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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-17195
LANDMARK GRAPHICS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0029459
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15150 MEMORIAL DRIVE
HOUSTON, TEXAS 77079-4304
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 560-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
PREFERRED SHARES PURCHASE RIGHTS
COMMON STOCK, $0.05 PAR VALUE PER SHARE
(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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates
of the Registrant was $406,569,927 as of September 18, 1995 based upon the
average bid and asked prices of such stock as reported in the National Market
System of the National Association of Securities Dealers Automated Quotation
System (the "Nasdaq National Market") on that day.
There were 17,298,159 shares of common stock, $0.05 par value,
outstanding at September 18, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Selected designated portions of the Registrant's definitive Proxy
Statement relating to the 1995 Annual Meeting of Stockholders are incorporated
by reference into Part III of this Annual Report.
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PART 1
ITEM 1. BUSINESS
GENERAL
Landmark Graphics Corporation (the "Company" or "Landmark") was
incorporated in Texas in July 1982 under the name "Landmark Graphics
Corporation" and reincorporated under the same name in Delaware in June 1987.
Unless the context otherwise requires, references to "Landmark" and the
"Company" include the prior Texas corporation as well as the current Delaware
corporation and its subsidiaries. Landmark's executive offices are located at
15150 Memorial Drive, Houston, Texas 77079-4304, and its telephone number is
(713) 560-1000.
The Company designs, markets and supports sophisticated computer-aided
exploration ("CAEX") and computer-aided reservoir management ("CARM") software
and systems. In more than 70 countries, geologists, geophysicists and
petroleum engineers use Landmark products in exploration and production. The
Company's applications software transforms vast quantities of seismic, well log
and other data into detailed computer models of petroleum reservoirs. These
models reveal critical information about subsurface formations.
Landmark offers an extensive line of integrated software applications,
for seismic processing, three dimensional ("3D") and two dimensional ("2D")
seismic interpretations, geologic and petrophysical interpretation, mapping and
modeling, well log and production analysis, drilling and production engineering
and data management. Through its service and consulting business, Landmark
provides software training, on-site support and assistance in designing
computer networks and integrating applications and data. In addition to
providing software products, the Company is a value-added reseller of
workstations and other hardware and provides a range of services, including
software and systems support and training, systems configuration and network
design, and data loading and management.
In 1984, Landmark shipped the first commercially available
microprocessor-based interactive CAEX system for interpretation of three
dimensional seismic data and has continued to be a leader in the industry with
a series of innovations in 3D seismic technology. The Company has also
expanded the breadth of its applications portfolio to include geologic and
petrophysical interpretation and analysis, geologic mapping and modeling,
seismic data processing, reservoir engineering, drilling and production. The
Company believes that there is a significant need in the CAEX and CARM markets
for systems that enable geoscientists in different technical disciplines to
work concurrently using a common database and integrated tools. In response to
this need, the Company has introduced OpenWorks, a software integration and
data management platform that offers an open systems computing environment for
the concurrent visualization, interpretation, analysis and management of
different types of data for exploration and production in a standardized
environment. OpenWorks is based on a UNIX operating system, employs standard
graphical user interfaces and networking protocols, and functions with the
Oracle relational database management system. OpenWorks enables integration of
multiple applications, including Landmark's applications as well as certain
third-party applications.
INDUSTRY BACKGROUND
Several trends are driving the oil and gas industry to reduce risk and
cost and to increase productivity in exploration and production. In heavily
explored regions of the world, reservoirs that are easy to locate and exploit
are already under development or in production; accordingly, the search for
additional oil and gas reserves has required increasingly expensive exploration
and production programs, often in more complex reservoirs and more remote
locations. The increasing difficulty and
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cost of locating oil and gas have led companies to seek more efficient ways to
discover and develop reserves. At the same time, continuing low oil and gas
prices have led many energy companies to reduce exploration and production
budgets. These factors make the optimal placement of drilling locations
increasingly important, particularly offshore where drilling platforms alone
can cost between $25 million and $100 million.
CAEX and CARM systems provide powerful tools to reduce the incidence
of drilling dry holes and improve the productivity of both the exploration and
production processes. Increasingly, oil and gas companies are seeking to
improve efficiency and reduce the risk by employing modeling and analysis
techniques throughout the exploration and production process. As a result, oil
and gas companies can better capitalize on the enormous amounts of data they
have collected in recent years. As the technology has advanced, CAEX and CARM
have become accepted in the industry, facilitating better understanding of the
subsurface and providing better results in locating and extracting reserves
than traditional methods.
Early 3D seismic interpretation and analysis was performed on
mainframe-based systems. These systems were generally available only to large,
integrated oil companies with the substantial resources required to purchase
mainframe computers and to develop the associated software. With the shift
from mainframe computers to less expensive, powerful workstations and PC's,
workstation-based CAEX and CARM systems have become commercially viable. In
the 1990's, the movement to client-server computing environments has
facilitated work group interaction in the data interpretation process. The
increased ease-of-use and improved price/performance ratios that have resulted
from continued technological advances have helped to significantly expand the
CAEX marketplace in recent years as CAEX systems have now become readily
available to the entire spectrum of oil and gas companies, including small
independents and exploration and production technology boutiques.
EXPLORATION AND PRODUCTION PROCESS
The exploration and production process typically begins with the
selection of a defined geographical target area and the collection and analysis
of various types of data, including seismic and well log data, which may
provide information as to the location of potential oil and gas reservoirs
within the target area. Seismic data, which is acquired over a wide area by
directing sound waves into the earth and measuring the responses as they
reflect from subsurface geologic features, is used primarily by geophysicists
to map potential hydrocarbon bearing formations and the structures that bound
them, such as faults. Well log data is used primarily by geologists to pick
the tops and bottoms of geologic strata and analyze the porosity, permeability
and other physical properties of the geologic strata in a small area around a
well borehole. Geologists, geophysicists and other geoscientists use this data
to develop drilling plans.
Once a well is successfully drilled in a reservoir, geoscientists
collect additional data about the reservoir, combine it with data collected in
the exploration phase, and refine their analyses to arrive at a development
plan. This new information allows the production professional to further
define the boundaries and physical properties of the reservoir, determine the
appropriate number and placement of development wells and determine the
proposed rate of production from each well.
Once development is completed and the reservoir is producing,
geologists and petroleum engineers analyze well logs, pressure and flow tests,
and production histories to further their understanding of the physical
properties of the reservoir. As a more accurate description of the reservoir
develops, petroleum engineers devise programs to maximize the recovery of
hydrocarbons throughout the life of the reservoir.
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Each phase of this process is critical to the successful overall
development and management of the reservoir. Until recently, significant parts
of the process, including three-dimensional modeling and visualization of the
subsurface, were either not feasible or required a time-consuming manual
drafting and interpretation process, and were typically performed separately by
geologists, geophysicists, engineers and others. Although these professionals
may study the same geologic area of interest and may share a common objective
with respect to the reservoir's development, they have historically operated
independently from one another, with relatively little sharing of data or
interpretations. The Company believes that CAEX and CARM and the integration
of professionals into multi-disciplinary asset teams through an integrated
software platform are important in enabling oil and gas companies to improve
productivity in the exploration and production process and to maximize value
from the enormous amounts of data now available.
THE COMPANY
Landmark was the original supplier of microprocessor-based 3D seismic
interpretation products in the CAEX marketplace. The Company remains committed
to providing CAEX tools which exploit the full value of 3D visualization,
interpretation and analysis, enabling oil and gas companies to maximize the
value of their substantial investments in 3D seismic data. The Company
recognized in the early 1980's, at a time when the Company's competitors
focused on the analysis of two dimensional seismic data, that 3D seismic data
offered superior interpretive and analytical results. Fueled by its focus on
3D technology, Landmark experienced rapid growth throughout the 1980's despite
severe reductions in exploration and production in the United States and
downsizing of the oilfield services industry.
As customers place increasing importance on streamlining work flows
between multi-disciplinary teams, the Company believes petroleum companies will
demand state-of-the-art software in various technical disciplines which can be
easily shared. The ability to access and manage vast quantities of data will
also be essential to these companies. The Company is focusing on the
organization of internal teams in order to respond to customer's rapidly
changing needs. Establishing strong entrepreneurial product groups will
enhance the Company's ability to provide the best available software needed by
customers. Additionally, the Company believes the creation of an integrated
solutions group will expand the Company's ability to provide complete solutions
to customers.
To complement its core 3D seismic interpretation products, the Company
has developed, licensed or acquired other products that offer functionality to
geologists, geophysicists, reservoir engineers and other earth science
professionals. Geologic mapping and seismic processing software applications
have become core products along with 3D seismic interpretation and reservoir
engineering software applications, and the Company has expanded its offerings
of software to support the exploration and production geologist. Five recent
acquisitions have significantly expanded the Company's ability to meet the
needs of geologists, geophysicists and petroleum engineers:
In March 1994, with the acquisition of Advance Geophysical Corporation
("Advance") of Denver, Colorado, Landmark acquired the ProMAX family
of products, which provide seismic processors and interpreters with
tools to manipulate raw seismic data and to condense it into a form
that is ready for interpretation.
The September 1994 acquisition of Houston-based Stratamodel, Inc.
("Stratamodel") further expanded Landmark's product offerings to
include reservoir characterization and modeling software products used
by geoscientists in oil and gas exploration and production.
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Also in September 1994, the Company acquired MGI Associates, Inc.
("MGA"), a leader in the development of personal computer-based
petroleum economics and reservoir engineering software applications.
In February 1995, the Company acquired certain assets of DRD
Corporation ("DRD"), including drilling and completion engineering
software applications.
In June 1995, the Company acquired GeoGraphix, Inc., a Denver,
Colorado-based company that designs, implements, markets and supports
technical mapping and data analysis software. These products address
unique requirements of the oil and gas exploration and production
industry. The technology which GeoGraphix has developed is used by
geoscientists, petrophysicists, petroleum engineers and land
professionals to organize, visualize and assess data which has a
spatial context. GeoGraphix' "smaller-scale" systems for basic
geological and engineering problems complement Landmark's traditional
solutions designed for the rigorous demands of complex reservoir
characterization. The addition of GeoGraphix provides worldwide
customers with a broad range of scaleable solutions across the
"complexity spectrum" from basic to complex.
Since its inception in 1982, the Company has made significant research
and development expenditures for the development of geoscience applications
software. The Company believes that its customers generally are unwilling or
unable to incur the expense or delay of developing such software, and expertise
internally, and have determined that competitive pressures in exploration and
production necessitate the acquisition of geoscience systems such as those
offered by Landmark.
STRATEGY
Landmark's strategy is to provide complete computing solutions and
other information services for the exploration and production of oil and gas
reservoirs to provide business advantages for its global customers, including
software, services and third-party hardware. The Company executes this
strategy in the following ways:
Applications Development. The Company develops new software
applications and enhancements to existing software applications, both
internally and through joint development efforts with business partners or
licensees, or otherwise acquires software applications from third parties. To
complement these efforts, the Company configures hardware to take advantage of
the full range of functionality offered by the Company's software applications.
Integration of Applications and Data Management. The Company expects
that, as the exploration and production industry intensifies its use of
technology, there will be an increasing demand for software integration and
data management platforms such as OpenWorks. The Company intends to continue
the development of OpenWorks, to embrace prevailing technology standards within
the OpenWorks platform, and to intensify its marketing of OpenWorks as a means
of enabling a single geoscientist to work in multiple disciplines and
multidisciplinary teams of geoscientists to work concurrently with the same
data and applications.
Integrated Solutions and Expansion of Services. Landmark has created
an Integrated Solutions Group to provide account management, first-line
support, and consulting services across most of Landmark's product groups. In
addition, because the Company believes that offering a comprehensive range of
services to its customers is a critical aspect of its business, the Company
intends to continue enhancing and expanding its range of services to meet the
evolving requirements of its customers. The Company's revenue generating
services include provision of on-site professionals and dedicated services as a
primary support mechanism for its larger customers.
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Broadening of Customer Base. In addition to selling to its
established customer base of major multinational and large independent oil
companies, the Company intends to intensify its efforts to sell to small
independent oil and gas firms and state-owned energy companies.
Growth Through Acquisitions. The Company intends to continue to
evaluate and, if attractive opportunities arise, acquire or license products
and technologies and acquire businesses which it believes are important to
achieving its strategy.
PRODUCTS AND SERVICES
Landmark's core products are its seismic interpretation software
applications, seismic processing applications, geologic interpretation and
mapping applications, 3D reservoir modeling applications, production
engineering applications, technical mapping and data analysis applications and
OpenWorks software integration and data management platform. The Company also
offers a number of other complementary software applications.
SEISMIC INTERPRETATION APPLICATIONS
Landmark's software applications designed primarily to enhance the
visualization, interpretation and analysis of 3D and 2D seismic data include
the following:
SeisWorks/3D (3D seismic interpretation). Using this software,
geoscientists can take advantage of the extensive volume of data provided by a
3D seismic survey to map reservoirs with increased accuracy. The software
enables geoscientists to use color analysis to describe various attributes of
the data and to track subsurface horizons in detail.
3DV1 (3D seismic volume interpretation). The 3DVI software
application is a suite of products designed to allow 3D seismic interpreters to
view and work with the entire 3D seismic "cube" of data in three dimensions on
their computer screens. The three applications in this suite (ZAP! III,
SeisCube and SurfCube) are tightly integrated with one another and with
SeisWorks/3D.
ZAP! III (automatic horizon picking). ZAP! III allows
geoscientists to map a seismic reflection surface through an entire 3D
volume in minutes or even seconds. This task could take weeks or
months when done manually.
SeisCube (visualization and interpretation of 3D volumes).
This product allows geoscientists to select a 3D surface to map with
ZAP! III and then peel away overlying seismic data to view the surface
in three dimensions. Users of SeisCube in conjunction with
SeisWorks/3D can scan through the solid 3D cube on screen before they
begin to interpret specific surfaces, faults or other geologic
features.
SurfCube (perspective displays of interpreted surfaces). This
software allows the user to rotate a full 3D perspective display to
check the quality of interpretations, add color and other seismic
attributes to enhance the clarity and content of surfaces, and
communicate complex geological relationships to others.
Vox Cube (analysis and visualization of seismic data attributes in 3D
space). This software helps users predict the presence of hydrocarbons by
adjusting the opacity and color of a 3D seismic volume to display only those
data attributes that are needed, such as phase, porosity or velocity.
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SynTool (synthetic seismograms generation). SynTool creates synthetic
seismic traces from well log readings, enabling geoscientists to correlate more
effectively limited, extremely precise well log data with more extensive,
indirect seismic data.
Seis Work/2D (2D seismic interpretations). This product is the 2D
equivalent of SeisWorks/3D. This 2D software assists geoscientists in
generating accurate maps of reservoirs using 2D seismic data, which represents
a single "line", or cross section of earth, rather than an entire cube of such
data as represented by the 3D method.
Fast Track (2D automatic horizon tracking). This product is the 2D
equivalent of ZAP! III. It allows the geoscientist to bypass the tedious
hand-tracking of a subsurface horizon over an entire 2D line. The program
automatically tracks horizon surfaces across faults, around corners if the 2D
line was not a straight line, and through areas where data quality is low.
TDQ (time-depth conversion). This product allows geoscientists to
quickly and accurately convert time-based seismic data to depth-based
geological data, and vice versa. It facilitates the use of multiple Landmark
applications in a single project.
SEISMIC PROCESSING APPLICATIONS
These applications provide tools for geoscientists to process complex
seismic data on their own workstations, which can eliminate the need to send
data to outside contractors.
MicroMAX (field seismic processing). Micro MAX enables geoscientists
to use personal computers to perform various quality control tasks and test
seismic data during the data acquisition process.
ProMAX (2D/3D seismic processing). This software consists of an
extensive library of techniques that help processing specialists to convert
large amounts of raw field recordings into 2D and 3D seismic images for
further analysis and interpretation. The new ProMAX version 6.0 has been
expanded with capabilities for high-volume 3D processing for very large
datasets and has been integrated with the seismic interpretation workflow.
ProMAX Prospector (post-stack processing). Prospector is a special
version of ProMAX designed for seismic interpreters, rather than processors.
This application allows geoscientists to analyze certain data attributes and
perform simple processing on selected seismic sections, to improve their
understanding of subsurface geology.
ProMAX VSP (borehole seismic processing). This is another version of
ProMAX designed to process "vertical" seismic data acquired inside wellbores.
It enables geoscientists to match precise well information (measured in units
of depth) with seismic data (measured in units of time), to obtain a better
understanding of the subsurface geology near the borehole.
GEOLOGIC INTERPRETATION AND MAPPING APPLICATIONS
The following software applications enable geoscientists to interpret and map a
variety of geologic data:
Z-MAP Plus (geologic mapping and modeling). Z-MAP Plus provides
geoscientists with an extensive collection of geomathematical tools to compute
and model faults, horizons, fluid contacts, reservoir volumes and many other
geologic features. In addition, it provides users with a variety of
specialized tools for creating high quality plots, maps, montages and other
paper displays for use in presentations.
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StratWorks (geologic interpretation). This software product is
Landmark's first application designed for routine well log correlation,
interpretation and mapping and is the Company's first product aimed primarily
at geologists and seismic interpreters who need log interpretation tools. In
addition, links between StratWorks and the Company's other applications make it
easier for users to integrate complex geological information with seismic
interpretations, resulting in better understanding of oil and gas prospects.
PetroWorks (well log analysis). PetroWorks is an application that
allows geologists and seismic interpreters to analyze subsurface geology and
reservoir characteristics, which can eliminate the need to consult an expert
well log analyst.
3D RESERVOIR MODELING APPLICATIONS
The following applications create interactive three-dimensional models of oil
and gas reservoirs using a variety of subsurface data:
SGM (Stratagraphic geocellular modeling). SGM is the core software
product for modeling reservoir rock and fluid properties. It provides
real-time rotation and visualization of a 3D graphic framework of cells within
earth layers, as well as mathematical calculations.
GTM (geocellular template modeling). This companion module to SGM
allows geoscientists to create "templates" of various geological features such
as buried reefs, channels, and other spatial changes in rock type. Special
lighting, shading, and transparency tools aid visualization.
StrataMap (interactive gridding and editing). StrataMap provides
interactive mapping capabilities. Using StrataMap, geoscientists can quickly
map seismic or well data sets and incorporate the results into their 3D
reservoir models.
StrataSim (fluid flow simulator). This product provides an
interactive link between geologic modeling and reservoir engineering. Users
can test static reservoir models with simulations of dynamic fluid flows to
determine the most efficient ways to extract oil and gas.
OpenSGML (development tools). Open SGM is an enabling technology that
allows users to incorporate third party or in-house modeling algorithms into
SGM, or develop new software applications links to SGM.
RAVE/DV (reservoir characterization). This tool enables geoscientists
and engineers to visualize relationships among various seismic and reservoir
attributes. It allows them to correlate statistically significant clusters of
reservoir properties with existing or potential well locations in standard map
and cross section views.
PRODUCTION ENGINEERING APPLICATIONS
The following applications are designed for drilling and production engineering
and economics:
ARIES (economics and reserve management). The ARIES product line
includes three modules: one for production engineering graphics, one that
monitors petroleum reserve activities and volumes and one for economic
analysis.
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DIMS (drilling information management system). At the drilling site,
this application replaces inefficient manual/paper data collection and
reporting methods with a digital system using relational database technology.
WIMS (well information management system). WIMS software provides an
efficient database with tools to develop completions and workovers.
POWAR (production operators workstation). This is a system for daily
data collection and reporting on producing wells. POWAR captures data in the
field and moves it through the central production account system.
GMS (gas management system). GMS is used with POWAR to track and
allocate gas production from point-of-sale back to partners.
WELLPLAN (relational database, data analysis and engineering software
system). WELLPLAN is used for drilling, completions and well service
operations. It is utilized at the rig site and office, providing seamless
integration between reporting and engineering functions.
Although the Company does not own the technology, Landmark has the
exclusive right to license the ARGUS product for use in oil and gas exploration
and production. ARGUS is a geographic information system that provides many
different professionals with a common map-based method of accessing and viewing
data stored in multiple databases. It can be used by both geoscientists and
managers to better understand relationships among various types of data.
TECHNICAL MAPPING AND DATA ANALYSIS APPLICATIONS
GES (geoscientific data management and mapping). GES is an integrated
set of modules which address fundamental aspects associated with exploration
and reservoir characterization. The basic functionality includes well and
seismic data management, base mapping, surface and fault modeling, cross
sectioning and volumetric estimation.
Jaguar (petroleum engineering and economic forecasting). The Jaguar
engineering system provides a suite of petroleum engineering applications which
include functions for estimating production decline, recoverable reserves,
economic forecasting and reservoir volume.
QLA 2 (petrophysical well log analysis). The QLA 2 petrophysical
system delivers well log data processing, cross-plotting and display
facilities. QLA 2 incorporates a graphical programming language developed
specifically for processing petrophysical data. QLA 2 was originally developed
under a joint marketing agreement with Schlumberger Technologies, which
agreement was terminated and superseded by an exclusive distribution license
which extends until June 30, 1996. Under the new agreement, QLA 2 is owned by
Schlumberger Technologies, but Landmark has the exclusive right to sell QLA 2
under a 50% - 50% royalty arrangement for the term of the agreement. The
agreement with Schlumberger Technologies does not preclude the Company from
marketing products to customers that have previously received QLA 2 products.
Upon termination of the agreement, the Company's rights with respect to QLA 2
will terminate. Landmark is actively engaged in the development of a
replacement for QLA 2 which is intended to provide sophisticated multi-well
analysis fully integrated with Landmark's data management an mapping products.
LeaseMap (petroleum land management). LeaseMap provides data
management and mapping functionality to assist the land professional in
managing producing and prospective properties.
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THE OPENWORKS SOFTWARE INTEGRATION AND DATA MANAGEMENT PLATFORM
The OpenWorks software integration and data management platform allows
geoscientists to efficiently run multiple applications from different
disciplines in side-by-side windows and, via a common Oracle database, exchange
data among them. OpenWorks also provides a software development platform which
can enhance productivity in designing and building new applications, both for
the Company and for third-party applications developers. The OpenWorks
platform is specifically designed to support modular applications, which are
simpler to build, maintain and enhance than large "monolithic" applications.
