<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1996
REGISTRATION NO. 333-11017
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
SIMULATION SCIENCES INC.
(Exact name of registrant as specified in charter)
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DELAWARE 7371 95-2487793
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or Classification Code Number) Number)
organization)
</TABLE>
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601 VALENCIA AVENUE, SUITE 100, BREA, CA 92823, (714) 579-0412
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
CHARLES R. HARRIS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
SIMULATION SCIENCES INC., 601 VALENCIA AVENUE, SUITE 100, BREA, CA 92823
(Name, address, including zip code, and telephone number, including area code,
of agent for service of process)
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With copies to:
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JEFFREY D. SAPER, ESQ. ROBERT M. MATTSON, JR., ESQ.
MARK BONHAM, ESQ. KEVIN A. FAULKNER, ESQ.
ROBERT G. O'CONNOR, ESQ. HANS J. BRASSELER, ESQ.
WILSON SONSINI GOODRICH & ROSATI, P.C. MORRISON & FOERSTER LLP
650 PAGE MILL ROAD 19900 MACARTHUR BLVD., SUITE 1200
PALO ALTO, CALIFORNIA 94304 IRVINE, CA 92715
(415) 493-9300 (714) 251-7500
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PRICE PER SHARE (2) OFFERING PRICE (2) FEE(3)
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Common Stock, $.001 par
value..................... 4,140,000 shares $10.00 $41,400,000 $14,276
</TABLE>
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(1) Includes 540,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The Registrant previously paid $13,681 for the registration fee associated
with the registration of 3,967,500 shares at a proposed maximum offering
price per share of $10.00. The registration fee for the additional 172,500
shares registered hereby is $595.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
DATED SEPTEMBER , 1996
3,600,000 SHARES
LOGO
COMMON STOCK
------------------
Of the 3,600,000 shares of Common Stock offered hereby, 2,700,000 shares
are being sold by Simulation Sciences Inc. ("SimSci" or the "Company") and
900,000 shares are being sold by the Selling Stockholders. See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders. Prior to this offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $8.00 and
$10.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied to have the Common Stock approved for quotation on the Nasdaq National
Market under the symbol "SMCI."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
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Per Share.............. $ $ $ $
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Total(3)............... $ $ $ $
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</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company and certain Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 540,000 additional shares of
Common Stock solely to cover over-allotments, if any. To the extent that the
option is exercised, the Underwriters will offer the additional shares at
the Price to Public shown above. If the option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
ALEX. BROWN & SONS WESSELS, ARNOLD & HENDERSON
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 3
LOGO
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PRO/II, PROVISION, PROVISION TOOLKIT, PIPEPHASE, HEXTRAN, INPLANT, DATACON,
OpenYield, PROTISS and ROM are registered trademarks of the Company. NETOPT is a
trademark of the Company. SimSci is a service mark of the Company. All other
trademarks or service marks referred to in this Prospectus are the property of
their respective owners.
------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading "Risk Factors."
THE COMPANY
Simulation Sciences Inc. ("SimSci" or the "Company") is a leading provider
of commercial simulation software and related services to the process
industries, including the petroleum, petrochemical and industrial chemicals
process industries and the engineering and construction firms that support those
industries. The Company's windows-based graphical user interface and simulation
software products are designed to provide the information necessary to increase
profitability by reducing capital investment costs, improving plant yields and
enhancing management decision making. In addition, the Company's Open Simulation
Application Framework enables companies in the process industries to integrate
their software with the Company's and other third-party software, thereby
maximizing their investments in existing technology. SimSci has over 500
customers throughout the process industries and has offices in seven countries
supporting sales in over 70 countries worldwide. In February 1996, the Company
entered into a joint development agreement with Shell Oil Company to develop a
new, real-time simulation and optimization software product.
According to industry sources, companies in the process industries operate
more than 14,000 processing facilities worldwide. Companies in these
capital-intensive industries must continually seek ways to increase the
efficiency of their plant designs and production operations to increase
profitability and improve return on investment. Process industry plant
operations are comprised of a series of distinct process steps that involve
different chemical reactions and physical processes. The chemistry and physics
of these individual process steps can be modeled in software using sophisticated
mathematical techniques. Because plants in these industries process very large
volumes of materials, even slight increases in efficiency may result in
significant increases in profitability. Furthermore, increasingly intense global
competition and stringent environmental and safety regulations have placed
additional pressure on these industries to optimize the conversion of raw
materials into finished products. Today's process industry managers are
increasingly seeking to use software modeling for process design, to improve the
efficiency of their ongoing operations and to manage their overall plants more
profitably.
PRO/II, the Company's leading steady-state simulation program, enables
process design engineers to rigorously model a wide range of organic and
inorganic chemical processes, such as those found in the oil and gas, chemical
and petrochemical industries. Engineers use PRO/II to design new processes or to
troubleshoot, debottleneck and retrofit existing operations to make them operate
more efficiently and profitably. SimSci's products are designed to run on
industry-standard platforms and software environments, including 32-bit Windows
and UNIX, and utilize an easy-to-use graphical user interface. The Company's
PROVISION graphical environment enables third-party and in-house software to
interoperate with the Company's simulation software through OSAF. The Company
also offers a number of other products to simulate various aspects of process
industry operations.
The Company currently has over 500 customers across the major process
industries. In 1995 and the six months ended June 30, 1996, 64% and 65%,
respectively, of the Company's total revenue was generated from customers
outside of the United States. Customers include Amoco Corporation, Arco, BP Oil
Company, Chevron U.S.A. Inc., Citgo Petroleum Company, Conoco Inc., Exxon Oil
Corporation, Mobil Oil Corporation, Royal Dutch Shell Oil Company, Sun Company
Inc., Texaco Refining and Marketing, Inc., Unocal Corporation, Allied Signal
Corporation, Hoechst A.G., Imperial Chemical Industries PLC, Mitsubishi Chemical
Corporation, Nippon Sanso Corporation, Novacor Chemical Corp., Saudi Basic
Industries Corp., Bechtel Corporation, Brown & Root, Inc., Fluor Daniel, Inc.,
Nippon Oil Engineering and Construction, Raytheon Engineers & Construction and
Snamprogetti SpA.
The Company's strategy is to expand and extend the use of its simulation
technology and solutions for design, optimization and management functions
throughout the process industries by leveraging core simulation technology,
integrating core products into the OSAF framework, expanding on-line modeling
capabilities, penetrating additional process industries and promoting strategic
relationships.
The Company markets its products and services through its direct sales
organization complemented by sales agents and distributors. As of June 30, 1996,
the Company's global direct sales force included 26 sales personnel located in
three sales and support offices in the United States and international sales
offices in the United Kingdom, Germany, Egypt, Japan, Singapore and Venezuela.
SimSci also markets its products at a substantial discount to universities for
use in teaching and research, participates in industry trade shows, conducts
direct mail campaigns and sponsors industry conferences and seminars.
The Company was incorporated in California in 1967 and reincorporated in
Delaware in September 1996. The Company's principal offices are located at 601
Valencia Avenue, Suite 100, Brea, California 92823 and its telephone number at
that location is (714) 579-0412.
3
<PAGE> 5
THE OFFERING
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Common Stock offered by the Company................. 2,700,000 shares
Common Stock offered by the Selling Stockholders.... 900,000 shares
Common Stock to be outstanding after the offering... 9,400,503 shares(1)
Use of proceeds..................................... For working capital and other general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.............. SMCI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, JUNE 30,
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1991 1992 1993 1994 1995 1995 1996
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenue................... $21,513 $23,940 $28,144 $28,252 $33,119 $15,246 $21,791
Gross profit.................... 17,769 19,855 24,014 21,564 26,359 12,147 18,460
Total operating expenses........ 17,527 19,009 21,857 23,965 24,152 11,362 17,250
Income (loss) from operations... 242 846 2,157 (2,401) 2,207 784 1,210
Net income (loss)............... 114 536 1,604 (1,642) 1,355 620 810
Pro forma net income per
share......................... $ .17 $ .10
Pro forma weighted average
common shares(2).............. 7,789 7,789
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------
PRO FORMA(2) AS ADJUSTED(3)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................................. $ 2,316 $ 24,291
Total assets................................................. 22,596 44,007
Total liabilities............................................ 11,874 11,686
Total stockholders' equity................................... 10,722 32,321
</TABLE>
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(1) Excludes (i) 1,514,166 shares of Common Stock issuable upon the exercise of
outstanding options at June 30, 1996 under the Company's 1994 Stock Option
Plan at a weighted average exercise price of $4.26 per share, (ii) options
to purchase an additional 26,667 shares granted after June 30, 1996 and the
cancellation of options for 12,000 shares after June 30, 1996 and (iii)
438,598 shares issuable upon the exercise of outstanding warrants at $2.85
per share at June 30, 1996.
(2) Reflects the conversion of all outstanding shares of Preferred Stock into
shares of Common Stock at the closing of this offering. See
"Capitalization" and Note 4 of Notes to Consolidated Financial Statements.
(3) Adjusted to give effect to the sale of the 2,700,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $9.00 per share after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company. See "Use of Proceeds"
and "Capitalization."
------------------------
Except as otherwise specified, all information in this Prospectus (i)
assumes no exercise of the
Underwriters' over-allotment option; (ii) reflects the conversion of all of the
Company's outstanding shares of Preferred Stock into shares of Common Stock,
which will occur automatically at the closing of this offering; (iii) reflects a
one-for-three reverse stock split to be effective prior to the closing of this
offering; and (iv) reflects the reincorporation of the Company in the State of
Delaware in September 1996. See "Underwriting."
