined the Company in 1979. He was promoted
to Vice President of Sales in 1981 and was later promoted to
Executive Vice President of Worldwide Sales and Support. Mr.
Lussier left Intergraph in 1990 to pursue personal business
interests. He rejoined the Company in 1996 as Executive Vice
President of U.S. Sales. In addition, he is currently responsible
for InterCAP, a wholly owned Intergraph subsidiary, which develops
and markets world-leading technical illustration software as well
as WEB enabling technology. Mr. Lussier holds a master's degree
in business administration.
Nancy B. Meadlock, a founder of the Company, served as a
Director from 1969 until May 1996, excluding the period from
February 1970 to February 1972. Mrs. Meadlock served as Secretary
for 10 years, was elected Vice President in 1979, and is currently
Executive Vice President. She holds a master's degree in business
administration. Mrs. Meadlock and James W. Meadlock are wife and
husband.
Wade C. Patterson joined the Company in 1984 as a design
engineer developing UNIX and central processing unit (CPU)
subsystems for Intergraph workstation products. In 1992, Mr.
Patterson managed Windows NT workstation projects as the Company
made the transition from reduced instruction set computing CPUs to
Intel microprocessor-based CPUs. Mr. Patterson has been
responsible for hardware development and marketing for Intergraph
Computer Systems, Inc., the Company's hardware subsidiary, since August
1994. He was elected Vice President at that same time and is
currently an Executive Vice President of the Company and Chief
Executive Officer and President of Intergraph Computer Systems,
Inc. He holds a bachelor's degree in electrical engineering.
Stephen J. Phillips joined the Company as Vice President and
General Counsel in November 1987 when Intergraph purchased the
Advanced Processor Division of Fairchild Semiconductor, where Mr.
Phillips was General Patent Counsel. He was elected Executive
Vice President in August 1992. Mr. Phillips holds a master's
degree in electrical engineering and a juris doctor in law.
Charles E. Robertson Jr. joined the Company in 1992. He has
served as Chief Executive Officer and President of VeriBest, Inc.
since its inception in January 1996. Prior to his current
position, Mr. Robertson held executive positions within Intergraph
and at Mentor Graphics, Daisy Systems, and Cadnetix. He holds a
bachelor's degree in electrical engineering and computer science.
William E. Salter joined the Company in April 1973. Since that
time, he has served in several managerial positions in the
Company's federal systems business and as Director of Marketing
Communications. Dr. Salter was elected Vice President in August
1984 and is currently an Executive Vice President of the Company.
He holds a doctorate in electrical engineering.
K. David Stinson Jr. joined the Company in 1996. Prior to
joining the Company, Mr. Stinson acted as Vice President of
Engineering and Nuclear Projects for the Tennessee Valley
Authority (TVA), the nation's largest government owned electric
power utility. Before joining TVA, he was founder and Chief
Executive Officer of Digital Engineering, responsible for
developing software to assist with the operations, maintenance,
and environmental qualification of nuclear facilities and other
process plants. Mr. Stinson was elected Executive Vice President
in 1996, responsible for the process and building business of
Intergraph Industry Solutions. He is a graduate of the U.S. Air
Force Academy and holds a masters degree in management
administration science.
Edward A. Wilkinson joined the Company in 1985 as Director of
Government Relations. He was elected Vice President of Federal
Systems in 1987 and Executive Vice President in 1994. Prior to
joining Intergraph, Mr. Wilkinson served for 34 years in the U.S.
Navy, retiring with the rank of Rear Admiral. He holds a master's
degree in mechanical engineering.
Allan B. Wilson joined the Company in 1980 and was responsible
for the development of international operations outside of Europe
and North America. He was elected Vice President in May 1982 and
Executive Vice President in November 1982. Mr. Wilson is
currently responsible for sales and support for the Company's Asia
Pacific region. He holds bachelor's and master's degrees in
electrical engineering.
Manfred Wittler joined the Company in 1989 as Vice President.
In 1991, he was elected Executive Vice President and is currently
responsible for sales and support for Europe, Canada, and Latin
America. From 1983 through 1989, Mr. Wittler held several
positions with Data General Corporation in Europe, including
Division Vice President. He holds a doctorate in engineering.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The information appearing under "Dividend Policy" and "Price
Range of Common Stock" on page 47 of the Intergraph Corporation
1997 annual report to shareholders is incorporated by reference in
this Form 10-K annual report.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31,
1997, appearing under "Five Year Financial Summary" on the inside
front cover page of the Intergraph Corporation 1997 annual report
to shareholders are incorporated by reference in this Form 10-K
annual report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing on pages 14 to 26 of the
Intergraph Corporation 1997 annual report to shareholders is
incorporated by reference in this Form 10-K annual report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and report of independent
auditors appearing on pages 27 to 46 of the Intergraph Corporation
1997 annual report to shareholders are incorporated by reference
in this Form 10-K annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information appearing under "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of
1934" on pages 3 to 5 of the Intergraph Corporation proxy
statement relative to the annual meeting of shareholders to be
held May 28, 1998, is incorporated by reference in this Form 10-K
annual report. Directors are elected for terms of one year at the
annual meeting of the Company's shareholders.
Information relating to the executive officers of the Company
appearing under "Executive Officers of the Company" on pages 12 to
14 in this Form 10-K annual report is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Executive Compensation" on
pages 5 to 11 of the Intergraph Corporation proxy statement
relative to the annual meeting of shareholders to be held May 28,
1998, is incorporated by reference in this Form 10-K annual
report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information appearing under "Common Stock Outstanding and
Principal Shareholders" on pages 1 to 3 of the Intergraph
Corporation proxy statement relative to the annual meeting of
shareholders to be held May 28, 1998, is incorporated by reference
in this Form 10-K annual report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Certain Relationships and
Related Transactions" on page 5 of the Intergraph Corporation
proxy statement relative to the annual meeting of shareholders to
be held May 28, 1998, is incorporated by reference in this Form 10-K
annual report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
Page in
Annual
Report *
--------
(a) 1) The following consolidated financial statements of
Intergraph Corporation and subsidiaries and the report
of independent auditors thereon are incorporated
by reference from the Intergraph Corporation 1997
annual report to shareholders:
Consolidated Balance Sheets at December 31, 1997 and 1996 27
Consolidated Statements of Operations for the three years 28
ended December 31, 1997
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997 29
Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 1997 30
Notes to Consolidated Financial Statements 31 - 45
Report of Independent Auditors 46
* Incorporated by reference from the indicated pages of the
1997 annual report to shareholders.
Page in
Form 10-K
---------
2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts and
Reserves for the three years ended December 31, 1997 20
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
Financial statements of 20%- to 50%-owned companies have been
omitted because the registrant's proportionate share of income
before income taxes of the companies is less than 20% of
consolidated loss before income taxes, and the investments in and
advances to the companies are less than 20% of consolidated total
assets.
3) Exhibits
Page in
Number Description Form 10-K
------ ----------- ---------
3(a) Certificate of Incorporation, Bylaws, and
Certificate of Merger. (1)
3(b) Amendment to Certificate of Incorporation. (2)
3(c) Restatement of Bylaws. (3)
4 Shareholder Rights Plan, dated August 25, 1993. (4)
10(a)* Employment Contract of Manfred Wittler dated
November 1, 1989 (5) and amendment dated
February 18, 1998.
10(b)* Loan program for executive officers of the Company
as amended, dated May 1, 1996. (6)
10(c) Loan and Security Agreement, by and between
Intergraph Corporation and Foothill Capital
Corporation, dated December 20, 1996 and amendments
dated January 14, 1997 (6) and November 25, 1997.
10(d)* Intergraph Corporation 1997 Stock Option Plan. (6)
10(e)* Agreement between Intergraph Corporation and
Green Mountain, Inc. dated April 1, 1997. (7)
10(f) Indemnification Agreement between Intergraph
Corporation and each member of the Board of Directors
of the Company dated June 3, 1997. (8)
10(g)* Employment Contract of Wade Patterson dated
May 30, 1997. (8)
10(h)* Intergraph Corporation Nonemployee Director
Stock Option Plan.
10(i) Amended and Restated First Mortgage and Security
Agreement, by and between Intergraph Corporation
and Foothill Capital Corporation, dated
November 25, 1997.
13 Portions of the Intergraph Corporation 1997 Annual
Report to Shareholders incorporated by reference
in this Form 10-K Annual Report
21 Subsidiaries of the Company 21
23 Consent of Independent Auditors 22
27 Financial Data Schedule
* Denotes management contract or compensatory plan, contract, or
arrangement required to be filed as an Exhibit to this Form 10-K
- ----------------
(1) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1984, under the Securities Exchange Act of 1934, File No. 0-9722.
(2) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1987, under the Securities Exchange Act of 1934, File No. 0-9722.
(3) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993, under the Securities Exchange Act of 1934, File No. 0-9722.
(4) Incorporated by reference to exhibits filed with the Company's
Current Report on Form 8-K dated August 25, 1993, under the
Securities Exchange Act of 1934, File No. 0-9722.
(5) Incorporated by reference to exhibits filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 1992,
under the Securities Exchange Act of 1934, File No. 0-9722.
(6) Incorporated by reference to exhibits filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
under the Securities Exchange Act of 1934, File No. 0-9722.
(7) Incorporated by reference to exhibits 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.
(8) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, under the Securities Exchange Act of 1934, File No. 0-9722.
- -----------------
(b) Reports on Form 8-K - on November 24, 1997, the Company filed a Current
Report on Form 8-K which reported the filing of a lawsuit against Intel
Corporation as described in Item 3, Legal Proceedings, of this Form 10-K
annual report.
(c) Exhibits - the response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial statement schedules - the response to this portion of Item 14
is submitted as a separate section of this report.
- -----------------
Information contained in this Form 10-K annual report may include
statements that are forward looking as defined in Section 21E of
the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements.
Additional information concerning factors that could cause actual
results to differ materially from those in the forward looking
statements is contained in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section
of the Company's 1997 annual report, portions of which are
incorporated by reference in this Form 10-K annual report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTERGRAPH CORPORATION
By /s/ James W. Meadlock Date: March 30, 1998
---------------------
James W. Meadlock
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.
Date
/s/ James W. Meadlock Chief Executive Officer and March 30, 1998
- -------------------------- Chairman of the Board
James W. Meadlock (Principal Executive Officer)
/s/ James F. Taylor Jr. Executive Vice President and March 30, 1998
- -------------------------- Director, Intergraph
James F. Taylor Jr. Corporation, and Chief
Executive Officer, Intergraph
Public Safety, Inc.
/s/ Robert E. Thurber Executive Vice President and March 30, 1998
- -------------------------- Director
Robert E. Thurber
/s/ Keith H. Schonrock Jr. Director March 30, 1998
- --------------------------
Keith H. Schonrock Jr.
Director March 30, 1998
- --------------------------
Larry J. Laster
Director March 30, 1998
- --------------------------
Thomas J. Lee
Director March 30, 1998
- --------------------------
Sidney L. McDonald
/s/ John W. Wilhoite Vice President and Controller March 30, 1998
- -------------------------- (Principal Accounting Officer)
John W. Wihoite
INTERGRAPH CORPORATION AND SUBSIDIARIES
SCHEDULE II ---- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
- ----------------- ---------- ----------- ---------- -------------
Additions
Balance at charged to
beginning costs and Balance at
Description of period expenses Deductions end of period
- ----------------- ---------- ----------- ---------- -------------
Allowance for doubtful
accounts deducted
from accounts
receivable in
the balance
sheet 1997 $16,703,000 2,844,000 5,059,000 (1) $14,488,000
1996 $20,399,000 (2,049,000) (3) 1,647,000 (1) $16,703,000
1995 $20,309,000 4,945,000 4,855,000 (1) $20,399,000
Allowance for obsolete
inventory deducted
from inventories
in the balance
sheet 1997 $43,223,000 15,582,000 22,297,000 (2) $36,508,000
1996 $34,441,000 24,189,000 15,407,000 (2) $43,223,000
1995 $31,033,000 17,455,000 14,047,000 (2) $34,441,000
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory reduced to net realizable value.
(3) The Company provides its allowance for doubtful accounts on a
specific identification basis. In 1996, significant improvement
in collection prospects on several large accounts occurred,
resulting in reversal of amounts previously provided in the
allowance for doubtful accounts.
INTERGRAPH CORPORATION AND SUBSIDIARIES
EXHIBIT 21 ---- SUBSIDIARIES OF REGISTRANT
Percentage of
Voting
State or Other Securities
Jurisdiction of Owned by
Name Incorporation Parent
- --------------------------------- --------------- --------------
InterCAP Graphics Systems, Inc. Delaware 100
Intergraph Computer Systems
Holding, Inc. Delaware 100
Intergraph European Manufacturing,
L.L.C. Delaware 100
Intergraph (Italia), L.L.C. Delaware 100
Intergraph (Middle East), L.L.C. Delaware 100
Intergraph Public Safety, Inc. Delaware 100
VeriBest, Inc. Delaware 100
Intergraph Benelux B.V. The Netherlands 100
Intergraph CAD/CAM (Danmark) A/S Denmark 100
Intergraph CR, spol. s r.o. Czech Republic 100
Intergraph (Deutschland) GmbH Germany 100
Intergraph Espana, S.A. Spain 100
Intergraph Europe (Polska)
Sp. z o.o. Poland 100
Intergraph Finland Oy Finland 100
Intergraph (France) Sorl France 100
Intergraph GmbH (Osterreich) Austria 100
Intergraph Hungary, Ltd. Hungary 100
Intergraph Ireland, Ltd. Ireland 100
Intergraph Norge A/S Norway 100
Intergraph (Portugal) Sistemas de Portugal 100
Computacao Grafica, S.A.
Intergraph SR s.r.o. Slovac Republic 100
Intergraph (Scandinavia) AB Sweden 100
Intergraph (Switzerland) A.G. Switzerland 100
Intergraph (UK), Ltd. United Kingdom 100
Public Safety U.K., Ltd. United Kingdom 100
VeriBest GmbH Germany 100
VeriBest International, Ltd. United Kingdom 100
VeriBest S.A. France 100
Intergraph Asia Pacific Limited Hong Kong 100
Intergraph BEST (Vic) Pty. Ltd. Australia 100
Intergraph Computer (Shenzhen) China 100
Co. Ltd.
Intergraph Corporation (N.Z.) New Zealand 100
Limited
Intergraph Corporation Pty. Ltd. Australia 100
Intergraph Corporation Taiwan Taiwan, R.O.C. 100
Intergraph Hong Kong Limited Hong Kong 100
Intergraph Japan K.K. Japan 100
Intergraph Korea, Ltd. Korea 100
Intergraph Public Safety Pty., Australia 100
Ltd.
Intergraph Systems Singapore Pte Singapore 100
Ltd.
VeriBest K.K. Japan 100
Intergraph Computer Services Turkey 97
Industry & Trade, A.S.
Intergraph Canada, Ltd. Canada 100
Intergraph de Mexico, S.A.
de C.V. Mexico 100
Intergraph Electronics Ltd. Israel 100
Intergraph Servicios de Venezuela Venezuela 100
C.A.
Intergraph Saudi Arabia Ltd. Saudi Arabia 75
EXHIBIT 23 ---- CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Intergraph Corporation and subsidiaries of
our report dated January 29, 1998 (except for paragraph 2 of
Note 15, as to which the date is March 2, 1998), included in the
1997 Annual Report to Shareholders of Intergraph Corporation.
Our audits also included the financial statement schedule of
Intergraph Corporation listed in Item 14(a)(2). This schedule
is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth herein.
We also consent to the incorporation by reference in the
Registration Statement (Form S-3 No. 33-25880) pertaining to the
Stock Bonus Plan dated December 22, 1988; in the Registration
Statement (Form S-8 No. 33-53849) pertaining to the Intergraph
Corporation 1992 Stock Option Plan dated May 27, 1994; in the
Registration Statement (Form S-8 No. 33-57211) pertaining to the
Assumption of Options under the InterCAP Graphics Systems, Inc.
1989 Stock Option Plan and 1994 Nonqualified Stock Option
Program dated January 10, 1995; in the Registration Statement
(Form S-8 No. 33-59621) pertaining to the 1995 Intergraph
Corporation Employee Stock Purchase Plan dated May 26, 1995; and
in the related Prospectuses, of our report dated January 29,
1998 (except for paragraph 2 of Note 15, as to which the date is
March 2, 1998), with respect to the consolidated financial
statements and schedule of Intergraph Corporation and
subsidiaries included or incorporated by reference in the Annual
Report (Form 10-K) for the year ended December 31, 1997.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 27, 1998
INTERGRAPH
- ----------
Business Operations and Finance Europe Memorandum
- -------------------------------------------------------------------------
CONFIDENTIAL
Date: February 18,1998
Ref: 9804
To: Manfred Wittler
Copy: Jim Meadlock Manfred Wittler Personnel File
From: Henk de Klerk
Subject: Extension of your Netherlands Contract
- -------------------------------------------------------------------------
With reference to the Contract between you and Intergraph European
Manufacturing BV, effective November 1, 1989 and subsequently assigned to
Intergraph European Manufacturing L.L.C. and Jeff Heath's memorandum dated
May 27, 1994 reference 03-034, the aforementioned contract is hereby
extended from November 1, 1997 until October 31, 1999 under the same terms
and conditions as referenced in Jeff Heath's mentioned memorandum with the
following change:
Your title is "Executive Vice President Sales and Support, Europe, Canada,
Latin America.
Approved on February 18, 1998, Hoofddorp, The Netherlands
/s/ Henk de Klerk /s/ Manfred Wittler Feb. 18, 1998
- ----------------- -------------------- -------------
Henk de Klerk Manfred Wittler Date
Director Business Operations Executive Vice President
and Finance, Europe Sales and Support
Managing Director Intergraph Europe, Canada,
European Manufacturing L.L.C. Latin America
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER TWO TO LOAN AND SECURITY
AGREEMENT (this "Amendment") is entered into as of November 25,
1997, by and between Foothill Capital Corporation, a California
corporation ("Foothill"), on the one hand, and Intergraph
Corporation, a Delaware corporation ("Borrower"), with reference
to the following facts:
A. Foothill and Borrower heretofore have entered into that
certain Loan and Security Agreement, dated as of December 20,
1996 (as heretofore amended, supplemented, or otherwise modified,
the "Agreement");
B. Borrower has requested Foothill to amend the Agreement
to, among other things, extend the Maturity Date, increase the
amount of the Term Loan and modify the Reserve in connection
therewith, and increase the Maximum Amount, as set forth in this
Amendment;
C. Foothill is willing to so amend the Agreement in
accordance with the terms and conditions hereof; and
D. All capitalized terms used herein and not defined
herein shall have the meanings ascribed to them in the Agreement,
as amended hereby.
NOW, THEREFORE, in consideration of the above recitals
and the mutual premises contained herein, Foothill and Borrower
hereby agree as follows:
1. Amendments to the Agreement.
a. Section 1.1 of the Agreement hereby is amended by
adding the following new defined terms in alphabetical order:
"Additional Term Loan" has the meaning set forth in Section 2.3.
"Initial Term Loan" has the meaning set forth in Section 2.3.
"Second Amendment" means that certain Amendment
Number Two to Loan and Security Agreement, dated as of
November 25, 1997, between Foothill and Borrower.
"Second Amendment Closing Date" means the first
date on which all of the conditions to the effectiveness of
the Second Amendment have been satisfied (or waived or
postponed by Foothill in its sole discretion) pursuant to
the terms thereof.
b. The following definitions contained in Section 1.1 of
the Agreement are amended and restated in their entirety to read
as follows:
"Maximum Amount" means $125,000,000.
"Reserve" means, as of any date of
determination, an amount equal to: (a) from and after the
Second Amendment Closing Date until December 31, 1997, zero
(-0-); and (b) thereafter, an amount equal the product of
(i) $297,619 times (ii) the number of months (or any
portions thereof) separating such date from December 31,
1997. Without limiting the generality of the foregoing and
solely by way of example, the amount of the Reserve would
equal: (x) zero (-0-) as of December 1, 1997; (y) $297,619
as of January 1, 1998; and (z) $595,238 as of February 1,
1998.
c. Section 2.2(a)(ii) of the Agreement hereby is amended
and restated in its entirety to read as follows:
(ii) the Letter of Credit
Usage would exceed the lower of (y) the Maximum
Revolving Amount less the amount of outstanding
Advances, or (z) $75,000,000, or
d. Section 2.3 of the Agreement hereby is amended and
restated in its entirety to read as follows:
2.3 Term Loan. Subject to the terms and
conditions of this Agreement, Foothill: (a) agreed to make a
term loan to Borrower on the Closing Date (in the original
principal amount of $20,000,000 (the "Initial Term Loan");
and (b) has agreed to make an additional term loan to
Borrower on the Second Amendment Closing Date in the
original principal amount of $5,000,000 (the "Additional
Term Loan"; the Initial Term Loan and the Additional Term
Loan are referred to, collectively, as the "Term Loan").
The outstanding principal balance and all accrued and unpaid
interest under the Term Loan shall not be due and payable
until the earlier to occur of (a) the Maturity Date, and (b)
the date of termination of this Agreement, whether by its
terms, by acceleration, or otherwise. The unpaid principal
balance of the Term Loan may not be prepaid in whole or in
part. All amounts outstanding under the Term Loan shall
constitute Obligations.
e. Section 3.4 of the Agreement hereby is amended and
restated in its entirety to read as follows:
3.4 Term. This Agreement shall become effective
upon the execution and delivery hereof by Borrower and
Foothill and shall continue in full force and effect for a
term ending on January 7, 2001 (the "Maturity Date"). The
foregoing notwithstanding, Foothill shall have the right to
terminate its obligations under this Agreement immediately
and without notice upon the occurrence and during the
continuation of an Event of Default.
f. Section 3.6 of the Agreement hereby is amended and
restated in its entirety to read as follows:
3.6 Early Termination by Borrower. Borrower has
the option, at any time prior to the Maturity Date and upon
60 days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash, the Obligations
(including an amount equal to 102% of the undrawn amount of
the Letters of Credit), in full, together with a premium
(the "Early Termination Premium") equal to (a) during the
first 30 months after the Closing Date, the product of (i)
0.10% times (ii) the Maximum Amount times (iii) the number
of months (including partial months) remaining until the
Maturity Date, (b) during the next 6 months, $1,000,000, and
(c) thereafter, $500,000.
2. Representations and Warranties. Borrower hereby
represents and warrants to Foothill that: (a) the execution,
delivery, and performance of this Amendment and of the Agreement,
as amended by this Amendment, are within its corporate powers,
have been duly authorized by all necessary corporate action, and
are not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of
its charter or bylaws, or of any contract or undertaking to which
it is a party or by which any of its properties may be bound or
affected; and (b) this Amendment and the Agreement, as amended by
this Amendment, constitute Borrower's legal, valid, and binding
obligation, enforceable against Borrower in accordance with its
terms.
3. Conditions Precedent to Amendment. The satisfaction of
each of the following on or before the Second Amendment Closing
Date, unless otherwise specified below, shall constitute
conditions precedent to the effectiveness of this Amendment:
a. Payment to Foothill by Borrower in immediately
available funds of an amendment fee in the amount of $225,000,
which fee shall be fully earned, non-refundable, due, and
payable, upon the execution and delivery of this Amendment by
Foothill and Borrower, and which fee Borrower hereby authorizes
Foothill to charge to Borrower's loan account. Solely for
reference purposes among Foothill and its participants in the
Obligations, such amendment fee shall be segregated into 3
components, consisting of "Component A" in the amount of
$100,000, "Component B" in the amount of $62,500, and "Component
C" in the amount of $62,500;
b. Foothill shall have received the reaffirmation and
consent of each of the Obligors (other than Borrower) attached
hereto as Exhibit A, duly executed and delivered by the
respective authorized officials thereof;
c. Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full
force and effect:
(1) duly executed amendments of the
Mortgages and endorsements to the Mortgage Policies
as Foothill may require, in each case in form and
substance satisfactory to Foothill;
(2) all required consents of Foothill's
participants in the Obligations to Foothill's
execution, delivery, and performance of this
Amendment and the commitments of such participants
(on terms and conditions satisfactory to Foothill)
to participate in the Obligations after giving effect
to this Amendment;
d. Foothill shall have received a certificate from the
Secretary of Borrower attesting to the incumbency and signatures
of authorized officers of Borrower and to the resolutions of
Borrower's Board of Directors authorizing its execution and
delivery of this Amendment and the performance of this Amendment
and the Agreement as amended by this Amendment, and authorizing
specific officers of Borrower to execute and deliver the same;
e. Foothill shall have received an opinion of Borrower's
counsel in form and substance satisfactory to Foothill in its
sole discretion;
f. [intentionally omitted]
g. The representations and warranties in this Amendment,
the Agreement as amended by this Amendment, and the other Loan
Documents shall be true and correct in all respects on and as of
the date hereof, as though made on such date (except to the
extent that such representations and warranties relate solely to
an earlier date);
h. No Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default
shall have occurred and be continuing on the date hereof, nor
shall result from the consummation of the transactions
contemplated herein;
i. No injunction, writ, restraining order, or other order
of any nature prohibiting, directly or indirectly, the
consummation of the transactions contemplated herein shall have
been issued and remain in force by any governmental authority
against Borrower, Foothill, or any of their Affiliates;
j. The Collateral shall not have declined materially in
value from the values set forth in the most recent appraisals or
field examinations previously done by Foothill; and
k. All other documents and legal matters in connection
with the transactions contemplated by this Amendment shall have
been delivered or executed or recorded and shall be in form and
substance satisfactory to Foothill and its counsel.
4. Condition Subsequent to Second Amendment and Related
Reserve. Each of the following shall constitute a condition
subsequent to the Second Amendment:
a. Foothill shall have received searches reflecting the
filing of such supplemental financing statements as Foothill may
require (including with respect to the filing offices for:
Arizona; Hawaii; and Allegheny County, Pennsylvania); and
b. Foothill shall have received updates of the most recent
appraisals of the Real Property Collateral and of the Equipment
that were conducted on or prior to the Closing Date, in each case
satisfactory to Foothill.
Until such time as each of the conditions in this Section 4 have
been satisfied, and notwithstanding anything in the Loan
Agreement or the other Loan Documents to the contrary, Foothill
may create and maintain against the Borrowing Base an additional
reserve in the amount of $5,000,000.
5. Effect on Agreement. The Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with
its respective terms and hereby is ratified and confirmed in all
respects. The execution, delivery, and performance of this
Amendment shall not operate as a waiver of or, except as
expressly set forth herein, as an amendment, of any right, power,
or remedy of Foothill under the Agreement, as in effect prior to
the date hereof.
6. Further Assurances. Borrower shall execute and deliver
all agreements, documents, and instruments, in form and substance
satisfactory to Foothill, and take all actions as Foothill may
reasonably request from time to time, to perfect and maintain the
perfection and priority of Foothill's security interests in the
Collateral and the Real Property, and to fully consummate the
transactions contemplated under this Amendment and the Agreement,
as amended by this Amendment.
7. Miscellaneous.
a. Upon the effectiveness of this Amendment, each
reference in the Agreement to "this Agreement", "hereunder",
"herein", "hereof" or words of like import referring to the
Agreement shall mean and refer to the Agreement as amended by
this Amendment.
b. Upon the effectiveness of this Amendment, each
reference in the Loan Documents to the "Loan Agreement",
"thereunder", "therein", "thereof" or words of like import
referring to the Agreement shall mean and refer to the Agreement
as amended by this Amendment.
c. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one
and the same instrument and any of the parties hereto may execute
this Amendment by signing any such counterpart. Delivery of an
executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of an original executed
counterpart of this Amendment. Any party delivering an executed
counterpart of this Amendment by telefacsimile also shall deliver
an original executed counterpart of this Amendment but the
failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Bryan Hamm
--------------------------
Title: Vice President
----------------------
INTERGRAPH CORPORATION, a Delaware corporation
By /s/ Larry J. Laster
----------------------------
Title: Executive Vice President
-------------------------
EXHIBIT A
Reaffirmation and Consent
All capitalized terms used herein but not
otherwise defined herein shall have the meanings ascribed to them
in that certain Amendment Number Two to Loan and Security
Agreement, dated as of November 25, 1997 (the "Amendment"). Each
of the undersigned hereby (a) represents and warrants to Foothill
that the execution, delivery, and performance of this
Reaffirmation and Consent are within its corporate powers, have
been duly authorized by all necessary corporate action, and are
not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of
its charter or bylaws, or of any contract or undertaking to which
it is a party or by which any of its properties may be bound or
affected; (b) consents to the amendment of the Agreement by the
Amendment; (c) acknowledges and reaffirms its obligations owing
to Foothill under the Pledge Agreement and any other Loan
Documents to which it is party; and (d) agrees that each of the
Pledge Agreement and any other Loan Documents to which it is a
party is and shall remain in full force and effect. Although
each of the undersigned has been informed of the matters set
forth herein and has acknowledged and agreed to same, it
understands that Foothill has no obligation to inform it of such
matters in the future or to seek its acknowledgement or agreement
to future amendments, and nothing herein shall create such a
duty.
M&S COMPUTING INVESTMENTS, INC., a
Delaware corporation
By /s/ Larry J. Laster
------------------------------
Title: Treasurer
--------------------------
INTERGRAPH DELAWARE, INC., a Delaware
corporation
By /s/ Larry J. Laster
------------------------------
Title: Treasurer
--------------------------
Exhibit A
INTERGRAPH CORPORATION
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
--------------------------------------
1. Purpose
The purpose of the Intergraph Corporation Nonemployee Director
Stock Option Plan (the "Plan") is to secure for Intergraph
Corporation (the "Company") and its shareholders the benefits
of the long-term incentives inherent in increased common stock
ownership by the members of the Board of Directors (the
"Board") of the Company who are not employees of the Company or
its Affiliates, by strengthening the identification of
Nonemployee Directors with the interests of all Intergraph
Corporation shareholders.
2. Definitions
The terms defined in this Section 2 shall have the following
meanings, unless the context otherwise requires.
a. "Affiliate" shall mean any corporation, partnership, joint
venture or other entity in which the Company holds an
equity, profit or voting interest of more than fifty
percent (50%).
b. "Annual Meeting of Shareholders" shall mean the annual
meeting of shareholders of the Company held each calendar
year.
c. "Code" shall mean the Internal Revenue Code of 1986, as
amended to date and as it may be amended from time to
time.
d. "Company" shall mean Intergraph Corporation, a Delaware
corporation.
e. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended to date and as it may be amended
from time to time.
f. "Fair Market Value" per Share shall mean as of any day
(1) The fair market value of a share of the Company's
common stock is the closing price reported by the
NASDAQ Stock Market on the business day immediately
preceding the date as of which fair market value is
being determined or, if there were no sales of shares
of the Company's common stock reported on such day,
on the most recently preceding day on which there
were sales, or
(2) if the shares of the Company's stock are not listed
on the NASDAQ Stock Market on the day as of which the
determination is made, the amount determined by the
Board or its delegate to be the fair market value of
a share on such day.
g. "Nonemployee Director" shall mean a member of the Board of
Directors of the Company who is not also an officer or
other employee of the Company or an Affiliate.
h. "Nonstatutory Stock Option" ("NSO") shall mean a stock
option, which does not qualify for special tax treatment
under Sections 421 or 422 of the Internal Revenue Code.
i. "Option" shall mean either a First Option or an Annual
Option granted pursuant to the provisions of Section 4 of
this Plan.
j. "Participant" shall mean any person who holds an Option
granted under this Plan.
k. "Plan" shall mean this Intergraph Corporation Nonemployee
Director Stock Option Plan.
3. Administration
a. The Plan shall be administered by the Board. The Board
may, by resolution, delegate part or all of its
administrative powers with respect to the Plan.
b. The Board shall have all of the powers vested in it by the
terms of the Plan, such powers to include the authority,
within the limits prescribed herein, to establish the
form of the agreement embodying grants of Options made
under the Plan.
c. The Board shall, subject to the provisions of the Plan,
have the power to construe the Plan, to determine all
questions arising thereunder and to adopt and amend such
rules and regulations for the administration of the Plan
as it may deem desirable, such administrative decisions of
the Board to be final and conclusive.
d. The Board shall have no discretion to select the
Nonemployee Directors to receive Option grants under the
Plan, to determine the number of shares of the
Company's common stock subject to the Plan or to each
grant, nor the exercise price of the Options granted
pursuant to the Plan.
e. The Board may authorize any one or more of their number or
the Secretary or any other officer of the Company to
execute and deliver documents on behalf of the Board. The
Board hereby authorizes the Secretary to execute and
deliver all documents to be delivered by the Board
pursuant to the Plan.
f. The expenses of the Plan shall be borne by the Company.