Customers are able to use the OpenWorks tool kit to integrate their own
proprietary applications with purchased applications.
OpenWorks has been developed to provide a standards-based, open
systems technology architecture. OpenWorks is based on a UNIX operating
system, employs standard graphical user interfaces (X Window System and Motif)
and networking protocols (TCP/IP and NFS) and functions with the Oracle
relational database management system. Most of Landmark's current applications
interface with its latest release of the OpenWorks platform. Other products
continue to be written under, or converted or linked to, the OpenWorks
platform. OpenWorks also includes several options for directly linking certain
applications of third parties. Several third-party software developers, on
their own, or as business partners with the Company, have developed new
applications under OpenWorks, or linked existing applications to OpenWorks,
further expanding the universe of applications capable of being run on the
Company's computer-aided exploration systems. In addition, several oil
companies have purchased copies of OpenWorks for use by their own developers.
OTHER COMPLEMENTARY SOFTWARE APPLICATIONS
In addition to its core products, the Company offers additional
computer-aided exploration products designed to enhance the ability of
geoscientists to access, interpret and analyze data, including the following:
Landmark Geo-dataWorks (geoscience data management). This product is
Landmark's first commercial application designed for graphical management and
querying of geoscience data. It provides users of Landmark's software
applications easy access to data without having to become a database expert.
SERVICES
To more fully satisfy the needs of its diverse customer base, Landmark
provides a variety of service and support programs. These programs are
provided by Company employees who are experienced geoscientists and users of
CAEX/CARM systems. Key revenue generating services and support programs
include:
o Service contracts which provide the customer with hardware
maintenance and all revisions and enhancements to its
software;
o Training courses for users of Landmark's software, as well as
system administrators, either at the customer's location or at
the Company's offices throughout the world;
o Telephone and on-site support options, to help geoscientists
get more effective use from applications, and in problem
solving with systems or software;
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o Customized consulting services in data loading and management
to provide access to the diverse types of information used in
most exploration and production projects;
o Consulting and networking services to help customers design,
build and integrate the most effective computer environment
for their particular needs; and
o An Integrated Solutions Group which provides account
management, first line support, and consulting services across
most of Landmark's product groups.
HARDWARE
The Company does not develop or manufacture computer hardware.
Instead, the Company configures standard commercially available workstations
and related hardware with the Company's software applications to satisfy
customer requirements. The Company's systems incorporate Sun SPARCstation or
IBM RISC System/6000 and Silicon Graphics, Inc. workstations, which employ
derivatives of the UNIX operating system. The Company also offers PC-based
workstations, which employ derivatives of the DOS and Windows operating
systems. They typical system consists of a CPU with memory, mass storage and
imaging hardware appropriate for Landmark's data-intensive applications. The
Company evaluates other hardware platforms on a continuing basis and supports
additional hardware platforms for certain applications, depending on the
particular needs of the software and the customer.
The Company's systems operate as stand-alone workstations or may be
integrated into a work group environment. All of the Company's UNIX
workstations support TCP/IP networking protocols and operate on Ethernet local
area networks.
PRODUCT DEVELOPMENT
Landmark is committed to providing computer-aided tools which enhance
the visualization and characterization of the subsurface and which permit the
integration of different data types and of different interpretations. The
Company has focused and will continue to focus research and development efforts
on helping oil and gas companies maximize the value of their substantial
investment in seismic, well log and reservoir data through CAEX/CARM products
and services.
The Company is focusing research and development efforts on
integrating all its principal applications under the OpenWorks software
integration and data management platform to provide the broadest suite of
integrated applications in the industry. In addition, the Company has taken an
open systems approach to the development and marketing of OpenWorks to
encourage other software vendors to develop new applications or modify existing
applications to run on OpenWorks.
The Company believes its open systems approach is consistent with the
efforts of the Petrotechnical Open Software Corporation ("POSC") and Public
Petroleum Data Model ("PPDM") to develop industry standards for the
computerization of the exploration and production process. The Company intends
to continue to develop its products in compliance with POSC and/or PPDM
standards that become widely accepted in the oil and gas industry. Landmark
plans to release an additional version of Open Works on PPDM to provide an
intermediate PPDM-based project data management and integration platform
addressing customers' immediate needs. The Company plans a subsequent major
release of Open Works which is intended to be fully POSC-compliant based on the
PPDM subset of Epicenter.
10
<PAGE> 12
The Company's existing customers are active in determining development
ideas and prioritizing enhancements and future products. Through user groups,
focus groups and a computerized system of tracking requests received from daily
interactions with customer support personnel, the Company is in close contact
with the needs and requirements of its customers and their innovative uses of
technology. Landmark's software developers and systems engineers work closely
with hardware vendors to configure hardware systems to take advantage of the
full range of functionality offered by the Company's software, including
client-server functionality and graphics visualization capabilities.
As of June 30, 1995, the Company employed approximately 243 people in
product design and development functions. During the fiscal years ended June
30, 1995, 1994 and 1993, the Company expended approximately $19,887,000,
$18,360,000 and $15,198,000, respectively, on product design and development
(which figures are net, respectively, of capitalized software development costs
of $3,700,000, $2,700,000 and $1,900,000). In addition to the amount
capitalized in fiscal 1995, the Company capitalized $600,000 in connection with
the acquisition of MGA and $1,200,000 in connection with the acquisition of
certain assets of DRD. In addition to the amount capitalized in fiscal 1993,
the Company capitalized $1,234,000 of capitalized software development costs in
connection with the Oklahoma Seismic acquisition. See Note 6 to the
Consolidated Financial Statements included elsewhere herein.
SEGMENT INFORMATION, MAJOR CUSTOMERS AND EXPORT SALES
The information regarding the Company's' business segments, major
customers, foreign and domestic operations and export sales appears in Note 20
(Segment Information) in the Notes to Consolidated Financial Statements
included elsewhere herein.
MARKETING AND SALES
The Company believes that personal customer contact is an important
factor in marketing its CAEX/CARM systems and therefore sells its systems
through a direct sales force located in more than 20 sales and technical
support centers worldwide. Sales personnel generally have either a geoscience
education or expertise in selling advanced technology- based systems.
The Company sells products and services to major multinational energy
companies, such as Amoco, British Petroleum, Chevron, Mobil Oil, Phillips
Petroleum, Royal Dutch/Shell, Texaco and Unocal, and to large independent oil
and gas companies, such as Amerada Hess, Marathon Oil, Maxus Energy and
Pennzoil. Landmark has also increased the sale of products and services to
national and small independent oil and gas companies. For the year ended June
30, 1995, approximately 56% of the Company's total revenues were generated by
international sales.
BACKLOG
The Company's products are composed of industry standard hardware
components that are assembled in response to specific customer requirements.
Although certain international orders may take several months to ship, the
Company's products are generally shipped within an average of 10 days following
receipt of an order. Accordingly, the Company does not believe that its
product revenue backlog is material to an understanding of its business.
Service revenues are primarily derived from hardware and software
service contracts. The service contracts generally have a one-year term and
renew automatically unless canceled not less than 30 days prior to the
anniversary date. As of June 30, 1995, the twelve-month backlog under such
contracts was approximately $26,500,000 as compared to approximately
$20,400,000 at June 30, 1994.
11
<PAGE> 13
GOVERNMENT REGULATION
The Company must generally obtain validated export licenses from the
U.S. government prior to selling its products in certain foreign countries. To
date, the Company has not experienced any significant unusual difficulty in
obtaining the required export licenses; however, there can be no assurance that
it will not experience difficulty in obtaining such licenses in connection with
future export sales.
COMPETITION
The market for CAEX/CARM systems is highly competitive. Many of the
Company's existing and potential competitors have substantially greater
marketing, financial and technical resources than the Company. The Company's
existing and potential competitors include a division of Schlumberger, Ltd. and
specialized software companies. The Company also experiences competition from
certain of the major oil and gas companies which have internally developed, and
may continue internally developing, CAEX/CARM systems, thereby limiting the
Company's potential customer base. In addition, new competitors are entering
the market and competition is intensifying. There can be no assurance that
sales of the Company's products will not be adversely affected if its current
competitors or new market entrants introduce new products with better
functionality, performance, price or other characteristics than the Company's
products.
The Company believes that the principal competitive factors in the
CAEX/CARM market are first-to-market advantage, installed base size, product
functionality and performance, software integration, the relationship of
product price and performance, and customer support and consulting services.
The Company believes that it competes effectively with respect to each of these
factors.
PATENTS, COPYRIGHTS, TRADEMARKS AND LICENSES
The Company generally relies on patent, copyright and trademark laws,
license and nondisclosure agreements, and technical measures to protect its
rights in its software products. All employees of the Company are required to
sign an agreement that they will maintain the confidentiality of the Company's
proprietary information. The Company's products generally are licensed to
customers pursuant to an agreement that restricts the use of the products to
the customer's internal purposes.
The Company has applied for U.S. and foreign patents for several of its
existing and future products. A U.S. patent covering an invention in the
Company's TurboZAP! was issued October 8, 1991 as U.S. Patent 5,056,066.
Another patent was issued October 6, 1992 as U.S. Patent 5,153,858 which covers
an innovative method for picking horizons in 3D seismic data. Two additional
patents, (U.S. Patent 4,821,164 and U.S. Patent 4,991,095) relating to
processes for three-dimensional mathematical modeling of underground geologic
volumes were issued on April 11, 1989 and February 5, 1991, respectively. U.S.
Patent 5,432,751, which was issued July 11, 1995, covers a computerized method
of automatically picking horizons from a 3D volume of seismic data traces. The
above patents will expire 17 years after the issuance date. Other patents are
pending seeking coverage for inventions in the Company's new generation of ZAP!
products. Still other patents are pending seeking coverage for the Company's
OpenWorks method of information communication between concurrently operating
computer programs. Software products originated by the Company's employees are
covered by copyright.
The Company has trademark rights in the marks applied to its software
products. U.S. trademark registrations have been issued for the marks
LANDMARK, LANDMARK and pyramid logo, OPENWORKS, STRATWORKS, SEISWORKS,
PETROWORKS, ZAP!, WELLBASE, GEOGRAPHIX, ISOMAP, SEISMAP and LEASEMAP. Canadian
trademark registrations have been
12
<PAGE> 14
issued for POGO, DIMS, and WIMS. Trademark registration applications are
pending for other marks of the Company.
The Company has acquired licenses from third-party software vendors to
sell certain software applications developed by those vendors. In addition,
the Company has acquired licenses from other software vendors for networking,
utilities, and other software products. These licenses typically provide for
an initial fee which covers a certain number of copies and for payment
thereafter on a per copy basis.
PERSONNEL
At June 30, 1995, the Company employed approximately 910 employees.
The Company's future success will depend in large part on its continued ability
to attract and retain highly skilled employees. None of its employees is
represented by a collective bargaining agreement, and the Company believes that
it relations with its employees are very good.
ITEM 2. PROPERTIES
The Company owns a 150,000 square foot building and undeveloped land
of approximately 12 acres adjacent to the building located in Houston, Texas.
This facility is primarily used for certain research and development, product
assembly, executive and administrative, and sales and support functions. The
land and building are pledged as collateral for obligations under two credit
agreements that approximated $33 million at June 30, 1995.
The Company owns a building in Austin, Texas, and approximately 10
acres of undeveloped land adjacent thereto, and leases a 22,813 square foot
facility in Englewood, Colorado, and a 20,708 square foot facility in Denver,
Colorado. These facilities are used for research and development and sales and
support functions. The Company also leases a 36,000 square foot facility in
London, England, which is used for sales and support functions and a 12,185
square foot vacant facility in Houston, Texas, previously occupied by
Stratamodel. Additionally, the Company leases various facilities in the United
States and in 19 foreign countries which are used for sales and support
functions.
The Company believes that its present facilities will be adequate for
its anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
Marlene Malek and Abraham Slomovics v. Landmark Graphics Corporation
and C. Eugene Ennis (Cause No. H-92-800); On March 11, 1992 this lawsuit was
filed in the United States District Court for the Southern District of Texas,
Houston Division. The action was filed on behalf of those individuals who
purchased the Company's Common Stock between September 30, 1991 and March 10,
1992 and alleged that the Company and Mr. Ennis violated the federal securities
laws and state law in connection with reporting the Company's financial
information. On July 13, 1995, a unanimous jury verdict was rendered in the
Company's and Mr. Ennis' favor with respect to all aspects of the lawsuit.
There is no other litigation pending which might have a material
adverse effect on the Company or the market for its Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fiscal quarter ended June 30, 1995.
13
<PAGE> 15
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the Nasdaq National Market under the
symbol "LMRK". The following table sets forth, for the quarters indicated, the
high and low sales prices per share for the Common Stock as reported on the
Nasdaq National Market:
<TABLE>
<CAPTION>
Fiscal 1995 High Low
----------- ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . $33.25 $19.25
Second Quarter . . . . . . . . . . . 23.75 16.00
Third Quarter . . . . . . . . . . . 22.05 17.73
Fourth Quarter . . . . . . . . . . . 27.00 18.25
Fiscal 1994
-----------
First Quarter . . . . . . . . . . . $23.25 $18.00
Second Quarter . . . . . . . . . . . 26.75 17.37
Third Quarter . . . . . . . . . . . 30.00 18.25
Fourth Quarter . . . . . . . . . . . 35.25 23.75
</TABLE>
As of September 18, 1995 there were 292 holders of record of the Company's
Common Stock.
The Company has not paid any cash dividends since its inception and does
not intend to pay cash dividends in the foreseeable future. Furthermore,
certain provisions of the Company's credit agreements restrict the Company's
ability to pay cash dividends. The Company presently intends to retain
earnings for use in its business, with any future decision to pay cash
dividends dependent upon the Company's growth, profitability, financial
condition and other factors the Board of Directors may deem relevant.
14
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------------
(in thousands, except per share data) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME DATA: (Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
Revenues:
Software product sales $ 83,735 $ 70,329 $ 53,212 $ 39,413 $ 33,849
Hardware product sales 31,845 31,833 26,674 28,127 39,605
Maintenance and other 55,626 41,089 33,089 29,251 26,742
- -------------------------------------------------------------------------------------------------------------------
Total revenues 171,206 143,251 112,975 96,791 100,196
- -------------------------------------------------------------------------------------------------------------------
Cost of revenues:
Cost of software product sales 9,939 6,387 6,237 4,074 3,460
Cost of hardware product sales 26,373 26,424 20,576 19,725 25,576
Cost of maintenance and other 30,943 24,978 18,068 18,472 15,148
Bad debt expense 1,612 1,536 1,687 3,131 556
- -------------------------------------------------------------------------------------------------------------------
Total cost of revenues 68,867 59,325 46,568 45,402 44,740
- -------------------------------------------------------------------------------------------------------------------
Gross profit 102,339 83,926 66,407 51,389 55,456
- -------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 19,887 18,360 15,198 15,250 12,334
Selling, marketing and administrative 58,848 45,364 41,996 35,419 28,621
Acquired research and development costs 3,700 - - - -
Merger costs 2,692 13,567 - - -
Restructuring charges and non-recurring 1,809 - - 8,300 -
costs
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 86,936 77,291 57,194 58,969 40,955
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 15,403 6,635 9,213 (7,580) 14,501
Other, net 3,298 1,879 37 1,788 1,415
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 18,701 8,514 9,250 (5,792) 15,916
Provision (benefit) for income taxes 5,196 2,667 2,125 (72) 4,645
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 13,505 $ 5,847 $ 7,125 $ (5,720) $ 11,271
===================================================================================================================
Net income (loss) per common and common
equivalent shares $ 0.77 $ 0.36 $ 0.51 $ (0.42) $ 0.82
===================================================================================================================
Weighted average common and common
equivalent shares outstanding 17,464 16,371 13,927 13,629 13,697
Pro forma information (unaudited):
Net income (loss) as reported $ 13,505 $ 5,847 $ 7,125 $ (5,720) $ 11,271
Pro forma charge in lieu of income taxes - 1,256 554 434 532
- -------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) $ 13,505 $ 4,591 $ 6,571 $ (6,154) $ 10,739
- -------------------------------------------------------------------------------------------------------------------
Pro forma income (loss) per share $ 0.77 $ 0.28 $ 0.47 $ (0.45) $ 0.78
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
As of June 30,
-----------------------------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA: (Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
Working capital $ 97,517 $ 106,601 $ 51,980 $ 47,158 $ 42,747
Total assets 211,151 189,153 105,974 99,100 78,776
Bank debt 12,007 13,150 1,144 1,467 2,019
Retained earnings 35,637 22,957 22,308 16,838 23,536
Total stockholders' equity 158,898 142,604 80,752 73,530 78,660
</TABLE>
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Management's Discussion and Analysis is the Company's analysis of its financial
performance and of significant trends which may impact future performance. On
March 25, 1994, the Company acquired all of the outstanding common stock of
Advance Geophysical Corporation (Advance) in an acquisition accounted for as a
pooling of interests. On September 28, 1994, the Company acquired all of the
equity interests of Stratamodel, Inc. (Stratamodel) in an acquisition accounted
for as a pooling of interests. On September 29, 1994, the Company acquired all
of the outstanding common stock of MGI Associates, Inc. (MGA) in an acquisition
accounted for as a purchase. On February 28, 1995, the Company purchased
certain assets and assumed related liabilities of DRD Corporation (DRD) in an
acquisition accounted for as a purchase. On June 5, 1995, the Company acquired
all of the outstanding common stock of GeoGraphix, Inc. (GeoGraphix) in an
acquisition accounted for as a pooling of interests. Accordingly, the
Company's Consolidated Financial Statements included elsewhere herein give
effect to the acquisitions accounted for as poolings of interests for all
periods presented and include the results of acquired operations accounted for
as purchases since the dates of acquisition. The following discussion should be
read in conjunction with the Consolidated Financial Statements of the Company
and the related notes thereto.
The Company, incorporated in 1982, designs, markets and
supports software and systems which facilitate the exploration and production
efforts of oil and gas companies. The Company derives revenues from licensing
software products, providing related services and reselling hardware. Customers
pay the Company an initial license fee for the software, which is generally
recognized by the Company upon shipment. Customers have the option to pay an
annual maintenance fee, calculated as a percentage of current list price, which
entitles them to routine support and product updates. The Company generally
recognizes revenues related to customer support agreements ratably over the
contract period. See Note 1 to the Consolidated Financial Statements.
A significant portion of the Company's revenues is derived
from sales into certain geographic regions or market sectors which, due to
regulatory requirements and other constraints, may have lengthy sales cycles.
Accordingly, the timing of revenue recognition on these transactions may have a
noticeable effect on the Company's quarter-to-quarter and year-to-year
financial performance.
16
<PAGE> 18
RESULTS OF OPERATIONS
The following table presents certain items in the Consolidated Statements of
Income as a percentage of total revenues or of their respective revenue
components and the percentage change in the dollar amount of those items for
each of the years in the three year period ended June 30, 1995.
<TABLE>
<CAPTION>
Years Ended June 30, Percentage Change
---------------------------------------------------------------------
1995 1994 1993 1994-1995 1993-1994
- -------------------------------------------------------------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C> <C> <C>
Revenues:
Software product sales 49% 49% 47% 19% 32%
Hardware product sales 19 22 24 0 19
Maintenance and other 32 29 29 35 24
- ------------------------------------------------------------------------------------
Total revenues 100 100 100 20 27
- ------------------------------------------------------------------------------------
Cost of revenues:
Cost of software product sales(1) 12 9 12 56 2
Cost of hardware product sales(1) 83 83 77 0 28
Cost of maintenance and other(1) 56 61 55 24 38
Bad debt expense 1 1 1 5 (9)
- ------------------------------------------------------------------------------------
Total cost of revenues 40 41 41 16 27
- ------------------------------------------------------------------------------------
Gross profit 60 59 59 22 26
Operating expenses:
Research and development 12 13 14 8 21
Selling, marketing and administrative 34 32 37 30 8
Acquired research and development 2 N/A N/A N/A N/A
Merger costs 2 9 N/A (80) N/A
Restructuring charges 1 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------
Total operating expenses 51 54 51 12 35
- ------------------------------------------------------------------------------------
Income from operations 9% 5% 8% 132% (28)%
</TABLE>
(1) This line item is expressed as a percentage of the corresponding revenue
line item and not as a percentage of total revenues.
FISCAL 1995 COMPARED TO FISCAL 1994
Total Revenues. Total revenues for fiscal 1995 increased approximately 20%
compared to the prior year. The increase in total revenues was primarily due to
increased sales to international markets and the addition of the MGA product
line. The Company's continued expansion into developing markets in Europe,
Asia and Latin America contributed to the increase in international revenues of
approximately 28% over the fiscal 1994 amounts. International revenues
comprised approximately 56% of total revenues in fiscal 1995 as compared to 53%
in 1994. Current year revenues include approximately $12,000,000 related to
the MGA product line which was acquired in the first quarter of fiscal 1995.
Software Product Sales. Software product sales consist of license fees
for the Company's proprietary and third party software. The increase in
software product sales of approximately 19% over the prior fiscal year was
attributable to new product offerings, acquired product lines and strengthened
sales of the Company's core products. As a percentage of total revenues,
software product sales remained constant at 49%. The software product sales
increase of approximately $13,400,000 resulted in a positive impact on gross
profit. The Company's strategy of offering petroleum companies a complete
spectrum of software applications has had a positive impact on software product
sales and is expected to continue to have a positive impact in the future.
Hardware Product Sales. Hardware product sales relate to the resale of
third party computer hardware. Hardware product sales remained constant at
approximately $31,800,000. As a percentage of total revenue, hardware product
sales decreased from 22% in fiscal 1994 to 19% in fiscal 1995. This decrease
is due primarily to the Company's decision to continue to shift away from sales
of hardware to sales of software.
Maintenance and Other. Maintenance and other revenues relate to
maintenance and support of the Company's hardware and software products as well
as revenues from training and consulting. As a percentage of total revenue,
17
<PAGE> 19
maintenance and other increased from 29% in fiscal 1994 to 32% in fiscal 1995;
maintenance and other increased approximately $14,500,000 or 35% from the
previous year. The increase in absolute dollars was primarily due to a 59%
increase in software maintenance revenues which resulted from the expanding
installed base of the Company's products and a $3,600,000 contribution by MGA.
Hardware maintenance revenues remained constant at approximately $6,600,000.