4
<PAGE> 6
RISK FACTORS
The shares offered hereby involve a high degree of risk. The following risk
factors should be considered carefully in addition to the other information in
this Prospectus before purchasing the shares of Common Stock offered hereby. The
discussion in this Prospectus contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus. The Company's actual results
could differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere herein.
Fluctuations in Future Operating Results. The Company's operating results
have fluctuated in the past and may fluctuate significantly from quarter to
quarter or on an annual basis in the future as a result of a number of factors,
including, but not limited to: the size and timing of customer orders; changes
in license renewal rates, delays in renewals or failure of existing customers to
renew their licenses with the Company when their current licenses expire; the
length of the Company's sales cycle; changes in contract terms (including terms
affecting the timing of recognition of license revenue) and the rate at which
such changes are made; success of the Company's service offerings; timing of new
product announcements and introductions by the Company and its competitors; the
Company's ability to develop, introduce and market new products and product
enhancements; market acceptance of the Company's products; deferrals of customer
orders in anticipation of new products or product enhancements; the Company's
ability to control costs, including the need for, and degree of use of,
third-party contractors; the availability of components; political instability
in, or trade embargoes with respect to, foreign markets; changes in the
Company's management team; and fluctuating economic conditions. The Company's
future operating results may fluctuate as a result of these and other factors,
which could have a material adverse effect on the Company's business, operating
results and financial condition. It is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company ships software products within a short period after receipt of
a new order and typically does not have a material backlog of unfilled orders.
Revenue in any quarter is dependent (and will become substantially dependent as
the Company increases the number of contracts for new and renewing customers
that result in the recognition of license revenue upon shipment) on orders
booked and license renewals in that quarter and are not predictable with any
degree of certainty. In addition, the Company typically experiences a seasonal
increase in sales during the quarter ended December 31 of each year. Since the
Company's expense levels are based in part on its expectations regarding future
revenue, if revenue is below expectations in any given quarter, the adverse
effect may be magnified by the Company's inability to adjust spending in a
timely manner to compensate for any revenue shortfall. In addition, a customer's
purchase of the Company's products generally involves a significant commitment
of capital with the attendant delays frequently associated with authorization
procedures for substantial capital expenditures within large organizations.
Moreover, because customers are purchasing larger and more complex simulation
software products, the average order value has been increasing and purchases of
the Company's products require approval at higher executive levels. For these
and other reasons, the sales cycles for the Company's products can be lengthy
and are subject to a number of significant risks over which the Company has
little or no control. As a result of the large dollar amounts represented by a
single order, the timing of the receipt of an order can have a significant
impact on the Company's revenues and earnings for a particular period. Any
significant or ongoing failure to reach definitive agreements with customers,
including renewals of current licensing agreements upon their expiration, would
have a material adverse effect on the Company's business, operating results and
financial condition. In 1994, the Company experienced delays in the completion
of Rigorous On-line Modeling ("ROM") projects that resulted in a material
adverse effect on the Company's operating results, and no assurance can be given
that the Company will not experience similar delays with respect to ROM or any
of its products or services in the future, or that any such delay would not have
a material adverse effect on the Company's business, operating results and
financial condition.
5
<PAGE> 7
Product Concentration. The Company derives a substantial portion of its
total revenue from sales of its PRO/II simulation product. Revenue attributable
to sales of PRO/II accounted for approximately 70% of the Company's total
revenue in each of the last three years and the six months ended June 30, 1996.
The Company currently expects PRO/II, individually or integrated with other
products, to account for a significant portion of the Company's total revenue in
the future. Accordingly, factors adversely affecting the pricing of or demand
for PRO/II, including products and pricing terms offered by competitors, could
have a material adverse effect on the Company's business, operating results and
financial condition. The Company's future financial performance will depend in
significant part on the successful development, introduction and customer
acceptance of enhanced versions of PRO/II or new or enhanced products that
integrate with PRO/II. There can be no assurance that the Company will be
successful in marketing the PRO/II product, enhancements to PRO/II or enhanced
products that integrate with PRO/II in the future. See "Business -- Products and
Services."
Concentration of Revenue in the Petroleum Industry. The Company derives a
substantial majority of its total revenue from software licenses and services to
companies in the petroleum industry, which is highly cyclical. Accordingly, the
Company's future success is dependent upon the continued demand for process
engineering software by companies in the petroleum industry. The Company
believes that pricing pressures experienced by petroleum companies in connection
with cost containment measures have led to delays and reductions in certain
capital and operating expenditures by many of such companies in the past, and
such delays or reductions could recur in the future. Any such delays, reductions
or fluctuations could have a material adverse effect on the Company's business,
operating results and financial condition. Further, the Company's revenue has in
the past been, and may in the future be, subject to substantial period-to-period
fluctuations as a consequence of general domestic and foreign economic
conditions, political developments and other factors affecting spending in the
petroleum industry. The Company intends to develop new products and product
enhancements for other process industries, including the chemical process
industry. However, there can be no assurance that such products or product
enhancements, once introduced, will achieve their intended benefits, compete
successfully with in-house or commercial products that are more established in
such other process industries or achieve market acceptance in such other process
industries. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Dependence on Contract Renewals; Need to Achieve Greater Market
Penetration. The Company derives a significant portion of its total revenue
from the renewal of license agreements with existing customers. The Company
expects contract renewals to account for an increasing portion of the Company's
total revenue in the future as the Company increases the number of contracts for
renewing customers that result in the recognition of license revenue upon
shipment. The Company's license agreements generally have one to five-year terms
and do not obligate the customer to renew. The Company's ability to secure
renewals may be affected by, among other factors, its ability to deliver
consistent, high-quality and timely product enhancements; ownership or
management changes within customer organizations, including acquisitions of
customers by other companies; customer capital budget constraints; the
introduction of competing products by third parties; political and economic
stability in customers' markets; and other factors, many of which may be beyond
the control of the Company. There can be no assurance that the Company will be
able to maintain its historical renewal rates, and any significant or ongoing
decline in renewal rates would have a material adverse effect on the Company's
business, operating results and financial condition.
The success of the Company's strategy is dependent upon increased market
acceptance of commercial simulation software in general, and of the Company's
software products and services in particular, in the process industries.
Increased market acceptance of the Company's products by such companies depends
upon several factors, including the performance of the Company's products,
accuracy of results obtained by using those products, ease of implementation and
use, breadth and integration of product offerings and, generally, the extent to
which users achieve the intended cost savings and productivity gains from their
use of the Company's products. There can be no assurance that the Company's
customers will realize the intended benefits of simulation and modeling software
in general, and of the Company's products in particular, or that such software
or the Company's products will achieve increased market acceptance in the
process industries. Any significant or ongoing failure to achieve such benefits
or to increase market acceptance would
6
<PAGE> 8
substantially restrict the future growth of the Company and could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Industry Background."
Competition. The market for commercial simulation software used in the
petroleum, chemical and other process industries is intensely competitive and is
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and rapidly changing customer requirements.
The Company experiences its primary competition from potential customers'
decisions to develop their own software internally rather than purchasing
commercial software products such as those offered by the Company. As a result,
the Company must continuously educate existing and prospective customers about
the advantages of purchasing the Company's products and services. There can be
no assurance that these customers or other potential customers will perceive
sufficient value in the Company's products and services to justify purchasing
them. In addition, customers or potential customers could enter into strategic
relationships with one or more of the Company's competitors to develop, market
and sell competing products and services.
The Company has experienced and expects to continue to experience
competition from current and future competitors, some of which have
significantly greater financial, technical, marketing and other resources than
the Company. The Company's current direct competitors include, among others,
Aspen Technology, Inc., Hyprotech Ltd. and Chemstations, Inc., and, with respect
to the Company's technology and consulting services, the Hi-Spec division of
Honeywell, Inc., the Setpoint and DMCC divisions of Aspen Technology, Inc. and
ABB Simcon Inc. Certain of the Company's competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than can the Company. Also, several of the Company's current and
potential competitors have greater name recognition and larger installed bases
that could be leveraged to increase market share at the Company's expense. The
Company expects to face increased competition as other established and emerging
companies enter the commercial simulation software market in the process
industries and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer orders, reduction
in license renewals and loss of market share, any of which could materially
adversely affect the Company's business, operating results and financial
condition. In addition, current and potential competitors have in the recent
past, and may in the future, make strategic acquisitions, merge or establish
cooperative relationships among themselves or with third parties, thereby
increasing the ability of their products to address the needs of the Company's
current or prospective customers. Such competition could materially adversely
affect the Company's ability to sell new or renewal licenses and maintenance and
service agreements on terms favorable to the Company. Further, competitive
pressures could require the Company to reduce the price of licenses for its
products and related services, which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Business -- Competition."