4. Automatic Grants to Nonemployee Directors
a. As of the date of adoption of this Plan by the
shareholders of the Company, each current Nonemployee
Director shall be granted an option to purchase three
thousand (3,000) shares of the Company's common stock
under the Plan (the "First Option"). Thereafter, as of
the day upon which shareholders vote to elect directors at
each annual meeting of the Company, each Nonemployee
Director of the Board shall be granted an additional
option to purchase fifteen hundred (1,500) shares of the
Company's common stock under the Plan (the "Annual
Option"); provided, however, that a Nonemployee Director
who has not previously been elected as a member of the
Board of Directors of the Company shall also be granted an
option to purchase three thousand (3,000) shares of the
Company's common stock under the Plan, on the first
business day of the Nonemployee Director's election to the
Board, including election by the Board of Directors to
fill a vacancy on the Board.
b. The automatic grants to Nonemployee Directors shall not be
subject to the discretion of any person.
c. Each Option granted under the Plan shall be evidenced by a
written Agreement. Each Agreement shall be subject to,
and incorporate, by reference or otherwise, the applicable
terms of this Plan.
d. During the lifetime of a Participant, each Option shall be
exercisable only by the Participant. No Option granted
under the Plan shall be assignable or transferable by the
Participant, except by will or by the laws of descent and
distribution.
5. Shares of Stock Subject to the Plan
a. Subject to adjustment as provided in Section 10 of the
Plan, an aggregate of two hundred fifty thousand (250,000)
shares of the Company's common stock, $.10 par value,
shall be available for issuance to Nonemployee Directors
under the Plan. No fractional shares shall be issued.
b. First Option Grants and Annual Option Grants shall reduce
the shares available for issuance under the Plan by the
number of shares subject thereto. The shares deliverable
upon exercise of any First Option Grant or Annual Option
Grant may be made available from authorized but unissued
shares or shares reacquired by the Company, including
shares purchased in the open market or in private
transactions. If any unexercised First Option Grant or
Annual Option Grant shall terminate for any reason, the
shares subject to, but not delivered under, such First
Option Grant or Annual Option Grant shall be available for
other First Option Grants or Annual Option Grants.
6. Nonstatutory Options
All Options granted to Nonemployee Directors pursuant to the
Plan shall be NSOs.
7. Exercise Price
a. The price per share of the shares of the Company's common
stock which may be purchased upon exercise of an Option
("Exercise Price") shall be one hundred percent (100%) of
the Fair Market Value per Share on the date the Option is
granted and shall be payable in full at the time the
Option is exercised as follows:
(1) in cash or by certified check,
(2) by delivery of shares of common stock to the Company
which shall have been owned by the Nonemployee
Director for at least six (6) months and have a Fair
Market Value per Share on the date of surrender equal
to the Exercise Price, or
(3) by delivery to the Company of a properly executed
exercise notice together with irrevocable
instructions to a broker to promptly deliver to the
Company from sale or loan proceeds the amount
required to pay the exercise price.
b. Such price shall be subject to adjustment as provided in
Section 10 hereof.
8. Duration and Vesting of Options
a. The term of each Option granted to a Nonemployee Director
shall be for ten (10) years from the date of grant,
unless terminated earlier pursuant to the provisions of
Section 9 hereof.
b. Each Option shall vest and become exercisable according to
the following schedule:
(1) thirty-three and one-third (33-1/3) of the total
number of shares covered by the Option shall become
exercisable beginning with the first anniversary date
of the grant of the Option;
(2) thirty-three and one-third (33-1/3) of the total
number of shares covered by the Option shall become
exercisable on each subsequent anniversary date of
the grant of the Option until the third anniversary
date of the grant of the Option upon which the total
number of shares covered by Option shall become
exercisable.
9. Effect of Termination of Membership on the Board
The right to exercise an Option granted to a Nonemployee
Director shall be limited as follows, provided the actual date
of exercise is in no event after the expiration of the term of
the Option:
a. If a Nonemployee Director ceases being a director of the
Company for any reason other than the reasons identified
in subparagraph b. of this Section 9, the Nonemployee
Director shall have the right to exercise the Options as
follows, subject to the condition that no Option shall be
exercisable after the expiration of the term of the
Option:
(1) If the Nonemployee Director was a member of the Board
of Directors of the Company for five (5) or more
years, all outstanding Options become immediately
exercisable upon the date the Nonemployee Director
ceases being a director. The Nonemployee Director
may exercise the Options for a period of thirty-six
(36) months from the date the Nonemployee Director
ceased being a director, provided that if the
Nonemployee Director dies before the thirty-six (36)
month period has expired, the Options may be
exercised by the Nonemployee Director's legal
representative or any person who acquires the right
to exercise an Option by reason of the Nonemployee
Director's death for a period of twelve (12) months
from the date of the Nonemployee Director's death.
(2) If the Nonemployee Director was a member of the Board
of Directors of the Company for less than five (5)
years, the Nonemployee Director may exercise the
Options, to the extent they were exercisable at the
date the Nonemployee Director ceases being a member
of the Board, for a period of thirty (30) days
following the date the Nonemployee Director ceased
being a director, provided that, if the Nonemployee
Director dies before the thirty (30) day period has
expired, the Options may be exercised by the
Nonemployee Director's legal representative, or any
person who acquires the right to exercise an Option
by reason of the Nonemployee Director's death, for a
period of twelve (12) months from the date of the
Nonemployee Director's death.
(3) If the Nonemployee Director dies while a member of
the Board, the Options, to the extent exercisable by
the Nonemployee Director at the date of death, may be
exercised by the Nonemployee Director's legal
representative, or any person who acquires the right
to exercise an Option by reason of the Nonemployee
Director's death, for a period of twelve (12) months
from the date of the Nonemployee Director's death.
(4) In the event any Option is exercised by the
executors, administrators, legatees, or distributees
of the estate of a deceased optionee, the Company
shall be under no obligation to issue stock
thereunder unless and until the Company is satisfied
that the person or persons exercising the Option are
the duly appointed legal representatives of the
deceased optionee's estate or the proper legatees or
distributees thereof.
b. If a Nonemployee Director ceases being a director of the
Company due to an act of
(1) fraud or intentional misrepresentation or
(2) embezzlement, misappropriation or conversion of
assets or opportunities of the Company or any
Affiliate of the Company or
(3) any other gross or willful misconduct as determined
by the Board, in its sole and conclusive discretion,
all Options granted to such Nonemployee Director shall
immediately be forfeited as of the date of the misconduct.
10. Adjustments and Changes in the Stock
a. If there is any change in the common stock of the Company
by reason of any stock dividend, stock split, spin-off,
split-up, merger, consolidation, recapitalization,
reclassification, combination or exchange of shares, or
any other similar corporate event, the aggregate number of
shares available under the Plan, and the number and the
price of shares of common stock subject to outstanding
Options shall be appropriately adjusted automatically.
b. No right to purchase fractional shares shall result from
any adjustment in Options pursuant to this Section 10. In
case of any such adjustment, the shares subject to the
Option shall be rounded down to the nearest whole share.
c. Notice of any adjustment shall be given by the Company to
each holder of any Option which shall have been so
adjusted and such adjustment (whether or not such notice
is given) shall be effective and binding for all purposes
of the Plan.
11. Effective Date of the Plan
a. The Plan shall become effective on the date it is approved
by the shareholders of the Company.
b. Any amendment to the Plan shall become effective when
adopted by the Board, unless specified otherwise, but no
Option granted under any increase in shares authorized to
be issued under this Plan shall be exercisable until the
increase is approved in the manner prescribed in Section
12 of this Plan.
12. Amendment of the Plan
a. The Board of Directors may amend, suspend or terminate the
Plan at any time, but without shareholder approval, no
amendment shall materially increase the maximum number of
shares which may be issued under the Plan (other than
adjustments pursuant to Section 10 hereof), materially
increase the benefits accruing to Participants under the
Plan, materially modify the requirements as to
eligibility for participation or extend the term of the
Plan. Approval of the shareholders may be obtained, at a
meeting of shareholders duly called and held, by the
affirmative vote of a majority of the holders of the
Company's voting stock who are present or represented by
proxy and are entitled to vote on the Plan.
b. It is intended that the Plan meet the requirements of Rule
16b-3 or any successor thereto promulgated by the
Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, including any applicable
requirements regarding shareholder approval. Amendments
to the Plan shall be subject to approval by the
shareholders of the Company to the extent determined by
the Board of Directors to be necessary to satisfy such
requirements as in effect from time to time.
c. Rights and obligations under any Option granted before any
amendment of this Plan shall not be materially and
adversely affected by amendment of the Plan, except with
the consent of the person who holds the Option, which
consent may be obtained in any manner that the Board or
its delegate deems appropriate.
d. The Board of Directors may not amend the provisions of
Sections 4, 6, 7, 8 and 9 hereof more than once every six
(6) months, other than to comport with changes in the
Code, ERISA, or the rules thereunder.
13. Termination of the Plan
a. The Plan, unless sooner terminated, shall terminate at the
end of ten (10) years from the date the Plan is approved
by the shareholders of the Company. No Option may be
granted under the Plan while the Plan is suspended or
after it is terminated.
b. Rights or obligations under any Option granted while the
Plan is in effect, including the maximum duration and
vesting provisions, shall not be altered or impaired by
suspension or termination of the Plan, except with the
consent of the person who holds the Option, which consent
may be obtained in any manner that the Board or its
delegate deems appropriate.
14. Registration, Listing, Qualification, Approval of Stock and
Options
If the Board shall determine, in its discretion, that it is
necessary or desirable that the shares of common stock subject
to any Option
a. be registered, listed or qualified on any securities
exchange or under any applicable law, or
b. be approved by any governmental regulatory body, or
c. approved by the shareholders of the Company, as a
condition of, or in connection with, the granting of such
Option, or the issuance or purchase of shares upon
exercise of the Option,
then the Option may not be exercised in whole or in part unless
such registration, listing, qualification or approval has been
obtained free of any condition not acceptable to the Board of
Directors.
15. No Right to Option or as Shareholder
a. No Nonemployee Director or other person shall have any
claim or right to be granted an Option under the Plan,
except as expressly provided herein. Neither the Plan nor
any action taken hereunder shall be construed as giving
any Nonemployee Director any right to be retained in the
service of the Company.
b. Neither a Nonemployee Director, the Nonemployee Director's
legal representative, nor any person who acquires the
right to exercise an Option by reason of the Nonemployee
Director's death shall be, or have any of the rights or
privileges of, a shareholder of the Company in respect of
any shares of common stock receivable upon the exercise of
any Option granted under this Plan, in whole or in part,
unless and until certificates for such shares shall have
been issued.
16. Governing Law
The validity, construction, interpretation, administration and
effect of this Plan and any rules, regulations and actions
relating to this Plan will be governed by and construed
exclusively in accordance with the laws of the State of
Delaware.
AMENDED AND RESTATED
FIRST MORTGAGE AND SECURITY AGREEMENT
by and between
INTERGRAPH CORPORATION, a
Delaware corporation,
Mortgagor
and
FOOTHILL CAPITAL CORPORATION, a
California corporation,
Mortgagee
Dated as of November 25, 1997
Prepared by, and after recordation return to:
Jerome K. Lanning
Johnston Barton Proctor & Powell LLP
2900 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203-2618
NOTE: This instrument constitutes an amendment and restatement
of the mortgage by and between Intergraph Corporation, as
Mortgagor, and Foothill Capital Corporation, as Mortgagee, dated
January 6, 1997, and recorded in the Office of the Judge of
Probate of Madison County, Alabama on January 6, 1997, in
Mortgage Book 2248, Page 538, et seq. (the "Mortgage") securing
the payment of a $20,000,000 term loan from Mortgagee to
Mortgagor.
THIS INSTRUMENT AMENDS AND RESTATES THE MORTGAGE TO SECURE A
$5,000,000 INCREASE IN THE SAID TERM LOAN. A MORTGAGE TAX HAS
BEEN PAID IN FULL ON THE MORTGAGE WITH RESPECT TO THE ORIGINAL
$20,000,000 TERM LOAN BALANCE.
This Amended and Restated First Mortgage and Security
Agreement is to be cross-indexed in the Uniform Commercial Code
Records as a fixture filing.
AMENDED AND RESTATED
FIRST MORTGAGE AND SECURITY AGREEMENT
TABLE OF CONTENTS
Article Page
1 Warranty of Title 6
2 Payment of Secured Indebtedness 6
3 Requirements; Proper Care and Use 7
4 Taxes on Secured Property or Mortgagee 8
5 Payment of Impositions 9
6 Insurance 10
7 Condemnation/Eminent Domain 13
8 Sale and Lease of Secured Property 14
9 Liens 15
10 Right of Contest 15
11 Leases and Ground Leases 16
12 Loan Document Expenses 19
13 Mortgagee's Right to Perform 20
14 Mortgagee's Costs and Expenses 20
15 Defaults 21
16 Remedies 21
17 Security Agreement under Uniform Commercial Code 24
18 Additional Representations and Warranties 25
19 No Waivers. Etc. 25
20 Additional Rights 26
21 Waivers by Mortgagor 26
22 Not Joint Venture or Partnership 27
23 Notices 27
24 Inconsistency with the Loan Documents 27
25 No Modification: Binding Obligations 27
26 Miscellaneous 27
27 Enforceability 28
28 Receipt of Copy 28
29 Termination of Security Interest 28
Exhibit A - Description of the Land
Index of Defined Terms
Additional Mortgages 2
Additional Term Loan 1
Awards 5
Buildings 3
Code 24
Contractor's Claims 15
Event of Default 21
Fixtures 14
GAAP 15
Governmental Authority 7
Ground Leases 4
Impositions 9
Initial Term Loan 1
Insurance Proceeds 5
Interest Rate 8
Land 3
Leases 4
Legal Requirements 7
Letters of Credit 2
Liens 15
Loan Agreement 1
Loan Documents 2
Material Adverse Effect 15
Mortgage 1
Mortgagee 1
Mortgagor 2
Obligations 2
Permitted Encumbrances 6
Person 2
Provisions 27
Real Estate 3
Rents 4
Secured Indebtedness 2
Secured Obligations 3
Secured Property 3
Subsidiaries 15
Taking 14
Tax 8
Taxes 8
Term Loan 2
AMENDED AND RESTATED
FIRST MORTGAGE AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED FIRST MORTGAGE AND SECURITY
AGREEMENT ("Amendment") is made as of this ____ day of
____________, 1997, by INTERGRAPH CORPORATION, a Delaware
corporation, having an office at One Madison Industrial Park,
Huntsville, AL 35894-0001 ("Mortgagor"), and FOOTHILL CAPITAL
CORPORATION, a California corporation having an address at 11111
Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-
3333 ("Mortgagee").
WITNESSETH:
WHEREAS, Mortgagor previously made, executed and delivered,
inter alia, the following documents to Mortgagee:
(a) that certain Loan and Security Agreement dated as of
December 20, 1996, as amended by Amendment Number One to
Loan and Security Agreement dated as of January 15, 1997,
and Amendment Number Two To Loan and Security Agreement
dated as of November 25, 1997 (collectively, the "Loan
Agreement"); and
(b) that certain First Mortgage And Security Agreement from
Mortgagor to Mortgagee dated January 6, 1997, and recorded
on January 6, 1997, in the Offices of the Probate Judge of
Madison County, Alabama at Mortgage Book 2248, Page 538 et
seq. (as amended and restated by this Amendment, the
"Mortgage"); and
WHEREAS, the Loan Agreement evidences, inter alia, a
$20,000,000 term loan from Mortgagee to Mortgagor (herein
referred to as the "Initial Term Loan"); and
WHEREAS, Mortgagee has made an additional term loan to
Mortgagor in the amount of Five Million and No/100 Dollars
($5,000,000), such term loan being identified in the Loan
Agreement as the "Additional Term Loan," and Mortgagor has agreed
that the repayment of the Initial Term Loan and the Additional
Term Loan shall be secured, equally and ratably, by the lien of
the Mortgage as amended and restated in accordance with the terms
of this Amendment; and
WHEREAS, the parties now desire to amend and restate the
terms, covenants, conditions and warranties of the Mortgage as
hereinafter provided.
NOW, THEREFORE, in consideration of the premises, the
foregoing representations of Mortgagor, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby covenant and agree
as follows:
Mortgagor covenants and agrees that the Mortgage is hereby
amended and restated such that the Mortgage, as amended and
restated hereby, shall secure the following obligations and
liabilities:
(a) the payment of (i) the Initial Term Loan and the
Additional Term Loan (collectively, the "Term Loan")
together with all accrued interest thereon to be paid
pursuant to the provisions of the Loan Agreement, (ii) any
future advances and readvances of such principal amount made
from time to time pursuant to the Loan Agreement, (iii) any
Letter of Credit (said term and other capitalized terms used
herein and not otherwise defined shall have the meaning set
forth in the Loan Agreement) reimbursement obligations that
may arise under Letters of Credit or L/C Guaranties issued
pursuant to the Loan Agreement; (iv) any and all other sums
due or to become due and any other monetary Obligations
under the Loan Agreement, this Mortgage or any other
document evidencing or securing the Loan or any other
obligations of Mortgagor entered into, executed or delivered
pursuant to the terms of the Loan Agreement, (v) any further
or subsequent advances made under the Loan Agreement this
Mortgage or any other Loan Document, and (vi) any
extensions, renewals, replacements or modifications of the
Loan Agreement or any other Loan Document (the items set
forth in clauses (i) through (vi) hereof, collectively, the
"Secured Indebtedness"), and
(b) the performance of all of the terms, covenants,
conditions, agreements, obligations and liabilities of
Mortgagor under (i) this Mortgage, (ii) the Loan Agreement,
(iii) the Loan Documents, (iv) any mortgages or deeds of
trust in addition to this Mortgage now or hereafter made by
Mortgagor to secure the Secured Indebtedness (such
additional mortgages and deeds of trust, collectively, the
"Additional Mortgages"), (v) any supplemental agreements,
undertakings, instruments, documents or other writings
executed by Mortgagor as a condition to advances under the
Loan Agreement or otherwise in connection with the Loan
Agreement (including, without limitation, the "Obligations",
as defined in the Loan Agreement), (vi) all security
agreements, chattel mortgages, pledges, powers of attorney,
consents, assignments, notices, leases and financing
statements heretofore, now or hereafter executed by or on
behalf of Mortgagor or any other Person and/or delivered to
Mortgagee in connection with the Loan Agreement or the
transactions contemplated thereby, and (vii) any extensions,
renewals, replacements or modifications of any of the
foregoing (all obligations and liabilities of Mortgagor
arising under this Mortgage, the Loan Agreement, the Loan
Documents, the Additional Mortgages and any other
supplemental agreements, undertakings, instruments,
documents, or other writings executed in connection with any
of the foregoing, together with (x) the foregoing powers of
attorney, consents, assignments, notices, leases and
financing statements, (y) any guarantees of the Secured
Indebtedness and (z) any deeds of trust, mortgages, security
agreements or assignments now or hereafter made to secure
the Secured Indebtedness and the obligations and liabilities
described herein are hereinafter collectively referred to as
the "Secured Obligations"); and
For and in consideration of the Secured Obligations and to
secure payment of the same, with interest thereon, and any
extensions or renewals of the same, and to further secure the
performance of the covenants and conditions and agreements
provided for in the Loan Agreement and as herein set forth, and
for other good and valuable consideration to Mortgagor, the
receipt and legal sufficiency hereby of which are acknowledged,
Mortgagor does hereby mortgage, give, grant, bargain, sell,
warrant, alienate, remise, release, convey, assign, transfer,
hypothecate, deposit, pledge, set over and confirm unto Mortgagee
the following described real and other property and all
substitutions for and all replacements, reversions and remainders
of such property, whether now owned or held or hereafter acquired
by Mortgagor (collectively, the "Secured Property"):
The fee simple and leasehold estate of Mortgagor with
respect to those plots, pieces or parcels of land more
particularly described in Exhibit A annexed hereto and made a
part hereof (which Exhibit A identifies the fee or leasehold
estate held by Mortgagor with respect to each such parcel),
together with the right, title and interest of Mortgagor, if any,
in and to the streets and in and to land lying in the bed of any
streets, roads or avenues, open or proposed, public or private,
in front of, adjoining or abutting said land to the center line
thereof, the air space and development rights pertaining to said
land and the right to use such air space and development rights,
all rights of way, privileges, liberties, tenements,
hereditaments and appurtenances belonging to, or in any way
appertaining to, said land, all easements now or hereafter
benefiting said land and all royalties and rights appertaining to
the use and enjoyment of said land, including, but without
limiting the generality of the foregoing, all alley, vault,
drainage, mineral, water, oil, coal, gas, timber and other
similar rights (collectively, the "Land");
TOGETHER with the buildings and other improvements now or
hereafter erected on the Land (the buildings and other
improvements, collectively, the "Buildings" and the Land together
with the Buildings and the Fixtures (hereinafter defined),
collectively, the "Real Estate");
TOGETHER with all and singular the reversion or reversions,
remainder or remainders, rents, issues, profits and revenues of
the Real Estate and all of the estate, right, title, interest,
dower and right of dower, curtesy and right of curtesy, property,
possession, claim and demand whatsoever, both in law and at
equity, of Mortgagor of, in and to the Real Estate and of, in and
to every part and parcel thereof, with the appurtenances, at any
time belonging or in any way appertaining thereto;
TOGETHER with all of the fixtures, systems, machinery,
apparatus, equipment and fittings of every kind and nature
whatsoever and all appurtenances and additions thereto and
substitutions or replacements thereof now owned or hereafter
acquired by Mortgagor and now or hereafter attached or affixed
to, or constituting a part of, the Real Estate or any portion
thereof (collectively the "Fixtures"), including, but without
limiting the generality of the foregoing, all heating,
electrical, mechanical, lighting, lifting, plumbing, ventilating,
air conditioning and air-cooling fixtures, systems, machinery,
apparatus and equipment, refrigerating, incinerating and power
fixtures, systems, machinery, apparatus and equipment, loading
and unloading fixtures, systems, machinery, apparatus and
equipment, escalators, elevators, boilers, communication systems,
switchboards, sprinkler systems and other fire prevention and
extinguishing fixtures, systems, machinery, apparatus and
equipment, and all engines, motors, dynamos, machinery, wiring,
pipes, pumps, tanks, conduits and ducts constituting a part of
any of the foregoing, it being understood and agreed that all of
the Fixtures are appropriated to the use of the Real Estate and,
for the purposes of this Mortgage, shall be deemed conclusively
to be Real Estate and mortgaged hereby;
TOGETHER with all drainage, mineral, water, oil, gas, timber
and sewer pipes, conduits and wires, and other facilities
furnishing utility or other services and other similar rights now
or hereafter benefitting the Real Estate or any portion thereof
or appertaining thereto;
TOGETHER with all of Mortgagor's right, title and interest
and leasehold estate under any leases held by Mortgagor, as
lessee, with respect to any portion of the Real Estate (as
described in Exhibit A hereto), including all powers, options,
renewal rights and other rights and interest of Mortgagor, as
lessee, under the terms of any such leases (collective the
"Ground Leases");
TOGETHER with Mortgagor's right, title and interest in, to
and under all leases, subleases, underlettings, concession
agreements, licenses and other occupancy agreements which now
exist or which may hereafter be granted by Mortgagor, as lessor,
affecting the Real Estate or any portion thereof and under any
and all guarantees, modifications, renewals and extensions
thereof (collectively, the "Leases"), and in and to any and all
deposits made or hereafter made as security under the Leases,
subject to the prior legal rights under the Leases of the lessees
making such deposits, together with any and all of the benefits,
revenues, income, rents, issues and profits due or to become due
or to which Mortgagor is now or hereafter may become entitled
arising out of the Leases or the Real Estate or any portion
thereof (collectively, the "Rents");
TOGETHER with (a) all unearned premiums accrued, accruing or
to accrue under any insurance policies now or hereafter obtained
by Mortgagor and Mortgagor's interest in and to all proceeds
which now or hereafter may be paid in connection with the
conversion of the Secured Property or any portion thereof into
cash or liquidated claims, together with the interest payable
thereon and the right to collect and receive the same, including,
but without limiting the generality of the foregoing, proceeds of
casualty insurance, title insurance and any other insurance now
or hereafter maintained by Mortgagor with respect to the Real
Estate or in connection with the use or operation thereof
(collectively, the "Insurance Proceeds"), and (b) all awards,
payments and/or other compensation, together with the interest
payable thereon and the right to collect and receive the same,
which now or hereafter may be made with respect to the Secured
Property as a result of (i) a taking by eminent domain,
condemnation or otherwise, (ii) the change of grade of any
street, road or avenue or the widening of any streets, roads or
avenues adjoining or abutting the land, or (iii) any other injury
to, or decrease in the value of, the Secured Property or any
portion thereof (collectively, the "Awards"), in any of the
foregoing circumstances described in clauses (a) or (b) above to
the extent of the entire amount of the Secured Indebtedness
outstanding as of the date of Mortgagee's receipt of any such
Insurance Proceeds or Awards, notwithstanding that the entire
amount of the Secured Indebtedness may not then be due and
payable, and also to the extent of reasonable attorneys' fees,
costs and disbursements incurred by Mortgagee in connection with
the collection of any such Insurance Proceeds or Awards.
Mortgagor hereby assigns to Mortgagee, and Mortgagee is hereby
authorized to collect and receive, all Insurance Proceeds and
Awards and to give proper receipts and acquittances therefor and
to apply the same toward the Secured Indebtedness as herein set
forth notwithstanding that the entire amount of the Secured
Indebtedness may not then be due and payable. Mortgagor hereby
agrees to make, execute and deliver, from time to time, upon
demand, such further documents, instruments or assurances as may
be requested by Mortgagee to confirm the assignment of the
Insurance Proceeds and the Awards to Mortgagee, free and clear of
any interest of Mortgagor whatsoever therein and free and clear
of any other Liens (hereinafter defined), claims or encumbrances
of any kind or nature whatsoever;
TOGETHER with all right, title and interest of Mortgagor in
and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and
appurtenances to, the Real Estate, and in each such case, the
foregoing shall be deemed a part of the Real Estate and shall
become subject to the Lien of this Mortgage as fully and
completely, and with the same priority and effect, as though now
owned by Mortgagor and specifically described herein, without any
further mortgage, conveyance, assignment or other act by
Mortgagor;
TOGETHER with all of Mortgagor's rights to further encumber
the Secured Property for debt.
TO HAVE AND TO HOLD the Secured Property and the rights and
privileges hereby mortgaged or intended so to be unto Mortgagee
and its successors and assigns for the uses and purposes herein
set forth, until the Secured Indebtedness is fully paid and the
Secured Obligations are fully performed in accordance with the
provisions set forth herein and in the other Loan Documents.
Mortgagor, for itself and its successors and assigns,
further represents, warrants, covenants and agrees with Mortgagee
as follows:
1 Warranty of Title. Except as otherwise set forth on Exhibit
A, Mortgagor warrants that it is lawfully seized of a good and
marketable leasehold estate under the Ground Leases or fee simple
absolute title (as particularly described in Exhibit A hereto) to
the Real Estate and has the right to mortgage the same in
accordance with the provisions set forth in this Mortgage and
that this Mortgage is a valid and enforceable first Lien on the
Secured Property, subject only to the exceptions to title more
particularly described in Commitment for Title No. 050122-041
dated December 10, 1996, as redated to the date hereof, issued by
First American Title Insurance Company to Mortgagee
(collectively, the "Permitted Encumbrances"). Mortgagor shall (a)
preserve such title and the validity and priority of the Lien of
this Mortgage and shall forever warrant and defend the same unto
Mortgagee against the claims of all and every Person or Persons,
corporation or corporations and parties whomsoever, and (b) make,
execute, acknowledge and deliver all such further or other deeds,
documents, instruments or assurance and cause to be done all such
further acts and things as may at any time hereafter be required
by Mortgagee to confirm and fully protect the Lien and priority
of this Mortgage.
2 Payment of Secured Indebtedness.
2.1 Mortgagor shall pay the Secured Indebtedness at the
times and places and in the manner specified in the Loan
Documents and shall perform all of the Secured Obligations in
accordance with the provisions set forth herein and in the other
Loan Documents. Anything to the contrary herein notwithstanding,
the maximum principal amount (exclusive of costs, expenses,
protective advances, and interest) at any time secured by this
Mortgage shall not exceed Twenty-Five Million and No/100 Dollars
($25,000,000.00); furthermore, the Secured Obligations shall not
include any obligations for the payment of principal or interest
with respect to any revolving loans or future loan advances under
the terms of any of the Loan Documents.
2.2 Any payment made in accordance with the terms of this
Mortgage by any Person at any time liable for the payment of the
whole or any part of the Secured Indebtedness, or by any
subsequent owner of the Secured Property, or by any other Person
whose interest in the Secured Property might be prejudiced in the
event of a failure to make such payment, or by any stockholder,
officer or director of a corporation or by any partner of a
partnership which at any time may be liable for such payment or
may own or have such an interest in the Secured Property shall be
deemed, as between Mortgagee and all Persons who at anytime may
be liable as aforesaid or may own the Secured Property, to have
been made on behalf of all such Persons.
3 Requirements: Proper Care and Use.
3.1 Subject to the right of Mortgagor to contest a Legal
Requirement (hereinafter defined) as provided in Article 10
hereof, Mortgagor promptly shall comply with, or cause to be
complied with, all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, injunctions, rules,
regulations, restrictions and requirements (collectively "Legal
Requirements") of every federal, state, county, municipal or
other governmental authority having jurisdiction over Mortgagor
or the Secured Property (a "Governmental Authority") (and, unless
such contest operates to suspend compliance with such
Governmental Authority, in no case later than the time period
allowed under any order or other form of notice issued by such
Governmental Authority) or the use, manner of use, occupancy,
possession, operation, maintenance, alteration, repair or
restoration of the Real Estate, without regard to the nature of
the work to be done or the cost of performing the same, whether
foreseen or unforeseen, ordinary or extraordinary, and shall
perform, or cause to be performed, all obligations, agreements,
covenants, restrictions and conditions now or hereafter of record
which may be applicable to Mortgagor or to the Secured Property
or to the use, manner of use, occupancy, possession, operation,
maintenance, alteration, repair or restoration of the Real
Estate.
3.2 Except as it may otherwise be permitted by the Loan
Agreement, Mortgagor shall (i) not abandon the Real Estate or any
portion thereof, (ii) subject to Articles 6 and 7 hereof,
maintain the Real Estate in good repair, order and condition,
(iii) subject to Articles 6 and 7 hereof, promptly make all
necessary repairs to the Real Estate, (iv) not commit or suffer
waste with respect to the Real Estate, (v) refrain from impairing
or diminishing the value or integrity of the Secured Property or
the priority or security of the Lien of this Mortgage, (vi) not
remove, demolish or materially alter any of the Real Estate
without the prior written consent of Mortgagee in each instance,
except that Mortgagor shall have the right without the consent of
Mortgagee to remove and dispose of, free of the Lien of this
Mortgage, such Fixtures as may, from time to time, become worn
out or obsolete, provided that if Mortgagor shall replace the
same with other Fixtures then such replacement Fixtures shall be
free of any security agreements or other Liens or encumbrances of
any kind or nature whatsoever, and by such removal and
replacement, Mortgagor shall be deemed to have subjected such
replacement Fixtures to the Lien and priority of this Mortgage,
(vii) not make, install or permit to be made or installed,any
material alterations or additions to the Real Estate if doing so
would materially impair the use of the Secured Property by
Mortgagor in the conduct of its business, (viii) not make, suffer
or permit any nuisance to exist on the Real Estate or any portion
thereof, and (ix) permit Mortgagee and its agents, at the times
and in the manner set forth in the Loan Agreement and subject to
the rights of tenants under Leases, to enter upon the Real Estate
for the purpose of inspecting and appraising the Real Estate or
any portion thereof.
3.3 Mortgagor shall not by any act or omission permit any
building or other improvement located on any property which is
not subject to the Lien of this Mortgage to rely upon the Real
Estate or any portion thereof or any interest therein to fulfill
any Legal Requirement and Mortgagor hereby assigns to Mortgagee
any and all rights to give consent for all or any portion of the
Real Estate or any interest therein to be so used. The Real
Estate is zoned as one or more lots separate and apart from all
other premises and Mortgagor shall not, by any act or omission,
impair the integrity of the Real Estate as such lot or lots or
initiate or join in any zoning change, private easement or any
other modification of the zoning regulating the Real Estate.