The Company's hardware maintenance revenues have been impacted by the presence
of third party companies that offer hardware maintenance at often lower prices.
In response to this trend, the Company began outsourcing hardware maintenance
business activities in fiscal 1995.
Cost of Software Product Sales. Cost of software product sales, as a
percentage of software revenue, increased from 9% in fiscal 1994 to 12% in
fiscal 1995. Increased royalty costs resulting from higher sales of third party
applications and increased embedding of third party applications in the
Company's products has negatively impacted the current year's software product
margins. This trend may continue if the third party content of products sold to
customers continues to grow.
Cost of Hardware Product Sales. Cost of hardware product sales, as a
percentage of hardware product sales, remained constant at 83% in fiscal 1995
and fiscal 1994. Although hardware contributes a lower margin, the Company
plans to continue to offer hardware to accommodate sales of software and
services to customers who desire comprehensive solutions.
Cost of Maintenance and Other. Cost of maintenance and other decreased
as a percentage of the related revenues from 61% in fiscal 1994 to 56% in
fiscal 1995. While preserving hardware maintenance revenues, the Company
reduced expenses by discontinuing processing services and outsourcing hardware
maintenance services. These decisions have positively impacted the maintenance
and other margin.
Bad Debt Expense. Bad debt expense as a percentage of total revenues
remained constant at approximately 1% of total revenues from fiscal 1994 to
fiscal 1995. Management continues to review the status of customer accounts and
will attempt to make adequate provisions as conditions change.
Research and Development. Research and development costs increased 8%
during fiscal 1995 over the prior year. The increase over the prior year
relates to the addition of the MGA development function and the related costs.
The Company believes that continued investments in research and development are
important to its future growth and competitive position in the marketplace. The
increase in costs was partially offset by a higher level of capitalized
software costs during fiscal 1995. The Company capitalized approximately
$3,700,000 or 16% of total research and development costs during fiscal 1995 as
compared to approximately $2,700,000 or 13% in fiscal 1994 due to the increased
level and range of products under development. The Company amortized $3,500,000
and $2,300,000 of capitalized software costs in fiscal 1995 and fiscal 1994,
respectively.
Selling, Marketing and Administrative. Selling, marketing and
administrative expenses increased approximately $13,500,000 from the fiscal
1994 amount. As a percentage of revenue, the costs increased from 32% in
fiscal 1994 to 34% in fiscal 1995. The increase relates to incremental costs
associated with the addition of the MGA operations and increased selling costs
related to expanding the Company's presence in Europe and Asia.
Acquired Research and Development Costs. Acquired research and
development costs of $3,700,000, which approximate 2% of total revenues for
fiscal 1995, relate to in-process development activities for projects which
were acquired in connection with the DRD purchase, but had not yet reached
technological feasibility. In accordance with generally accepted accounting
principles, this amount was expensed at the date of acquisition.
Merger Costs. Merger costs, which approximate less than 2% of total
revenue for fiscal 1995, consist of accounting, legal and investment banking
costs related to the acquisitions of Stratamodel and GeoGraphix. Merger costs
for fiscal year 1995 decreased approximately $11,000,000 from fiscal 1994
primarily due to the inclusion in prior year of a compensation charge related
to Advance's Phantom Stock Plan.
18
<PAGE> 20
Restructuring and Other Non-recurring Charges. Restructuring and other
non-recurring charges, which approximate 1% of total revenue for fiscal 1995,
relate to the Company's restructuring plan which was designed to eliminate
redundancies and consolidate the Stratamodel operations. Management expects
this restructuring plan to result in reduced spending for the Company.
Additionally, non-recurring costs, including relocation and other acquisition-
related charges, were incurred in connection with the Stratamodel acquisition.
Other Income, Net. Other income, net increased approximately $1,400,000
from fiscal 1994 to fiscal 1995. This increase was primarily attributable to
higher net interest income resulting from higher investment yields on invested
funds.
Taxes. During fiscal 1995, the effective tax rate was lower than the
statutory rate and lower than the prior year's rate. The effective rate
decreased primarily due to recognition of deferred tax benefits of an acquired
company. The valuation allowance for deferred tax assets which approximated
$2,200,000 at June 30, 1995 relates to certain deferred assets associated with
an acquired company. Full realization of the total benefit is dependent upon,
among other things, the Company's ability to maintain the present level of
earnings.
FISCAL 1994 COMPARED TO FISCAL 1993
Total Revenues. Total revenues for fiscal 1994 increased approximately
27% compared to the prior year. The increase in total revenues was primarily
due to the continued improvement in the domestic oil and gas industry, as
evidenced by increased spending by major oil companies and small independents.
Domestic revenues increased approximately 44% from fiscal 1993 which caused
domestic revenues as a percentage of total revenues to shift from 42% for
fiscal 1993 to 47% for fiscal 1994. International revenues improved
approximately 15% over the fiscal 1993 amounts primarily due to the Company's
continued expansion into developing markets in Europe, Asia and Latin America.
International revenues represented approximately 53% and 58% of total revenues
in fiscal 1994 and 1993, respectively.
Software Product Sales. Software product sales, which accounted for 49%
of total revenues in fiscal 1994, consist of license fees for the Company's
proprietary and third party software. The increase in software product sales of
approximately 32% over the prior fiscal year was attributable to new product
offerings, as well as stronger sales of the Company's core products. The
increase is also attributable to improved sales of Advance's seismic processing
applications, which significantly expanded the Company's product portfolio.
The Company's revenues also reflect a continuing shift away from sales of
hardware to sales of software. As a percentage of total revenues, software
product sales increased from 47% in fiscal 1993 to 49% in fiscal 1994, which
had a positive impact on gross profit.
Hardware Product Sales. Hardware product sales relate to the resale of
third party computer hardware. Hardware product sales increased 19% from fiscal
1993 and represented approximately 22% of total revenues in fiscal 1994. The
increase in hardware product sales was due primarily to increased hardware
sales to small independents, who have historically purchased comprehensive
products and services.
Maintenance and Other. Maintenance and other revenues relate to
maintenance and support of the Company's hardware and software products as well
as revenues from other services, including consulting. Although maintenance and
other revenues remained constant as a percentage of total revenues, maintenance
and other revenues increased approximately $8,000,000 or 24% from the previous
year. The increase in absolute dollars was due to an increase in software
maintenance revenues and the higher demand for services offered by the Company.
This increase was offset by an ongoing reduction in hardware maintenance
revenues, resulting from increased cancellations of maintenance contracts at
the renewal dates. The Company's hardware maintenance revenues have been
adversely impacted by the presence of third party companies that offer hardware
maintenance at lower prices.
19
<PAGE> 21
Cost of Software Product Sales. Cost of software product sales, as a
percentage of software product sales, decreased from 12% in fiscal 1993 to 9%
in fiscal 1994. This decrease was primarily attributable to a significant
increase in software product sales without a comparable increase in costs.
Cost of Hardware Product Sales. Cost of hardware product sales, as a
percentage of hardware product sales, increased from 77% in fiscal 1993 to 83%
in fiscal 1994. The increase is due to the Company lowering its hardware prices
without an equivalent decrease in its related costs and increasing the sales
discounts given in response to pressure on hardware prices.
Cost of Maintenance and Other. Cost of maintenance and other increased
as a percentage of the related revenues from 55% in fiscal 1993 to 61% in
fiscal 1994. Lower hardware maintenance revenues, without a comparable decrease
in costs associated with providing these services, contributed to the increase.
The service margin was also negatively impacted by start-up costs associated
with expanding the Company's customized consulting services to include
comprehensive system integration and design services.
Bad Debt Expense. Bad debt expense as a percentage of total revenues
decreased slightly from fiscal 1993 to fiscal 1994.
Research and Development. Research and development costs increased 21%
during fiscal 1994 over the prior year. Increased costs are primarily a result
of increased personnel costs and the addition of costs associated with the
Advance research and development function. The Company believes that
continued investments in research and development are important to its future
growth and competitive position in the marketplace. The increase in costs was
partially offset by a higher level of capitalized software costs during fiscal
1994. The Company capitalized approximately $2,700,000 or 13% of total
research and development costs during fiscal 1994 as compared to approximately
$1,900,000 or 11% in fiscal 1993. The Company amortized $2,300,000 and
$1,700,000 of capitalized software costs in fiscal 1994 and fiscal 1993,
respectively.
Selling, Marketing and Administrative. Selling, marketing and
administrative expenses increased approximately $3,400,000 from the fiscal 1993
amount; however, as a percentage of revenue, these amounts decreased from 37%
in fiscal 1993 to 32% in fiscal 1994. The increase in absolute cost over
fiscal 1993 is primarily attributable to increased selling expenses which
related to opening new sales offices in Europe and Asia. Marketing expenses
increased from the prior fiscal year as a result of increased advertising and
literature costs. These increases were offset by the decreased rent expense
experienced as a result of the Houston facility purchase.
Merger Costs. As a percentage of fiscal 1994 revenues, merger costs
approximated 9%. These costs consisted of a compensation charge related to the
common shares issued to Advance's Phantom Stock Plan participants and
professional and other fees related to the completion of the acquisition.
Other Income, Net. Other income, net increased approximately $1,800,000
from fiscal 1993 to fiscal 1994. This increase was primarily attributable to
increased interest income associated with the proceeds of the October 1993
public stock offering. The $900,000 decrease in the foreign exchange loss,
which was positively impacted by the protective hedge program implemented in
the second half of fiscal 1993, was offset by the increased interest expense
related to debt incurred in connection with the Houston facility purchase.
Taxes. During fiscal 1994, the effective tax rate was lower than the
statutory rate and higher than the prior year's rate. The effective rate
increased primarily due to the effect of nondeductible merger costs and
unrecognized deferred tax benefits of Advance. The effective rate was less
than the statutory rate due primarily to the application of
pooling-of-interests accounting to the acquisitions of Subchapter S
Corporations (Advance and GeoGraphix). Accordingly, because Advance and
GeoGraphix were previously S Corporations, the results of their operations for
periods prior to the mergers have been included in income before income taxes,
but the related income tax expense has been excluded because it was the
responsibility of the Advance and GeoGraphix stockholders.
20
<PAGE> 22
In connection with the adoption of Statement of Financial Accounting
Standards No. 109 the Company established a valuation allowance for deferred
tax assets which approximated $3,500,000 at June 30, 1994. The majority of the
year- end allowance relates to certain deferred assets associated with the
Advance acquisition. Realization of these assets is uncertain due to the
unpredictability of Advance's future taxable income. Full recognition of the
total benefit is dependent upon, among other things, Advance's and the
Company's ability to maintain the present level of earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong during fiscal 1995. As of
June 30, 1995 cash and cash equivalents generated internally exceeded cash
required to support the Company's operations, however, the cash and cash
equivalents decreased approximately $10,600,000 from June 30, 1994 due
primarily to the payments for purchased businesses and other non-recurring
acquisition related expenses.
Net trade receivables increased approximately $10,300,000 from fiscal 1994
to fiscal 1995, due primarily to higher revenues, offset in part by increased
collections. Increased revenues recognized in the fourth quarter of fiscal
1995 as compared to the comparable quarter of the prior year contributed to an
increase in days sales outstanding at June 30, 1995 to 111 days from 106 days
at June 30, 1994. Management continues to focus efforts on improving
collections and maintaining days sales outstanding within this range.
Goodwill increased approximately $11,800,000 from the balance at June 30,
1994. This amount relates to the MGA and DRD acquisitions and represents the
cost in excess of fair value of the net assets acquired. The goodwill recorded
will be amortized on a straight-line basis over a period of eight years.
Goodwill is expected to increase and cash to decrease by approximately
$6,900,000 over the next three years with deferred payouts to be made to former
owners of an acquired company related to an earn-out provision in the purchase
agreement.
The Company's primary internal source of liquidity is cash flow generated
from operations. External sources of liquidity include debt and equity
financing. The Company believes funds generated from operations will be
sufficient to meet liquidity requirements for the foreseeable future.
Management continues to evaluate opportunities to acquire products,
technologies or businesses complementary to the Company's businesses. These
acquisition opportunities may involve the use of cash or, depending upon the
size and terms of the acquisition, may require debt or equity financing. As of
June 30, 1995, the Company has $21,000,000 available under a line of credit
facility. Expenses associated with these potential acquisitions may have an
adverse impact on the Company's results of operations in the period the
transactions are consummated.
Subsequent to June 30, 1995, the Company announced a restructuring plan to
realign its resources to achieve its strategic goals of offering integrated
solutions as well as point products. The plan includes reducing staff and
consolidating certain facilities. The before tax-effect will be a one-time
charge of approximately $3,100,000 in the first quarter of fiscal 1996.
21
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements: Page
----
<S> <C>
Report of Independent Accountants 23
Report of Independent Accountants 24
Report of Independent Public Accountants 25
Report of Independent Auditors 26
Report of Independent Certified Public Accountants 27
Consolidated Statements of Income for the three years ended June 30, 1995 28
Consolidated Balance Sheets as of June 30, 1995 and 1994 29
Consolidated Statements of Changes in Stockholders' Equity for the three
years ended June 30, 1995 30
Consolidated Statements of Cash Flows for the three years ended
June 30, 1995 31
Notes to Consolidated Financial Statements 32
Financial Statement Schedules:
Schedule VIII - Valuation and Qualifying Accounts for the three years ended
June 30, 1995 51
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Landmark Graphics Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 8, insofar as they relate to the years ended June 30, 1995
and 1994, present fairly, in all material respects, the financial position of
Landmark Graphics Corporation and its subsidiaries at June 30, 1995 and 1994,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 2, the Company consummated two acquisitions during the
year ended June 30, 1995 which were accounted for as poolings of interests. We
did not audit the financial statements of GeoGraphix, Inc. which statements
reflect total assets of $3,257,346 and $2,799,254 at December 31, 1994 and
1993, respectively, and total revenues of $6,408,292, $4,859,783 and $3,732,974
for the years ended December 31, 1994, 1993, and 1992, respectively. Those
statements were audited by other independent public accountants whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for GeoGraphix, Inc., is based solely on the
report of the other independent public accountants. The financial statements
for the year ended June 30, 1993 have been restated to reflect these two
poolings of interests. We have audited the adjustments that were applied to
restate the 1993 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied to the 1993 financial statements.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
July 26, 1995
23
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Stratamodel, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of income, of changes in shareholders' equity and of cash flows (not
presented separately herein) present fairly, in all material respects, the
financial position of Stratamodel, Inc. and its subsidiary at December 31, 1993
and 1992, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
August 29, 1994
24
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of GeoGraphix, Inc.
We have audited the accompanying balance sheets (not presented separately
herein) of GEOGRAPHIX, INC. (a Colorado corporation), as of December 31, 1994
and 1993, and the related statements of income, stockholders' equity and cash
flows (not presented separately herein) for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GeoGraphix, Inc. as of
December 31, 1994 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
April 7, 1995
25
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Landmark Graphics Corporation
We have audited the consolidated balance sheet of Landmark Graphics Corporation
and subsidiaries as of June 30, 1993, and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for the year
ended June 30, 1993 prior to their restatement for poolings subsequent to 1993
(not presented separately herein). Our audit also included the financial
statements schedules listed in the Index at Item 8 prior to their restatement
(not presented separately herein). These financial statements and schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Landmark Graphics Corporation at June 30, 1993, and the consolidated
results of its operations and its cash flows for the year ended June 30, 1993
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Houston, Texas
July 28, 1993
except for Note 21, as to which the date is
May 17, 1994
26
<PAGE> 28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders
Advance Geophysical Corporation
Englewood, Colorado
We have audited the balance sheet of Advance Geophysical Corporation as of
September 30, 1992 and the related statements of income, stockholders' equity
and cash flows for the year ended September 30, 1992. 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 financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our previous report, dated December 16, 1992, we expressed an opinion that
the balance sheet as of September 30, 1992 did not fairly present financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles because the Company had not recorded the
deferred compensation related to Phantom Stock Plan for financial reporting
purposes. As described in Note 3, the Company has restated its balance sheet
as of September 30, 1992 and the statement of income, stockholders' equity and
cash flows for the year ended September 30, 1992 to conform with generally
accepted accounting principles. Accordingly, our present opinion on these
financial statements, as presented herein, is different from that expressed in
our previous report.
In our opinion, the financial statements, referred to above, present fairly, in
all material respects, the financial position of Advance Geophysical
Corporation as of September 30, 1992 and the results of its operations and its
cash flows for the year ended September 30, 1992 in conformity with generally
accepted accounting principles.
/s/ Levine, Hughes & Mithuen, Inc.
Englewood, Colorado
December 15, 1992, except for Note 3
as to which the date is January 7, 1994
27
<PAGE> 29
LANDMARK GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------
(in thousands, except per share data) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Revenues:
Software product sales $ 83,735 $ 70,329 $ 53,212
Hardware product sales 31,845 31,833 26,674
Maintenance and other 55,626 41,089 33,089
- -----------------------------------------------------------------------------------------------------------------
Total revenues 171,206 143,251 112,975
- -----------------------------------------------------------------------------------------------------------------
Cost of revenues:
Cost of software product sales 9,939 6,387 6,237
Cost of hardware product sales 26,373 26,424 20,576
Cost of maintenance and other 30,943 24,978 18,068
Bad debt expense 1,612 1,536 1,687
- -----------------------------------------------------------------------------------------------------------------
Total cost of revenues 68,867 59,325 46,568
- -----------------------------------------------------------------------------------------------------------------
Gross profit 102,339 83,926 66,407
- -----------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 19,887 18,360 15,198
Selling, marketing and administrative 58,848 45,364 41,996
Acquired research and development costs 3,700 - -
Merger costs 2,692 13,567 -
Restructuring charges and non-recurring costs 1,809 - -
- -----------------------------------------------------------------------------------------------------------------
Total operating expenses 86,936 77,291 57,194
- -----------------------------------------------------------------------------------------------------------------
Income from operations 15,403 6,635 9,213
Interest income 4,182 2,696 1,011
Interest expense (1,054) (882) (167)
Foreign exchange loss (229) (189) (1,092)
Other income, net 399 254 285
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 18,701 8,514 9,250
Provision for income taxes
Current 4,927 3,777 1,530
Deferred 269 (1,110) 595
- -----------------------------------------------------------------------------------------------------------------
Net income $ 13,505 $ 5,847 $ 7,125
=================================================================================================================
Net income per common and common
equivalent shares $ 0.77 $ 0.36 $ 0.51
=================================================================================================================
Weighted average common and common
equivalent shares outstanding 17,464 16,371 13,927
Pro forma information (unaudited):
Net income as reported $ 13,505 $ 5,847 $ 7,125
Pro forma charge in lieu of income taxes - 1,256 554
- -----------------------------------------------------------------------------------------------------------------
Pro forma net income $ 13,505 $ 4,591 $ 6,571
=================================================================================================================
Pro forma income per share $ 0.77 $ 0.28 $ 0.47
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 30
LANDMARK GRAPHICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
Years Ended June 30,
----------------------------
(in thousands, except par value data) 1995 1994
- ------------------------------------------------------------------------------------------------------------
(Restated)
<S> <C> <C>
Current assets:
Cash, including cash equivalents of $60,570 and $72,173
in 1995 and 1994, respectively $ 64,099 $ 74,695
Receivables:
Trade accounts, less allowance for doubtful accounts of
$1,461 and $1,706 in 1995 and 1994, respectively 51,984 41,722
Current income tax receivable 1,003 1,003
Accrued revenue and other receivables 7,838 7,206
Inventory 4,340 3,444
Prepaid expenses 3,004 3,635
Deferred income taxes 3,847 5,094
- ------------------------------------------------------------------------------------------------------------
Total current assets 136,115 136,799
Investments 857 851
Property and equipment, net 47,503 40,936
Software development costs, net of accumulated amortization
of $11,000 and $7,528 in 1995 and 1994, respectively 7,932 5,864
Goodwill 11,949 129
Other assets, net 6,795 4,574
- ------------------------------------------------------------------------------------------------------------
$ 211,151 $ 189,153
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 9,488 $ 7,943
Accrued liabilities 10,823 8,319
Deferred maintenance fees 14,597 11,097
Income taxes payable 2,683 1,689
Current maturities of long-term debt 1,007 1,150
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 38,598 30,198
Deferred income taxes 2,590 4,351
Long-term debt 11,000 12,000
Other long-term liabilities 65 -
- ------------------------------------------------------------------------------------------------------------
Total liabilities 52,253 46,549
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 3,600 shares authorized, none issued or
outstanding in 1995 or 1994 - -
Common stock, $0.05 par value; 21,400 shares authorized, 17,086 shares issued
and outstanding in 1995 and 16,923 shares issued and outstanding in 1994 854 846
Paid-in capital 122,407 118,801
Retained earnings 35,637 22,957
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 158,898 142,604
- ------------------------------------------------------------------------------------------------------------
$ 211,151 $ 189,153
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 31
LANDMARK GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended June 30, 1995, 1994 and 1993
-----------------------------------------------------------
Common Stock Total
---------------------- Paid-in Retained Stockholders'
(in thousands) Shares Amount Capital Earnings Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1992, as restated 13,681 $684 $ 56,008 $16,838 $ 73,530
Exercise of options for common stock 122 6 1,369 - 1,375
Common stock issued in connection with the
acquisition of certain assets of
Oklahoma Seismic, net of expenses of $73 23 1 376 - 377
Distributions to S Corporation stockholders - - - (1,655) (1,655)
Net income - - - 7,125 7,125
- -------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1993, as restated 13,826 691 57,753 22,308 80,752
Exercise of options for common stock 307 16 3,922 - 3,938
Tax benefit associated with exercised options - - 1,062 - 1,062
Common stock issued in connection with the
purchase of the Houston facility,
net of expenses of $60 80 4 1,446 - 1,450
Common stock issued, net of offering costs
of $3,141 2,305 115 45,143 - 45,258
Common stock issued in exchange for performance
units of an acquired company, net of
expenses of $79 405 20 8,572 - 8,592
Distributions to S Corporation stockholders - - - (3,902) (3,902)
Contribution of undistributed S Corporation
earnings - - 903 (903) -
Adjustment to reduce acquired company's net income
to a nine month amount - - - (393) (393)
Net income - - - 5,847 5,847
- -------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1994, as restated 16,923 846 118,801 22,957 142,604
Exercise of options for common stock 160 8 1,930 - 1,938
Issuance of restricted stock 3 - 45 - 45
Tax benefit associated with exercised options - - 1,631 - 1,631
Distributions to stockholders by pooled entity - - - (825) (825)
Net income - - - 13,505 13,505
- -------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1995 17,086 $854 $122,407 $35,637 $158,898
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 32
LANDMARK GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Cash flows from:
Operating activities:
Net income $ 13,505 $ 5,847 $ 7,125
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 8,683 7,373 7,066
Acquired research and development costs 3,700 - -
Adjustment to reduce acquired company's net income
included above to a nine month amount - (393) -
Amortization of goodwill and intangible assets 1,396 136 122
Amortization of capitalized software development costs 3,472 2,284 1,708
Compensation related to performance units of acquired company - 6,608 1,171
Provision for doubtful accounts 1,612 1,536 1,687
Deferred income taxes 269 (1,110) 595
Other 1,090 1,689 2,182
Changes in assets and liabilities, net of the effects of
purchased businesses:
Receivables (10,440) (7,630) (3,270)
Inventory (1,583) (114) (876)
Prepaid expenses 784 (841) 267
Other assets (2,353) (99) (474)
Accounts payable and accrued liabilities 3,192 2,739 (2,171)
Deferred maintenance fees 2,154 5,121 268
Deferred income taxes/income taxes payable 1,977 1,359 900
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 27,458 24,505 16,300
Investing activities:
Capital expenditures (14,992) (25,886) (8,861)
Payments for purchased businesses acquired net of cash acquired (18,928) - (546)
Capitalized software development costs (3,705) (2,745) (1,915)
Investment in equity securities (6) 400 (240)
Proceeds from sale of property and equipment 160 229 -
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (37,471) (28,002) (11,562)
Financing activities:
Additions to debt - 14,150 27
Reductions of debt (1,695) (2,144) (350)
Proceeds from exercise of stock options 1,937 3,937 1,039
Proceeds from sale of common stock, net of offering costs - 45,258 -
Issuance costs related to stock-based financing activities - (139) -
Distributions to pooled entities' stockholders (825) (3,902) (1,655)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (583) 57,160 (939)
Net increase (decrease) in cash and cash equivalents (10,596) 53,663 3,799
Cash and cash equivalents at beginning of year, as restated 74,695 21,032 17,233
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 64,099 $ 74,695 $ 21,032
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 33
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
Landmark Graphics Corporation (the "Company") is engaged in the development,
marketing and support of interactive computer-aided exploration and reservoir
management software and systems. The consolidated financial statements include
the accounts of the Company and its majority owned subsidiaries. The
consolidated financial statements for the years ended June 30, 1994 and 1993
have been restated to give effect to acquisitions which have been accounted for
as poolings of interests (See Note 2). All significant inter-company balances
and transactions have been eliminated.