Risks Associated With International Operations. A significant portion of
the Company's total revenue is derived from customers outside the United States,
and the Company anticipates that international revenue will continue to be
significant in the future. Revenue from customers outside the United States
accounted for 58%, 62%, 64% and 65% of total revenue in 1993, 1994 and 1995 and
the six months ended June 30, 1996, respectively. The Company's international
operations are subject to risks inherent in the conduct of international
business, including unexpected changes in regulatory requirements, exchange
rates, export license requirements, tariffs and other barriers, political and
economic instability, limited intellectual property protection, difficulties in
collecting payments due from sales agents or customers, difficulties in managing
distributors or representatives, difficulties in staffing and managing foreign
subsidiary operations, and potentially adverse tax consequences. The Company
derives substantial revenue from the sale of products to customers in the Middle
East and in the past has been required to discontinue shipments to such
customers due to trade embargoes imposed by the United States. There can be no
assurance that future trade embargoes or any of the other foregoing factors will
not have a material adverse effect on the Company's international operations and
therefore its business, operating results and financial condition. Certain of
the Company's direct international sales are denominated in local currencies,
and the impact of future exchange rate
7
<PAGE> 9
fluctuations on the Company's operating results and financial condition cannot
be accurately predicted. The Company does not currently engage in currency
exchange rate hedging transactions, and there can be no assurance that
fluctuations in currency exchange rates in the future will not have a material
adverse impact on revenue from international sales and thus the Company's
business, operating results and financial condition. The Company may engage in
hedging in the future; however, there can be no assurance that any currency
hedging policies implemented by the Company in the future will be successful.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Strategic Relationships. The Company is dependent in part on
a number of strategic alliances for the joint development and marketing of its
products. For example, the Company has entered into a joint development
agreement with Shell Oil Company with respect to the Company's ROMEO project, is
jointly developing its NETOPT product with Mobil Corporation, is jointly
developing PROTISS with Strategic Analysis and Simulation Technology, Ltd. and
has recently entered into a memorandum of understanding with the petroleum
industry business unit of IBM regarding joint development, marketing and sales
activities. There can be no assurance that the Company's strategic partners will
not revoke their commitment to the Company's products or services at any time in
the future, that they will not develop their own competitive products or
services, or that the software of other companies that is integrated with the
Company's software or services will not contain defects or errors or will
achieve market acceptance or commercial success. Accordingly, there can be no
assurance that the Company's existing or future relationships will result in
sustained business alliances, successful product or service offerings or the
generation of significant revenues for the Company. Failure of one or more of
the Company's strategic alliances to achieve commercial success, or the
termination of one or more of such alliances, could result in delay or
termination of product development projects, reduction in market penetration,
decreased ability to win new customers or loss of confidence by current or
potential customers, any of which could have a material adverse effect on the
Company's business, results of operations or financial condition. See
"Business -- Products and Services" and "-- Product Development."
Dependence Upon Product Development; Rapid Technological Change. The
software market in which the Company competes is subject to rapid technological
change, frequent introductions of new products, changes in customer demand and
evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. The Company's future results of operations
will depend in part upon its ability to address the increasingly sophisticated
needs of its customers by supporting existing and emerging hardware, software,
database and networking platforms and by developing and introducing enhancements
to its existing products and new products on a timely basis that keep pace with
such technological developments, emerging industry standards and customer
requirements. There can be no assurance that the Company will be successful in
developing and marketing enhancements that respond to technological change,
evolving industry standards or customer requirements, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and sale of such enhancements or that such enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance. The Company has in the past experienced delays in the release dates
of enhancements to certain of its products. If release dates of any new
significant products or product enhancements are delayed or if they fail to
achieve market acceptance, the Company's business, operating results and
financial condition would be materially adversely affected. In addition, the
introduction or announcement of new product offerings or enhancements by the
Company or the Company's competitors may cause customers to defer or forgo
purchases of current versions of its products, which could in turn have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Product Development."
Limited Time Under Current Management Team; Management of
Growth. Substantially all of the Company's current executive management team
has joined the Company in the last two years, including its Chief Executive
Officer and Chief Financial Officer, who joined the Company in July 1995 and
June 1996, respectively. The Company's business is currently experiencing a
period of growth that has placed and is expected to continue to place a
significant strain on the Company's personnel and resources. The Company's
ability to manage future growth, if any, will depend on its ability to continue
to implement and improve
8
<PAGE> 10
operational, financial and management information and controls systems on a
timely basis, and any failure to do so could have a material adverse effect on
the Company's business, operating results and financial condition. In addition,
the Company in the past has experienced difficulties in the management of its
service offerings, which difficulties materially and adversely affected the
Company's operating results. No assurance can be given that the Company will not
experience similar difficulties in the future. See "Management."
Limited Protection of Proprietary Rights. The Company relies upon a
combination of copyright, trade secret and trademark laws to protect its
proprietary technology. The Company enters into confidentiality agreements with
its employees, developers, distributors and customers and limits access to and
distribution of the source code to its software and other proprietary
information. However, policing unauthorized use of the Company's products is
difficult. There can be no assurance that the steps taken by the Company in this
regard will be adequate to prevent misappropriation of its technology or that
the Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. Any such
misappropriation of the Company's technology or development of competitive
technologies could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the laws of certain
countries in which the Company's products are distributed do not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States. The laws of many countries in which the Company
licenses its products protect trademarks solely on the basis of registration.
The Company currently possesses a limited number of trademark registrations in
certain foreign jurisdictions and does not possess any foreign copyright or
patent registrations. Accordingly, effective trademark and patent protection may
be unavailable in certain foreign countries.
Certain technology used in the Company's current products and products
under development, including OpenYield, Visual Flare, NETOPT, PROTISS and ROMEO,
is licensed from third parties. These licenses generally require the Company to
pay royalties and to fulfill confidentiality obligations. The termination of any
such licenses, or the failure of the third party licensors to adequately
maintain or update their products, could result in delay in the Company's
ability to ship certain of its products while it seeks to implement technology
offered by alternative sources, if any, which could prove costly. Also, any such
delay could result in a material adverse effect on the Company's business,
operating results and financial condition by delaying the Company's ability to
ship products.
The Company could incur substantial costs in protecting and enforcing its
intellectual property rights. Moreover, from time to time third parties may
assert patent, trademark, copyright and other intellectual property rights to
technologies that are important to the Company. In such an event, the Company
may be required to incur significant costs in litigating a resolution to the
asserted claims. There can be no assurance that such a resolution would not
require that the Company pay damages or obtain a license of a third party's
proprietary rights in order to continue licensing its products as currently
offered or, if such a license is required, that it will be available on terms
acceptable to the Company. See "Business -- Proprietary Rights."
Dependence on Contract Developers. The Company currently subcontracts
certain aspects of its research and development to outside contractors. The
Company may in the future experience problems with those contractors, such as
quality or on-time delivery problems. In addition, certain of these contractors
are located in India, and the Company may therefore suffer adverse consequences
as a result of communication, cultural or political barriers or because the laws
of other countries may be less protective of the Company's intellectual property
than are the laws of the United States. In addition, the Company may in the
future experience pricing pressure from its contractors. To date, the Company
has had only limited experience with the use of research and development
contractors. There can be no assurance that the Company will be able to manage
its contract developers effectively or that these developers will meet the
Company's future requirements for timely delivery of high-quality products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Employees."
Product Liability. The Company markets its products to customers for
process design, simulation and optimization in the petroleum, chemical and other
process industries. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in the Company's
9
<PAGE> 11
license agreements may not be effective as a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions.
Although the Company has not experienced any product liability claims to date,
the sale and support of its simulation and optimization software may entail the
risk of such claims, which are likely to be substantial in light of the
applications in which the Company's products are used. The Company maintains
insurance against claims associated with the use of its products, but there can
be no assurance that its insurance coverage would adequately cover any claim
asserted against the Company. A successful product liability claim brought
against the Company in excess of its insurance coverage or outside the scope of
such coverage could have a material adverse effect upon the Company's business,
operating results and financial condition.
Potential for Software Defects. Complex software products such as those
offered by the Company may contain undetected errors or failures commonly
referred to as "bugs." There can be no assurance that, despite significant
testing by the Company and by current and potential customers, errors will not
be found in new products or enhancements to existing products after commencement
of commercial shipments. This risk may be more severe with respect to new
products where industry standards and customer loyalty are not yet established
and where commercial use of the product is not widespread. Although the Company
has not experienced material adverse effects resulting from any such errors or
defects to date, there can be no assurance that errors or defects will not be
discovered in the future, potentially causing delays in product introduction and
shipments or requiring design modifications that could adversely affect the
Company's business, results of operations, or financial condition. See
"Business -- Products and Services" and "-- Product Development."
Dependence on Key Personnel. The Company's future business results depend
in significant part on the Company's Chief Executive Officer and other senior
management and key employees, including certain technical, managerial and
marketing personnel. The loss of the services of any of these individuals or
groups of individuals could have a material adverse effect on the Company's
business, operating results and financial condition. None of the Company's
executive officers has entered into an employment agreement with the Company.
The Company believes that its future business results will also depend in
significant part upon its ability to attract, motivate and retain additional
highly skilled technical, managerial and marketing personnel. Competition for
such personnel is intense, and there can be no assurance that the Company will
be successful in attracting and retaining the personnel it requires. See
"Management."
Control by Stockholders. Upon completion of the offering, Summit Ventures
III, L.P., Summit Investors II, L.P., Enterprise Partners II, L.P. and
Enterprise Partners II Associates, L.P. (collectively, the "Investors") will in
the aggregate beneficially own approximately 17.6% of the issued and outstanding
shares of Common Stock of the Company. In addition, upon completion of the
offering, the Company's founders, Dr. Yui L. Wang, N. Fred Brannock and Vincent
S. Verneuil (the "Founders") will in the aggregate beneficially own
approximately 27.3% of the issued and outstanding shares of Common Stock of the
Company. Accordingly, the Investors and the Founders together will beneficially
own 44.9% of the issued and outstanding shares and will therefore have the
ability to effectively control the outcome of all matters (including the
election of directors, any merger or consolidation, or the sale of all or
substantially all of the Company's assets) submitted to the stockholders for
approval. This concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of the Company and making certain
transactions more difficult or impossible absent the support of such
stockholders, including proxy contests, mergers involving the Company, tender
offers, open-market purchase programs or other purchases of Common Stock that
could give stockholders of the Company the opportunity to realize a premium over
the then-prevailing market price for shares of Common Stock. See "Principal and
Selling Stockholders."
