<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-20853
ANSYS, Inc.
(exact name of registrant as specified in its chapter)
DELAWARE 04-3219960
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 Johnson Road, Houston, PA 15342-1300
(Address of principal executive offices) (Zip Code)
412-746-3304
(Registrant's telephone number, including area code)
Indicate by a 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 No X
---- -----
The number of shares of the Registrant's Common Stock, par value $.01
per share, outstanding as of August 9, 1996 was 16,150,410 shares.
<PAGE>
ANSYS, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets June 30, 1996 1
and December 31, 1995
Consolidated Statements of Income Three
and Six Months Ended June 30, 1996 and June 2
30, 1995
Consolidated Statements of Cash Flows Six
Months Ended June 30, 1996 and June 30, 1995 3
Notes to Consolidated Financial Statements 4
Review Report of Independent Accountants 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 6-10
Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities 11
Item 4. Submission of Matters to Vote of Security 11-12
Holders
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES
EXHIBIT INDEX
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ---------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,661 $ 8,091
Accounts receivable, less
allowance for doubtful accounts
of $725 in 1996 and
$700 in 1995:
Software licenses 8,077 7,666
Maintenance and service 2,503 -
Refundable and prepaid income taxes 823 1,497
Other current assets 407 439
Deferred income taxes 336 356
------------ ------------
Total current assets 20,807 18,049
Property and equipment, net 3,149 3,163
Capitalized software costs, net of
accumulated amortization of $11,744 in
1996 and $9,179 in 1995 3,746 6,207
Goodwill, net of accumulated
amortization of $11,207 in 1996 and
$8,762 in 1995 3,464 5,909
Other intangibles 1,948 2,807
Deferred income taxes 8,226 6,786
------------ ------------
Total assets $41,340 $ 42,921
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $ 80 $ 639
Accrued bonuses 1,113 1,952
Accrued pension and profit sharing 700 387
Other accrued expenses and
liabilities 3,359 1,753
Accrued interest payable on
subordinated debt - 1,155
Customer prepayments 1,090 972
Deferred revenue 4,319 2,995
Current portion of long-term debt - 5,000
------------ ------------
Total current liabilities 10,661 14,853
Long-term debt, less current portion
including amounts due to related
parties of $17,204 in 1995 - 33,204
------------ ------------
Total liabilities 10,661 48,057
Redeemable preferred stock, $.01 par
value, 800 shares authorized; 412
shares issued and outstanding at
liquidation value, including accrued
dividends of $772 in 1995
Stockholders' equity (deficit): - 4,893
Common stock, $.01 par value;
50,000,000 shares authorized;
16,216,110 shares issued and
outstanding in 1996; 10,626,000
shares issued and outstanding in
1995 162 106
Class A common stock, $.01 par
value; nonvoting, 2,000,000
shares authorized; 993,750
shares issued in 1995 - 10
Additional paid-in capital 35,793 1,352
Adjustment for predecessor basis - (7,010)
Less treasury stock, at cost:
62,870 shares held in 1996 and
54,850 shares held in 1995 (11) (10)
Retained earnings (deficit) (4,962) (4,142)
Notes receivable from stockholders (303) (335)
------------ ------------
Total stockholders' equity
(deficit) 30,679 (10,029)
------------ ------------
Total liabilities, preferred stock
and common stockholders' equity
(deficit) $41,340 $ 42,921
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share date)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------ ---------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Software licenses $ 8,837 $ 7,883 $ 17,222 $ 14,987
Maintenance and service 2,503 1,455 4,851 2,577
-------- ---------- --------- ---------
Total revenue 11,340 9,338 22,073 17,564
Cost of sales:
Software licenses 816 1,015 1,482 1,971
Maintenance and service 724 334 1,253 607
-------- ---------- --------- ---------
Total cost of sales 1,540 1,349 2,735 2,578
-------- ---------- --------- ---------
Gross profit 9,800 7,989 19,338 14,986
Operating expenses:
Selling and marketing 2,279 1,713 4,447 3,362
Research and development 2,349 2,045 4,679 4,064
Amortization 2,714 2,660 5,433 5,320
General and
administrative 1,806 1,502 3,656 2,995
-------- ---------- --------- ---------
Total operating
expenses 9,148 7,920 18,215 15,741
-------- ---------- --------- ---------
Operating income (loss) 652 69 1,123 (755)
Interest expenses (781) (1,021) (1,670) (2,016)
Other income 64 46 155 85
-------- ---------- --------- ---------
Loss before income
tax benefit and
extraordinary item (65) (906) (392) (2,686)
Income tax benefit 24 302 150 897
-------- ---------- --------- ---------
Net loss before
extraordinary item (41) (604) (242) (1,789)
Extraordinary item, net (343) _ (343) _
-------- ---------- --------- ---------
Net loss $ (384) $ (604) $ (585) $ (1,789)
======== ========== ========= =========
Net loss applicable to
common stock:
Net loss $ (384) $ (604) $ (585) $ (1,789)
Redeemable preferred
stock dividends (135) (119) (236) (221)
-------- ---------- --------- ---------
$ (519) $ (723) $ (821) $ (2,010)
======== ========== ========= =========
Net loss per common share:
Net loss before
extraordinary item $ (0.01) $ (0.06) $ (0.04) $ (0.16)
Extraordinary Item $ (0.03) $ - $ (0.02) $ _
-------- ---------- --------- ---------
Net loss $ (0.04) $ (0.06) $ (0.06) $ (0.16)
======== ========== ========= =========
Shares used in computing
per common share amounts 13,714,000 12,274,000 13,086,000 12,277,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
---------------------
June 30, June 30,
1996 1995
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (585) $(1,789)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 5,916 5,612
Extraordinary item 553 -
Deferred income tax benefit (1,420) (1,248)
Provision for bad debts 25 (8)
Change in operating assets and
liabilities, net of effects of
acquisition:
Accounts receivable (2,939) (54)
Refundable and prepaid income
taxes 674 257
Other current assets 32 (308)
Accounts payable, accrued
expenses and liabilities and
customer prepayments (516) 684
Deferred revenue 1,324 1,078
---------- --------
Net cash provided by
operating activities 3,064 4,224
---------- --------
Cash flows from investing activities:
Capital expenditures (585) (747)
Capitalization of internally
developed software costs (105) -
Payments for software products
acquired - (175)
Notes receivable from stockholders 32 -
---------- --------
Net cash used in investing
activities (658) (922)
---------- --------
Cash flows from financing activities:
Payments on long-term debt (21,000) (2,000)
Proceeds from issuance of
restricted stock 326 -
Proceeds from exercise of stock
options 106 -
Repayment of subordinated notes (17,204) -
Redemption of preferred stock and
accumulated dividends (5,128) -
Purchase of treasury stock (1) (3)
Proceeds from initial public
offering, net of issuance costs
of $1,250 41,065 -
---------- --------
Net cash used in financing
activities (1,836) (2,003)
---------- --------
Net increase in cash and cash 570 1,299
equivalents
Cash and cash equivalents, beginning of
period 8,091 4,300
---------- --------
Cash and cash equivalents, end of
period 8,661 5,599
========== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest 2,848 1,221
Income taxes 750 500
Supplemental non cash investing and
financing activities:
Deferred interest notes issued for
interest in arrears on subordinated
notes - 508
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements included herein
have been prepared by ANSYS, Inc. (the "Company") in accordance with generally
accepted accounting principles for interim financial information for commercial
and industrial companies and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. The financial statements as of and for the three months ended
June 30, 1996 should be read in conjunction with the Company's Consolidated
financial statements (and notes thereto) included in the Company's Form S-1
dated June 20, 1996 which includes the year ended December 31, 1995.
Accordingly, the accompanying statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of the financial statements have been
included, and all adjustments are of a normal and recurring nature. Operating
results for the three months and six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
2. INITIAL PUBLIC OFFERING
Effective June 20, 1996, the Company completed its initial public offering of
3,500,000 shares of Common Stock at $13.00 per share. The net proceeds (after
deducting underwriting discounts and commissions and offering expenses) totaled
$41.1 million and were used as follows: i) the repayment of approximately $18.5
million of senior secured indebtedness (the "1994 Loan"), including accrued and
unpaid interest; ii) the repayment of $17.5 million of 10% Subordinated Notes
(the "Subordinated Notes"); and iii) the redemption of $5.1 million of
Redeemable Preferred Stock, including accumulated dividends.
3. EXTRAORDINARY ITEM
The Company incurred an extraordinary item for the three months ended June 30,
1996 of $343,000, net of income tax benefit. In connection with the acquisition
of its business in 1994 (the "1994 Acquisition"), the Company capitalized
$925,000 of debt issuance costs and $179,000 associated with an interest rate
cap agreement, the unamortized portion of which totaled $552,866 at June 20,
1996. As a result of the early repayment of the 1994 Loan with a portion of the
net proceeds from its initial public offering in June 1996, the Company has
written-off the unamortized balance as an extraordinary non-cash charge in the
second quarter of 1996.
4
<PAGE>
[LOGO OF COOPERS AND LYBRAND]
Coopers & Lybrand L.L.P.
a professional services firm
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors
ANSYS, Inc. and Subsidiaries
We have reviewed the unaudited consolidated balance sheet of ANSYS, Inc. and
subsidiaries as of June 30, 1996, the unaudited statements of consolidated
income for the six-month periods ended June 30, 1996 and 1995, and consolidated
cash flows for the six-month periods ended June 30, 1996 and 1995, which are
included in ANSYS's Form 10-Q for the period ended June 30, 1996. These
financial statements are the responsibility of ANSYS's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of ANSYS, Inc. and subsidiaries as of
December 31, 1995, and the related statements of consolidated income,
stockholders' equity (deficit) and cash flows for the year then ended (not
presented herein). In our report dated April 19, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1995, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
July 18, 1996
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANSYS, Inc. (the "Company") is a leading international supplier of analysis and
engineering software for optimizing the design of new products. The Company is
committed to providing the most open and flexible analysis solutions to suit
customer requirements for engineering software in today's competitive
marketplace. In addition, the Company partners with leading design software
suppliers to develop state-of-the-art CAD integrated products. A global network
of ANSYS Support Distributors provides sales, support and training for
customers. The following discussion should be read in conjunction with the
attached unaudited consolidated financial statements and notes thereto for the
periods ended June 30, 1996 and June 30, 1995 and with the Company's audited
financial statements and notes thereto for the fiscal year ended December 31,
1995.