Accrued Revenue and Other Receivables Accrued revenue and other receivables
consist of the current portion of lease contracts receivable, notes receivable
and other miscellaneous receivables.
Inventory Inventory, which is stated at the lower of cost, as determined by
the weighted average method, or market, is comprised of (in thousands):
<TABLE>
<CAPTION>
June 30,
----------------------------
1995 1994
- ---------------------------------------------------
(Restated)
- ---------------------------------------------------
<S> <C> <C>
Component parts $ 3,547 $ 1,958
Field service parts 52 775
Finished goods - 180
Lease units 741 509
Work in Progress - 22
- ---------------------------------------------------
$ 4,340 $ 3,444
===================================================
</TABLE>
Lease units represent systems at customer sites on either an evaluation basis
or as long-term operating leases. Lease units under long-term operating leases
are amortized over the lesser of the term of the lease or 12 months. The lease
units reflected above are net of depreciation of $315,000 and $165,000 as of
June 30, 1995 and 1994, respectively.
Property and Equipment Property and equipment are stated at cost. The cost
of repairs and maintenance is charged to operations as incurred. Depreciation
expense for financial statement purposes is computed using the straight-line
method over three to seven years for computer equipment and purchased software,
five years for furniture, fixtures and equipment, the lesser of the lease term
or five years for leasehold improvements and twenty-five to forty years for
buildings.
Software Development Costs Costs of developing software for sale are
charged to expense when incurred as research and development until
technological feasibility has been established for the product. Thereafter,
software development costs are capitalized until the software is ready for
general release to customers. Once the software is ready for general release,
amortization of the software development costs begins. Amortization is
calculated as the greater of the amount computed by applying the ratio of
revenues generated during the current year to currently anticipated gross
revenues over the remainder of the product life to the amount capitalized, or
by applying the straight-line method over the currently estimated remaining
product life. Capitalized software development costs are generally not
amortized over periods which exceed three years.
Costs of purchasing software for internal use are capitalized and included
in property and equipment in the accompanying financial statements.
Goodwill Goodwill represents the cost in excess of fair value of the net
assets of companies acquired in transactions treated as purchases. These
amounts are being amortized on a straight-line basis over eight years.
Other Assets Other assets includes the long-term portion of lease payments
related to sales-type leases, notes receivable and other intangible assets.
The long-term portion of lease payments relates to sales-type leases with lease
terms of one to three years. Other intangible assets consist primarily of
patents and organizational costs and are being amortized on a straight-line
basis for a period of three to five years.
32
<PAGE> 34
Revenue Recognition Revenues from the sale of hardware products and
software licenses are recognized at the time of shipment unless significant
future obligations remain. In these instances, revenue is not recognized until
obligations have been satisfied or are no longer significant. Maintenance and
other revenues are comprised of postcontract customer support agreements,
training and consulting services. Post-contract customer support agreements
are recorded as deferred maintenance fees and recognized as revenue ratably
over the contract period. Training and consulting service revenues are
recognized as the services are performed.
Foreign Currencies The accounts of the Company's foreign subsidiaries,
whose functional currency is the U.S. dollar, are translated into U.S. dollars
on a monthly basis and the resulting gain or loss is included in the results of
operations. To mitigate the effect of fluctuations in exchange rates, the
Company utilizes a protective hedge program which is designed to hedge certain
identifiable assets and obligations, primarily accounts receivable.
Income Taxes Deferred taxes are recognized using the liability method. This
method gives consideration to the future tax consequences associated with
differences between financial accounting and tax bases of assets and
liabilities. This method gives immediate effect to changes in income tax laws
upon enactment.
Pro Forma Charge in Lieu of Income Taxes Prior to its acquisition by the
Company, Advance Geophysical Corporation ("Advance") had elected S Corporation
status for U.S. federal income tax purposes. Prior to October, 1993,
GeoGraphix, Inc. ("GeoGraphix") had elected S Corporation status for U.S.
federal income tax purposes. The tax liability associated with their income
during these time periods was the responsibility of their stockholders. To
reflect the earnings of these entities on an after-tax basis, an unaudited pro
forma charge in lieu of income taxes has been included in the accompanying
Consolidated Statements of Income for the periods preceding the termination of
S Corporation status. This provision was computed as if Advance and GeoGraphix
were C Corporations and responsible for their federal and state income taxes.
Concentration of Credit Risk The Company invests its excess cash primarily
in high quality short-term liquid money market instruments. The Company's
policy is to invest in instruments with an investment-grade or higher credit
rating. The investments generally mature within ninety days and therefore are
subject to little risk. The Company has not incurred losses related to these
investments.
Trade receivables, which result from sales in numerous countries, also subject
the Company to concentrations of credit risk. The Company's policy is to
evaluate, prior to shipment, each customer's financial condition to determine
the credit terms to be extended. The Company extends credit to various
companies in the oil and gas industry. This concentration of credit risk may
be affected by changes in economic or other conditions and may, accordingly,
impact the Company's overall credit risk. However, a significant portion of
consolidated accounts receivable are due from large integrated oil and gas
companies which management believes reduces potential credit risk.
Cash and Cash Equivalents The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Reclassifications Certain prior year amounts have been reclassified to
conform to current year presentation.
Note 2 Acquisitions:
Oklahoma Seismic Corporation On June 21, 1993, the Company acquired certain
assets of Oklahoma Seismic Corporation ("Oklahoma Seismic") for $550,000 cash,
22,542 shares of common stock valued at $450,000 and the assumption of certain
liabilities. The acquired assets consist primarily of software used in seismic
and geological exploration and interpretation activities. The acquisition was
accounted for using the purchase method and, accordingly, the purchase price
has been allocated to the assets acquired based on estimated fair values at the
date of acquisition. The acquired operations have been included in the results
of operations since the date of acquisition.
Advance Geophysical Corporation On March 25, 1994, the Company acquired
Advance, a Denver, Colorado based company which develops seismic processing
software. In connection with the acquisition, the Company
33
<PAGE> 35
issued a total of 2,626,746 of its shares in exchange for all of the
outstanding shares of common stock of Advance and all of the outstanding
performance units awarded under Advance's Phantom Stock Plan. This acquisition
has been accounted for as a pooling of interests, and accordingly, the
financial statements for the year ended June 30, 1993 have been restated to
include the accounts of Advance.
The Company reports its financial results on a June 30 fiscal year-end
basis, whereas Advance operated on a September 30 fiscal year-end basis. For
the purpose of applying pooling-of-interests accounting, the 1993 financial
statements have been restated by combining the Company's June 30 results with
the September 30 results of Advance.
In the year ended 1994, Advance changed its fiscal year-end from September
30 to June 30. As a result, the Consolidated Balance Sheet and Consolidated
Statement of Income combine both entities' results as of and for the year ended
June 30, 1994. However, the Consolidated Statement of Cash Flows combines the
Company's cash flows for the year ended June 30, 1994 with the cash flows of
Advance for the nine months ended June 30, 1994. The Consolidated Statements
of Income for the years ended June 30, 1994 and 1993, both include the impact
of Advance's three month period ended September 30, 1993 for which Advance
reported revenues of $4,354,000 and net income of $393,000.
In accordance with the pooling-of-interests method of accounting for S
Corporations, all undistributed retained earnings of Advance, as of the date of
the acquisition, were presented as an addition to paid-in capital of the
combined companies.
No adjustments were necessary in order to conform the accounting policies
of Advance to the Company's accounting policies.
Stratamodel, Inc. On September 28, 1994, the Company acquired all of the
equity interests of Stratamodel, Inc. ("Stratamodel"), a Houston, Texas-based
company, in a transaction accounted for as a pooling of interests, and
accordingly, the financial statements for the years ended June 30, 1994 and
1993 have been restated to include the accounts of Stratamodel.
Stratamodel's reservoir characterization and modeling software products
are designed to aid geoscientists in oil and gas exploration and production.
In connection with the acquisition, the Company issued a total of 413,911
shares of its common stock, in exchange for all of the common stock, stock
options and warrants of Stratamodel. In addition, the Company retired all of
Stratamodel's outstanding debt of approximately $510,000 and paid certain
acquisition-related expenses of Stratamodel of approximately $293,000.
Stratamodel previously reported its financial results on a December 31
fiscal year-end basis. In connection with the acquisition, Stratamodel changed
its fiscal year-end from December 31 to June 30. As a result, the financial
statements presented combine both entities' financial results for the same
periods. In addition to the adjustments made to effect the change in fiscal
years, certain adjustments were made in order to conform Stratamodel's method
of accounting for software development costs and income taxes to the Company's
method.
The Company capitalizes software development costs when an operative
version of the product is ready for initial testing, whereas Stratamodel
capitalized costs at points prior to initial testing. Additionally, the
Company accounted for income taxes under Accounting Principles Board Opinion
No. 11 until it was required to adopt Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Stratamodel had
applied Statement of Financial Accounting Standards No. 96, "Accounting for
Income Taxes" until adopting SFAS 109. In connection with the acquisition,
Stratamodel conformed its accounting policies to those of the Company. The
effect of these conforming adjustments increased Stratamodel's historical net
income for the year ended June 30, 1994 by approximately $35,000 and decreased
net income for the year ended June 30, 1993 by approximately $346,000.
MGI Associates, Inc. On September 29, 1994, the Company purchased all the
issued and outstanding capital stock of MGI Associates, Inc., ("MGA") a company
based in Dallas, Texas, which develops personal computer-based economics and
reservoir engineering software products designed to aid asset teams, including
production and drilling engineers, in oil and gas exploration. The Company
acquired MGA for consideration of approximately $13.3 million which consisted
of cash of $10.5 million paid to acquire the stock, $1.2 million paid to retire
certain related party debt and approximately $1.6 million of
acquisition-related costs. The acquisition was accounted for using the purchase
method and, accordingly, the purchase price has been allocated to the assets
acquired based on estimated fair values at the date of acquisition.
In accordance with the purchase method of accounting, the acquired
operations have been included in the results of operations since the date of
acquisition.
34
<PAGE> 36
DRD Corporation On February 28, 1995 the Company purchased certain assets and
assumed certain liabilities of DRD Corporation ("DRD") of Tulsa, Oklahoma in
exchange for cash consideration of approximately $5.8 million. The Company also
incurred accounting, legal and investment banking costs of approximately
$600,000 related to the acquisition. The assets acquired primarily consisted of
drilling and completion engineering software applications as well as in-process
research and development activities. The acquisition was recorded using the
purchase method of accounting and, accordingly, the acquired operations have
been included in the results of operations since the date of acquisition.
GeoGraphix, Inc. On June 5, 1995, the Company acquired all of the outstanding
common stock of GeoGraphix, a Denver, Colorado-based company in a transaction
accounted for as a pooling of interests, and accordingly the financial
statements for the years ended June 30, 1994 and 1993 have been restated to
include the accounts of GeoGraphix.
GeoGraphix previously reported its financial results on a December 31
fiscal year-end basis. In connection with the acquisition, GeoGraphix changed
its fiscal year-end from December 31 to June 30. As a result, the financial
statements presented combine both entities' financial results for the same
periods. In addition to the adjustments made to effect the change in fiscal
years, certain adjustments were made in order to conform GeoGraphix method of
accounting for software development costs to the Company's method.
The Company capitalizes software development costs when an operative
version of the product is ready for initial testing, whereas GeoGraphix
capitalized costs at points prior to initial testing. In connection with the
acquisition, GeoGraphix conformed its accounting policies to those of the
Company. The provision for income taxes has been adjusted to conform the
provision for income taxes to that which would have been recorded had the
acquired company operated on a June 30 fiscal year end and had applied the same
method of accounting for capitalized software development costs as the Company.
The effect of these conforming adjustments decreased GeoGraphix' historical net
income for the years ended June 30, 1995, and 1993 by approximately $237,000,
and $35,000, respectively and increased historical net income by approximately
$65,000 for the year ended June 30, 1994.
Note 3 Customer Leases:
The Company leases products to customers under agreements with lease terms of
one to three years which qualify as sales- type leases. The current portion of
the lease payments is included in Accrued revenue and other receivables, while
the long-term portion is included in Other assets as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
------------------------
1995 1994
- ----------------------------------------------------
(Restated)
<S> <C> <C>
Lease contracts $ 11,447 $ 9,145
receivable:
Less current portion: (6,363) (5,214)
------------------------
$ 5,084 $ 3,931
====================================================
</TABLE>
Annual future lease payments to be received under sales-type leases are
$6,363,000, $3,596,000 and $1,488,000 for the years ended June 30, 1996, 1997
and 1998, respectively.
Note 4 Investments:
In September 1991, a subsidiary of the Company entered into a joint venture,
D/S Memorial, Ltd., relating to the construction and lease of a 150,000 square
foot building occupied by the Company. During fiscal 1994, the Company
purchased all of the assets of the joint venture in exchange for 80,000 shares
of common stock and $14,000,000 of cash borrowed under credit agreements (See
Note 9).
On January 27, 1993, the Company acquired 100,000 shares of 3DX
Technologies, Inc. ("3DX"), formerly Novera Energy Inc., Convertible Preferred
Stock in exchange for cash, certain assets and a line of credit guarantee of
$400,000. On November 9, 1993, the Company exchanged the 100,000 shares of
Convertible Preferred Stock for 63,637 shares of 3DX common stock.
Additionally, in connection with a 3DX equity financing transaction, the
Company paid 3DX $400,000 which was then used to repay amounts borrowed by 3DX
under the line of credit guaranteed by the Company. In exchange for that
payment, the Company was issued 4,000 units, which consist of 4,000 shares of
3DX Redeemable Preferred Stock (Redeemable stock) and 23,376 shares of 3DX
common stock. In connection with the above transaction, the line of credit
guarantee between the Company and 3DX's lender was terminated.
35
<PAGE> 37
The Redeemable stock has a liquidation preference of $100 per share and is
mandatorily redeemable in two equal installments on November 9, 2002 and 2003.
Each share of the Redeemable stock is noncumulative and entitles the holder to
ten votes. Dividends are payable annually on December 31 at the rate of $12.50
per share, if in cash, or 0.13276 shares of Redeemable stock per share of
Redeemable stock, if in stock.
One of the founders of 3DX, a company that obtains working interests in
oil and gas properties in return for providing interpretation services, is the
Company's former chairman and chief executive officer.
Note 5 Property and Equipment, Net:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
------------------------
1995 1994
- --------------------------------------------------------
(Restated)
<S> <C> <C>
Land $ 7,105 $ 7,105
Buildings and improvements 21,114 20,438
Furniture, fixtures and equipment 44,480 35,068
Computer software 8,768 4,637
- --------------------------------------------------------
81,467 67,248
Accumulated depreciation
and amortization (33,964) (26,312)
----------------------
$ 47,503 $ 40,936
========================================================
</TABLE>
Note 6 Capitalized Software:
The Company capitalized software development costs of $3,700,000, $2,700,000
and $1,900,000 for the years ended June 30, 1995, 1994, 1993, respectively. In
addition to the amount capitalized in fiscal 1995, the Company capitalized
$600,000 in connection with the acquisition of MGA and $1,200,000 in connection
with the acquisition of certain assets of DRD. In addition to the amount
capitalized in fiscal 1993, the Company capitalized $1,234,000 of capitalized
software development costs in connection with the Oklahoma Seismic acquisition.
Amortization of capitalized software costs of $3,500,000, $2,300,000, and
$1,700,000 is included in the results of operations for the years ended June
30, 1995, 1994 and 1993, respectively.
Note 7 Accrued Liabilities:
Accrued Liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
- ----------------------------------------------------------
1995 1994
- ----------------------------------------------------------
(Restated)
<S> <C> <C>
Accrued commissions $ 1,327 $ 1,586
Real estate, sales and other taxes 2,452 2,421
Other 7,044 4,312
----------------------
$ 10,823 $ 8,319
==========================================================
</TABLE>
Note 8 Phantom Stock Plan:
Advance adopted a Phantom Stock Plan (the "Plan") to provide deferred
compensation to certain key employees through the award of performance units.
The Consolidated Statements of Income include compensation accrued and charged
to operations under the Plan of $12,754,000 and $1,171,000 for the years ended
June 30, 1994 and 1993, respectively. Under the provisions of the Plan, all
performance units granted and all commitments to grant additional performance
units became fully vested upon the acquisition of Advance. The Plan has been
terminated and all performance units were exchanged for 405,483 shares of the
Company's common stock.
36
<PAGE> 38
Under Plan provisions, participants were also entitled to receive an
annual bonus based on adjusted net income, as defined, payable at the
discretion of the Board of Directors. The Consolidated Statements of Income
include bonuses accrued and charged to operations under the Plan of $1,343,000
and $902,000 for the years ended June 30, 1994 and 1993, respectively. All
bonuses have been paid as of June 30, 1995.
Note 9 Long Term Debt:
Long term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------------
1995 1994
- -----------------------------------------------------
(Restated)
<S> <C> <C>
Term loan, interest
payable monthly at a base
rate or Eurodollar market
base rate, as defined
(7.38% at June 30, 1995),
principal due in quarterly
installments of $250
through September 30,
1998, remainder due
October 1998 $8,000 $9,000
Revolving credit facility,
expiring October 1999,
interest payable monthly
at a base rate or
Eurodollar market base
rate, as defined (6.88% at
June 30, 1995), principal
due in forty-eight equal
monthly installments
beginning October 31, 1996 4,000 4,000
Other 7 150
- -----------------------------------------------------
12,007 13,150
Less current maturities (1,007) (1,150)
- -----------------------------------------------------
$11,000 $12,000
=====================================================
</TABLE>
Principal payments of long term debt in each of the next five fiscal years
are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 1,750
1998 2,000
1999 6,000
2000 1,000
Thereafter 250
- --------------------------------------------------
$ 11,000
==================================================
</TABLE>
On July 1, 1993, the Company entered into two credit agreements consisting
of a $10,000,000 five year-term loan and a $10,000,000 revolving credit
facility. The term loan and $4,000,000 of the revolving credit facility were
drawn in connection with the purchase of the Houston facility (See Note 4).
The agreement was amended on November 30, 1993 to increase the revolving line
of credit facility from $10,000,000 to $25,000,000. The obligations are
collateralized by land and the Company's building.
The credit agreements provide for the Company to elect interest at either
a base rate stated by Lender or a Eurodollar rate, as defined. Interest on the
term loan accrues through October 31, 1995 at the base rate
37
<PAGE> 39
or LIBOR plus 1.5%. Interest on the revolving credit facility accrues through
October 31, 1995 at the base rate or LIBOR plus 1.0%. Commencing in November
1995 interest will accrue at LIBOR plus 1.0%. The Company may lock in LIBOR
rates for both the term and revolving loans for up to 360 days.
Installment payments under the revolving credit agreement are scheduled to
begin in October 1996. The terms of the agreement allow the Company to request
an extension of the date installments commence by one year increments.
Additionally, the revolving credit agreement, as amended, requires the payment
of a quarterly commitment fee at 1/4% per annum of the average initialized
portion of the facility.
Both agreements require maintenance of certain financial covenants,
including a cash flow coverage ratio, a minimum net worth test and a maximum
ratio of total liabilities to tangible net worth. As of June 30, 1995,
management believes the Company is in compliance with all covenants in the
credit agreements.
At June 30, 1995, the Company had outstanding letters of credit of
approximately $969,000 under a $5,000,000 line of credit.