Unless first approved in writing by Mortgagee, Mortgagor shall
not (i) impose any restrictive covenants or encumbrances upon the
Real Estate, execute or file any subdivision plot affecting the
Real Estate or consent to the annexation of the Real Estate to
any municipality or (ii) permit or suffer the Real Estate to be
used by the public or any Person in such manner as might make
possible a claim of adverse usage or possession or of any implied
dedication or easement. To the extent allowed by applicable law,
any act or omission by Mortgagor which would result in a
violation of any of the provisions of this Article shall be null
and void.
4 Taxes on Secured Property or Mortgagee.
4.1 If any Governmental Authority shall levy, assess or
charge any tax, assessment, fee or imposition upon this Mortgage
or any other Loan Document, the Secured Indebtedness, the
interest of Mortgagee in the Secured Property, or Mortgagee by
reason of this Mortgage or any other Loan Document, the Secured
Indebtedness or Mortgagee's interest in the Secured Property
(individually a "Tax", and collectively "Taxes") (excepting
therefrom any taxes measured by Mortgagee's net income, and
franchise taxes imposed on it, by the jurisdiction (or any
political subdivision thereof under the laws of which Mortgagee
is organized), Mortgagor shall pay all such Taxes to, for, or on
account of, Mortgagee as they become due and payable and, on
demand, shall furnish proof of such payment to Mortgagee. If
Mortgagor shall fail to so pay any such Tax, then, Mortgagee, at
its option and upon simultaneous notice, may pay any such Tax
and, in such event, the amount so paid (i) shall be deemed to be
Secured Indebtedness, (ii) shall be a Lien on the Secured
Property prior to any right or title to, interest in, or claim
upon, the Secured Property subordinate to the Lien of this
Mortgage, and (iii) immediately shall be due and payable, on
demand, together with interest thereon at the rate of interest
then payable under the Loan Agreement, including, in calculating
such rate of interest, any additional interest which is then
imposed under the Loan Agreement by reason of any Event of
Default thereunder (such rate of interest, the "Interest Rate"),
from the date of any such payment by Mortgagee to the date of
repayment to Mortgagee.
4.2 If any Governmental Authority shall at any time require
revenue, documentary or similar stamps to be affixed to this
Mortgage or any other Loan Document or shall require the payment
of any Taxes with respect to the ownership or recording of this
Mortgage or any other Loan Document, Mortgagor, upon demand,
shall pay for such stamps in the required amount and shall
deliver the same to Mortgagee, together with a copy of the
receipted bill therefor. If Mortgagor shall fail to so pay for
any such stamps, then, Mortgagee, upon simultaneous notice to
Mortgagor, may pay for the same and, in such event, the amount so
paid (i) shall be deemed to be Secured Indebtedness, (ii) shall
be a Lien on the Secured Property prior to any right or title to,
or interest in, or claim upon, the Secured Property subordinate
to the Lien of this Mortgage, and (iii) immediately shall be due
and payable, on demand, together with interest thereon at the
Interest Rate, from the date of any such payment by Mortgagee to
the date of repayment to Mortgagee. Mortgagor shall indemnify
Mortgagee for, and shall hold Mortgagee harmless from and
against, any and all liability which Mortgagee may incur on
account of such revenue, documentary or other similar stamps or
by reason of any Taxes referred to in Paragraph 4.1 hereof,
whether such liability arises before or after payment of the
Secured Indebtedness and whether or not the Lien of this Mortgage
shall have been released.
5 Payment of Impositions.
5.1 Subject to the provisions of Article 10 hereof and
except to the extent the failure to comply with any of the
following is permitted by the Loan Agreement, not later than the
date on which payment of the same shall be due, that is, the day
before the date on which any fine, penalty, interest, late charge
or loss may be added thereto or imposed by reason of the
non-payment thereof, Mortgagor shall pay and discharge all Taxes
(including, but without limiting the generality of the foregoing,
all real property taxes and assessments, personal property taxes,
income, franchise, withholding, profits and gross receipts
taxes), charges for any easement or agreement maintained for the
benefit of the Secured Property or any portion thereof, general
and special assessments and levies, permit, inspection and
license fees, water and sewer rents and charges and any other
charges of every kind and nature whatsoever, foreseen or
unforeseen, ordinary or extraordinary, public or private, which,
at any time, are imposed upon or levied or assessed against
Mortgagor or the Secured Property or any portion thereof, or
which arise with respect to, or in connection with, the use,
manner of use, occupancy, possession, operation, maintenance,
alteration, repair or restoration of the Real Estate or any
portion thereof, together with any penalties, interest or late
charges which may be imposed in connection with any of the
foregoing (all of the foregoing taxes, assessments, levies and
other charges, together with such interest, penalties and late
charges, collectively, "Impositions"). If, however, any Legal
Requirement shall allow that any Imposition may, at Mortgagor's
option, be paid in installments (whether or not interest shall
accrue on the unpaid balance of such Imposition), Mortgagor may
exercise the option to pay such Imposition in such installments
and, in such event, Mortgagor shall be responsible for the
payment of all such installments, together with the interest, if
any, thereon, in accordance with the provisions of the applicable
Legal Requirement. Within five (5) days after a request by
Mortgagee, Mortgagor shall deliver to Mortgagee evidence
acceptable to Mortgage showing the payment of such Imposition.
Mortgagor also shall deliver to Mortgagee, within five (5) days
after a request by Mortgagee, copies of all settlements and
notices pertaining to any imposition that may be issued by any
Governmental Authority.
5.2 Nothing contained in this Mortgage shall affect any
right or remedy of Mortgagee under this Mortgage or otherwise to
pay, upon simultaneous notice, any imposition from and after the
date on which such Imposition shall have become due and payable
and, in such event, the amount so paid (i) shall be deemed to be
Secured Indebtedness, (ii) shall be a Lien on the Secured
Property prior to any right or title to, interest in, or claim
upon, the Secured Property subordinate to the Lien of this
Mortgage, and (iii) shall be immediately due and payable, on
demand; together with interest thereon at the Interest Rate, from
the date of any such payment by Mortgagee to the date of
repayment to Mortgagee.
6 Insurance.
6.1 Mortgagor shall provide and keep in full force and
effect, or require to be provided and kept in full force and
effect, for the benefit of Mortgagee, as hereinafter provided:
A. insurance for the Buildings and the Fixtures
(w) against loss or damage by fire, lightning,
windstorm, tornado, hail and such other further and
additional hazards of whatever kind or nature as are
now or hereafter may be covered by standard extended
coverage "all risk" endorsements (including, but
without limiting the generality of the foregoing, and
specifically, vandalism, malicious mischief and damage
by water) of whatsoever kind, (x) against flood
disaster pursuant to the Flood Disaster Protection Act
of 1973,84 Stat. 572,42 U.S.C. 4001 if the Real Estate
is located in an area identified by the United States
Department of Housing and Urban Development as a flood
hazard area, (y) against loss of rentals and business
interruption due to any of the foregoing causes, and
(z) when and to the extent reasonably required by
Mortgagee, against any other risk insured against by
Persons operating properties similar to the Real Estate
and located in the vicinity of the Real Estate or
operations similar to the operations conducted at the
Real Estate;
B. insurance for demolition and increased cost
of construction coverage;
C. if a sprinkler system shall be located in the
Buildings, sprinkler leakage insurance;
D. comprehensive public liability insurance with
respect to the Real Estate and the operations related
thereto, whether conducted on or off the Real Estate,
against liability for personal injury, including bodily
injury and death, and property damage. Such
comprehensive public liability insurance shall be on an
occurrence basis and shall specifically include, but
not be limited to, sprinkler leakage legal liability
(if a sprinkler shall be located in the Buildings),
water damage legal liability, products liability, motor
vehicle liability for all owned and non-owned vehicles,
including rented and leased vehicles, and contractual
indemnification; and
E. such other insurance in such amounts as may
from time to time be reasonably required by Mortgagee
against such other insurable hazards as at the time are
commonly insured against in the case of properties
similar to the Real Estate and located in the vicinity
of the Real Estate or operations similar to the
operations conducted at the Real Estate.
All insurance provided hereunder shall be in such form and in
such amounts as, from time to time, shall be acceptable to
Mortgagee, in its reasonable discretion, shall name Mortgagee as
a named insured under a standard "noncontributory mortgagee"
endorsement or its equivalent, which shall be reasonably
acceptable to Mortgagee, shall be provided by insurance companies
which have a Best's rating of at least "AXII" and otherwise shall
be acceptable to Mortgagee in its reasonable discretion. In the
event Mortgagor shall receive any Insurance Proceeds, then
Mortgagor shall promptly pay such Insurance Proceeds directly to
Mortgagee in the manner set forth in the Loan Agreement.
Anything contained herein to the contrary notwithstanding, in no
event shall the insurance provided under Paragraph 6.1.A.w hereof
or under Paragraph 6.1.B hereof be in an amount which is less
than One Hundred Percent (100%) of the full replacement cost of
the Buildings and the Fixtures, including the cost of debris
removal, but excluding the value of foundations and excavations,
as reasonably determined from time to time by Mortgagee. Every
policy of insurance referred to in this Paragraph shall contain
an agreement by the insurer that it will not cancel such policy
except alter thirty (30) days prior written notice to Mortgagee
and that any loss payable thereunder shall be payable
notwithstanding any act or negligence of Mortgagor or Mortgagee
which might, absent such agreement, result in a forfeiture of all
or a part of such insurance payment and notwithstanding (A)
occupancy or use of the Secured Property for purposes more
hazardous than permitted by the terms of such policy, (B) any
foreclosure or other action or proceeding taken by Mortgagee
pursuant to this Mortgage upon the happening of an Event of
Default (hereinafter defined) or (C) any change in title or
ownership of the Secured Property. Mortgagor shall assign and
deliver to Mortgagee all such policies of insurance, or duplicate
originals thereof or certificates evidencing the coverage
thereunder. If any insurance required to be provided hereunder
shall expire, be withdrawn, become void by breach of any
condition thereof by Mortgagor or by any lessor under the Ground
Leases or any lessee of the Real Estate or any portion thereof,
or-become void or questionable by reason of the failure or
impairment of the capital of any insurer, or if for any other
reason whatsoever any such insurance shall become unsatisfactory
to Mortgagee in its reasonable discretion, Mortgagor immediately
shall obtain new or additional insurance which shall be
satisfactory to Mortgagee in its reasonable discretion.
Mortgagor shall not take out any separate or additional insurance
which is contributing in the event of loss unless it is properly
endorsed and otherwise satisfactory to Mortgagee in all respects.
6.2 Mortgagor shall (i) pay as they become due all premiums
for the insurance required hereunder, and (ii) not later than
thirty (30) days prior to the expiration of each such policy,
deliver a renewal policy or a duplicate original thereof and a
certificate of insurance indicating that the insurance is then in
effect or accompanied by such other evidence of payment as shall
be satisfactory to Mortgagee in its discretion.
6.3 If Mortgagor shall be in default of its obligation to
so insure or deliver any such-prepaid policy or policies of
insurance to Mortgagee in accordance with the provisions hereof,
Mortgagee, at its option and upon simultaneous notice to
Mortgagor, may effect such insurance from year to year, and pay
the premium or premiums therefor, and, in such event, the amount
of all such premium or premiums (i) shall be deemed to be Secured
Indebtedness, (ii) shall be a Lien on the Secured Property prior
to any right or title to, or interest in, or claim upon, the
Secured Property subordinate to the Lien of this Mortgage, and
(iii) shall be immediately due and payable, on demand, together
with interest thereon at the Interest Rate, from the date of any
such payment by Mortgagee to the date of repayment to Mortgagee.
6.4 At the request of Mortgagee, Mortgagor shall increase
the amount of insurance required to be provided pursuant to the
provisions of Paragraph 6.1.A.w hereof and Paragraph 6.1.B hereof
by using the Factory Mutual Index to determine whether there
shall have been an increase in the replacement cost of the
Buildings and the Fixtures since the most recent adjustment to
any such policy and, if there shall have been any such increase,
the amount of insurance required to be provided hereunder shall
be adjusted accordingly.
6.5 Mortgagor promptly shall comply with, and shall cause
the Buildings and the Fixtures to comply with, (i) all of the
provisions of each such insurance policy, and (ii) all of the
requirements of the insurers thereunder applicable to Mortgagor
or to any of the Buildings or the Fixtures or to the use, manner
of use, occupancy, possession, operation, maintenance,
alteration, repair or restoration of any of the Buildings or the
Fixtures if the failure to comply therewith could foreseeably
permit the insurer to deny coverage or to cancel any insurance
required hereunder, even if such compliance would necessitate
structural changes or improvements or would result in
interference with the use or enjoyment of the Real Estate or any
portion thereof. If Mortgagor shall use the Real Estate or any
portion thereof in any manner which would permit the insurer to
cancel any insurance required to be provided hereunder, Mortgagor
shall obtain prior to the cancellation thereof a substitute
policy which shall be satisfactory to Mortgagee and which shall
be effective on or prior to the date on which any such other
insurance policy shall be cancelled.
6.6 If the Buildings or the Fixtures or any portion thereof
shall be materially damaged, destroyed or injured by fire or any
other casualty (whether insured or uninsured), Mortgagor shall
give prompt notice thereof to Mortgagee.
6.7 In the event of any damage, destruction or injury,
then, if no Event of Default has occurred and is then continuing,
Mortgagee and Mortgagor shall jointly adjust, collect and
compromise all such claims under all policies of insurance and
execute and deliver on behalf of Mortgagor all necessary proofs
of loss, receipts, vouchers and releases required by the
insurers. If any Event of Default shall have occurred and then be
continuing, Mortgagee may, at its option, adjust, collect and
compromise all such claims. If, prior to the payment of any
Insurance Proceeds, the Secured Property or any portion thereof
shall have been sold on foreclosure of this Mortgage, then
Mortgagor shall direct each insurer to pay to Mortgagee the
amount of any deficiency found to be due upon such sale, whether
or not a deficiency judgment on this Mortgage shall have been
sought or recovered or denied, together with interest thereon at
the Interest Rate.
6.8 The insurance required by this Mortgage may, at the
option of Mortgagor, be effected by blanket and/or umbrella
policies issued to Mortgagor covering the Buildings and the
Fixtures as well as other properties (real and personal) which
are owned or leased by Mortgagor, provided that, in each case,
the policies otherwise comply with the provisions of this
Mortgage and allocate to the Buildings and the Fixtures, from
time to time, the coverage specified by Mortgagee, without
possibility of reduction or coinsurance by reason of, or damage
to, any other property (real or personal) named therein. If the
insurance required by this Mortgage shall be effected by any such
blanket or umbrella policies, Mortgagor shall furnish to
Mortgagee original certificates evidencing policies thereof,
with, if requested by Mortgagee, schedules attached thereto
showing the amount of the insurance provided under such policies
which is applicable to the Buildings and the Fixtures.
6.9 Any transfer of the Secured Property, in accordance
with the provisions hereof, including a transfer by foreclosure
or deed in lieu of foreclosure, shall transfer therewith all of
Mortgagor's interest in all property insurance policies then
covering the Buildings and the Fixtures or the operations
conducted at the Real Estate, including, but without limiting the
generality of the foregoing, any unearned premiums.
7 Condemnation/Eminent Domain.
7.1 Mortgagor shall notify Mortgagee promptly upon
obtaining knowledge of the institution of (i) any taking by
eminent domain, condemnation or otherwise of all or any portion
of the Secured Property, or (ii) the change of grade of any
street, road or avenue or the widening of streets, roads or
avenues adjoining or abutting the Land, or (iii) any other,
injury to, or decrease in value of, the Secured Property caused
in any manner by any Governmental Authority (any of the foregoing
events, a "Taking").
7.2 If no Event of Default has occurred and is then
continuing, Mortgagee and Mortgagor shall jointly negotiate and
settle any such proceedings with respect to such a Taking and the
amount of any Award to be made in connection therewith and shall
jointly execute and deliver on behalf of Mortgagor all necessary
proofs of loss, receipts, vouchers and releases required in
connection with any such Taking. If any Event of Default shall
have occurred and then be continuing, then Mortgagee may, at its
option, negotiate and settle such claims. Mortgagor agrees to
execute, upon demand by Mortgagee, all such proofs of loss,
receipts, vouchers and releases and to cooperate with Mortgagee
in connection therewith. Mortgagor shall direct the applicable
Governmental Authority to make payment of any such Award directly
to Mortgagee and Mortgagee is hereby authorized to endorse any
draft therefor as Mortgagor's attorney-in-fact. If, prior to the
payment of any Award, the Secured Property or any portion thereof
shall have been sold on foreclosure of this Mortgage, Borrower
shall direct the applicable Governmental Authority to pay to
Mortgagee the amount of any deficiency found to be due upon such
sale, whether or not a deficiency judgment on this Mortgage shall
have been sought or recovered or denied, together with interest
thereon at the Interest Rate.
8 Sale and Lease of Secured Property. Except to the extent
permitted under the Loan Agreement, Mortgagor shall not, at any
time, without the prior written consent of Mortgagee in each
instance,
8.1 sell, assign, transfer or convey all or any part of the
Secured Property or any interest therein; or
8.2 lease or sublease the Real Estate or any portion
thereof except in accordance with the terms hereof; or
8.3 (i) make any new or additional mortgage, deed of trust
or other loan which is secured by the Secured Property or any
portion thereof (whether superior or junior to the Lien of this
Mortgage and whether recourse or non-recourse) unless such loan
is made by Mortgagee, or (ii) except for the Permitted
Encumbrances and subject to the provisions of Articles 9 and 10
hereof and except for other Liens permitted by the Loan
Agreement, otherwise create, grant, permit or suffer any Lien,
security interest, claim, charge or encumbrance of any kind or
nature whatsoever, whether recorded or unrecorded, against the
Secured Property or any portion thereof.
Mortgagor shall comply with or otherwise perform, keep or
observe, all terms, provisions, conditions, covenants, warranties
and representations contained in any mortgage that is subordinate
to this Mortgage and shall not permit or suffer a default under
any such mortgage or deed of trust.
9 Liens. Subject to the provisions of Article 10 hereof,
Mortgagor at all times shall keep the Secured Property free from
any and all "Liens" (which term shall hereinafter have the
meaning ascribed thereto in the Loan Agreement) except as
permitted under the Loan Agreement and except for the Permitted
Encumbrances.
10 Right of Contest. Mortgagor, at its sole cost and expense,
may, in good faith, contest, by proper legal actions or
proceedings, the validity of any Legal Requirement or the
application thereof to Mortgagor or the Secured Property, or the
validity or amount of any Imposition or the validity of the
claims of any mechanics, laborers, subcontractors, contractors or
materialmen ("Contractor's Claims"). During the pendency of any
such action or proceeding, compliance with such contested Legal
Requirement or payment of such contested Imposition or payment of
such contested Contractor's Claim may be deferred provided that,
in each case, at the time of the commencement of any such action
or proceeding, and during the pendency of such action or
proceeding (a) no Event of Default shall exist hereunder and no
other event shall have occurred which, with the giving of notice
or lapse of time, or both, would constitute an Event of Default
hereunder, (b) adequate reserves with respect thereto are
maintained on Mortgagor's books in accordance with GAAP (as
defined in the Loan Agreement) and the applicable provisions of
the Loan Agreement, (c) such contest operates to suspend
enforcement of compliance with the contested Legal Requirement or
collection of the contested Imposition or collection or
enforcement of such contested Contractor's Claim, (d) during the
pendency of such action or proceeding, Mortgagor is able to make
full use and benefit of the Secured Property and (e) such contest
is maintained and prosecuted continuously and with diligence,
notwithstanding any such reserves, Mortgagor promptly shall
comply with any contested Legal Requirement or shall pay any
contested Imposition or Contractor's Claim, and compliance
therewith or payment thereof shall not be deferred, if, at any
time, the Secured Property or any portion thereof shall be, in
Mortgagee's judgment, in danger of being forfeited or lost by
reason of any such contest or Mortgagor's non-compliance with any
such Legal Requirement or non-payment of any such Imposition or
Contractor's Claim and such claim has or could foreseeably have a
Material Adverse Effect (as defined in the Loan Agreement) on the
Borrower and its Subsidiaries (as defined in the Loan Agreement)
taken as one enterprise. If such action or proceeding is
terminated or discontinued adversely to Mortgagor, Mortgagor,
upon demand, shall deliver to Mortgagee evidence satisfactory to
Mortgagee, in its reasonable discretion, of Mortgagor's
compliance with such contested Legal Requirement or payment of
such contested Imposition or Contractor's Claim, as the case may
be.
11 Leases and Ground Leases.
11.1. Leases.
A. Mortgagor has no right or power, as against
Mortgagee, without the prior written consent of
Mortgagee, to enter into any Lease affecting the
Secured Property, except as permitted under the Loan
Agreement.
B. Each Lease hereinafter entered into by
Mortgagor shall (i) by its express terms not permit the
lessee thereunder to terminate or invalidate the terms
of its Lease as a result of any action taken by
Mortgagee to enforce this Mortgage either by
foreclosure, or acceptance of a deed in lieu of
foreclosure, or by resort to any other rights or
remedies available to Mortgagee hereunder or at law or
in equity, (ii) include a subordination clause
providing that the Lease and the interest of the lessee
thereunder in the Secured Property are in all respects
subject and subordinate to this Mortgage, (iii) provide
that, at the option of Mortgagee or the purchaser at a
foreclosure sale or the grantee in a voluntary
conveyance in lieu of foreclosure, the lessee
thereunder shall attorn to Mortgagee or to such
purchaser or grantee under all of the terms of the
Lease and recognize such entity as the lessor under the
Lease for the balance of the term of the Lease, and
(iv) provide that, in the event of the enforcement by
Mortgagee of the rights and remedies provided by law or
in equity or by this Mortgage, any Person succeeding to
the interest of Mortgagee as a result of such
enforcement shall not be bound by any prepayment of
installments of rent for more than thirty (30) days in
advance of the time when the same shall become due,
except for security deposits not in excess of three
months' rent, or by any amendment, modification,
extension, cancellation or renewal of the Lease made
without the prior written consent of Mortgagee.
C. As to all Leases, Mortgagor shall (i)
promptly perform all of the provisions of the Leases on
the part of the lessor thereunder to be performed, (ii)
promptly enforce all of the provisions of the Leases on
the part of the lessees thereunder to be performed,
(iii) refrain from taking any action that would result
in the termination of the Lease by any lessee
thereunder or the diminution of the Rents thereunder,
(iv) appear in and prosecute or defend any action or
proceeding arising under, growing out of, or in any
manner connected with, the Leases or the obligations of
the lessor or the lessees thereunder, as the case may
be, (v) exercise, within five (5) days after demand by
Mortgagee, any right to request from the lessee under
any Lease a certificate with respect to the status
thereof, (vi) deliver to Mortgagee, within twenty (20)
days after demand by Mortgagee, a written statement
containing the names of all lessees, the terms of all
Leases and the spaces occupied and rentals payable
thereunder and a statement of all Leases which are then
in default, including the nature and magnitude of any
such default and (vii) provide Mortgagee with a copy of
each notice of default received by Mortgagor under any
Lease immediately upon receipt thereof and deliver to
Mortgagee a copy of each notice of material default
sent by Mortgagor under any Lease simultaneously with
its delivery of such notice under such Lease, and
(viii) promptly deliver to Mortgagee a copy of any
Lease. Notwithstanding the foregoing, Mortgagor shall
not be required to perform any of the actions described
in clauses (i) through (iv) of this paragraph if the
failure to do so would not cause a Material Adverse
Effect (as defined in the Loan Agreement).
D. Mortgagor hereby assigns to Mortgagee, from
and after the date hereof (including any period allowed
by law for redemption after any foreclosure or other
sale), primarily, on a parity with the Secured
Property, and not secondarily, as further security for
the payment of the Secured Indebtedness and the
performance of the Secured Obligations, the Leases and
the Rents. Nothing contained in this Article shall be
construed to bind Mortgagee to the performance of any
of the terms, covenants, conditions or agreements
contained in any Lease or otherwise impose any
obligation on Mortgagee (including, but without
limiting the generality of the foregoing, any liability
under the covenant of quiet enjoyment contained in any
Lease in the event that any lessee shall have been
joined as a party defendant in any action to foreclose
this Mortgage or commenced by reason of an Event of
Default hereunder or in the event any lessee shall have
been barred and foreclosed of any or all right, title
and interest and equity of redemption in the Secured
Property), except that Mortgagee shall be accountable
for any money actually received pursuant to the
aforesaid assignment. Mortgagor hereby further grants
to Mortgagee the right, but not the obligation,
following the occurrence and during the continuation of
an Event of Default (i) to enter upon and take
possession of the Real Estate for the purpose of
collecting the Rents, (ii) to dispossess by the usual
summary proceedings any lessee defaulting in making any
payment due under any Lease to Mortgagee or defaulting
in the performance of any of its other obligations
under its Lease, (iii) to let the Real Estate or any
portion thereof, (iv) to apply the Rents on account of
the Secured Indebtedness, and (v) to perform such other
acts as Mortgagee is entitled to perform pursuant to
this Article. Such assignment and grant shall continue
in effect until this Mortgage terminates in accordance
with the terms hereof, the execution of this Mortgage
constituting and evidencing the irrevocable consent of
Mortgagor to the entry upon and taking possession of
the Real Estate by Mortgagee following the Occurrence
and during the continuation of an Event of Default
pursuant to such grant, whether or not an action to
foreclose this Mortgage has been instituted and without
applying for a receiver. Mortgagee, however, grants to
Mortgagor, not as a limitation or condition hereof, but
as a personal covenant available only to Mortgagor and
its successors and not to any lessee or other Person, a
license, revocable upon five (5) days' written notice
to Mortgagor following and during the continuation of
an Event of Default, to collect all of the Rents and to
retain, use and enjoy the same, unless an Event of
Default shall exist hereunder or, unless any event
shall have occurred which, with the giving of notice or
the lapse of time, or both, would constitute an Event
of Default hereunder or, at Mortgagee's option, for any
other reason whatsoever.
E. Mortgagor shall receive the Rents as set
forth in Section 11.4 hereof and shall hold the Rents
as a fund to be applied first to the payment of the
Impositions and then to the payment of insurance
coverages required under Article 6 hereof before
applying any portion of the same to other purposes.
F. Upon notice and demand, Mortgagor shall, from
time to time, execute, acknowledge and deliver to
Mortgagee, or shall cause to be executed, acknowledged
and delivered to Mortgagee, in form reasonably
satisfactory to Mortgagee, one or more separate
assignments (confirmatory of the general assignment
provided in this Article) of the lessor's interest in
any Lease, and shall pay to Mortgagee the reasonable
expenses incurred by Mortgagee in connection with the
preparation and recording of any such instrument, a as
provided in the Loan Agreement.
11.2 Ground Leases.
A. Mortgagor will not do or omit to do any act
or thing which could impair the security of this
Mortgage with respect to Mortgagor's leasehold estate
under the Ground Leases.
B. Mortgagor (i) shall comply with the
provisions of the Ground Leases, (ii) shall give
immediate written notice to Mortgagee of any default by
the lessor under the Ground Leases or of any notice
received by Mortgagor from such lessor of any default
under a Ground Lease by Mortgagor, (iii) shall give
immediate written notice to Mortgagee of the
commencement of any remedial proceedings under the
Ground Leases by any party thereto and, if required by
Mortgagee, shall permit Mortgagee as Mortgagor's
attorney-in-fact to control and act for Mortgagor in
any such remedial proceedings and (iv) shall within
thirty (30) days after reasonable request by Mortgagee
obtain from the lessor under the Ground Leases and
deliver to Mortgagee the lessor's estoppel certificate
required thereunder, if any. The Mortgagor hereby
expressly transfers and assigns to Mortgagee the
benefit of all covenants contained in the Ground
Leases, whether or not such covenants run with the
land, but Mortgagee shall have no liability with
respect to such covenants nor any other covenants
contained in the Ground Leases.
C. Mortgagor shall not surrender the leasehold
estate and interests herein conveyed nor terminate or
cancel the Ground Leases creating said estate and
interests, and the Mortgagor shall not, without the
express written consent of Mortgagee alter or amend any
Ground Lease. The Mortgagor agrees that there shall
not be a merger of the Ground Lease, or of the
leasehold estate created thereby, with the fee estate
covered by the Ground Lease by reason of the leasehold
estate or the fee estate, or any part of either, coming
into common ownership, unless Mortgagee shall consent
in writing to such merger. In the event Mortgagor
shall acquire fee title to all or any portion of such
Real Estate, this Mortgage shall further constitute a
mortgage with respect to such fee interest or estate of
Mortgagor in such Real Estate, upon the terms provided
for herein without any amendment to or modification of
this Mortgage being required. In such event,
notwithstanding the fact that the provisions hereof
shall be self-executing, Mortgagor agrees, immediately
upon the written request of Mortgagee, to execute any
amendment to this Mortgage or any additional mortgage
or other agreement or instrument with respect to said
Real Estate to further evidence and effect the
existence of a valid mortgage in favor of Mortgagee
with respect to Mortgagor's fee interest in all or any
portion of said Real Estate, the form and content of
any such amendment, mortgage or other instrument not
inconsistent with the terms of this Mortgage to be
approved by Mortgagee.
D. Mortgagee represents, covenants and warrants
that: (i) each Ground Lease is in full force and
effect and unmodified except as hereinbefore provided;
(ii) that all rents reserved in the Ground Leases have
been paid to the extent they were payable prior to the
date hereof; and (iii) that there is no existing
default under the provisions of the Ground Leases or in
the performance of the Ground Leases on the part of the
Mortgagor to be observed or performed.
12 Loan Document Expenses. Subject to the provisions of
Article 10 hereof, Mortgagor shall pay, together with any
interest or penalties imposed in connection therewith, all
reasonable expenses of Mortgagee incident to the preparation,
execution, acknowledgement, delivery and/or recording of this
Mortgage and the other Loan Documents, including, but without
limiting the generality of the foregoing, all filing,
registration and recording fees and charges, documentary stamps,
intangible taxes and all Federal, State, county and municipal
taxes, duties, imposts, assessments and charges now or hereafter
required by reason of, or in connection with, this Mortgage or
any other Loan Document.
13 Mortgagee's Right to Perform. In the event and for so long
as an Event of Default shall be continuing hereunder and upon
simultaneous notice to Mortgagor, Mortgagee may (but shall be
under no obligation to), at any time perform the Secured
Obligations, without waiving or releasing Mortgagor from any
Secured Obligations or any Event of Default under this Mortgage,
and, in such event, the reasonable cost thereof, including, but
without limiting the generality of the foregoing, reasonable
attorneys' fees, costs and disbursements incurred the connection
therewith (a) shall be deemed to be Secured Indebtedness, and (b)
shall be payable, promptly on demand, together with interest
thereon at the Interest Rate (except in the case of items under
clause (e) of Section 14 prior to any Event of Default), from the
date of any such payment by Mortgagee to the date of repayment to
Mortgagee. No payment or advance of money by Mortgagee pursuant
to the provisions of this Article shall cure, or shall be deemed
or construed to cure, any such Event of Default by Mortgagor
hereunder or waive any rights or remedies of Mortgagee hereunder
or at law or in equity by reason of any such Event of Default.
14 Mortgagee's Costs and Expenses. If (a) upon the occurrence
and during the continuance of any Event of Default, or (b)
Mortgagee shall exercise any of its rights or remedies hereunder,
or (c) any action or proceeding is commenced in which it becomes
necessary to defend or uphold the Lien or priority of this
Mortgage or any action or proceeding is Commenced to which
Mortgagee is or becomes a party, or (d) the taking, holding or
servicing of this Mortgage by Mortgagee is alleged to subject
Mortgagee to any civil or criminal fine or penalty, or (e)
Mortgagee's review and approval of any document, including, but
without limiting the generality of the foregoing, any Lease, is
requested by Mortgagor or required by Mortgagee, then, in any
such event, all actual reasonable costs, expenses and fees
incurred by Mortgagee in connection therewith (including, but
without limiting the generality of the foregoing, any civil or
criminal fines or penalties and reasonable attorneys' fees, costs
and disbursements) (i) shall be deemed to be Secured
Indebtedness, and (ii) shall be payable, promptly on demand,
together with interest thereon at the Interest Rate (except that
no interest shall be payable in the case of items incurred under
clause (e) of this paragraph prior to any Event of Default), from
the date of any such payment by Mortgagee to the date of
repayment to Mortgagee. In any action to foreclose this Mortgage
or to recover or collect the Secured Indebtedness or any portion
thereof, the provisions of this Article with respect to the
recovery of costs, expenses, disbursements and penalties shall
prevail unaffected by the provisions of any Legal Requirement
with respect to the same to the extent that the provisions of
this Article are not inconsistent therewith or violative thereof.
