0000351145-03-000022.txt : 20030814 0000351145-03-000022.hdr.sgml : 20030814 20030814135835 ACCESSION NUMBER: 0000351145-03-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERGRAPH CORP CENTRAL INDEX KEY: 0000351145 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 630573222 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09722 FILM NUMBER: 03845890 BUSINESS ADDRESS: STREET 1: 1 MADISON INDUSTRIAL PARK IW2000 CITY: HUNTSVILLE STATE: AL ZIP: 35894-0001 BUSINESS PHONE: 2567302000 MAIL ADDRESS: STREET 1: 290 DUNLOP BLVD CITY: HUNTSVILLE STATE: AL ZIP: 35894-0001 10-Q 1 tenq_q2-2003.txt 10-Q FOR PERIOD ENDED JUNE 30, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to ______ Commission file number 0-9722 INTERGRAPH CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 63-0573222 - ------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Huntsville, Alabama 35894-0001 - ---------------------------------------- ----------- (Address of principal executive offices) (Zip Code) (256) 730-2000 -------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ---- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ---- ---- Common stock, par value $0.10 per share: 46,393,628 shares outstanding as of June 30, 2003 ====================================================================== INTERGRAPH CORPORATION FORM 10-Q* June 30, 2003 INDEX Page No. -------- PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements -------------------- Consolidated Balance Sheets at June 30, 2003, and December 31, 2002 2 Consolidated Statements of Income for the quarters and six months ended June 30, 2003, and 2002 3 Consolidated Statements of Cash Flows for the six months ended June 30, 2003, and 2002 4 Notes to Consolidated Financial Statements 5 - 11 Item 2. Management's Discussion and Analysis of Financial Condition ----------------------------------------------------------- and Results of Operations 12 - 18 ------------------------- Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 ---------------------------------------------------------- Item 4. Controls and Procedures 19 ----------------------- PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings 20 - 21 ----------------- Item 4. Submission of Matters to a Vote of Security Holders 21 --------------------------------------------------- Item 5. Other 21 ----- Item 6. Exhibits and Reports on Form 8-K 22 -------------------------------- SIGNATURES 23 * Information contained in this Form 10-Q includes statements that are forward- looking as defined in Section 21E of the Securities Exchange Act of 1934. Actual results may differ materially from those projected in the forward- looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is described in the Company's filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and this Form 10-Q. PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements -------------------- INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) - -------------------------------------------------------------------------------- June 30, December 31, 2003 2002 - -------------------------------------------------------------------------------- (In thousands, except share and per share amounts) Assets Cash and cash equivalents $469,683 $490,097 Short-term investments 28,874 15,927 - -------------------------------------------------------------------------------- Total cash and short-term investments 498,557 506,024 Accounts receivable, net 152,229 152,187 Inventories, net 17,931 19,397 Other current assets 39,184 39,795 - -------------------------------------------------------------------------------- Total current assets 707,901 717,403 Investments in affiliates 10,043 20,700 Capitalized software development costs, net 30,989 29,830 Other assets, net 15,731 16,889 Property, plant, and equipment, net 50,365 50,818 - -------------------------------------------------------------------------------- Total Assets $815,029 $835,640 ================================================================================ Liabilities and Shareholders' Equity Trade accounts payable $17,179 $17,850 Accrued compensation 30,610 31,541 Other accrued expenses 36,980 35,730 Billings in excess of sales 49,347 43,908 Income taxes payable 28,382 67,477 Short-term debt --- 169 - -------------------------------------------------------------------------------- Total current liabilities 162,498 196,675 - -------------------------------------------------------------------------------- Deferred income taxes 16,076 16,260 Other noncurrent liabilities 844 995 - -------------------------------------------------------------------------------- Total noncurrent liabilities 16,920 17,255 - -------------------------------------------------------------------------------- Shareholders' equity: Common stock, par value $0.10 per share - 100,000,000 shares authorized; 57,361,362 shares issued 5,736 5,736 Additional paid-in capital 203,198 206,888 Retained earnings 594,929 586,020 Accumulated other comprehensive income (loss) 6,247 (659) - -------------------------------------------------------------------------------- 810,110 797,985 Less - cost of treasury shares (10,967,734 at June 30, 2003, and 11,198,767 at December 31, 2002) (174,499) (176,275) - -------------------------------------------------------------------------------- Total shareholders' equity 635,611 621,710 - -------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $815,029 $835,640 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - -------------------------------------------------------------------------------- Quarter Ended June 30, Six Months Ended June 30, 2003 2002 2003 2002 - -------------------------------------------------------------------------------- (In thousands, except per share amounts) Revenues Systems $ 72,819 $ 67,460 $143,225 $138,354 Maintenance 34,053 30,167 64,110 58,329 Services 20,475 24,943 40,565 48,983 - -------------------------------------------------------------------------------- Total revenues 127,347 122,570 247,900 245,666 - -------------------------------------------------------------------------------- Cost of revenues Systems 37,917 32,899 74,377 69,396 Maintenance 12,779 13,516 25,075 27,732 Services 15,066 17,312 30,262 33,875 - -------------------------------------------------------------------------------- Total cost of revenues 65,762 63,727 129,714 131,003 - -------------------------------------------------------------------------------- Gross profit 61,585 58,843 118,186 114,663 Product development 14,605 12,451 26,477 24,717 Sales and marketing 25,612 24,926 50,289 47,503 General and administrative 18,509 18,548 34,326 34,452 - -------------------------------------------------------------------------------- Income from operations 2,859 2,918 7,094 7,991 Intellectual property income (expense), net (4,335) 293,320 995 290,166 Gains (losses) on sales of assets (65) 17,015 1,155 18,545 Interest income 1,676 1,665 3,599 2,661 Other income (expense), net (326) 804 (369) 1,449 - -------------------------------------------------------------------------------- Income (loss) before income taxes and minority interest (191) 315,722 12,474 320,812 Income tax benefit (expense) 985 (35,100) (3,565) (35,750) - -------------------------------------------------------------------------------- Income before minority interest 794 280,622 8,909 285,062 Minority interest in earnings of consolidated subsidiaries --- (35) --- (97) - -------------------------------------------------------------------------------- Net income $ 794 $280,587 $ 8,909 $284,965 ================================================================================ Net income per share - basic $ 0.02 $ 5.67 $ 0.19 $ 5.73 - diluted $ 0.02 $ 5.37 $ 0.18 $ 5.44 ================================================================================ Weighted average shares outstanding - basic 46,275 49,506 46,238 49,729 - diluted 48,404 52,204 48,412 52,375 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - -------------------------------------------------------------------------------- Six Months Ended June 30, 2003 2002 - -------------------------------------------------------------------------------- (In thousands) Cash Provided By (Used For): Operating Activities: Net income $ 8,909 $284,965 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 4,116 4,766 Amortization 8,192 7,303 Provisions for losses on accounts receivable 532 1,532 Noncurrent portion of deferred taxes (620) 19,192 Income taxes payable (38,975) 26,371 Gains on sales of assets (1,155) (18,545) Net changes in current assets and liabilities 8,190 (28,327) - -------------------------------------------------------------------------------- Net cash provided by (used for) operating activities (10,811) 297,257 - -------------------------------------------------------------------------------- Investing Activities: Net proceeds from sales of assets 3,490 18,798 Purchases of property, plant, and equipment (3,658) (4,656) Purchases of short-term investments (17,888) (254,197) Proceeds from maturities of short-term investments 16,857 11,035 Capitalized software development costs (5,691) (6,265) Business acquisitions (2,030) (981) Other (1,108) (1,394) - -------------------------------------------------------------------------------- Net cash used for investing activities (10,028) (237,660) - -------------------------------------------------------------------------------- Financing Activities: Gross borrowings 31 1,044 Debt repayment (200) (1,520) Purchase of treasury stock (9,341) (66,819) Proceeds of employee stock purchases and exercise of stock options 7,427 4,485 Other 9 --- - -------------------------------------------------------------------------------- Net cash used for financing activities (2,074) (62,810) - -------------------------------------------------------------------------------- Effect of exchange rate changes on cash 2,499 4,475 - -------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (20,414) 1,262 Cash and cash equivalents at beginning of period 490,097 99,773 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of period $469,683 $101,035 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. INTERGRAPH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The unaudited consolidated financial statements include the accounts of Intergraph Corporation (the "Company" or "Intergraph") and its majority-owned subsidiaries. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items) necessary for a fair presentation of results for the interim periods presented. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 ("2002 Annual Report"). The operating results for the quarter and six months ended June 30, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. The Company's operations are divided for operational and management purposes into four separate business segments, along with a corporate oversight function ("Corporate"): Intergraph Process, Power & Offshore ("PPO"), Intergraph Mapping and Geospatial Solutions ("IMGS"), Intergraph Solutions Group ("ISG"), and Intergraph Public Safety, Inc. ("IPS"). See Note 13 for a description of these business segments. Certain reclassifications have been made to the prior year amounts to provide comparability with the current year presentation. To provide consistency of reported results, all income and expenses associated with the intellectual property division, including related legal expenses, are now classified as "Intellectual property income (expense), net" in the consolidated statements of income. NOTE 2 - STOCK-BASED COMPENSATION In accordance with the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock- Based Compensation," the Company has elected to apply Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its stock- based plans. Accordingly, the Company recognized no compensation expense for these plans during the quarter and six-month periods ended June 30, 2003, and 2002. Had the Company accounted for its stock-based compensation plans based on the fair value of awards at grant date consistent with the methodology of SFAS 123, the Company's reported net income and income per share for these periods would have been impacted as indicated below. The effects of applying SFAS 123 on a pro forma basis for the quarter and six-month periods ended June 30, 2003, and 2002, are not likely to be representative of the effects on reported pro forma net income for future periods as options vest over several years and as it is anticipated that additional grants will be made in future years. - -------------------------------------------------------------------------------- Quarter Ended June 30, Six Months Ended June 30, 2003 2002 2003 2002 - -------------------------------------------------------------------------------- (In thousands, except per share amounts) Net income As reported $ 794 $280,587 $8,909 $284,965 Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards (net of income tax) (450) (498) (751) (1,000) - -------------------------------------------------------------------------------- Pro forma $ 344 $280,089 $8,158 $283,965 ================================================================================ Basic income per share As reported $ 0.02 $ 5.67 $ 0.19 $ 5.73 Pro forma $ 0.01 $ 5.66 $ 0.18 $ 5.71 Diluted income per share As reported $ 0.02 $ 5.37 $ 0.18 $ 5.44 Pro forma $ 0.01 $ 5.37 $ 0.17 $ 5.42 ================================================================================ NOTE 3 - INVENTORIES Inventories are stated at the lower of average cost or market and are summarized as follows: - -------------------------------------------------------------------------------- June 30, December 31, 2003 2002 - -------------------------------------------------------------------------------- (In thousands) Raw materials $ 6,989 $7,011 Work-in-process 3,285 2,856 Finished goods 3,018 3,457 Service spares 4,639 6,073 - -------------------------------------------------------------------------------- Totals $17,931 $19,397 ================================================================================ Inventories on hand at June 30, 2003, and December 31, 2002, relate primarily to continuing specialized hardware assembly activity in the Company's IMGS and ISG business segments, and to the Company's continuing warranty and maintenance obligations on computer hardware previously sold. Amounts reflected as work-in-process relate to sales contracts accounted for under the percentage-of-completion method. NOTE 4 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS Product development costs are charged to expense as incurred; however, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility of the product has been established. Such capitalized costs are amortized on a straight-line basis over a period of two to seven years. Amortization of these capitalized costs, included in "Cost of revenues - Systems" in the consolidated statements of income, amounted to $2.6 million in second quarter 2003 compared to $1.3 million in second quarter 2002, and $4.5 million and $2.3 million in the first six months of 2003 and 2002, respectively. Due to net realizable value concerns, the Company did not capitalize product development expenses of $3.1 million and $2.6 million in second quarter 2003 and 2002, respectively, and $6 million and $5.1 million in the first six months of 2003 and 2002, respectively, for costs normally eligible for capitalization. See Note 5 for further information regarding capitalized software development costs and accumulated amortization. NOTE 5 - INTANGIBLE ASSETS The Company's intangible assets include capitalized software development costs (included as a separate line in the consolidated balance sheets) and other intangible assets (included in "Other assets, net" in the consolidated balance sheets). At June 30, 2003, and December 31, 2002, the Company's intangible assets and related accumulated amortization consisted of the following: - -------------------------------------------------------------------------------- June 30, 2003 December 31, 2002 ------------------ -------------------- Accumulated Accumulated Gross Amortization Net Gross Amortization Net - -------------------------------------------------------------------------------- (In thousands) Capitalized software development $50,082 $(19,093) $30,989 $44,417 $(14,587) $29,830 Other intangible assets 47,202 (36,193) 11,009 44,988 (32,522) 12,466 - -------------------------------------------------------------------------------- Totals $97,284 $(55,286) $41,998 $89,405 $(47,109) $42,296 ================================================================================ The Company recorded amortization expense of $4.5 million and $3.8 million for second quarter 2003 and 2002, respectively, and $8.2 million and $7.3 million for first half 2003 and 2002, respectively. Based on the current intangible assets subject to amortization, the estimated amortization expense for the remainder of 2003 and each of the succeeding five years is as follows: $10 million in 2003, $14 million in 2004, $5 million in 2005, $3 million in 2006, $3 million in 2007, $3 million in 2008, and $4 million thereafter. NOTE 6 - PROPERTY, PLANT, AND EQUIPMENT, NET "Property, plant, and equipment, net" includes accumulated depreciation of approximately $114.3 million and $114.4 million at June 30, 2003, and December 31, 2002, respectively. NOTE 7 - SUPPLEMENTARY CASH FLOW INFORMATION Changes in current assets and liabilities, net of the effects of business acquisitions and divestitures, in reconciling net income to net cash provided by (used for) operations are as follows: - -------------------------------------------------------------------------------- Six Months Ended June 30, 2003 2002 - -------------------------------------------------------------------------------- (In thousands) (Increase) decrease in: Accounts receivable, net $ 5,256 $ 4,034 Inventories, net 1,880 1,952 Other current assets 247 (13,405) Increase (decrease) in: Trade accounts payable (353) (4,893) Accrued compensation and other accrued expenses (1,936) (13,319) Refundable income taxes (592) (627) Billings in excess of sales 3,688 (2,069) - -------------------------------------------------------------------------------- Net changes in current assets and liabilities $ 8,190 $(28,327) ================================================================================ Other non-cash investing and financing transactions in second quarter 2003 and the six months ended June 30, 2003, include favorable mark- to-market adjustments (net of tax) of $1.8 million and $812,000, respectively, on the Company's investment in Creative Technology Ltd. ("Creative"). Subsequent to June 30, 2003, all of the Company's 1.5 million shares of Creative were sold for $12.5 million, resulting in a $1.8 million gain. Significant non-cash investing and financing transactions in second quarter and first half 2002 include a net unfavorable adjustment of $19.4 million (net of tax) and a net favorable adjustment of $6.7 million (net of tax), respectively, primarily on the Company's investments in 3Dlabs Inc., Ltd. ("3Dlabs") and Creative. See Note 9 for detailed information regarding the Company's unrealized gains and losses on its investments. NOTE 8 - EARNINGS PER SHARE Basic income per share is computed using the weighted average number of common shares outstanding. Diluted income per share is computed using the weighted average number of common and equivalent common shares outstanding. Employee stock options are the Company's only common stock equivalent and are included in the calculation only if dilutive. For the quarters ended June 30, 2003, and 2002, these dilutive common stock equivalents were 2,129,000 and 2,698,000, respectively. For the six months ended June 30, 2003, and 2002, these dilutive shares were 2,174,000 and 2,646,000, respectively. NOTE 9 - COMPREHENSIVE INCOME Comprehensive income differs from net income due to non-equity items that include unrealized gains and losses on certain investments in debt and equity securities and foreign currency translation adjustments. Comprehensive income is as follows: - -------------------------------------------------------------------------------- Quarter Ended June 30, Six Months Ended June 30, 2003 2002 2003 2002 - -------------------------------------------------------------------------------- (In thousands) Net income $ 794 $280,587 $ 8,909 $284,965 Unrealized holding gains (losses) arising during the period 1,958 (2,742) 932 23,303 Reclassification adjustment for realized gains included in net income --- (16,632) --- (16,632) Translation adjustment for financial statements denominated in a foreign currency 5,681 6,110 5,974 6,312 - -------------------------------------------------------------------------------- Comprehensive income $8,433 $267,323 $15,815 $297,948 ================================================================================ Second quarter and year-to-date 2003 unrealized holding gains are shown net of $974,000 and $437,000, respectively, of income taxes. Second quarter and year- to-date 2002 unrealized holding gains (losses) are both shown net of income taxes of $2.2 million. NOTE 10 - INTELLECTUAL PROPERTY INCOME (EXPENSE), NET In first quarter 2003, the Company recorded $10 million in income from International Business Machines Corporation ("IBM") as a balancing payment for future royalties in a full cross-licensing agreement that also resolved all outstanding patent infringement claims between IBM and the Company. A payment of $5 million was received in first quarter 2003, and the remainder was received in second quarter 2003. Netted against this income in first and second quarters were $4.7 million and $4.3 million, respectively, in legal fees and other related expenses associated with protecting and licensing the Company's intellectual property. Net intellectual property income was $1 million for the six months ended June 30, 2003. In second quarter 2002, Intergraph and Intel Corporation ("Intel") settled a patent infringement lawsuit filed in Alabama Federal Court in 1997 for $300 million, which the Company received in May 2002. Netted against this income in second quarter were $6.7 million in legal fees and other related expenses, for a total of $9.8 million in expenses during the first half of 2002. Net intellectual property income was $290.2 million for the six months ended June 30, 2002. For a complete discussion, see "Intellectual Property" and "Litigation" in the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section of this Form 10-Q. NOTE 11 - GAINS (LOSSES) ON SALES OF ASSETS During the six months ended June 30, 2003, IMGS reported a gain of approximately $1.2 million from the first quarter 2003 sale of its aeronautical intellectual property assets to Ingegneria Dei Sistemi S.p.a. in Rome, Italy. In second quarter 2003, IMGS incurred additional expenses of $65,000 related to this transaction. The Company reported gains of $18.5 million for first half 2002 and $17 million for second quarter 2002. For a complete discussion, see "Gains (Losses) on Sales of Assets" included in MD&A. NOTE 12 - ACQUISITIONS AND DIVESTITURES During the first half of 2003 there were no material acquisitions or divestitures. In second quarter 2002, the Company sold its ownership interest in 3Dlabs to Creative for approximately $40.2 million in cash and stock. The Company recorded a gain on this transaction of approximately $17 million, which is included in "Gains (losses) on sales of assets" in the 2002 consolidated statements of income. For a complete discussion, see the Company's 2002 Annual Report. NOTE 13 - SEGMENT REPORTING The Company's reportable segments are strategic business units that are organized by the types of products sold and the specific markets served. PPO supplies integrated lifecycle software solutions for the design, construction, and operation of process and power plants, offshore rigs, and ships. This division offers applications that span shipbuilding, plant design and visualization, materials procurement and management, plant operation, and engineering information management. IMGS is a leading geospatial solutions provider for the following markets: local, state, and federal government; transportation; utilities; communications; location-based services; photogrammetry; remote sensing; cartography; and military and intelligence. ISG provides professional services, specially developed software and hardware, and commercial off-the-shelf products to federal, state, and local governments, as well as to commercial customers. IPS develops computer graphics-based systems designed for public safety agencies, commercial fleet operations, campus, military base, and airport security. IPS systems are complete, integrated solutions for command and control, deployment, tracking, information gathering, analysis, and records management. The Corporate segment includes revenues and costs for Teranetix (a provider of computing support and hardware integration services), international hardware maintenance, and general corporate functions. Operating expenses for Corporate consist of general corporate expenses, primarily general and administrative expenses remaining after charges to the business segments based on usage of administrative services. The Company evaluates the performance of its business segments based on revenue and income from operations. The accounting policies of the reportable segments are consistent across segments and are the same as those used in preparation of the consolidated financial statements of the Company (see Note 1 of Notes to Consolidated Financial Statements included in the Company's 2002 Annual Report). Sales between the business segments are accounted for under a transfer pricing policy. Transfer prices approximate prices that would be charged for the same or similar products and services to unrelated buyers. The following table sets forth revenues and operating income (loss) by business segment for the quarters and six months ended June 30, 2003, and 2002. - -------------------------------------------------------------------------------- Quarter Ended June 30, Six Months Ended June 30, 2003 2002 2003 2002 - -------------------------------------------------------------------------------- (In thousands) Revenues: PPO: Unaffiliated customers $32,228 $29,667 $62,023 $57,882 Intersegment revenues 465 1,215 1,182 2,215 - -------------------------------------------------------------------------------- 32,693 30,882 63,205 60,097 - -------------------------------------------------------------------------------- IMGS: Unaffiliated customers 46,950 44,099 92,070 88,524 Intersegment revenues 1,592 2,424 3,235 4,295 - -------------------------------------------------------------------------------- 48,542 46,523 95,305 92,819 - -------------------------------------------------------------------------------- ISG: Unaffiliated customers 29,682 28,494 56,657 63,306 Intersegment revenues 396 2,028 898 3,079 - -------------------------------------------------------------------------------- 30,078 30,522 57,555 66,385 - -------------------------------------------------------------------------------- IPS: Unaffiliated customers 16,071 17,390 32,054 30,974 Intersegment revenues 784 347 1,325 669 - -------------------------------------------------------------------------------- 16,855 17,737 33,379 31,643 - -------------------------------------------------------------------------------- Corporate: Unaffiliated customers 2,416 2,920 5,096 4,980 Intersegment revenues 608 657 1,397 1,107 - -------------------------------------------------------------------------------- 3,024 3,577 6,493 6,087 - -------------------------------------------------------------------------------- 131,192 129,241 255,937 257,031 - -------------------------------------------------------------------------------- Eliminations (3,845) (6,671) (8,037) (11,365) - -------------------------------------------------------------------------------- Total revenues $127,347 $122,570 $247,900 $245,666 ================================================================================ - -------------------------------------------------------------------------------- Operating income (loss): PPO $ 4,306 $ 5,012 $ 8,475 $ 9,247 IMGS (1,232) (1,221) (1,046) (1,256) ISG 2,844 1,865 3,980 4,438 IPS 3,562 3,466 7,031 6,423 Corporate (6,621) (6,567) (11,346) (11,275) Eliminations --- 363 --- 414 - -------------------------------------------------------------------------------- Total $ 2,859 $ 2,918 $ 7,094 $ 7,991 ================================================================================ Significant profit and loss items that were not allocated to the segments and not included in the analysis above include gains and losses on sales of assets and intellectual property income and expense. See Notes 10 and 11 for comparative details of these items. The Company does not evaluate performance or allocate resources based on assets. For further information see "Results by Operating Segment" in MD&A. NOTE 14 - LETTERS OF CREDIT In September 2002, the Company established a credit line with Wells Fargo Bank to cover its outstanding letters of credit. In order to reduce the cost of issuing letters of credit, the Company secured the credit line with $15 million of interest-bearing securities. Under this arrangement, the Company earns interest on the securities and withdrawal of securities is allowed, but the Company is required to maintain a level of securities sufficient to cover total outstanding letters of credit (which totaled $10 million at June 30, 2003, and $10.9 million at December 31, 2002). NOTE 15 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," which is effective for guarantees issued or modified after December 31, 2002. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under the guarantee and must disclose that information in its interim and annual financial statements. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor's obligations does not apply to product warranties or to guarantees accounted for as derivatives. The adoption of FIN 45 in first quarter 2003 did not have a significant impact on the Company's consolidated operating results or financial position. The Company has not incurred costs to settle claims or pay awards under the patent infringement indemnity provisions of some of our sales agreements with customers; therefore, the Company has recorded no liabilities for these agreements as of June 30, 2003. In January 2003, FASB issued FIN 46, "Consolidation of Variable Interest Entities," an interpretation of Accounting Research Bulletin 51 "Consolidation of Financial Statements," which addresses consolidation of variable interest entities ("VIE") by business enterprises. FIN 46 requires immediate consolidation of VIEs created after January 31, 2003, and the compliance of older entities in the first fiscal year or interim period beginning after June 15, 2003. The Company is still evaluating the impact, if any, that adoption of FIN 46 may have on its consolidated results of operations or financial position. On April 30, 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," in order to provide for more consistent reporting of contracts as either freestanding derivative instruments subject to SFAS No. 133 in its entirety, or as hybrid instruments with debt host contracts and embedded derivative features. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of this statement is not expected to have a significant impact on the Company's consolidated results of operations or financial position. On May 15, 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which establishes standards for classifying and measuring as liabilities certain freestanding financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. The statement defines an obligation as "a conditional or unconditional duty or responsibility on the part of the issuer to transfer assets or to issue its equity shares." SFAS No. 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement is not expected to have a significant impact on the Company's consolidated results of operations or financial position. NOTE 16 - LITIGATION As further described in the Company's 2002 Annual Report, the Company continues to protect its intellectual property portfolio by engaging in both licensing discussions and patent infringement litigation. See MD&A for a discussion of 2003 developments. INTERGRAPH CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition ----------------------------------------------------------- and Results of Operations - ------------------------- Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements including, but not limited to, projections about revenue, operating income levels, margins, and market conditions and their anticipated impact on the Company; expectations regarding future results and cash flows; information regarding the development, timing of introduction, and performance of new products; any statements of the plans, strategies, and objectives of management for future operations; and expectations regarding the Company's various ongoing litigation proceedings. These forward- looking statements are subject to known or unknown risks and uncertainties (some of which are beyond the Company's control) that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, worldwide political and economic conditions and changes, the ability to attract or retain key personnel, increased competition, rapid technological change, unanticipated changes in customer requirements, the ability to protect the Company's intellectual property rights, the ability to access the technology necessary to compete in the markets served, the ability to complete certain sales and lease transactions as planned, risks associated with doing business internationally (including foreign currency fluctuations), risks associated with various ongoing litigation proceedings, and other risks detailed in our annual and quarterly filings with the Securities and Exchange Commission ("SEC"). RESULTS OF OPERATIONS Earnings In second quarter 2003, the Company earned net income of $794,000 on revenues of $127.3 million, compared to second quarter 2002 net income of $280.6 million on revenues of $122.6 million. Income from operations was $2.9 million for both second quarter 2003 and second quarter 2002. For the first half of 2003, the Company earned net income of $8.9 million on revenues of $247.9 million, compared to the first half of 2002, where the Company earned net income of $285 million on revenues of $245.7 million. Income from operations for the first half of 2003 was $7.1 million compared to $8 million for the first half of 2002. See "Intellectual Property" and "Gains (Losses) on Sales of Assets" for a discussion of non-operating items included in net income. Also see "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for a discussion of the currency impact on earnings. Revenues Total revenues for second quarter and first half 2003 were $127.3 million and $247.9 million, respectively, up 4% and 1% from the comparable prior-year periods. Sales outside the United States represented approximately 46% of total revenues in first half 2003, up from 42% for the comparable period in 2002. European revenues were 30% of total revenues for first half 2003, up from the first half 2002 level of 26%. Systems. Systems revenues for second quarter and first half 2003 were $72.8 million and $143.2 million, respectively, up 8% and 4% from the comparable prior-year periods. The increase in revenues for second quarter 2003 over the prior-year period is due primarily to an estimated $2.6 million currency impact and to an increase in new business in the IPS and PPO business segments. The increase in revenues for the first half of 2003 over the prior-year period is due primarily to an estimated $6.4 million currency impact and to an increase in new business in the IPS and PPO business segments, offset by a decrease of approximately $6 million in the ISG business segment as several contracts were completed or neared completion in the first half of 2002. Maintenance. Maintenance revenues totaled $34.1 million in second quarter 2003 and $64.1 million for first half 2003, up 13% and 10% from comparable prior-year periods. The increase for both comparable periods is attributable to larger installed customer bases for IPS and PPO. These increases in revenues were offset by a decrease in ISG maintenance revenues as more hardware continued to be removed from maintenance contracts because of the Company's exit from the hardware business. Services. Services revenues, consisting primarily of revenues from implementation and consulting services, totaled $20.5 million for the second