Note 10 Commitments and Contingencies:
Leases The Company has entered into operating leases for certain of its
facilities and equipment. Future minimum lease commitments under
non-cancelable operating leases with initial or remaining terms of one year or
more at June 30, 1995 are payable as follows (in thousands):
<TABLE>
<CAPTION>
Years ending
June 30,
- --------------------------------------------
<S> <C>
1996 $ 4,113
1997 3,353
1998 2,640
1999 2,292
2000 1,862
Thereafter 18,936
- --------------------------------------------
$ 33,196
============================================
</TABLE>
Rental expense for fiscal 1995, 1994 and 1993 was approximately $3,412,000,
$2,953,000 and $4,025,000, respectively. Of the $4,025,000 paid in fiscal
1993, $1,416,000 was paid to D/S Memorial Ltd. (See Note 4).
Incentive Bonus Plans The Company has a performance bonus plan for all
employees of the Company not included in other incentive compensation plans.
Payments pursuant to the performance bonus plan are based on a percentage of
each participant's base salary if certain business unit performance criteria
are achieved. For the year ended June 30, 1995, $342,000 was accrued and paid
to eligible employees under the plan. Although the 1994 performance criteria
was not achieved, the Board of Directors approved a discretionary bonus of
$359,000 which is included in the results of operations. No amounts were
accrued or paid under the plan in fiscal 1993.
Employment Agreements In connection with acquisitions, the Company has
entered into employment, non-competition and retention agreements (for three to
five years) with certain officers and key employees. The total remaining
amount of future charges to income, if all such commitments are fulfilled by
all parties, approximated $3,516,000 at June 30, 1995.
Litigation The Company is involved in certain claims and litigation arising
in the course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Earn-out payments Under the terms of the MGA acquisition agreement, the
Company is obligated to make earn-out payments over a period of four years with
a net present value (as of July 1, 1995) of approximately $6.0 million.
Additionally, in connection with the MGA transaction, the Company
acquired an option to purchase the equity interests of a related party in
exchange for a line of credit guarantee of $5.0 million. The option is
exercisable no later than October 31, 1997 at an exercise price which is based
upon the related party's financial results. In no event will the net present
value of the option price be less than $8.0 million.
38
<PAGE> 40
Note 11 Preferred Stock:
The Board of Directors has the authority to issue shares of preferred stock in
one or more series and to fix the rights, qualifications, preferences,
privileges, limitations or restrictions of each such series.
Note 12 Public Offering:
On October 13, 1993, the Company completed an underwritten public offering of
2,000,000 shares of common stock at a price to the public of $21.00 per share.
In conjunction with the offering, the underwriters fully exercised an over-
allotment option of 304,749 shares. Proceeds to the Company after deducting
underwriting discounts, commissions and offering costs were approximately
$45,258,000. Such proceeds have been and may continue to be used for general
corporate purposes, including acquisitions and working capital.
Note 13 Stock Option Plans:
The Company has several stock option plans whereby options to purchase shares
of common stock have been or can be granted to directors, officers, consultants
and employees. Grant prices are, in most instances, equal to the fair market
value at the date of grant; however, under the provisions of the plan, the
Company has the option to set grant prices at a defined percentage below fair
market value. Matters such as vesting periods and expiration of options are
determined on a plan by plan, or grant by grant basis.
The following is a summary of stock option activity for the years ended
June 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Shares
Under
Option Price Range
-------------------------------
<S> <C> <C>
Outstanding at
June 30, 1992 2,395,926 $ .60-23.75
Options granted 1,155,556 10.00-20.38
Options canceled (1,299,935) 4.88-23.75
Options exercised (122,553) .60-17.00
- -----------------------------------------
Outstanding at
June 30, 1993 2,128,994 .60-23.75
Options granted 475,315 18.00-34.13
Options canceled (197,623) 10.25-28.13
Options exercised (307,354) .60-23.75
- -----------------------------------------
Outstanding at
June 30, 1994 2,099,332 .60-34.13
Options granted 981,665 17.00-32.25
Options canceled (138,257) 10.00-32.25
Options exercised (160,185) .60-21.50
- -----------------------------------------
Outstanding at June
30, 1995 2,782,555 $ 3.33-34.13
=========================================
</TABLE>
Of the options outstanding at June 30, 1995, 1,014,215 options were
exercisable. At June 30, 1995 and 1994, there were 1,504,648 and 1,454,360
shares, respectively, reserved for future grants under existing plans. During
fiscal 1993, as an incentive program for employees, the Board of Directors
approved a plan to offer employees who are not officers or directors the
alternative of exchanging existing options for new options. As a result of
this plan 681,511 options at prices ranging from $14.00 to $23.75 were canceled
and new options at an exercise price of $12.75 were granted and began the
required vesting period.
Note 14 Profit Sharing Plan:
The Company established The Landmark Savings Plan (the "Plan") for the benefit
of all eligible employees. The Plan is qualified under sections 401(a) and
401(k) of the Internal Revenue Code of 1986 and is subject to the provisions of
the Employee Retirement Income Security Act of 1974.
39
<PAGE> 41
Employees may voluntarily contribute up to 16% of Compensation, as
defined, to the Plan. The participants' contributions are matched by the
Company at a rate of 50% of the first 8%, up to IRS limitations. For the years
ended June 30, 1995, 1994 and 1993, contributions by the Company were $931,000,
$623,000 and $554,000, respectively.
During fiscal 1995, 1994 and 1993, the Plan purchased 46,733, 5,394 and
22,000 shares, respectively, of the Company's common stock. At June 30, 1995,
1994 and 1993, the Plan owned 57,791, 36,933 and 49,529 shares respectively, of
the Company's common stock. Certain of the Company's subsidiaries sponsor
various defined contribution plans. These plans are immaterial.
Note 15 Income Per Common and Common Equivalent Share:
Income per common and common equivalent share is computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year. Common stock equivalents include the number of
shares issuable upon exercise of stock options, less the number of shares that
could have been repurchased with the exercise proceeds using the treasury stock
method.
For purposes of the income per share computation, the shares issued in
exchange for the equity interests of pooled entities have been treated as if
they had been been issued and outstanding for all periods presented.
The following is a reconciliation of the weighted average number of
shares outstanding with the number of shares used in the computations of income
per common and common equivalent share (in thousands):
<TABLE>
<CAPTION>
June 30,
------------------------------------
1995 1994 1993
- ---------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Weighted average
number of shares
outstanding 17,001 15,774 13,706
Share equivalents 463 597 221
- ---------------------------------------------------------------
Shares used in
computing
income per share 17,464 16,371 13,927
===============================================================
</TABLE>
Note 16 Acquired Research and Development Costs:
Acquired research and development costs relate to in-process research and
development activities acquired in connection with the DRD purchase. The
Company evaluated the status of the in-process development activities and
determined that certain projects had not reached technological feasibility and
did not have alternative future use. The Company performed a separate
valuation of the replacement cost of these activities and determined the
replacement cost approximated $3.7 million. In accordance with generally
accepted accounting principles, this amount was expensed at the date of
acquisition.
Note 17 Merger Costs:
For the year ended June 30, 1994, nonrecurring costs included in the
Consolidated Statement of Income consist of a compensation charge related to
the common shares issued to Phantom Stock Plan participants and professional
and other fees and expenses related to the completion of the merger with
Advance. In connection with the acquisition, common stock was issued to
Advance's Phantom Stock performance unit holders in exchange for all of their
outstanding performance units. The fair value of the Company's stock was used
to measure the compensation costs relating to this Plan, which resulted in the
recognition of a nonrecurring charge of $11,126,000. Additionally, investment
banking, accounting and legal costs related to the merger of approximately
$2,441,000 were incurred and are included in merger costs.
For the year ended June 30, 1995, merger costs included in the
Consolidated Statement of Income consist primarily of accounting, legal and
investment banking costs related to the completion of the Stratamodel and
GeoGraphix acquisitions.
40
<PAGE> 42
Note 18 Restructuring Charges and Non-Recurring Costs:
In connection with the Stratamodel acquisition, the Company adopted a
restructuring plan designed to eliminate redundancies and consolidate
operations. Under the plan, the Company recorded approximately $1.2 million in
restructuring charges in fiscal 1995 consisting of severance costs for
terminated employees and lease costs associated with duplicate facilities.
Additionally, non-recurring costs of approximately $600,000 were incurred in
connection with the acquisition including relocation and other
acquisition-related costs.
Note 19 Income Taxes:
The provision for income tax differs from the amounts computed based upon the
federal statutory rates for the reasons shown below:
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------
1995 1994 1993
- -----------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Statutory federal income
tax rate 35% 35% 34%
Amortization of goodwill 2 1 1
Nondeductible
merger costs 4 8 -
Taxes related to
foreign income (1) - 3
Foreign Sales
Corporation benefit (5) (1) (3)
Abandonment of goodwill - - (3)
Deferred benefits not
recognized (9) 3 (5)
(recognized)
S corporation earnings - (14) (2)
Tax-exempt income (1) (3) -
State taxes 2 1 -
Other 1 2 (2)
- -----------------------------------------------------------
28% 32% 23%
===========================================================
</TABLE>
Income before income taxes was taxed under the following jurisdictions (in
thousands):
<TABLE>
<CAPTION>
Years ended June 30,
-------------------------------------
1995 1994 1993
- -------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Domestic $ 20,567 $ 7,894 $ 8,553
Foreign (1,866) 620 697
- -------------------------------------------------------------
$ 18,701 $ 8,514 $ 9,250
=============================================================
</TABLE>
Certain overseas operations are branches of Landmark Graphics and
subsidiaries and are therefore subject to United States as well as foreign
income tax. The above analysis of pretax income and the following analysis of
the income tax provision (benefit) are therefore not directly related. Also,
the foreign taxes withheld on export sales are included in the foreign amount
of the current provision shown below.
41
<PAGE> 43
Provision for income taxes included in the Consolidated Statements of
Income are as follows (in thousands):
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------------
1995 1994 1993
- --------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Current:
Federal $ 3,244 $ 1,508 $ 295
State 256 87 -
Foreign 1,427 2,182 1,235
- --------------------------------------------------------------
Total current $ 4,927 $ 3,777 $ 1,530
- --------------------------------------------------------------
Deferred:
Federal (43) (968) 570
Foreign 312 (142) 25
- --------------------------------------------------------------
Total deferred 269 (1,110) 595
- --------------------------------------------------------------
Provision for income
taxes $ 5,196 $ 2,667 $ 2,125
==============================================================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
Year ended
June 30,
------------
1995
- ------------------------------------------------------------
<S> <C>
Loss and credit carryovers $ 4,248
Warranty, bad debt and
inventory reserves 695
Cash-to-accrual adjustment 466
Vacation reserve 308
Other 370
- ------------------------------------------------------------
Total - current $ 6,087
- ------------------------------------------------------------
Capitalized R&D costs (1,855)
Intangible amortization 1,293
Foreign subsidiary earnings (1,104)
Foreign depreciation (222)
Prepaid royalties (183)
Depreciation (177)
Other (342)
- ------------------------------------------------------------
Total - noncurrent $ (2,590)
- ------------------------------------------------------------
Net tax asset before
valuation allowance 3,497
Valuation allowance (2,240)
- ------------------------------------------------------------
Net deferred tax asset $ 1,257
============================================================
</TABLE>
General business credit carryforwards of $75,000 and net operating loss
carryforwards of $5,860,000 were used to reduce current taxes payable. Credit
of $1,510,000 was allocated to contributed capital for the portion of the net
operating loss carryforwards resulting from stock option compensation.
The Company increased its deferred tax assets by $465,000 as a result of
the MGA acquisition. Post acquisition recognition of additional assets
resulted in a benefit of $276,000 to reduce goodwill.
The net change in the valuation allowance for deferred tax assets during
the current year is a decrease of $1,223,000. The change results from
recognition of realizability of tax assets acquired in the Advance and MGA
transactions.
For federal income tax purposes, the Company has foreign tax credit
carryforwards of $1,550,000 expiring in 1999 and 2000, research and development
credits of $2,310,000 expiring beginning in 2004 and continuing through 2009,
and minimum tax credits of $71,000.
The current income tax receivable represents the anticipated refund of
domestic taxes paid in prior years which are recoverable due to subsidiary
losses and carryback of unused foreign tax credits.
42
<PAGE> 44
Note 20 Segment Information:
The Company operates exclusively in one industry segment, the supply of
computer-aided exploration and reservoir management systems and services to the
petroleum industry. No single customer represented in excess of 10% of total
revenues during any of the years presented.
Revenues and identifiable assets by geographic area, which reflect the
elimination of inter-geographic amounts, are presented below (in thousands).
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------------
1995 1994 1993
- ------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Revenues:
United States:
Domestic $ 74,765 $ 67,975 $ 47,236
Export 67,422 49,762 41,898
Canada 4,360 2,907 2,742
Europe/Africa/
Middle East 18,264 15,296 14,173
Pacific Rim 5,059 5,004 4,910
Other 1,336 2,307 2,016
- ------------------------------------------------------------
$171,206 $143,251 $112,975
============================================================
Export Sales from
United States to:
Canada $ 2,722 $ 3,966 $ 2,585
Europe/Africa/
Middle East 37,300 25,822 23,902
Pacific Rim 15,230 10,957 9,496
Latin America 12,170 9,017 5,915
- ------------------------------------------------------------
$ 67,422 $ 49,762 $ 41,898
============================================================
</TABLE>
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1995 1994 1993
- -----------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Identifiable Assets:
United States $196,482 $180,372 $ 94,382
Canada 2,436 1,467 1,660
Europe/Africa/
Middle East 7,928 4,408 6,354
Pacific Rim 3,813 2,197 2,634
Latin America 492 709 944
- -----------------------------------------------------------
$211,151 $189,153 $ 105,974
===========================================================
</TABLE>
Revenues generated outside the United States primarily represent
maintenance and customer support services provided by the Company's foreign
offices.
The Company's operations outside North America function as sales
representatives and customer support offices. Transactions with these foreign
entities are conducted through contracts which provide for reimbursement of
certain costs and fees for services performed. Products are provided to
customers directly from the U.S. parent organization. Geographical profit and
loss information has been omitted as it is not deemed to be useful in analyzing
and understanding the Company's worldwide operations.
43
<PAGE> 45
Note 21 Cash Flow Information:
Net cash provided by operating activities includes cash payments for interest
and income taxes as follows (in thousands):
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------------
1995 1994 1993
- ------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Income taxes $ 1,857 $ 2,349 $ 1,827
Interest 1,043 742 168
</TABLE>
During the years ended June 30, 1995, 1994 and 1993, there were noncash
financing activities of $1,631,000, $1,062,000 and $263,000, respectively,
relating to tax benefits received from the exercise of nonqualified stock
options by employees. These benefits were recorded as a reduction of income
taxes payable and an increase to paid-in capital.
There were noncash investing activities of approximately $1,510,000 for the
year ended June 30, 1994 which relates to stock issued in connection with the
purchase of the Houston facility. Additionally, there were approximately
$661,000 of noncash investing activities for the year ended June 30, 1993 which
includes $211,000 of inventory and equipment contributed to 3DX and $450,000 of
common stock issued in connection with the acquisition of certain assets of
Oklahoma Seismic.
There were noncash operating activities during the year ended June 30, 1994
of approximately $8,671,000. This amount relates to common stock issued to
satisfy obligations due to Advance's Phantom Stock performance unit holders.
Note 22 Quarterly Financial Data (Unaudited):
Summarized quarterly financial data, as restated for the effects of the
acquisitions accounted for as poolings of interests, is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
- --------------------------------------------------------------------------------------
(Restated) (Restated) (Restated)
<S> <C> <C> <C> <C>
1995:
Revenues:
Company $28,404 $43,351 $43,436 $47,785
Stratamodel 1,790 - - -
GeoGraphix 1,573 1,897 1,534 1,436
- --------------------------------------------------------------------------------------
Combined $31,767 $45,248 $44,970 $49,221
======================================================================================
Gross profit:
Company $15,615 $25,245 $26,604 $29,278
Stratamodel 1,216 - - -
GeoGraphix 1,153 1,356 954 918
- --------------------------------------------------------------------------------------
Combined $17,984 $26,601 $27,558 $30,196
======================================================================================
Net income (loss):
Company $ (639) $ 5,609 $ 3,286 $ 5,847
Stratamodel (441) - - -
GeoGraphix 108 154 (97) (322)
- --------------------------------------------------------------------------------------
Combined $ (972) $ 5,763 $ 3,189 $ 5,525
======================================================================================
Net income(loss)
per share
Company $ (0.04) $ 0.34 $ 0.20 $ 0.34
Stratamodel (0.01) - - -
GeoGraphix (0.01) (0.01) (0.02) (0.03)
- --------------------------------------------------------------------------------------
Combined $ (0.06) $ 0.33 $ 0.18 $ 0.31
======================================================================================
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
First Second Third Fourth
- -------------------------------------------------------------------------
(Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C>
1994:
Revenues:
Company $22,667 $30,100 $34,516 $34,496
Advance 4,354 6,152 - -
Stratamodel 2,059 1,480 848 1,099
GeoGraphix 1,005 1,543 1,427 1,505
- -------------------------------------------------------------------------
Combined $30,085 $39,275 $36,791 $37,100
=========================================================================
Gross profit:
Company $13,195 $15,765 $20,190 $19,765
Advance 2,599 4,668 - -
Stratamodel 1,602 878 538 699
GeoGraphix 650 1,052 1,182 1,143
- -------------------------------------------------------------------------
Combined $18,046 $22,363 $21,910 $21,607
=========================================================================
Net income
(loss):
Company $ 1,362 $ 3,113 $(8,587) $ 7,153
Advance 393 2,027 - -
Stratamodel 463 (122) (290) (389)
GeoGraphix (17) 289 312 140
- -------------------------------------------------------------------------
Combined $ 2,201 $ 5,307 $(8,565) $ 6,904
=========================================================================
Net income (loss)
per share
Company $ 0.12 $ 0.24 $ (0.56) $ 0.43
Advance 0.01 0.10 - -
Stratamodel 0.03 (0.02) - (0.03)
GeoGraphix (0.01) - 0.04 (0.01)
- -------------------------------------------------------------------------
Combined $ 0.15 $ 0.32 $ (0.52) $ 0.39
=========================================================================
</TABLE>
Note 23 Subsequent Events (unaudited):
On July 31, 1995, the Company announced a restructuring plan developed to
proactively realign its resources to achieve its strategic goals of offering
integrated solutions as well as point products. The realignment includes
reducing staff and consolidating certain facilities. The before tax effect
will be a one-time charge of approximately $3.1 million in the first quarter of
fiscal 1996.
On August 23, 1995, the Company's Board of Directors approved a Stockholder
Rights Plan under which one preferred stock purchase right is attached to each
share of common stock outstanding. Pursuant to the rights agreement covering
the Stockholder Rights Plan, the rights become exercisable ten days, subject to
extension, after a party or group acquires or commences a tender offer for 20%
or more of the Company's common stock. Each right entitles its holder, under
certain circumstances, to buy 1/100 share of a newly created Series A Junior
Participating Preferred Stock for $120. If 20% of the Company's common stock
is acquired by a party or group, each right not owned by the 20%-or-more
stockholder and its affiliates and associates will entitle the holder to
purchase Company common stock having a market value of twice the exercise price
of the right. In addition, if the Company is involved in a merger or certain
other business combinations in which it is not the surviving corporation, each
right not owned by the 20%-or-more stockholder and its affiliates and
associates will entitle the holder to purchase common stock of the surviving
corporation having a market value of twice the exercise price of the right.
The rights, which expire on September 30, 2005 and do not have voting rights,
may be redeemed by the Company at $.01 per right prior to their becoming
exercisable.