Results of Operations
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Revenue. The Company's revenue increased 21.4% for the 1996 quarter to $11.3
million from $9.3 million for the 1995 quarter. This increase was attributable
principally to increased international and domestic sales of paid-up licenses
and increased maintenance and services revenue, both of which resulted primarily
from the Company's increased marketing emphasis, market acceptance of new
product releases and broader customer usage of maintenance and support services
in response to accelerated frequency of product releases and the Company's
increased emphasis on marketing its maintenance services.
Software licenses revenue increased 12.1% for the 1996 quarter to $8.8 million
from $7.9 million for the 1995 quarter, resulting from increased sales of paid-
up licenses in international and domestic markets. Revenue from sales of paid-
up licenses increased 33.2% for the 1996 quarter to $4.4 million from $3.3
million for the 1995 quarter. The Company also experienced a 3.1% decrease in
lease license revenue to $4.4 million for the 1996 quarter from $4.6 million for
the 1995 quarter. Maintenance and service revenue increased 72.0% for the 1996
quarter to $2.5 million from $1.5 million for the 1995 quarter, as a result of a
substantial increase in the sale of paid-up licenses, broader customer usage of
maintenance and support services and reduction in the warranty period.
Of the Company's total revenue for the 1996 quarter, approximately 57.5% and
42.5% were attributable to international and domestic sales, as compared to
55.7% and 44.3% for the 1995 quarter.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
14.2 % to $1.5 million, or 13.6% of total revenue, for the 1996 quarter from
$1.3 million, or 14.5% of total revenue, for the 1995 quarter. The Company's
cost of sales for software license revenue decreased 19.6% for the 1996 quarter
to $816,000, or 9.2% of software license revenue, from $1,015,000, or 12.9% of
software license revenue, for the 1995 quarter. The decrease was due primarily
to a reduction of expenses through lower headcount and cost controls and
implementation of a more efficient multi-platform development environment for
the Company's product releases and was partially offset by increased royalty
fees. The Company's cost of sales for maintenance and service revenue was
$724,000 and $334,000, or 28.9% and 22.9% of maintenance and service revenue,
for the 1996 and 1995 quarters, respectively, reflecting the substantial
increase in maintenance and service revenue in the 1996 quarter.
As a result of the foregoing, the Company's gross profit increased 22.7% to $9.8
million for the 1996 quarter from $8.0 million for the 1995 quarter.
6
<PAGE>
Selling and Marketing. Selling and marketing expenses increased 33.0% for the
1996 quarter to $2.3 million, or 20.1% of total revenue, from $1.7 million, or
18.3% of total revenue, for the 1995 quarter. This growth was attributable
principally to increased personnel costs, including costs associated with
increased headcount and compensation expenses related to building a sales and
marketing organization, as well as increased commissions associated with
increased revenue.
Research and Development. Research and development expenses increased 14.9% for
the 1996 quarter to $2.3 million, or 20.7% of total revenue, from $2.0 million,
or 21.9% of total revenue, for the 1995 quarter. This increase resulted
primarily from employment of additional staff and independent contractors to
develop and enhance the Company's products, including a dedicated team working
on the development of the Company's DesignSpace product, costs associated with
quality assurance, and equipment costs to implement an enhanced multi-platform
development environment.
Amortization. Amortization expense was $2.7 million in the second quarter in
both 1996 and 1995. This amortization expense resulted from the 1994 Acquisition
and relates primarily to intangible assets, including goodwill, which are being
amortized from the date of the 1994 Acquisition, March 14, 1994. The unamortized
portion of the goodwill and capitalized software acquired in connection with the
1994 Acquisition will be fully amortized in the first quarter of 1997.
General and Administrative. General and administrative expenses increased 20.3%
to $1.8 million, or 15.9% of total revenue, for the 1996 quarter from $1.5
million, or 16.1% of total revenue, for the 1995 quarter. The Company has
maintained a relatively stable headcount while adding administrative support
services, such as computerized order fulfillment and corporate-wide information
technology systems, to support its future operations. Additionally, accounting
and legal expenses have increased due to the support of the Company's increased
level of operations.
Interest. Interest expense decreased 23.5% for the 1996 quarter to $781,000
from $1,021,000 for the 1995 quarter. This decrease was attributable to a
reduction in the outstanding principal of the 1994 Loan, as well as a reduction
in the effective interest rate from period to period. Interest expense will
decrease substantially commencing in the third quarter of 1996 due to the early
repayment of the 1994 Loan and the Subordinated Notes with the net proceeds from
the initial public offering in June 1996.
Income Tax Benefit. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company's effective rate of taxation was 37.2% for the 1996 quarter,
as compared to 33.3% for the 1995 quarter. These percentages are less than the
federal and state combined statutory rate of approximately 39.0% due primarily
to the utilization of research and experimentation credits.
Net Loss. The Company's net loss before extraordinary item decreased in the
second quarter of 1996 to $41,000 from a net loss of $604,000 in the 1995
quarter. The net loss including the extraordinary item in the second quarter of
1996 was $384,000.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenue. The Company's revenue increased 25.7% for the 1996 six months to $22.1
million from $17.6 million for the 1995 six months. This increase was
attributable principally to increased international and domestic sales of paid-
up licenses and increased maintenance and services revenue, both of which
resulted primarily from the Company's increased marketing emphasis, market
acceptance of new product releases and broader customer usage of maintenance and
support services in response to accelerated frequency of product releases and
the Company's increased emphasis on marketing its maintenance services.
Software license revenue increased 14.9% for the 1996 six months to $17.2
million from $15.0 million for the 1995 six months, resulting principally from
increased sales of paid-up licenses in international and
7
<PAGE>
domestic markets. Revenue from sales of paid-up licenses increased 31.3% for
the 1996 six months to $8.0 million from $6.1 million for the 1995 six months.
The Company also experienced a 3.7% increase in lease license revenue to $9.2
million for the 1996 six months from $8.9 million for the 1995 six months.
Maintenance and service revenue increased 88.3% for the 1996 six months to $4.9
million from $2.6 million for the 1995 six months, as a result of a substantial
increase in the sale of paid-up licenses, broader customer usage of maintenance
and support services and reduction in the warranty period.
Of the Company's total revenue for the 1996 six months, approximately 53.7% and
46.3% respectively, were attributable to international and domestic sales, as
compared to 55.0% and 45.0% respectively, for the 1995 six months.
Cost of Sales and Gross Profit. The Company's total cost of sales increased 6.1
% to $2.7 million, or 12.4% of total revenue, for the 1996 six months from $2.6
million, or 14.7% of total revenue, for the 1995 six months. The Company's cost
of sales for software license revenue decreased 24.8% for the 1996 six months to
$1.5 million, or 8.6% of software license revenue, from $2.0 million, or 13.1%
of software license revenue, for the 1995 six months. The decrease was due
primarily to a reduction of expenses through lower headcount and cost controls
and implementation of a more efficient multi-platform development environment
for the Company's product releases and was partially offset by increased royalty
fees. The Company's cost of sales for maintenance and service revenue was
$1,253,000 and $607,000, or 25.8% and 23.5% of maintenance and service revenue,
for the 1996 and 1995 six months, respectively, reflecting the substantial
increase in maintenance and service revenue in the 1996 six months.
As a result of the foregoing, the Company's gross profit increased 29.0% to
$19.3 million for the 1996 six months from $15.0 million for the 1995 six
months.
Selling and Marketing. Selling and marketing expenses increased 32.3% for the
1996 six months to $4.4 million, or 20.1% of total revenue, from $3.4 million,
or 19.1% of total revenue, for the 1995 six months. The increase in selling and
marketing expenses resulted primarily from increased personnel costs, including
costs associated with increased headcount and compensation expenses related to
the establishment of a sales force to support the Company's distribution
network, as well as increased commissions associated with increased revenue.
Research and Development. Research and development expenses increased 15.1% for
the 1996 six months to $4.7 million, or 21.2% of total revenue, from $4.1
million, or 23.1% of total revenue, for the 1995 six months. This increase
resulted primarily from employment of additional staff and independent
contractors to develop and enhance the Company's products, including a dedicated
team working on the development of the Company's DesignSpace product, costs
associated with quality assurance and equipment costs to implement an enhanced
multi-platform development environment.
Amortization. Amortization expense was $5.4 million for the 1996 six months and
$5.3 million for the 1995 six months. This amortization expense resulted from
the 1994 Acquisition and relates primarily to intangible assets, including
goodwill, which are being amortized from the date of the 1994 Acquisition, March
14, 1994. The unamortized portion of the goodwill and capitalized software
acquired in connection with the 1994 Acquisition will be fully amortized in the
first quarter of 1997.
General and Administrative. General and administrative expenses increased 22.1%
for the 1996 six months to $3.7 million, or 16.6% of total revenue, from $3.0
million, or 17.1% of total revenue, for the 1995 six months. The Company has
maintained a relatively stable headcount while adding administrative support
services, such as a computerized order fulfillment and corporate-wide
information technology systems, to support its future operations. Additionally,
accounting and legal expenses have increased due to the support of the Company's
increased level of operations.
8
<PAGE>
Interest. Interest expense decreased 17.2% for the 1996 six months to $1.7
million from $2.0 million for the 1995 six months. This decrease was
attributable to a reduction in the outstanding principal of the 1994 Loan, as
well as a reduction in the effective interest rate from period to period.
Interest expense will decrease substantially commencing in the third quarter of
1996 due to the early repayment of the 1994 Loan and the Subordinated Notes with
the net proceeds from the initial public offering in June 1996.
Income Tax Benefit. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company's effective rate of taxation was 38.3% for the 1996 six
months, as compared to 33.4% for the 1995 six months. These percentages are less
than the federal and state combined statutory rate of approximately 39.0% due
primarily to the utilization of research and experimentation credits.
Net Loss. The Company's net loss before extraordinary item decreased in the six
months of 1996 to $242,000 from a net loss of $1,789,000 in the 1995 six months.
The net loss including the extraordinary item in the 1996 six months was
$585,000.
Liquidity and Capital Resources
As of June 30, 1996, the Company had cash and cash equivalents of $8.7 million
and working capital of $10.1 million, as compared to cash and cash equivalents
of $8.1 million and working capital of $3.2 million at December 31, 1995. The
improvement in the working capital position was due primarily to the net
proceeds of $41.1 million received from the Company's initial public offering on
June 25, 1996. The proceeds from the offering were used to repay the 1994 Loan
and the Subordinated Notes, including accrued and unpaid interest, and retire
all of the Company's outstanding Redeemable Preferred Stock, including
accumulated dividends. Previously, the Company also had available to it a $1.0
million revolving line of credit with a commercial bank under a credit
facilities agreement. During the second quarter of 1996, the Company elected to
terminate the line of credit.