15 Defaults. The occurrence of any Event of Default (as defined
in the Loan Agreement) under the Loan Agreement (regardless of
the reason therefor), shall constitute a default ("Event of
Default") hereunder.
16 Remedies.
16.1 Upon the occurrence of any Event of Default hereunder,
Mortgagee may, without notice, presentment, demand or protest,
all of which are hereby expressly waived by Mortgagor to the
extent permitted by applicable law, take such action to protect
and enforce its rights in and to the Secured Property, including,
but without limiting the generality of the foregoing, the
following actions, each of which may be pursued concurrently or
otherwise, at such time and in such manner as Mortgagee may
determine, without impairing or otherwise affecting the other
rights and remedies of Mortgagee hereunder or at law or in
equity:
A. Mortgagee may declare the entire
amount of the Secured Indebtedness immediately due
and payable. Thereupon, all of the other Secured
Obligations also shall become immediately due and
payable.
B. Mortgagee may, without releasing
Mortgagor from any Secured Obligation or Secured
Indebtedness under this Mortgage or any other Loan
Document and without waiving any Event of Default,
exercise any of its rights and remedies under
Article 13 hereof.
C. Mortgagee may (w) institute and
maintain an action of mortgage foreclosure against
any of the Secured Property and against any of the
property subject to any of the Additional
Mortgages, (x) institute and maintain an action
with respect to the Secured Property under any
other Loan Document, or (y) take such other action
as may be allowed at law or in equity for the
enforcement of this Mortgage, the Additional
Mortgages and the other Lean Documents. Mortgagee
may proceed in any such action to final judgment
and execution thereon for the whole of the Secured
Indebtedness, together with interest thereon at
the Interest Rate, from the date on which
Mortgagee shall declare the same to be due and
payable to the date of repayment to Mortgagee, and
all costs of any such action, including, but
without limiting the generality of the foregoing,
reasonable attorneys' fees, costs and
disbursements.
D. Mortgagee may sell the Secured
Property at public outcry to the highest bidder
for cash in front of the courthouse door in the
county where the Secured Property is located,
either in person or by auctioneer, after having
first given notice of the time, place and terms of
sale by publication once a week for three (3)
successive weeks prior to said sale in some
newspaper published in said county. Upon payment
of the purchase money, the Mortgagee or any person
conducting the sale for the Mortgagee is
authorized to execute to the purchaser at said
sale an assignment of Mortgagor's leasehold estate
under any Ground Lease, or a deed to the Real
Estate if then owned in fee by Mortgagor. The
Mortgagee may bid at said sale and purchase said
property or any part thereof if the highest bidder
therefor. At any foreclosure sale the Secured
Property may be offered for sale and sold as a
whole without first offering it in any other
manner or may be offered for sale and sold in any
other manner the Mortgagee may elect in its sole
discretion.
E. Mortgagee may, without releasing
Mortgagor from any Secured Obligation or Secured
Indebtedness, and without waiving any Event of
Default, enter upon and take possession of the
Real Estate or any portion thereof, either
personally or by its agents, nominees or
attorneys, and dispossess Mortgagor and its agents
and servants therefrom and, thereupon, Mortgagee
may (x) subject to lease rights in favor of third
parties to the extent permitted by the Loan
Agreement, use, manage and operate the Real
Estate, and (y) exercise all rights and powers of
Mortgagor with respect to the Secured Property,
either in the name of Mortgagor or otherwise,
including, but without limiting the generality of
the foregoing, the right to make, cancel, enforce
or modify Leases, obtain and evict lessees. After
deduction of all actual costs and expenses of
operating and managing the Real Estate, including,
but without limiting the generality of the
foregoing, reasonable attorneys' fees, costs and
disbursements, administration expenses, management
fees and brokers' commissions, satisfaction of
Liens on any of the Secured Property, payment of
Impositions, claims and Insurance Premiums,
invoices of Persons who may have supplied goods
and services to or for the benefit of any of the
Secured Property and all costs and expenses of the
maintenance, repair, restoration, alteration or
improvement of any of the Secured Property,
Mortgagee shall apply the Rents received by
Mortgagee to payment of the Secured Indebtedness
or performance of the Secured Obligations.
Mortgagee shall apply the Rents received by
Mortgagee as provided in Section 16.2 hereof.
Mortgagee may, in its sole discretion, determine
the method by which, and extent to which, the
Rents will be collected and the obligations of the
lessees under the Leases enforced and Mortgagee
may waive or fail to enforce any right or remedy
of the lessor under any Lease.
16.2 In the case of a sale either pursuant to an order,
decree or judgment of foreclosure or by power-of-sale as herein
provided, the Real Estate may, at Mortgagee's election, be sold
in one (1) or more parcels. Mortgagee shall receive the proceeds
of any such sale and shall apply the proceeds of such sale as
follows, in the following order:
First, to all costs, fees, charges and expenses
recurred by Mortgagee and its counsel in connection with any
Event of Default hereunder, the exercise of any of the rights and
remedies of Mortgagee hereunder and any such sale, including,
without limitation, attorneys' fees, costs and disbursements, all
expenses of such sale, or pursuant to Section 4.2 hereof,
including publication costs, stenographic charges, title searches
and title insurance premiums, surveys, guarantee policies, and
transfer taxes and recording fees and charges;
Second, to the payment of all sums expended by
Mortgagee under the terms of this Mortgage and not yet repaid,
together with interest thereon at the Interest Rate.
Third, to the payment of the Term Loan Obligations,
including all accrued and unpaid interest due under the Loan
Agreement with respect to the Term Loan.
Fourth, to the payment of all other unpaid Secured
Obligations, whether due or to become due, in whatever order and
proportion to the Mortgagee may elect, in its sole discretion.
Fifth, the remainder, if any, to the Persons appearing
of record to be the owner of the Secured Property sold.
16.3 Mortgagor shall bear all expenses, including without
limitation reasonable attorneys' fees, costs and
disbursements, of or incidental to, enforcement of any provision
of this Mortgage or the Secured Indebtedness and for the
compromise, curing, defending or asserting any provision, right
or claim with respect thereto, by litigation or otherwise.
16.4 Mortgagee, in any action to enforce this Mortgage,
shall be entitled to the appointment of a receiver.
16.5 The remedies and rights granted to Mortgagee hereunder
are cumulative and are not in lieu of, but are in addition to,
and shall not be affected by the exercise of, any other remedy or
right available to Mortgagee whether now or hereafter existing
either at law or inequity or under this Mortgage or any other
Loan Document.
16.6 Except as otherwise provided herein, any sale of the
Secured Property pursuant to this Mortgage, without further
notice, shall create the relation of landlord and tenant at
sufferance between the Purchaser and Mortgagor or any Person
holding possession of the Real Estate through Mortgagor, and upon
failure of Mortgagor or such Person to surrender possession
thereof immediately, Mortgagor, or such Person may be removed by
an action for unlawful detainer by the purchaser, in any court
having venue.
16.7 Mortgagor shall indemnify and hold Mortgagee harmless
and defend it from any loss, liability, cost and expense
(including without limitation attorneys' fees and disbursements)
and all claims, actions, proceedings and suits arising out of, or
in connection with, any lawful action by Mortgagee to enforce
this Mortgage or any Loan Document, whether or not any action,
proceeding or suit is filed, except where such loss, liability,
cost, expense, claim, action, proceeding or suit is caused by or
resulting from the gross negligence or willful misconduct of
Mortgagee as determined by a court of competent jurisdiction in a
final non-appealable judgment or order, but in no event shall
Mortgagor be liable for any exemplary or punitive damages to the
extent permitted by applicable law.
17 Security Agreement under Uniform Commercial Code.
A. Mortgagor hereby grants to Mortgagee a
security interest in all of the Secured Property
(including, without limitation, the Fixtures) and in
Mortgagor's present and future "equipment" and "general
intangibles" as said quoted terms are defined in the
Uniform Commercial Code of the State of Alabama (the
"Code") and Mortgagee shall have, in addition to all
rights and remedies provided herein, and in any other
agreements made between Mortgagor and Mortgagee, all of
the rights and remedies of a "secured creditor" under
the Code. To the extent permitted under applicable
law, this Mortgage shall be deemed to be a "security
agreement" as defined in said Code.
B. Notwithstanding the filing of a financing
statement covering any of the mortgaged Property in the
records normally pertaining to personal property, all
of the Mortgaged Property, for all purposes and in all
proceedings, legal or equitable, shall be regarded, at
Mortgagee's option legal or equitable, shall be
regarded, at Mortgagee's option to the extent permitted
by law), as part of the Real Estate whether or not any
such item is physically attached to the Real Estate or
serial numbers are used for the better identification
of certain items. The mention in any such financing
statement of any item of the Mortgaged Property shall
not be construed as in any way derogating from or
impairing this declaration and hereby stated intention
of the parties. Pursuant to the provisions of the
Code, Mortgagor hereby authorizes Mortgagee, without
the signature of Mortgagor, to execute and file
financing and continuation statements if Mortgagee
shall determine in its sole discretion, that such are
necessary or advisable in order to perfect its security
interest in the Secured Property and Fixtures covered
by this Mortgage, and Mortgagor shall pay to Mortgagee,
upon demand, any reasonable expenses incurred by
Mortgagee in connection with the preparation,
execution, and filing of such statements that may be
filed by Mortgagee.
C. Certain of the Secured Property and Fixtures
are or may become fixtures related to the Real Estate,
and with respect thereto this Mortgage shall be
effective as a financing statement filed on a fixture
filing from the date of its filing in the real estate
records of the county wherein the Real Estate is
located. For purposes hereof, Mortgagor is the
"Debtor" and Mortgagee is the "Secured Party," and the
addresses of both are as set forth above. A
photographic or other reproduction of this Mortgage
shall be sufficient as a financing statement and may be
filed as a financing statement with any filing officer
as deemed necessary or desirable by Mortgagee.
Information concerning the security interest created by
this instrument may be obtained from the Mortgagee, as
Secured Party, at the address set forth above.
18 Additional Representations and Warranties. Mortgagor
represents and warrants that: (a) Mortgagor is qualified to do
business in the State in which the Secured Property is located;
(b) on the date hereof, no portion of the Buildings or the
Fixtures have been damaged, destroyed or injured by fire or other
casualty which is not now fully restored; (c) Mortgagor has all
necessary licenses, authorizations, registrations and approvals
to own, use, occupy and operate the Real Estate and has full
power and authority to carry on its business at the Real Estate
as currently conducted and has not received any notice of any
violation of any Legal Requirement; (d) as of the date hereof,
Mortgagor has not received any notice of any Taking of the
Secured Property or any portion thereof and Mortgagor has no
knowledge that any such Taking is contemplated; (e) Mortgagor is
a business and commercial organization, and the transaction
reflected in, and effectuated by, the Loan Documents is made
solely to acquire or to carry on business and commercial
enterprise; and (f) at the date hereof there are no Leases
affecting the Real Estate or any portion thereof, other than as
identified on Exhibit A.
19 No Waivers, Etc. A failure by Mortgagee to insist upon the
strict performance by Mortgagor of any of the terms and
provisions of this Mortgage shall not be deemed to be a waiver of
any of the terms, covenants, conditions and provisions hereof and
Mortgagee, notwithstanding any such failure, shall have the right
thereafter to insist upon the strict performance by Mortgagor of
any and all of the terms, covenants, conditions and provisions of
this Mortgage to be performed by Mortgagor. Mortgagee may
release, regardless of consideration and without the necessity
for any notice to or consent by the holder of any subordinate
Lien on the Secured Property, any part of the security held for
payment of the Secured Indebtedness or any portion thereof or for
the performance of the Secured Obligations secured by this
Mortgage without, as to the remainder of the security, in any
manner whatsoever, impairing or affecting the Lien of this
Mortgage or the priority of the Lien of this Mortgage over any
subordinate Lien. Mortgagee may resort for the payment of the
Secured Indebtedness secured by this Mortgage to any other
security therefor held by Mortgagee in such order and manner as
Mortgagee may elect.
20 Additional Rights. Upon confirmation of a sale pursuant to
any order, decree or judgment of foreclosure of this Mortgage,
the appropriate governmental officer making such sale, or his
successor in office, shall be and is hereby authorized
immediately to execute and deliver to the purchaser at such sale,
a deed, assignment or appropriate document conveying the Secured
Property to such purchaser. To the extent allowed by applicable
law, upon the execution of such deed, assignment or appropriate
document, the recitals therein of facts such as the terms of the
sale, the sale, the purchase, payment of purchase money and other
facts affecting the regularity or validity of such sale shall,
absent manifest error, be conclusive proof of the truthfulness
thereof, that such sale was regularly and validly made, and any
such deed, assignment or appropriate document shall be conclusive
against all persons as to all matters and facts recited therein.
21 Waivers by Mortgagor.
21.1 To the extent allowed by applicable law, Mortgagor
hereby waives errors and imperfections in any proceedings
instituted by Mortgagee under this Mortgage, the Loan Agreement
or any other Loan Document and all benefit of any present or
future statute of limitations or any other present or future
statute, law, stay, moratorium, appraisal or valuation law,
regulation or judicial decision which, nor shall Mortgagor at any
time insist upon or plead, or in any manner whatsoever, claim or
take any benefit or advantage of any such statute, law, stay,
moratorium, regulation or judicial decision which (i) provides
for the valuation or appraisal of the Secured Property prior to
any sale or sales thereof which maybe made pursuant to any
provision herein or pursuant to any decree, judgment or order of
any court of competent jurisdiction, (ii) exempts any of the
Secured Property or any other property, real or personal, or any
part of the proceeds arising from any sale thereof, from
attachment, levy or sale under execution, (iii) provides for any
stay of execution, moratorium, marshalling of assets, exemption
from civil process, redemption or extension of time for payment,
(iv) requires Mortgagee to institute proceedings in mortgage
foreclosure against the Secured Property before exercising any
other remedy afforded Mortgagee hereunder in the event of an
Event of Default, (v) affects any of the terms, covenants,
conditions or provisions of this Mortgage, or (vi) conflicts with
or may affect, in a manner which may be adverse to Mortgagee, any
provision, covenant, condition or term of this Mortgage, the Loan
Agreement or any other Loan Document, nor shall Mortgagor at any
time alter any sale or sales of the Secured Property pursuant to
any provision herein, including, but without limiting the
generality of the foregoing, after any sale pursuant to a
judgment of foreclosure, claim or exercise any right under any
present or future statute, law, stay, moratorium, regulation or
judicial decision to redeem the Secured Property or the portion
thereof so sold.
21.2 To the extent allowed by applicable law, Mortgagor
hereby waives the right, if any, to require any sale to be made
in parcels, or the right, if any, to select parcels to be sold,
and there shall be no requirement for marshalling of assets.
22 Not Joint Venture or Partnership. Mortgagor and Mortgagee
intend that the relationship created hereunder be solely that of
mortgagor and mortgagee or borrower and lender, as the case may
be. Nothing herein is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship
between Mortgagor and Mortgagee nor to grant Mortgagee any
interest in the Secured Property other than that of mortgagee or
lender.
23 Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon either
Mortgagor or Mortgagee, or whenever either Mortgagor or Mortgagee
shall desire to give or serve upon the other any such
communication with respect to this Mortgage or the Secured
Property, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall
be delivered in the manner and at the addresses of the parties
set forth in the Loan Agreement.
24 Inconsistency with the Loan Documents. Unless this Mortgage
expressly provides otherwise, if there shall be any
inconsistencies between the terms, covenants, conditions and
provisions set forth in this Mortgage and the terms, covenants,
conditions and provisions set forth in the Loan Agreement, then
the terms, covenants, conditions and provisions of the Loan
Agreement shall prevail.
25 No Modification: Binding Obligations. This Mortgage may not
be modified, amended, discharged or waived in whole or in part
except by an agreement in writing signed by Mortgagor and
Mortgagee. The covenants of this Mortgage shall run with the Land
and shall bind Mortgagor and the heirs, distributees, personal
representatives, successors and assigns of Mortgagor and all
present and subsequent encumbrances, lessees and subleases of any
of the Secured Property and shall inure to the benefit of
Mortgagee and its respective successors, permitted assigns and
endorsees.
26 Miscellaneous. The Article headings in this Mortgage are
used only for convenience and are not part of this Mortgage and
are not to be used in determining the intent of the parties or
otherwise in interpreting this Mortgage. As used in this
Mortgage, the singular shall include the plural as the context
requires and the following words and phrases shall have the
following meanings: (a) "provisions" shall mean "provisions,
terms, covenants and/or conditions"; (b) "obligation" shall mean
"obligation, duty, covenant and/or condition"; (c) "any of the
Secured Property" shall mean "the Secured Property or any portion
thereof or interest therein"; and (d) "Person" shall have the
meaning ascribed thereto in the Loan Agreement. Any act which
Mortgagee is permitted to perform under this Mortgage, the Loan
Agreement or any other Loan Document may be performed at any time
and from time to time by Mortgagee or by any Person or entity
designated by Mortgagee. Any act which is prohibited to Mortgagor
under this Mortgage, the Loan Agreement or any other Loan
Document is also prohibited to all lessees of any of the Secured
Property. Each appointment of Mortgagee as attorney-in-fact for
Mortgagor under this Mortgage, the Loan Agreement or any other
Loan Document shall be irrevocable and coupled with an interest.
27 Enforceability. This Mortgage shall be governed by, and
construed in accordance with, the laws of the State in which the
Secured Property is located without regard to principles of
conflicts of laws, except that the laws of the State of
California shall govern the resolution of issues arising under
the Loan Agreement to the extent that such resolution is
necessary to the interpretation of this Mortgage. Whenever
possible, each provision of this Mortgage shall be interpreted in
such manner as to be effective and valid under applicable law,
but if any provision of this Mortgage shall be prohibited by or
invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without
invalidating the remaining provisions of this Mortgage. Nothing
in this Mortgage or in any other Loan Documents shall require
Mortgagor to pay, or Mortgagee to accept, interest in an amount
which would subject Mortgagee to penalty under applicable law. In
the event that the payment of any interest due hereunder or under
any of the other Loan Documents or a payment which is deemed
interest, exceeds the maximum amount payable as interest under
the applicable usury laws, such excess amount shall be applied to
the reduction of the Secured Indebtedness, and upon payment in
full of the Secured Indebtedness, shall be applied to the
performance of the Secured Obligations, and upon performance in
full of the Secured Obligations, shall be deemed to be a payment
made by mistake and shall be refunded to Mortgagor.
28 Receipt of Copy. Mortgagor acknowledges that it has received
a true copy of this Mortgage.
29 Termination of Security Interest. This Mortgage, and the
security interests created or granted hereby shall automatically
terminate and be of no further force and effect on the earlier of
(a) the date on which (i) all Secured Obligations, accrued or
matured interest and fees, and other accrued and payable monetary
Secured Obligations have been paid (subject to reinstatement in
accordance with the Loan Agreement), and (ii) the termination,
payment in full or cash collateralization of all outstanding
Letters of Credit (as defined in the Loan Agreement) in full to
the reasonable satisfaction of the Mortgagee, at which time
Mortgagee (without recourse upon, or any warranty whatsoever by,
Mortgagee) shall execute and deliver to Mortgagor, for recording
in each office in which this Mortgage shall have been recorded,
an instrument releasing this Mortgage and such other documents
and instruments necessary to terminate any security interest of
Mortgagee granted hereby as Mortgagor may reasonably request, all
without recourse upon, or warranty whatsoever by, Mortgagee,
except that the same shall be free and clear of any claims, Liens
or encumbrances created by or in respect of Mortgagee, and at the
cost and expense of Mortgagor.
29.1 MORTGAGOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be
duly executed and acknowledged under seal the day and year first
above written.
INTERGRAPH CORPORATION,
Mortgagor
By:
Name: /s/ Larry J. Laster
----------------------
Title: EVP
------------------
STATE OF _______________ )
COUNTY OF ______________ )
I, the undersigned Notary Public in and for said County, in
said State, hereby certify that ____________________, whose name
as _______________ of Intergraph Corporation, a Delaware
corporation, is signed to the foregoing instrument and who is
known to me, acknowledged before me on this day that, being
informed of the contents of said instrument, _____ as such
officer and with full authority, executed the same voluntarily
for and as the act of said corporation on the day the same bears
date.
Given under my hand and official seal, this _____ day of
_______________, 1997.
______________________________
Notary Public
My Commission Expires:
______________________________
EXHIBIT "A"
TRACT I
-------
(Foothill)
All that part of Sections 21, 27, 28 and 33, Township 4 South,
Range 2 West of the Huntsville Meridian, Madison County, Alabama.
Particularly described as beginning at a concrete monument at the
center of the East boundary of Section 21, Township 4 South,
Range 2 West; thence from the point of true beginning, South 01
degrees 24 minutes 39 seconds West 2657.77 feet to a concrete
monument at the Southeast corner of said Section 21; thence South
01 degree 31 minutes 20 seconds West, 1204.68 feet to a concrete
monument; thence South 88 degrees 46 minutes 04 seconds East,
1259.91 feet to a concrete monument; thence South 18 degrees 56
minutes 51 seconds East, 140.57 feet to a concrete monument;
thence South 88 degrees 25 minutes 56 seconds East, 2.83 feet to
a concrete monument at the Northeast corner of the Southwest
Quarter of the Northwest Quarter of Section 27, Township 4 South,
Range 2 West; thence along the East boundary of said Quarter-
Quarter Section, South 01 degrees 51 minutes 00 seconds West,
1329.29 feet to a concrete monument at the Southeast corner of
the Southwest Quarter of the Northwest Quarter of said Section
27; thence along the Quarter-Section line, South 88 degrees 24
minutes 49 seconds East, 2132.29 feet to a concrete monument at
the Northwest corner of a Huntsville Utilities lot; thence along
the west boundary of said lot, South 01 degrees 35 minutes 11
seconds West, 250.00 feet to a concrete monument; thence South 88
degrees 24 minutes 49 seconds East, 230.00 feet to a concrete
monument; thence North 1 degrees 35 minutes 11 seconds East,
250.00 feet to a concrete monument on the Quarter Section line;
thence along the Quarter-Section line, South 88 degrees 24
minutes 49 seconds East, 1515.51 feet to a concrete monument on
the Westerly margin of Zierdt Road; thence along the westerly
margin of Zierdt Road, South 02 degrees 17 minutes 01 seconds
West, 1760.18 feet to a concrete monument at the Northeast corner
of the University of Alabama-Huntsville Property; thence along
the North boundary of said property, North 88 degrees 19 minutes
37 seconds West, 1901.00 feet to a concrete monument; thence
South 02 degrees 17 minutes 01 seconds West, 900.00 feet to a
concrete monument on the South boundary of Section 27, Township 4
South, Range 2 West; thence along the South boundary of said
Section 27, North 88 degrees 19 minutes 37 seconds West, 3245.75
feet to an unmonumented Southwest corner of Section 27, Southeast
corner Section 28, Northeast Corner of Section 33 and Northwest
corner of Section 34 all in Township 4 South, Range 2 West;
thence along the Easterly boundary of Section 33, South 03
degrees 31 minutes 04 seconds West 1330.88 feet to a concrete
monument at the center of the Easterly boundary of Section 33,
South 03 degrees 31 minutes 04 seconds West 1330.88 feet to a
concrete monument at the center of the East boundary of the
Northeast Quarter of said Section 33, Township 4 South, Range 2
West; thence along the South boundary of the North one-half of
the Northeast Quarter of Section 33, North 88 degrees 52 minutes
27 seconds West, 2121.77 feet to a concrete monument; thence
North 2 degrees 15 minutes 55 seconds East, 79.92 feet to a
concrete monument; thence North 85 degrees 29 minutes 04 seconds
West, 550.00 feet to a concrete monument on the Westerly margin
of Old Jim Williams Road; thence North 02 degrees 15 minutes 55
seconds East 614.78 feet to a point; thence continuing along the
Westerly margin of said road, around a curve to the left, with a
radius of 846.72 feet and a chord bearing and distance of North
05 degrees 10 minutes 18 seconds East, 219.21 feet to a concrete
monument on the North-South Quarter Section line of said Section
33; thence along the Quarter-Section line, North 02 degrees 23
minutes 03 seconds East, 383.29 feet to a concrete monument at
the center of the North boundary of Section 33; thence along the
North boundary of said Section 33, South 88 degrees 54 minutes 24
seconds East, 2728.16 feet to the unmonumented Northeast corner
of Section 33, Northwest corner of Section 34, Southeast corner
of Section 28 and the Southwest corner of Section 27; thence from
the Southwest corner of Section 27, North 01 degrees 31 minutes
20 seconds East, 2652.19 feet to a concrete monument at the
center of the East boundary of Section 28; thence along the
Quarter Section line of said Section 28, North 88 degrees 53
minutes 06 seconds West 970.05 feet to a concrete monument at the
Southeast corner of a Huntsville Utilities Lot; thence along the
East boundary of said lot, North 01 degrees 47 minutes 39
seconds East 225.00 feet to a concrete monument at the Northeast
corner of said lot; thence along the North boundary of the
Huntsville Utilities lot, North 88 degrees 53 minutes 06 seconds
West, 387.22 feet to a concrete monument on the North-South
Quarter-Quarter Section line; thence North 01 degrees 47 minutes
39 seconds East, along said Quarter-Quarter Section line, 803.83
feet to a concrete monument at the intersection of said Quarter-
Quarter Section line with the centerline of Dunlop Boulevard;
thence continuing North 01 degrees 47 minutes 39 seconds East
along said Quarter-Quarter line 60.00 feet to a concrete monument
on the North margin of Dunlop Boulevard; thence along the North
margin of Dunlop Boulevard, North 89 degrees 01 minutes 20
seconds West, 10.00 feet to a concrete monument at
TRACT I (Continued)
-------------------
(Foothill)
the intersection of the Northerly margin of Dunlop Boulevard with
the Easterly margin of the Southern Railway Systems Right-of-way;
thence along the Easterly margin of said railway right-of-way,
North 01 degrees 47 minutes 39 seconds East, 1569.13 feet to an
iron stake on the South boundary of Section 21; thence along said
boundary North 88 degrees 54 minutes 55 seconds West, 1.00 feet
to an iron stake; thence North 43 degrees 33 minutes 26 seconds
West, 5.62 feet to an iron stake; thence North 01 degrees 53
minutes 36 seconds East, 39.65 feet to an iron stake and the P.C.
of a curve to the left; thence around said curve with a radius of
1180.00 feet and a chord bearing and distance of North 12 degrees
25 minutes 34 seconds West, 583.27 feet to an iron stake at the
point of tangency; thence North 26 degrees 43 minutes 33 seconds
West, 1927.34 feet to a concrete monument at the intersection of
the Easterly margin of the Southern Railway right-of-way with the
Southerly margin of Lime Quarry Road right-of-way; thence along
the Southerly margin of said road right-of-way North 64 degrees
04 minutes 39 seconds East, 447.53 feet to a concrete monument;
thence continuing along said right-of-way, North 83 degrees 24
minutes 23 seconds East, 219.35 feet to a concrete monument;
thence continuing along said right-of-way, South 87 degrees 57
minutes 53 seconds East, 248.49 feet to a concrete monument;
thence continuing along said right-of-way, North 51 degrees 55
minutes 25 seconds East, 130.76 feet to a concrete monument;
thence North 02 degrees 02 minutes 07 seconds East, 50.00 feet to
a concrete monument on the East-West Quarter Section line of
Section 21, Township 4 South, Range 2 West, and the termination
of Lime Quarry Road Right-of-way; thence South 88 degrees 08
minutes 47 seconds East, along said Quarter Section line, 1442.99
feet to the point of true beginning and containing 591.495 acres,
more or less.
TRACT II:
---------
(Foothill)
All that part of the South one-half of Section 21 and the North
one-half of Section 28, Township 4 South, Range 2 West of the
Huntsville Meridian, Madison County, Alabama.
Particularly described as beginning at a concrete monument at the
intersection of the Southerly margin of Lime Quarry Road with the
Westerly margin of the Southern Railway Systems right-of-way;
said point of true beginning is further described as being North
88 degrees 08 minutes 47 seconds West 1442.99 feet, South 02
degrees 02 minutes 07 seconds West, 50.00 feet, South 51 degrees
55 minutes 25 seconds West, 130.76 feet, North 87 degrees 57
minutes 53 seconds West, 248.49 feet, South 83 degrees 24 minutes
23 seconds West, 219.35 feet and South 64 degrees 04 minutes 39
seconds West, 517.53 feet from the center of the East boundary of
Section 21, Township 4 South, Range 2 West; thence from the point
of true beginning, South 26 degrees 43 minutes 33 seconds East,
along the Westerly margin of the Southern Railway right-of-way,
1928.33 feet to an iron stake at the P.C. of a curve to the
right; thence around said curve to the right, with a radius of
1110.00 feet and a chord bearing and distance of South 12 degrees
25 minutes 34 seconds East, 548.67 feet to an iron stake at the
point of tangency; thence South 01 degrees 53 minutes 36 seconds
West, 44.63 feet to an iron stake on the South boundary line of
Section 21; thence along said boundary line, North 88 degrees 54
minutes 55 seconds West, 5.00 feet to an iron stake; thence South
01 degrees 47 minutes 39 seconds West, along the westerly margin
of the Southern Railway right-of-way, 1569.27 feet to a concrete
monument at the intersection of the North margin of Dunlop
Boulevard with the West margin of the Southern Railway right-of-
way; thence along the North margin of Dunlop Boulevard, North 89
degrees 01 minutes 20 seconds West, 1455.77 feet to a concrete
monument; thence North 02 degrees 14 minutes 47 seconds East,
402.10 feet to a concrete monument; thence North 88 degrees 56
minutes 13 seconds West, 436.00 feet to a concrete monument;
thence North 02 degrees 14 minutes 47 seconds East, 400.00 feet
to a concrete monument on the South margin of Cochran Road Right-
of-way; thence along the South margin of said road, South 88
degrees 56 minutes 13 seconds East, 633.47 feet to a concrete
monument; thence North 01 degrees 03 minutes 47 seconds East,
70.00 feet to a concrete monument on the North margin of Cochran
Road; thence continuing North 01 degrees 03 minutes 47 seconds
East 699.86 feet to a concrete monument on the South boundary of
Section 21; thence along the South boundary of said Section 21,
North 88 degrees 56 minutes 13 seconds West, 425.00 feet to a
concrete monument; thence South 01 degrees 03 minutes 47 seconds
West, 699.86 feet to a concrete monument on the North margin of
Cochran Road; thence along the North margin of Cochran Road,
North 88 degrees 56 minutes 13 seconds West, 986.53 feet to a
concrete monument ; thence North 02 degrees 14 minutes 45 seconds
East, 175.08 feet to a concrete monument at the P.C. of a curve
to the right; thence around said curve to the right with a radius
of 503.295 feet and a chord bearing and distance of North 34
degrees 27 minutes 28 seconds East, 536.60 feet to a concrete
monument at the P.T. of the curve; thence North 02 degrees 14
minutes 46 seconds East, 76.81 feet to a concrete monument on the
South boundary of Section 21; thence along the South boundary of
said Section 21, North 88 degrees 56 minutes 13 seconds West,
1434.36 feet to a concrete monument at the intersection of the
South boundary of Section 21 with the East margin of the Wall-
Triana East Bound Ramp - Right-of-Way to Interstate Highway I-
565; thence along said right-of-way line, North 00 degrees 48
minutes 05 seconds East, 687.98 feet to a concrete monument;
thence continuing along said ramp right-of-way, North 46 degrees
22 minutes 04 seconds East, 1198.33 feet to a concrete monument
on the Southerly right-of-way of I-565; thence continuing along
said I-565 southerly right-of-way, North 65 degrees 14 minutes 22
seconds East, 1050.10 feet to a concrete monument; thence
continuing along said right-of-way line, North 64 degrees 27
minutes 16 seconds East, 113.00 feet to a concrete monument;
thence continuing along said right-of-way South 30 degrees 04
minutes 26 seconds East 244.93 feet to a concrete monument;
thence continuing along said right-of-way, North 32 degrees 00
minutes 09 seconds East, 80.99 feet to a concrete monument;
thence continuing along said right-of-way, North 55 degrees 22
minutes 38 seconds East, 28.53 feet to a concrete monument;
thence continuing along said right-of-way, North 30 degrees 04
minutes 26 seconds West, 196.83 feet to a concrete monument;
thence continuing along said right-of-way, North 64 degrees 27
minutes 16 seconds East, 810.29 feet to a concrete monument at
the intersection of I-565 southerly right-of-way with the
Westerly margin of Southern Railway Systems Right-of-way; thence
along the Westerly margin of the Southern Railway right-of-way
around a curve to the left, with a radius of 1467.692 feet and a
chord bearing and distance of South 23 degrees 41 minutes 00
seconds East, 155.50 feet to a concrete monument; thence along
said railway right-of-way, South 26 degrees 43 minutes 33 seconds
East, 24.69 feet to the point of beginning and containing 208.150
acres, more or less.