45
<PAGE> 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item with respect to items 401 and 405 of
Regulation S-K appears in the sections entitled "Election of Directors",
"Executive Officers" and "Compliance with Section 16(a) of the Exchange Act"
included in the Company's definitive Proxy Statement relating to the 1995
Annual Meeting of Stockholders, which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the section entitled
"Executive Compensation" included in the Company's definitive Proxy Statement
relating to the 1995 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" included in
the Company's definitive Proxy Statement relating to the 1995 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears in the section entitled
"Election of Directors" included in the Company's definitive Proxy Statement
relating to the 1995 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
46
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) See Index to Consolidated Financial Statements at Item
8 of this report.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
Sequen-
tially (If applicable)
Numbered Incorporation by reference from
Exhibit number and description Page Form Date File No. Exhibit
- ------------------------------ -------- ---- ---- -------- -------
<S> <C> <C> <C> <C> <C>
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1 Stock Purchase Agreement
by and among the Company,
MGI Associates, Inc.,
Munro Engineering, Inc.
and all of the Shareholders
of MGI Associates, Inc. N/A 8-K 09/29/94 0-17195 2.3
(3) Articles of Incorporation and Bylaws
3.1 Restated Certificate
of Incorporation, as
amended N/A S-1 07/12/89 33-29916 3.1
3.2 Bylaws, as amended N/A 8-A 09/05/95 0-17195 99.4
(10) Material Contracts
10.1 The Landmark Graphics
Corporation 1984
Incentive Stock Option
Plan, as amended,
together with form of
stock option
agreement used
thereunder N/A S-1 07/12/89 33-29916 10.7
10.2 The Landmark Graphics
Corporation 1985
Incentive Stock Option
Plan, as amended,
together with form of
stock option agreement
used thereunder N/A S-1 07/12/89 33-29916 10.8
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
Sequen-
tially (If applicable)
Numbered Incorporated by reference from
Exhibit number and description Page Form Date File No. Exhibit
- ------------------------------ -------- ---- ---- -------- -------
<S> <C> <C> <C> <C> <C>
10.3 The 1987 Non-Quali-
fied Stock Option
Plan, as amended,
together with form
of stock option
agreement used there-
under N/A S-1 07/12/89 33-29916 10.9
10.4 Amended Form of
Indemnification Agree-
ment between Regi-
strant and its
directors and certain
of its officers N/A S-1 07/12/89 33-23957 10.1
10.5 The 1989 Flexible
Stock Option Plan
with form of stock
option agreement used
thereunder N/A 10-K 06/30/89 0-17195 10.23
10.6 Amendment to the
1989 Flexible stock
option plan N/A 10-K 06/30/90 0-17195 10.12
10.7 The Directors' Stock
Option Plan with form
of stock option agree-
ment used thereunder N/A 10-K 06/30/91 0-17195 10.11
10.8 Amendment to Stock
Option Agreement N/A 10-K 06/30/92 0-17195 10.10
10.9 The Consultants' Stock
Option Plan with form
of stock option agree-
ment used thereunder N/A S-8 03/11/91 33-39358 28.4
10.10 The 1990 Employee
Stock Option Plan
with form of stock
option agreement used
thereunder N/A S-8 03/11/91 33-39358 28.5
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
Sequen-
tially (If applicable)
Numbered Incorporated by reference from
Exhibit number and description Page Form Date File No. Exhibit
- ------------------------------ -------- ---- ---- -------- -------
<S> <C> <C> <C> <C> <C>
10.11 Severance Agreement
dated August 7, 1992,
between Company and
its officers. N/A 10-K 06/30/92 0-17195 10.17
10.12 Letter Loan Agreement
dated November 30, 1993
between Company and
NationsBank of Texas,
N.A. N/A 10-Q 12/31/93 0-17195 10.1
10.13 Letter Loan Agreement
dated October 31, 1994
between Company and
NationsBank of Texas,
N.A. N/A 10-Q 12/31/94 0-17195 10.1
10.14 Lease Agreement dated
March 25, 1994 between
Company and Alton-
S.G.P. Ltd. N/A 10-Q 03/31/94 0-17195 10.1
10.15 Employment Agreement,
dated March 25, 1994,
between the Company
and Samuel Rutt Bridges 10-K 06/30/94 0-17195 10.15
--------
10.16 1994 Flexible Incentive
Plan N/A 10-Q 12/31/94 0-17195 10.2
(21) Subsidiaries of the Company
21.1 Subsidiaries of
the Company N/A N/A N/A N/A
--------
(23) Consents of Experts and Counsel
23.1 Consent of Price
Waterhouse LLP N/A N/A N/A N/A
--------
23.2 Consent of Ernst &
Young LLP N/A N/A N/A N/A
--------
23.3 Consent of Levine,
Hughes & Mithuen N/A N/A N/A N/A
--------
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
Sequen-
tially (If applicable)
Numbered Incorporated by reference from
Exhibit number and description Page Form Date File No. Exhibit
- ------------------------------ -------- ---- ---- -------- -------
<S> <C> <C> <C> <C> <C>
23.4 Consent of Arthur
Andersen LLP N/A N/A N/A N/A
-------
(27) Financial Data Schedule
27.1 Financial Data
Schedule-Fiscal Year
1995 N/A N/A N/A N/A
-------
(99) Additional Exhibits
99.1 Registration Rights
Agreement among
Company, the former
Shareholders of Stratamodel, Inc.
and certain employees
of Stratamodel, Inc. N/A 8-K 09/29/94 0-17195 99.1
99.2 Registration Rights
Agreement among
Company, the former
Shareholders of GeoGraphix, Inc.
and certain employees
of GeoGraphix, Inc. N/A 8-K 06/5/95 0-17195 99.1
99.3 Registration Rights
Agreement among
Company, the former
Shareholders of Advance
Geophysical Corporation
and certain employees
of Advance Geophysical
Corporation N/A 8-K 3/25/94 0-17195 99.1
99.4 Rights Agreement dated
September 1, 1995 by and
between the Company and
Chemical Bank. N/A N/A N/A N/A N/A
</TABLE>
50
<PAGE> 52
(b) Reports on Form 8-K.
Form 8-K dated June 5, 1995 (filed on June 19, 1995) which
reported the Company's purchase of all the issued and
outstanding capital stock of GeoGraphix, Inc. As a result of
this acquisition, GeoGraphix became a wholly-owned subsidiary
of Landmark. The acquisition was accounted for as a pooling of
interests.
Form 8-K/A dated June 5, 1995 (filed on August 8, 1995) which
presented financial statements for the four-month periods
ended April 30, 1995 and 1994 and audited financial statements
for the years ended December 31, 1994 and 1993 for GeoGraphix,
Inc. In addition, Restated and Pro Forma Condensed Financial
Statements of the Company related to the ten-month periods
ended April 30, 1995 and 1994 and the years ended June 30,
1994, 1993 and 1992 were included to reflect the acquisition of
GeoGraphix, Inc.
Form 8-K dated August 10, 1995 which presented Restated
Selected Financial Data, Restated Management's Discussion and
Analysis of Financial Condition and Results of Operations and
Restated Consolidated Financial Statements and Schedules of the
Company related to the years ended June 30, 1994, 1993 and 1992
to reflect the acquisitions of GeoGraphix, Inc. and
Stratamodel, Inc.
51
<PAGE> 53
LANDMARK GRAPHICS CORPORATION
SCHEDULE VIII - VALUATIONS AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and -------------------------- End
of Period Expenses Write-offs Conversions of Period
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Inventory reserves:
June 30, 1995 . . . . . . . $1,519,000 $1,189,000 $(2,132,000) -- $ 576,000
June 30, 1994 (Restated) . . 2,478,000 973,000 (1,932,000) -- 1,519,000
June 30, 1993 (Restated) . . 2,616,000 984,000 (1,122,000) -- 2,478,000
Lease inventory
accumulated amortization:
June 30, 1995 . . . . . . . $ 165,000 $ 150,000 $ -- $ 315,000
June 30, 1994 (Restated) . . 187,000 180,000 (202,000) 165,000
June 30, 1993 (Restated) . . 525,000 162,000 (500,000) 187,000
Allowance for doubtful accounts:
June 30, 1995 . . . . . . . $1,706,000 $1,612,000 $(1,857,000) $ 1,461,000
June 30, 1994 (Restated) . . 2,108,000 1,536,000 (1,938,000) -- 1,706,000
June 30, 1993 (Restated) . . 3,712,000 1,687,000 (3,291,000) -- 2,108,000
</TABLE>
<TABLE>
<CAPTION>
Deferred income taxes valuation allowance:
Balance at Balance at
Beginning End
of Period Additions Deductions of Period
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
June 30, 1995 . . . . . . . $3,463,000 $1,808,000 $(3,031,000) $2,240,000
June 30, 1994 (Restated) . . *3,250,000 3,767,000 (3,554,000) 3,463,000
</TABLE>
*At date of adoption of Statement of Financial Standards No. 109. No valuation
allowance existed for any periods prior to the adoption.
52
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LANDMARK GRAPHICS CORPORATION
Date: September 21, 1995 By: /s/ Robert P. Peebler
---------------------
Robert P. Peebler
Director, President, Chief Executive
Officer and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Company and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Robert P. Peebler Date: September 21, 1995
- ----------------------
Robert P. Peebler
Director, President, Chief Executive
Officer and Chief Operating Officer
(Principal Executive Officer)
/s/ William H. Seippel Date: September 21, 1995
- ------------------------
William H. Seippel
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Sam K. Smith Date: September 21, 1995
- -------------------
Sam K. Smith
Chairman of the Board
/s/ Lucio L. Lanza Date: September 21, 1995
- ------------------
Lucio L. Lanza
Director
/s/ James A. Downing, II Date: September 21, 1995
- ------------------------
James A. Downing, II
Director
/s/ Charles L. Blackburn Date: September 21, 1995
- -------------------------
Charles L. Blackburn
Director
</TABLE>
53
<PAGE> 55
<TABLE>
<S> <C> <C>
/s/ S. Rutt Bridges Date: September 21, 1995
- --------------------------------
S. Rutt Bridges
Director
/s/ Theodore Levitt Date: September 21, 1995
- --------------------------------
Theodore Levitt
Director
</TABLE>
54
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DISCRIPTION OF EXHIBIT
- ---------- -----------------------------------------------------------------------------
<S> <C>
21.1 Subsidiaries of the Company
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Levine, Hughes & Mithuen
23.4 Consent of Arthur Anderson LLP
27.1 Financial Data Schedule - Fiscal Year 1995
99.4 Rights Agreement dated September 1, 1995 by and between the Company and Chemical Bank.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
GeoGraphix, Inc. (Colorado)
Technologies Acquisition Corporation (Texas)
Landmark Graphics Europe/Africa, Inc. (Delaware)
Landmark Finance Corporation (Delaware)
Landmark Graphics International, Inc. (Texas)
Landmark America Latina, S.A. (Delaware)
Landmark Sales Corporation (FSC) (Barbados)
Landmark/ITA, Ltd. (Alberta)
LMK Land Company (Delaware)
CAEX Services, Inc. (Delaware)
Landmark/CAEX. Inc. (Delaware)
Stratamodel Limited (England)
Stratamodel (FSC) (Barbados)
MG Associates, Inc. (Holding CO. - Texas)
SUBSIDIARIES OF LANDMARK GRAPHICS EUROPE/AFRICA
Landmark Graphics (Nigeria) Ltd. (Nigeria)
Landmark EAME, Ltd. (England)
SUBSIDIARIES OF LANDMARK GRAPHICS INTERNATIONAL, INC.
P.T. Landmark Concurrent Soluis Indonesia (Indonesian Joint Venture)
Landmark Graphics (Malaysia ) Sdn. Bhd. (Malaysia)
SUBSIDIARIES OF LANDMARK AMERICA LATINA, S.A.
Landmark Graphics Colombia S.A. (Columbia)
Landmark Graphics do Brasil Ltda. (Brazil)
Landmark Graphics Venezuela, C.A. (Venezuela)
Landmark de Argentina, S.A. (Argentina-Dormant)
Landmark de Mexico, S.A. de C.V. (Mexico-Dormant)
SUBSIDIARIES OF MGI ASSOCIATES, INC.
Munro Garrett International
SUBSIDIARIES OF MUNRO GARRET INTERNATIONAL
Garrett Software, Inc. (Texas)
I.Munro Garrett (Asia Pacific) Pty, Ltd. (Australia)
Munro Garrett Inc. (Alberta)
SUBSIDIARIES OF MUNRO GARRETT INC.
MEI Petroleum Software Inc. (Texas-Dormant)
Enigma Software Ltd. (Alberta-Dormant)
Munro Garrett International Limited (Scotland)
Munro Engineering Intl. Pte. Ltd. (Singapore)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Numbers 33-26995, 33-28484, 33-38132, 33-39358,
33-44217 and 33-57989) and in the Prospectuses constituting part of the
Registration Statements on Form S-3 (Numbers 33-79226, 33-87216 and 33-61405)
of Landmark Graphics Corporation of our report dated July 26,1995, relating to
the financial statements of Landmark Graphics Corporation and of our report
dated August 29, 1994, related to the financial statements of Stratamodel, Inc.
appearing in this Form 10-K of Landmark Graphics Corporation.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
September 25, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in (a) the Registration
Statement (Form S-8 Number 33-26995) pertaining to The 1984 Incentive Stock
Option Plan, The 1985 Incentive Stock Option Plan, and The Non-Qualified Stock
Option Plan, (b) the Registration Statement (Form S-8 Number 33-28484)
pertaining to The Landmark Savings Plan, (c) the Registration Statement (Form
S-8 Number 33-38132) pertaining to the Zycor, Inc. 1988 Employee Incentive
Stock Option Plan, (d) the Registration Statement (Form S-8 Number 33-39358)
pertaining to The 1989 Flexible Stock Option Plan, Consultant's Stock Option
Plan, and the 1990 Employee Stock Option Plan, (e) the Registration Statement
(Form S-8 Number 33-44217) pertaining to The Director's Stock Option Plan, (f)
the Registration Statement (Form S-8 Number 33-57989) pertaining to the 1994
Flexible Incentive Plan, (g) the Registration Statement (Form S-3 Number
33-26995) pertaining to the registration of 2,626,746 shares of stock, (h) the
Registration Statement (Form S-3 Number 33-87216) pertaining to the
registration of 413,911 shares of stock, (i) the Registration Statement (Form
S-3 Number 33-61405) pertaining to the registration of 653,718 shares of stock
and the related Prospectuses, of our report dated July 28, 1993, except for
Note 21, as to which the date is May 17, 1994, with respect to the consolidated
financial statements of Landmark Graphics Corporation prior to the restatement
for poolings subsequent to 1993 included in the Annual Report (Form 10-K) for
the fiscal year ended June 30, 1994.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 25, 1995
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in (a) the Registration Statement
(Form S-8 Number 33-26995) pertaining to The 1984 Incentive Stock Option Plan,
The 1985 Incentive Stock Option Plan, and The Non-Qualified Stock Option Plan,
(b) the Registration Statement (Form S-8 Number 33-28484) pertaining to The
Landmark Savings Plan, (c) the Registration Statement (Form S-8 Number
33-38132) pertaining to the Zycor, Inc. 1988 Employee Incentive Stock Option
Plan, (d) the Registration Statement (Form S-8 Number 33-39358) pertaining to
The 1989 Flexible Stock option Plan, Consultant's Stock Option Plan, and the
1990 Employee Stock Option Plan, (e) the Registration Statement (Form S-8
Number 33-44217) pertaining to The Director's Stock Option Plan, (f) the
Registration Statement (Form S-8 Number 33-57989) pertaining to the 1994
Flexible Incentive Plan, (g) the Registration Statement (Form S-3 Number
33-26995) pertaining to the registration of 2,626,746 shares of stock, (h) the
Registration Statement (Form S-3 Number 33-87216) pertaining to the
registration of 413,911 shares of stock, (I) the Registration Statement (Form
S-3 Number 61405) pertaining to the registration of 653,718 shares of stock and
the related Prospectuses, of our report dated December 16, with respect to the
consolidated financial statements of Landmark Graphics Corporation included in
the Annual Report on Form 10-K for the fiscal year ended June 30, 1994.
/s/ LEVINE, HUGHES & MITHUEN, INC.
Englewood, Colorado
September 26, 1995
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Prospectuses constituting part of the Registration Statements
on Form S-8 (Numbers 33-26995, 33-28484, 33-38132, 33-39358, 33-44217 and
33-57989) and on Form S-3 (Numbers 33-79226, 33-87216 and 33-61405) of Landmark
Graphics Corporation of our report dated April 7, 1995 relating to the
financial statements of GeoGraphix, Inc., which appears in the Form 10-K of
Landmark Graphics Corporation for the fiscal year ended June 30, 1995. It
should be noted that we have not audited any financial statements of
GeoGraphix, Inc. subsequent to December 31, 1994 or performed any audit
procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado
September 22, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the annual
filing on Form 10-K for the period ended June 30, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
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</TABLE>
<PAGE> 1
EXHIBIT 99.4
________________________________________________________________________________
RIGHTS AGREEMENT
by and between
LANDMARK GRAPHICS CORPORATION
and
CHEMICAL BANK
as
Rights Agent
Dated as of September 1, 1995
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3. Issue of Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4. Form of Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5. Countersignature and Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost
or Stolen Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights . . . . . . . . . . . . . . . . . . . 16
Section 8. Cancellation and Destruction of Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Availability of Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. Preferred Shares Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights . . . . . . . . . . . . . . . . . 21
Section 12. Certificate of Adjusted Purchase Price or Number of Shares . . . . . . . . . . . . . . . . . . . . . 34
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power . . . . . . . . . . . . . . . . 34
Section 14. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 16. Agreement of Right Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 17. Right Certificate Holder Not Deemed a Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 22. Issuance of New Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 23. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 24. Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 25. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 27. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 28. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 29. Benefits of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 30. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 31. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 32. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 33. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 34. Determinations and Actions by the Board of Directors, etc. . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
Exhibit A - Form of Certificate of Designation
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
-ii-
<PAGE> 4
This Agreement, dated as of September 1, 1995, is by and between
Landmark Graphics Corporation, a Delaware corporation (the "Company"), and
Chemical Bank (the "Rights Agent")
RECITAL
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common
Share (as hereinafter defined) of the Company outstanding as of the close of
business on September 29, 1995 or such earlier date as may be determined by the
Board of Directors of the Company (the "Record Date"), each Right representing
the right to purchase one one-hundredth of a Preferred Share (as hereinafter
defined), upon the terms and subject to the conditions herein set forth, and
has further authorized and directed the issuance of one Right with respect to
each Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this Agreement,
the following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person (as such
term is hereinafter defined) who or which, together with all
Affiliates and Associates (as such terms are hereinafter defined) of
such Person, shall hereafter become a Beneficial Owner (as such term
is hereinafter defined) of 20% or more of the Common Shares of the
Company then outstanding, but shall not include the Company, any
Subsidiary (as
-1-
<PAGE> 5
such term is hereinafter defined) of the Company, any employee benefit
plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall be deemed to have
become an "Acquiring Person" as the result of an acquisition of Common
Shares by the Company which, by reducing the number of Common Shares
outstanding, increases the proportionate number of Common Shares
beneficially owned by such Person to 20% or more of the Common Shares
of the Company then outstanding; provided, however, that if a Person
shall become the Beneficial Owner of 20% or more of the Common Shares
of the Company then outstanding by reason of Common Share purchases by
the Company and shall, after such Common Share purchases by the
Company, become the Beneficial Owner of any additional Common Shares
of the Company, then such Person shall be deemed to be an "Acquiring
Person" as of the time of the acquisition of such additional Common
Shares by such Person. Notwithstanding the foregoing, if the Board of
Directors of the Company determines in good faith pursuant to
Continuing Board Action that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the foregoing provisions of
this Subsection 1(a), has become such inadvertently, and such Person
divests (within such period as of the Board of Directors may deem
appropriate pursuant to Continuing Board Action) a sufficient number
of Common Shares so that such Person is no longer an "Acquiring
Person," as defined pursuant to the foregoing provisions of this
Subsection 1(a), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement.
(b) "ACT" shall mean the Securities Act of 1933, as
amended.
-2-
<PAGE> 6
(c) "AFFILIATE" and "AFFILIATES" shall have the meaning
ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act (as such term is hereinafter defined), as in effect on the date of
this Agreement.
(d) "AGREEMENT" shall mean this agreement, as it may be
amended or supplemented from time to time pursuant to Section 27
hereof.
(e) "ASSOCIATE" and "ASSOCIATES" shall have the meaning
ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act, as in effect on the date of this Agreement.
(f) A Person shall be deemed the "BENEFICIAL OWNER" of
and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly, as
determined pursuant to Rule 13d-3 promulgated under the Exchange Act;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), or
upon the exercise of conversion rights, exchange rights, rights (other
than these Rights), warrants or options, or otherwise; provided,
however, that a Person shall not (pursuant to this Subsection
1(f)(ii)(A)) be deemed the Beneficial Owner of, or to beneficially
own, securities tendered pursuant to a tender or exchange offer made
by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered
-3-
<PAGE> 7
securities are accepted for purchase or exchange; or (B) the right to
vote pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to
a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations promulgated
under the Exchange Act and (2) is not also then reportable on Schedule
13D (or any comparable or successor report) promulgated under the
Exchange Act; or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any of such
Person's Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to Subsection
1(f)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of
Beneficial Ownership to the contrary, the phrase "then outstanding,"
when used with reference to a Person's Beneficial Ownership of
securities of the Company, shall mean the number of such securities
then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
-4-
<PAGE> 8
(g) "BUSINESS DAY" shall mean any day other than a
Saturday, a Sunday, or a day on which banking institutions in the
State of New York are authorized or obligated by law or executive
order to close.
(h) "CLOSE OF BUSINESS" on any given date shall mean 5:00
P.M., New York, New York time, on such date; provided, however, that
if such date is not a Business Day it shall mean 5:00 P.M., New York,
New York time, on the next succeeding Business Day.
(i) "COMMON SHARE" and "COMMON SHARES" when used with
reference to the Company shall mean, as applicable, one or more of the
shares of common stock, par value $0.05 per share, of the Company.
"Common Shares" when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) with the
greatest voting power of such other Person or, if such other Person is
a Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.
(j) "COMPANY" shall be deemed to have the meaning
ascribed to such term in the first paragraph of this Agreement.
(k) "CONTINUING BOARD ACTION" shall be deemed to mean an
action approved by the Board of Directors of the Company (including
the affirmative vote or approval of a majority of the Continuing
Directors) at a meeting of the Board of Directors of the Company duly
called and held at which a quorum was present and acting throughout;
provided, that at the time of such approval there are not less than
three (3) Continuing Directors.
-5-
<PAGE> 9
(l) "CONTINUING DIRECTORS" shall mean (i) any member of
the Board of Directors of the Company (while such Person is a member
of the Board of Directors) who is not an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or a representative of
an Acquiring Person or of any such Affiliate or Associate and was a
member of the Board of Directors prior to the date of this Agreement
or (ii) any Person who subsequently becomes a member of the Board of
Directors (while such Person is a member of the Board of Directors)
who is not an Acquiring Person or an Affiliate or Associate of an
Acquiring Person or a representative of an Acquiring Person or of any
such Affiliate or Associate, if such Person's nomination for selection
or election to the Board of Directors is approved by a majority of the
Continuing Directors.
(m) "CURRENT PER SHARE MARKET PRICE" shall have the
meaning ascribed to such term in Subsection 11(d)(i) of this
Agreement.
(n) "DISTRIBUTION DATE" shall have the meaning ascribed
to such term in Section 3 hereof.
(o) "EQUIVALENT PREFERRED SHARES" shall have the meaning
ascribed to such term in Subsection 11(b) hereof.
(p) "EXCHANGE ACT" shall mean the Securities Exchange Act
of 1934, as amended.
(q) "EXCHANGE RATIO" shall have the meaning ascribed to
such term in Subsection 24(a) hereof.
(r) "FINAL EXPIRATION DATE" shall have the meaning
ascribed to such term in Section 7 hereof.
-6-
<PAGE> 10
(s) "PAYMENT DATE" shall be deemed to mean September 29,
1995 or such earlier date as may be determined by the Board of
Directors of the Company.
(t) "PERSON" and "PERSONS" shall mean any individual,
firm, corporation or other entity, and shall include any successor (by
merger or otherwise) of such entity or entities.
(u) "PREFERRED SHARES" shall mean shares of Series A
Junior Participating Preferred Stock, par value $1.00 per share, of
the Company having the rights and preferences set forth in the Form of
Certificate of Designation attached to this Agreement as EXHIBIT A.
(v) "PURCHASE PRICE" shall have the meaning ascribed to
such term in Subsection 4(a) hereof.
(w) "RECORD DATE" shall be deemed to have the meaning
ascribed to such term in the Recital to this Agreement.
(x) "REDEMPTION DATE" shall have the meaning ascribed to
such term in Section 7 hereof.
(y) "REDEMPTION PRICE" shall have the meaning ascribed to
such term in Subsection 23(a) hereof.