The Company's operating activities provided cash of $3.1 million for the six
months ended June 30, 1996 and $4.2 million for the six months ended June 30,
1995. The Company's cash flow from operations decreased for the six months
ended June 30, 1996 as compared to the six months ended June 30, 1995. This was
a result of increased working capital requirements, primarily relating to an
increase in accounts receivable, resulting from the substantial increase in
maintenance and service revenue.
Cash used in investing activities was $658,000 for the six months ended June 30,
1996 and $922,000 for the six months ended June 30, 1995. The Company's use of
cash in these periods was substantially related to capital expenditures and
internally developed software costs. The Company expects to spend approximately
$2.5 million for capital equipment in 1996 principally for the acquisition of
computer hardware, software and equipment.
Financing activities used net cash of $1.8 million for the six months ended June
30, 1996 and $2.0 million for the six months ended June 30, 1995. Cash provided
from financing activities for the six months ended June 30, 1996 was due
primarily to the net proceeds of $41.1 million received from the Company's
initial public offering on June 25, 1996 (see Note 2). Cash used for financing
activities for the six months ended June 30, 1996 was the result of the
repayment of the 1994 Loan and Subordinated Notes, payment of related unpaid
interest and the redemption of the Preferred Stock and accumulated dividends.
Cash used for the six months ended June 30, 1995 was the result of principal
repayments made on the 1994 loan.
9
<PAGE>
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
The new standard was implemented in the first quarter of 1996 and did not have a
material effect on the consolidated financial statements.
Statement Regarding Forward Looking Disclosures
RIDER 9-1
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such
a difference include possible delays in developing, completing or shipping new
or enhanced products, as well as other risks and uncertainties that are detailed
from time to time in reports filed by ANSYS, Inc. with the Securities and
Exchange Commission, including ANSYS, Inc.'s registration statement on Form S-1
and related prospectus dated June 20, 1996, and the "Risk Factors" described
therein, and in the statement of "Certain Factors Affecting Future Results"
included herein as Exhibit 99.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
On June 25, 1996, the Company's non-voting Class A Common Stock was
converted into voting Common Stock in accordance with its terms in
conjunction with the closing of the Company's initial public
offering. See Item 4(c) below.
Item 3. Defaults upon Secured Securities
Not Applicable.
Item 4. Submission of Matters to Vote of Security-Holders
(a) The stockholders of the Company acted by written consent (the
"Consent") in lieu of Annual Meeting of Stockholders dated April
27, 1996.
(b) As described in paragraph (c) below, the Registrant's Board of
Directors as previously reported to the Commission was re-
elected in its entirety pursuant to the above-referenced
consent.
(c) The Consent was executed by the holders of all of the 1,172,186
shares of Common Stock then outstanding and, as to item 2 below
only as required by Delaware law, the holders of 64,450 of the
110,746 shares of Class A Common Stock then outstanding (with no
votes in opposition, withheld or abstaining or broker non-votes)
and the holders of all of the 412 shares of 10% Cumulative
Redeemable Preferred Stock then outstanding. The matters acted
upon by the stockholders pursuant to the Consent are as follows:
1. Election of Directors
The stockholders approved the election of Peter J. Smith,
John A. Swanson, Gary B. Eichhorn, Roger J. Heinen, Jr.,
Roger B. Kafker, Jacqueline C. Morby and John F. Smith as
Directors and also approved the classification of the Board
from and after the completion of the Company's initial
public offering for the terms indicated below as follows:
Class I - Term Expires at Annual Meeting of Stockholders
held in 1997:
Peter J. Smith
Dr. John A. Swanson
Class II - Term Expires at Annual Meeting of Stockholders
held in 1998:
Roger J. Heinen, Jr.
Roger B. Kafker
Jacqueline C. Morby
Class III - Term Expires at Annual Meeting of Stockholders
held in 1999:
Gary B. Eichhorn
John T. Smith
11
<PAGE>
Each Director received the same number of votes.
2. Adoption of and Approval of Amended and Restated
Certificate of Incorporation.
The stockholders of the Company acted to amend and restate
the Company's Certificate of Incorporation (the
"Certificate") effective upon completion of the Company's
initial public offering, to: (i) provide for the
classification of the Board of Directors; (ii) increase the
number of shares of common stock authorized to 50,000,000
and authorize 2,000,000 shares of undesignated preferred
stock; (iii) prohibit action by stockholders by written
consent; (iv) provide that amendments to the Certificate
relating to the establishment of the Board of Directors and
amendments to the Certificate shall require 80% of the
total votes eligible to be cast; and (v) certain other
amendments related to the foregoing.
The stockholders of the Company voted to authorize the
filing with the Secretary of the State of Delaware of (i)
certificates retiring and eliminating (A) all authorized
shares of the Company's 10% Cumulative Redeemable Preferred
Stock upon redemption thereof and (B) all authorized shares
of the Company's Class A Common Stock upon conversion
thereof to shares of Common Stock upon the closing of the
Company's initial public offering and (ii) a Restated
Certificate of Incorporation reflecting such retirement.
3. The stockholders voted to approve the Company's 1996
Stock Plan and its 1996 Employee Stock Purchase Plan.
(d) Not Applicable.
Item 5. Other information
Not Applicable.
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
3.1 Restated Certificate of Incorporation
10.1 1996 Stock Option and Grant Plan, as amended
10.2 1996 Employee Stock Purchase Plan, as amended
27.1 Financial Data Schedules
99 Certain Factors Regarding Future Results
(b) Reports on Form 8-K.
Not Applicable.
12
<PAGE>
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.
ANSYS, Inc.
Date: August 13, 1996 By: /s/ Peter J. Smith
---------------------------------------
Peter J. Smith
Chairman, President and Chief Executive Officer
Date: August 13, 1996 By: /s/ John M. Sherbin II
---------------------------------------
John M. Sherbin II
Vice President, Finance and Administration,
Secretary, Treasurer and Chief Financial Officer
13
<PAGE>
Item 6.
EXHIBIT INDEX
-------------
Exhibit No.
- -------------
3.1 Restated Certificate of Incorporation
10.1 1996 Stock Option and Grant Plan, as amended
10.2 1996 Employee Stock Purchase Plan, as amended
27.1 Financial Data Schedules
99 Certain Factors Regarding Future Results
1
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
ANSYS, INC.
ANSYS, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is ANSYS, Inc. The date of the filing of
its original Certificate of Incorporation with the Secretary of State of the
State of Delaware was January 12, 1994. The name under which the Corporation
filed its original Certificate of Incorporation was SAS Holdings, Inc.
2. This Restated Certificate of Incorporation only restates and integrates
and does not further amend the provisions of the Third Amended and Restated
Certificate of Incorporation of the Corporation filed with the Secretary of
State of the State of Delaware on June 20, 1996 (the "Third Amended and Restated
Certificate of Incorporation"), there is no discrepancy between the provisions
of this Restated Certificate of Incorporation and the provisions of the Third
Amended and Restated Certificate of Incorporation, and was duly adopted by the
Board of Directors in accordance with the provisions of Section 245 of the
General Corporation Law of the State of Delaware (the "DGCL").
3. The text of the Third Amended and Restated Certificate of Incorporation
is hereby restated in its entirety to provide as herein set forth in full.
ARTICLE I
NAME
----
The name of the Corporation is ANSYS, Inc.
<PAGE>
ARTICLE II
REGISTERED OFFICE
-----------------
The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
PURPOSES
--------
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. Number of Shares.
---------------------------
The total number of shares of capital stock which the Corporation
shall have the authority to issue is Fifty-Two Million (52,000,000) shares, of
which (i) Two Million (2,000,000) shares shall be Undesignated Preferred Stock,
par value $.01 per share (the "Preferred Stock"), and (ii) Fifty Million
(50,000,000) shares shall be Common Stock, par value $.01 per share (the "Common
Stock"). As set forth in this Article IV, the Board of Directors or any
authorized committee thereof is authorized from time to time to establish and
designate one or more series of Preferred Stock, to fix and determine the
variations in the relative rights and preferences as between the different
series of Preferred Stock in the manner hereinafter set forth in this Article
IV, and to fix or alter the number of shares comprising any such series and the
designation thereof to the extent permitted by law.
The number of authorized shares of the class of Preferred Stock may be
increased or decreased (but not below the number of shares outstanding) by the
affirmative vote of the holders of a majority of the Common Stock, without a
vote of the holders of the Preferred Stock, pursuant to the resolution or
resolutions establishing the class of Preferred Stock or this Restated
Certificate of Incorporation, as it may be amended from time to time.
2
<PAGE>
Section 2. General.
------------------
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, Sections 3 and
4 of this Article IV.
Section 3. Common Stock.
-----------------------
Subject to all of the rights, powers and preferences of the Preferred
Stock, and except as provided by law or in this Article IV (or in any
certificate of designation of any series of Preferred Stock) or by the Board of
Directors or any authorized committee thereof pursuant to this Article IV:
(a) the holders of the Common Stock shall have the exclusive right to
vote for the election of Directors and on all other matters requiring
stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally available
for the payment of dividends, but only when and as declared by the Board of
Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests.
Section 4. Preferred Stock.
--------------------------
Subject to any limitations prescribed by law, the Board of Directors
or any authorized committee thereof is expressly authorized to provide for the
issuance of the shares of Preferred Stock in one or more series of such stock,
and by filing a certificate pursuant to applicable law of the State of Delaware,
to establish or change from time to time the number of shares to be included in
each such series, and to fix the designations, powers, preferences and the
relative, participating, optional or other special rights of the shares of each
series and any qualifications, limitations and restrictions thereof. Any action
by the Board of Directors or any authorized committee thereof under this Section
4 shall require the affirmative vote of a majority of the Directors then in
office or a majority of the members of such committee. The Board of Directors
or any authorized committee thereof shall have the right to determine or fix one
or more of the following with respect to each series of Preferred Stock to the
extent permitted by law:
(a) The distinctive serial designation and the number of shares
constituting such series;
3
<PAGE>
(b) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of
such series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued;
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Preferred Stock (or
series thereof) and whether such shares may be reissued as shares of the same or
any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
4
<PAGE>
ARTICLE V
STOCKHOLDER ACTION
------------------
Any action required or permitted to be taken by the stockholders of
the Corporation at any annual or special meeting of stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders and may not be taken or effected by a written consent of
stockholders in lieu thereof.