TRACT II (Continued)
--------------------
(Foothill)
LESS AND EXCEPT that certain property located in the Southwest
Quarter of Section 21, Township 4 South, Range 2 West, Madison
County, Alabama more particularly described as follows:
Commencing at a point that is South 87 degrees 30 minutes West
146.17 feet; thence North 2 degrees 47 minutes 20 seconds West
688.41 feet; thence North 42 degrees 46 minutes 39 seconds East
1,198.30 feet and North 61 degrees 38 minutes 54 seconds East
153.58 feet from the Southwest corner of Section 21, Township 4
South, Range 2 West, said point being the true point of
beginning;
thence from the point of true beginning North 61 degrees 38
minutes 54 seconds East 216.26 feet to a point; thence South 01
degree 33 minutes 06 seconds East 98.12 feet to a point; thence
South 88 degrees 37 minutes 54 seconds West 193.03 feet to the
point of beginning.
PROVIDED, HOWEVER, THAT WITH RESPECT TO THE PARCELS OF TRACT II
DESCRIBED BELOW THE INTEREST OF THE MORTGAGOR IS AS LESSEE UNDER
THE FOLLOWING DESCRIBED LEASES AND WITH RESPECT TO THE PROPERTY
DESCRIBED BELOW FOR EACH SUCH LEASE, AND WITH RESPECT TO SUCH
PROPERTIES THE MORTGAGE SHALL BE A LEASEHOLD MORTGAGE:
1. INTERGRAPH CORPORATION'S RIGHTS UNDER THAT CERTAIN
LEASE AGREEMENT BETWEEN THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF MADISON, INC. AND SCHAEFER-ALABAMA
CORPORATION DATED JUNE 12, 1973 AND RECORDED IN DEED
BOOK 479, PAGE 19, JUDGE OF PROBATE, AND AS ASSIGNED TO
WELBILT CORPORATION PURSUANT TO MEMORANDUM OF
ASSIGNMENT OF LESSEE'S INTEREST IN LEASE DATED OCTOBER
21, 1982 AND RECORDED IN DEED BOOK 607, PAGE 37, AND AS
ASSIGNED TO INTERGRAPH CORPORATION PURSUANT TO THAT
CERTAIN ASSIGNMENT OF ASSUMPTION OF LEASE DATED
NOVEMBER 1, 1983, RECORDED IN DEED BOOK 624, PAGE 113,
IN THE OFFICE OF THE JUDGE OF PROBATE, MADISON COUNTY,
ALABAMA AND COVERING THE FOLLOWING DESCRIBED REAL
PROPERTY:
All that part of the South one-half of Section 21,
Township 4 South, Range 2 West of the Huntsville
Meridian, Madison County, Alabama. Particularly
described as beginning at a concrete monument on the
East margin of the Madison-Triana Road and at the
Northwest corner of the U.S. Corrugated Fibre Box
Company site, said point of true beginning is further
described as being North 87 degrees 30 minutes east,
50.0 feet from the Southwest corner of Section 21,
Township 4 South, Range 2 west. Thence from the point
of true beginning, along the East margin of the Madison-
Triana Road, North 01 degrees 22 minutes 06 seconds
West 900 feet to a point; thence North 87 degrees 30
minutes East, 2418.17 feet to a point in the center of
a drainage ditch; thence South 01 degrees 15 minutes 57
seconds East 950.34 feet to a concrete monument in the
center of said drainage ditch and on the projected
North boundary of the U.S. Corrugated Fibre Box Company
site; thence South 87 degrees 30 minutes West, along
the projected and North boundary of said U.S.
Corrugated Fibre Box Company site 2741.67 feet to the
point of true beginning and containing 53.29 acres,
more or less.
AND ALSO
- --------
2. INTERGRAPH CORPORATION'S RIGHTS UNDER THAT CERTAIN
LEASE AGREEMENT BETWEEN THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF HUNTSVILLE AND INTERGRAPH
CORPORATION DATED AS OF MAY 1, 1983 AND AS OF RECORD IN
DEED BOOK 616, PAGE 809, IN THE OFFICE OF THE JUDGE OF
PROBATE OF MADISON COUNTY, ALABAMA AND COVERING THE
FOLLOWING DESCRIBED PROPERTY:
TRACT II (Continued)
--------------------
(Foothill)
2. (Continued)
All that part of the northeast quarter of Section 28,
Township 4 South, Range 2 West of the Huntsville
Meridian, Madison County, Alabama.
Particularly described as beginning at an iron stake at
the northwest corner of the tract herein described;
said point of true beginning is further described as
being North 87 degrees 30 minutes East, 2691.67 feet
from the Northwest corner of Section 28, Township 4
South, Range 2 West. Thence from the point of true
beginning North 87 degrees 30 minutes 52 seconds East,
1261.66 feet to an iron stake on the west margin of the
80.00 foot Southern Railway Company Right-of-Way;
thence along the margin of said Right-of-way, South 01
degree 48 minutes 36 seconds East, 1569.25 feet to an
iron stake on the north margin of the 120.00 foot Right-
of-Way for Dunlop Boulevard; thence along the north
margin of said Right-of-way, South 87 degrees 24
minutes 30 seconds West 444.86 feet to an iron stake;
thence North 2 degrees 35 minutes 30 seconds West,
100.00 feet to the P.C. of a curve to the left; thence
around said curve, having a radius of 672.63 feet, with
a chord bearing and distance of North 25 degrees 33
minutes 59 seconds West, 525.09 feet to the P.T. of
said curve; thence North 48 degrees 32 minutes 27
seconds West, 27.03 feet to the P.C. of a curve to the
left; thence around said curve, having a radius of
708.29 feet, with a chord bearing and distance of North
70 degrees 31 minutes 14 seconds West, 530.19 feet to
the P.T. of said curve; thence South 87 degrees 30
minutes West, 80.77 feet to a point on the south margin
of the 70.00 foot Right-of-Way for Cochran Road; thence
North 2 degrees 30 minutes West, 70.00 feet to an iron
stake on the north margin of the Right-of-way for
Cochran Road and the southeast corner of the Harris
Pine Mills property; thence along the east boundary of
said Harris Pine Mills site, North 2 degrees 30 minutes
West, 699.85 feet to the point of true beginning and
containing 33.00 acres, more or less.
TOGETHER WITH:
All that part of the northeast quarter of Section 28,
Township 4 South, Range 2 West of the Huntsville
Meridian, Madison County, Alabama.
Particularly described as beginning at an iron stake on
the east margin of the 80.00 foot Southern Railway
Company Right-of-way; said point of true beginning is
further described as being North 87 degrees 30 minutes
East, 4033.33 feet from the northwest corner of Section
28, Township 4 South, Range 2 West.
Thence from the point of true beginning North 87
degrees 30 minutes 52 seconds East, 10.00 feet to a
concrete monument at the center of the north boundary
of the northeast quarter of Section 28, Township 4
South, Range 2 West; thence along the quarter-quarter
section line, South 01 degree 48 minutes 36 seconds
East, 1569.08 feet to an iron stake on the north margin
of the 120.00 foot Right-of-way for Dunlop Boulevard;
thence along the north margin of said Right-of-way
South 87 degrees 24 minutes 30 seconds West, 10.00 feet
to an iron stake on the east margin of the 80.00 foot
Southern Railroad Company Right-of-way; thence along
the east margin of said Right-of-way, North 01 degrees
48 minutes 36 seconds West, 1569.10 feet to the point
of true beginning and containing 0.36 acres more or
less.
TRACT III:
----------
(Foothill)
INTERGRAPH CORPORATION'S RIGHTS UNDER THAT CERTAIN LEASE
AGREEMENT BETWEEN THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF
HUNTSVILLE AND THE H. D. LEE COMPANY, INC. DATED SEPTEMBER 1,
1973 AND RECORDED IN DEED BOOK 484, PAGE 437, JUDGE OF PROBATE,
AND AS ASSIGNED FROM THE H.D.LEE COMPANY, INC. TO THE LEE APPAREL
COMPANY, INC. DATED FEBRUARY 14, 1983 AND RECORDED IN MORTGAGE
BOOK 1459, PAGE 264, JUDGE OF PROBATE, AND ASSIGNED AND ASSUMED
BY INTERGRAPH CORPORATION BY THAT CERTAIN ASSIGNMENT AND
ASSUMPTION OF LEASE DATED NOVEMBER 14, 1986 AND RECORDED IN
MORTGAGE BOOK 1459, PAGE 267, JUDGE OF PROBATE AND COVERING THE
FOLLOWING DESCRIBED REAL PROPERTY:
All that part of the Southwest Quarter of Section 28, Township 4
South, Range 2 West of the Huntsville Meridian, Madison County,
Alabama.
Particularly described as beginning at a concrete monument at the
intersection of the North margin of the 70.00 foot right-of-way
for the old Jim Williams Road, with the Easterly margin of the
right-of-way for Martin Road; said point of true beginning is
described as being North 02 degrees 15 minutes 24 seconds East,
70.03 feet and North 86 degrees 01 minutes 06 seconds East, 47.15
feet from the Southwest corner of Section 28, Township 4 South,
Range 2 West; thence from the point of true beginning, along the
Easterly margin of Martin Road around a curve to the right,
having a radius of 2980.71 feet and a chord bearing and distance
of North 00 degrees 19 minutes 42 seconds West, 268.82 feet to a
concrete monument at the P.T. of the curve; thence continuing
along the Easterly margin of Martin Road, North 02 degrees 15
minutes 24 seconds East, 412.83 feet to a concrete monument at
the intersection of the Easterly margin of said Martin Road with
the Southerly margin of Kellner Road; thence along said Southerly
margin of Kellner Road, North 48 degrees 02 minutes 50 seconds
East, 132.49 feet to a concrete monument on the South margin of a
120.00 foot right-of-way for Kellner Road; thence South 89
degrees 10 minutes 36 seconds East, along the South margin of
Kellner Road; 1070.20 feet to a concrete monument; thence South
25 degrees 34 minutes 36 seconds East, 884.12 feet to a concrete
monument on the North margin of Old Jim Williams Road; thence
along the North margin of Old Jim Williams Road, North 89 degrees
05 minutes 25 seconds West, 1013.28 feet to a concrete monument
at the P.C. of a curve to the right; thence continuing along the
North margin of Old Jim Williams Road, around said curve to the
right, having a radius of 2931.22 feet and a chord bearing and
distance of North 86 degrees 46 minutes 31 seconds West, 236.97
feet to a concrete monument at the point of a reverse curve;
thence continuing along the North margin of said road, around a
curve to the left, having a radius of 2777.05 feet, and a chord
bearing and distance of North 86 degrees 57 minutes 43 seconds
West, 242.83 feet to a concrete monument at the P.T. of the
curve; thence continuing along the North margin of said road,
North 89 degrees 28 minutes 22 seconds West, 72.80 feet to the
point of true beginning and containing 24.629 acres, more or
less.
TRACT IV:
---------
(Foothill)
All that part of Madison Industrial Park as recorded in Plat Book
6, Page 21, Probate Records of Madison County, Alabama, and
further described as being a part of the Southwest Quarter of
Section 15, Township 4 South, Range 2 West of the Huntsville
Meridian, Madison County, Alabama.
Particularly described as beginning at a concrete monument on the
Easterly boundary of Research Boulevard; said point of true
beginning is further described as being North 01 degrees 57
minutes 26 seconds East, 1538.11 feet and South 64 degrees 35
minutes 25 seconds West, 955.28 feet from the Southeast corner of
the Southwest Quarter of Section 15, Township 4 South, Range 2
West; thence from the point of true beginning North 25 degrees
24 minutes 35 seconds West, 300.00 feet to a concrete monument at
the intersection of a ninety degree corner of Research Boulevard;
thence along the Southerly margin of said Boulevard North 64
degrees 35 minutes 25 seconds East, 561.92 feet to a concrete
monument at the P.C. of a curve to the left; thence around said
curve to the left with a radius of 160.00 feet and a chord
bearing and distance of 18.92 feet to a concrete monument at a
point on the curve; thence continuing around said curve and along
the Easterly margin of Research Boulevard, with a radius of
160.00 feet and a chord bearing and distance of North 29 degrees
52 minutes 50 seconds East, 149.86 feet to a concrete monument at
the P.T. of the curve; thence South 88 degrees 02 minutes 34
seconds East, 164.01 feet to a concrete monument; thence South 01
degrees 57 minutes 26 seconds West, 181.36 feet to a concrete
monument; thence South 64 degrees 35 minutes 25 seconds West,
185.49 feet to a concrete monument; thence South 25 degrees 24
minutes 35 seconds East, 150.01 feet to a concrete monument;
thence South 64 degrees 35 minutes 25 seconds West, 580.80 feet
to the point of beginning and containing 5.00 acres, more or
less.
TRACT V:
--------
(Foothill)
INTERGRAPH CORPORATION'S RIGHTS UNDER THAT CERTAIN LEASE
AGREEMENT BETWEEN THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF
MADISON, INC. AND INTERGRAPH CORPORATION DATED AS OF SEPTEMBER 1,
1982 AND AS OF RECORD IN DEED BOOK 609, PAGE 636 OF THE JUDGE OF
PROBATE AND COVERING THE FOLLOWING DESCRIBED REAL PROPERTY:
All that part of Madison Industrial Park as recorded in Plat Book
6, Page 21, Probate Records of Madison County, Alabama, and
further described as being a part of the Southwest Quarter of
Section 15, Township 4 South, Range 2 West of the Huntsville
Meridian, Madison County, Alabama.
Particularly described as beginning at a concrete monument on the
Westerly Boundary of Research Boulevard; said point of true
beginning is further described as being North 01 degrees 57
minutes 26 seconds East 1765.79 feet and North 88 degrees 02
minutes 34 seconds West, 460.80 feet to a concrete monument at
the P.C. of a curve on the Westerly margin of Research Boulevard;
thence along the Westerly margin of said Boulevard, around a
curve to the right, with a radius of 90.00 feet and chord bearing
and distance of South 33 degrees 16 minutes 33 seconds West,
103.95 feet to a concrete monument at the P.T. of the curve;
thence continuing along the Northerly margin of Research
Boulevard, South 64 degrees 35 minutes 25 seconds West, 741.94
feet to a concrete monument at the P.C. of a curve to the right;
thence around said curve to the right with a radius of 25.00 feet
and a chord bearing and distance of North 70 degrees 24 minutes
06 seconds West, 35.36 feet to a concrete monument at the P.T. of
the curve; thence North 25 degrees 24 minutes 38 seconds West,
123.48 feet to a concrete monument at the P.C. of a curve to the
right; thence around said curve to the right, and continuing
along the Easterly margin of Research Boulevard with a radius of
176.84 feet and a chord bearing and distance of North 11 degrees
49 minutes 25 seconds West, 83.11 feet to a concrete monument at
the P.T. of the curve; thence continuing along the Easterly
margin of Research Boulevard, North 01 degrees 45 minutes 35
seconds East, 584.53 feet to a concrete monument at the P.C. of a
curve to the right; thence around said curve to the right, with a
radius of 100.00 feet and a chord bearing and distance of North
46 degrees 46 minutes 03 seconds East, 141.44 feet to a concrete
monument at the P.T. of the curve; thence South 88 degrees 13
minutes 34 seconds East, along the Southerly margin of Research
Boulevard, 625.21 feet to a concrete monument at the P.C. of a
curve to the right; thence around said curve to the right, with a
radius of 100.00 feet and a chord bearing and distance of South
43 degrees 08 minutes 06 seconds East, 141.65 feet to a concrete
monument at the P.T. of the curve; thence along the Westerly
margin of Research Drive, South 01 degrees 57 minutes 26 seconds
East, 358.11 feet to the point of beginning and containing 13.495
acres, more or less.
Five Year Financial Summary
- -------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues $1,124,305 $1,095,333 $1,097,978 $1,041,403 $1,050,277
Restructuring charges
(credit) --- --- 6,040 ( 4,826) 89,806
Nonrecurring
operating charges 1,095 10,545 --- --- ---
Gains on sales of
investments in
affiliates 4,858 11,173 6,493 5,815 ---
Net loss (70,237) (69,112) (45,348) (70,220) (116,042)
Net loss per share,
basic and diluted ( 1.46) ( 1.46) ( .98) ( 1.56) ( 2.51)
Working capital 204,534 230,804 261,140 282,893 348,756
Total assets 720,989 756,347 826,045 839,618 855,329
Total debt 104,665 65,644 69,541 61,114 26,606
Shareholders' equity 368,783 447,263 504,064 522,337 588,710
Information contained in this report may include statements that are
forward-looking as defined in Section 21E of the Securities Exchange Act of
1934. Actual results could differ materially from those projected in the
forward-looking statements. Additional information concerning factors that
could cause actual results to differ materially from those in the forward-
looking statements is contained in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of this
Annual Report.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Summary. The following summarized financial data sets forth the
results of operations of the Company for the three year period ended
December 31, 1997. The complete consolidated financial statements of
the Company, including footnote disclosures, are presented on pages
27 to 45 of this annual report.
- ----------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------
(In millions except per share amounts)
Revenues $1,124 $1,095 $1,098
Cost of revenues 724 692 668
- ----------------------------------------------------------------------------
Gross profit 400 403 430
Operating expenses 454 461 478
Restructuring charge --- --- 6
Nonrecurring operating charges 1 11 ---
- ----------------------------------------------------------------------------
Loss from operations ( 55) ( 69) ( 54)
Arbitration award ( 6) --- ---
Gains on sales of investments in affiliates 5 11 7
All other income (expense) - net ( 10) ( 8) 2
- ----------------------------------------------------------------------------
Loss before income taxes ( 66) ( 66) ( 45)
Income tax expense ( 4) ( 3) ---
- ----------------------------------------------------------------------------
Net loss $( 70) $( 69) $( 45)
============================================================================
Net loss per share, basic and diluted $(1.46) $(1.46) $( .98)
============================================================================
In 1993 the Company began the process of transformation from its
proprietary, closed-system product offerings to the open computing
environment of products based on Intel Corporation hardware and
Microsoft Corporation software. The dedication of significant
Company resources to hardware, software, and system implementation
for this new environment contributed substantially to the Company's
operating losses for 1993 through 1996.
For hardware implementation, the Company chose to use only Intel
processors and to focus its efforts and image creation on its core
capabilities, specifically very high performance computational and
graphics capabilities. This high-end market in the Windows NT
operating system environment is supported only by Intel-based
hardware products. The Company expected that its four year hardware
development effort and investment in the high-end graphics market
would result in substantially increased revenues and profits in
1997, but these benefits were not realized due to actions of Intel
described separately in the "Intel Litigation" section of this
report.
In addition to the factors noted above, demand for the Company's
software products has not met expectations, and gross margin on
product sales has continued to decline due to price competition in
the industry.
The Company expects that the industry will continue to be
characterized by higher performance and lower priced products,
intense competition, rapidly changing technologies that result in
shorter product cycles, and development and support of software
standards that result in less specific hardware and software
dependencies by customers. The Company believes that its operating
system and hardware architecture strategies are the correct choices,
that the industry has accepted Windows NT, and that Windows NT is
becoming the dominant operating system in the majority of markets
served by the Company. Competing operating systems and products are
available in the market, and competitors of the Company offer or are
adopting Windows NT and Intel as the systems for their products.
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 substantially increase sales volume
and/or further align its operating expenses with the level of
revenue and gross margin being generated.
Restructuring and Nonrecurring Operating Charges. In response to
industry conditions, the Company undertook its first restructuring
plan in 1993. During 1995, the Company undertook a second
restructuring plan designed to further adapt the Company's cost
structure to changing industry and market conditions. The 1995 plan
as originally conceived consisted of direct reductions in workforce,
other workforce reductions through attrition, and disposition of
four unprofitable business units over the twelve month period ended
June 30, 1996. The 1995 plan, had it been fully executed with
respect to the four business units, was expected to provide an
operating expense reduction of approximately $100 million annually
on a prospective basis. Of this total anticipated annual savings,
approximately $66 million was to be derived from disposition of the
four unprofitable business units.
The 1995 restructuring charge totaled $6 million, primarily for
employee severance pay and related costs. Approximately 450
positions were eliminated through direct reductions in workforce,
with approximately 350 others eliminated through attrition. All
employee groups were affected, but the majority of eliminated
positions derived from the research and development, systems
engineering and support, and sales and marketing areas. Cash
outlays related to the restructuring totaled $3.6 million in 1995,
funded by cash from operations and borrowings under credit
facilities. Cash required in 1996 to fund the 1995 plan was
insignificant. The $6 million charge is included in "Restructuring
charge" in the 1995 consolidated statement of operations.
During the fourth quarter of 1996, the Company determined that two
of the four business units included in the original 1995 plan should
be retained based on their future prospects and strategic value to
other business units. At this same time, the Company recorded a
nonrecurring operating charge of $10.5 million, consisting of a $7.2
million revaluation of the assets of the two noncore business units
held for sale and an unrelated $3.3 million write-off of deferred
financing costs due to early termination of the Company's revolving
credit agreement with a group of lenders. The $10.5 million charge
is included in "Nonrecurring operating charges" in the 1996
consolidated statement of operations.
In early 1997, the Company sold the two noncore business units to
third parties. The total loss on these sales was $8.3 million, of
which $7.2 million had been included in the asset revaluation
recorded in 1996. The remaining loss of $1.1 million is included in
"Nonrecurring operating charges" in the 1997 consolidated statement
of operations. Revenues and losses of the two units totaled $24
million and $16 million, respectively, for 1996, and $43 million and
$7 million, respectively, for 1995. Total assets of the units
totaled $14 million at December 31, 1996. The two business units
did not have a material effect on the Company's results of
operations for the period in 1997 prior to their disposal.
See "Subsequent Events" following for description of the February
1998 restructuring plan for the Company's European operations.
Litigation and Other Risks and Uncertainties. The Company has
ongoing litigation, and its business is subject to certain risks and
uncertainties, including those described below.
Intel Litigation. The Company filed a legal action on November 17,
1997, in U.S. District Court, the Northern District of Alabama,
Northeastern Division, charging Intel Corporation, the supplier of
all of the Company's microprocessor needs, with anticompetitive
business practices. In the lawsuit, Intergraph alleges that Intel
is attempting to coerce the Company into relinquishing to Intel
certain computer hardware patents through a series of wrongful acts,
including interference with business and contractual relations,
interference with technical assistance from third party vendors,
breach of contract, negligence, misappropriation of trade secrets,
and fraud based upon Intel's failure to promptly notify the Company
of defects in Intel's products and timely correction of such
defects, and further alleging that Intel has infringed upon the
Company's patents. The Company's patents define the architecture of
the cache memory of an Intergraph developed microprocessor. The
Company believes this architecture is at the core of Intel's entire
Pentium line of microprocessors and systems. On December 3, 1997,
the Company amended its complaint to include a count charging Intel
with violations of federal antitrust laws. Intergraph asserts
claims for compensatory and treble damages resulting from Intel's
wrongful conduct and infringing acts, and punitive damages in an
amount sufficient to punish and deter Intel's wrongful conduct.
Additionally, the Company has requested that Intel be enjoined from
continuing the alleged wrongful conduct which is anticompetitive
and/or violates federal antitrust laws, so as to permit Intergraph
uninterrupted development and sale of Intel-based products.
On November 21, 1997, the Company filed a motion in the Alabama
Court to enjoin Intel from disrupting or delaying its supply of
products and product information, pending resolution of Intergraph's
legal action. The Court has not entered a ruling on this motion.
Intel filed a retaliatory legal action on November 17, 1997, in the
U.S. District Court, the Northern District of California,
requesting, among other things, i) that the Court declare
Intergraph's patents invalid and/or not infringed by Intel, ii) that
Intergraph be enjoined from making further assertions that Intel's
customers infringe Intergraph's patents through use of Intel's
microprocessors, iii) that the Court declare that Intel has no
obligation to disclose any of its trade secrets or other
confidential information to Intergraph, and iv) that the Court
declare that Intel's decision to discontinue the provision of trade
secrets and other confidential information to Intergraph does not
violate any doctrine of federal or state statutory or common law.
Intel filed a second legal action in the California Court on
November 24, 1997, charging Intergraph with breach of contract
related to wrongful retention of and failure to return Intel
information supplied under nondisclosure agreements, and
misappropriation of trade secrets as a result of the same. Intel
asserts claims for damages and awards of yet undetermined amounts
and requests a preliminary and permanent injunction under which
Intergraph would return and make no further use of Intel
confidential information.
On December 8, 1997, the Alabama Court directed the Company and
Intel to file joint motions in the California cases to stay the two
legal actions brought by Intel, pending the Court's consideration of
a motion to transfer and consolidate venue. The joint motions were
filed and stays were granted by the California Courts. On January
15, 1998, Intel filed a motion before the Alabama Court for a change
in venue to California. A decision to transfer venue has not been
reached.
Background. The Company's patents relate to its RISC (reduced
instruction set computing)-based Clipper microprocessor, which was
the industry's first attempt to bring mainframe computing power to
compact, low cost, integrated circuit technology. In 1992,
Intergraph began evaluation of a transition from Clipper to Intel's
microprocessor for use in its future workstation products. At that
time, Intel had little experience with workstations or the
workstation market and had been unsuccessful in the development of
its own RISC-based microprocessor for the workstation market. In
1993, Intergraph began discussions with Intel regarding this
transition. Based on Intel's representations regarding its
microprocessor development plans for the workstation market,
Intergraph began the transition from Clipper to Intel-based design,
and the two companies cooperated in introduction to the market of
the Intel/Windows NT platform as an alternative to the RISC/UNIX
platform. The Company ceased further design of its Clipper
microprocessor at the end of 1993, and made a substantial investment
in redesign of its hardware platform for utilization of Intel
microprocessors. The Company relied on the assurances,
representations, and commitments of Intel that they would supply
Intergraph's microprocessor needs on fair and reasonable terms, and
would provide Intergraph with the essential technical information,
assistance, and advice necessary to utilize the microprocessors to
be developed and supplied by Intel. As a result of the assurances
of Intel and its transition to Intel-based workstations, Intergraph
is technologically and economically bound to the use of Intel's
microprocessors.
Effects. The Company's workstations are developed for and sold in
the high-end workstation market. Successful participation in this
market requires involvement in Intel product development programs
that provide advance information for the development of new products
to be sold by Intergraph and others and permit formulation of
standards and specifications for those new products. Intergraph's
product design and release cycle has been severely impacted by
Intel's refusal to provide Intergraph with advance technology and
product information and immediate information on Intel defects and
corrections. Intel has continued to provide that information to the
Company's competitors. As a result of Intel's refusal to provide
this vital information, the launch of Intergraph's TDZ 2000 line of
workstations was delayed by approximately two months. Additionally,
Intel's delay in shipment to the Company of its Deschutes
microprocessor and its refusal to provide related advance technical
information to the Company is impairing Intergraph's ability to
compete. The Company's competitors began shipping hardware products
based on this microprocessor in January 1998. The Company expects
it will begin shipping its hardware products based on the Deschutes
microprocessor at the end of March, two months behind its
competitors.
It is Intel's customary practice among all customers to allocate a
quarterly supply of microprocessors one quarter in advance of
shipment. The Company believes Intel has allocated it an adequate
supply of microprocessors through June 30, 1998, with the exception
of the yet to be released Deschutes microprocessors.
The Company believes that Intel's actions have and will continue to
have significant adverse effects on its financial position and
results of operations, specifically in terms of lost revenues,
uncertainty of supply, and legal expenses. The cost of converting
the Company's products to use of another microprocessor would be
prohibitive.
The Company believes it was necessary to take legal action against
Intel in order to defend its growing workstation business, its
intellectual property, and the investments of its shareholders. The
Company is vigorously prosecuting its positions and believes it will
prevail in these matters, but at present is unable to predict an
outcome. See "Other Risks and Uncertainties" below for additional
information regarding Intel's actions.
Bentley Litigation. The Company is the owner of approximately 50%
of the outstanding stock of Bentley Systems, Inc. (Bentley), 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 Bentley in which the Company had alleged
that Bentley inappropriately and without cause terminated a
contractual arrangement with the Company, and in which Bentley 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 Bentley. The arbitrator's
award against the Company was in the amount of $6.1 million and is
included in "Arbitration award" in the 1997 consolidated statement
of operations. Approximately $5.8 million in fees otherwise owed
the Company by Bentley were offset against the amount awarded
Bentley. In addition, the contractual arrangement that was the
subject of this arbitration was terminated effective with the award
and, as a result, the Company no longer sells the related software
support services under this agreement. The Company and Bentley have
entered into a new agreement which establishes single support
services between the two companies. The Company believes that
neither the arbitration related change in Bentley software support
services or its new agreement with Bentley relative to such services
will have a material impact on the Company's financial position,
results of operations or cash flows in future periods.
In a second proceeding, Bentley commenced arbitration against the
Company in March 1996, alleging that the Company failed to properly
account for and pay to Bentley certain royalties on its sales of
Bentley software products, and seeking significant damages.
Hearings on this matter are in process and may continue through the
end of the Company's third quarter of 1998. The Company denies that
it has breached any of its contractual obligations to Bentley and is
vigorously defending its position in this proceeding, but at present
is unable to predict an outcome.
Zydex Litigation. The Company filed a legal action in August 1995
seeking to dissolve and wind up its business arrangement with Zydex,
Inc., a company with which it jointly developed its plant design
software application ("PDS"), and seeking an order allowing the
Company to continue the business of that arrangement without further
responsibility or obligation to Zydex. In November 1995, Zydex
filed a counterclaim against the Company alleging wrongful
dissolution of the business relationship and seeking both sole
ownership of PDS and significant compensatory and punitive damages.
In September 1997, the Court issued an order resolving all disputed
issues and requiring the parties to settle, and dismissed the case.
A closing of the final settlement agreement occurred on January 15,
1998.
The final settlement included the purchase by Intergraph of 100% of
the common stock of Zydex for $26.3 million, with $16 million paid
at closing of the agreement and the remaining amount payable in 15
equal monthly installments, including interest. The deferred
payment portion of the total purchase price is secured by a
subordinate interest in the PDS intellectual property and by an
irrevocable letter of credit in favor of the former owner of Zydex.
Interest on the unpaid amount accrues at a rate 1% less than the
rate charged by Intergraph's primary lender. The former owner of
Zydex will retain certain rights to use, but not sell or sublicense,
PDS products for a period of 15 years following the date of closing.
In addition to the purchase price of the common stock, Intergraph
was required to pay additional royalties to Zydex in the amount of
$1 million at closing of the agreement. These royalties have been
included in the Company's 1997 results of operations. The January
15, 1998 cash payment to Zydex was funded by the Company's primary
lender. See "Liquidity and Capital Resources" section below for
discussion of the Company's liquidity.
The Company has recorded the settlement in its books of account as
of the date of closing of the final settlement agreement. The
Company believes its settlement with Zydex will improve its annual
operating results by an estimated $5 million.
PDS is currently the Company's second highest volume software
offering. Sales of PDS software and maintenance for 1997 totaled
$48 million. Total process and building solutions industry sales
for 1997 were $101 million, including PDS software and maintenance,
horizontal products and maintenance, and training and consulting
revenues.
Other Risks and Uncertainties. The Company develops its own
graphics, data management, and applications software as part of its
continuing product development activities. The Company has standard
license agreements with Microsoft Corporation for use and
distribution of the Windows NT operating system and with UNIX
Systems Laboratories for use and distribution of the UNIX operating
system. The license agreements are perpetual and allow the Company
to sublicense the operating systems software upon payment of
required sublicensing fees. The Company also has an extensive
program for the licensing of third-party application and general
utility software for use on systems and workstations.
The Company owns and maintains a number of registered patents and
registered and unregistered copyrights, trademarks, and service
marks. The patents and copyrights held by the Company are the
principal means by which the Company preserves and protects the
intellectual property rights embodied in the Company's hardware and
software products. Similarly, trademark rights held by the Company
are used to preserve and protect the goodwill represented by the
Company's registered and unregistered trademarks.
As industry standards proliferate, there is a possibility that the
patents of others may become a significant factor in the Company's
business. Personal computer technology is widely available, and
many companies, including Intergraph, are attempting to develop
patent positions concerning technological improvements related to
personal computers and workstations. With the possible exception of
its ongoing litigation with Intel (in which the Company expects to
prevail), it does not appear the Company will be prevented from
using the technology necessary to compete successfully, since
patented technology is typically available in the industry under
royalty bearing licenses or patent cross licenses, or the technology
can be purchased on the open market. Any increase in royalty
payments or purchase costs would increase the Company's costs of
manufacture, however, and it is possible that some key improvement
necessary to compete successfully in markets served by the Company
may not be available.