(z) "RIGHT" and "RIGHTS" shall be deemed to have the
meaning ascribed to such terms in the Recital to this Agreement.
(aa) "RIGHT CERTIFICATE" shall be deemed to mean the form
of certificate evidencing the ownership of Rights.
-7-
<PAGE> 11
(ab) "RIGHTS AGENT" shall be deemed to have the meaning
ascribed to such term in the first paragraph of this Agreement and
shall include any additional or substitute rights agents hereafter
appointed pursuant to the terms of this Agreement.
(ac) "SHARES ACQUISITION DATE" shall mean the first date
of public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such.
(ad) "SUBSIDIARY" of any Person shall mean any corporation
or other entity of which a majority of the voting power of the voting
equity securities or equity interest is beneficially owned, directly
or indirectly, by such Person.
(ae) "SUMMARY OF RIGHTS" shall have the meaning ascribed
to such term in Subsection 3(b) hereof.
(af) "TRADING DAY" and "TRADING DAYS" shall have the
meaning ascribed to such terms in Subsection 11(d)(i) of this
Agreement.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of
the Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Board of Directors of the Company may, in accordance with the
provisions of Section 21, from time to time appoint such substitute rights
agents as it may deem necessary or desirable.
-8-
<PAGE> 12
SECTION 3. ISSUE OF RIGHT CERTIFICATES.
(a) Until the earlier of (i) the tenth day after the
Shares Acquisition Date or (ii) the tenth Business Day (or such later
date as may be determined by the Board of Directors, pursuant to
Continuing Board Action, prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement by any Person
(other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any
entity holding Common Shares for or pursuant to the terms of any such
plan) of, or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the
terms of any such plan) to commence, a tender or exchange offer the
consummation of which would result in any Person becoming an Acquiring
Person (including any such date which is after the date of this
Agreement and prior to the issuance of the Rights; the earlier of such
dates being herein referred to as the "Distribution Date"), (x) the
Rights will be evidenced (subject to the provisions of Subsection 3(b)
hereof) by the certificates for Common Shares registered in the names
of the holders thereof (which certificates shall also be deemed to be
Right Certificates) and not by separate Right Certificates, and (y)
the right to receive Right Certificates will be transferable only in
connection with the transfer of Common Shares. If the Distribution
Date would, pursuant to the foregoing provisions of this Subsection
3(a), occur prior to the Payment Date (but for the provisions of this
sentence), the Distribution Date shall,
-9-
<PAGE> 13
notwithstanding the foregoing provisions of this Subsection 3(a), not
be deemed to occur until the Payment Date.
As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign,
and the Company (or the Rights Agent, if requested by the Company)
will send or cause to be sent by first-class, insured, postage-prepaid
mail, to each record holder of Common Shares as of the close of
business on the Distribution Date, at the address of such holder shown
on the records of the Company, a Right Certificate, in substantially
the form of EXHIBIT B hereto, evidencing one Right for each Common
Share so held. As of and after the Distribution Date, the Rights will
be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable
thereafter, the Company will send a copy of a Summary of Rights to
Purchase Preferred Shares, in substantially the form ofEXHIBIT C
hereto (the "Summary of Rights"), by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the close of
business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for Common
Shares outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the
names of the holders thereof together with a copy of the Summary of
Rights attached thereto. Until the Distribution Date (or the earlier
of the Redemption Date or the Final Expiration Date), the surrender
for transfer of any certificate for Common Shares outstanding on the
Record Date, with or without a copy of the Summary of Rights attached
thereto, shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby.
-10-
<PAGE> 14
(c) Certificates for Common Shares which become
outstanding (including, without limitation, certificates issued upon
the transfer of Common Shares and certificates representing reacquired
Common Shares referred to in the last sentence of this Subsection
3(c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date
shall have impressed on, printed on, written on or otherwise affixed
to such certificates a legend in substantially the following form:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Landmark
Graphics Corporation and Chemical Bank, dated as of September 1, 1995
(the "Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal
executive offices of Landmark Graphics Corporation. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. Landmark Graphics Corporation will mail to the
holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights issued to
any Person who becomes an Acquiring Person (as defined in the Rights
Agreement) may become null and void.
With respect to such certificates containing the foregoing
legend, until the Distribution Date, the Rights associated with the
Common Shares represented by such certificates shall be evidenced by
such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby. In the event
that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated
with such Common Shares shall be deemed cancelled and retired so that
the Company shall not be entitled to exercise any Rights associated
with the Common Shares which are no longer outstanding.
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<PAGE> 15
SECTION 4. FORM OF RIGHT CERTIFICATES.
(a) The Right Certificates (and the forms of election to
purchase Preferred Shares and of assignment to be printed on the
reverse thereof) shall be substantially the same asEXHIBIT B hereto
and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Board of
Directors of the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
stock exchange or automated quotation system on which the Rights may
from time to time be listed or traded, or to conform to usage.
Subject to the provisions of Section 22 hereof, the Right Certificates
shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at
the price per one one-hundredth of a Preferred Share set forth therein
(the "Purchase Price"), but the number of such one one-hundredths of a
Preferred Share and the Purchase Price shall be subject to adjustment
as provided herein.
(b) Any Right Certificate issued pursuant hereto that
represents (i) Rights beneficially owned by an Acquiring Person or any
Associate or Affiliate of an Acquiring Person, (ii) Rights transferred
to a transferee by an Acquiring Person (or of any such Associate or
Affiliate) who becomes such a transferee after the Acquiring Person
becomes such or (iii) Rights transferred to a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes
such a transferee prior to or concurrently with the Acquiring Person
becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring
-12-
<PAGE> 16
Person to holders of equity interests in such Acquiring Person or to
any Person with whom such Acquiring Person has any continuing
agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company
has determined is part of a plan, arrangement or understanding which
has as a primary purpose or effect avoidance of the second paragraph
of Subsection 11(a)(ii) hereof, and any Right Certificate issued
pursuant hereto upon transfer, exchange, replacement or adjustment of
any other Right Certificate referred to in this sentence, shall
contain (to the extent feasible) the following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Right Certificate and the Rights represented hereby may
become null and void in the circumstances specified in
Subsection 11(a)(ii) of such Agreement.
In the case of a determination made pursuant to clause (iii)
of this Subsection 4(b) the Company shall notify the Rights Agent of
such determination.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION. From and after
the distribution of Right Certificates pursuant to the second paragraph of
Subsection 3(a), (i) the Right Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its
President, any of its Vice Presidents, or its Treasurer, either manually or by
facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature; (ii) the
Right Certificates shall be manually countersigned by the Rights Agent and
shall not be valid for any purpose unless countersigned; (iii) in case any
officer of the Company who shall have signed any of the
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<PAGE> 17
Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery thereof, such
Right Certificates, nevertheless, may be countersigned by the Rights Agent and
issued and delivered with the same force and effect as though the person who
signed such Right Certificates had not ceased to be such officer of the
Company; and (iv) any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates, the certificate
number of each Rights Certificates and the date of each of the Right
Certificates.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. Subject
to the provisions of Section 14 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Subsection 11(a)(ii) hereof or that
have been exchanged pursuant to Section 24 hereof) may be transferred, split
up, combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any
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registered holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the Rights
Agent's offices in New York, New York. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Right Certificates until the registered holder
shall have provided such additional evidence of the identity of the Beneficial
Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the
Company shall reasonably request. Thereupon the Rights Agent shall countersign
and deliver to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation
of a Right Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make and
deliver a new Right Certificate of like tenor to the Rights Agent for delivery
to the registered holder in lieu of the Right Certificate so lost, stolen,
destroyed or mutilated.
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SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE
OF RIGHTS.
(a) The registered holder of any Right Certificate may
exercise the Rights evidenced thereby (except as otherwise provided
herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights
Agent at the principal office of the Rights Agent, together with
payment of the Purchase Price for each one one-hundredth of a
Preferred Share as to which the Rights are exercised, at or prior to
the earliest of (i) the close of business on September 30, 2005 (the
"Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or
(iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share purchasable pursuant to the exercise of a Right shall
initially be $120.00, and shall be subject to adjustment from time to
time as provided in Section 11 or 13 hereof and shall be payable in
lawful money of the United States of America in accordance with
Subsection 7(c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly
executed, accompanied by payment of the Purchase Price for the shares
to be purchased and an amount equal to any applicable transfer tax
required to be paid by the holder of such Right Certificate in
accordance with Section 9 hereof by certified check, cashier's check
or money order payable to the order of the Company, the Rights Agent
shall thereupon promptly (i) (A) requisition from any transfer agent
of the Common Shares and/or Preferred Shares certificates for the
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number of Common Shares and/or Preferred Shares to be purchased and
the Company hereby irrevocably authorizes and directs its transfer
agent to comply with all such requests, or (B) requisition from the
depositary agent depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (in which
case certificates for the Preferred Shares represented by such
receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby authorizes and directs the depositary
agent to comply with such request, (ii) when appropriate, requisition
from the Company the amount of cash to be paid in lieu of issuance of
fractional shares in accordance with Section 14 hereof, (iii) after
receipt of such certificates or depositary receipts, cause the same to
be delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be
designated by such holder and (iv) when appropriate, after receipt,
deliver such cash to or upon the order of the registered holder of
such Right Certificate.
(d) In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced thereby,
a new Right Certificate evidencing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation, or, if
surrendered to the Rights Agent, shall be cancelled by it,
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and no Right Certificates shall be issued in lieu thereof except as expressly
permitted by the provisions of this Rights Agreement. The Company shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Right Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Right Certificates to the Company, or shall,
at the written request of the Company, destroy such cancelled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
SECTION 9. AVAILABILITY OF PREFERRED SHARES.
(a) The Company covenants and agrees that it will cause
to be reserved and kept available out of its authorized and unissued
Preferred Shares or any Preferred Shares held in its treasury, the
number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section
7. The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all Common Shares and/or Preferred
Shares delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such Preferred Shares (subject to
payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
(b) So long as the Common Shares and/or Preferred Shares
issuable and deliverable upon the exercise of the Rights may be listed
or traded on any national securities exchange or automated quotation
system, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all Common Shares
and/or Preferred Shares reserved for such issuance to be listed on
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such exchange or automated quotation system upon official notice of
issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file,
as soon as practicable following the earliest date after the first
occurrence of an event under Subsection 11(a)(ii), a registration
statement under the Securities Act of 1933, as amended (the "Act"),
with respect to the securities purchasable upon exercise of the Rights
on an appropriate form, (ii) cause such registration statement to
become effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which
the Rights are no longer exercisable for such securities, and (B) the
date of the expiration of the Rights. The Company will also take such
action as may be appropriate under, or to ensure compliance with the
securities or "blue sky" laws of the various states in connection with
the exercisability of the Rights. The Company may temporarily
suspend, for a period of time not to exceed ninety (90) days after the
date set forth in clause (i) of the first sentence of this Subsection
9(c), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective. The
Company will notify the Rights Agent of any such suspension. Upon any
such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended,
as well as a public announcement at such time as the suspension is no
longer in effect. In addition, if the Company shall determine that a
registration statement is required following the Distribution Date,
the Company may temporarily suspend the exercisability of the Rights
until such time as a registration statement has been declared
effective. Notwithstanding any provision of this
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Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if the exercise thereof shall not be permitted under
applicable law.
(d) From and after the Distribution Date, the Company
further covenants and agrees that it will pay when due and payable any
and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right
Certificates or of any Common Shares and/or Preferred Shares upon the
exercise of Rights. The Company shall not, however, be required to
pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the
Common Shares and/or Preferred Shares in a name other than that of,
the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates or
depositary receipts for Common Shares and/or Preferred Shares upon the
exercise of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Right Certificate at the
time of surrender) or until it has been established to the Company's
reasonable satisfaction that no such tax is due.
SECTION 10. PREFERRED SHARES RECORD DATE. Each person in whose
name any certificate for Common Shares and/or Preferred Shares is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Common Shares and/or Preferred Shares represented
thereby on, and such certificate shall be dated, the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable transfer taxes) was made; provided, however,
that if the date of such surrender and payment is a date upon which the Common
Shares and/or
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Preferred Shares transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding day on which the Common Shares and/or
Preferred Shares transfer books of the Company are open.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price, the number of Preferred Shares covered
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time
after the date of this Agreement (A) declare a dividend on the
Preferred Shares payable in Preferred Shares, (B) subdivide the
outstanding Preferred Shares, (C) combine the outstanding Preferred
Shares into a smaller number of Preferred Shares or (D) issue any
shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this
Subsection 11(a), the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such
subdivision, combination or
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reclassification, and the number and kind of shares of capital stock
issuable on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock
which, if such Right had been exercised immediately prior to such date
and at a time when the Preferred Shares transfer books of the Company
were open, he would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification;provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. If an event occurs which would
require an adjustment under both this Section 11(a)(i) and Section
11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall
be in addition to and shall be made prior to any adjustment required
pursuant to Section 11(a)(ii).
(ii) Subject to Sections 23 and 24 of this
Agreement, in the event any Person becomes an Acquiring Person, each
holder of a Right shall thereafter have a right to receive, upon
exercise thereof at a price equal to the then current Purchase Price
multiplied by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common
Shares of the Company as shall equal the result obtained by (A)
multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then
exercisable and (B) dividing that product by 50% of the then "current
per share market price" of the Company's Common Shares on the date of
the occurrence of such event. In the event that any Person shall
become an Acquiring Person and the Rights shall then be outstanding,
the Company shall not, except as permitted by Section 23, take any
action which would eliminate or diminish the benefits intended to be
afforded by this Agreement or the benefits intended to be afforded by
the Rights.
From and after the occurrence of such event, any
Rights (x) that are or were acquired or beneficially owned by any
Acquiring Person (or any Associate or Affiliate
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of such Acquiring Person), (y) transferred to a transferee by an
Acquiring Person (or of any such Associate or Affiliate) who becomes
such a transferee after the Acquiring Person becomes such, or (z)
transferred to a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes such a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such
Rights pursuant to either (1) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity
interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (2) a transfer which
the Board of Directors of the Company has determined is part of a
plan, arrangement or understanding which has a primary purpose or
effect the avoidance of this second paragraph of Subsection 11(a)(ii)
shall be void and any holder and/or subsequent holder of such Rights
shall thereafter have no right to exercise such Rights under any
provision of this Agreement or to exercise any rights under this
Agreement with respect to such Rights. The Company shall use all
reasonable efforts to insure that the provisions of this Subsection
11(a)(ii) and Subsection 4(b) hereof are complied with, but shall have
no liability to any holder of Right Certificates or other Person as a
result of its failure to make any determination with respect to an
Acquiring Person or its Affiliates, Associates or transferees
hereunder. No Right Certificate shall be issued pursuant to Section 3
that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the second preceding sentence or any
Associate or Affiliate thereof; no Right Certificate shall be issued
at any time upon the transfer of any Rights to an Acquiring Person
whose Rights would be void pursuant to
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the second preceding sentence or any Associate or Affiliate thereof or
to any nominee of such Acquiring Person, Associate or Affiliate; and
any Right Certificate delivered to the Rights Agent for transfer to an
Acquiring Person whose Rights would be void pursuant to the second
preceding sentence shall be cancelled.
(iii) In the event that there shall not be
sufficient Common Shares issued but not outstanding or authorized but
unissued to permit the exercise in full of the Rights in accordance
with the foregoing Subsection 11(a)(ii), the Company shall take all
such action as may be necessary to authorize additional Common Shares
for issuance upon exercise of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as
may be necessary to authorize such additional Common Shares, the
Company shall substitute, for each Common Share that would otherwise
be issuable upon exercise of a Right, a number of Preferred Shares or
fraction thereof such that the current per share market price of such
Preferred Shares or fraction thereof is equal to the current per share
market price of one Common Share as of the date of issuance of such
Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred
Shares entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Shares
(or shares having substantially the same rights, privileges and
preferences as the Preferred Shares ("equivalent preferred shares"))
or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less
than the
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then current per share market price of the Preferred Shares on such
record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of
which shall be the number of Preferred Shares outstanding on such
record date plus the number of Preferred Shares which the aggregate
offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be
offered) would purchase at such current per share market price and the
denominator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of additional
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so
to be offered are initially convertible); provided, however, that in
no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital
stock of the Company issuable upon exercise of one Right. In case
such subscription price may be paid in a consideration part or all of
which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent. Preferred Shares owned by or
held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
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<PAGE> 29
(c) In case the Company shall fix a record date for the
making of a distribution to all holders of the Preferred Shares
(including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation) of evidences of indebtedness or assets (other
than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those
referred to in Subsection 11(b) hereof), the Purchase Price to be in
effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share
market price of the Preferred Shares on such record date, less the
fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one Preferred Share and the
denominator of which shall be such current per share market price of
the Preferred Shares;provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be
made successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder,
the "current per share market price" of any security (a "Security" for
the purpose of this
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Subsection 11(d)(i)) on any date shall be deemed to be the average of
the daily closing prices per share of such Security for the 30
consecutive Trading Days immediately prior to such date; provided,
however, that in the event that the current per share market price of
the Security is determined during a period following the announcement
by the issuer of such Security of (A) a dividend or distribution on
such Security payable in shares of such Security or securities
convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30
Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share
market price shall be appropriately adjusted to reflect the current
market price per share equivalent of such Security. The closing price
for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if
the Security is not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or,
if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or
such other system then in use, or, if on any such date the Security is
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not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a
market in the Security selected by the Board of Directors of the
Company. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Security is listed
or admitted to trading is open for the transaction of business or, if
the Security is not listed or admitted to trading on any national
securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder,
the "current per share market price" of the Preferred Shares shall be
determined in accordance with the method set forth in Subsection
11(d)(i). If the Preferred Shares are not publicly traded, the
"current per share market price" of the Preferred Shares shall be
conclusively deemed to be the current per share market price of the
Common Shares as determined pursuant to Subsection 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof), multiplied by
one hundred. If neither the Common Shares nor the Preferred Shares
are publicly held or so listed or traded, "current per share market
price" shall mean the fair value per share as determined in good faith
by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in the Purchase Price;provided, however, that any adjustments
which by reason of this Subsection 11(e) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to
the nearest cent or
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<PAGE> 32
to the nearest one one-millionth of a Preferred Share or one
ten-thousandth of any other share or security as the case may be.
Notwithstanding the first sentence of this Subsection 11(e), any
adjustment required by this Section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the date of the expiration of the
right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to
Subsection 11(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock of the
Company other than Preferred Shares, thereafter the number of such
other shares so receivable upon exercise of any Right shall be subject
to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Subsection 11(a) through (c), inclusive,
and the provisions of Sections 7, 9, 10 and 13 with respect to the
Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder
shall evidence the right to purchase, at the adjusted Purchase Price,
the number of one one-hundredths of a Preferred Share purchasable from
time to time hereunder upon exercise of the Rights, all subject to
further adjustment as provided herein.
(h) Unless the Company shall have exercised its election
as provided in Subsection 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Subsections 11(b) and
(c), each Right outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share
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(calculated to the nearest one one-millionth of a Preferred Share)
obtained by (i) multiplying (x) the number of one one-hundredths of a
share covered by a Right immediately prior to this adjustment by (y)
the Purchase Price in effect immediately prior to such adjustment of
the Purchase Price and (ii) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the
Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in
substitution for any adjustment in the number of one one-hundredths of
a Preferred Share purchasable upon the exercise of a Right. Each of
the Rights outstanding after such adjustment of the number of Rights
shall be exercisable for the number of one one-hundredths of a
Preferred Share for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment
of the number of Rights shall become that number of Rights (calculated
to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the
Purchase Price. The Company shall make a public announcement of its
election to adjust the number of Rights, indicating the record date
for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if the
Distribution Date shall have occurred, shall be at least 10 days later
than the date of the public announcement. If the Distribution Date
shall have occurred, upon each adjustment of the number of Rights
pursuant to this Subsection 11(i), the Company shall, as promptly as
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practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the
option of the Company, shall cause to be distributed to such holders
of record in substitution and replacement for the Right Certificates
held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for
herein and shall be registered in the names of the holders of record
of Right Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-hundredths of a Preferred
Share issuable upon the exercise of the Rights, the Right Certificates
theretofore and thereafter issued may continue to express the Purchase
Price and the number of one one-hundredths of a Preferred Share which
were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below one one-hundredth of the
then par value, if any, of the Preferred Shares issuable upon exercise
of the Rights, the Company shall take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue fully paid and nonassessable Preferred
Shares at such adjusted Purchase Price.
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(l) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer
until the occurrence of such event the issuing to the holder of any
Right exercised after such record date of the Preferred Shares and
other capital stock or securities of the Company, if any, issuable
upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares upon the occurrence
of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Board of Directors of the Company shall be
entitled to make, pursuant to Continuing Board Action, such
reductions in the Purchase Price, in addition to those adjustments
expressly required by this Section 11, as and to the extent that it in
its sole discretion shall determine to be advisable in order that any
consolidation or subdivision of the Preferred Shares, issuance wholly
for cash of any Preferred Shares at less than the current market
price, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for
Preferred Shares, dividends on Preferred Shares payable in Preferred
Shares or issuance of rights, options or warrants referred to
hereinabove in Subsection 11(b), hereafter made by the Company to
holders of its Preferred Shares shall not be taxable to such
stockholders.
(n) In the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i)
declare or pay any dividend on the
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Common Shares payable in Common Shares or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by reclassification
or otherwise than by payment of dividends in Common Shares) into a
greater or lesser number of Common Shares, then in any such case (A)
the number of one one-hundredths of a Preferred Share purchasable
after such event upon proper exercise of each Right shall be
determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event by a
fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which
is the number of Common Shares outstanding immediately after such
event, and (B) each Common Share outstanding immediately after such
event shall have issued with respect to it that number of Rights which
each Common Share outstanding immediately prior to such event had
issued with respect to it. The adjustments provided for in this
Subsection 11(n) shall be made successively whenever such a dividend
is declared or paid or such a subdivision, combination or
consolidation is effected.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with
Section 25 hereof.