Antitakeover Effects of the Company's Charter, Bylaws and Delaware
Law. The Company's Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, without any further vote
or action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. However, the issuance of
Preferred Stock could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plans to issue
shares of Preferred Stock. In addition, the Company is subject to the anti-
10
<PAGE> 12
takeover provisions of Section 203 of the Delaware General Corporation Law. In
general, this statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. Furthermore, certain other provisions of the Company's
charter and bylaws may have the effect of discouraging, delaying or preventing a
merger, tender offer or proxy contest, which could adversely affect the market
price of the Company's Common Stock. See "Description of Capital
Stock -- Antitakeover Effects of Provisions of the Company's Charter and Bylaws"
and "-- Section 203 of the Delaware General Corporation Law."
No Prior Public Trading Market; Possible Volatility of Stock Price. Prior
to the offering, there has been no public trading market for shares of the
Common Stock, and there can be no assurance that an active public trading market
will develop following completion of the offering or, if developed, that such
market will be sustained. The initial public offering price of the shares of
Common Stock will be determined by negotiation between the Company, the Selling
Stockholders and the Representatives of the Underwriters and will not
necessarily reflect the market price of the Common Stock following the offering.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The market price for the Common Stock following the offering will be
affected by a number of factors, including the announcement of new products,
product enhancements or new services by the Company or its competitors,
quarterly variations in the Company's results of operations or the results of
operations of the Company's competitors, changes in earnings estimates or
recommendations by securities analysts, developments in the Company's industry,
general market conditions and other factors, including factors unrelated to the
operating performance of the Company or its competitors. In addition, stock
prices for many companies in the technology and emerging growth sectors have
experienced wide fluctuations which have often been unrelated to the operating
performance of such companies. Such factors and fluctuations may adversely
affect the market price of the Company's Common Stock.
Shares Eligible for Future Sale. Sales of substantial numbers of shares of
Common Stock in the public market following the offering could adversely affect
the market price of the Common Stock prevailing from time to time. Upon
completion of this offering, the Company will have 9,400,503 shares of Common
Stock outstanding. Of these outstanding shares, the 3,600,000 shares sold in
this offering will be freely transferable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless they are held by "affiliates" of the Company within the meaning of
Rule 144 promulgated under the Securities Act as currently in effect. Of the
remaining 5,800,503 shares held by existing stockholders, 25,334 shares are
"restricted" shares within the meaning of Rule 144 and may not be sold in the
absence of registration under the Securities Act or an exemption therefrom and
5,800,503 shares are eligible for sale without restriction or further
registration under Rule 144(k), unless they are held by "affiliates" of the
Company or subject to a "lock-up" agreement.
Each of the stockholders of the Company has entered into a lock-up
agreement providing that such stockholder will not offer, sell, pledge, grant an
option for the sale of or otherwise dispose of shares of Common Stock, or any
interest therein, or any securities exercisable for or convertible into shares
of Common Stock, for a period of 180 days after the effective date of the
offering made hereby without the prior written consent of Alex. Brown & Sons
Incorporated. As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under Rules 144 and 701, unless earlier
released from the lock-up agreements, 5,800,503 shares of Common stock will be
eligible for sale 180 days after the effective date of the offering made hereby,
subject in the case of shares held by "affiliates" of the Company to the volume
limitations of Rules 144 and 701.
In addition, 413,167 shares of Common Stock subject to vested stock options
will be eligible for sale upon expiration of the lock-up agreements. As of the
date of this Prospectus, the Company had reserved an aggregate of 1,666,667
shares of Common Stock for issuance pursuant to its 1994 Stock Option Plan and
options to purchase 1,520,833 shares were outstanding under the 1994 Stock
Option Plan, and the Company had reserved 1,000,000, 125,000 and 200,000 shares
for issuance under its 1996 Stock Plan, the 1996 Director Option Plan and
Employee Stock Purchase Plans, respectively. As soon as practicable following
the offering,
11
<PAGE> 13
the Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock reserved for issuance under
such plans. Such registration statement will automatically become effective
immediately upon filing, and such shares will thereafter be freely transferable,
subject to the lock-up agreements summarized above. See "Shares Eligible For
Future Sale."
Dilution. Purchasers of the Common Stock offered hereby will suffer an
immediate and substantial dilution of $5.69 per share (assuming an initial
public offering price of $9.00 per share) in the net tangible book value per
share of the Common Stock. See "Dilution."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$9.00 per share are estimated to be $21.8 million ($25.8 million, if the
Underwriters' over-allotment option is exercised in full) after deducting the
estimated underwriting discount and estimated offering expenses payable by the
Company. The Company intends to use the net proceeds for working capital and
other general corporate purposes, including continued investments in product
development and expansion of sales and marketing activities. In addition, the
Company may use the net proceeds from the sale of the Common Stock offered by
the Company hereby for acquisitions of complementary products, technologies or
businesses, although the Company is not engaged in any negotiation with respect
to any such acquisitions. Pending such uses, the Company will invest the net
proceeds from the sale of the Common Stock offered by the Company hereby in
short-term, investment grade, interest-bearing securities. The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholders.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on the Common Stock
for more than five years and does not presently intend to pay cash dividends on
the Common Stock in the foreseeable future. The Company's line of credit
agreement currently prohibits the payment of cash dividends on its capital stock
without the lender's consent. Any payment of cash dividends on shares of Common
Stock will be within the discretion of the Company's Board of Directors and will
depend upon the earnings of the Company, the Company's capital requirements,
restrictions imposed by the Company's lenders, applicable requirements of the
Delaware General Corporation Law and other factors which are considered relevant
by the Company's Board of Directors.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
June 30, 1996, the pro forma capitalization of the Company after giving effect
to (i) the conversion of all outstanding shares of Preferred Stock to Common
Stock on a one-for-one basis and as adjusted to give effect to the sale of the
3,600,000 shares of Common Stock offered by the Company hereby, assuming an
initial public offering price of $9.00 per share and after deducting the
estimated underwriting discount and estimated offering expenses payable by the
Company, and the application of the net proceeds therefrom. See "Use of
Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------- ------------ --------------
<S> <C> <C> <C>
(IN THOUSANDS)
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock, $0.001 par value,
5,000,000 shares authorized; 1,666,668 issued and
outstanding actual, none issued or outstanding pro
forma and as adjusted................................. $ 4,802 $ -- $ --
Common Stock, $0.001 par value, 30,000,000 shares
authorized; 5,025,835 shares issued and outstanding
actual; 6,692,503 and 9,392,503 shares issued and
outstanding pro forma and as adjusted(3).............. 5 7 9
Additional paid-in capital............................... 1,541 6,341 27,938
Retained earnings........................................ 4,374 4,374 4,374
------- ------------ --------------
Total stockholders' equity............................ 5,920 10,722 32,321
------- ------------ --------------
Total capitalization............................. $10,722 $ 10,722 $ 32,321
======= ========== ===========
</TABLE>
- ---------------
(1) Reflects the conversion of all outstanding shares of Preferred Stock into
shares of Common Stock on a one-for-one basis. See "Underwriting."
(2) Adjusted to give effect to the sale of the 2,700,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $9.00 per share after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company.
(3) Excludes 1,514,166 shares of Common Stock issuable upon the exercise of
outstanding options at June 30, 1996 under the Company's 1994 Stock Option
Plan at a weighted average exercise price of $4.26 per share, options to
purchase an additional 26,667 shares granted after June 30, 1996, the
exercise of options to purchase 8,000 shares of Common Stock after June 30,
1996 and the cancellation of options for 12,000 shares after June 30, 1996
and 438,598 shares issuable upon the exercise of outstanding warrants at an
exercise price of $2.85 per share.
14
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company at June 30, 1996 was
$9,345,612, or $1.40 per share of Common Stock after giving effect to (i) a
one-for-three reverse stock split to be effected prior to the closing of this
offering, (ii) the conversion of all outstanding shares of Preferred Stock into
Common Stock on a one-for-one basis and (iii) the reincorporation of the Company
in the State of Delaware in September 1996. Pro forma net tangible book value is
determined by subtracting total liabilities from net tangible assets, and then
dividing by the number of pro forma outstanding shares of Common Stock. After
giving effect to the sale of the 2,700,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $9.00 per share
and after deducting the estimated underwriting discount and estimated offering
expenses payable by the Company and the application of the net proceeds
therefrom, the pro forma net tangible book value of the Company at June 30, 1996
would have been $31,132,612 or $3.31 per share of Common Stock, representing an
immediate increase in net tangible book value of $1.91 per share to existing
stockholders and an immediate dilution of $5.69 per share to persons purchasing
shares of Common Stock offered hereby. The following table illustrates this
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $ 9.00
Pro forma net tangible book value per share before offering............ $ 1.40
Increase per share attributable to new investors....................... 1.91
------
Pro forma net tangible book value per share after offering............... 3.31
------
Net tangible book value dilution per share to new investors.............. $ 5.69
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
after giving effect to the events described above, the number of shares
purchased from the Company, the total consideration paid to the Company and the
average price per share paid by the Company's existing stockholders and the new
investors (assuming an initial public offering price of $9.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)................. 6,692,503 71.3% $ 6,347,745 20.7% $ .95
New Investors(1)......................... 2,700,000 27.5 24,300,000 79.3 $ 9.00
--------- ------- ----------- -------
Total.................................. 9,392,503 100.0% $30,647,745 100.0%
======== ===== ========== =====
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in the offering made hereby will reduce
the number of shares held by existing stockholders to 5,792,503 shares, or
61.7% of the total number of shares of Common Stock outstanding, and will
increase the number of shares held by new investors to 3,600,000 shares, or
38.3% of the total number of shares of Common Stock outstanding after this
offering.