quarter and $40.6 million for the first half of 2003, down 18% and 17% from comparable prior-year periods. The decrease in services revenues is due primarily to the completion of a large IPS project in late 2002 and is partially offset by increased revenues for IMGS on several new projects in 2003. Gross Margin The Company's total gross margin for second quarter 2003 was 48%, flat compared to second quarter 2002. For the first half of 2003, total gross margin was 48% compared to 47% for the first half of 2002. Systems margin was 48% for second quarter 2003, down from 51% in second quarter 2002. First half 2003 systems margin was 48%, down from 50% in the first half of 2002. The decline in gross margin percentages for both comparable periods was caused mainly by a $1.3 million non-recurring adjustment in the IMGS business segment, primarily due to physical inventory adjustments. Excluding this adjustment, systems margin was 50% and 49% for second quarter and first half 2003, respectively. In general, the Company's systems margin may be lowered by price competition, a higher hardware content in the product mix, a stronger U.S. dollar in international markets, and a higher mix of federal government sales, which generally produce lower margins than commercial sales. Systems margins may be improved by higher software content in the product mix, a weaker U.S. dollar in international markets, and a higher mix of international systems sales to total systems sales when the dollar is weaker in international markets. Maintenance margin for second quarter 2003 was 63%, improving from 55% in second quarter 2002. For the first half of 2003, maintenance margin was 61%, up from 53% for the comparable prior-year period. The improvement in margin is mainly due to higher software content in new maintenance contracts, revenue from retroactively renewed contracts, and Company-wide headcount reductions from 2002 to 2003 as a result of the Company's exit from the hardware business. Services margin was 26% for second quarter 2003, down from 31% in second quarter 2002. For the first half of 2003, services margin was 25%, down from 31% in the first half of 2002. Second quarter and first half 2002 included positive non-recurring transactions, without which services margin would have been 29% and 28%, respectively. The decline for the six-month comparison was also affected by a shift in the ISG business segment's contract mix to lower-margin contracts than in the prior year. Significant fluctuations in services revenues and margins from period to period are not unusual. Operating Expenses Operating expenses for the second quarter and first half of 2003 were $58.7 million and $111.1 million, respectively, up 5% from second quarter 2002 and up 4% from the first half of 2002. Product development expenses were $14.6 million for second quarter 2003, up 17% from the second quarter 2002 level. This increase was primarily the result of shipbuilding product development costs of $1.3 million in the PPO business segment, combined with an increase of $1.4 million due to fewer costs qualifying for capitalization in the PPO and IMGS business segments. Product development expenses were $26.5 million for the first half of 2003, up 7% from the first half of 2002. This increase was also a result of the $1.3 million shipbuilding product development costs mentioned above, combined with an increase of $1.1 million due to fewer costs qualifying for capitalization. Sales and marketing expenses were $25.6 million for second quarter 2003, up 3% from $24.9 million in second quarter 2002. This increase was primarily due to an estimated $1.7 million currency impact of the U.S. dollar weakening against international currencies in the second quarter of 2003 compared to the second quarter of 2002. This was partially offset by a reduction in compensation expenses in the ISG business segment and cost savings resulting from the combination of the Z/I Imaging and Utilities & Communications divisions into the IMGS business segment. Sales and marketing expenses were $50.3 million for the first half of 2003, up 6% compared to $47.5 million in the first half of 2002. This increase was primarily due to an estimated $3.6 million currency impact of the U.S. dollar weakening against international currencies during the first half of 2003, compared to the first half of 2002, partially offset by a reduction in compensation and consulting expenses in the ISG business segment. General and administrative expenses were $18.5 million for second quarter 2003 and $34.3 million for the first half of 2003, relatively flat with the comparable periods in 2002. For first half 2003, an unfavorable currency impact of $1.6 million and retention bonuses for Z/I Imaging employees of $433,000 were offset by lower legal fees of $1.5 million and a reversal of bad debt reserve of $500,000. To provide consistency of reported results, all income and expenses associated with the former intellectual property division, including legal expenses, are classified and reported in the other income section of the income statement. Prior period amounts have been reclassified to conform to the current period presentation. Restructuring Charges In fourth quarter 2002, the Company recorded $2.1 million in restructuring charges as a result of combining the Utilities & Communications business with the IMGS business segment. Cash outlays related to this restructuring approximated $236,000 and $1.3 million for second quarter and first half 2003, respectively. At June 30, 2003, the total remaining accrued liability for restructuring was approximately $698,000 compared to approximately $2.1 million at December 31, 2002. These liabilities are reflected in "Other accrued expenses" in the Company's consolidated balance sheets. The related costs are expected to be paid during 2003 and relate to severance liabilities in European countries (where typically several months are required for settlement) and to liabilities for idle building space in Europe and Asia. For a complete discussion, see the Company's 2002 Annual Report. Non-Operating Income and Expense Intellectual Property. "Intellectual property income (expense), net" in the consolidated statements of income consists of income resulting from protection and licensing of the Company's intellectual property, net of legal fees and other expenses associated with maintaining and defending the Company's intellectual property. To provide better consistency of reported results, all income and expenses associated with the intellectual property division, including related legal expenses, are classified and reported in this section of the consolidated statements of income. In first quarter 2003, the Company recorded income of $10 million due to a balancing payment from IBM for future royalties in a full cross- licensing agreement that also resolved all outstanding patent infringement claims between IBM and the Company. In the first six months of 2003, $9 million in legal fees and other related expenses associated with protecting and licensing the Company's intellectual property were netted against this income, including $4.3 million in second quarter. In April 2002, Intergraph and Intel settled a patent infringement lawsuit filed in 1997 for $300 million, which the Company received in May 2002. Netted against this income in second quarter 2002 were $6.7 million in legal fees and other related expenses, for a total of $9.8 million in expenses during the first half of 2002. (See "Litigation" for further discussion on this transaction.) Gains (Losses) on Sales of Assets. In first quarter 2003, IMGS reported a gain of approximately $1.2 million from the March 14, 2003, sale of its aeronautical intellectual property assets to Ingegneria Dei Sistemi S.p.a. in Rome, Italy. This gain was offset slightly by a $65,000 loss in second quarter 2003. In March 2002, the Company reported a gain of approximately $2 million as escrowed shares of 3Dlabs were released. The Company also recognized a loss of approximately $455,000 on the sale of its Greek subsidiary in first quarter 2002. In May 2002, the Company recognized a gain of $17 million on the sale of its shares of 3Dlabs to Creative. See the Company's 2002 Annual Report for further discussion of these transactions. See Note 12 of Notes to Consolidated Financial Statements contained in this Form 10-Q for further information regarding the 3Dlabs transaction. Interest Income. Interest income was $1.7 million in second quarter of both 2003 and 2002. For the first six months of 2003, interest income was $3.6 million, compared to $2.7 million for the same period 2002. Interest income from short-term investments increased during 2003 due to proceeds from patent litigation, but was offset by a decline in interest rates and a decrease in the amount of interest earned on notes receivable. Other. "Other income (expense), net" in the consolidated statements of income consists of interest expense, foreign exchange gains and losses, and other miscellaneous items of non-operating income and expense. No significant items were included in these amounts for the periods presented. Income Taxes Income tax was a benefit of $1 million for second quarter 2003 and an expense of $3.6 million for first half 2003, compared to expenses of $35.1 million for second quarter 2002 and $35.8 million for first half 2002. The Company had income (loss) before taxes and minority interest of ($200,000) and $12.5 million in the second quarter and first half of 2003, respectively, compared to $315.7 million in the second quarter of 2002 and $320.8 million for the first half of 2002. Income tax expense for the first half of 2003 is attributable to both taxes on individually profitable majority-owned subsidiaries and patent litigation income partially offset by the second quarter tax benefit, which was primarily the result of a favorable resolution of a disputed issue with the Internal Revenue Service. Income tax expense for the quarter and six months ended June 30, 2002, was largely a result of the patent litigation gain and the gains on sales of assets offset by the utilization of the Company's U.S. net operating loss and tax credit carryforwards. See the Company's 2002 Annual Report for details of the Company's tax position, including its net operating loss and tax credit carryforwards. Results By Operating Segment In second quarter 2003, PPO reported operating income of $4.3 million on revenues of $32.7 million, compared to second quarter 2002 operating income of $5 million on revenues of $30.9 million. The decrease in operating income is primarily the result of increased shipbuilding product development costs of $1.3 million in the second quarter of 2003, offset somewhat by higher maintenance gross margins. For the first half of 2003, operating income was $8.5 million on revenues of $63.2 million, compared to operating income of $9.2 million on revenues of $60.1 million for the first half of 2002. The 8% decrease in operating income is due to increased shipbuilding product development costs, as mentioned above, and an increase in sales and marketing expenses primarily due to currency fluctuations. The increase in operating expenses is partially offset by an 11% increase in maintenance margin, mainly due to lower amortization and royalty costs as a result of renegotiated contracts with vendors. In second quarter 2003, IMGS reported an operating loss of $1.2 million on revenues of $48.5 million, compared to second quarter 2002 operating loss of $1.2 million on revenues of $46.5 million. Although revenues increased, operating loss remained flat primarily due to a non-recurring adjustment of $1.3 million (most of which related to an inventory write-off as a result of physical inventory). Operating loss for the first half of 2003 was $1 million on revenues of $95.3 million, compared to the first half 2002 loss of $1.3 million on revenues of $92.8 million. The increase in 2003 revenues occurred mainly in maintenance (due to a larger installed base) and professional services (due to several new contracts in Europe). The year-to-date 2003 operating loss resulted primarily from the $1.3 million non-recurring inventory adjustment mentioned above. In second quarter 2003, ISG earned operating income of $2.8 million on revenues of $30.1 million, compared to operating income of $1.9 million on revenues of $30.5 million in second quarter 2002. The 52% increase in operating income is primarily due to higher maintenance gross margins as a result of headcount reductions. Also improving operating income is a reduction of operating expense as outsourced consulting and compensation expense declined. In first half 2003, ISG earned operating income of $4 million on revenues of $57.6 million, compared to first half 2002 operating income of $4.4 million on revenues of $66.4 million. The decrease in operating income is a direct result of lower revenues (due to fewer contracts and programs delayed from fourth quarter 2001 to first quarter 2002 in the aftermath of the September 11, 2001, terrorist attacks), mitigated by lower operating expenses, as mentioned above. In second quarter 2003, IPS earned operating income of $3.6 million on revenues of $16.9 million, 3% higher than second quarter 2002 operating income of $3.5 million on revenues of $17.7 million. Although revenues decreased 5% from second quarter 2002 (due primarily to the loss of revenues from a large services contract in Australia that ended in third quarter 2002), operating income increased due to higher gross margins. IPS reported operating income of $7 million on revenues of $33.4 million for the first half of 2003, compared to operating income of $6.4 million on revenues of $31.6 million for the same period in 2002. Revenues and gross margin dollars increased from the first half of 2002 level mainly due to new projects and additional maintenance contracts with higher gross margins. These improvements were partially offset by higher operating expenses due primarily to increased headcount. In second quarter 2003, Corporate reported an operating loss of $6.6 million on revenues of $3 million, compared to a second quarter 2002 operating loss of $6.6 million on revenues of $3.6 million. For the first six months of 2003, Corporate reported an operating loss of $11.3 million on revenues of $6.5 million compared to an operating loss of $11.3 million on revenues of $6.1 million in the first half of 2002. Revenues are primarily associated with hardware repair, logistics, and maintenance services. Operating expenses include costs associated with worldwide corporate oversight functions, including those related to being a publicly held company, and management of residual hardware functions. See Note 13 of Notes to Consolidated Financial Statements contained in this Form 10-Q for further explanation of the Company's segment reporting. Litigation As further described in the Company's 2002 Annual Report, the Company continues to protect its intellectual property portfolio by engaging in both licensing discussions and patent infringement litigation. The following is a discussion of the 2003 developments for patent and other litigation. Intel. The Company has had ongoing litigation with Intel since 1997. In July 2002, the Company filed a patent infringement case against Intel pertaining to the Company's parallel instruction computing ("PIC") patents and went to trial in July 2002. In October 2002, the judge ruled that the PIC patents were valid, enforceable, and infringed by Intel's Itanium and Itanium 2 products. Based upon the trial court's decision and the parties' prior settlement agreement, Intel paid $150 million to the Company in November 2002. Although Intel appealed this ruling in November 2002, the $150 million payment is non-refundable, regardless of the outcome on appeal. Intel will be obligated to pay an additional $100 million in damages to the Company if the trial court's decision is affirmed on appeal. The parties have completed the briefing process, and oral argument is tentatively scheduled for the first week of December 2003. The final decision from the appeal court is not expected until after February 2004. Original Equipment Manufacturers ("OEM"). On December 16, 2002, the Company filed a patent infringement action against Dell Computer Corporation TM ("Dell"), Gateway Inc. TM ("Gateway"), and Hewlett-Packard Co. TM ("HP") (including the former Compaq Computer Corporation TM) in the U.S. District Court for the Eastern District of Texas ("the Texas court") claiming that products from these computer vendors infringe three computer system ("Clipper") patents (related to memory management technology) owned by the Company. The OEM action seeks an unspecified amount of damages for past infringement, plus a statutory patent injunction. The Company delayed serving the defendants with the lawsuit and engaged each defendant in licensing discussions. These licensing discussions were not successful, and the defendants were served on April 1, 2003. The trial judge has set a scheduling conference for August 20, 2003, and has issued a tentative trial schedule for August 2004. A final trial schedule will be issued by the Texas court following the August 20 scheduling conference. On May 28, 2003, HP filed a patent countersuit against the Company in the Northern District of California, and has asked the Texas court to transfer the OEM case to the Northern District of California for consolidation with their countersuit. The countersuit did not specify any accused infringing products or resulting damages, and the Company has challenged the validity of HP's complaint. The Company has not determined what impact, if any, HP's countersuit may have on the Company's results of operations and cash flows. The Company has also responded to HP's motion to transfer. The Company will vigorously defend against HP's countersuit, and aggressively oppose HP's motion to transfer. On June 21, 2003, Dell filed a counterclaim against Intel, adding them as a party to the OEM case. Intel filed a general denial to Dell's counterclaim. It is currently unclear what role Intel will play as a party in the OEM action. Texas Instruments TM ("TI"). On January 30, 2003, the Company filed a patent infringement action against TI in the Texas court. This action is directed at the TI family of Digital Signal Processors (marketed under the name