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SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS
OR EARNING POWER. In the event, directly or indirectly, at any time after a
Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person, (b) any Person shall consolidate with
the Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly-owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of
one one-hundredths of a Preferred Share for which a Right is then exercisable
and dividing that product by (B) 50% of the then current per share market price
of the Common Shares of such other Person (determined pursuant to Subsection
11(d) hereof) on the date of consummation of such consolidation, merger, sale
or transfer; (ii) the issuer of such Common Shares shall thereafter
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be liable for, and shall assume, by virtue of such consolidation, merger, sale
or transfer, all the obligations and duties of the Company pursuant to this
Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such
issuer; and (iv) such issuer shall take such steps (including, but not limited
to, the reservation of a sufficient number of its Common Shares in accordance
with Section 9 hereof) in connection with such consummation as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to the Common Shares thereafter deliverable
upon the exercise of the Rights. The Company shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto the Company and
such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement so providing and further providing that, as soon as
practicable after the date of any such consolidation, merger or sale of assets,
the issuer will:
(x) prepare and file a registration statement under the
Act with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (1) become effective
as soon as practicable after such filing and (2) remain effective
(with a prospectus at all times meeting the requirements of the Act)
until the Expiration Date; and
(y) deliver to holders of the Rights historical financial
statements for the issuer and each of its Affiliates which comply in
all respects with the requirements for registration on Form 10 under
the Exchange Act.
The Company shall not enter into any transaction of the kind referred
to in this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or
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securities outstanding or any agreements or arrangements which, as a result of
the consummation of such transaction, would eliminate or substantially diminish
the benefits intended to be afforded by the Rights. The provisions of this
Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions
of Rights or to distribute Right Certificates which evidence
fractional Rights. In lieu of such fractional Rights, there shall be
paid to the registered holders of the Right Certificates with regard
to which such fractional Rights would otherwise be issuable, an amount
in cash equal to the same fraction of the current market value of a
whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing
price for any day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Rights are listed
or admitted to trading or, if the Rights are not listed or admitted to
trading on any national securities exchange, the last quoted price or,
if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by
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NASDAQ or such other system then in use or, if on any such date the
Rights are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market
maker making a market in the Rights selected by the Board of Directors
of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board of Directors of the Company
shall be used.
(b) The Company shall not be required to issue fractions
of Preferred Shares (other than fractions which are integral multiples
of one one-hundredth of a Preferred Share) upon exercise of the Rights
or to distribute certificates which evidence fractional Preferred
Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share). Fractions of Preferred Shares in
integral multiples of one one-hundredth of a Preferred Share may, at
the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide
that the holders of such depositary receipts shall have all the
rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such
depositary receipts. In lieu of fractional Preferred Shares that are
not integral multiples of one one-hundredth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in
cash equal to the same fraction of the current market value of one
Preferred Share. For the purposes of this Subsection 14(b), the
current market value of a Preferred Share shall be the closing price
of a Preferred Share (as determined pursuant to the second sentence of
Subsec-
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tion 11(d)(i) hereof) for the Trading Day immediately prior to the
date of such exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right (except as provided above).
SECTION 15. RIGHTS OF ACTION. All rights of action in respect of
this Agreement, except the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for
his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this
Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right,
by accepting the same, consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that:
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(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common
Shares;
(b) after the Distribution Date, the Right Certificates
are transferable only on the registry books of the Rights Agent if
surrendered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat
the person in whose name the Right Certificate (or, prior to the
Distribution Date, the associated Common Shares certificate) is
registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the associated Common Shares certificate made by
anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any
liability to any holder of a Right or other Person as a result of the
Company's or Rights Agent's inability to perform any of its
obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a
court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation
or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such
obligation; provided, however, the Company must use its best efforts
to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.
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SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or
any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this
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Agreement in reliance upon any Right Certificate or certificate for the
Preferred Shares or Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS
AGENT. Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust powers of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such corporation would be eligible
for appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such
cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
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In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in
its changed name; and in all such cases such Right Certificates shall have the
full force provided in the Right Certificates and in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Treasurer or
the Secretary of the Company and delivered to the Rights Agent; and
such certificate shall be full authorization to the
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Rights Agent for any action taken or suffered in good faith by it
under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the
Company and any other Person only for its own negligence, bad faith or
willful misconduct.
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this
Agreement or in the Right Certificates (except its countersignature
thereof) or be required to verify the same, but all such statements
and recitals are and shall be deemed to have been made by the Company
only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the
Rights Agent) or in respect of the validity or execution of any Right
Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition
contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Subsection 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the
manner, method or amount thereof) provided for in Section 3, 11, 13,
23 or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after actual notice
that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued
pursuant to this Agreement or any Right
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Certificate or as to whether any Preferred Shares will, when issued,
be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the Rights
Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Secretary or
the Treasurer of the Company, and to apply to such officers for advice
or instructions in connection with its duties, and it shall not be
liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in
acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any
of the Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys
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or agents, and the Rights Agent shall not be answerable or accountable
for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act,
default, neglect or misconduct, provided reasonable care was exercised
in the selection and continued employment thereof.
SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Board of Directors of the Company may remove the Rights Agent or any
successor Rights Agent, pursuant to Continuing Board Action, upon 30 days'
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Shares or Preferred
Shares by registered or certified mail, and to the holders of the Right
Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the registered holder of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or
by such a court, shall be a corporation organized and doing business under the
laws of the United States or of the State of New York (or of any other state of
the United States so long as such corporation is
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authorized to do business as a banking institution in the State of New York),
in good standing, having an office in the State of New York, which is
authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment the Company shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares or Preferred Shares, and mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, pursuant to Continuing Board Action, at its option, issue new
Right Certificates evidencing Rights in such form as may be approved by its
Board of Directors to reflect any adjustment or change in the Purchase Price
and the number or kind or class of shares or other securities or property
purchasable under the Right Certificates made in accordance with the provisions
of this Agreement.
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SECTION 23. REDEMPTION.
(a) The Board of Directors of the Company may, pursuant
to Continuing Board Action, at its option, at any time prior to such
time as any Person becomes an Acquiring Person redeem all but not less
than all the then outstanding Rights at a redemption price of $.01 per
Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the "Redemption
Price"). The redemption of the Rights by the Board of Directors may
be made effective at such time, on such basis and with such conditions
as the Board of Directors in its sole discretion may establish,
pursuant to Continuing Board Action.
(b) Immediately upon the action of the Board of Directors
of the Company ordering the redemption of the Rights pursuant to
Subsection 23(a), and without any further action and without any
notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the
Redemption Price. The Company shall promptly give public notice of
any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of
Directors ordering the redemption of the Rights, the Company shall
mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books
of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such
notice of
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redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in
connection with the purchase of Common Shares prior to the
Distribution Date.
SECTION 24. EXCHANGE.
(a) The Board of Directors of the Company may, pursuant
to Continuing Board Action, at its option, at any time after any
Person becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights
that have become void pursuant to the provisions of Subsection
11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common
Share per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof
(such exchange ratio being hereinafter referred to as the "Exchange
Ratio"). Notwithstanding the foregoing, the Board of Directors shall
not be empowered to effect such exchange at any time after any Person
(other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity
holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes
the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors
of the Company ordering the exchange of any Rights pursuant to
Subsection 24(a) and without any further action and without any
notice, the right to exercise such Rights shall terminate
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and the only right thereafter of a holder of such Rights shall be to
receive that number of Common Shares equal to the number of such
Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such
exchange;provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The
Company promptly shall mail a notice of any such exchange to all of
the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state
the method by which the exchange of the Common Shares for Rights will
be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Subsection
11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient
Common Shares issued but not outstanding or authorized but unissued to
permit any exchange of Rights as contemplated in accordance with this
Section 24, the Company shall take all such action as may be necessary
to authorize additional Common Shares for issuance upon exchange of
the Rights. In the event the Company shall, after good faith effort,
be unable to take all such action as may be necessary to authorize
such additional Common Shares, the Company shall substitute, for each
Common Share that would otherwise be issuable upon exchange of a
Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of such Preferred Shares
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or fraction thereof is equal to the current per share market price of
one Common Share as of the date of issuance of such Preferred Shares
or fraction thereof.
(d) The Company shall not be required to issue fractions
of Common Shares or to distribute certificates which evidence
fractional Common Shares. In lieu of such fractional Common Shares,
the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Common Shares would
otherwise be issuable an amount in cash equal to the same fraction of
the current market value of a whole Common Share. For the purposes of
this Subsection 24(d), the current market value of a whole Common
Share shall be the closing price of a Common Share (as determined
pursuant to the second sentence of Subsection 11(d)(i) hereof) for the
Trading Day immediately prior to the date of exchange pursuant to this
Section 24.
SECTION 25. NOTICE OF CERTAIN EVENTS.
(a) If at any time subsequent to the Shares Acquisition
Date, the Company shall propose (i) to pay any dividend payable in
stock of any class to the holders of its Preferred Shares or to make
any other distribution to the holders of its Preferred Shares (other
than a regular quarterly cash dividend), (ii) to offer to the holders
of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any
class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding
Preferred Shares), (iv) to effect any consolidation or merger into or
with, or to effect any sale or other transfer (or to permit one or
more of its Subsidiaries to effect any sale or other transfer), in
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one or more transactions, of 50% or more of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to, any
other Person, (v) to effect the liquidation, dissolution or winding up
of the Company, or (vi) to declare or pay any dividend on the Common
Shares payable in Common Shares or to effect a subdivision,
combination or consolidation of the Common Shares (by reclassification
or otherwise than by payment of dividends in Common Shares), then, in
each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes
of such stock dividend, or distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and
the date of participation therein by the holders of the Common Shares
and/or Preferred Shares, if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 10 days prior to the record date for
determining holders of the Preferred Shares for purposes of such
action, and in the case of any such other action, at least 10 days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or
Preferred Shares, whichever shall be the earlier.
(b) In case the event set forth in Subsection 11(a)(ii)
hereof shall occur, then the Company shall as soon as practicable
thereafter give to each holder of a Right Certificate, in accordance
with Section 26 hereof, a notice of the occurrence of such event,
which notice shall describe such event and the consequences of such
event to holders of Rights under Subsection 11(a)(ii) hereof.
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<PAGE> 55
SECTION 26. NOTICES. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Landmark Graphics Corporation
15150 Memorial Drive
Houston, Texas 77079
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
Chemical Bank
c/o Chemical Mellon Shareholder Services
2323 Bryan Street, Suite 2300
Dallas, Texas 75201
Attention: Rights Administrator
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company or the Rights Agent, as applicable.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. The Board of Directors
of the Company may, pursuant to Continuing Board Action, from time to time
supplement or amend this Agreement without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions with respect to the
Rights which the Board of Directors of the Company may deem necessary or
desirable,
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<PAGE> 56
any such supplement or amendment to be evidenced by a writing signed by the
Company and the Rights Agent; provided, however, that from and after such time
as any Person becomes an Acquiring Person, this Agreement shall not be amended
in any manner which would adversely affect the interests of the holders of
Rights (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person); and provided, further, this Agreement may not be
supplemented or amended to lengthen (i) a time period relating to when the
Rights may be redeemed at such time as the Rights are not then redeemable or
(ii) any other time period unless such lengthening is for the purpose of
protecting, enhancing or clarifying the rights of, and/or the benefits to, the
holders of Rights. Notwithstanding anything contained in this Agreement to the
contrary, no supplement or amendment shall be made that changes the Redemption
Price, the Final Expiration Date, the Purchase Price or the number of
one-hundredths of Preferred Shares for which a Right is exercisable.
SECTION 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 29. BENEFITS OF THIS AGREEMENT. Nothing in this
Agreement shall be construed to give to any person or corporation other than
the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares) any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent
and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares).
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<PAGE> 57
SECTION 30. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines, pursuant to Continuing Board Action, in
its good faith judgment that severing the invalid language from this Agreement
would adversely affect the purpose or effect of this Agreement, the right of
redemption set forth in Section 23 hereof shall be reinstated and shall not
expire until the close of business on the tenth day following the date of such
determination by the Board of Directors.
SECTION 31. GOVERNING LAW. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
SECTION 32. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 33. DESCRIPTIVE HEADINGS. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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<PAGE> 58
SECTION 34. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS,
ETC. The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board of Directors of the Company or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend this Agreement).
All such actions, calculations, interpretations and determinations (including,
for the purposes of clause (B) below, all omissions with respect to the
foregoing) which are done or made by the Board of Directors of the Company in
good faith and in accordance with the provisions of this Agreement, shall (A)
be final, conclusive and binding on the Company, the Rights Agent, the holders
of the rights and all other parties, and (B) not subject the Board to any
liability to the holder of the Rights.
SECTION 35. CONTINUING BOARD ACTION. Whenever any provision of
this Agreement contemplates action by the Board of Directors of the Company
pursuant to Continuing Board Action, such procedure will be deemed to be
mandatory and no other type of approval or authorization procedure by the Board
of Directors will be deemed to be adequate to accomplish the contemplated
action.
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<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the day and year first above written.
LANDMARK GRAPHICS CORPORATION
Attest:
By: /s/ PATTI L. MASSARO By: /s/ WILLIAM S. SWAPF
------------------------------ ------------------------------
Title: Secretary & Title: UP & CFO
General Counsel
Attest: CHEMICAL BANK
By: /s/ MARGARET W. SPARKIT By: /s/ MARY A. DECARLO
------------------------------ -------------------------------
Title: Asst. Vice President Title: Vice President
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<PAGE> 60
Exhibit A
Form of Certificate of Designation
<PAGE> 61
Exhibit A
FORM
of
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
LANDMARK GRAPHICS CORPORATION
(Pursuant to Section 151 of the
Delaware General Corporation Law)
____________________________
Landmark Graphics Corporation, a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Corporation"), hereby certifies that the following resolution was adopted
by the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on August 23, 1995:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation of the Corporation, the Board of Directors hereby creates a
series of Preferred Stock, par value $1.00 per share (the "Preferred Stock"),
of the Corporation and hereby states the designation and number of shares, and
fixes the relative rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be Five Hundred Thousand (500,000). Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding
plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.
Section 2. Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of
any series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends,
the holders of shares of Series A Preferred Stock, in preference to
the holders of Common Stock, par value $0.05 per share (the "Common
Stock"), of the
A-1
<PAGE> 62
Corporation, and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable
in cash on the first day of March, June, September and December in
each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a
share of Series A Preferred Stock, in an amount per share (rounded to
the nearest cent) equal to the greater of (i) One Dollar and No/100
($1.00) or (ii) subject to the provision for adjustment hereinafter
set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a
dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock. In the event the Corporation shall
at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
under clause (ii) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in paragraph
(a) of this Section 2 immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share
on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends
on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such
shares shall be allocated pro
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<PAGE> 63
rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock
entitled to receive the payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter
set forth, each share of Series A Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall
at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any other
Certificate of Designation creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided
by law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
A-3
<PAGE> 64
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (a) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (a) to the holders of shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (b) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation,
A-4
<PAGE> 65
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all such parity
stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(a) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series A Preferred
Stock, voting together as a single class.
A-5
<PAGE> 66
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its President this _____ day of September, 1995.
LANDMARK GRAPHICS CORPORATION
By: ___________________________
President
A-6
<PAGE> 67
Exhibit B
Form of Right Certificate
<PAGE> 68
Exhibit B
Form of Right Certificate
Certificate No. R- _____ Rights
CUSIP ___________
NOT EXERCISABLE AFTER SEPTEMBER 30, 2005, OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT
PURSUANT TO WHICH THIS RIGHT CERTIFICATE HAS BEEN ISSUED.
Right Certificate
LANDMARK GRAPHICS CORPORATION
This certifies that _____________________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of September 1, 1995 (the "Rights
Agreement"), between Landmark Graphics Corporation, a Delaware corporation (the
"Company"), and Chemical Bank, New York, New York (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 P.M., New York, New York
time, on September 30, 2005, at the principal office of the Rights Agent, or at
the office of its successor as rights agent, one one-hundredth of a fully paid
non-assessable share of Series A Junior Participating Preferred Stock, par
value $1.00 per share (the "Preferred Shares"), of the Company, at a purchase
price of $120.00 per one one-hundredth of a Preferred Share (the "Purchase
Price"), upon presentation and surrender of this Right Certificate with the
Form of Election to Purchase duly executed. The number of Rights evidenced by
this Right Certificate (and the number of one one-hundredths of a Preferred
Share which may be purchased upon exercise hereof) set forth above, and the
Purchase Price set forth above, are the number and Purchase Price as of
__________________, based on the Preferred Shares as constituted at such date.
As provided in the Rights Agreement, the Purchase Price and the number of one
one-hundredths of a Preferred Share which may be purchased upon the exercise of
the Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
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<PAGE> 69
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor evidencing Rights
entitling the holder to purchase a like aggregate number of Preferred Shares as
the Rights evidenced by the Right Certificate or Right Certificates surrendered
shall have entitled such holder to purchase. If this Right Certificate shall
be exercised in part, the holder shall be entitled to receive upon surrender
hereof another Right Certificate or Right Certificates for the number of whole
Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Right or (ii) may be exchanged in whole or in part
for Preferred Shares or shares of the Company's common stock, par value $0.05
per share.
No fractional Preferred Shares or shares of the Company's common
stock will be issued upon the exercise of any Right or Rights evidenced hereby
(other than fractions of Preferred Shares which are integral multiples of one
one-hundredth of a Preferred Share, which may, at the election of the Company,
be evidenced by depositary receipts), but in lieu thereof a cash payment will
be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise or exchange hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof,
as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting stockholders (except
as provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-2
<PAGE> 70
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _______________, 1995.
ATTEST: LANDMARK GRAPHICS CORPORATION
_________________________________ By_________________________________
Countersigned:
CHEMICAL BANK
By_______________________________
Authorized Signature
B-3
<PAGE> 71
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To he executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ____________________________________________________
hereby sells, assigns and transfers unto _______________________________________
________________________________________________________________________________
(Please print name, address and taxpayer identification number or social
security number (as applicable) of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Agreement).
Signature
- --------------------------------------------------------------------------------
B-4
<PAGE> 72
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: LANDMARK GRAPHICS CORPORATION
The undersigned hereby irrevocably elects to exercise _________________
Rights represented by this Right Certificate to purchase the securities
issuable upon the exercise of such Rights and requests that certificates for
such securities be issued in the name of:
Please insert social security or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
The undersigned elects to purchase (check one) _____ Preferred Shares or _____
Common Shares.
Dated: __________________, _______
_____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States.
B-5
<PAGE> 73
Form of Reverse Side of Right Certificate -- continued
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
____________________________________
Signature
- --------------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or
enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
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Exhibit C
Summary of Rights to Purchase Preferred Shares
<PAGE> 75
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On August 23, 1995, the Board of Directors of Landmark Graphics
Corporation (the "Company") declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of common stock, par value $0.05
per share (the "Common Shares"), of the Company. The dividend is payable on
September 29, 1995 (or such earlier date as may be determined by the Board of
Directors) to all holders of record of Common Shares as of the close of
business on September 29, 1995 (or such earlier date as may be determined by
the Board of Directors) (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par value $1.00 per share (the
"Preferred Shares"), of the Company at a price of $120.00 per one one-hundredth
of a Preferred Share (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and Chemical Bank, New York, New York,
as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 20% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may
be determined by action of the Board of Directors prior to such time as any
person or group of affiliated persons becomes an Acquiring Person) following
the commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding Common Shares
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced by the certificates representing Common Shares with a copy of
this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares outstanding as of
the Record Date, even without such notation or a copy of this Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date and
thereafter, such separate Right Certificates alone will evidence the Rights.
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The Rights are not exercisable until the Distribution Date. The
Rights will expire on September 30, 2005 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
or exchanged by the Company, in each case, as described below.
At any time following the Distribution Date, Rights (other than Rights
owned by an Acquiring Person and the Acquiring Person's affiliates and
associates, which will have become void) may be exercised (subject to their
earlier termination, expiration or exchange) to acquire, in lieu of Preferred
Shares, at the then current Purchase Price of the Right, that number of Common
Shares (or if there are insufficient Common Shares, Preferred Shares or
fractions thereof) which at such time will have a market value of two times the
Purchase Price of the Right.
The Purchase Price payable, and the number of Preferred Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then-current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Preferred Shares) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such
case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of One Dollar and No/100 ($1.00) per share but will
be entitled to an aggregate dividend of 100 times the dividend declared per
Common Share. In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of $100 per
share but will be entitled to an aggregate payment of 100 times the payment
made per Common Share. Each Preferred Share will have 100 votes, voting
together with the Common Shares. Finally, in the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Preferred Share will be entitled to receive 100 times the amount received per
Common Share. These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
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In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold after a person or group has become an Acquiring Person,
proper provision will be made so that each holder of a Right (other than an
Acquiring Person and the affiliates and associates of such Acquiring Person,
whose Rights will have become void) will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the Purchase Price of
the Right. In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, proper provision shall be made so that
each holder of a Right, other than Rights beneficially owned by the Acquiring
Person or the affiliates and associates of such Acquiring Persons (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of Common Shares having a market value of two times the Purchase
Price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Shares, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by such person or group and their
respective affiliates and associates which will have become void), in whole or
in part, at an exchange ratio of one Common Share, or one one-hundredth of a
Preferred Share (or of a share of a class or series of the Company's preferred
stock having equivalent rights, preferences and privileges), per Right (subject
to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to or within 10 business days following the
acquisition by a person or group of affiliated or associated persons of
beneficial ownership of 20% or more of the outstanding Common Shares, the Board
of Directors of the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right (the "Redemption Price"). The redemption of the
Rights may be made effective at such time on such basis with such conditions as
the Board of Directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
Pursuant to the Rights Agreement, certain actions (e.g. redeeming
outstanding Rights, amending the Rights Agreement, etc.) may only be made with
the approval of the Board of Directors of the Company, including a majority of
at least three (3) Continuing Directors (as hereinafter defined). As used
herein, a Continuing Director will mean any person (other than an Acquiring
Person (as defined in the Rights Agreement) or an affiliate or associate of an
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Acquiring Person or a representative of an Acquiring Person or of any such
affiliate or associate) who was a director prior to the date of the Rights
Agreement and any person (other than an Acquiring Person or an affiliate or
associate of an Acquiring Person or a representative of an Acquiring Person or
of any such affiliate or associate) nominated for selection or elected to the
Board of Directors pursuant to the approval of a majority of the Continuing
Directors.
A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
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