------------------------
The above table excludes 1,514,166 shares issuable upon the exercise of
outstanding stock options at June 30, 1996 under the Company's 1994 Stock Option
Plan at a weighted average exercise price of $4.26, options to purchase an
additional 26,667 shares issued after June 30, 1996, the exercise of options to
purchase 8,000 shares of Common Stock after June 30, 1996 and the cancellation
of options for 12,000 shares after June 30, 1996 and 438,598 shares issuable
upon the exercise of outstanding warrants at June 30, 1996 at an exercise price
of $2.85 per share.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of December 31,
1994 and 1995 and June 30, 1996, and for the years ended December 31, 1993, 1994
and 1995 and the six months ended June 30, 1996, are derived from the Company's
consolidated financial statements included elsewhere in this Prospectus, which
were audited by Deloitte and Touche LLP, independent auditors. The selected
financial data presented below as of December 31, 1992 and 1993 and for the year
ended December 31, 1992 is derived from the Company's consolidated financial
statements, not included in this Prospectus, which have been audited by Deloitte
and Touche LLP, independent auditors, and the selected financial data presented
below as of December 31, 1991 and for the year then ended is derived from other
audited consolidated financial statements of the Company not included in this
Prospectus. The selected consolidated financial data for the six months ended
June 30, 1995 have been derived from the unaudited consolidated financial
statements of the Company that have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for the periods
presented. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software license revenue............. $19,613 $22,443 $25,048 $25,609 $29,889 $13,953 $19,637
Services and other revenue........... 1,900 1,497 3,096 2,643 3,230 1,293 2,154
------- ------- ------- ------- ------- ------- -------
Total revenue...................... 21,513 23,940 28,144 28,252 33,119 15,246 21,791
Cost of revenue:
Cost of software license revenue..... 3,106 2,849 2,886 3,990 3,509 1,705 1,778
Cost of services and other revenue... 638 1,236 1,244 2,698 3,251 1,394 1,553
------- ------- ------- ------- ------- ------- -------
Total cost of revenue.............. 3,744 4,085 4,130 6,688 6,760 3,099 3,331
------- ------- ------- ------- ------- ------- -------
Gross profit............................ 17,769 19,855 24,014 21,564 26,359 12,147 18,460
Operating expenses:
Sales and marketing.................. 7,679 8,685 9,842 10,473 11,662 5,663 7,339
Research and development............. 7,232 7,258 8,230 9,634 8,621 4,331 6,845
General and administrative........... 2,616 3,066 3,785 3,858 3,869 1,368 3,066
------- ------- ------- ------- ------- ------- -------
Total operating expenses........... 17,527 19,009 21,857 23,965 24,152 11,362 17,250
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........... 242 846 2,157 (2,401) 2,207 784 1,210
Interest and other income............... 204 271 313 194 100 272 163
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision (benefit)
for income taxes..................... 446 1,117 2,470 (2,207) 2,307 1,056 1,373
Provision (benefit) for income taxes.... 332 581 866 (565) 952 436 563
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... $ 114 $ 536 $ 1,604 $(1,642) $ 1,355 $ 620 $ 810
======= ======= ======= ======= ======= ======= =======
Pro forma net income (loss) per share... $ .17 $ .10
======= =======
Pro forma weighted average common
shares............................... 7,789 7,789
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE
----------------------------------------------- 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................... $ 4,955 $ 5,943 $ 7,375 $ 5,320 $ 6,415 $ 2,316
Total assets............................ 11,446 13,914 16,939 16,293 21,554 22,596
Total liabilities....................... 3,875 5,807 6,810 7,806 11,712 11,874
Total stockholders' equity(1)........... 7,571 8,107 10,129 8,487 9,842 10,722
</TABLE>
- ---------------
(1) Includes amounts attributable to preferred stock.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
discussion in this Prospectus contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus. The Company's actual results
could differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.
OVERVIEW
Simulation Sciences Inc. was founded in 1967 to develop simulation
technology and software used in the design of refineries for the petroleum
industry. Thereafter, the Company developed other software products to address
additional needs for plant design and operation within the petroleum industry
and later expanded the application of these software products to other process
industries, including petrochemicals and chemicals. Since 1994, the Company has
been developing products and services that further enhance and optimize plant
operation and enable integrated enterprise management. The Company hired
substantially all of its current executive management team in 1995.
The Company generally licenses its software pursuant to non-cancelable,
one- to five-year contracts. The Company receives approximately 90% of its
worldwide revenue from licenses of its software products. These licenses
obligate the Company to provide customer support, maintenance and any product
updates. During the past five years, over 95% of all licenses have been renewed.
See "Risk Factors -- Dependence on Contract Renewals; Need to Achieve Greater
Market Penetration."
Revenue from the Company's primary simulation product, PRO/II, accounted
for approximately 70% of total revenue in each of the last three years. The
remainder of the Company's revenue is derived from other products and services,
including development, integration, ROM and consulting and training services.
International revenue, which includes revenue from international subsidiaries
and export sales, accounted for approximately 58%, 62%, 64% and 65% of total
revenue in 1993, 1994, 1995 and the six months ended June 30, 1996,
respectively.
The Company recognizes revenue from product licensing agreements in
accordance with American Institute of Certified Public Accountants Statement of
Position No. 91-1, Software Revenue Recognition ("SOP 91-1"). SOP 91-1 generally
requires recognition of license revenue upon shipment or renewal and recognition
of revenue for maintenance and support ratably over the life of the contract.
However, if license fees and maintenance and support charges are not separately
identified, then all revenue from the contract must be recognized ratably over
its life. More than 95% of the Company's license contracts entered into before
1996 did not separately identify software license fees and charges for
maintenance and support obligations. As a result, the Company recognized revenue
from these contracts ratably over the terms of such contracts in accordance with
SOP 91-1 ("Ratable Revenue"). The remaining contracts identified the cost of the
license fee and maintenance and support separately and, under SOP 91-1, the
Company recognized revenue from the license portion of the contracts upon
shipment or renewal ("License Revenue") and from the maintenance and support
portion of such contracts as Ratable Revenue. Accordingly, the revenue
recognized under a contract resulting in License Revenue recognition will be
higher in the quarter of shipment or renewal, and lower in later quarters, than
that recognized under a contract resulting only in Ratable Revenue recognition.
In order to more closely conform to industry-standard practices regarding
licenses and maintenance agreements, the Company, in 1996, began increasing the
number of contracts for new and renewing customers that separately identify
software license fees and maintenance and support charges, resulting in
recognition of License Revenue on an increased portion of contracts. The Company
intends to convert the substantial majority of its contracts to License Revenue
terms as new and renewal contracts are executed. For this reason, the Company
does not believe that revenue and results of operations for prior periods will
be directly
17
<PAGE> 19
comparable to results for 1996 and future periods. Revenue recognition on ROM
and other service offerings is based on percentage of completion and on
attainment of project milestones.
In accordance with Financial Accounting Standards Board Statement No. 86,
the Company is required to capitalize software development costs incurred after
technological feasibility of the product has been established and prior to the
first shipment of such product. Because the Company believes that its process
for developing software has been essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date.
OPERATING RESULTS
The following table sets forth certain items in the Company's Consolidated
Statements of Operations expressed as a percentage of total revenue for the
periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Software license revenue......................... 89.0% 90.6% 90.2% 91.5% 90.1%
Services and other revenue....................... 11.0 9.4 9.8 8.5 9.9
----- ----- ----- ----- -----
Total revenue............................ 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Cost of software license revenue................. 10.3 14.1 10.6 11.2 8.2
Cost of services and other revenue............... 4.4 9.6 9.8 9.1 7.1
----- ----- ----- ----- -----
Total cost of revenue.................... 14.7 23.7 20.4 20.3 15.3
----- ----- ----- ----- -----
Gross profit..................................... 85.3 76.3 79.6 79.7 84.7
Operating expenses:
Sales and marketing.............................. 35.0 37.0 35.2 37.1 33.7
Research and development......................... 29.2 34.1 26.0 28.4 31.4
General and administrative....................... 13.5 13.7 11.7 9.0 14.1
----- ----- ----- ----- -----
Total operating expenses................. 77.7 84.8 72.9 74.5 79.2
----- ----- ----- ----- -----
Income (loss) from operations...................... 7.6 (8.5) 6.7 5.2 5.5
Interest and other income.......................... 1.1 0.7 0.3 1.7 0.8
Income (loss) before provision (benefit) for income
taxes............................................ 8.7 (7.8) 7.0 6.9 6.3
Provision (benefit) for income taxes............... 3.0 (2.0) 2.9 2.8 2.6
----- ----- ----- ----- -----
Net income (loss).................................. 5.7% (5.8)% 4.1% 4.1% 3.7%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
Total Revenue. Total revenue was $15.2 million and $21.8 million for the
six months ended June 30, 1995 and 1996, respectively, representing an increase
of 43%. Software license revenue includes revenue from software license,
maintenance and support fees. Software license revenue was $14.0 million and
$19.6 million for the six months ended June 30, 1995 and 1996, respectively,
representing an increase of 41%. The increase in software license revenue was
attributable to Ratable Revenue from increased unit sales in prior periods,
renewals of licenses for higher fees, licenses to new customers and the effect
of the change in contract terms. Services and other revenue includes
integration, ROM, consulting and training services. Services and other revenue
was $1.3 million and $2.2 million for the six months ended June 30, 1995 and
1996, respectively, representing an increase of 67%. This increase in services
and other revenue was primarily due to improvement in ROM project management and
recruitment of a sufficient number of qualified personnel, which resulted in
completion of delayed ROM projects and allowed for the signing and commencement
of new projects.