ARTICLE VI
DIRECTORS
---------
Section 1. General.
-------------------
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.
Section 2. Election of Directors.
---------------------------------
Election of Directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.
Section 3. Terms of Directors.
------------------------------
The number of Directors of the Corporation shall be fixed by
resolution duly adopted from time to time by the Board of Directors. The
Directors, other than those who may be elected by the holders of any series of
Preferred Stock of the Corporation, shall be classified, with respect to the
term for which they severally hold office, into three classes, as nearly equal
in number as possible. The initial Class I Directors of the Corporation shall
be Peter J. Smith and Dr. John A. Swanson; the initial Class II Directors of the
Corporation shall be Roger J. Heinen, Jr., Roger B. Kafker and Jacqueline C.
Morby; and the initial Class III Directors of the Corporation shall be Gary B.
Eichhorn and John F. Smith. The initial Class I Directors shall serve for a
term expiring at the annual meeting of stockholders to be held in 1997, the
initial Class II Directors shall serve for a term expiring at the annual meeting
of stockholders to be held in 1998, and the initial Class III Directors shall
serve for a term expiring at the annual meeting of stockholders to be held in
1999. At each annual meeting of stockholders, the successor or successors of
the class of Directors whose term expires at that meeting shall be elected by a
plurality of the votes cast at such meeting and shall hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. The Directors
5
<PAGE>
elected to each class shall hold office until their successors are duly elected
and qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Restated Certificate of Incorporation, the holders of any one
or more series of Preferred Stock shall have the right, voting separately as a
series or together with holders of other such series, to elect Directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation and any certificate of
designations applicable thereto, and such Directors so elected shall not be
divided into classes pursuant to this Section 3.
During any period when the holders of any series of Preferred Stock
have the right to elect additional Directors as provided for or fixed pursuant
to the provisions of Article IV hereof, then upon commencement and for the
duration of the period during which such right continues: (i) the then otherwise
total authorized number of Directors of the Corporation shall automatically be
increased by such specified number of Directors, and the holders of such
Preferred Stock shall be entitled to elect the additional Directors so provided
for or fixed pursuant to said provisions, and (ii) each such additional Director
shall serve until such Director's successor shall have been duly elected and
qualified, or until such Director's right to hold such office terminates
pursuant to said provisions, whichever occurs earlier, subject to such
Director's earlier death, disqualification, resignation or removal. Except as
otherwise provided by the Board in the resolution or resolutions establishing
such series, whenever the holders of any series of Preferred Stock having such
right to elect additional Directors are divested of such right pursuant to the
provisions of such stock, the terms of office of all such additional Directors
elected by the holders of such stock, or elected to fill any vacancies resulting
from the death, resignation, disqualification or removal of such additional
Directors, shall forthwith terminate and the total and authorized number of
Directors of the Corporation shall be reduced accordingly.
Section 4. Vacancies.
--------------------
Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect Directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a Director, shall be filled solely by the affirmative vote of a
majority of the remaining Directors then in office, even if less than a quorum
of the Board of Directors. Any Director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of Directors in which the new directorship was created or the vacancy
occurred and until such Director's successor shall have been duly elected and
qualified or until his or her earlier resignation or removal. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
Directors, when the number of Directors is increased or decreased, the Board
of Directors shall determine the class or classes to which the increased or
decreased number of
6
<PAGE>
Directors shall be apportioned; provided, however, that no decrease in the
number of Directors shall shorten the term of any incumbent Director. In the
event of a vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law, may exercise the powers of the full Board of
Directors until the vacancy is filled.
Section 5. Removal.
------------------
Subject to the rights, if any, of any series of Preferred Stock to
elect Directors and to remove any Director whom the holders of any such stock
have the right to elect, any Director (including persons elected by Directors to
fill vacancies in the Board of Directors) may be removed from office (i) only
with cause and (ii) only by the affirmative vote of at least two-thirds of the
total votes which would be eligible to be cast by stockholders in the election
of such Director. At least 30 days prior to any meeting of stockholders at
which it is proposed that any Director be removed from office, written notice of
such proposed removal shall be sent to the Director whose removal will be
considered at the meeting. For purposes of this Restated Certificate of
Incorporation, "cause," with respect to the removal of any Director shall mean
only (i) conviction of a felony, (ii) declaration of unsound mind by order of
court, (iii) gross dereliction of duty, (iv) commission of any action involving
moral turpitude, or (v) commission of an action which constitutes intentional
misconduct or a knowing violation of law if such action in either event results
both in an improper substantial personal benefit and a material injury to the
Corporation.
ARTICLE VII
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the Director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Restated Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of Directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
7
<PAGE>
ARTICLE VIII
AMENDMENT OF BY-LAWS
--------------------
Section 1. Amendment by Directors
---------------------------------
Except as otherwise provided by law, the By-laws of the Corporation
may be amended or repealed by the Board of Directors.
Section 2. Amendment by Stockholders
------------------------------------
The By-laws of the Corporation may be amended or repealed at any
annual meeting of stockholders, or special meeting of stockholders called for
such purpose, by the affirmative vote of at least two-thirds of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class; provided, however, that if the Board of
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Restated
Certificate of Incorporation in the manner now or hereafter prescribed by
statute and this Restated Certificate of Incorporation, and all rights conferred
upon stockholders herein are granted subject to this reservation. No amendment
or repeal of this Restated Certificate of Incorporation shall be made unless the
same is first approved by the Board of Directors pursuant to a resolution
adopted by the Board of Directors in accordance with Section 242 of the DGCL,
and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required, and
in addition to any other vote of holders of voting stock that is required by
this Restated Certificate of Incorporation or by law, the affirmative vote of a
majority of the total votes eligible to be cast by holders of voting stock with
respect to such amendment or repeal, voting together as a single class, at a
duly constituted meeting of stockholders called expressly for such purpose shall
be required to amend or repeal any provisions of this Restated Certificate of
Incorporation; provided, however, that the affirmative vote of not less than 80%
of the total votes eligible to be cast by holders of voting stock, voting
together as a single class, shall be required to amend or repeal any of the
provisions of Article VI or Article IX of this Restated Certificate of
Incorporation .
8
<PAGE>
I, Peter J. Smith, President of the Corporation, for the purpose of
restating the Corporation's Third Amended and Restated Certificate of
Incorporation pursuant to the General Corporation Law of the State of Delaware,
do make this certificate, hereby declaring and certifying that this is my act
and deed on behalf of the Corporation this 10th day of July, 1996.
/s/ Peter J. Smith
--------------------------------
Peter J. Smith, President
9
<PAGE>
EXHIBIT 10.1
ANSYS, INC.
-----------
1996 STOCK OPTION AND GRANT PLAN
--------------------------------
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the ANSYS, Inc. 1996 Stock Option and Grant
Plan (the "Plan"). The purpose of the Plan is to encourage and enable the
officers, employees, directors, consultants and key persons of ANSYS, Inc. (the
"Company") and its Subsidiaries upon whose judgment, initiative and efforts the
Company largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company. It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category
of grant under the Plan, shall include Incentive Stock Options, Non-Qualified
Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Performance
Share Awards and Dividend Equivalent Rights.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 2.
"Disinterested Person" means an Independent Director who qualifies as
such under Rule 16b-3(c)(2)(i) promulgated under the Act, or any successor
definition under said Rule. If Rule 16b-3(c)(2)(i) is amended and such
definition no longer exists, the requirement set forth in Section 2(a) hereof
that each member of the Committee be a Disinterested Person shall cease to
apply.
"Dividend Equivalent Right" means Awards granted pursuant to Section
9.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 15.
"Fair Market Value" of the Stock on any given date means (i) if the
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall not be less than the average of the highest bid and lowest asked prices
7
<PAGE>
of the Stock reported for such date or, if no bid and asked prices were reported
for such date, for the last day preceding such date for which such prices were
reported, or (ii) if the Stock is admitted to trading on a national securities
exchange or the NASDAQ National Market System, then clause (i) shall not apply
and the Fair Market Value on any date shall not be less than the closing price
reported for the Stock on such exchange or system for such date or, if no sales
were reported for such date, for the last date preceding such date for which a
sale was reported, and (iii) notwithstanding the foregoing, the Fair Market
Value of the Stock on the effective date of the Initial Public Offering shall be
the offering price to the public of the Stock on such date.
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is neither an
employee or officer of the Company or any Subsidiary, nor a representative of
the major investor of the Company prior to the Company's Initial Public
Offering.
"Initial Public Offering" means the first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Stock to the public.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5.
"Performance Share Award" means any Award granted pursuant to Section
8.
"Restricted Stock Award" means any Award granted pursuant to Section
6.
"Stock" means the Common Stock, par value $.01 per share, of the
Company, subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning with
the Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section
7.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
------------------------------------------------------------------
AND DETERMINE AWARDS
--------------------
(a) Committee. The Plan shall be administered by the Option and
---------
Compensation Committee of the Board, or any other committee of not less than two
non-employee Directors performing similar functions as appointed by the Board
from time to time.
8
<PAGE>
On and after the date the Company becomes subject to the Act, each member of the
Committee shall be a Disinterested Person. On and after the date the Plan
becomes subject to Section 162(m) of the Code, each member of the Committee
shall be an "Outside Director" within the meaning of Section 162(m) of the Code
and the regulations promulgated thereunder. On and after August 15, 1996, the
Plan may be administered by either the Board or a committee of "Non-Employee
Directors" within the meaning of Rule 16b-3(a)(3), and all references to the
"Committee" (other than the last sentence of Section 4) shall also be deemed to
refer to the Board.
(b) Powers of Committee. The Committee shall have the power and
-------------------
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the officers, employees, consultants and key
persons of the Company and its Subsidiaries to whom Awards may from
time to time be granted;
(ii) to determine the time or times of grant, and the
extent, if any, of Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, Unrestricted Stock Awards,
Performance Share Awards and Dividend Equivalent Rights, or any
combination of the foregoing, granted to any one or more participants;
(iii) to determine the number of shares of Stock to be
covered by any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Award, which terms and conditions may differ among
individual Awards and participants, and to approve the form of written
instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting
of all or any portion of any Award and/or to include provisions in
Awards providing for such acceleration;
(vi) to impose any limitations on Awards granted under the
Plan, including limitations on transfers, repurchase provisions and
the like;
(vii) subject to the provisions of Section 5(a)(iii), to
extend at any time the period in which Stock Options may be exercised;
(viii) to determine at any time whether, to what extent,
and under what circumstances Stock and other amounts payable with
respect to an Award shall be deferred either automatically or at the
election of the participant and whether and to what extent the Company
shall pay or credit amounts constituting interest (at rates determined
by the Committee) or dividends or deemed dividends on such deferrals;
and
(ix) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its
own acts and proceedings as it shall deem advisable; to interpret the
terms and provisions of the Plan and any Award (including related
written instruments); to make all determinations it deems advisable
for the administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the
administration of the Plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.