An inability to retain significant third party license rights, in
particular the Microsoft license, to protect the Company's
copyrights, trademarks, and patents, or to obtain current technical
information or any required patent rights of others through
licensing or purchase, all of which are important to success in the
industry in which the Company competes, could significantly reduce
the Company's revenues and adversely affect its results of
operations.
Technology significant to the Company is sometimes made available in
the form of proprietary information or trade secrets of others.
Prior to the dispute with Intel, Intel had made freely available
technical information used by the Company to design, market and
support its products that use Intel components. Such information is
claimed by Intel to be proprietary and is made available by Intel
only under nondisclosure agreements. At present Intel is
withholding such information, attempting to cancel existing
agreements and refusing to enter into new nondisclosure agreements
with the Company. Intel's actions are the subject matter of current
litigation, and the Company has applied to the Court for relief in
the short term, as well as at the conclusion of the lawsuit.
Intel's actions are damaging the Company by slowing the introduction
of new products using Intel components and preventing proper
maintenance and support of Company products using Intel components.
The Company expects that relief will be forthcoming from the Court.
However, if relief is denied, the Company will be materially
affected and may be forced to alter its future business plans or to
accept unfavorable terms from Intel in settlement of the lawsuit.
See Notes 1, 4, 6, 7, and 11 to Consolidated Financial Statements
for further discussion of risks and uncertainties related to the
Company.
Year 2000 Issue. Until recently, most computer programs were
written to store only two digits of date-related information. Such
programs are thus unable to distinguish between the year 1900 and
the year 2000. Unless corrected or replaced, programs with this
inability could cause widespread data processing malfunctions and
computer system failures.
The Company has reviewed its product line to identify and resolve
Year 2000 issues. All hardware and software products offered in the
Company's standard price list at January 1, 1998 are Year 2000
compliant or will be so certified as new versions and utilities are
released in 1998. The Company is evaluating prior generations of
its hardware and software products to determine which products it
will make Year 2000 compliant. The Company's experience with this
issue reinforces general industry expectations that engineering and
related technical applications, which typically perform few date
manipulations or comparisons, will be affected minimally by this
issue as compared to business and financial systems, which are
heavily date dependent. The Company does not anticipate that its
product compliance costs will have a material impact on its results
of operations or financial condition. However, there can be no
guarantee that its estimates will be achieved, and actual results
could differ materially from those anticipated.
An effort has been underway since 1996 to identify and resolve Year
2000 issues affecting the Company's internal business systems. The
Company expects to successfully implement all internal systems and
programming changes necessary to resolve Year 2000 issues. This
effort is expected to increase the Company's operating costs in 1998
and 1999; however, the Company does not anticipate that these costs
will have a material effect on its results of operations or
financial condition for either of those years.
To ensure the Company's critical suppliers are able to continue
uninterrupted supply, the Company is conducting a program of
investigation with these suppliers and includes Year 2000 provisions
in its new supplier agreements. The Company is also initiating
discussions with other entities with which it interacts
electronically, including customers and financial institutions, to
ensure those parties have appropriate plans to remediate Year 2000
issues where their systems interface with the Company's systems or
otherwise impact its operations. The Company could be adversely
impacted if suppliers, customers, and other businesses do not
address this issue successfully. The Company continues to assess
these risks in order to reduce any potential adverse impact.
Orders. Systems orders for 1997 were $774 million, a 7% increase
over the prior year after increases of 1% and 12% in 1996 and 1995,
respectively. The Company substantially completed its product
transition in 1995; however, order levels in all three years were
affected by slower than anticipated customer acceptance of the
Company's products based on its Windows NT/Intel strategy, and
further affected in 1997 by the previously described actions of
Intel. The growing availability of new products throughout 1995
resulted in orders sequentially improving with each quarter to end
that year with a 12% increase. In 1996 and 1997, orders for the
Company's systems were characterized by heavier, though less than
anticipated, demand for the Company's hardware product offerings,
which was offset by softer demand for its software products. New
software and certain of the new hardware products released in 1996
did not generate significant orders or revenues during the year.
Initial releases of the Company's new software products were delayed
until late 1996 and contained certain performance problems. These
problems were resolved in subsequent releases of the products during
fourth quarter 1996 and first quarter 1997, and sales momentum began
to increase during the second quarter of 1997. However, hardware
orders in the last half of 1997 were adversely impacted by a two
month delay in shipment of the Company's new TDZ 2000 line of
workstations resulting from Intel's wrongful conduct and delays.
Geographic Regions. U.S. orders, including federal government
orders, totaled $407 million for the year, up 24% after a decline of
7% in 1996 and an increase of 11% in 1995. Growth in the Company's
hardware business and a 25% increase in orders received from the
federal government accounted for the majority of the 1997 increase.
The orders decline in 1996 resulted primarily from a decrease in
orders in one of the Company's noncore business units sold in early
1997. Excluding this business unit, U.S. orders for 1997 were up
29% and flat for 1996. International orders totaled $367 million
for the year, a 7% decline from the prior year after increases of 9%
and 12% in 1996 and 1995, respectively. Asia Pacific orders totaled
$73 million in 1997, a decrease of 35%, after increasing 45% in 1996
and decreasing 7% in 1995. Growth in that region in 1996 was due
to several individually significant orders for the Company's public
safety products and related consulting services. Such orders did
not recur in 1997. Additionally, devaluation of Asian currencies,
most notably the Korean Won, had a negative impact on orders for the
region during the fourth quarter of 1997 and the first quarter of
1998, and could have a significant impact on business in this region
during the remainder of 1998. European orders totaled $222 million,
relatively unchanged from the prior year, after a 5% decline in 1996
and a 19% increase in 1995. European orders for 1995 were strong as
a result of winning several large individual orders in the last half
of that year. European and Asian order levels in terms of U.S.
dollars were reduced by approximately 10% and 5%, respectively, in
1997 due to strengthening of the U.S. dollar against currencies of
those regions.
New Products. In late 1995, the Company announced its Jupiter
technology, a Windows-based component software architecture that is
the foundation of many new computer-aided-design/computer-aided-
manufacturing/computer-aided-engineering (CAD/CAM/CAE) and
geographic information systems (GIS) applications software products
developed by the Company. The first two products built on Jupiter
technology began shipping in mid-1996, including a 32 bit, two
dimensional technical drawing and concept tool and a three
dimensional system for mechanical assembly and part modeling.
Initial orders for these products did not meet Company expectations
and did not contribute substantially to 1996 revenues. Subsequent
releases of the products in 1997 resulted in substantial orders
growth for those products. During 1997, the Company introduced and
began shipping GeoMedia 1.0, a Jupiter-based software product which
allows users to access data warehouses virtually anywhere in the
world and simultaneously perform analyses with varying data types
and formats.
During 1996, the Company introduced a complete line of workstations
and servers for the high-end marketplace based on Intel's Pentium
Pro microprocessor. In addition, the Company introduced a new add-
in 3D graphics card which provides workstation class 3D graphics to
the Pentium- or Pentium Pro- based personal computer. Sales of the
Company's graphics cards were initially strong and grew throughout
1997, though sales were below the Company's expectations. During
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. The Company also introduced twelve new
workstations in its TD and TDZ lines, including the first Windows NT-
based workstations using dual Intel 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. These new products commenced
shipping at various dates throughout the year of introduction but,
as previously described, the Company is suffering delays in new
product development and shipping due to actions of Intel, placing
the Company at a competitive disadvantage.
The Company does not expect that introduction of these new hardware
products will adversely affect the carrying value of its existing
inventories. Additionally, the Company is unable to predict the
financial impact of these new products. However, the Company
believes its ability to compete in the hardware business has been
materially impacted by the previously described actions of Intel.
Revenues. Total revenues for 1997 were $1.1 billion, up 3% from the
prior year level after flat revenues in 1996 and a 5% increase in
1995.
Systems. Sales of Intergraph systems in 1997 were $786 million, up
8% after a 2% increase in 1996 and a 7% increase in 1995. Factors
previously cited as affecting systems orders in total and on a
geographic basis, including the actions of Intel in 1997, also
affected systems revenues over the three year period. Competitive
conditions manifested in declining per unit sales prices continue to
adversely affect the Company's systems revenues.
Geographic Regions. U.S. systems sales, including sales to the
federal government, increased by 17% in 1997 after an increase of 2%
in 1996 and a decline of 6% in 1995. Growth in U.S. systems sales
was depressed in 1996 by a revenue decline in one of the Company's
noncore business units sold in early 1997. Excluding this business
unit, U.S. sales growth was 22% in 1997 and 7% in 1996. In 1995,
U.S. systems sales were negatively impacted by the continuation of
product transition and weak demand in U.S. indirect selling
channels. International sales totaled $385 million for the year, up
slightly from the prior year after increases of 3% and 21% in 1996
and 1995, respectively. European sales were up 3%, after a decline
of 6% in 1996 as a result of weak demand for the Company's software
products, and growth of 19% in 1995. Asia Pacific systems sales
were down 12% after increases of 25% in 1996 and 22% in 1995.
Software. Sales of the Company's software applications declined by
1% in 1997 after a 9% decline in 1996 and a 4% decline in 1995.
Declines in the last three years are the result primarily of a
decrease in sales of MicroStation, which declined by 34% in 1997 and
approximately 39% in each of the previous two years (see
"MicroStation" below for further discussion), and of delays in
software releases in 1996. Sales in 1997 of the Company's plant
design and mechanical software applications increased by a combined
22% to offset the effect of the loss in MicroStation sales. In
terms of broad market segments, the Company's mapping/geographic
information systems, architecture/engineering/construction, and
mechanical design, engineering and manufacturing product
applications continue to dominate the Company's product mix at
approximately 57%, 27%, and 14%, respectively, of total systems
sales in 1997 (52%, 27%, and 13%, respectively, for 1996). Sales of
Windows-based software represented approximately 87% of total
software sales in 1997, up from approximately 80% in 1996 and 72% in
1995. UNIX-based software comprised approximately 13% of total 1997
software sales, down from approximately 20% in 1996 and 28% in 1995.
See "Subsequent Events" section following for description of the
March 1998 sale of the Company's Solid Edge and Engineering Modeling
System mechanical product lines.
Hardware. Total hardware revenue increased 22% in 1997, after an
increase of 12% in 1996 and flat revenues in 1995. Workstation and
server unit volume increased 67% in 1997, 42% in 1996, and 22% in
1995, while workstation and server revenue increased only 6% in
1997, 18% in 1996 and 4% in 1995. Price competition continues to
erode per unit selling prices, and volumes were held down in 1997 by
the actions of Intel. Revenue from other hardware products
increased 64% in 1997, after decreases of 1% and 9% in 1996 and
1995, respectively. The increase in 1997 results primarily from an
increase in graphics cards and storage device revenues. Intel-based
systems represented approximately 100% of hardware unit sales in
1997 and 1996 and approximately 95% in 1995.
Federal Government Sales. Total revenue from the United States
government was approximately $177 million in 1997, $161 million in
1996, and $159 million in 1995, representing in all three years
approximately 15% of total revenue. The Company sells to the U.S.
government under long-term contractual arrangements, primarily
indefinite delivery, indefinite quantity and cost-plus award fee
contracts, and through commercial sales of products not covered by
long-term contracts. Approximately 42% of total federal government
revenues are earned under long-term contracts. The Company believes
its relationship with the federal government to be good. While it
is fully anticipated that these contracts will remain in effect
through their expiration, the contracts are subject to termination
at the election of the government. Any loss of a significant
government contract would have an adverse impact on the results of
operations of the Company.
MicroStation. Through the end of 1994, the Company had an exclusive
license agreement with Bentley Systems, Inc., an approximately 50%-
owned affiliate of the Company, under which the Company distributed
MicroStation, a software product developed and maintained by Bentley
and utilized in many of the Company's software applications. As a
result of settlement of a dispute between the companies relative to
the exclusivity of the Company's distribution license, effective
January 1, 1995, the Company has a nonexclusive license to sell
MicroStation via its direct sales force and to sell MicroStation via
its indirect sales channels if MicroStation is sold with other
Intergraph products. Also as a result of the settlement, the per
copy royalty payable by the Company to Bentley was increased
effective January 1, 1995 and again January 1, 1996 and, for 1995
only, Bentley paid the Company a per copy distribution fee based on
its MicroStation sales to resellers (such fees were $7 million).
See "Litigation and Other Risks and Uncertainties" preceding for a
description of arbitration proceedings between the Company and
Bentley.
The Company's sales of MicroStation have declined each year since
the 1994 change in the license agreement, by approximately 34% in
1997 and by 39% in both 1996 and 1995. The Company estimates this
revenue decline, the per copy royalty increase, and the discontinued
distribution fee adversely affected its results of operations by
approximately $7 million, or $.14 per share in 1997, by
approximately $26 million, or $.52 per share in 1996, and by
approximately $17 million, or $.37 per share in 1995. The Company
is unable to predict the level of MicroStation sales that will occur
in the future, but it is likely that 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 services, primarily training and consulting. These forms
of revenue totaled $338 million in 1997, down 9% after a decline of
5% in 1996 and essentially flat revenues in 1995. Maintenance
revenues totaled $246 million in 1997, down 13% after decreases of
12% and 2% in 1996 and 1995, respectively. The trend in the
industry toward lower priced products and longer warranty periods
has resulted in reduced levels of maintenance revenue, and the
Company believes this trend will continue in the future. Services
revenue represented 8% of total revenues in 1997 and increased by 6%
from the previous year, after increasing by 31% in 1996 and 36% in
1995. Growth in services revenue has acted to partially offset the
decline in maintenance revenue. The Company is endeavoring to
increase revenues from its services business. Such revenues,
however, produce lower gross margins than maintenance revenues.
Gross Margin. The Company's total gross margin was 35.6% in 1997,
down 1.2 points after declines of 2.3 points and 1.4 points in 1996
and 1995, respectively.
Margin on systems sales declined 1.2 points in 1997, 2.3 points in
1996, and 1.6 points in 1995. Competitive pricing conditions in the
industry reduced margin on systems sales in all three years.
Margins in 1997 and 1996 were further reduced by increasing hardware
content in the product mix; in general, a higher hardware versus
software content will reduce systems margin. Additionally, 1997
margin was adversely affected by a decrease in the mix of
international systems revenues to total Company systems revenues,
which was partially due to a stronger U.S. dollar in international
markets, and 1996 margin was negatively impacted by an increase in
MicroStation product cost.
In general, the Company's systems margin may be lowered by price
competition, a higher hardware content in the product mix, a
stronger U.S. dollar in international markets, the effects of
technological changes on the value of existing inventories, and a
higher mix of federal government sales, which generally produce
lower margins than commercial sales. Systems margins may be
improved by higher software content in the product, a weaker dollar
in international markets, a higher mix of international systems
sales to total systems sales, and reductions in prices of component
parts, which generally tend to decline over time in the industry.
The Company is unable to predict the effects that many of these
factors may have, but expects continuing pressure on its systems
margin due primarily to industry price competition.
Margin on maintenance and services revenue declined by .8 points in
1997 after declines of 2.2 points in 1996 and 1.1 points in 1995.
The margin declines over the past three years have resulted
primarily from declining maintenance revenues. The Company
continues to closely monitor maintenance and services cost and has
taken certain measures, including reductions in headcount, to 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.
The industry in which the Company competes is characterized by rapid
technological change. This technological change is an important
consideration in the Company's overall inventory management program,
in which the Company endeavors to carry only parts and systems
utilizable with the technology of its current product offerings and
as spares for the contracted maintenance of systems in its installed
customer base. The Company regularly estimates the degree of
technological obsolescence in its inventories and provides inventory
reserves on that basis. Though the Company believes it has
adequately provided to date for any such declines in inventory
value, any unanticipated change in technology could significantly
affect the value of the Company's inventories and thereby adversely
affect margins and reported results of operations.
Operating Expenses (exclusive of nonrecurring operating charges and
restructuring charge). Operating expenses declined by 2% in 1997,
3% in 1996, and 4% in 1995. The total number of employees of the
Company has declined by 16% in the three year period ended December
31, 1997.
Product development expense declined 5% in 1997 after declines of 7%
and 19% in the two preceding years. Employee headcount in the
development areas has been significantly reduced over the last three
years through restructuring actions and attrition. Additionally,
the sale of two noncore business units in early 1997 resulted in
substantial expense savings but was offset, for the most part, by a
decline in software development costs qualifying for capitalization.
Capitalization of software product development costs related to the
Company's Jupiter technology significantly reduced expenses for 1995
and 1996. Development was completed in 1996.
Sales and marketing expense decreased 2% in 1997 after a decrease of
5% in 1996 and an increase of 2% in 1995. The expense decline in
1997 results primarily from strengthening of the U.S. dollar against
international currencies and the sale of the two noncore business
units. These expense reductions were partially offset by an
increase in trade show and advertising expenses for the Company's
new products. The expense decline in 1996 resulted primarily from
restructuring actions taken in 1995. The Company achieved
substantial sales and marketing headcount and related expense
reductions in 1995, but those gains were more than offset by
weakness of the U.S. dollar in international locations in that year
and by expenses of pursuit of new business in the Asia Pacific
region.
General and administrative expense increased by 3% in 1997 after an
increase of 4% in 1996 and a decline of 3% in 1995. The 1997
expense increase results primarily from increased legal expenses
(see "Litigation and Other Risks and Uncertainties"), partially
offset by strengthening of the U.S. dollar against international
currencies. Installation of new internal business systems,
increased legal expenses, and amortization of deferred financing
costs related to the Company's revolving line of credit increased
general and administrative expense in 1996. The decline in 1995 was
the result of headcount reductions, but was limited by the weakness
of the U.S. dollar in international locations in that year and by
the increasing level of business activity in the Asia Pacific
region.
The Company capitalizes a portion of the cost of development of new
products and amortizes those costs against revenues later generated
by those products. Though the Company regularly reviews its
capitalized development costs to ensure recognition of any decline
in value, it is possible that, for any given product, revenues will
not materialize in amounts anticipated due to industry conditions
that include intense price and performance competition, or that
product lives will be reduced due to shorter product cycles. Should
these events occur, the carrying amount of capitalized development
costs would be reduced and produce adverse effects on systems cost
of revenues and results of operations.
Operating Results, Geographic Areas. International markets,
particularly Europe and Asia, continue in importance to the industry
and to the Company. The Company's operations are subject to and may
be adversely affected by a variety of risks inherent in doing
business internationally, such as government policies or
restrictions, currency exchange fluctuations, and other factors.
For 1997, sales outside the U.S. represented 53% of total revenues,
including Europe at 32% and Asia Pacific at 12% of the total.
The Company incurred a loss from operations of $54.9 million in 1997
(including $1.1 million in nonrecurring charges), $68.7 million in
1996 (including $10.5 million in nonrecurring charges), and $54.1
million in 1995 (including a restructuring charge of $6 million).
The factors that have limited the Company's revenue growth and
reduced profitability over the past three years, including declining
per unit sales prices due to competitive conditions and, in 1997,
the previously described actions of Intel, have similarly affected
each of the geographic areas in which the Company does business.
The operating loss decline in 1997 is the result of a 2% decline in
operating expenses. The increased loss from operations in 1996
resulted primarily from flat revenues and a decline in gross margin,
partially offset by a decline in product development and sales and
marketing expenses. The Company's VeriBest, Inc. business unit
incurred losses from operations of $16.4 million in 1997, $15.5
million in 1996, and $20.9 million in 1995, on revenues for these
same periods of $29.3 million, $31 million, and $35.1 million,
respectively.
The U.S. region incurred a loss from operations of $35.4 million in
1997 (including $1.1 million in nonrecurring charges) after
operating losses of $30.3 million in 1996 (including $10.5 million
in nonrecurring charges) and $12.3 million in 1995 (including a
restructuring charge of $4.8 million). Systems revenues increased
by 8% over 1996; however, margin on those sales declined 1.9
percentage points. Maintenance and services revenues declined 11%
for the same period. These negative factors combined with sales and
marketing and general and administrative expense increases of 5% and
12%, respectively, partially offset by a 5% decline in research and
development expense, resulted in the operating loss increase. The
operating loss increase in 1996 resulted from a 2.5 point systems
margin decline, a maintenance and service revenue decline of 10% and
a 13% increase in general and administrative expense. Research and
development and sales and marketing expenses declined 7% and 5%,
respectively, partially offsetting these negative factors.
The European region incurred losses from operations of $20.5 million
in 1997, $29.8 million in 1996, and $27.7 million in 1995 (including
a restructuring charge of $1 million). The improvement in 1997 is
due to a 1.1 point increase in gross margin and declines in sales
and marketing and general and administrative expenses of 11% and 4%,
respectively, due primarily to strengthening of the U.S. dollar.
These improvements were partially offset by a 14% decline in
maintenance and services revenue. Revenues and gross margin
declined 7% and 1 percentage point, respectively, during 1996,
offset to a degree by an approximate 6% decline in both sales and
marketing and general and administrative expenses. Software sales
were weak during the year, while maintenance revenues were adversely
impacted by lower priced products and longer warranty periods.
Operating expenses continue to decline as a result of restructuring
actions and other cost control measures.
The Asia Pacific region incurred losses from operations of $7.9
million in 1997, $5.9 million in 1996, and $10.8 million in 1995.
Up until 1997, this region was the Company's fastest growing with
total revenue increases exceeding 30% in both 1996 and 1995. In
1997, revenues declined by 13% due to poor economic conditions and
reduced demand for the Company's public safety products and
services. The large operating loss in 1995 resulted primarily from
operating expenses incurred in pursuit of new business. The
region's operations in fourth quarter 1997 and first quarter 1998
were adversely impacted by the currency crisis in that region,
particularly in Korea.
Other international regions, in total representing approximately 9%
of total Company revenues in 1997, are comprised of operations in
the Middle East, Canada, and non-U.S. Americas. These regions
earned a net operating profit of $1.6 million in 1997 after
incurring losses of $5.4 million in 1996 and $10.1 million in 1995.
The improvement in 1997 results from revenue and gross margin
increases of 15% and 3.5 percentage points, respectively.
Additionally, operating expenses decreased by 8%.
See Note 11 of Notes to Consolidated Financial Statements for
further details of operations by geographic area.
Nonoperating Income and Expense. Interest expense was $6.6 million
in 1997, $5.1 million in 1996, and $4.2 million in 1995. The
Company's average outstanding debt has increased over the three year
period. The Company's average rate of interest on the debt has
declined approximately 2 points from the 1996 level due primarily to
a change in lenders and terms under the Company's primary credit
facility. See "Liquidity and Capital Resources" below for a
discussion of the Company's current financing arrangements.
In 1996, the Company entered into an interest rate swap agreement in
the principal amount (approximately $13 million at December 31,
1997) of its Australian floating rate term loan agreement. The
agreement is for a period of approximately six years, and its
expiration date coincides with that of the term loan. The agreement
was entered into to reduce the risk of increase in interest rates.
Under the agreement, the Company pays a 9.58% fixed rate of interest
and receives payment based on a variable rate of interest, and is
thus exposed to market risk of potential future decreases in
interest rates. The weighted average receive rates of the agreement
at December 31, 1997 and 1996 were 6.49% and 7.06%, respectively.
The agreement had an insignificant effect on the total cash flows of
the Company in 1997 and 1996. The Company does no trading in this
form of derivative instrument.
In 1997, the Company incurred a $6.1 million or $.13 per share
charge for a contract arbitration award to Bentley Systems, Inc.
This charge is included in "Arbitration award" in the 1997
consolidated statement of operations. See "Litigation and Other
Risks and Uncertainties" and "Revenues" preceding for further
discussion of the Company's business relationship with Bentley, its
sales of MicroStation, and the financial effects on the Company of
changes in this business relationship.
Also in 1997, the Company sold a stock investment in a publicly
traded affiliate, resulting in a gain of $4.9 million or $.10 per
share. The Company sold stock investments in affiliated companies
at gains of $11.2 million or $.23 per share in 1996 and $6.5 million
or $.14 per share in 1995. These gains are included in "Gains on
sales of investments in affiliates" in the consolidated statements
of operations.
"Other income (expense) - net" in the consolidated statements of
operations consists primarily of interest income, foreign exchange
losses, equity in the earnings of investee companies, and other
miscellaneous items of nonoperating income and expense. Significant
items included in these amounts are foreign exchange losses of $2.7
million in 1997 and $4.6 million in 1996, and equity in the earnings
of investee companies of $4.3 million in 1995.
Income Taxes. The Company incurred losses before income taxes of
$66.2 million in 1997, $66.1 million in 1996, and $45.3 million in
1995. Income tax expense in 1997 and 1996 results from taxes on
individually profitable international subsidiaries.
Note 8 of Notes to Consolidated Financial Statements contains a
reconciliation of statutory to actual income tax benefit or expense
and further details of the Company's tax position, including net
operating loss carryforwards.
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 1997, approximately 53% 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 U.S. dollars for
reporting purposes. A stronger U.S. dollar will decrease the level
of reported U.S. dollar orders and revenues, decrease the dollar
gross margin, and decrease reported dollar operating expenses of the
international subsidiaries. During 1997 the U.S. dollar
strengthened on average from the prior year 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 strengthening of the
U.S. dollar in 1997 in its international markets, primarily Europe,
adversely impacted 1997 results of operations by approximately $.30
per share, and weakening of the U.S. dollar in 1995 improved 1995
results of operations by approximately $.22 per share. Such
currency effects did not materially affect the Company's results of
operations in 1996.
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 and Asia. Local currencies are
the functional currencies for the Company's European subsidiaries.
The U.S. dollar is the functional currency for all other
international subsidiaries. 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 related to certain balance sheet items, primarily
intercompany receivables, payables, and formalized intercompany
debt. Periodic changes in the value of these contracts offset
exchange rate related changes in the financial statement value of
these balance sheet items. Forward exchange contracts are purchased
with maturities reflecting the expected settlement dates of these
balance sheet items (generally three months or less), and only in
amounts sufficient to offset possible significant currency rate
related changes in the recorded values of these balance sheet items,
which represent a calculable exposure for the Company from period to
period. Since this risk is calculable, and these contracts are
purchased only in offsetting amounts, neither the contracts
themselves nor the exposed foreign currency denominated balance
sheet items are likely to have a significant effect on the Company's
financial position or results of operations. Based on the terms of
contracts outstanding and the amount of the related balance sheet
exposures at December 31, 1997, the Company's results of operations
would not be materially affected by a 10% increase or decrease in
exchange rates underlying the contracts and the exposures being
hedged. The Company does not generally hedge exposures related to
foreign currency denominated assets and liabilities that are not of
an intercompany nature, unless a significant risk has been
identified. It is possible the Company could incur significant
exchange gains or losses in the case of significant, abnormal
fluctuations in a particular currency. By policy, the Company is
prohibited from market speculation via forward exchange contracts
and therefore does not take currency positions exceeding its known
financial statement exposures, and does not otherwise trade in
currencies.
At December 31, 1997, the Company had net outstanding forward
exchange contracts of approximately $37 million ($19 million at
December 31, 1996), maturing at various dates through March 31,
1998. The fair values of these contracts approximated original
contract amounts based on the insignificant amounts the Company
would pay or receive to transfer the contracts to third parties at
December 31, 1997. Net cash flow from forward contract activity,
consisting of realized gains and losses from settlement of exposed
assets and liabilities at exchange rates in effect at the settlement
date rather than at the time of recording, settlement of the forward
contracts purchased to mitigate these exposures, and payment of bank
fees on the forward contracts was not significant for any year in
the three year period ended December 31, 1997. Deferred gains and
losses as of December 31, 1997 and 1996 were not significant.
See Notes 1 and 4 of Notes to Consolidated Financial Statements for
further information related to management of currency risk.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, cash totaled $46.6 million, down $4 million
from year end 1996. Net cash consumed by operations in 1997 was
$20.9 million versus net cash generated by operations of $26 million
in 1996 and $59.8 million in 1995 (including $22.3 million in tax
refunds, primarily from carryback of U.S. taxable losses to prior
years). An inventory build-up consumed approximately $16 million
during 1997 as a result of anticipated increased hardware unit sales
volume and customer demand for faster delivery of products.
Net cash consumed by investing activities totaled $30.7 million in
1997, $31.7 million in 1996, and $83 million in 1995. Included in
investing activities were capital expenditures of $24.8 million in
1997, $30.6 million in 1996, and $54.7 million in 1995 primarily for
Intergraph products used in hardware and software development and
sales and marketing activities. In addition, investing activity in
1995 also included capital expenditures for facilities and equipment
utilized in a long-term Australian public safety contract. Other
significant investing activities included expenditures of $10.6
million in 1997, $15.5 million in 1996, and $25.4 million in 1995
for capitalizable software development activity, and proceeds of
$5.7 million in 1997, $11.6 million in 1996, and $7.9 million in
1995 from sales of a business unit and investments in affiliated
companies.
Net cash generated from financing activities totaled $48.4 million
in 1997 and $17.8 million in 1995. Significant sources of financing
cash included net borrowings of $44.9 million in 1997 and proceeds
from employee stock purchases and exercises of stock options of $12
million in 1995.
The Company's collection period for accounts receivable was
approximately 80 days as of December 31, 1997, representing a slight
improvement from the prior year. Approximately 70% of the Company's
1997 revenues were derived from the U.S. government and
international customers, both of which traditionally carry longer
collection periods. The Company is experiencing slow collection
periods throughout the Middle East region, particularly in Saudi
Arabia. Total accounts receivable from Middle Eastern customers was
approximately $21 million at December 31, 1997 and 1996. Total U.S.
government accounts receivable was $52 million at December 31, 1997
($48 million at December 31, 1996). The Company endeavors to
enforce its payment terms with these and other customers, and grants
extended payment terms only in very limited circumstances.
The Company expects that capital expenditures will require $25
million to $30 million in 1998, primarily for Intergraph products
used in product development and sales and marketing activities. The
Company's revolving credit agreement contains certain restrictions
on the level of the Company's capital expenditures.
In October 1995, the Company entered into a three year revolving
credit agreement with a group of lenders. Borrowings available
under the agreement were determined by the amounts of eligible
assets of the Company, with maximum borrowings of $50 million. At
December 31, 1996, the Company had outstanding borrowings of $20
million, and an additional $22 million of the available credit line
was allocated to support letters of credit issued by the Company.
Borrowings were secured by a pledge of substantially all of the
Company's assets in the U.S. and Canada and, under certain
circumstances, the accounts receivable of some European subsidiaries
of the Company. The rate of interest on all borrowings under the
agreement was, at the Company's option, the Citibank base rate of
interest plus 1.75% or the Eurodollar rate plus 2.75%. The average
effective rate of interest was 10.6% for the period of time in 1996
during which the Company had outstanding borrowings under the
agreement. The agreement required the Company to pay a commitment
fee at an annual rate of .5% of the average unused daily portion of
the revolving credit commitment. In addition, the agreement
contained certain financial and restrictive covenants of the
Company. In January 1997, the Company terminated its agreement
with this group of lenders and replaced it with a term loan and
revolving credit agreement with another lender. As a result,
the Company wrote off $3.3 million of deferred financing costs
associated with the previous agreement. The charge is included
in "Nonrecurring operating charges" in the 1996 consolidated
statement of operations.
Under the Company's January 1997 four 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 $125 million. The $25 million term loan portion of
the agreement is 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 December 31, 1997) plus
.625%. The average effective rate of interest was 9.12% for the
period of time in 1997 during which the Company had outstanding
borrowings under this agreement. 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 December 31,
1997, the Company had outstanding borrowings of $64.6 million, $25
million of which was classified as long-term debt in the
consolidated balance sheet, and an additional $41.3 million of the
available credit line was allocated to support letters of credit
issued by the Company and the Company's forward exchange contracts.
As of this same date, the borrowing base, representing the maximum
available credit under the line, was $121 million ($112 million at
February 27, 1998).
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. 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%.
See "Zydex Litigation" preceding for a description of a debt
transaction entered into subsequent to December 31, 1997.
At December 31, 1997, the Company had approximately $93 million in
debt on which interest is charged under various floating rate
arrangements, primarily under its four year term loan and revolving
credit agreement, mortgages, and an Australian term loan (see Note 7
of Notes to Consolidated Financial Statements). The Company is
exposed to market risk of future increases in interest rates on
these loans, with the exception of the Australian term loan, on
which the Company has entered into an interest rate swap agreement.