18
<PAGE> 20
International revenue was $10.0 million and $14.2 million for the six
months ended June 30, 1995 and 1996, respectively, representing an increase of
42%. The increase in international revenue was primarily attributable to
increased revenue from PRO/II software licenses and international ROM service
projects. The Company anticipates that international revenue may increase as a
percentage of total revenue. See "Risk Factors -- Risks Associated With
International Operations."
Cost of Software License Revenue. Cost of software license revenue
includes costs of production and distribution, customer support and maintenance,
and royalties. Cost of software license revenue was $1.7 million and $1.8
million in the six months ended June 30, 1995 and 1996, respectively. Cost of
software license revenue as a percentage of software license revenue was 12% and
9% in the six months ended June 30, 1995 and 1996, respectively. Cost of
software license revenue decreased as a percentage of software license revenue
primarily due to increases in staffing and support organization levels in 1995
to support a higher revenue base. In the last quarter of 1995, the Company
entered into royalty-bearing license agreements with respect to three products
it began marketing at that time. Cost of software license revenue as a
percentage of software license revenue will increase if revenue from
royalty-bearing products increases as a percentage of software license revenue.
Regardless of whether royalty-bearing products begin representing any
substantial proportion of software license revenue, the Company anticipates that
cost of software license revenue will increase in dollars due to royalties paid
on new products that incorporate third-party technology.
Cost of Services and Other Revenue. Cost of services and other revenue
includes costs of personnel involved in training and project execution, as well
as travel, third-party professional fees and related administrative costs. Cost
of services and other revenue was $1.4 million and $1.6 million in the six
months ended June 30, 1995 and 1996, respectively. The increase in cost of
services and other revenue in dollars was due primarily to hiring of additional
personnel and increased use of engineering resources as a result of increased
ROM activity. Cost of services and other revenue as a percentage of services and
other revenue was 108% and 72% in the six months ended June 30, 1995 and 1996,
respectively. Cost of services and other revenue as a percentage of services and
other revenue declined significantly as the Company improved employee
productivity in ROM projects. The Company anticipates that cost of services and
other revenue will increase in dollars and may fluctuate as a percentage of
services and other revenue in the future.
Sales and Marketing. Sales and marketing expenses include payroll,
commissions and related costs attributable to direct sales, technical and
marketing personnel. Sales and marketing expenses were $5.7 million and $7.3
million for the six months ended June 30, 1995 and 1996, respectively. Sales and
marketing expense as a percentage of total revenue was 37% and 34% for the six
months ended June 30, 1995 and 1996, respectively. The dollar increase in sales
and marketing expense was due primarily to an increase in the number of sales
and marketing professionals and related hiring costs. The Company anticipates
that sales and marketing expenses will increase in dollars and will fluctuate as
a percentage of total revenue in the future.
Research and Development. Research and development expenses include
payroll and related costs attributable to research and development personnel and
development contractors. Research and development expenses were $4.3 million and
$6.8 million for the six months ended June 30, 1995 and 1996, respectively. The
dollar increase in research and development expenses was due primarily to
several product releases, an increase in the number of engineers and third-party
contractors involved in research, development of a number of planned upgrades
and new products and severance expenses associated with the termination of one
executive's employment. Research and development expense as a percentage of
total revenue was 28% and 31% in the six months ended June 30, 1995 and 1996,
respectively. The Company expects to continue to devote substantial resources to
its research and development efforts to continue to develop and support the
Company's highly complex software products. Accordingly, the Company anticipates
that research and development expenses will increase in dollars and may
fluctuate as a percentage of total revenue in the future.
General and Administrative. General and administrative expenses include
accounting, finance, MIS, human resources and administrative expenses. General
and administrative expenses were $1.4 million and $3.0 million for the six
months ended June 30, 1995 and 1996, respectively. General and administrative
expenses as a percentage of total revenue were 9% and 14% in the six months
ended June 30, 1995 and 1996, respectively. The increase in general and
administrative expenses in dollars and as a percentage of total
19
<PAGE> 21
revenue was due primarily to the addition of senior management personnel. The
Company believes that its general and administrative expenses will increase in
dollars in the future, and may fluctuate as a percentage of total revenue, due
in part to the Company's planned expansion in staffing and costs associated with
being a publicly held company.
Interest and Other Income. Interest and other income consists primarily of
investment income and foreign exchange gains and losses. Interest and other
income was $272,000 and $163,000 for the six months ended June 30, 1995 and
1996, respectively. In 1995, interest and other income was favorably affected by
foreign currency gains.
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Total Revenue. The Company's total revenue was $28.1 million, $28.3
million and $33.1 million in 1993, 1994 and 1995, respectively, representing a
less than 1% increase from 1993 to 1994 and an increase of 17% from 1994 to
1995. Software license revenue was $25.0 million, $25.6 million and $29.9
million in 1993, 1994, and 1995, respectively, representing an increase of 2%
from 1993 to 1994 and an increase of 17% from 1994 to 1995. The modest increase
in software license revenue from 1993 to 1994 was primarily due to customer
deferral of software license commitments in anticipation of the introduction of
PRO/II with PROVISION. The increase in software license revenue from 1994 to
1995 was primarily due to new international licenses and license renewals
associated primarily with the September 1994 introduction of PRO/II with
PROVISION and increased sales force productivity following the restructuring and
expansion of the Company's sales force.
Services and other revenue was $3.1 million, $2.6 million and $3.2 million
in 1993, 1994 and 1995, respectively, representing a decrease of 15% from 1993
to 1994 and an increase of 22% from 1994 to 1995. The decrease in services and
other revenue from 1993 to 1994 resulted primarily from delays experienced in
the attainment of ROM project milestones due to project management challenges
and a shortage in qualified personnel to complete the projects in a timely
manner. The increase in services and other revenue from 1994 to 1995 was due
primarily to improvement in ROM project management and recruitment of a
sufficient number of qualified personnel, which resulted in completion of
delayed ROM projects and allowed for the signing and commencement of new
projects.
International revenue was $16.2 million, $17.4 million and $21.3 million in
1993, 1994 and 1995, respectively, representing an increase of 7% from 1993 to
1994 and of 23% from 1994 to 1995.
Cost of Software License Revenue. Cost of software license revenue was
$2.9 million, $4.0 million and $3.5 million in 1993, 1994, and 1995,
respectively. Cost of software license revenue as a percentage of software
license revenue was 12%, 16%, and 12% in 1993, 1994 and 1995, respectively. The
high percentage in 1994 was primarily due to increased customer support and
distribution costs associated with the introduction of PRO/II with PROVISION.
Cost of Services and Other Revenue. Cost of services and other revenue was
$1.2 million, $2.7 million and $3.3 million in 1993, 1994 and 1995,
respectively. Cost of services and other revenue as a percentage of services and
other revenue was 40%, 102% and 101% in 1993, 1994 and 1995, respectively. In
1994 and 1995, the Company's service operations were not profitable due to
ineffective utilization of engineering staff and costs associated with delays in
completion of ROM projects.
Sales and Marketing. Sales and marketing expenses were $9.8 million, $10.5
million and $11.7 million in 1993, 1994 and 1995, respectively, representing
35%, 37% and 35% of total revenue, respectively. The dollar increases in sales
and marketing expenses were generally attributable to expansion of the Company's
sales organization and, in 1995, to costs associated with a restructuring of the
Company's sales force.
Research and Development. Research and development expenses were $8.2
million, $9.6 million and $8.6 million in 1993, 1994 and 1995, respectively,
representing 29%, 34% and 26% of total revenue, respectively. The higher level
of research and development expense in 1994 was primarily due to contract
development costs associated with the completion of PRO/II with PROVISION.
20
<PAGE> 22
General and Administrative. General and administrative expenses were $3.8
million, $3.9 million and $3.9 million in 1993, 1994 and 1995, respectively,
representing 13%, 14% and 12% of total revenue, respectively.
Interest and Other Income. Interest and other income consists primarily of
investment income and foreign exchange gains and losses. Interest and other
income was $313,000, $194,000 and $100,000 in 1993, 1994, and 1995,
respectively. The decrease from 1993 to 1994 was primarily due to a decrease in
interest income. The further decrease from 1994 to 1995 was primarily
attributable to foreign currency translation losses.
Provision (Benefit) for Income Taxes. The Company's effective tax rate was
35% in 1993 and 41% in 1995. The increase in the effective tax rate in 1995 was
primarily due to the effect of income tax rates and the related tax rate
differential effect of the Company's foreign subsidiaries' operations. The tax
benefit in 1994 was 26% and was primarily due to a reduction in state tax rates
resulting from the tax loss and foreign tax rate differential resulting from the
carryback of such taxes.