9
<PAGE>
(c) Delegation of Authority to Grant Awards. The Committee, in its
---------------------------------------
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Committee's authority and duties with respect to Awards, including
the granting thereof, to individuals who are not subject to the reporting and
other provisions of Section 16 of the Act or "covered employees" within the
meaning of Section 162(m) of the Code. The Committee may revoke or amend the
terms of a delegation at any time but such action shall not invalidate any prior
actions of the Committee's delegate or delegates that were consistent with the
terms of the Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(a) Stock Issuable. The maximum number of shares of Stock reserved
--------------
and available for issuance under the Plan shall be 2,250,000 shares of Stock.
No more than 300,000 shares of Stock may be issued to Independent Directors
pursuant to Section 5(c) of the Plan. For purposes of the foregoing
limitations, the shares of Stock underlying any Awards which are forfeited,
canceled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) shall be added back to the shares
of Stock available for issuance under the Plan. Subject to such overall
limitation, shares of Stock may be issued up to such maximum number pursuant to
any type or types of Award; provided, however, that on and after the date the
Plan is subject to Section 162(m) of the Code, Stock Options with respect to no
more than 300,000 shares of Stock may be granted to any one individual
participant during any one calendar year period. The shares available for
issuance under the Plan may be authorized but unissued shares of Stock or shares
of Stock reacquired by the Company.
(b) Recapitalizations. If, through or as a result of any merger,
-----------------
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Committee shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan or for the
Independent Directors pursuant to Section 5(c) of the Plan, (ii) the number of
Stock Options that can be granted to any one individual participant, (iii) the
number and kind of shares or other securities subject to any then outstanding
Awards under the Plan, and (iv) the price for each share subject to any then
outstanding Stock Options under the Plan, without changing the aggregate
exercise price (i.e., the exercise price multiplied by the number of shares) as
to which such Stock Options remain exercisable. The adjustment by the Committee
shall be final, binding and conclusive. No fractional shares of Stock shall be
issued under the Plan resulting from any such adjustment, but the Committee in
its discretion may make a cash payment in lieu of fractional shares.
(c) Mergers and Other Transactions. In the case of (i) the
------------------------------
dissolution or liquidation of the Company, (ii) a merger, reorganization or
consolidation in which the Company is acquired by another person or entity
(other than a holding company formed by the Company), (iii) the sale of all or
substantially all of the assets of the Company to an unrelated person or entity,
or (iv) the sale of all of the Stock of the Company to an unrelated person or
entity (in each case, a "Transaction"), the outstanding Options held by
Independent Directors shall become fully vested. Upon the effectiveness of the
Transaction, the Plan and all Awards granted hereunder shall terminate, unless
10
<PAGE>
provision is made in connection with the Transaction for the assumption of
Awards heretofore granted, or the substitution of such Awards of new Awards of
the successor entity or parent thereof, with appropriate adjustment as to the
number and kind of shares and, if appropriate, the per share exercise prices,
as provided in Section 3(b) above. In the event of such termination, each
optionee shall be permitted to exercise for a period of at least 15 days prior
to the date of such termination (1) all options held by such optionee which are
then exercisable, and (2) such number of additional options held by such
optionee, to the extent such options are not then exercisable, as may be
specified in the relevant option agreement, if any. During this 15-day period,
Independent Directors may exercise unvested Options that will become fully
vested upon the effectiveness of the Transaction, subject to the consummation of
the Transaction.
(d) Substitute Awards. The Committee may grant Awards under the Plan
-----------------
in substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Committee may direct that the
substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
-----------
Participants in the Plan will be such officers and other employees,
consultants and key persons of the Company and its Subsidiaries who are
responsible for or contribute to the management, growth or profitability of the
Company and its Subsidiaries as are selected from time to time by the Committee,
in its sole discretion. In addition, Independent Directors are eligible to
receive Options pursuant to the provisions of Section 5(c) of the Plan.
Independent Directors who are not serving on the Committee are eligible to
receive Options pursuant to the provisions of Sections 5(a), (b) and (c) of
the Plan.
SECTION 5. STOCK OPTIONS
-------------
Any Stock Option granted under the Plan shall be pursuant to a stock
option agreement which shall be in such form as the Committee may from time to
time approve. Option agreements need not be identical.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. Non-Qualified
Stock Options may be granted to officers, employees, Independent Directors,
advisors, consultants and key persons of the Company and its Subsidiaries. To
the extent that any Option does not qualify as an Incentive Stock Option, it
shall be deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after April
18, 2006.
11
<PAGE>
(a) Terms of Stock Options. Stock Options granted under the Plan
----------------------
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Committee shall deem desirable:
(i) Exercise Price. The exercise price per share for the
--------------
Stock covered by a Stock Option shall be determined by the Committee
at the time of grant but shall not be less than 100% of the Fair
Market Value on the date of grant in the case of Incentive Stock
Options. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more
than 10% of the combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation and an Incentive Stock
Option is granted to such employee, the option price of such Incentive
Stock Option shall be not less than 110% of the Fair Market Value on
the grant date.
(ii) Grant of Discount Options in Lieu of Cash Compensation.
-----------------------------------------------------
Upon the request of an eligible participant (other than an Independent
Director) and with the consent of the Committee, such participant may
elect each calendar year to receive a Non-Qualified Stock Option in
lieu of any cash bonus or other compensation to which he may become
entitled during the following calendar year, but only if such
participant makes an irrevocable election to waive receipt of all or a
portion of such cash compensation. Such election shall be made on or
before the date set by the Committee which date shall be no later than
15 days (or such shorter period permitted by the Committee) preceding
January 1 of the calendar year for which the cash compensation would
otherwise be paid. A Non-Qualified Stock Option shall be granted to
each participant who made such an irrevocable election on the date the
waived cash compensation would otherwise be paid. The exercise price
per share shall be determined by the Committee. The number of shares
of Stock subject to the Stock Option shall be determined by dividing
the amount of the waived cash compensation by the difference between
the Fair Market Value of the Stock on the date the Stock Option is
granted and the exercise price per share of the Stock Option. The
Stock Option shall be granted for a whole number of shares so
determined; the value of any fractional share shall be paid in cash.
(iii) Option Term. The term of each Stock Option shall be
-----------
fixed by the Committee, but no Incentive Stock Option shall be
exercisable more than ten years after the date the option is granted.
If an employee owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any parent or
subsidiary corporation and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five
years from the date of grant.
12
<PAGE>
(iv) Exercisability; Rights of a Stockholder. Stock Options
---------------------------------------
shall become vested and exercisable at such time or times, whether or
not in installments, as shall be determined by the Committee at or
after the grant date; provided, however, that Stock Options granted in
lieu of cash compensation shall be exercisable in full as of the grant
date. The Committee may at any time accelerate the exercisability of
all or any portion of any Stock Option. An optionee shall have the
rights of a stockholder only as to shares acquired upon the exercise
of a Stock Option and not as to unexercised Stock Options.
(v) Method of Exercise. Stock Options may be exercised in
------------------
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the
purchase price may be made by one or more of the following methods;
provided, however, that the methods set forth in subsections (B) and
(C) below shall become available only after the closing of the Initial
Public Offering:
(A) In cash, by certified or bank check or other instrument
acceptable to the Committee;
(B) In the form of shares of Stock that are not then subject
to restrictions under any Company plan and that have been held by
the optionee free of such restrictions for at least six months,
if permitted by the Committee in its discretion. Such
surrendered shares shall be valued at Fair Market Value on the
exercise date; or
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions
to a broker to promptly deliver to the Company cash or a check
payable and acceptable to the Company to pay the purchase price;
provided that in the event the optionee chooses to pay the
purchase price as so provided, the optionee and the broker shall
comply with such procedures and enter into such agreements of
indemnity and other agreements as the Committee shall prescribe
as a condition of such payment procedure.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Stock to be
purchased pursuant to the exercise of a Stock Option will be
contingent upon receipt from the optionee (or a purchaser acting in
his stead in accordance with the provisions of the Stock Option) by
the Company of the full purchase price for such shares and the
fulfillment of any other requirements contained in the Stock Option or
applicable provisions of laws.
(vi) Termination. Unless otherwise provided in the option
-----------
agreement or determined by the Committee, upon the optionee's
termination of employment (or other business relationship) with the
Company and its Subsidiaries, the optionee's rights in his Stock
Options shall automatically terminate.
(vii) Annual Limit on Incentive Stock Options. To the
---------------------------------------
extent required for "incentive stock option" treatment under Section
422 of the Code, the aggregate Fair Market Value (determined as of the
time of grant) of the shares of Stock with respect to which Incentive
Stock Options granted under this Plan and any other plan of the
Company or its
13
<PAGE>
parent and subsidiary corporations become exercisable for the first time
by an optionee during any calendar year shall not exceed $100,000. To
the extent that any Stock Option exceeds this limit, it shall constitute
a Non-Qualified Stock Option.
(b) Reload Options. At the discretion of the Committee, Options
--------------
granted under Section 5(a) may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(v)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Committee may provide) to purchase that number of shares of Stock equal to the
number delivered to exercise the original Option.
(c) Stock Options Granted to Independent Directors.
----------------------------------------------
(i) Automatic Grant of Options.
--------------------------
(A) Each Independent Director who is first elected or
appointed to serve as a director commencing after the effective
date of the Initial Public Offering shall be granted, on the
fifth business day after his initial term of office commences, a
Non-Qualified Stock Option to acquire that number of shares of
Stock determined by dividing $200,000 by the Option Exercise
Price.
(B) Each Independent Director who is serving as
director of the Company on the fifth business day after each
annual meeting of stockholders, beginning with the 1997 annual
meeting, shall automatically be granted on such day a Non-
Qualified Stock Option to acquire that number of shares of Stock
determined by dividing $75,000 by the Option Exercise Price.
(ii) Option Terms.