The Company is not currently generating adequate cash to fund its
operations and build cash reserves. However, the Company believes
that existing cash balances, together with cash generated by the
sale of its Solid Edge and Engineering Modeling System product lines
to Unigraphics Solutions, Inc. (see "Subsequent Events" following),
and cash available under its term loan and revolving credit
agreement will be adequate to meet cash requirements for 1998. The
Company, in the near term, must increase sales volume and align its
operating expenses with the level of revenue being generated in
order to fund its operations and build cash reserves without
reliance on funds generated from the sale of long-term assets and
third party financing.
FOURTH QUARTER 1997
Revenues for the fourth quarter were $300.9 million, up 2% from
fourth quarter 1996. The Company incurred a net loss of $20.7
million ($.43 per share) for the quarter versus a fourth quarter
1996 net loss of $33.6 million ($.71 per share), including a $10.5
million ($.21 per share) nonrecurring operating charge. In addition
to the effect of the nonrecurring charge incurred in 1996, the
improvement in fourth quarter 1997 earnings resulted from a 4%
decline in operating expenses, primarily for research and
development. The Company estimates that the comparative strength of
the U.S. dollar in the fourth quarter of 1997 adversely impacted
results of operations by $.15 per share from the fourth quarter 1996
level.
SUBSEQUENT EVENTS
In February 1998, the Company established a plan to restructure its
European operations to further align operating expense and revenue
levels in that region. The cost of this restructuring is estimated
at $4.4 million, primarily for severance pay and related costs. The
60 positions planned for elimination by the end of second quarter
1998 are in the sales and marketing, general and administrative, and
pre- and post-sales support areas. The cash outlay related to this
charge is expected to approximate the amount of the charge and will
be funded by existing cash and/or borrowings under the Company's
revolving line of credit. The Company estimates the restructuring
action will result in annual savings of approximately $4.5 million.
On March 2, 1998, the Company closed its transaction with Electronic
Data Systems Corporation and its Unigraphics Solutions, Inc.
subsidiary, in which the Company sold certain of the assets of its
Solid Edge and Engineering Modeling System product lines for $105
million in cash. The Company anticipates a gain on this transaction
of approximately $100 million. Additionally, the Company estimates
the sale of this business will result in a reduction of its 1998
revenues by approximately $30 million, if not replaced, and an
improvement in its operating results of approximately $5 million,
excluding the impact of the estimated $100 million gain on the sale.
See "Zydex Litigation" preceding for a description of a debt
transaction entered into subsequent to December 31, 1997.
ORGANIZATIONAL CHANGES
Effective January 1, 1998, the Company's business organization is
comprised of Intergraph Corporation, the parent company, and three
subsidiary corporations as follows: Intergraph Corporation, the
parent company (may also be referred to as Intergraph Industry
Solutions), Intergraph Computer Systems, Inc., Intergraph Public
Safety, Inc., and VeriBest, Inc. The Company believes that this
business structure will provide greater focus and clear accountability
of each entity as a separate business enterprise.
Intergraph Computer Systems, Inc., a wholly owned subsidiary of
Intergraph Corporation, supplies high performance Windows NT-based
graphics workstations and PCs, 3D graphics subsystems, servers, and
other hardware products.
Intergraph Industry Solutions supplies software and solutions,
including hardware, consulting and services, to the federal
government and to the process and building and infrastructure
industries.
Intergraph Public Safety, Inc. and VeriBest, Inc. are wholly owned
subsidiaries of Intergraph Corporation. Public Safety develops,
markets, and implements systems for public safety agencies.
VeriBest serves the electronics design automation market, providing
software design tools, design processes, and consulting services for
developers of electronic systems.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------
December 31, 1997 1996
- -----------------------------------------------------------------------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 46,645 $ 50,674
Accounts receivable, net 324,654 326,117
Inventories 105,032 89,411
Other current assets 25,693 37,718
- -----------------------------------------------------------------------
Total current assets 502,024 503,920
Investments in affiliates 14,776 19,102
Other assets 53,566 59,106
Property, plant, and equipment, net 150,623 174,219
- -----------------------------------------------------------------------
Total Assets $720,989 $756,347
=======================================================================
Liabilities and Shareholders' Equity
Trade accounts payable $ 60,945 $ 51,205
Accrued compensation 48,330 50,364
Other accrued expenses 71,126 72,798
Billings in excess of sales 66,680 62,869
Short-term debt and current maturities
of long-term debt 50,409 35,880
- -----------------------------------------------------------------------
Total current liabilities 297,490 273,116
Deferred income taxes 460 6,204
Long-term debt 54,256 29,764
- -----------------------------------------------------------------------
Total liabilities 352,206 309,084
- -----------------------------------------------------------------------
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 226,362 229,675
Retained earnings 269,442 339,679
Unrealized holding gain on securities
of affiliate --- 6,858
Cumulative translation adjustment 1,090 6,049
- -----------------------------------------------------------------------
502,630 587,997
Less -- cost of 9,183,845 treasury shares
at December 31, 1997, and 9,656,295
treasury shares at December 31, 1996 (133,847) (140,734)
- -----------------------------------------------------------------------
Total shareholders' equity 368,783 447,263
- -----------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $720,989 $756,347
=======================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues
Systems $ 786,278 $ 725,828 $ 710,168
Maintenance and services 338,027 369,505 387,810
- ------------------------------------------------------------------------------
Total revenues 1,124,305 1,095,333 1,097,978
- ------------------------------------------------------------------------------
Cost of revenues
Systems 514,416 465,645 439,502
Maintenance and services 209,550 226,263 228,785
- ------------------------------------------------------------------------------
Total cost of revenues 723,966 691,908 668,287
- ------------------------------------------------------------------------------
Gross profit 400,339 403,425 429,691
Product development 98,073 103,397 111,587
Sales and marketing 251,833 256,482 268,702
General and administrative 104,254 101,725 97,507
Restructuring charge --- --- 6,040
Nonrecurring operating charges 1,095 10,545 ---
- ------------------------------------------------------------------------------
Loss from operations (54,916) (68,724) (54,145)
Interest expense ( 6,614) ( 5,137) ( 4,198)
Arbitration award ( 6,126) --- ---
Gains on sales of investments in affiliates 4,858 11,173 6,493
Other income (expense) -- net ( 3,439) ( 3,424) 6,502
- ------------------------------------------------------------------------------
Loss before income taxes (66,237) (66,112) (45,348)
Income tax expense ( 4,000) ( 3,000) ---
- ------------------------------------------------------------------------------
Net loss $(70,237) $(69,112) $(45,348)
==============================================================================
Net loss per share-basic and diluted $( 1.46) $( 1.46) $( .98)
==============================================================================
Weighted average shares outstanding 47,945 47,195 46,077
==============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
(In thousands)
Cash Provided By (Used For):
Operating Activities:
Net loss $(70,237) $(69,112) $(45,348)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 60,332 75,820 80,157
Noncash portion of arbitration award 5,835 --- ---
Noncash portion of nonrecurring
operating charges and restructuring charge --- 10,545 2,449
Deferred income tax expense 1,555 2,496 3,175
Collection of income tax refunds 719 2,113 22,264
Gains on sales of investments in affiliates ( 4,858) (11,173) ( 6,493)
Net changes in current assets and
liabilites (14,292) 15,324 3,629
- -------------------------------------------------------------------------------
Net cash provided by (used for)
operating activities (20,946) 26,013 59,833
- -------------------------------------------------------------------------------
Investing Activities:
Proceeds from sales of divisions
and investments in affiliates 5,749 11,561 7,908
Purchases of property, plant, and equipment (24,785) (30,563) (54,689)
Capitalized software development costs (10,592) (15,492) (25,370)
Other ( 1,038) 2,816 (10,799)
- -------------------------------------------------------------------------------
Net cash used for investing activities (30,666) (31,678) (82,950)
- -------------------------------------------------------------------------------
Financing Activities:
Gross borrowings 75,896 18,366 65,652
Debt repayment (30,950) (22,764) (59,844)
Proceeds of employee stock purchases and
exercises of stock options 3,483 3,834 12,027
- -------------------------------------------------------------------------------
Net cash provided by (used for)
financing activities 48,429 ( 564) 17,835
- -------------------------------------------------------------------------------
Effect of exchange rate changes on cash ( 846) 496 296
- -------------------------------------------------------------------------------
Net decrease in cash and cash equivalents ( 4,029) ( 5,733) ( 4,986)
Cash and cash equivalents at beginning of year 50,674 56,407 61,393
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 46,645 $ 50,674 $ 56,407
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Unrealized
Holding
Additional Gain on Cumulative Total
Common Paid-in Retained Securities Translation Treasury Shareholders'
Stock Capital Earnings of Affiliate Adjustment Stock Equity
- ----------------------------------------------------------------------------------------------------------------------
(In thousands except share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $5,736 $243,295 $454,139 --- $2,458 $(183,291) $522,337
Issuance of 358,687 shares under
employee stock purchase plan --- (1,512) --- --- --- 5,228 3,716
Issuance of 836,469 shares upon
exercise of stock options --- (3,881) --- --- --- 12,192 8,311
Issuance of 797,931 shares upon
purchase of a business --- (4,130) --- --- --- 11,630 7,500
Translation adjustments --- --- --- --- 6,192 --- 6,192
Issuance of 81,686 shares for
other purposes --- 168 --- --- --- 1,188 1,356
Net loss for the year --- --- (45,348) --- --- --- (45,348)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,736 233,940 408,791 --- 8,650 (153,053) 504,064
Issuance of 352,759 shares under
employee stock purchase plan --- (1,594) --- --- --- 5,143 3,549
Issuance of 53,898 shares upon
exercise of stock options --- ( 501) --- --- --- 786 285
Issuance of 438,357 shares in
connection with a professional
services agreement --- (2,390) --- --- --- 6,390 4,000
Unrealized holding gain on
securities of affiliate --- --- --- $6,858 --- --- 6,858
Translation adjustments --- --- --- --- (2,601) --- ( 2,601)
Other --- 220 --- --- --- --- 220
Net loss for the year --- --- (69,112) --- --- --- (69,112)
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,736 229,675 339,679 6,858 6,049 (140,734) 447,263
Issuance of 432,263 shares under
employee stock purchase plan --- (3,149) --- --- --- 6,301 3,152
Issuance of 40,187 shares upon
exercise of stock options --- ( 255) --- --- --- 586 331
Unrealized holding gain on
securities of affiliate --- --- --- (6,858) --- --- ( 6,858)
Translation adjustments --- --- --- --- (4,959) --- ( 4,959)
Other --- 91 --- --- --- --- 91
Net loss for the year --- --- (70,237) --- --- --- (70,237)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $5,736 $226,362 $269,442 $ --- $1,090 $(133,847) $368,783
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES.
Basis of Presentation: The consolidated financial statements
include the accounts of Intergraph Corporation and its majority-
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires that management
make estimates and assumptions that affect the amounts reported in
the financial statements and determine whether contingent assets
and liabilities, if any, are disclosed in the financial statements.
The ultimate resolution of issues requiring these estimates and
assumptions could differ significantly from the resolution
currently anticipated by management and on which the financial
statements are based.
The Company's business is principally in one industry segment - the
development, manufacturing, marketing, and service of interactive
computer graphics systems. Effective January 1, 1998, the Company
has divided its business into four separate entities: Intergraph
Computer Systems, Inc., Intergraph Industry Solutions,
Intergraph Public Safety, Inc., and VeriBest, Inc. Computer
Systems supplies high performance Windows NT-based graphics
workstations and PCs, 3D graphics subsystems, servers, and other
hardware products. Industry Solutions supplies software and
solutions, including hardware, consulting, and services to the
federal government and to the process and building and
infrastructure industries. Public Safety develops, markets, and
implements systems for public safety agencies. VeriBest serves the
electronics design automation market, providing software design
tools, design processes, and consulting services to developers of
electronic systems. The Company's products are sold worldwide,
with United States and European revenues representing approximately
77% of total revenues for 1997.
The Company's hardware products and integrated software
applications are used for computer-aided design, manufacturing, and
engineering, mapping and geographic information services, public
safety, and technical information management in technical fields
such as utilities, facilities management, architecture,
engineering, construction, mechanical, and electronics design, and
mapping and geographic information systems.
Cash Equivalents: The Company's excess funds are generally
invested in short-term, highly liquid, interest-bearing securities,
which may include short-term municipal bonds, time deposits, money
market preferred stocks, commercial paper, and U.S. government
securities. The Company's investment policy limits the amount of
credit exposure to any single issuer of securities. All cash
equivalents are stated at fair market value based on quoted market
prices. Investments with original maturities of three months or
less are considered to be cash equivalents for purposes of
financial statement presentation.
The Company's investments in debt securities are valued at fair
market value with any unrealized gains and losses reported as a
component of shareholders' equity, net of tax. At December 31,
1997 and 1996, the Company held various debt securities, all within
three months of maturity at those dates, with fair market values of
$10,000,000 and $16,000,000, respectively. Gross realized gains
and losses on debt securities sold during the years ended December
31, 1997 and 1996, were not significant, and there were no
unrealized holding gains or losses on debt securities at December
31, 1997 or 1996.
Inventories: Inventories are stated at the lower of average cost
or market and are summarized as follows:
- ------------------------------------------------------------
December 31, 1997 1996
- ------------------------------------------------------------
(In thousands)
Raw materials $ 35,799 $26,601
Work-in-process 37,357 24,008
Finished goods 11,760 12,945
Service spares 20,116 25,857
- ------------------------------------------------------------
Totals $105,032 $89,411
============================================================
The industry in which the Company competes is characterized by
rapid technological change. This technological change is an
important consideration in the Company's overall inventory
management program, in which the Company endeavors to carry only
parts and systems utilizable with the technology of its current
product offerings and as spares for the contracted maintenance of
systems in its installed customer base. The Company regularly
estimates the degree of technological obsolescence in its
inventories and provides inventory reserves on that basis. Though
the Company believes it has adequately provided for any such
declines in inventory value to date, any unanticipated change in
technology could significantly affect the value of the Company's
inventories and thereby adversely affect gross margins and reported
results of operations.
Investments in Affiliates: Investments in companies in which the
Company believes it has the ability to influence operations or
finances, generally 20%- to 50%-owned companies, are accounted for
by the equity method. Investments in companies in which the
Company does not exert such influence, generally in less than 20%-
owned companies, are accounted for at fair value if such values are
readily determinable, and at cost if such values are not readily
determinable. The Company's investments accounted for by the cost
method are insignificant.
During 1997 the Company sold its stock investment in a publicly
traded affiliate at a gain of $4,858,000. At December 31, 1996,
the unrealized gain on this investment resulting from periodic mark-
to-market adjustments totaled $6,858,000 and is included in
"Investments in affiliates" and "Unrealized holding gain on
securities of affiliate" in the consolidated balance sheet at that
date. The Company sold stock investments in affiliated companies
at gains of $11,173,000 in 1996 and $6,493,000 in 1995. These
gains are included in "Gains on sales of investments in affiliates"
in the consolidated statements of operations.
Property, Plant, and Equipment: Property, plant, and equipment,
summarized below, is stated at cost. Depreciation is provided
using the straight line method over the estimated useful lives
described below.
- ----------------------------------------------------------------------
December 31, 1997 1996
- ----------------------------------------------------------------------
(In thousands)
Land and improvements (15-30 years) $ 13,664 $ 14,943
Buildings and improvements (30 years) 136,517 146,251
Equipment, furniture, and fixtures (3-8 years) 290,217 320,561
- ----------------------------------------------------------------------
440,398 481,755
Allowances for depreciation (289,775) (307,536)
- ----------------------------------------------------------------------
Totals $150,623 $174,219
======================================================================
Treasury Stock: Treasury stock is accounted for by the cost
method. The Board of Directors of the Company has authorized the
purchase of up to 20,000,000 shares of the Company's common stock
in the open market. As of December 31, 1997, the Company had
purchased approximately 18,800,000 shares for the treasury with the
last purchase occurring in 1994. Further purchases of treasury
stock are restricted by terms of the Company's term loan and
revolving credit agreement. See Note 7. Treasury stock activity
is presented in the consolidated statements of shareholders'
equity.
Revenue Recognition: Revenues from systems sales with no
significant post-shipment obligations are recognized as equipment
and/or software are shipped, with any post-shipment costs accrued
at that time. Revenues on systems sales with significant post-
shipment obligations are recognized by the percentage-of-completion
method, with progress to completion measured on the basis of
completion of milestones, labor costs incurred currently versus the
total estimated cost of performing the contract over its term, or
other factors appropriate to the individual contract of sale. The
total amount of revenues to be earned under these contracts is
generally fixed by contractual terms. The Company regularly
reviews its progress on these contracts and revises the estimated
costs of fulfilling its obligations. Due to uncertainties inherent
in the estimation process, it is possible that completion costs
will be further revised on some of the Company's long-term
contracts, which could delay revenue recognition and decrease the
gross margin to be earned on these contracts. Any losses
identified in the review process are recognized in full in the
period in which determined. Revenues from certain contracts with
the U.S. government, primarily cost-plus award fee contracts, are
recognized monthly as costs are incurred and fees are earned under
the contracts.
Maintenance and services revenues are recognized ratably over the
lives of the maintenance contracts or as services are performed.
The American Institute of Certified Public Accountants has issued
Statement of Position 97-2, Software Revenue Recognition, effective
for fiscal years beginning after December 15, 1997. The Statement
requires each element of a software sale arrangement to be
separately identified and accounted for based on the relative fair
value of each element. Revenue cannot be recognized on any element
of the sale arrangement if undelivered elements are essential to
functionality of the delivered elements. The Statement replaces
the previous method of software revenue recognition, under which a
distinction was made between significant and insignificant post
shipment obligations for revenue recognition purposes. The Company
does not expect adoption of this new accounting standard to
significantly affect its 1998 results of operations since the
Company's revenue recognition policies have historically been in
substantial compliance with the practices required by the new
pronouncement.
Billings may not coincide with the recognition of revenue.
Unbilled accounts receivable occur when revenue recognition
precedes billing to the customer, and arise primarily from
commercial sales with predetermined billing schedules, U.S.
government sales with billing at the end of a performance period,
and U.S. government cost-plus award fee contracts. Billings in
excess of sales occur when billing to the customer precedes revenue
recognition, and arise primarily from maintenance revenue billed in
advance of performance of the maintenance activity and systems
revenue recognized on the percentage-of-completion method.
Product Development Costs: The Company capitalizes certain costs
of computer software development incurred after the technological
feasibility of the product has been established. Such capitalized
costs are amortized over a two-year period on a straight-line
basis. Amortization expense included in "Cost of revenues -
Systems" in the consolidated statements of operations amounted to
$13,600,000 in 1997, $16,100,000 in 1996, and $14,700,000 in 1995.
The unamortized balance of capitalized software development costs,
included in "Other assets" in the consolidated balance sheets,
totaled $23,300,000 and $26,400,000 at December 31, 1997 and 1996,
respectively.
Although the Company regularly reviews its capitalized development
costs to ensure recognition of any decline in value, it is possible
that revenues expected to be generated by these development
activities will not materialize in amounts anticipated due to
industry conditions that include intense price and performance
competition, or that product lives will be reduced due to shorter
product cycles. Should either of these events occur, the carrying
amount of capitalized development costs would be reduced, producing
adverse effects on systems cost of revenues and results of
operations.
Foreign Currency Exchange and Translation: Local currencies are
the functional currencies for the Company's European subsidiaries.
The U.S. dollar is the functional currency for all other
international subsidiaries. Foreign currency gains and losses
resulting from remeasurement or settlement of receivables and
payables denominated in a currency other than the functional
currency, together with gains and losses and fees paid in
connection with the Company's forward exchange contracts, are
included in "Other income (expense) - net" in the consolidated
statements of operations. Net exchange losses totaled $2,700,000
in 1997, $4,600,000 in 1996, and $300,000 in 1995. Translation
gains and losses resulting from translation of subsidiaries'
financial statements from the functional currency into dollars for
U.S. reporting purposes and foreign currency gains and losses
resulting from remeasurement of intercompany advances of a long-
term investment nature are included in the "Cumulative translation
adjustment" component of shareholders' equity.
Derivative Financial Instruments: Derivatives utilized by the
Company consist of forward exchange contracts and interest rate
swap agreements. The Company is prohibited by policy from taking
derivative positions exceeding its known balance sheet exposures
and from otherwise trading in derivative financial instruments.
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
related to certain balance sheet items, primarily 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. These forward exchange contracts are purchased with
maturities reflecting the expected settlement dates of the balance
sheet items being hedged, which are generally less than three
months, and only in amounts sufficient to offset possible
significant currency rate related changes in the recorded values of
these balance sheet items. The Company does not generally hedge
the exposures related to other foreign currency denominated assets
and liabilities, unless a significant risk has been identified.
Forward exchange contracts are accounted for under the fair value
method. Under this method, realized and unrealized gains and
losses on forward exchange contracts are recognized as offsets to
gains and losses resulting from the underlying hedged transactions
in the period in which exchange rates change and are included in
"Other income (expense) - net" in the consolidated statements of
operations. Bank fees charged on the contracts are amortized over
the period of the contract. Gain or loss on termination of a
forward exchange contract is recognized in the period in which the
contract is terminated. In the event of early settlement of a
hedged intercompany asset or liability, the related forward
exchange contract gains or losses are recognized in the period in
which exchange rates change.
The Company enters into interest rate swap agreements to reduce the
risk of increases in interest rates on certain of its outstanding
floating rate debt. The Company enters into agreements in which
the principal and term of the interest rate swap match those of the
specific debt obligation being hedged. The Company pays a fixed
rate of interest and receives payment based on a variable rate of
interest, and is thus exposed to market risk of potential decreases
in interest rates. Interest rate swap agreements are accounted for
under the accrual method. Under this method, the differences in
amounts paid and received under interest rate swap agreements are
recognized in the period in which the payments and receipts occur
and are included in "Interest expense" in the consolidated
statements of operations. Gain or loss on termination of an
interest rate swap agreement is deferred and amortized as an
adjustment to interest expense over the remaining term of the
original contract life of the terminated swap agreement. In the
event of early extinguishment of a debt obligation, any realized or
unrealized gain or loss on the related swap agreement is recognized
in income coincident with the extinguishment gain or loss.
Amounts payable to or receivable from counterparties related to
derivative financial instruments are included in "Other accrued
expenses" or "Other current assets" in the consolidated balance
sheets. These amounts were not significant at December 31, 1997 or
1996.
See Note 4 for further details of the Company's derivative
financial instruments.
Stock-Based Compensation Plans: The Company has two stock-based
compensation plans, a fixed stock option plan and a stock purchase
plan.
Under the fixed stock option plan, stock options may be granted to
employees at fair market value or at a price less than fair market
value at the date of grant. No compensation expense is recognized
for options granted at fair market value. Expense associated with
grants at less than fair market value, equal to the difference in
exercise price and fair market value at the date of grant, is
recognized over the vesting period of the options.
Under the stock purchase plan, employees purchase stock of the
Company at 85% of the closing market price of the Company's stock
as of the last pay date of each calendar month. No compensation
expense is recognized for the difference in price paid by employees
and the fair market value of the Company's stock at the date of
purchase.
In accordance with the disclosure provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, adopted by the Company December 31, 1996, the Company
has provided pro forma basis information to reflect results of
operations and earnings per share had compensation expense been
recognized for stock options granted at market value at date of
grant and for employee stock purchases. See Note 9.
Income Taxes: The provision for income taxes includes federal,
international, and state income taxes currently payable or
refundable and income taxes deferred because of temporary
differences between the financial statement and tax bases of assets
and liabilities. See Note 8.
Net Loss Per Share: Effective December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share. Under this Statement, "basic earnings per
share" excludes any dilutive effects of common stock equivalents,
and "diluted earnings per share" is similar to the previously
reported fully diluted earnings per share. Adoption of this
Statement had no impact on the Company's loss per share
calculations for any year in the three year period ended December
31, 1997, due to the antidilutive impact of the Company's employee
stock options, which are the Company's only common stock equivalent
(see Note 9). Weighted average common and equivalent common shares
outstanding for both the basic and diluted loss per share
calculations for the years ended December 31, 1997, 1996, and 1995
were 47,945,000, 47,195,000, and 46,077,000, respectively.
Reclassifications: Certain reclassifications have been made to the
previously reported consolidated statements of operations and cash
flows for the years ended December 31, 1996 and 1995 to provide
comparability with the current year presentation.
Subsequent Events: See Note 15 for discussion of events occurring
subsequent to December 31, 1997 and whose effects therefore are not
included in these financial statements.
NOTE 2 -- LITIGATION AND OTHER RISKS AND UNCERTAINTIES.
In addition to those described in Notes 1, 4, 6, 7, and 11, the
Company has risks related to certain litigation and to its business
and economic environment, including those described in "Litigation
and Other Risks and Uncertainties" included in Management's
Discussion and Analysis of Financial Condition and Results of
Operations on pages 15 to 19 of this annual report.
NOTE 3 -- RESTRUCTURING AND NONRECURRING OPERATING CHARGES.
The Company recorded a restructuring charge totaling $6,040,000 in
1995 and nonrecurring operating charges totaling $10,545,000 in
1996. For a complete description of these charges, see
"Restructuring and Nonrecurring Operating Charges" included in
Management's Discussion and Analysis of Financial Condition and
Results of Operations on page 15 of this annual report.
NOTE 4 -- FINANCIAL INSTRUMENTS.
Information related to the Company's financial instruments, other
than cash equivalents and stock investments in less than 20%-owned
companies, is summarized below.
Short- and Long-Term Debt: The balance sheet carrying amounts of
the Company's floating rate debt (approximately $93,000,000 at
December 31, 1997), consisting primarily of loans under a revolving
credit agreement, mortgages, and a term loan (see Note 7),
approximate fair market values since interest rates on the debt
adjust periodically to reflect changes in market rates of interest.
With the exception of the Australian term loan (see Note 7), the
Company is exposed to market risk of future increases in interest
rates on these loans. The carrying amounts of fixed rate debt
approximate fair market values based on current interest rates for
debt of the same remaining maturities and character.
Forward exchange contracts: Outstanding notional amounts for the
Company's forward exchange contracts were $37,357,000 and
$18,618,000 at December 31, 1997 and 1996, respectively. The table
below summarizes in U.S. dollars the face amounts of these
contracts by major currency. For purposes of presentation, foreign
currency amounts are translated to dollars at the rates in effect
at each balance sheet date. "Sell" amounts represent the U.S.
dollar equivalent of commitments to sell currencies, and "buy"
amounts represent the U.S. dollar equivalent of commitments to
purchase currencies.
- ---------------------------------------------------------------------------
December 31, 1997 1996
---------------------------- ---------------------------
Net Forward Net Forward
Contract Contract
Sell Buy Position Sell Buy Position
- ---------------------------------------------------------------------------
(In thousands)
German mark $22,536 $ 5,217 $17,319 $18,127 $ 4,736 $13,391
Italian lira 12,271 814 11,457 6,754 395 6,359
British pound 7,573 8,827 (1,254) 3,952 8,784 (4,832)
French franc 4,362 1,836 2,526 6,018 656 5,362
Swiss franc 1,564 5,386 (3,822) 378 7,495 (7,117)
Spanish peseta 1,407 1,296 111 2,081 1,059 1,022
Belgian franc 1,254 230 1,024 2,186 75 2,111
Other currencies 14,354 4,358 9,996 5,781 3,459 2,322
- ---------------------------------------------------------------------------
Totals $65,321 $27,964 $37,357 $45,277 $26,659 $18,618
===========================================================================
These notional amounts do not necessarily represent amounts to be
exchanged between the Company and the counterparties to the forward
exchange contracts, and as such, they do not represent the amount
of the Company's currency related exposures at those dates. The
amounts potentially subject to risk, arising from the possible
inability of the counterparties to meet the terms of the contracts,
are generally limited to the amounts, if any, by which the
counterparties' obligations exceed those of the Company. Net
receivables from counterparties related to forward exchange
contracts were not significant at December 31, 1997 or 1996. These
carrying amounts approximated fair value at those dates due to the
short duration (generally three months or less) of the contracts.
Based on the terms of outstanding forward exchange contracts and
the amount of the related balance sheet exposures at December 31,
1997 and 1996, the Company's results of operations would not be
materially affected by a 10% increase or decrease in exchange rates
underlying the contracts and the exposures hedged. Cash
requirements of forward exchange contracts are limited to receipt
of an amount equal to the exchange gain or payment of an amount
equal to the exchange loss at the contract settlement date, and
payment of bank fees related to the contracts. Net cash flow from
forward contract activity, consisting of realized gains and losses
from settlement of exposed assets and liabilities at exchange rates
in effect at the settlement date rather than at the time of
recording, settlement of the forward contracts purchased to
mitigate the exposures, and payment of bank fees on the forward
contracts, was not significant for any year in the three year
period ended December 31, 1997.
Interest rate swap agreements: In 1996, the Company entered into
an interest rate swap agreement in the principal amount of its
Australian term loan agreement (approximately $13,200,000 at
December 31, 1997). The agreement is for a period of approximately
six years, and its expiration date coincides with that of the term
loan. Under the agreement, the Company pays a 9.58% fixed rate of
interest and receives payment based on a variable rate of interest.
The weighted average receive rate of the agreement at December 31,
1997 and 1996 was 6.49% and 7.06%, respectively. The fair market
value of this interest rate swap agreement at December 31, 1997 was
approximately $900,000. Fair market value was determined by
obtaining a bank quote and represents the amount the Company would
pay should the Company's obligation under the instrument be
transferred to a third party at the reporting date. Cash
requirements of the Company's interest rate swap agreement are
limited to the differential between the fixed rate paid and the
variable rate received.
NOTE 5 -- SUPPLEMENTARY CASH FLOW INFORMATION.
Changes in current assets and liabilities, net of the effects of
business divestitures, restructuring charges, and nonrecurring
operating charges, in reconciling net loss to net cash provided by
(used for) operations are as follows:
- ------------------------------------------------------------------------------
Cash Provided By (Used For) Operations
Year Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------
(In thousands)
(Increase) decrease in:
Accounts receivable $(25,624) $(8,547) $27,440
Inventories (21,296) 21,299 11,915
Other current assets 9,186 9,697 (24,784)
Increase (decrease) in:
Trade accounts payable 11,449 (1,513) 2,720
Accrued compensation and other
accrued expenses 4,123 (5,344) 3,008
Billings in excess of sales 7,870 ( 268) (16,670)
- ------------------------------------------------------------------------------
Net changes in current assets and liabilities $(14,292) $15,324 $ 3,629
==============================================================================
Cash payments for income taxes totaled $6,100,000, $4,900,000, and
$4,800,000 in 1997, 1996, and 1995, respectively. Cash payments
for interest in those years totaled $6,400,000, $5,000,000, and
$4,100,000, respectively.
Investing and financing transactions in 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. Investing and financing transactions in 1996 that did
not require cash included the issuance of 438,357 shares of the
Company's common stock with a fair market value of $4,000,000 in
connection with a professional services agreement related to the
Company's efforts to build its public safety business in the Asia
Pacific region and a $6,858,000 favorable mark-to-market adjustment
of an investment in an affiliated company. Investing and financing
transactions in 1995 that did not require cash consisted of the
acquisition of a business for total consideration of $7,500,000,
consisting of issuance of 797,931 shares of the Company's common
stock and the granting of stock options on 148,718 of the Company's
shares to employees of the acquired company.
NOTE 6 -- ACCOUNTS RECEIVABLE.
Concentrations of credit risk with respect to accounts receivable
are limited due to the diversity of the Company's customer base.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
Historically, the Company has not experienced significant losses
related to trade receivables from individual customers or from
groups of customers in any geographic area, with the exception of
the 1994 write-off of a $5,500,000 receivable from a Middle Eastern
customer. The Company's total accounts receivable from Middle
Eastern customers approximated $20,700,000 at both December 31,
1997 and 1996.
Revenues from the U.S. government were $177,100,000 in 1997,
$160,800,000 in 1996, and $159,300,000 in 1995, representing
approximately 15% of total revenue in all three years. Accounts
receivable from the U.S. government was approximately $52,500,000
and $48,000,000 at December 31, 1997 and 1996, respectively. The
Company sells to the U.S. government under long-term contractual
arrangements, primarily indefinite delivery, indefinite quantity
and cost-plus award fee contracts, and through commercial sales of
products not covered by long-term contracts. Approximately 42% of
total federal government revenues are earned under long-term
contracts. The Company believes its relationship with the federal
government to be good. While it is fully anticipated that these
contracts will remain in effect through their expiration, the
contracts are subject to termination at the election of the
government. Any loss of a significant government contract would
have an adverse impact on the results of operations of the Company.
Accounts receivable includes unbilled amounts of $80,900,000 and
$82,300,000 at December 31, 1997 and 1996, respectively. These
amounts include amounts due under long-term contracts of
approximately $35,000,000 and $27,000,000, at December 31, 1997 and
1996, respectively.