TMS320C6000 TM), which employs the same PIC technology described by the Company's PIC patents. TI filed a general response to the Company's allegations, and the PIC case has been set for trial in October 2004. The parties are currently engaged in the discovery process. In May 2003, TI filed two patent countersuits against the Company in the Texas court. The countersuits have been assigned to two separate judges; however, both cases will be governed by the local patent rules for the Eastern District. A tentative scheduling order has been issued for the countersuit pending in the Paris Division, which sets a tentative trial date of September 20, 2004. No schedule has been issued for the countersuit pending in the Marshall Division. The countersuits include a total of eight patents, which target a variety of products in each of the Company's business units. The Company has responded to both countersuits, and plans to vigorously defend both actions. The Company has not determined what impact, if any, this lawsuit may have on the Company's results of operations and cash flows. Bentley Systems, Inc. ("BSI"). In December 2002, the Company filed a declaratory judgment action in Madison County, Alabama ("the Alabama court"), against BSI. The action requests the Alabama court to interpret the parties' asset purchase agreement and promissory note, and require BSI to specifically perform the repayment of the same. The asset purchase agreement and note were executed in conjunction with the sale of the Company's civil, plotting, and raster software product lines to BSI in 2000. BSI subsequently filed an initial action against the Company in Philadelphia, Pennsylvania, and thereafter filed a second action in Delaware alleging that the Company breached certain terms of the asset purchase agreement. BSI's Pennsylvania action was dismissed in March 2003, and a Motion to Dismiss BSI's Delaware action is still pending. In response to these dismissals, BSI has now asserted certain counterclaims against the Company in the pending Alabama action. These counterclaims are substantially the same as those claims asserted in its Delaware action. As with its prior actions, BSI did not specify an amount of damages in its Alabama counterclaims. The Company does not believe that BSI's claims are likely to be of a size or nature that would impact the operations of the Company. The Company intends to vigorously pursue its claims against BSI and defend the claims asserted by BSI. Other. The Company has other ongoing litigation, none of which is considered to represent a material contingency for the Company at this time; however, any unanticipated unfavorable ruling in any of these proceedings could have an adverse impact on the Company's results of operations and cash flows. Remainder of the Year The Company expects that the markets in which it competes will continue to be characterized by intense competition, rapidly changing technologies, and shorter product cycles. Further improvement in the Company's operating results will depend on further market penetration achieved by accurately anticipating customer requirements and technological trends, and rapidly and continuously developing and delivering new products that are competitively priced, offer enhanced performance, and meet customers' requirements for standardization and interoperability. Better operating results will also depend on global political events and worldwide economic improvement in the markets served. To increase operating profitability, the Company must achieve revenue growth and continue to align operating expenses with the projected level of revenue. In addition, the Company continues to face legal expenses of unknown duration and amount as it licenses its intellectual property and otherwise asserts its intellectual property rights. The ultimate impact of these initiatives is subject to known and unknown risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements." LIQUIDITY AND CAPITAL RESOURCES In September 2002, the Company established a credit line with Wells Fargo Bank to cover its outstanding letters of credit. In order to reduce the cost of issuing the letters of credit, the Company secured the credit line with $15 million of interest-bearing securities. Under this arrangement, the Company earns interest on the securities and withdrawal of securities is allowed, but the Company is required to maintain a level of securities sufficient to cover total outstanding letters of credit (which totaled $10 million at June 30, 2003, and $10.9 million at December 31, 2002). At June 30, 2003, the Company had no debt. In second quarter 2003, the Company spent approximately $4.7 million to repurchase 211,500 shares of its common stock under a stock repurchase program. As of June 30, 2003, the Company had repurchased approximately 5.4 million shares since the program was initiated in late 2001, and total expenditures were $94.8 million. The Company believes that existing cash balances will substantially exceed cash requirements for 2003 operations. The Company does not anticipate significant non-operating events that will require the use of cash, with the exception of its stock repurchase program. In first quarter 2003, the Company's board of directors authorized an increase in the funding for the stock repurchase program from $175 million to $250 million. The board also extended the termination date for the program from December 31, 2004, to December 31, 2005, and approved privately negotiated transactions in addition to open market purchases of the Company's stock. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management use judgments to make estimates and assumptions that affect the amounts reported in the financial statements. As a result, there is some risk that reported financial results could have been materially different had different methods, assumptions, and estimates been used. The Company believes that of its significant accounting policies, those related to revenue recognition, capitalized software, deferred taxes, bad debt reserves, and inventory may involve a higher degree of judgment and complexity as used in the preparation of its consolidated financial statements. Management believes there have been no significant changes during the three months ended June 30, 2003, to the items disclosed as "Critical Accounting Policies" in MD&A in the Company's 2002 Annual Report. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The Company has experienced no material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in the Company's 2002 Annual Report. Impact of Currency Fluctuations and Currency Risk Management Fluctuations in the value of the U.S. dollar in international markets can have a significant impact on the Company's results of operations. For first half 2003, approximately 46% of the Company's revenues were derived from customers outside the United States, primarily through subsidiary operations, compared to 42% for first half 2002. Most subsidiaries sell to customers and incur and pay operating expenses in local currencies. These local currency revenues and expenses are translated into U.S. dollars for reporting purposes. A weaker U.S. dollar increases the level of reported U.S. dollar orders and revenues, increases the dollar gross margin, and increases reported dollar operating expenses of the international subsidiaries. The Company estimates that the weakening of the U.S. dollar in its international markets, primarily in Europe, improved its first half 2003 results of operations by approximately $0.10 per share (basic and diluted) in comparison to first half 2002 results. The Company conducts business in all major markets outside the United States, but the most significant of these operations with respect to currency risk are located in Europe and Asia. Local currencies are the functional currencies for the Company's European and Canadian subsidiaries. The U.S. dollar is the functional currency for all other international subsidiaries. The Company had no forward contracts outstanding at June 30, 2003, or December 31, 2002, and does not currently hedge any of its foreign currency risks. Impact of Interest Rates on Investment Earnings The Company's excess funds are generally invested in short-term, highly liquid, interest-bearing securities which may include short- term municipal bonds, time deposits, money market funds, repurchase agreements, short-term corporate obligations, commercial paper, and U.S. government securities. The Company limits the amount of credit exposure from any single issuer of securities. The Company is subject to earnings fluctuations due to market changes in interest rates. Should interest rates of invested funds change by 0.5%, the Company estimates that pre-tax earnings could be affected by approximately $0.05 per share (diluted) on an annualized basis. Item 4. Controls and Procedures ----------------------- The Company, under the direction of the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), has established disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to the Company's management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosures. The CEO and the CFO have reviewed and evaluated the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on, and as of the effective date of, that review and evaluation, the CEO and the CFO have concluded that the Company's disclosure controls and procedures are effectively serving the stated purposes. In addition, there have been no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings ----------------- As further described in the Company's 2002 Annual Report, the Company continues to protect its intellectual property portfolio by engaging in both licensing discussions and patent infringement litigation. The following is a discussion of the 2003 developments of patent and other litigation. Intel. The Company has had ongoing litigation with Intel since 1997. In July 2002, the Company filed a patent infringement case against Intel pertaining to the Company's PIC patents and went to trial in July 2002. In October 2002, the judge ruled that the PIC patents were valid, enforceable, and infringed by Intel's Itanium and Itanium 2 products. Based upon the trial court's decision and the parties' prior settlement agreement, Intel paid $150 million to the Company in November 2002. Although Intel appealed this ruling in November 2002, the $150 million payment is non-refundable, regardless of the outcome on appeal. Intel will be obligated to pay an additional $100 million in damages to the Company if the trial court's decision is affirmed on appeal. The parties have completed the briefing process, and oral argument is tentatively scheduled for the first week of December 2003. The final decision from the appeal court is not expected until after February 2004. OEM. On December 16, 2002, the Company filed a patent infringement action against Dell, Gateway, and HP in the Texas court claiming that products from these computer vendors infringe three Clipper patents (related to memory management technology) owned by the Company. The OEM action seeks an unspecified amount of damages for past infringement, plus a statutory patent injunction. The Company delayed serving the defendants with the lawsuit and engaged each defendant in licensing discussions. These licensing discussions were not successful, and the defendants were served on April 1, 2003. The trial judge has set a scheduling conference for August 20, 2003, and has issued a tentative trial schedule for August 2004. A final trial schedule will be issued by the Texas court following the August 20 scheduling conference. On May 28, 2003, HP filed a patent countersuit against the Company in the Northern District of California, and has asked the Texas court to transfer the OEM case to the Northern District of California for consolidation with their countersuit. The countersuit did not specify any accused infringing products or resulting damages, and the Company has challenged the validity of HP's complaint. The Company has not determined what impact, if any, HP's countersuit may have on the Company's results of operations and cash flows. The Company has also responded to HP's motion to transfer. The Company will vigorously defend against HP's countersuit, and aggressively oppose HP's motion to transfer. On June 21, 2003, Dell filed a counterclaim against Intel, adding them as a party to the OEM case. Intel filed a general denial to Dell's counterclaim. It is currently unclear what role Intel will play as a party in the OEM action. TI. On January 30, 2003, the Company filed a patent infringement action against TI in the Texas court. This action is directed at the TI family of Digital Signal Processors (marketed under the name TMS320C6000 TM), which employs the same PIC technology described by the Company's PIC patents. TI filed a general response to the Company's allegations, and the PIC case has been set for trial in October 2004. The parties are currently engaged in the discovery process. In May 2003, TI filed two patent countersuits against the Company in the Texas court. The countersuits have been assigned to two separate judges; however, both cases will be governed by the local patent rules for the Eastern District. A tentative scheduling order has been issued for the countersuit pending in the Paris Division, which sets a tentative trial date of September 20, 2004. No schedule has been issued for the countersuit pending in the Marshall Division. The countersuits include a total of eight patents, which target a variety of products in each of the Company's business units. The Company has responded to both countersuits, and plans to vigorously defend both actions. The Company has not determined what impact, if any, this lawsuit may have on the Company's results of operations and cash flows. BSI. In December 2002, the Company filed a declaratory judgment action in the Alabama court against BSI. The action requests the Alabama court to interpret the parties' asset purchase agreement and promissory note, and require BSI to specifically perform the repayment of the same. The asset purchase agreement and note were executed in conjunction with the sale of the Company's civil, plotting, and raster software product lines to BSI in 2000. BSI subsequently filed an initial action against the Company in Philadelphia, Pennsylvania, and thereafter filed a second action in Delaware alleging that the Company breached certain terms of the asset purchase agreement. BSI's Pennsylvania action was dismissed in March 2003, and a Motion to Dismiss BSI's Delaware action is still pending. In response to these dismissals, BSI has now asserted certain counterclaims against the Company in the pending Alabama action. These counterclaims are substantially the same as those claims asserted in its Delaware action. As with its prior actions, BSI did not specify an amount of damages in its Alabama counterclaims. The Company does not believe that BSI's claims are likely to be a size or nature that would impact the operations of the Company. The Company intends to vigorously pursue its claims against BSI and defend the claims asserted by BSI. Other. The Company has other ongoing litigation, none of which is considered to represent a material contingency for the Company at this time; however, any unanticipated unfavorable ruling in any of these proceedings could have an adverse impact on the Company's results of operations and cash flow. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Intergraph Corporation's Annual Meeting of Shareholders was held May 15, 2003. The results of the meeting follow. (1)Eight directors were elected to the Board of Directors to serve for the ensuing year and until their successors are duly elected and qualified. All nominees were serving as Directors of the Company at the time of their nomination for the current year. Votes ------------------------------ For Against/Withheld ---------- ---------------- James F. Taylor, Jr. 33,599,606 4,642,105 Larry J. Laster 33,610,340 4,631,371 Sidney L. McDonald 33,615,291 4,626,420 Thomas J. Lee 33,155,262 5,086,449 Lawrence R. Greenwood 33,173,940 5,067,771 Joseph C. Moquin 33,634,924 4,606,787 Linda L. Green 33,241,455 5,000,256 Richard W. Cardin 33,242,267 4,999,444 (2)Ratification of the appointment of Ernst & Young LLP as the Company's independent auditors for the current fiscal year was approved by a vote of 35,534,574 for, 1,170,501 against, and 1,536,636 abstentions. Item 5. Other ----- Effective July 28, 2003, Mr. Halsey Wise was selected as the Company's President and Chief Executive Officer, and immediately joined the Intergraph Board of Directors. Mr. Wise succeeds Mr. Jim Taylor, who announced last fall his intention to retire. Mr. Taylor also retired from the Company's Board of Directors, but will continue to consult with management of the Company with the primary responsibility of managing its intellectual property litigation. Mr. Sid McDonald, a director since 1997, has been elected Chairman of the Intergraph Board of Directors. Mr. McDonald served previously as the lead outside director and Chairman of the Compensation Committee. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a)Exhibits Exhibit Number Description ------- ----------- 10(g) Employment Contract of R. Halsey Wise dated June 12, 2003 10(h) Employment Contract of Graeme J. Farrell dated July 1, 2003 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by R. Halsey Wise dated August 13, 2003 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Larry J. Laster dated August 13, 2003 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by R. Halsey Wise dated August 13, 2003 32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Larry J. Laster dated August 13, 2003 (b) Reports on Form 8-K: o Form 8-K dated July 30, 2003, reporting the Company's second quarter earnings INTERGRAPH CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERGRAPH CORPORATION ---------------------- (Registrant) By: /s/ R. Halsey Wise By: /s/ Larry J. Laster ------------------ ------------------- R. Halsey Wise Larry J. Laster President and Executive Vice President and Chief Executive Officer Chief Financial Officer (Principal Financial and Accounting Officer) Date: August 13, 2003 Date: August 13, 2003 EX-99 3 employmentagreement-wise.htm EMPLOYMENT AGREEMENT, R.H. WISE EMPLOYMENT AGREEMENT WISE