------------
(A) The Option Exercise Price per share for the Stock
covered by a Stock Option granted under this Section 5(c) shall
be equal to the lesser of (1) the Fair Market Value of the Stock
on the date of grant or (2) the average of the Fair Market Value
of the Stock for a period of ten consecutive trading days prior
to the date of grant.
(B) Each Stock Option granted under this Section 5(c)
shall be exercisable in annual installments over four years. No
such Option shall be exercisable after the tenth anniversary of
the date it was granted.
(C) If an optionee ceases to be a director for any
reason, each Stock Option granted to such optionee under this
Section 5(c) shall terminate immediately with respect to all
shares of Stock for which it is not then exercisable. With
respect to the remaining shares, such Option shall terminate 60
days after the date the optionee ceases to be a director or at
the expiration of the stated term of the Option, if earlier;
provided, however, that (1) if the optionee dies while a
14
<PAGE>
director, such Option may be exercised for such remaining shares
by the personal representative or legatee of the optionee for a
period of one year from the date of death or until the expiration
of the stated term of the Option, if earlier; or (2) if the
optionee ceases to be a director by reason of disability, such
Option may be exercised for such remaining shares by the director
for six months after the date the optionee ceases to be a
director or until the expiration of the stated term of the
Option, if earlier.
(D) A Stock Option granted under this Section 5(c) may
be exercised only by written notice to the Company specifying the
number of shares to be purchased. Payment of the full purchase
price of the shares to be purchased may be made by one or more of
the methods specified in Section 5(a)(v). An optionee shall have
the rights of a stockholder only as to shares acquired upon the
exercise of an Option and not as to unexercised Options.
(iii) Limited to Independent Directors. The provisions of
--------------------------------
this Section 5(c) shall apply only to Stock Options granted or to be
granted to Independent Directors, and shall not be deemed to modify,
limit or otherwise apply to any other provision of this Plan or to any
Option issued under this Plan to a participant who is not an
Independent Director. To the extent that they are inconsistent with
any other provisions of the Plan, the provisions of this Section 5(c)
shall govern the rights and obligations of the Company and Independent
Directors respecting Options granted or to be granted to Independent
Directors.
(d) Non-transferability of Options. No Stock Option shall be
------------------------------
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee. Notwithstanding the foregoing, the
Committee may provide in an option agreement that the optionee may transfer,
without consideration for the transfer, his Non-Qualified Stock Options to
members of his immediate family, to trusts for the benefit of such family
members and to partnerships in which such family members are the only partners.
SECTION 6. RESTRICTED STOCK AWARDS
-----------------------
(a) Nature of Restricted Stock Awards. The Committee may grant
---------------------------------
Restricted Stock Awards to any officer, employee, consultant or key person of
the Company and its Subsidiaries. A Restricted Stock Award is an Award
entitling the recipient to acquire, at par value or such other purchase price
determined by the Committee, shares of Stock subject to such restrictions and
conditions as the Committee may determine at the time of grant ("Restricted
Stock"). Conditions may be based on continuing employment (or other business
relationship) and/or achievement of pre-established performance goals and
objectives.
(b) Rights as a Stockholder. Upon execution of a written instrument
-----------------------
setting forth the Restricted Stock Award and paying any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions
15
<PAGE>
contained in the written instrument evidencing the Restricted Stock Award.
Unless the Committee shall otherwise determine, certificates evidencing the
Restricted Stock shall remain in the possession of the Company until such
Restricted Stock is vested as provided in Section 6(e) below.
(c) Restrictions. Restricted Stock may not be sold, assigned,
------------
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument evidencing the
Restricted Stock Award. If a participant's employment (or other business
relationship) with the Company and its Subsidiaries terminates for any reason,
the Company or its assigns shall have the right or shall agree, as may be
specified in the relevant restricted stock agreement, to repurchase Restricted
Stock with respect to which conditions have not lapsed at their purchase price
from the participant or the participant's legal representative.
(d) Vesting of Restricted Stock. The Committee at the time of grant
---------------------------
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which Restricted Stock
shall become vested, subject to such further rights of the Company or its
assigns as may be specified in the instrument evidencing the Restricted Stock
Award.
(e) Waiver, Deferral and Reinvestment of Dividends. The written
----------------------------------------------
instrument evidencing the Restricted Stock Award may require or permit the
immediate payment, waiver, deferral or investment of dividends paid on the
Restricted Stock.
SECTION 7. UNRESTRICTED STOCK AWARDS
-------------------------
(a) Grant or Sale of Unrestricted Stock. The Committee may, in its
-----------------------------------
sole discretion, grant (or sell at a purchase price determined by the Committee)
an Unrestricted Stock Award to any officer, employee, consultant or key person
of the Company or its Subsidiaries, pursuant to which such individual may
receive shares of Stock free of any vesting restrictions ("Unrestricted Stock")
under the Plan. Unrestricted Stock Awards may be granted or sold as described
in the preceding sentence in respect of past services or other valid
consideration, or in lieu of any cash compensation due to such individual.
SECTION 8. PERFORMANCE SHARE AWARDS
------------------------
(a) Nature of Performance Share Awards. A Performance Share Award is
----------------------------------
an Award entitling the recipient to acquire shares of Stock upon the attainment
of specified performance goals. The Committee may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. Performance Share Awards may be granted under the Plan to any officer,
employee, consultant or key person of the Company or its Subsidiaries, including
those who qualify for awards under other performance plans of the Company. The
Committee in its sole discretion shall determine whether and to whom Performance
Share Awards shall be made, the performance goals applicable under each such
Award, the periods during which performance is to be measured, and all other
limitations and conditions applicable to the awarded Performance Shares;
provided, however, that the Committee may rely on the performance goals and
other standards applicable to other performance unit plans of the Company in
setting the standards for Performance Share Awards under the Plan.
16
<PAGE>
(b) Restrictions on Transfer. Performance Share Awards and all rights
------------------------
with respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) Rights as a Shareholder. A participant receiving a Performance
-----------------------
Share Award shall have the rights of a shareholder only as to shares actually
received by the participant under the Plan and not with respect to shares
subject to the Award but not actually received by the participant. A
participant shall be entitled to receive a stock certificate evidencing the
acquisition of shares of Stock under a Performance Share Award only upon
satisfaction of all conditions specified in the written instrument evidencing
the Performance Share Award (or in a performance plan adopted by the Committee).
(d) Termination. Except as may otherwise be provided by the Committee
-----------
at any time, a participant's rights in all Performance Share Awards shall
automatically terminate upon the participant's termination of employment (or
business relationship) with the Company and its Subsidiaries for any reason.
(e) Acceleration, Waiver, Etc. At any time prior to the participant's
-------------------------
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Committee may in its sole discretion accelerate, waive or,
subject to Section 12, amend any or all of the goals, restrictions or conditions
imposed under any Performance Share Award.
SECTION 9. DIVIDEND EQUIVALENT RIGHTS
--------------------------
(a) Dividend Equivalent Rights. A Dividend Equivalent Right is an
--------------------------
Award entitling the recipient to receive credits based on cash dividends that
would be paid on the shares of Stock specified in the Dividend Equivalent Right
(or other award to which it relates) if such shares were held by the recipient.
A Dividend Equivalent Right may be granted hereunder to any officer, employee,
consultant or key person, as a component of another Award or as a freestanding
award. The terms and conditions of Dividend Equivalent Rights shall be
specified in the grant. Dividend equivalents credited to the holder of a
Dividend Equivalent Right may be paid currently or may be deemed to be
reinvested in additional shares of Stock, which may thereafter accrue additional
equivalents. Any such reinvestment shall be at Fair Market Value on the date of
reinvestment or such other price as may then apply under a dividend reinvestment
plan sponsored by the Company, if any. Dividend Equivalent Rights may be
settled in cash or shares of Stock or a combination thereof, in a single
installment or installments. A Dividend Equivalent Right granted as a component
of another Award may provide that such Dividend Equivalent Right shall be
settled upon exercise, settlement, or payment of, or lapse of restrictions on,
such other award, and that such Dividend Equivalent Right shall expire or be
forfeited or annulled under the same conditions as such other award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other award.
(b) Interest Equivalents. Any Award under this Plan that is settled
--------------------
in whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
17
<PAGE>
SECTION 10. TAX WITHHOLDING
---------------
Each participant shall, no later than the date as of which the value
of an Award or of any Stock or other amounts received thereunder first becomes
includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of, any federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company and its
Subsidiaries shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the participant.
SECTION 11. TRANSFER, LEAVE OF ABSENCE, ETC.
--------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to re-
employment is guaranteed either by a statute or by contract or under the policy
pursuant to which the leave of absence was granted or if the Committee otherwise
so provides in writing.
SECTION 12. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the
Committee may, at any time, amend or cancel any outstanding Award (or provide
substitute Awards at the same or reduced exercise or purchase price or with no
exercise or purchase price in a manner not inconsistent with the terms of the
Plan), but such price, if any, must satisfy the requirements which would apply
to the substitute or amended Award if it were then initially granted under this
Plan) for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Award without the holder's consent. If and to the extent determined by the
Committee to be required by the Act to ensure that Awards granted under the Plan
are exempt under Rule 16b-3 promulgated under the Act, or that Incentive Stock
Options granted under the Plan are qualified under Section 422 of the Code, Plan
amendments shall be subject to approval by the Company stockholders who are
eligible to vote at a meeting of stockholders.
SECTION 13. STATUS OF PLAN
--------------
With respect to the portion of any Award which has not been exercised
and any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
18
<PAGE>
SECTION 14. GENERAL PROVISIONS
------------------
(a) No Distribution; Compliance with Legal Requirements. The
---------------------------------------------------
Committee may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Committee may require the placing of such
stop-orders and restrictive legends on certificates for Stock and Awards as it
deems appropriate.
(b) Other Compensation Arrangements; No Employment Rights. Nothing
-----------------------------------------------------
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
SECTION 15. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the holders of a
majority of the shares of Stock of the Company present or represented and
entitled to vote at a meeting of stockholders. Subject to such approval by the
stockholders and to the requirement that no Stock may be issued hereunder prior
to such approval, Stock Options and other Awards may be granted hereunder on and
after adoption of this Plan by the Board.
SECTION 16. GOVERNING LAW
-------------
This Plan shall be governed by Delaware law except to the extent such
law is preempted by federal law.
Adopted and Effective: April 19, 1996
19
<PAGE>
EXHIBIT 10.2
ANSYS, INC.