The Company maintained reserves for uncollectible accounts,
included in "Accounts receivable" in the consolidated balance
sheets at December 31, 1997 and 1996, of $14,500,000 and
$16,700,000, respectively.
NOTE 7 -- DEBT AND LEASES.
Short- and long-term debt is summarized as follows:
- -----------------------------------------------------------------
December 31, 1997 1996
- -----------------------------------------------------------------
(In thousands)
Revolving credit agreement and term loan $ 64,640 $20,000
Australian term loan 13,237 19,029
Long-term mortgages 10,323 12,889
Other secured debt 10,187 7,911
Short-term credit facilities 5,153 3,310
Other 1,125 2,505
- -----------------------------------------------------------------
Total debt 104,665 65,644
Less amounts payable within one year 50,409 35,880
- -----------------------------------------------------------------
Total long-term debt $ 54,256 $29,764
=================================================================
In October 1995, the Company entered into a three year revolving
credit agreement with a group of lenders. Borrowings available
under the agreement were determined by the amounts of eligible
assets of the Company, with maximum borrowings of $50,000,000. At
December 31, 1996, the Company had outstanding borrowings of
$20,000,000, and approximately $22,000,000 of the available credit
line was allocated to support letters of credit issued by the
Company. The rate of interest on all borrowings under the
agreement was, at the Company's option, the Citibank base rate of
interest plus 1.75% or the Eurodollar rate plus 2.75%. The average
effective rate of interest was 10.6% for the period of time in 1996
during which the Company had outstanding borrowings under the
agreement. The agreement contained certain financial and
restrictive covenants of the Company.
In January 1997, the Company terminated its agreement with this
group of lenders and replaced it with a term loan and revolving
credit agreement with another lender. As a result, the Company
wrote off $3,300,000 of deferred financing costs associated with
the previous agreement. The charge is included in "Nonrecurring
operating charges" in the 1996 consolidated statement of
operations.
Under the Company's January 1997 four 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 $125,000,000. The $25,000,000 term loan portion of
the agreement is 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 December 31,
1997) plus .625%. The average effective rate of interest was 9.12%
for the period of time in 1997 during which the Company had
outstanding borrowings under this agreement. The agreement
requires the Company to pay a facility fee at an annual rate of
.15% of the 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
December 31, 1997, the Company had outstanding borrowings of
$64,640,000, $25,000,000 of which was classified as long-term debt
in the consolidated balance sheet, and an additional $41,300,000 of
the available credit line was allocated to support letters of
credit issued by the Company and the Company's forward exchange
contracts. As of this same date, the borrowing base, representing
the maximum available credit under the line, was approximately
$121,000,000 ($112,000,000 at February 27, 1998).
The term loan and revolving credit agreement contains certain
financial covenants of the Company, including minimum net worth,
minimum current ratio, and maximum levels of capital expenditures.
In addition, the agreement includes restrictive covenants that
limit or prevent various business transactions (including
repurchases of the Company's stock, dividend payments, mergers,
acquisitions of or investments in other businesses, and disposal of
assets including individual businesses, subsidiaries, and
divisions) and limit or prevent certain other business changes.
In August 1995, the Company entered into a term loan agreement with
an Australian bank totaling 35,000,000 Australian dollars
(approximately $23,000,000). The loan is payable in varying
installments through August 2002 and bears interest at the bank's
variable short-term lending rate, which ranged from 5.8% to 7.1% in
1997 (6.8% to 9.6% in 1996). Letters of credit totaling
$13,200,000 are pledged as security under the loan agreement.
During 1996, the Company entered into a six year interest rate swap
agreement in the amount of the term loan to reduce the risk of
increases in interest rates, effectively converting the interest
rate on this loan to a fixed rate of 9.58%.
The Company has two long-term mortgages on certain of its European
facilities, payable in varying installments through the year 2010
and bearing interest at the floating Amsterdam Interbank Offering
Rate, which ranged from 3.1% to 3.8% in 1997 (2.9% to 3.6% in
1996), plus 1%.
Other secured debt consists of debt to various financial
institutions payable in varying installments through 2017 and
secured by certain assets of the Company, including facilities and
internally used computer equipment. In March of 1997, the Company
entered into an agreement for the sale and leaseback of one of its
facilities. The amount borrowed totals approximately $8,400,000
and is payable over a period of 20 years at an implicit rate of
interest of 10.7%. The weighted average interest rate on this and
all other secured debt was approximately 11.2% for 1997 and 11.5%
for 1996.
See Note 4 for discussion of fair values of the Company's debt and
interest rate swap agreements.
The Company leases various property, plant, and equipment under
operating leases as lessee. Rental expense for operating leases
was $30,400,000 in 1997, $34,200,000 in 1996, and $38,200,000 in
1995. Subleases and contingent rentals are not significant.
Future minimum lease payments, by year and in the aggregate, under
noncancelable operating leases with initial or remaining terms of
one year or more are as follows:
- ------------------------------------------------------
Operating
Lease Commitments
- ------------------------------------------------------
(In thousands)
1998 $21,500
1999 16,100
2000 9,400
2001 5,500
2002 2,900
Thereafter 22,500
- ------------------------------------------------------
Total future minimum lease payments $77,900
- ------------------------------------------------------
NOTE 8 -- INCOME TAXES.
The components of loss before income taxes are as follows:
- -------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------
(In thousands)
U.S. $(57,527) $(42,381) $(17,779)
International ( 8,710) (23,731) (27,569)
- -------------------------------------------------------------------------
Total loss before income taxes $(66,237) $(66,112) $(45,348)
=========================================================================
Income tax expense consists of the following:
- -------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------
(In thousands)
Current benefit (expense):
Federal $ 1,400 $ 3,351 $ 5,251
International (3,845) (3,855) (2,076)
- -------------------------------------------------------------------------
Total current (2,445) ( 504) 3,175
- -------------------------------------------------------------------------
Deferred benefit (expense):
Federal (1,726) (2,447) (2,685)
International 171 ( 49) ( 490)
- -------------------------------------------------------------------------
Total deferred (1,555) (2,496) (3,175)
- -------------------------------------------------------------------------
Total income tax expense $(4,000) $(3,000) $ ---
=========================================================================
Deferred income taxes included in the Company's balance sheet
reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the carrying amounts for income tax return purposes.
Significant components of the Company's deferred tax assets and
liabilities are as follows:
- ----------------------------------------------------------------------------
December 31, 1997 1996
- ----------------------------------------------------------------------------
(In thousands)
Current Deferred Tax Assets (Liabilities):
Inventory reserves $ 15,235 $ 23,356
Vacation pay and other employee benefit accruals 5,617 5,980
Other financial statement reserves, primarily
allowance for doubtful accounts 9,226 7,624
Profit on uncompleted sales contracts
deferred for tax return purposes ( 1,759) ( 4,297)
Other current tax assets and liabilities, net ( 5,916) ( 5,068)
- ----------------------------------------------------------------------------
22,403 27,595
Less asset valuation allowance (22,275) (23,617)
- ----------------------------------------------------------------------------
Total net current asset (1) 128 3,978
- ----------------------------------------------------------------------------
Noncurrent Deferred Tax Assets (Liabilities):
Net operating loss and tax credit carryforwards:
U.S. federal and state 78,559 47,019
International operations 40,316 38,132
Depreciation ( 9,907) ( 9,256)
Capitalized software development costs ( 7,604) ( 9,198)
Other noncurrent tax assets and liabilities, net ( 7,051) ( 6,664)
- ----------------------------------------------------------------------------
94,313 60,033
Less asset valuation allowance (94,773) (66,237)
- ----------------------------------------------------------------------------
Total net noncurrent liability ( 460) ( 6,204)
- ----------------------------------------------------------------------------
Net deferred tax liability $( 332) $( 2,226)
============================================================================
(1) Included in "Other current assets" in the consolidated balance
sheets.
The valuation allowance for deferred tax assets, which consists
primarily of reserves against the tax benefit of net operating loss
carryforwards, increased by $27,194,000 in 1997 due to the
incurrence of additional losses that may be carried forward, the
future tax benefits of which cannot be assured. If realized, these
tax benefits will be applied to reduce income tax expense in the
year of realization.
Net operating loss carryforwards are available to offset future
earnings within the time periods specified by law. At December 31,
1997, the Company had a U.S. federal net operating loss
carryforward of approximately $180,000,000 expiring from the year
2009 through 2012. International net operating loss carryforwards
total approximately $103,000,000 and expire as follows:
- ------------------------------------------------------
International
Net Operating Loss
December 31, 1997 Carryforwards
- ------------------------------------------------------
(In thousands)
Expiration:
3 years or less $ 12,000
4 to 5 years 17,000
6 to 10 years 6,000
Unlimited carryforward 68,000
- ------------------------------------------------------
Total $103,000
======================================================
Additionally, the Company has $3,500,000 of U.S. alternative
minimum tax credit carryforwards which have no expiration date.
U.S. research and development tax credit carryforwards of
$6,800,000 are available to offset regular tax liability through
2012.
A reconciliation from income tax benefit at the U.S. federal
statutory tax rate of 35% to the Company's income tax expense is as
follows:
- -------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
(In thousands)
Income tax benefit at federal statutory rate $ 23,183 $ 23,139 $ 15,872
Benefit from Foreign Sales Corp. (FSC) 150 1,963 905
Tax effects of international operations, net ( 5,617) ( 8,657) ( 8,629)
Tax effect of U.S. tax loss carried forward (23,205) (23,752) (10,967)
Reduction of taxes provided in prior years 1,165 4,712 ---
Other - net 324 ( 405) 2,819
- -------------------------------------------------------------------------------
Income tax expense $( 4,000) $( 3,000) $ ---
===============================================================================
The Company does not provide for federal income taxes or tax
benefits on the undistributed earnings or losses of its
international subsidiaries, because earnings are reinvested and, in
the opinion of management, will continue to be reinvested
indefinitely. At December 31, 1997, the Company had not provided
federal income taxes on earnings of individual international
subsidiaries of approximately $41,000,000. Should these earnings
be distributed in the form of dividends or otherwise, the Company
would be subject to both U.S. income taxes and withholding taxes in
the various international jurisdictions. Determination of the
related amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with its
hypothetical calculation. Withholding of approximately $2,000,000
would be payable if all previously unremitted earnings as of
December 31, 1997, were remitted to the U.S. company.
NOTE 9 -- STOCK-BASED COMPENSATION PLANS.
The Intergraph Corporation 1997 Stock Option Plan was approved by
shareholders in May 1997. Under the 1997 Plan and the Intergraph
Corporation 1992 Stock Option Plan, the Company reserved a total of
6,000,000 shares of common stock to grant as options to key
employees. Options may be granted at fair market value or at a
price less than fair market value on the date of grant. Options
are not exercisable prior to twenty four months from the date of
grant or later than ten years after the date of grant. At December
31, 1997, 2,347,250 shares were available for future grants, all of
which relate to the 1997 Plan.
Under the 1995 Employee Stock Purchase Plan, 3,200,000 shares of
common stock were made available for purchase through a series of
five consecutive annual offerings each June beginning June 1, 1995.
In order to purchase stock, each participant may have up to 10% of
his or her pay, not to exceed $25,000 in any offering period,
withheld through payroll deductions. All full time employees,
except members of the Administrative Committee of the Plan, are
eligible to participate. The purchase price of each share is 85%
of the closing market price of the Company's common stock on the
last pay date of each calendar month. Employees purchased 432,263,
352,759, and 358,687 shares of stock in 1997, 1996, and 1995,
respectively, under the 1995 and predecessor Plans. At December
31, 1997, 2,223,464 shares were available for future purchases.
As allowed under the provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the Company has elected to apply Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related Interpretations in accounting for its
stock-based plans. Accordingly, the Company has recognized no
compensation expense for these plans. Had the Company accounted
for its stock-based compensation plans based on fair value of
awards at grant date consistent with the methodology of SFAS 123,
the Company's net loss and loss per share would have been increased
as indicated below. The effects of applying SFAS 123 on a pro
forma basis are not likely to be representative of the effects on
reported pro forma net income (loss) for future years as the
estimated compensation costs reflect only options granted
subsequent to December 31, 1994.
- -------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
(In thousands except per share amounts)
Net loss As reported $(70,237) $(69,112) $(45,348)
Pro forma $(72,497) $(71,447) $(46,757)
Basic and diluted loss per share As reported $( 1.46) $( 1.46) $( .98)
Pro forma $( 1.51) $( 1.51) $( 1.01)
===============================================================================
Under the methodology of SFAS 123, the fair value of the Company's
fixed stock options was estimated at the date of grant using the
Black Scholes option pricing model. The multiple option approach
was used, with assumptions for expected option life of 1.38 years
after vest date in 1997 (1.39 years in 1996 and 1995) and 43%
expected volatility for the market price of the Company's stock in
1997 (40% in 1996 and 1995). Dividend yield is excluded from the
calculation since it is the present policy of the Company to retain
all earnings to finance operations. Risk free interest rates were
determined separately for each grant and are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------- ---------------------------- -----------------------------
Expected Life Risk Free Expected Life Risk Free Expected Life Risk Free
(in years) Interest Rate (in years) Interest Rate (in years) Interest Rate
- ---------------------------- ---------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
3.38 6.28% 3.39 6.55% 3.39 5.95%
4.38 6.38% 4.39 6.67% 4.39 6.02%
5.38 6.34% 5.39 6.74% 5.39 6.09%
6.38 6.46% 6.39 6.79% 6.39 6.17%
=========================================================================================
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions, including expected stock price volatility. Because
the Company's employee stock options have characteristics
significantly different from those of traded options, and because
the subjectivity of assumptions can materially affect estimates of
fair value, the Company believes the Black-Scholes model does not
necessarily provide a reliable single measure of the fair value of
its employee stock options.
Shares issued under the Company's stock purchase plan were valued
at the difference between the market value of the stock and the
discounted purchase price of the shares on the date of purchase.
The date of grant and the date of purchase coincide for this plan.
The weighted average grant date fair values of options granted to
employees during 1997, 1996, and 1995 were $3.66, $3.92, and $4.84,
respectively, under the 1992 and 1997 stock option plans and $1.29,
$1.78, and $1.88, respectively, under the 1995 stock purchase plan.
Activity in the Company's fixed stock option plan for the years
ended December 31, 1997, 1996, and 1995 is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,831,417 $10.38 1,778,304 $10.42 1,260,637 $10.48
Granted at fair value 672,250 7.99 290,018 9.47 1,244,000 11.12
Granted at less than fair
value --- --- --- --- 148,718 1.25
Exercised ( 40,187) ( 8.23) ( 53,898) 5.28 (836,469) 9.94
Expired ( 30,000) (16.00) ( 14,982) 9.23 --- ---
Forfeited (173,557) (10.65) (168,025) 11.02 ( 38,582) 9.97
- -------------------------------------------------------------------------------------------
Outstanding at end of year 2,259,923 $ 9.61 1,831,417 $10.38 1,778,304 $10.42
===========================================================================================
Exercisable at end of year 540,922 $ 9.62 247,874 $ 9.12 160,171 $ 7.68
===========================================================================================
</TABLE>
Further information relating to stock options outstanding at
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------
Weighted Average Weighted Weighted
Range of Remaining Average Average
Exercise Prices Number Contractual Life Exercise Price Number Exercise Price
- ----------------------------------------------------------------------------------------------
<S> <S> <S> <S> <S> <S>
$ .90 to $ 3.75 17,690 6.88 years $ 1.30 17,690 $ 1.30
$ 7.00 to $ 9.50 1,194,973 8.16 8.41 261,232 8.63
$10.125 to $12.25 1,047,260 7.61 11.12 262,000 11.17
- ----------------------------------------------------------------------------------------------
2,259,923 7.89 $ 9.61 540,922 $ 9.62
==============================================================================================
</TABLE>
Options shown above with a grant date weighted average exercise
price of $1.25 per share and a range of exercise prices of $.90 to
$3.75 were granted in 1995 as the result of a business acquisition
in which the Company assumed the total shares and price obligations
under the acquired company's stock option plans. All other option
grants during the three year period ended December 31, 1997 were at
the fair market value of the Company's stock at date of grant.
NOTE 10 -- EMPLOYEE BENEFIT PLANS.
The Intergraph Corporation Stock Bonus Plan was established in 1975
to provide retirement benefits to substantially all U.S. employees.
Effective January 1, 1987, the Company amended the Plan to qualify
it as an employee stock ownership plan (ESOP). The Company makes
contributions to the Plan in amounts determined at the discretion
of the Board of Directors, and the contributions are funded with
Company stock. Amounts are allocated to the accounts of
participants based on compensation. Benefits are payable to
participants subject to the vesting provisions of the Plan. The
Company has not made a contribution to the Plan since 1991.
In 1990, the Company established the Intergraph Corporation
SavingsPlus Plan, an employee savings plan qualified under Section
401(k) of the Internal Revenue Code, covering substantially all
U.S. employees. Employees can elect to contribute up to 15% of
their compensation to the Plan. The Company matches 50% of
employee contributions up to 6% of each employee's compensation.
Company contributions to the Plan were $4,575,000, $5,687,000, and
$5,886,000, in 1997, 1996, and 1995, respectively.
The Company maintains various retirement benefit plans for
employees of its international subsidiaries, primarily defined
contribution plans that cover substantially all employees.
Contributions to the plans are made in cash and are allocated to
the accounts of participants based on compensation. Benefits are
payable based on vesting provisions contained in each plan.
Contributions to the plans were $3,244,000, $3,678,000, and
$3,856,000 in 1997, 1996, and 1995, respectively.
NOTE 11-- OPERATIONS BY GEOGRAPHIC AREA.
International markets, particularly Europe and Asia, continue in
importance to the industry and to the Company. The Company's
operations are subject to and may be adversely affected by a
variety of risks inherent in doing business internationally, such
as government policies or restrictions, currency exchange
fluctuations, and other factors.
The following summary of operations by geographic area includes
both sales to unaffiliated customers and intercompany sales between
geographic areas. Sales between geographic areas are accounted for
under a transfer pricing policy. Loss from operations by
geographic areas reflects these sales.
- --------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------
(In thousands)
Revenues
United States:
Unaffiliated customers - U.S. $ 528,411 $ 488,759 $ 500,295
Unaffiliated customers - export 58,589 42,061 49,035
Consolidated subsidiaries 202,792 232,871 217,171
- --------------------------------------------------------------------------
789,792 763,691 766,501
- --------------------------------------------------------------------------
Europe:
Unaffiliated customers 341,476 363,255 390,715
U.S. parent 1,151 --- ---
- --------------------------------------------------------------------------
342,627 363,255 390,715
- --------------------------------------------------------------------------
Asia Pacific:
Unaffiliated customers 111,449 127,607 91,284
U.S. parent 1,910 2,257 2,252
- --------------------------------------------------------------------------
113,359 129,864 93,536
- --------------------------------------------------------------------------
Other International:
Unaffiliated customers 84,380 73,651 66,649
U.S. parent 1,849 1,320 770
- --------------------------------------------------------------------------
86,229 74,971 67,419
- --------------------------------------------------------------------------
Eliminations -- net (207,702) (236,448) (220,193)
- --------------------------------------------------------------------------
Total revenues $1,124,305 $1,095,333 $1,097,978
==========================================================================
Loss From Operations
United States $ ( 35,350) $ ( 30,346) $( 12,261)
Europe ( 20,504) ( 29,837) ( 27,663)
Asia Pacific ( 7,930) ( 5,917) ( 10,799)
Other International 1,638 ( 5,424) ( 10,106)
Eliminations -- net 7,230 2,800 6,684
- --------------------------------------------------------------------------
Total loss from operations $ ( 54,916) $ ( 68,724) $( 54,145)
==========================================================================
Identifiable Assets
United States $ 506,542 $ 522,966 $ 558,446
Europe 183,826 204,913 248,459
Asia Pacific 70,848 85,197 85,205
Other International 49,611 40,147 46,234
Eliminations -- net ( 89,838) ( 96,876) (112,299)
- --------------------------------------------------------------------------
Total identifiable assets $ 720,989 $ 756,347 $ 826,045
==========================================================================
Loss from operations in 1995 includes restructuring charges of
$4,778,000 in the U.S., $978,000 in Europe, and $284,000 in Other
International. Loss from operations in 1996 includes a charge of
$10,545,000 in the U.S. for a $7,245,000 revaluation of the assets
of two noncore business units sold to third parties in 1997 and a
$3,300,000 write-off of deferred financing fees due to the
Company's early termination of its revolving credit agreement with
a group of lenders. Loss from operations in 1997 includes a charge
of $1,095,000 in the U.S. for additional losses incurred upon final
disposition of the two noncore business units.
NOTE 12 -- RELATED PARTY TRANSACTIONS.
Bentley Systems, Inc.: The Company owns approximately 50% of
Bentley Systems, Inc., 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. Under the Company's distributor agreement with
Bentley, the Company purchases MicroStation products for resale to
third parties. The per copy fee payable by the Company under this
agreement was increased effective January 1, 1995 and again January
1, 1996 and, for 1995 only, Bentley paid the Company $7,414,000 in
distribution fees based on Bentley's MicroStation sales to
resellers.
The Company's purchases from Bentley totaled $5,656,000 in 1997,
$14,244,000 in 1996, and $39,329,000 in 1995. Amounts due from
Bentley or for which the Company holds the right to delivery of
Bentley products totaled $1,076,000 and $10,700,000 at December 31,
1997 and 1996, respectively. During the second quarter of 1997,
the Company offset receivables from Bentley of $5,835,000 against a
$6,126,000 obligation to Bentley resulting from an adverse contract
arbitration award. See "Litigation and Other Risks and
Uncertainties" included in Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 15 to 19
of this annual report for further discussion of the Company's
arbitration proceedings and business relationship with Bentley.
Loan Program for Executive Officers: In order to encourage
retention of Company stock by executive officers, the Company
adopted a loan program effective January 1993, under which
executive officers may borrow from the Company, on an unsecured
basis, an amount not exceeding (1) the current market value of the
common stock of the Company owned by any such executive officer,
and/or (2) the net value (current market price less exercise price)
of currently exercisable stock options owned by any such executive
officer. Interest is charged on a monthly basis at the prevailing
prime rate. Principal and interest must be repaid by the earliest
to occur of termination of employment, the attainment of a
designated market price for the Company's stock, the sale of a
certain number of shares of the Company's stock by loan recipients,
or the April 30, 1998 expiration of the program. At December 31,
1996, James W. Meadlock, Chief Executive Officer and Chairman of
the Board of the Company, was indebted to the Company in the amount
of $5,530,000 under the program. On November 21, 1997, the loan
and related interest, totaling $6,129,000 as of that date, were
paid in full. As of December 31, 1997, there were no outstanding
loans under this program.
NOTE 13 -- SHAREHOLDER RIGHTS PLAN.
On August 25, 1993, the Company's Board of Directors adopted a
Shareholder Rights Plan. As part of this plan, the Board of
Directors declared a distribution of one common stock purchase
right (a "Right") for each share of the Company's common stock
outstanding on September 7, 1993. Each Right entitles the holder
to purchase from the Company one common share at a price of $50,
subject to adjustment. The Rights are not exercisable until the
occurrence of certain events related to a person or a group of
affiliated or associated persons acquiring, obtaining the right to
acquire, or commencing a tender offer or exchange offer, the
consummation of which would result in beneficial ownership by such
a person or group of 15% or more of the outstanding common shares
of the Company. Rights will also become exercisable in the event
of certain mergers or an asset sale involving more than 50% of the
Company's assets or earnings power. Upon becoming exercisable,
each Right will allow the holder, except the person or group whose
action has triggered the exercisability of the Rights, to either
buy securities of Intergraph or securities of the acquiring
company, depending on the form of the transaction, having a value
of twice the exercise price of the Rights. The Rights trade with
the Company's common stock. The Rights are subject to redemption
at the option of the Board of Directors at a price of $.01 per
Right until the occurrence of certain events, and are exchangeable
for the Company's common stock at the discretion of the Board of
Directors under certain circumstances. The Rights expire on
September 7, 2003.
NOTE 14 -- SUMMARY OF QUARTERLY INFORMATION -- UNAUDITED.
- --------------------------------------------------------------------------------
Quarter Ended March 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------
(In thousands except per share amounts)
Year ended December 31, 1997:
Revenues $252,758 $288,609 $282,067 $300,871
Gross profit 87,610 109,115 101,177 102,437
Net loss (26,289) (16,027) ( 7,186) (20,735)
Net loss per share, basic and diluted ( .55) ( .33) ( .15) ( .43)
Weighted average shares outstanding 47,758 47,888 48,006 48,121
Year ended December 31, 1996:
Revenues $256,706 $268,166 $276,313 $294,148
Gross profit 95,401 101,370 103,001 103,653
Net loss ( 6,391) (15,179) (13,930) (33,612)
Net loss per share, basic and diluted ( .14) ( .32) ( .29) ( .71)
Weighted average shares outstanding 46,902 46,922 47,243 47,636
================================================================================
Second quarter 1997 losses were increased by a $.13 per share
charge for an adverse contract arbitration award to Bentley
Systems, Inc. Third quarter 1997 losses were reduced by a $.10 per
share gain on the sale of an investment in an affiliated company.
The Company estimates that the strength of the U.S. dollar in the
fourth quarter of 1997 adversely impacted fourth quarter 1997
results of operations by approximately $.15 per share in comparison
to fourth quarter 1996.
First quarter 1996 losses were reduced by a $.20 per share gain on
the sale of the Company's stock investment in an affiliated
company. Fourth quarter 1996 losses were increased by a $.21 per
share charge for nonrecurring operating expenses, primarily
revaluation of the assets of two noncore business units and write-
off of deferred financing fees.
NOTE 15 -- SUBSEQUENT EVENTS.
On January 15, 1998, the Company closed a settlement agreement
related to its litigation with Zydex, Inc. Under terms of the
agreement, the Company purchased 100% of the common stock of Zydex
for $26,292,000, with $15,979,000 paid in cash at closing and the
remaining amount payable in fifteen monthly installments with
interest. The closing date payment of cash was funded by the
Company's primary lender. See "Zydex Litigation" included in
Management's Discussion and Analysis of Financial Condition and
Results of Operations on page 17 of this annual report
for further details.
In February 1998, the Company established a plan to restructure its
European operations to further align operating expense and revenue
levels in that region. The cost of this restructuring is estimated
at $4,400,000, primarily for severance pay and related costs. The
60 positions planned for elimination by the end of second quarter
1998 are in the sales and marketing, general and administrative,
and pre- and post-sales support areas. The cash outlay related to
this charge is expected to approximate the amount of the charge and
will be funded by existing cash and/or borrowings under the
Company's revolving line of credit. The Company estimates the
restructuring action will result in annual savings of approximately
$4,500,000.
On March 2, 1998, the Company closed its transaction with
Electronic Data Systems Corporation and its Unigraphics Solutions,
Inc. subsidiary, in which the Company sold certain of the assets of
its Solid Edge and Engineering Modeling System product lines, for
$105,000,000 in cash. The Company anticipates a gain on this
transaction of approximately $100,000,000. Additionally, the
Company estimates the sale of this business will result in a
reduction of its 1998 revenues by approximately $30,000,000, if not
replaced, and an improvement in its operating results of
approximately $5,000,000, excluding the impact of the estimated
$100,000,000 gain on the sale.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Intergraph Corporation
We have audited the accompanying consolidated balance
sheets of Intergraph Corporation and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended
December 31, 1997. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Intergraph Corporation and
subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted
accounting principles.
/s/Ernst & Young LLP
Birmingham, Alabama
January 29, 1998, except for paragraph 2 of Note 15, as to
which the date is March 2, 1998.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its
common stock. It is the present policy of the Company's Board of
Directors to retain all earnings to finance the Company's
operations. In addition, payment of dividends is restricted by the
Company's term loan and revolving credit agreement.
PRICE RANGE OF COMMON STOCK
Since April 1981, Intergraph common stock has traded on The NASDAQ
Stock Market under the symbol INGR. As of January 31, 1998, there
were 48,220,459 shares of common stock outstanding, held
by approximately 6,000 shareholders of record. The following table
sets forth, for the periods indicated, the high and low sale prices
of the Company's common stock as reported on The NASDAQ Stock
Market.
- --------------------------------------------------------------------
1997 1996
Period High Low High Low
- --------------------------------------------------------------------
First Quarter $11 1/4 $ 7 3/8 $20 1/8 $14 5/8
Second Quarter 8 13/16 6 1/4 16 1/4 11 1/8
Third Quarter 12 7 5/8 13 1/8 8 5/8
Fourth Quarter 14 3/16 8 15/16 12 5/8 8 5/8
====================================================================
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank
Shareholder Services Division
311 W. Monroe Street
P. O. Box A-3504
Chicago, IL 60690-3504
(312) 360-5116
CORPORATE COUNSEL
Lanier Ford Shaver & Payne P.C.
200 West Court Square, Suite 5000
Huntsville, AL 35801
INDEPENDENT AUDITORS
Ernst & Young LLP
AmSouth/Harbert Plaza, Suite 1900
Birmingham, AL 35203
FORM 10-K
A copy of the Company's Form 10-K filed with the Securities and
Exchange Commission is available without charge upon written
request to Shareholder Relations, Intergraph Corporation, Huntsville, AL
35894-0001.
ANNUAL MEETING
The annual meeting of Intergraph Corporation will be held May 28,
1998, at the Corporate offices in Huntsville, Alabama.
BOARD MEMBERS AND OFFICERS
BOARD OF DIRECTORS EXECUTIVE VICE PRESIDENTS VICE PRESIDENTS
James W. Meadlock Wade C. Patterson Theron E. Anders
Chief Executive Officer Chief Executive Officer
and Chairman of the Board and President, Intergraph Randall C. Bachmeyer
Computer Systems, Inc.
Larry J. Laster Lawrence F. Ayers Jr. Thomas G. Baybrook
Thomas J. Lee Klaas Borgers Roger O. Coupland
Sidney L. McDonald Edward F. Boyle Thomas J. Doran
Keith H. Schonrock Jr. Penman R. Gilliam George H. Dudley
James F. Taylor Jr. Richard H. Lussier Jeffrey H. Edson
Executive Vice President,
Intergraph Corporation, Nancy B. Meadlock Graeme J. Farrell
and Chief Executive
Officer, Intergraph Stephen J. Phillips Milford. B. French
Public Safety, Inc.
William E. Salter Aggie L. Frizzell
Robert E. Thurber
Executive Vice President K. David Stinson Jr. Lewis N. Graham
Edward A. Wilkinson Jeffrey P. Heath
Allan B. Wilson Rune Kahlbom
Manfred Wittler Milton H. Legg
Winston P. Newton
John R. Owens
VeriBest, Inc. Robert Patience
Charles E. Robertson Jr. Preetha Pulusani
Chief Executive Officer and
President Stephen B. Rowles
James H. Slate
John W. Wilhoite
SECRETARY
John R. Wynn
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 46,645
<SECURITIES> 0
<RECEIVABLES> 339,154<F1>
<ALLOWANCES> 14,500
<INVENTORY> 105,032
<CURRENT-ASSETS> 502,024
<PP&E> 440,398
<DEPRECIATION> 289,775
<TOTAL-ASSETS> 720,989
<CURRENT-LIABILITIES> 297,490
<BONDS> 54,256
0
0
<COMMON> 5,736
<OTHER-SE> 363,047
<TOTAL-LIABILITY-AND-EQUITY> 720,989
<SALES> 786,278
<TOTAL-REVENUES> 1,124,305
<CGS> 514,416
<TOTAL-COSTS> 723,966
<OTHER-EXPENSES> 455,255<F2>
<LOSS-PROVISION> 2,844<F3>
<INTEREST-EXPENSE> 6,614
<INCOME-PRETAX> (66,237)
<INCOME-TAX> (4,000)
<INCOME-CONTINUING> (70,237)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,237)
<EPS-PRIMARY> (1.46)<F4>
<EPS-DILUTED> (1.46)<F4>
<FN>
<F1>Accounts receivable in the Consolidated Balance Sheet is shown net of
allowances for doubtful accounts.
<F2>Other expenses include Product development expenses, Sales and marketing
expenses, General and administrative expenses, and Nonrecurring operating
charges.
<F3>The provision for doubtful accounts is included in Other expenses above.
<F4>Adoption of Statement of Financial Accounting Standards No. 128, Earnings
Per Share, had no impact on the Company's loss per share calculations for any
year in the three year period ended December 31, 1997, due to the antidilutive
impact of the Company's employee stock options, which are the Company's only
common stock equivalent.
</FN>
</TABLE>