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of June 12, 2003, is by and between Intergraph Corporation, a Delaware corporation (the "Company"), and R. Halsey Wise (the "Executive").

WHEREAS, the Company desires that the Executive serve as Chief Executive Officer and President of the Company and the Executive desires to hold such positions under the terms and conditions of this Agreement; and

WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Executive with the Company.

NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows:

1. Employment. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein.

2. Term.

(a) Subject to termination pursuant to Section 10 hereof, the term of the employment by the Company of the Executive pursuant to this Agreement (as the same may be extended, the "Term") shall commence on July 28, 2003 (the "Effective Date"), and terminate on July 31, 2005 (which, for purposes of this Agreement, shall be considered the second anniversary of the Effective Date).

(b) Commencing on the second anniversary of the Effective Date and on each subsequent anniversary thereof, the Term shall automatically be extended for a period of one (1) additional year following the expiration of the otherwise applicable Term unless, not later than ninety days (90) prior to any such anniversary date, either party hereto shall have notified the other party hereto in writing that such extension shall not take effect.

3. Position. During the Term, the Executive shall serve as Chief Executive Officer and President of the Company performing duties commensurate with the position of Chief Executive Officer and such additional duties as the Board of Directors of the Company (the "Board") shall determine, which duties shall not be materially inconsistent with the duties to be performed by executives holding similar offices in similarly-sized software corporations. The Executive shall report directly to the Board. Following the Effective Date, the Board shall promptly cause a vacancy on the Board and shall appoint Executive to fill such vacancy. Executive agrees to serve, without any additional compensation, as a director on the Board and the board of directors of any subsidiary of the Company, and/or in one or more chief executive officer positions with any subsidiary of the Company. If the Executive's employment is terminated for any reason, whether such termination is voluntary or involuntary, the Executive shall resign as a director of the Company (and any of its subsidiaries), such resignation to be effective no later than the date of termination of Executive's employment with the Company.

4. Duties. During the Term, the Executive shall devote his full time and attention during normal business hours to the business and affairs of the Company (the "Business"); provided, however, that it shall not be a violation of this Agreement for the Executive to (i) devote reasonable periods of time to charitable and community activities and, with the approval of the Company, industry or professional activities, and/or (ii) manage personal business interests and investments, so long as such activities do not interfere with the performance of the Executive's responsibilities under this Agreement.

5. Salary and Bonus.

(a) For purposes of this Agreement, a "Contract Year" shall mean a one-year period commencing on the Effective Date or any anniversary thereof; provided, however, that July 31, 2005 shall be considered the second anniversary of the Effective Date and that subsequent anniversaries, if any, shall be determined using July 31 as the applicable date. During the initial Contract Year, the Company shall pay Executive a base salary of $525,000 per year. Commencing on or before the first anniversary of the Effective Date, the Board (or a committee of the Board) shall review Executive's base salary and may increase such amount as it may deem advisable (such salary, as the same may be increased, the "Base Salary"). The Base Salary shall be payable to the Executive in substantially equal installments in accordance with the Company's normal payroll practices. During the second Contract Year, the Company shall pay executive a Base Salary of not less than $577,500. Executive's Base Salary in subsequent years shall not be reduced by the Company.

(b) Executive shall be eligible to receive a cash signing bonus in the amount of $175,000 payable within ten (10) days following the Effective Date.

(c) Executive shall receive a minimum cash bonus of $250,000 with respect to his services during 2003, payable in accordance with the Company's customary practices and policies.

(d) Executive shall receive a target cash bonus opportunity in the amount of up to $577,500 subject to the Board's (or a committee of the Board's) determination that Executive achieved during the second Contract Year the applicablemutually agreed upon target performance objectives to be agreed upon in writing by Executive and the Company on or prior to December 31, 2003. The entitlement to such target cash bonus, if any, shall be determined by the Board (or a committee of the Board) no later than ten (10) days following the filing of the Company's financial statements for the year ended December 31, 2004 with the Securities and Exchange Commission. The target cash bonus, if any, will be paid to the Executive at the end of the Company's immediately succeeding payroll cycle following the determination of the Board (or a committee of the Board). In the event that this Agreement is extended beyond the second anniversary of the Effective Date, Executive shall be entitled to receive an annual target cash bonus opportunity in an amount equal to his then current Base Salary subject to the Board's (or a committee of the Board's) determination that the Executive achieved during such subsequent year(s) the applicable mutually agreed upon performance objectives to be agreed upon by Executive and the Company; such bonus (or bonuses), if any, shall be paid in accordance with the procedures and time frames set out above for payment of the second Contract Year bonus, if any.

6. Awards Granted Under Stock Option Plan. Reference is made to the Intergraph Corporation 2002 Stock Option Plan, in the form filed with the Securities and Exchange Commission as of the Effective Date (the "Stock Option Plan").

(a) Promptly following the Effective Date, the Company shall grant the Executive non-qualified stock options, with a ten (10) year term, under the Stock Option Plan to purchase 150,000 shares of common stock of the Company at an exercise price equal to the fair market value on the date of grant, vesting ratably over four (4) years, twenty-five percent (25%) per year beginning on the first anniversary of such grant, in substantially the form as attached hereto as Exhibit 1, which shall not be inconsistent with the provisions of the Stock Option Plan; provided, however, that the non-qualified stock options shall become 100% vested upon the occurrence of a Change in Control (as defined below) of the Company. Subject to the terms of the Stock Option Plan and applicable law, including but not limited to the Internal Revenue Code of 1986, as amended, and the regulations thereunder, to the extent practicable, such options shall be granted in the form of non-qualified stock options. In the event that Executive's employment under this Agreement is terminated, such options may be exercised, to the extent then vested and not previously exercised, in accordance with the provisions of the Stock Option Plan.

(b) Promptly following the Effective Date, the Company shall grant the Executive an restricted stock award under the Stock Option Plan in respect of 50,000 shares of common stock of the Company, which restrictions shall lapse ratably over four (4)years or immediately upon a Change in Control (as defined below) in substantially the form as attached hereto as Exhibit 2, which shall not be inconsistent with the provisions of the Stock Option Plan.

(c) Promptly following the first anniversary of the Effective Date, the Company shall grant the Executive non-qualified stock options, with a ten (10) year term, under the Stock Option Plan to purchase 200,000 shares of common stock of the Company at an exercise price equal to the fair market value on the date of grant, vesting ratably over four (4) years, twenty-five percent (25%) per year beginning on the first anniversary of such grant, in substantially the form as attached hereto as Exhibit 1, which shall not be inconsistent with the provisions of the Stock Option Plan; provided, however, that the non-qualified stock options shall become 100% vested upon the occurrence of a Change in Control (as defined below) of the Company. Subject to the terms of the Stock Option Plan and applicable law, including but not limited to the Internal Revenue Code of 1986, as amended, and the regulations thereunder, to the extent practicable, such options shall be granted in the form of non-qualified stock options. In the event that Executive's employment under this Agreement is terminated, such options may be exercised, to the extent then vested and not previously exercised, in accordance with the provisions of the Stock Option Plan.

For the purposes of this Agreement, a "Change in Control" shall mean any of the following events:

(i) An acquisition of any securities of the Company entitled to vote generally in the election of directors (the "Voting Securities") by any "Person" (as the term Person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the then outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean (i) an acquisition by an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a "Subsidiary"), (ii) any acquisition by or directly from the Company or any Subsidiary, or (iii) an acquisition pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii) below); or

(ii) Executive is terminated by the Company without Cause or Executive terminates his employment with the Company for Good Reason within 1 year of the date that individuals who, on the Effective Date, constitute the Board of Directors of the Company (the "Incumbent Directors") cease for any reason to constitute at least a majority of such Board, provided that any person becoming a director after the Effective Date and whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors then on the Board of Directors shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to the election or removal of directors ("Election Contest") or other actual or threatened solicitation of proxies or consents by or on behalf of any "person" (such term for purposes of this definition being as defined in Section 3(a)(9) of the 1934 Act and as used in Section 13(d)(3) and 14(d)(2) of the 1934 Act) other than the Board of Directors ("Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest, shall be deemed an Incumbent Director; or

(iii) Consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or a Subsidiary (a "Reorganization"), or the sale or other disposition of all or substantially all of the Company's assets (a "Sale") or the acquisition of assets or stock of another corporation (an "Acquisition"), unless immediately following such Reorganization, Sale or Acquisition:

(A) The stockholders of the Company immediately before such Reorganization, Sale or Acquisition, beneficially own, directly or indirectly, immediately following such Reorganization, Sale or Acquisition, at least fifty percent (50%) of the combined voting power of the outstanding voting securities of the corporation resulting from such Reorganization, Sale or Acquisition (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets or stock either directly or through one or more subsidiaries, the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such Reorganization, Sale or Acquisition;

(B) The individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Reorganization, Sale or Acquisition constitute at least a majority of the members of the board of directors of the Surviving Corporation; and

(C) No Person (other than the Company, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation or any Subsidiary, or any Person who, immediately prior to such Reorganization, Sale or Acquisition, had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities), has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding Voting Securities;

Any Reorganization, or Sale or Acquisition which satisfies all of the criteria specified in (A), (B) and (C) of paragraph (iii) above shall be deemed to be a "Non-Qualifying Transaction."

(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

Notwithstanding the foregoing, a "Change in Control" shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership, of more than the permitted amount of the outstanding Voting Securities of the Company as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increased the proportional number of shares Beneficially Owned by the Subject Person, provided that if a "Change in Control" would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a "Change in Control" shall occur.

7. Vacation, Holidays and Sick Leave. During the Term, Executive shall be entitled to paid vacation in accordance with the Company's standard vacation accrual policies for its senior executive officers as may be in effect from time to time; provided that Executive shall during each Contract Year be entitled to at least four (4) weeks of such vacation. During the Term, Executive shall also be entitled to participate in all applicable Company employee benefits set forth in the Company's Employee Benefits Plan Summary as may be in effect from time to time.

8. Business Expenses. The Executive shall be reimbursed for all reasonable and necessary business expenses incurred by him in connection with his employment (including, without limitation, expenses for travel and entertainment incurred in conducting or promoting business for the Company, which shall include regular travel to and from Jacksonville, Florida until such time as the Executive permanently relocates to Huntsville, Alabama) upon timely submission by the Executive of receipts and other documentation in accordance with the Company's normal expense reimbursement policies.