EMPLOYEE STOCK PURCHASE PLAN
The purpose of the ANSYS, Inc. Employee Stock Purchase Plan ("the
Plan") is to provide eligible employees of ANSYS, Inc. (the "Company") and its
subsidiaries with opportunities to purchase shares of the Company's common
stock, par value $.01 per share (the "Common Stock"). Two hundred ten thousand
(210,000) shares of Common Stock in the aggregate have been approved and
reserved for this purpose. The Plan is intended to constitute an "employee
stock purchase plan" within the meaning of Section 423(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), and shall be interpreted in
accordance with that intent.
1. Administration. The Plan will be administered by the
--------------
Company's Board of Directors (the "Board") or by a committee appointed by the
Board for such purpose (the "Committee"). The Board or the Committee has
authority to make rules and regulations for the administration of the Plan, and
its interpretations and decisions with regard thereto shall be final and
conclusive. No member of the Board or the Committee shall be liable for any
action or determination with respect to the Plan or any option granted
hereunder.
2. Offerings. The Company will make one or more offerings to
---------
eligible employees to purchase the Common Stock under the Plan ("Offerings").
The initial Offering will begin on August 1, 1996 and will end on January 31,
1997. Thereafter, an Offering will begin on the first business day occurring on
or after each February 1 and August 1 and will end on the last business day
occurring on or before the following July 31 and January 31, respectively. The
Committee may, in its discretion, choose an Offering period of six months or
less for each of the Offerings and choose a different Offering period for each
Offering.
20
<PAGE>
3. Eligibility. All employees of the Company (including
-----------
employees who are also directors of the Company) and all employees of each
Designated Subsidiary (as defined in Section 11) are eligible to participate in
any one or more of the Offerings under the Plan, provided that as of the first
day of the applicable Offering (the "Offering Date") they are customarily
employed by the Company or a Designated Subsidiary for more than twenty (20)
hours a week.
4. Participation. An employee eligible on any Offering Date
-------------
may participate in such Offering by submitting an enrollment form to his or her
appropriate payroll location at least fifteen (15) business days before the
Offering Date (or by such other deadline as shall be established for the
Offering). The form will (a) state a whole percentage to be deducted from such
employee's Compensation (as defined in Section 11) per pay period, (b) authorize
the purchase of Common Stock for such employee in each Offering in accordance
with the terms of the Plan and (c) specify the exact name or names in which
shares of Common Stock purchased for such employee are to be issued pursuant to
Section 10. An employee who does not enroll in accordance with these procedures
will be deemed to have waived the right to participate. Unless an employee
files a new enrollment form or withdraws from the Plan, such employee's
deductions and purchases will continue at the same percentage of Compensation
for future Offerings, provided such employee remains eligible. Notwithstanding
the foregoing, participation in the Plan will neither be permitted nor be denied
contrary to the requirements of the Code.
5. Employee Contributions. Each eligible employee may
----------------------
authorize payroll deductions at a minimum of one percent (1%) up to a maximum of
ten percent (10%) of his or her Compensation for each pay period. The Company
will maintain book accounts showing the amount of payroll deductions made by
each participating employee for each Offering. No interest will accrue or be
paid on payroll deductions.
21
<PAGE>
6. Deduction Changes. An employee may not increase his or her
-----------------
payroll deduction during any Offering, but may decrease his or her payroll
deduction for the remainder of the Offering. An employee may also terminate his
or her payroll deduction for the remainder of the Offering, either with or
without withdrawing from the Offering under Section 7. To reduce or terminate
his or her payroll deduction (without withdrawing from the Offering), an
employee must submit a new enrollment form at least fifteen (15) business days
(or such shorter period as shall be established) before the payroll date on
which the change becomes effective. Subject to the requirements of Sections 4
and 5, an employee may either increase or decrease his or her payroll deduction
with respect to the next Offering by filing a new enrollment form at least
fifteen (15) business days before the next Offering Date (or by such other
deadline as shall be established for the Offering).
7. Withdrawal. An employee may withdraw from participation in
----------
the Plan by delivering a written notice of withdrawal to his or her appropriate
payroll location. The employee's withdrawal will be effective as of the next
business day. Following an employee's withdrawal, the Company will promptly
refund such employee's entire account balance under the Plan (after payment for
any Common Stock purchased before the effective date of withdrawal). Partial
withdrawals are not permitted. The employee may not begin participation again
during the remainder of the Offering, but may enroll in a subsequent Offering in
accordance with Section 4.
8. Grant of Options. On each Offering Date, the Company will
----------------
grant to each eligible employee who is then a participant in the Plan an option
("Option") to purchase on the last day of such Offering (the "Exercise Date"),
at the Option Price hereinafter provided for, a maximum of nine hundred sixty
(960) shares of Common Stock reserved for the purposes of the Plan, or such
other maximum number of shares as shall have been established by the Board or
the Committee in
22
<PAGE>
advance of the offering. The purchase for each share purchased under such Option
(the "Option Price") will be 85% of the Fair Market Value of the Common Stock on
the Offering Date or the Exercise Date, whichever is less.
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and all stock which the employee
has a contractual right to purchase shall be treated as stock owned by the
employee. In addition, no employee may be granted an Option which permits his
or her rights to purchase stock under the Plan, and any other employee stock
purchase plan of the Company and its Parents and Subsidiaries, to accrue at a
rate which exceeds $25,000 of the fair market value of such stock (determined on
the option grant date or dates) for each calendar year in which the Option is
outstanding at any time. The purpose of the limitation in the preceding
sentence is to comply with Section 423(b)(8) of the Code.
9. Exercise of Option and Purchase of Shares. Each employee
-----------------------------------------
who continues to be a participant in the Plan on the Exercise Date shall be
deemed to have exercised his or her Option on such date and shall acquire from
the Company such number of whole shares of Common Stock reserved for the purpose
of the Plan as his or her accumulated payroll deductions on such date will
purchase at the Option Price, subject to any other limitations contained in the
Plan. Any amount remaining in an employee's account at the end of an Offering
solely by reason of the inability to purchase a fractional share will be carried
forward to the next Offering; any other balance remaining in an employee's
account at the end of an Offering will be refunded to the employee promptly.
23
<PAGE>
10. Issuance of Certificates. Certificates representing shares
------------------------
of Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or in the name of a broker authorized by
the employee to be his or her nominee for such purpose.
11. Definitions.
-----------
The term "Compensation" means the amount of total cash compensation,
prior to salary reduction pursuant to either Section 125 or 401(k) of the Code,
including base pay, overtime, commissions and bonuses, but excluding allowances
and reimbursements for expenses such as relocation allowances or travel
expenses, income or gains on the exercise of Company stock options, and similar
items.
The term "Designated Subsidiary" means any present or future
Subsidiary (as defined below) that has been designated by the Board or the
Committee to participate in the Plan. The Board or the Committee may so
designate any Subsidiary, or revoke any such designation, at any time and from
time to time, either before or after the Plan is approved by the stockholders.
The term "Fair Market Value of the Common Stock" means (i) if the
Common Stock is admitted to trading on a national securities exchange or the
National Association of Securities Dealers National Market System, the closing
price reported for the Common Stock on such exchange or system for such date or,
if no sales were reported for such date, for the last date preceding such date
for which a sale was reported, or (ii) if clause (i) does not apply but the
Common Stock is admitted to quotation on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), the average of the highest bid
and lowest asked prices of the Common Stock reported on NASDAQ for such date or,
if no bid and asked prices were reported for such date, for the last day
preceding such date for which such prices were reported.
24
<PAGE>
The term "Parent" means a "parent corporation" with respect to the
Company, as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to
the Company, as defined in Section 424(f) of the Code.
12. Rights on Termination of Employment. If a participating
-----------------------------------
employee's employment terminates for any reason before the Exercise Date for any
Offering, no payroll deduction will be taken from any pay due and owing to such
employee and the balance in such employee's account will be paid to such
employee or, in the case of death, to such employee's designated beneficiary as
if such employee had withdrawn from the Plan under Section 7. An employee will
be deemed to have terminated employment, for this purpose, if the corporation
that employs such employee, having been a Designated Subsidiary, ceases to be a
Subsidiary, or if such employee is transferred to any corporation other than the
Company or a Designated Subsidiary.
13. Special Rules. Notwithstanding anything herein to the
-------------
contrary, the Board or the Committee may adopt special rules applicable to the
employees of a particular Designated Subsidiary, whenever the Board or the
Committee determines that such rules are necessary or appropriate for the
implementation of the Plan in a jurisdiction where such Designated Subsidiary
has employees; provided that such rules are consistent with the requirements of
Section 423(b) of the Code. Such special rules may include (by way of example,
but not by way of limitation) the establishment of a method for employees of a
given Designated Subsidiary to fund the purchase of shares other than by payroll
deduction, if the payroll deduction method is prohibited by local law or is
otherwise impracticable. Any special rules established pursuant to this Section
13 shall, to the extent possible, result in the employees subject to such rules
having substantially the same rights as other participants in the Plan.
25
<PAGE>
14. Optionees Not Stockholders. Neither the granting of an
--------------------------
Option to an employee nor the deductions from his or her pay shall constitute
such employee a holder of the shares of Common Stock covered by an Option under
the Plan until such shares have been purchased by and issued to such employee.
15. Rights Not Transferable. Rights under the Plan are not
-----------------------
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during the employee's lifetime
only by the employee.
16. Application of Funds. All funds received or held by the
--------------------
Company under the Plan may be combined with other corporate funds and may be
used for any corporate purpose.
17. Adjustment in Case of Changes Affecting Common Stock. In
----------------------------------------------------
the event of a subdivision of outstanding shares of Common Stock, or the payment
of a dividend in Common Stock, the number of shares approved for the Plan, and
the share limitation set forth in Section 8, shall be increased proportionately,
and such other adjustment shall be made as may be deemed equitable by the Board
or the Committee. In the event of any other change affecting the Common Stock,
such adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
18. Amendment of the Plan. The Board or the Committee may at
---------------------
any time, and from time to time, amend the Plan in any respect, except that
without the approval, within twelve (12) months of such Board or Committee
action, by the holders of a majority of the shares of stock of the Company
present or represented and entitled to vote at a meeting of stockholders, no
amendment shall be made increasing the number of shares approved for the Plan or
making any other change that would require stockholder approval in order for the
Plan, as amended, to qualify as an "employee stock purchase plan" under Section
423(b) of the Code.