21
<PAGE> 23
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statements of operations
data for each of the quarters in the six-quarter period ended June 30, 1996, as
well as data expressed as a percentage of the Company's revenues for the periods
presented. This data has been derived from unaudited financial statements that,
in the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such information
when read in conjunction with the Company's audited consolidated financial
statements and notes thereto. Quarterly operating results are not necessarily
indicative of future results of operations.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
MAR. JUNE SEPT. DEC. MAR. JUNE
31, 30, 30, 31, 31, 30,
1995 1995 1995 1995 1996 1996
------ ------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software license revenue......... $7,127 $6,826 $7,523 $8,413 $ 8,942 $10,695
Services and other revenue....... 372 921 738 1,199 1,086 1,068
------ ------ ------ ------ ------- -------
Total revenue............ 7,499 7,747 8,261 9,612 10,028 11,763
Cost of revenue:
Cost of software license
revenue....................... 982 723 774 1,030 1,017 761
Cost of services and other
revenue....................... 666 729 1,032 824 873 680
------ ------ ------ ------ ------- -------
Total cost of revenue.... 1,648 1,452 1,806 1,854 1,890 1,441
------ ------ ------ ------ ------- -------
Gross profit....................... 5,851 6,295 6,455 7,758 8,138 10,322
Operating expenses:
Sales and marketing.............. 2,714 2,949 2,514 3,485 3,548 3,791
Research and development......... 2,214 2,117 2,122 2,168 2,699 4,146
General and administrative....... 658 710 1,126 1,375 1,467 1,599
------ ------ ------ ------ ------- -------
Total operating
expenses............... 5,586 5,776 5,762 7,028 7,714 9,536
------ ------ ------ ------ ------- -------
Income from operations............. 265 519 693 730 424 786
Interest and other income
(expense)........................ 197 75 (135) (37) 28 135
------ ------ ------ ------ ------- -------
Income before provision for income
taxes............................ 462 594 558 693 452 921
Provision for income taxes......... 191 245 230 286 185 378
------ ------ ------ ------ ------- -------
Net income......................... $ 271 $ 349 $ 328 $ 407 $ 267 $ 543
====== ====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
---------------------------------------------------------------
MAR. JUNE SEPT. DEC. MAR. JUNE
31, 30, 30, 31, 31, 30,
1995 1995 1995 1995 1996 1996
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software license revenue......... 95.0% 88.1% 91.1% 87.5% 89.2% 90.9%
Services and other revenue....... 5.0 11.9 8.9 12.5 10.8 9.1
------ ------ ------ ------ ------- -------
Total revenue............ 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Cost of software license
revenue....................... 13.1 9.3 9.4 10.7 10.2 6.5
Cost of services and other
revenue....................... 8.9 9.4 12.5 8.6 8.7 5.8
------ ------ ------ ------ ------- -------
Total cost of revenue.... 22.0 18.7 21.9 19.3 18.9 12.3
------ ------ ------ ------ ------- -------
Gross profit....................... 78.0 81.3 78.1 80.7 81.1 87.7
Operating expenses:
Sales and marketing.............. 36.2 38.1 30.4 36.2 35.4 32.2
Research and development......... 29.5 27.3 25.7 22.6 26.9 35.2
General and administrative....... 8.8 9.2 13.6 14.3 14.6 13.6
------ ------ ------ ------ ------- -------
Total operating
expenses............... 74.5 74.6 69.7 73.1 76.9 81.0
------ ------ ------ ------ ------- -------
Income from operations............. 3.5 6.7 8.4 7.6 4.2 6.7
Interest and other income
(expense)........................ 2.6 1.0 (1.6) (0.4) 0.3 1.1
------ ------ ------ ------ ------- -------
Income before provision for income
taxes............................ 6.1 7.7 6.8 7.2 4.5 7.8
Provision for income taxes......... 2.5 3.2 2.8 3.0 1.8 3.2
------ ------ ------ ------ ------- -------
Net income......................... 3.6% 4.5% 4.0% 4.2% 2.7% 4.6%
====== ====== ====== ====== ======= =======
</TABLE>
22
<PAGE> 24
The Company's operating results have fluctuated in the past and may
fluctuate significantly from quarter to quarter or on an annual basis in the
future as a result of a number of factors, including, but not limited to: the
size and timing of customer orders; changes in license renewal rates, delays in
renewals, or failure of existing customers to renew their licenses with the
Company when their current licenses expire; the length of the Company's sales
cycle; changes in contract terms (including terms affecting the timing of
recognition of license revenue); success of the Company's service offerings;
timing of new product announcements and introductions by the Company and its
competitors; the Company's ability to develop, introduce and market new products
and product enhancements; market acceptance of the Company's products; deferrals
of customer orders in anticipation of new products or product enhancements; the
Company's ability to control costs; the availability of components; political
instability in, or trade embargoes with respect to, foreign markets; changes in
the Company's management team; and fluctuating economic conditions. The
Company's future operating results may fluctuate as a result of these and other
factors, which could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company's total revenue increased sequentially in each of the last five
quarters. In the quarter ended June 30, 1995, the Company's software license
revenue decreased primarily as a result of a decrease in revenue from sales
agents in South America in that quarter as compared to the previous quarter.
Services and other revenue increased in that quarter as a result of attainment
of milestones on various ROM and other engineering projects. In the quarter
ended September 30, 1995 the Company's sales and marketing expense decreased due
to increased use of sales engineers in the attainment of project milestones,
resulting in an allocation of costs associated with such engineers to cost of
service revenue. Sales and marketing expense began increasing in the quarter
ended December 31, 1995 primarily as a result of an expansion in the sales force
and new marketing programs. The Company's research and development expense in
the quarters ended March 31 and June 30, 1996 increased primarily in connection
with hiring of additional personnel and third-party contractors to complete and
introduce product upgrades and new products and a one-time severance payment in
the quarter ended June 30, 1996. The Company's general and administrative
expense beginning in the quarter ended December 31, 1995 has increased due
primarily to costs of hiring new executives since the last half of 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the past three years, the Company has satisfied its cash needs
principally through cash generated from operations. Cash generated from
operating activities during 1993 and 1995 was approximately $2.5 million and
$2.6 million, respectively, which was primarily attributable to net income and
increases in accrued liabilities and deferred revenue, offset in part by
increases in accounts receivable and the accrued 401(k) Plan contributions. In
1994, net cash used in operating activities was approximately $2.5 million due
primarily to net losses and increases in deferred income taxes offset by
increases in deferred revenue. Cash generated by operations during the six
months ended June 30, 1996 was $252,000 due to net income, increases in
refundable income taxes and other accrued liabilities offset by increases in
accounts receivable and cash used in the acquisition of technology from Shell
Oil Company for use in the Company's ROMEO project.
Cash used in investing activities in 1993 and 1995 was approximately $1.3
million and $1.1 million, respectively, primarily due to purchases of property
and equipment. Cash generated from investing activities of $400,000 in 1994 was
primarily due to proceeds from property disposition, the sale of marketable
securities and proceeds from redemption of officers' life insurance policies
offset in part by purchases of property and equipment. Cash used in investing
activities during the six months ended June 30, 1996 was $4.1 million, which was
attributable to purchases of property and equipment and increases in
installments receivable.
In December 1993, the Company generated cash of approximately $100,000 from
financing activities, primarily from the net proceeds from the Preferred Stock
issuance and the contribution of an ownership interest in an affiliate, offset
by a $5.0 million repurchase of Common Stock from the Company's founders.
The Company does not anticipate that the increased use of contracts
requiring recognition of License Revenue will have a material effect on cash
flow in the foreseeable future. At June 30, 1996, the Company had a revolving
line of credit with a commercial bank under which it may borrow up to $3.0
million at the bank's
23
<PAGE> 25
prime rate. The agreement expires in September 1996, is collateralized by
substantially all of the Company's assets and contains certain financial and
other covenants. At June 30, 1996 there were no borrowings outstanding under the
agreement. See Note 3 to Notes to Consolidated Financial Statements. The
Company's principal commitments at June 30, 1996 consisted of leases on its
worldwide offices.
The Company believes that existing cash resources, cash flow from
operations, if any, and the line of credit facility, together with the net
proceeds from the offering made hereby, will be sufficient to fund the Company's
operations for at least the next twelve months.
24
<PAGE> 26
BUSINESS
THE COMPANY
Simulation Sciences Inc. ("SimSci" or the "Company") is a leading provider
of simulation software and related services to the process industries, including
the petroleum, petrochemical and industrial chemicals process industries and to
the engineering and construction firms that support those industries. Through
the Company's windows-based graphical user interface ("GUI") and modeling
capabilities, SimSci's simulation software products are designed to provide the
information necessary to increase profitability by reducing capital investment
costs, improving plant yields and enhancing management decision-making. In
addition, the Company's Open Simulation Application Framework enables companies
in the process industries to integrate their software with the Company's and
other third-party software, thereby maximizing their investments in existing
technology. The Company has over 500 customers throughout the process industries
and has offices in seven countries supporting sales in over 70 countries
worldwide. In February 1996, the Company entered into a joint development
agreement with Shell Oil Company to develop a new real-time simulation and
optimization software product.
INDUSTRY BACKGROUND
SimSci provides commercial simulation software and related services to
process industries worldwide, including the petroleum, petrochemical and
industrial chemical industries. According to industry sources, companies in the
process industries operate more than 14,000 processing facilities worldwide.