9. Relocation Expenses. The Company will promptly reimburse Executive for any expenses incurred in connection with Executive's relocation to Huntsville/Madison County, Alabama, consistent with Intergraph Policy #603, and applicable legal or regulatory restrictions, including, but not limited to statutory allowable moving costs, temporary housing, reasonable storage expenses and sale commissions relating to the sale of Executive's primary residence. The amount of any such reimbursement shall be increased to offset any income taxes which may be payable by Executive as a result of the Company's reimbursement of such expenses.

10. Termination of Agreement. The Executive's employment by the Company pursuant to this Agreement shall not be terminated prior to the end of the Term hereof except as set forth in this Section 10.

(a) By Mutual Consent. The Executive's employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive.

(b) Death. The Executive's employment pursuant to this Agreement shall be terminated upon the death of the Executive, in which event the Executive's spouse or heirs shall receive, when the same would have been paid to the Executive (whether or not the Term shall have expired during such period), all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (as defined in Section 10(h) hereof), and any other unpaid benefits (including death benefits) to which they are entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination. In addition, the Executive's surviving spouse and dependents shall receive fully-paid up health insurance benefits commensurate with the Company's standard health insurance benefits for one (1) year following the Date of Termination.

(c) Disability. The Executive's employment pursuant to this Agreement may be terminated by written notice to the Executive by the Company or to the Company by the Executive (i) in the event that Executive suffers a physical or mental disability entitling Executive to long-term disability benefits under the Company's long-term disability plan, if any, or (ii) in the absence of a Company long-term disability plan, in the event that Executive is unable, as determined by the Board, to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months. In the event the Executive's employment is terminated pursuant to this Section 10(c), the Executive shall be entitled to receive, when the same would have been paid to the Executive (whether or not the Term shall have expired during such period), all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, and any other unpaid benefits (including disability benefits) to which he is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination. In addition, Executive shall receive fully-paid up health insurance benefits commensurate with the Company's standard health insurance benefits for one (1) year following the Date of Termination.

(d) By the Company for Cause. The Executive's employment pursuant to this Agreement may be terminated by written notice to the Executive ("Notice of Termination") upon the occurrence of any of the following events (each of which shall constitute "Cause" for termination): (i) the willful and continued failure by Executive to substantially perform his duties after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes he has not substantially performed his duties, or (ii) the willful engaging in misconduct which is materially injurious to the Company, monetarily or otherwise. The termination of employment of the Executive shall not be deemed to be for Cause unless the Executive is given notice and an opportunity, together with counsel, to be heard before the Board, and thereafter Executive is determined by the Board to be guilty of the conduct described in subparagraph (i) or (ii) above. In the event the Executive's employment is terminated pursuant to this Section 10(d), the Executive shall be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, and any other unpaid benefits to which he is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination and no more.

(e) By the Company Without Cause. The Executive's employment pursuant to this Agreement may be terminated by the Company at any time without Cause (which shall specifically exclude a decision by the Company not to extend this Agreement beyond the second anniversary of the Effective Date) by delivery of a Notice of Termination to the Executive. In the event that the Executive's employment is terminated pursuant to this Section 10(e) during the initial Contract Year, the Executive shall be entitled to receive (i) on or prior to the Date of Termination, all Base Salary and benefits to be provided to the Executive under this Agreement through the Date of Termination, (ii) a lump sum payment of $525,000 payable at the times and in the manner set forth below, (iii) a pro rata portion of his bonus payable under Section 5(c) or 5(d), as applicable, paid in accordance with the provisions set forth in Section 5(c) or 5(d), as applicable, (iv) fully paid-up health insurance benefits commensurate with the Company's standard health insurance benefits for one (1) year following the Date of Termination, and (v) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination. In the event that the Executive's employment is terminated pursuant to this Section 10(e) after the first anniversary of the Effective Date, the Executive shall be entitled to receive (A) on or prior to the Date of Termination, all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (B) a pro rata portion of his bonus payable under Section 5(d) paid in accordance with the provisions of Section 5(d), (C) an amount equal to two hundred percent (200%) of the Executive's Base Salary at the then-current rate of Base Salary payable at the times and in the manner set forth below, (D) fully paid-up health insurance benefits commensurate with the Company's standard health insurance benefits for one (1) year following the Date of Termination, and (E) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination. The amounts referred to in clauses (ii) and (C) above shall individually be referred to as the "Severance Amount" (and, for greater certainty, Executive shall under no circumstances be entitled to both amounts). The Severance Amount shall be paid to the Executive in a lump sum no later than ten (10) days following the Date of Termination. As a condition to receiving the Severance Amount, Executive agrees to sign, at the time of termination of his employment, a release in favor of the Company of all employment-law related claims.

(f) By the Executive for Good Reason. The Executive's employment pursuant to this Agreement may be terminated by the Executive by written notice of his resignation ("Notice of Resignation") delivered within twelve (12) months after the occurrence of any of the following events (each of which shall constitute "Good Reason" for resignation): (i) a material reduction in Executive's position, authority, duties or responsibilities, (ii) a reduction in Executive's Base Salary or bonuses payable pursuant to Sections 5(b), 5(c) or 5(d), or (iii) a failure by the Company to require a successor corporation of the Company to honor the terms of this Agreement; provided, however, that "Good Reason" shall exclude the death or Disability of the Executive, or a decision by the Company not to extend this Agreement beyond the second anniversary of the Effective Date. Notwithstanding the provisions of clause (i) above, in the event the Executive is elected to serve as the president, chief executive officer and/or a member of the board of directors of any entity which acquires control of more than 50% of the Voting Securities of the Company or, if such entity is a subsidiary of another entity, the ultimate parent of such subsidiary, and is provided with a written employment agreement by the entity or, if such entity is a subsidiary of another entity, the ultimate parent of such subsidiary, on substantially the same terms as those contained in this Agreement, the appointment to such position shall not constitute Good Reason for purposes of this Agreement. In the event that the Executive resigns for Good Reason pursuant to this Section 10(f) during the initial Contract Year, the Executive shall be entitled to receive (i) on or prior to the Date of Termination, all Base Salary and benefits to be provided to the Executive under this Agreement through the Date of Termination, (ii) the Severance Amount referred to in Section 10(e)(ii) payable at the times and in the manner set forth in Section 10(e) above, provided that applicable references therein to the date of delivery of Notice of Termination shall mean reference to the date of delivery of Notice of Resignation, (iii) a pro rata portion of his bonus payable under Section 5(c) or 5(d), as applicable, paid in accordance with the provisions set forth in Section 5(c) or 5(d), as applicable, (iv) fully paid-up health insurance benefits commensurate with the Company's standard health insurance benefits for one (1) year following the Date of Termination and (v) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination. In the event that the Executive resigns for Good Reason pursuant to this Section 10(f) after the initial Contract Year, the Executive shall be entitled to receive (A) on or prior to the Date of Termination, all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, (B) a pro rata portion of his bonus payable under Section 5(d) paid in accordance with the provisions of Section 5(d), (C) the Severance Amount referred to in Section 10(e)(C) payable at the times and in the manner set forth in Section 10(e) above, provided that applicable references therein to the date of delivery of Notice of Termination shall mean reference to the date of delivery of Notice of Resignation, (D) fully paid-up health insurance benefits commensurate with the Company's standard health insurance benefits for one (1) year following the Date of Termination, and (E) any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination. As a condition to receiving the Severance Amount, Executive agrees to sign, at the time of termination of his employment, a release in favor of the Company of all employment-law related claims.

(g) By the Executive Without Good Reason. The Executive's employment pursuant to this Agreement may be terminated by the Executive at any time by delivery of a Notice of Resignation to the Company. In the event that the Executive's employment is terminated pursuant to this Section 10(g), the Executive shall receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination any other unpaid benefits to which the Executive is otherwise entitled under any plan, policy or program of the Company applicable to the Executive as of the Date of Termination, and no more.

(h) Date of Termination. The Executive's Date of Termination shall be (i) if the Executive's employment is terminated pursuant to Section 10(b), the date of his death, (ii) if the Executive's employment is terminated pursuant to Section 10(c), the date on which a Notice of Termination is given, (iii) if the Executive's employment is terminated pursuant to Section 10(d), the date on which a Notice of Termination is given, (iv) if the Executive's employment is terminated pursuant to Section 10(e), thirty (30) days after the date the Notice of Termination is given; provided, however, that the Executive may waive such notice in the event of a termination pursuant to Section 10(e) in which event, the Executive's Date of Termination shall be five (5) days after the Notice of Termination, (v) if the Executive's employment is terminated pursuant to Section 10(f), thirty (30) days after the date the Notice of Termination is given; provided, however, that the Company may waive such notice in the event of a termination pursuant to Section 10(f) in which event, the Executive's Date of Termination shall be five (5) days after the date the Notice of Resignation is given and (vi) if the Executive's employment is terminated pursuant to Section 10(g), sixty (60) days after the date the Notice of Resignation is given or such shorter period as may be determined by the Company.

(i) Non-Renewal Payment. In the event that the Company elects not to extend this Agreement beyond the second anniversary of the Effective Date, then the Company shall pay Executive, provided Executive has relocated to Huntsville, Alabama prior to the second anniversary of the Effective Date, a special termination payment equal to one hundred percent (100%) of the Executive's Base Salary at the then current rate of Base Salary. For purposes of this Section 10(j), a "relocation" to Huntsville, Alabama shall mean that (i) Executive shall have established a permanent primary residence in Huntsville/Madison County, Alabama in which Executive and his immediate family reside on a primary basis, and for which Executive has sought a homestead exemption for applicable ad valorem taxes, (ii) Executive is subject to Alabama personal income tax, and (iii) Executive is qualified to register to vote in general elections in the State of Alabama. Aside from the payment referred to in this Section 10(j), if applicable, and applicable Base Salary and bonuses which may be payable pursuant to Section 5, no other payments shall be made by the Company to Executive as a result of the Company's election not to extend this Agreement beyond the second anniversary of the Effective Date.

11. Representations.

The Company represents and warrants that this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against both in accordance with its terms.

The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement.

12. Assignment; Binding Agreement. This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate.

13. Confidentiality; Non-Competition; Ownership of Works.

(a) The Executive acknowledges that: (i) the Business is intensely competitive and that the Executive's employment by the Company will require that the Executive have access to and knowledge of confidential information of the Company relating to the Business and other trade secrets, in each case other than as and to the extent such information is generally known or publicly available through no violation of this Section 13 by the Executive, (ii) the use or disclosure of such information other than in furtherance of the Business may place the Company at a competitive disadvantage and may do damage, monetary or otherwise, to the Business; and (iii) the engaging by the Executive in any of the activities prohibited by this Section 13 or by the Company's Proprietary Rights Agreement (which Executive shall execute and deliver to the Company on or before the Effective Date) may constitute improper appropriation and/or use of such information. The Executive expressly acknowledges the trade secret status of the Company's confidential information and that the confidential information constitutes a protectable business interest in the Company. Accordingly, the Company and the Executive agree as follows:

(b) For purposes of this Section 13, the Company shall be construed to include the Company, its subsidiaries and their respective affiliates.

(c) For a period of one (1) year after the Date of Termination if Executive receives a payment under Section 10(e)(ii), 10(f)(ii) or 10(i), or for a period of two (2) years after the Date of Termination if Executive receives a payment under Section 10(e)(C) or 10(f)(C), the Executive shall not engage in Competition, as defined below, with the Company or its subsidiaries within any market where the Company is conducting Competitive Services, as defined below, at the time of termination of Executive's employment hereunder. For purposes of this Agreement, "Competition" by the Executive shall mean the Executive's engaging in significant activities relating to, or otherwise directly or indirectly being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting his name to be used in connection with the activities of any entity engaged in significant activities relating to, Competitive Services, including without limitation the following the companies: Autodesk, Inc., ANSYS, Inc., Aspen Technology, Inc., ERSI, Inc., Mapinfo Corporation, Parametric Technology Corporation, and Trimble Navigation, Ltd.; provided that, it shall not be a violation of this sub-paragraph for the Executive to become the registered or beneficial owner of less than five percent (5%) of any class of the capital stock of any one or more competing corporations registered under the Securities Exchange Act of 1934, as amended, provided that, the Executive does not actively participate in the business of such corporation until such time as this covenant expires. For purposes of this Agreement, the term "Competitive Services" means the development, marketing, or provision of location--based software, geospatial mapping software and geographic information systems software to or for public safety or engineering firms.

(d) For a period of one (1) year after the Date of Termination if Executive receives a payment under Section 10(e)(ii), 10(f)(ii) or 10(i), or for a period of two (2) years after the Date of Termination if Executive receives a payment under Section 10(e)(C) or 10(f)(C), the Executive agrees that he will not, directly or indirectly, for his benefit or for the benefit of any other person, firm or entity, do any of the following:

(i) solicit from any customer doing business with the Company as of the Executive's termination, business of the same or of a similar nature to the business of the Company with such customer;

(ii) solicit from any known potential customer of the Company business of the same or of a similar nature to that which, to the knowledge of the Executive, has been the subject of a written or oral bid, offer or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal or offer, within six (6) months prior to the Executive's termination; or

(iii) recruit or solicit the employment or services of any person who was employed by the Company upon termination of the Executive's employment and is employed by the Company at the time of such recruitment or solicitation.

(e) The Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character, which gives this Agreement a peculiar value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by him of any of the provisions contained in this Section 13 may cause the Company irreparable injury. The Executive therefore agrees that the Company may be entitled, in addition to any other right or remedy, to a temporary, preliminary and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining the Executive from any such violation or threatened violations.