26
<PAGE>
19. Insufficient Shares. If the total number of shares of
-------------------
Common Stock that would otherwise be purchased on any Exercise Date plus the
number of shares purchased under previous Offerings under the Plan exceeds the
maximum number of shares issuable under the Plan, the shares then available
shall be apportioned among participants in proportion to the amount of payroll
deductions accumulated on behalf of each participant that would otherwise be
used to purchase Common Stock on such Exercise Date.
20. Termination of the Plan. The Plan may be terminated at any
-----------------------
time by the Board or the Committee. Upon termination of the Plan, all amounts
in the accounts of participating employees shall be promptly refunded.
21. Governmental Regulations. The Company's obligation to sell
------------------------
and deliver Common Stock under the Plan is subject to obtaining all governmental
approvals required in connection with the authorization, issuance, or sale of
such stock.
The Plan shall be governed by Delaware law except to the extent that
such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of
------------------
an Option from authorized but unissued Common Stock, from shares held in the
treasury of the Company, or from any other proper source.
23. Tax Withholding. Participation in the Plan is subject to
---------------
any required tax withholding on income of the participant in connection with the
Plan. Each employee agrees, by entering the Plan, that the Company and its
Subsidiaries shall have the right to deduct any such taxes from any payment of
any kind otherwise due to the employee, including shares issuable under the
Plan.
27
<PAGE>
24. Notification Upon Sale of Shares. Each employee agrees, by
--------------------------------
entering the Plan, to give the Company prompt notice of any disposition of
shares purchased under the Plan where such disposition occurs within two years
after the date of grant of the Option pursuant to which such shares were
purchased.
25. Effective Date and Approval of Shareholders. The Plan
-------------------------------------------
shall take effect on the first day of the Company's initial public offering,
subject to approval by the holders of a majority of the shares of stock of the
Company present or represented and entitled to vote at a meeting of
stockholders, which approval must occur within twelve (12) months of the
adoption of the Plan by the Board.
28
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,661
<SECURITIES> 0
<RECEIVABLES> 10,580
<ALLOWANCES> 725
<INVENTORY> 108
<CURRENT-ASSETS> 20,807
<PP&E> 3,149
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,340
<CURRENT-LIABILITIES> 10,661
<BONDS> 0
0
0
<COMMON> 162
<OTHER-SE> 30,679
<TOTAL-LIABILITY-AND-EQUITY> 41,340
<SALES> 17,222
<TOTAL-REVENUES> 22,073
<CGS> 1,482
<TOTAL-COSTS> 2,735
<OTHER-EXPENSES> 18,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,670
<INCOME-PRETAX> (392)
<INCOME-TAX> (150)
<INCOME-CONTINUING> (242)
<DISCONTINUED> 0
<EXTRAORDINARY> (343)
<CHANGES> 0
<NET-INCOME> (585)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
<PAGE>
EXHIBIT 99 Certain Factors Regarding Future Results
Information provided by the Company or its spokespersons from
time to time may contain forward-looking statements concerning
projected financial performance, market and industry segment
growth, product development and commercialization or other aspects
of future operations. Such statements will be based on the
assumptions and expectations of the Company's management at the
time such statements are made. The Company cautions investors that
its performance (and, therefore, any forward-looking statement) is
subject to risks and uncertainties. Various important factors,
including, but not limited to the following, may cause the
Company's future results to differ materially from those projected
in any forward-looking statement.
Potential Fluctuations in Operating Results. The Company may
experience significant fluctuations in future quarterly operating
results. Fluctuations may be caused by many factors, including the
timing of new product releases or product enhancements by the
Company or its competitors; the size and timing of individual
orders; software errors or other product quality problems;
competition and pricing; customer order deferrals in anticipation
of new products or product enhancements; reduction in demand for
the Company's products; changes in operating expenses; mix of
software license and maintenance and service revenue; personnel
changes; and general economic conditions. A substantial portion of
the Company's operating expenses is related to personnel,
facilities and marketing programs. The level of personnel and
personnel expenses cannot be adjusted quickly and is based, in
significant part, on the Company's expectation for future
revenues. The Company does not typically experience significant
order backlog. Further, the Company has often recognized a
substantial portion of its revenue in the last month of a quarter,
with this revenue frequently concentrated in the last weeks or
days of a quarter. As a result, product revenues in any quarter
are substantially dependent on orders booked and shipped in the
latter part of that quarter, and revenues for any future quarter
are not predictable with any significant degree of accuracy.
Stock Market Volatility. Market prices for securities of
software companies have generally been volatile. In particular,
the market price of the Company's common stock has been and may
continue to be subject to significant fluctuations as a result of
factors affecting the computer industry or the securities markets
in general.
In addition, a large percentage of the Company's common stock is
held by institutional investors. Consequently, actions with
respect to the Company's common stock by certain of these
institutional investors could have a significant impact on the
market price for the stock.
Rapidly Changing Technology; New Products; Risk of Product
Defects. The markets for the Company's products are generally
characterized by rapidly changing technology and frequent new
product introductions that can render existing products obsolete
or unmarketable. A major factor in the Company's future success
will be its ability to anticipate technological changes and to
develop and introduce in a timely manner enhancements to its
existing products and new products to meet those changes. If the
Company is unable to introduce new products and respond to
industry changes on a timely basis, its business, financial
condition and results of operations could be materially adversely
affected. The introduction and marketing of new or enhanced
products require the Company to manage the transition from
existing products in order to minimize disruption in customer
purchasing patterns. There can be no assurance
1
<PAGE>
that the Company will be successful in developing and marketing,
on a timely basis, new products or product enhancements, that its
new products will adequately address the changing needs of the
marketplace, or that it will successfully manage the transition
from existing products. Software products as complex as those
offered by the Company may contain undetected errors or failures
when first introduced or as new versions are released, and the
likelihood of errors is increased as a result of the Company's
commitment to accelerating the frequency of its product releases.
There can be no assurance that errors will not be found in new or
enhanced products after commencement of commercial shipments. Any
of these problems may result in the loss of or delay in market
acceptance, diversion of development resources, damage to the
Company's reputation, or increased service or warranty costs, any
of which could have a materially adverse effect upon the Company's
business, financial condition and results of operations.
Dependence on Distributors. The Company distributes its products
principally through its global network of 35 independent, regional
ANSYS Support Distributors ("ASDs"). The ASDs sell ANSYS products
and other noncompeting products to new and existing customers,
expand installations within their existing customer base, offer
consulting services and provide the first line of ANSYS technical
support. The ASDs have more immediate contact with most customers
who use ANSYS software than does the Company. Consequently, the
Company is highly dependent on the efforts of the ASDs.
Difficulties in ongoing relationships with ASDs, such as delays in
collecting accounts receivable, ASDs' failure to meet performance
criteria or to promote the Company's products as aggressively as
the Company expects, and differences in the handling of customer
relationships, could adversely affect the Company's performance.
Additionally, the loss of any major ASD for any reason, including
an ASD's decision to sell competing products rather than ANSYS
products, could have a materially adverse effect on the Company.
Moreover, the Company's future success will depend substantially
on the ability and willingness of its ASDs to continue to dedicate
the resources necessary to promote the Company's products and to
support a larger installed base of the Company's products. If the
ASDs are unable or unwilling to do so, the Company may be unable
to sustain revenue growth.
Competition. The CAD, CAE and computer-aided manufacturing
("CAM") market is intensely competitive. In the traditional CAE
market, the Company's primary competitors include MacNeal-
Schwendler Corporation, Hibbitt, Karlsson and Sorenson, Inc. and
MARC Analysis Research Corporation. The Company also faces
competition from smaller vendors of specialized analysis
applications in fields such as computational fluid dynamics. In
addition, certain integrated CAD suppliers such as Parametric
Technology Corporation and Structural Dynamics Research
Corporation provide varying levels of design analysis and
optimization and verification capabilities as part of their
product offerings.
The entrance of new competitors would be likely to intensify
competition in all or a portion of the overall CAD, CAE and CAM
market. Some of the Company's current and possible future
competitors have greater financial, technical, marketing and other
resources than the Company, and some have well established
relationships with current and potential customers of the Company.
It is also possible that alliances among competitors may emerge
and rapidly acquire significant market share or that competition
will increase as a result of software industry consolidation.
Increased competition may result in price reductions, reduced
profitability and loss of market share, any of which would
materially adversely affect the Company's business, financial
condition and results of operations.
2
<PAGE>
Dependence on Senior Management and Key Technical Personnel. The
Company is highly dependent upon the ability and experience of its
senior executives, Peter J. Smith and Dr. John A. Swanson, and its
key technical and other management employees. Although the Company
has entered into employment agreements with Mr. Smith and Dr.
Swanson, the loss of either of these senior executives or a number
of the Company's other key employees could adversely affect the
Company's ability to conduct its operations.
Risks Associated with International Activities. A significant
and growing portion of the Company's business comes from outside
the United States. Risks inherent in the Company's international
business activities include imposition of government controls,
export license requirements, restrictions on the export of
critical technology, political and economic instability, trade
restrictions, changes in tariffs and taxes, difficulties in
staffing and managing international operations, longer accounts
receivable payment cycles, and the burdens of complying with a
wide variety of foreign laws and regulations. Effective copyright
and trade secret protection may not be available in every foreign
country in which the Company sells its products. The Company's
business, financial condition and results of operations could be
materially adversely affected by any of these risks.
Dependence on Proprietary Technology. The Company's success is
highly dependent upon its proprietary technology. The Company does
not have patents on any of its technology and relies on contracts
and the laws of copyright and trade secrets to protect its
technology. Although the Company maintains a trade secrets
program, enters into confidentiality agreements with its employees
and distributors and limits access to and distribution of its
software, documentation and other proprietary information, there
can be no assurance that the steps taken by the Company to protect
its proprietary technology will be adequate to prevent
misappropriation of its technology by third parties, or that third
parties will not be able to develop similar technology
independently. Although the Company is not aware that any of its
technology infringes upon the rights of third parties, there can
be no assurance that other parties will not assert technology
infringement claims against the Company, or that, if asserted,
such claims will not prevail.
Increased Reliance on Perpetual Licenses. The Company has
historically maintained stable recurring revenue from the sale of
time-based licenses for its software products. Recently, the
Company has experienced an increase in customer preference for
perpetual licenses that involve payment of a single up-front fee
and that are more typical in the computer software industry.
Although lease license revenue currently represents a majority of
the Company's software license fee revenue, to the extent that
perpetual license revenue increases as a percent of total software
license fee revenue, the Company's revenue in any period will
increasingly depend on sales completed during that period.
3