(f) If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law.

14. Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 14) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, and taking account of any withholding obligation on the part of the Company, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

(b) Subject to the provisions of Section 14(c), all determinations required to be made under this Section 14, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be used in arriving at such determination, shall be made by the Company's regular certified public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the change in control, Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 14, shall be paid by the Company to Executive, net of any of the Company's federal or state withholding obligations with respect to such Payment, within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 14(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

(c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment (or an additional Gross-Up Payment). Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Section 14(c), the Company shall control all proceedings taken in connection with such contest (to the extent applicable to the Excise Tax and the Gross-Up Payment) and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 14(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 14(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 14(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

15. Entire Agreement. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes any other undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter or effect of this Agreement or otherwise and that Executive has been represented by counsel selected by Executive.

16. Amendment or Modification Waiver. No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.

17. Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing:

To the Executive at: With copies to:

R. Halsey Wise Laura Thatcher

328 Ponte Vedra Boulevard Alston & Bird

Ponte Vedra Beach, FL. 32082 One Atlantic Center

1201 West Peachtree Street

Atlanta, Georgia, 30309-3424

To the Company at: With copies to:

Intergraph Corporation Sidney McDonald

Mail Stop IW2008 215 Timberlake Drive

Huntsville, Alabama 35894-0001 Union Grove, Al. 35175

Attention: General Counsel

Facsimile: (256) 730-2247

Any notice delivered personally or by courier under this Section 16 shall be deemed given on the date delivered and any notice sent by facsimile or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date transmitted by facsimile or mailed.

18. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law.

19. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

20. Governing Law; Venue. This Agreement will be governed by and construed in accordance with the laws of the State of Alabama, without regard to the principles of conflicts of law thereof.

21. Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.

22. Withholding. All payments to the Executive under this Agreement shall be reduced by all applicable withholding required by federal, state or local law.

23. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[remainder of page intentionally left blank -- signature page follows]

IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement effective as of date set forth above.

INTERGRAPH CORPORATION

By: /s/ David Vance Lucas

Name: David Vance Lucas

Title: Vice President, General Counsel

EXECUTIVE

/s/ R. Halsey Wise

R. Halsey Wise

Exhibit 1

Intergraph Corporation

Non-Statutory Stock Option

Grant To

R. Halsey Wise

Notice Of Grant Of Stock Option

July 28, 2003

At the direction of the Compensation Committee of the Board of Directors of Intergraph Corporation (the "Committee"), you are hereby notified that the Committee has granted to you an option, pursuant to the Amended and Restated 2002 Stock Option Plan (the "Plan"). The stock option granted to you is a Non-Statutory Option.

Shares and Amount

The option granted to you is to purchase _________ shares of the $.10 par value common stock of Intergraph Corporation at the price of $________ per share. The date of grant of this option is the date of this Notice, which is set forth at the end of this document. It is the determination of the Committee that on this date the fair market value of Intergraph Corporation's $.10 par value common stock was $________ per share.

Conditions Affecting Option

Additional information concerning your stock option is set forth in the enclosed Summary of the Intergraph Corporation Amended and Restated 2002 Stock Option Plan. You will observe that the Plan does not require that you exercise this option as to any particular number of shares at one time, but this option must be exercised, if at all and to the extent exercised, by no later than ten (10) years (or five (5) years if you own more than ten percent (10%) of the voting power of all classes of stock of the Company) from the date of this Notice.

Your stock option is in all respects limited and conditioned by the provisions of the Plan and the following:

a. Your option may be exercised only by you during your lifetime, or your guardian or legal representative if one has been appointed, to the extent it has become exercisable or "vested." Subject to the right of accretion provided for in paragraph f. below, your option is scheduled to become exercisable in four (4) installments as follows: 25% after 12 months, 25% after 24 months, 25% after 36 months, and 25% after 48 months. The option automatically expires after ten (10) years from the date of this Notice.

b. If you die while employed, your option may be exercised by your estate or the person to whom such option passes by reason of your death at any time within one (1) year after your death or ten (10) years after the date of this Notice, whichever date first arrives.

c. If your employment with the Company is terminated by reason other than your death, you, or your representative or guardian, may exercise your option at any time within three (3) months after your Disability or Retirement, or ten (10) years after the date of this Notice, whichever date occurs first.

d. Your option is nontransferable, otherwise than as may be occasioned by your death, and then only to your estate or according to the terms of your will or the provision of applicable laws of descent and distribution.

e. In the event that the right to exercise the vested shares of your option is passed to your estate, or to a person to whom such right devolves by reason of your death, then the vested shares of your option shall be nontransferable in the hands of your executor or administrator or of such person, except that the vested shares of your option may be distributed by your executor or administrator to the distributees of your estate as a part of your estate.

f. Notwithstanding anything to the contrary, after the initial twelve (12) month period, each outstanding option covered by this Notice shall vest and become exercisable upon your death, Disability or Retirement. For purposes of this Agreement, "Disability" means that you are unable to perform the essential duties of your occupation with the Company. For purposes of this Agreement, "Retirement" means your voluntary termination of employment with the Company after attaining 65 years of age or your voluntary termination of employment with the Company after ten (10) years of service with the Company and after attaining 55 years of age.

Exercise of Option

At the time or times when you wish to exercise the vested portion of this option, in whole or in part, please refer to the provisions of the Plan dealing with methods and formalities of exercise of your option. Forms and information may be obtained from the Human Resources Department of the Corporation. Please contact:

Intergraph Corporation

Human Resources Department

Mail Stop IW2000

Huntsville, AL 35894-0001

Telephone: 256-730-6019

Facsimile: 256-730-7252

Tax Information

The shares purchased under the Non-Statutory provisions of the Plan are subject to tax treatment under Section 83 of the United States Internal Revenue Code of 1986, as amended. Generally, these rules may be summarized as follows:

1. There will be no tax consequence to you when the Non-Statutory Stock Option is granted.

2. You will be taxed when the Non-Statutory Stock Option is exercised on the difference between the exercised price per share and the fair market value per share as of the date of exercise. This income will be subject to tax at ordinary income tax rates and the Corporation will withhold an amount for income and payroll taxes based upon this difference.

3. You will be taxed when the stock is sold on the difference between a) the cost of the stock, increased by the taxable income realized upon exercise of the option and b) the sale price realized upon sale of the stock. If the stock is sold after having been held more than one year after exercise of the option, the amount realized will be subject to long-term capital gain or loss treatment. The maximum federal income tax rate at which such gains will be taxed is 20%. Short-term capital gains, however, are taxed at the same rates as ordinary income.

This is merely a summary of some of the tax consequences of the grant, exercise and disposition of the Non-Statutory Stock Option. You should consult with your tax adviser regarding the option granted to you for more specific information. Your income tax liability is your responsibility. Your tax consequences may be subject to change if new tax laws are enacted after the date of this option. In order to provide the Company with the opportunity to claim the benefit of any income tax deductions which may be available to it upon the exercise of an option or upon a disqualifying disposition, and in order to comply with all applicable federal or state tax laws or regulations, the Company may take such action, including withholding additional amounts from your regular wages or salary, as it deems appropriate to insure that, if necessary, all applicable federal, state or other taxes are withheld or collected from you.

The date of this Notice is July 28, 2003.

Intergraph Corporation

By:

David Vance Lucas

I hereby acknowledge receipt of this option and state that I have read the option and the attached Summary.

R. Halsey Wise

Exhibit 2

Intergraph Corporation

Restricted Share Award Agreement

THIS RESTRICTED SHARE AWARD AGREEMENT (this "Agreement") is made and entered into as of the 28^th day of July, 2003 (the "Grant Date"), between Intergraph Corporation, a Delaware corporation (the "Company" and, together with its subsidiaries, "Intergraph"), and R. Halsey Wise (the "Grantee"). Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Intergraph Corporation Amended and Restated 2002 Stock Option Plan (the "Plan").

WHEREAS, the Company has adopted the Plan, which permits the issuance of restricted shares of the Company's common stock, par value $0.10 per share (the "Common Stock"); and

WHEREAS, pursuant to the Plan, the Committee responsible for administering the Plan has granted an award of restricted shares to the Grantee as provided herein;

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

1. Grant of Restricted Shares.

(a) The Company hereby grants to the Grantee an award (the "Award") of 50,000 shares of Common Stock (the "Shares" or the "Restricted Shares") on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan.

(b) The Grantee's rights with respect to the Award shall remain forfeitable at all times prior to the dates on which the restrictions shall lapse in accordance with Sections 2 and 3 hereof.

2. Terms and Rights as a Stockholder.

(a) Except as provided herein and subject to such other exceptions as may be determined by the Committee in its discretion, the "Restricted Period" for 25% of the Restricted Shares granted herein shall expire on the first anniversary of the date hereof, the "Restricted Period" for an additional 25% of the Restricted Shares granted herein shall expire on the second anniversary of the date hereof, the "Restricted Period" for an additional 25% of the Restricted Shares granted herein shall expire on the third anniversary of the date hereof, and the "Restricted Period" for the final 25% of the Restricted Shares granted herein shall expire on the fourth anniversary of the date hereof (as such numbers may be adjusted in accordance with Section 7 hereof). Notwithstanding the above, the "Restricted Period" for all remaining unvested Restricted Shares granted herein shall expire upon the occurrence of a Change in Control (as defined in Grantee's Employment Agreement) of the Company.

(b) The Grantee shall have all rights of a stockholder with respect to the Restricted Shares, including the right to receive dividends and the right to vote such Shares, subject to the following restrictions:

(i) the Grantee shall not be entitled to delivery of the stock certificate for any Shares until the expiration of the Restricted Period as to
such Shares;

(ii) none of the Restricted Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of
during the Restricted Period as to such Shares; and

                                 (iii)       except as otherwise determined by the Committee at or after the grant of the Award hereunder, any Restricted Shares as to which the
                                             applicable "Restricted Period" has not expired shall be forfeited, and all rights of the Grantee to such Shares shall terminate, without
                                             further obligation on the part of the Company, unless the Grantee remains in the continuous employment of the Company for the entire
                                             Restricted Period.

Any Shares, any other securities of the Company and any other property (except for cash dividends) distributed with respect to the Restricted Shares shall be subject to the same restrictions, terms and conditions as such Restricted Shares.

3. Termination of Restrictions. At the end of the Restricted Period as to any portion of the Restricted Shares (or at such earlier time as may be determined by the Committee) or in the event of a Change in Control (as defined in Grantee's Employment Agreement) of the Company as to all of the Restricted Shares, all restrictions set forth in this Agreement or in the Plan relating to such portion or all, as applicable, of the Restricted Shares shall lapse as to such portion or all, as applicable, of the Restricted Shares, and a stock certificate for the appropriate number of Shares, free of the restrictions and restrictive stock legend, shall be delivered to the Grantee pursuant to the terms of this Agreement.

4. Delivery of Shares.

(a) As of the date hereof, certificates representing the Restricted Shares shall be registered in the name of the Grantee and held by the Company or transferred to a custodian appointed by the Company for the account of the Grantee subject to the terms and conditions of the Plan and shall remain in the custody of the Company or such custodian until their delivery to the Grantee as set forth in Section 4(b) hereof or their reversion to the Company as set forth in Section 2(b) hereof.

(b) Certificates representing Restricted Shares in respect of which the applicable Restricted Period has lapsed pursuant to this Agreement shall be delivered to the Grantee as soon as practicable following the date on which the restrictions on such Restricted Shares lapse.

THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE AND RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE INTERGRAPH CORPORATION AMENDED AND RESTATED 2002 STOCK OPTION PLAN (THE "PLAN") AND THE RESTRICTED SHARE AWARD AGREEMENT (THE "AGREEMENT") BETWEEN THE OWNER OF THE RESTRICTED SHARES REPRESENTED HEREBY AND INTERGRAPH CORPORATION (THE "COMPANY"). THE RELEASE OF SUCH SHARES FROM SUCH TERMS AND CONDITIONS SHALL BE MADE ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE PLAN AND THE AGREEMENT, COPIES OF WHICH ARE ON FILE AT THE COMPANY.

5. Effect of Lapse of Restrictions. To the extent that the Restricted Period applicable to any Restricted Shares shall have lapsed, the Grantee may receive, hold, sell or otherwise dispose of such Shares free and clear of the restrictions imposed under the Plan and this Agreement.

6. No Right to Continued Employment. This Agreement shall not be construed as giving Grantee the right to be retained in the employ of Intergraph, and Intergraph may at any time dismiss Grantee from employment, free from any liability or any claim under the Plan but subject to the terms of the Grantee's Employment Agreement.

7. Adjustments. The Committee may make adjustments in the terms and conditions of, and the criteria included in, this Award in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 6(g) of the Plan) affecting Intergraph, or the financial statements of Intergraph, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.

8. Amendment to Award. Subject to the restrictions contained in Sections 4 and 5 of the Plan, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, the Award, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of the Grantee or any holder or beneficiary of the Award shall not to that extent be effective without the consent of the Grantee, holder or beneficiary affected.

9. Withholding of Taxes. If the Grantee makes an election under Section 83(b) of the Code with respect to the Award, the Award made pursuant to this Agreement shall be conditioned upon the prompt payment to the Company of any applicable withholding obligations or withholding taxes by the Grantee ("Withholding Taxes"). Failure by the Grantee to pay such Withholding Taxes will render this Agreement and the Award granted hereunder null and void ab initio and the Restricted Shares granted hereunder will be immediately cancelled. If the Grantee does not make an election under Section 83(b) of the Code with respect to the Award, upon the lapse of the Restricted Period with respect to any portion of Restricted Shares (or property distributed with respect thereto), the Company shall satisfy the required Withholding Taxes as set forth by Internal Revenue Service guidelines for the employer's minimum statutory withholding with respect to Grantee and issue vested shares to the Grantee without Restriction.

10. Plan Governs. The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. The terms of this Agreement are governed by the terms of the Plan, and in the case of any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern.

11. Severability. If any provision of this Agreement is, or becomes, or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or the Award, or would disqualify the Plan or Award under any laws deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and Award shall remain in full force and effect.

12. Notices. All notices required to be given under this Grant shall be deemed to be received if delivered or mailed as provided for herein, to the parties at the following addresses, or to such other address as either party may provide in writing from time to time.

To the Company: Intergraph Corporation

One Madison Industrial Park IW2000

Huntsville, Alabama 35894-0001

Attn: General Counsel

To the Grantee: The address then maintained with respect to the Grantee in the Company's records.

13. Governing Law. The validity, construction and effect of this Agreement shall be determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles.

14. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Grantee's legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee's heirs, executors, administrators and successors.

15. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee and the Company for all purposes.

(Remainder of Page Intentionally Left Blank.)

IN WITNESS WHEREOF, the parties have caused this Restricted Share Award Agreement to be duly executed effective as of the day and year first above written.

INTERGRAPH CORPORATION

By: _____________________________

Grantee:

________________________________

Please Print

Grantee:

________________________________

Signature

EX-99 4 employmentagreement-farrell.htm EMPLOYMENT AGREEMENT, G. FARRELL Employment Agreement Farrell

Dated 1^st July, 2003

INTERGRAPH ASIA PACIFIC Inc.

("the Company")

and

Intergraph Corporation

("the Covenator")

and

GRAEME JOHN FARRELL

("the Employee")

SERVICE DEED

THIS DEED is made on the 1st day of July, 2003

BETWEEN:

(1) INTERGRAPH ASIA PACIFIC Inc., whose registered office in Sydney Australia is, 4th Floor 32 Walker Street North Sydney (hereinafter called "the Company"); and

(2) INTERGRAPH CORPORATION whose offices are at One Madison, Huntsville Alabama (hereinafter called "the Covenator"); and

(2) GRAEME JOHN FARRELL of 15A West Crescent Street, McMahons Point, Australia (hereinafter called "the Employee").

WHEREAS:

(A) The Employee is currently employed in Sydney, Australia pursuant to a service deed dated 27^th March, 1997.

(B) The Company is a member of the Group which carries on the Group's business in the Asia Pacific region.

(C) The Covenator has agreed to guarantee the Company's financial obligations relevant to the Employee's appointment under this Deed.

(D) The parties wish to consolidate the Employee's terms and conditions of employment as hereinafter provided.

WHEREBY IT IS AGREED as follows:

1. INTERPRETATION

1.01 In this Deed, unless the context requires otherwise:

"Base Salary" means that part of the remuneration of the Employee as is referred to in Clause 5;

"Group" means the Company, its parent company, Intergraph Corporation and its subsidiaries and associated companies from time to time and "member of the Group" shall be construed accordingly; and

"month" means calendar month.

1.02 References herein to Clauses are to clauses in this Deed unless the context requires otherwise,

1.03 The headings are inserted for convenience only and shall not affect the construction of this Deed.

1.04 Unless the context requires otherwise, words importing the singular include plural and vice versa and words importing a gender include every gender.

2. APPOINTMENT

The Company shall continue to employ the Employee and the Employee will serve the Company as Executive Vice President, Asia Pacific, responsible for Asia Pacific Business Operations and the Intergraph Public Safety business units, upon the terms and conditions hereinafter appearing. The Employee shall perform his services in Asia Pacific and shall be based in Sydney Australia.

3. DURATION

The Employee's appointment shall continue with the Company from 1^st July, 2003 until such time as this Deed is terminated by either the Company or the Employee in accordance with the provisions of Clause 10.

4. EMPLOYEE'S DUTIES

The Employee shall, during the continuance of his employment hereunder:

(a) be based in Sydney Australia to serve the Company as Executive Vice President, Asia Pacific and, in such capacity and in good faith, perform the duties and exercise the powers from time to time assigned to or vested in him by Intergraph Corporation;

(b) comply with and conform to any lawful instructions or directions from time to time given or made by Intergraph Corporation and faithfully and diligently serve the Company and use his best endeavours to promote the business and interests thereof;

devote himself exclusively and diligently to the business and interests of the Company and personally attend thereto at all times during, usual business hours and during such other times as the Company may reasonably require except in case of incapacity through illness or accident,

5. BASE SALARY

The base salary of the Employee shall be A$ 400,000 per annum payable in 12 equal monthly instalments. This salary shall be reviewed by the Chief Financial Officer of Intergraph Corporation and the President of the IPS business unit from time to time and in any event, on each yearly anniversary date from the commencement date of this agreement

6. EXTRA COMPENSATION PLAN (ECP)

The Company shall provide the Employee with an annual ECP consistent with such Plans provided to the Employee in past years. Such ongoing ECP’s will be based on the responsibilities of the Employee with respect to the Company’s annual Plans relative to each financial year 1^st January to 31^st December.

7. BENEFITS

The Employee shall be entitled to the following benefits subject to determination by the Chief Financial Officer as to the appropriate level of cost for each item:

(a) the use (whether for business or personal purposes) of a motor car which is of a standard consistent with the position of the Employee in the Company and the Company shall pay all running costs associate with said motor car.

(b) provision of an education allowance for the youngest child of the Employee (Lauren Rennie) whilst she continues at University in Australia. Such allowance will be equal to actual fee cost by the relevant institution. This provision is subject to a maximum of A$7,500 and shall only apply to the first degree of said child.

(c) provision of Australian insurance cover for medical, hospital and dental costs of the Employee, Employee’s wife and two children whilst they are dependent on the Employee.

(d) telephone, fax/data service in the residence of the Employee at the expense of the Company;

(e) participation in the Company's superannuation plan subject to the terms and conditions of such scheme from time to time in force; However, the Company contribution shall commence at 11%.

8. EXPENSES

The Company shall reimburse the Employee (against receipts) for all expenses properly incurred in the course of his employment hereunder or in promoting or otherwise in connection with the business of the Company including without limitation, business meals, entertainment, hotel, travelling and out-of-pocket expenses.

9. LEAVE

The Employee shall be entitled after completion of each year of service with the Company to [four (4) weeks] leave (excluding public holidays) with full base pay, which leave shall be taken at such time or times as may be convenient to the Chief Financial Officer and the President of IPS having regard to the exigencies of the Company's business. Any untaken leave up to a maximum of four weeks shall accrue to the Employee year to year and shall be included in calculation of any termination payment should the Employee's services be terminated either by the Company or Employee.

10. TERMINATION

10.1 Subject to Clause 10.3 hereof, the Employee's employment hereunder may be determined at any time by either party giving to the other not less than three (3) months' prior written notice or forthwith upon payment of not less than three (3) months’ Base Salary in lieu of notice.

10.2 If the Company terminates the employment of the Employee by reason of his position being made redundant, or if the Employee tenders his resignation by reason of one or more of the following reasons:

(a) if the Employee is required by the Company to carry out or perform duties which are fundamentally different in nature to the duties which are contemplated by this Deed whether expressly or by implication;

(b) if the Company proposes to relocate the Employee on a permanent basis to a location outside of Sydney, Australia and the Employee is unwilling to accept the proposed relocation location;

(d) if the Company commits any act which will amount to constructive dismissal of the Employee by the Company under common law, or

(e) any other action taken by the Company calculated to terminate or might have the effect of terminating this Deed without consent of the Employee.

then, the Company shall, pay the Employee a sum calculated in accordance with the following formula:

(A *2) x B

Where:

"A" is the monthly Base Salary of the Employee applicable at the time of termination;

"B" is the number of calendar years of service (or part thereof) of the Employee with the Group, which is subject to a maximum of 12 years.

10.3 If at any time during the term of his employment hereunder the Employee shall be guilty of or commit any serious misconduct which in the opinion of the Board of Intergraph Corporation is in any way detrimental to the interests of the Company or shall be in breach of any of the terms of this Deed or shall commit any act of bankruptcy or become insolvent or make any arrangements or composition with his creditors generally or become through mental disorder incapable of managing his own affairs or fail to pay his personal debts or shall be guilty of persistent insobriety or be convicted of any criminal offence involving his integrity or honesty the Company may determine the Employee's employment -hereunder forthwith without any notice or payment in lieu of notice and upon such determination the Employee shall not be entitled to any bonus or any payment whatsoever (other than salary actually accrued due and payable, accrued annual leave and superannuation ) for or in respect of the then current year of service or to claim any compensation or damages for or in respect of or by reason of such determination. Termination by the Company under this clause must not be harsh, unjust or unreasonable.

11. EMPLOYEE'S UNDERTAKINGS

The Employee shall not either during the continuance of his employment hereunder divulge to any person whomsoever or to any body corporate or unincorporated and shall use his best endeavours to prevent the unauthorised publication or disclosure of any trade secret or any confidential information concerning the business or finances of any member of the Group or any of its dealings, transactions or affairs which may come to his knowledge during or in the course of his employment.

12. Indemnity

Subject to clause 4 herein, the Company, jointly and severally with the Covenator, shall financially indemnify the Employee in the event of any litigation or claims against Directors of the Company or any Group company of the Covenator of which the Employee is a Director. The Employee shall be protected financially from any actions against any Board of the Group whether during the currency of this Deed or for Seven (7) years subsequent to the Employee's termination under this Deed. Financial indemnity shall be inclusive of any legal costs incurred by the Employee in defence of litigation against the Employee in consequence of his being, or having been, a Director of any Company in the Group.

13. MISCELLANEOUS

13.01 This Deed shall be in substitution for any subsisting agreement or arrangement (oral or otherwise) made between the Company and the Employee which shall be deemed to have been terminated by mutual consent as from the date on which this Deed commences,

13.02 The expiration or termination of this Deed howsoever arising shall not operate to affect such of the provisions hereof as in accordance with their terms are expressed to operate or have effect thereafter.

13.03 In the event of any variation of the remuneration payable to or other benefits made available to the Employee hereunder being made by consent of the parties hereto such variation shall not constitute a new agreement but (subject to any express agreement to the contrary) the employment of the Employee hereunder shall continue subject in all respects to the terms and conditions of this Deed with such variation as aforesaid.

13.04 Each notice, demand or other communication given or made under this Deed shall be in writing and delivered or sent to the relevant party at its address set out below (or such other address or telex number or fax number as the addressee has by five (5) days' prior written notice specified to the other party):

To the Company : Intergraph Asia Pacific Inc.

4th Floor, 32 Walker Street

North Sydney, Australia.

To the Employee : Graeme John Farrell

15A West Crescent Street

McMahons Point

Sydney Australia 2060

Any notice, demand or other communication so addressed to the relevant party shall be, deemed to have been delivered (a) if given or made by letter, when actually delivered to the relevant address; and (b) if given or made by fax, when despatched.

13.05 If at any time any provision of this Deed is or becomes illegal, invalid or unenforceable in any respect, the legality, validity and enforceability of the remaining provisions of this Deed shall not be affected or impaired thereby,

13.06 This Deed shall be governed by and construed in accordance with the laws of New South Wales, Australia and the parties hereby irrevocably submit to the non-exclusive jurisdiction of Australian courts.

IN WITNESS WHEREOF this Deed has been executed on the day and year first above written.

SIGNED for and on behalf of

INTERGRAPH ASIA PACIFIC Inc.

By )

In the presence of: )

SIGNED for and on behalf of

INTERGRAPH CORPORATION

By )

In the presence of: )

SIGNED by

GRAEME JOHN FARRELL )

In the presence of: )

EX-31 5 exhibit31-1_wise.htm SECTION 302 CERTIFICATION, WISE Wise 302 Certification Exhibit 31.1

CERTIFICATIONS

I, R. Halsey Wise, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Intergraph Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 13, 2003
			/s/ R. Halsey Wise
			R. Halsey Wise
			Chief Executive Officer

EX-31 6 exhibit31-2_laster.htm SECTION 302 CERTIFICATION, LASTER Laster 302 Certification Exhibit 31.2

CERTIFICATIONS

I, Larry J. Laster, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Intergraph Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 13, 2003
			/s/ Larry J. Laster
			Larry J. Laster
			Executive Vice President and Chief Financial Officer

EX-32 7 exhibit32-1_wise.htm SECTION 906 CERTIFICATION, WISE Wise 906 Certification - Exhibit 32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Intergraph Corporation (the “Company”) on Form 10-Q for the quarter ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Halsey Wise, Chief Executive Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By: /s/ R. Halsey Wise

Name: R. Halsey Wise

Title: Chief Executive Officer

Date: August 13, 2003

EX-32 8 exhibit32-2_laster.htm SECTION 906 CERTIFICATION, LASTER Wise 906 Certification - Exhibit 32.1

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Intergraph Corporation (the "Company") on Form 10-Q for the quarter ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Larry J. Laster, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By: /s/ Larry J. Laster

Name: Larry J. Laster

Title: Executive Vice President and Chief Financial Officer

Date: August 13, 2003