Companies in these capital-intensive process industries must continually seek
ways to increase the efficiency of their plant designs and production operations
to increase profitability and improve return on investment. Because plants in
these industries process very large volumes of materials, even slight increases
in efficiency may result in significant increases in profitability. For example,
a two cent per barrel reduction in oil processing costs would yield a $1.0
million annual increase in profits for a typical oil refinery that processes
150,000 barrels per day. Furthermore, increasingly intense global competition
and stringent environmental and safety regulations have placed additional
pressure on these industries to optimize the conversion of raw materials into
finished products.
Process industry plant operations are comprised of a series of distinct
process steps that involve different chemical reactions and physical processes.
The chemistry and physics of these individual process steps can be modeled in
software using sophisticated mathematical techniques. To simulate the
performance of specific plants, engineers link mathematical models of each step
into overall processes that represent the physical configuration of the plant.
Due to the number and complexity of the variables involved, such as the specific
chemical properties of the raw materials and the volume, temperature and
pressure at which various processes occur, process simulation software is
complex and calculation intensive. Engineers use simulation software to analyze
the design and operation of the plant and conduct studies to understand process
results, operational efficiencies and the economics of production.
Historically, simulation software was custom-designed by each company and
operated on large mainframe computers. Because of the restricted capabilities of
these computers, early software models had a limited range of application,
required substantial company resources to maintain and support and sometimes
generated imprecise results. The time required to process a new scenario was
often many hours, resulting in the modeling of operations using non-current
data, with an attendant inability to determine optimal plant settings in a
timely way. Because of the time required to simulate production processes in
this off-line manner, operations personnel were unable to use these models in
production decisions. Further, this proprietary software was not designed for
widespread use within a company, making consistency in results throughout an
enterprise difficult to achieve. In addition, this software was focused
primarily on process design rather than ongoing operations or management and had
highly technical interfaces that required specialized programming knowledge and
chemical engineering skills to operate. Furthermore, these software models were
not designed for sharing of data over networked computers.
25
<PAGE> 27
In recent years, more powerful computers and advances in software
technology have resulted in improved simulation capabilities. However, many
process industry companies still use non-object-oriented, proprietary software
that implements simplistic models in an off-line environment primarily for
design purposes.
Today's process industry managers are increasingly seeking to use software
modeling for both process design and operations to improve the efficiency of
their ongoing operations and to manage their overall plants more profitably. To
achieve this, simulation software must have easy to use interfaces, allow
information to be distributed to managers throughout an organization, process
new scenarios based on real-time plant operations data and integrate with other
control and data systems. In addition, simulation software must use highly
sophisticated models based on rigorous mathematics to generate more accurate
information that can be used by different departments throughout an enterprise
to provide both managers and engineers with timely, consistent information.
THE SIMSCI SOLUTION
SimSci's products and services are designed to increase process
manufacturers' profitability by enabling the accurate, reliable design of more
efficient processes, improving plant operations and providing plant managers
with better decision-support tools. The Company's principal product has an
easy-to-use GUI and operates on industry standard hardware and software
platforms. This product's open, object-based architecture facilitates
interoperability with customer-developed applications and enables the effective
use of simulation technology throughout the enterprise. The Company's core
simulation technology includes a substantial proprietary collection of physical
property data and modeling algorithms used to calculate physical and chemical
characteristics of materials under a broad set of operating conditions. Because
SimSci's software modules are readily useable for multiple applications,
different departments within an enterprise can share common models, thus
increasing the accuracy, timeliness and consistency of information use across
multiple departments. The Company's software provides both managers and
engineers with critical process information necessary to make more informed
decisions.
- Design. The Company's products allow design engineers to predict the
behavior of chemical and physical processes, shorten the time required to
design new processes or improve existing processes, achieve more
efficient designs, decrease the cost of constructing or improving plants,
and more easily comply with environmental and safety requirements.
- Operate. Operations engineers use SimSci products to improve a
manufacturers' cost structure and profitability by modifying plant
processes to reduce raw material requirements, save energy, maintain
quality, enhance product yield and increase throughput. The Company also
delivers customized, turn-key solutions through its ROM service offerings
that use rigorous modeling and on-line links to plant data for improving
operations without interrupting the ongoing stream of materials.
- Manage. The Company's easy-to-use products enable corporate decision
makers to base business and financial decisions on a more accurate and
complete understanding of their operations, including operating and
profit margins, return on capital equipment, raw materials selection,
throughput, product quality and market timing.
Information gathered in the design, operation and management functions can
be used in an iterative way to further improve processing of materials,
management of the enterprise, use of the Company's products and the design of
new plants.
STRATEGY
The Company's objective is to expand and extend the use of its simulation
technology and solutions for design, optimization and management functions
throughout the process industries. The key components of the Company's strategy
to achieve this objective include the following:
Leverage Core Simulation Technology. Over the last three decades, the
Company has created proprietary algorithms, designed process unit models and
developed physical and chemical property prediction methods for rigorous process
simulation. In addition, the Company has extended the visibility of its products
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<PAGE> 28
by developing an interactive GUI as well as the OSAF integration technology. The
Company intends to continue to leverage this core technology to broaden the use
of its products from the design of processes to the optimization of operations
and the management of the enterprise.
Integrate Core Products Into The Open Simulation Application
Framework. The Company's PROVISION tool set enables customers to adapt their
in-house and legacy software to interoperate with software from the Company or
other third parties. As a result, customers can increase engineering
productivity and expand the value of their existing technologies. SimSci's
principal product, PRO/II, currently utilizes the PROVISION interface. The
Company intends to use PROVISION and its OSAF architecture for future product
offerings, as well as to make it available to system integrators and third-party
developers.
Expand On-line Modeling Capabilities. The Company intends to continue
developing turn-key solutions to enable engineers and managers to better operate
and manage plant processes. On-line models of specific operating plants may be
created by utilizing the Company's ROM service offering to create rigorous
models that use real-time plant data and current economic objectives to
determine more profitable process settings. The Company, in a joint development
arrangement with Shell Oil Company, is developing a new product to enable the
use of common models for both off-line and on-line applications.
Penetrate Additional Process Industries. To date, the majority of the
Company's revenue has been derived from sales to companies in the refining
industry. The Company is seeking to increase sales of its products in additional
process industries, including the upstream petroleum, petrochemicals and
chemicals industries, by offering additional product functionality. For example,
the Company recently added batch and polymer simulation capabilities to
facilitate increased penetration of the Company's products in the chemicals
industry.
Promote Strategic Relationships. SimSci has developed a network of
alliances with a select group of customers that meet with SimSci senior
technical and business management to help influence future technical direction.
In addition, the Company has entered into strategic alliances with key customers
and vendors to enhance SimSci's technology content and deliver more complete
technology solutions. Customers and vendors with which the Company has technical
alliances include Shell, Mobil and Strategic Analysis and Simulation Technology,
Ltd. The Company recently entered into a memorandum of understanding with IBM
regarding joint development, marketing and sales activities.
TECHNOLOGY
The Company believes that it has developed significant expertise in core
simulation and mathematical technologies that allow customers to define, model,
simulate, analyze and understand the behavior of complex processes. The core
technology required to support the Company's customers includes software and
chemical engineering, process analysis, heat and mass transfer, thermodynamics,
fluid flow and solution algorithms related to the delivery of these competencies
to the customer.
Open Simulation Application Framework. SimSci's Open Simulation
Application Framework is an architecture for integrating a GUI with simulation
software products, proprietary simulation programs, engineering databases and
other software applications used in the process industry. OSAF is implemented
through PROVISION. The Company's PROVISION tool-set provides three core
functionalities: a GUI development environment for the creation of process-flow
based applications; a Data Entry Window Editor that enables the creation of
objects for use in the GUI and defines their structure, data, methods and
behavior; and a Database Server that provides object-oriented access to PRO/II
data and is designed to provide access to legacy data and industry standard
databases.
Engineering Models of Plant Process Equipment. Plant process equipment
performs a variety of manufacturing functions, including heat exchange,
distillation, chemical reaction, pumping and compressing. The Company's
engineering models of such equipment are based on fundamental laws of chemistry
and physics, including laws governing material and energy balances, chemical and
thermodynamic equilibrium, rates of heat and mass transfer and chemical
reaction. These models can involve thousands of nonlinear
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algebraic equations. The Company's products incorporate models for substantially
all standard process plant equipment types.
Physical Property Data and Modeling Algorithms. The Company's library of
physical property data and modeling algorithms includes thermodynamic
properties, such as enthalpy, entropy and heats of formation, as well as
transport properties, including viscosity, thermal conductivity and
diffusivities. The Company's data and models have been developed over more than
20 years and are capable of representing a wide range of physical systems, such
as those used in petroleum processes. The Company's data tables contain data for
approximately 1,700 chemical components and are supplemented by methods for
estimating property data for unknown or unusual compounds based on functional
groups and utilities for regression analysis of experimental laboratory or plant
data. In addition, the Company has substantial proprietary banks of chemical
component interaction data to enhance the accuracy of simulation models.
Solution Algorithms. Process simulation models require the solution of
complex algebraic and partial differential equations that are often highly
nonlinear and therefore difficult to solve. Also, optimization functions employ
sequential quadratic programming techniques to solve these difficult equation
sets. The Company's principal simulation software product, PRO/II, is based on a
sequential modular solution technique, by which process unit models are solved
sequentially in the most efficient order. In addition to utilizing a sequential
modular technique, one of the Company's principal products under development,
ROMEO, employs an equation-based solution technique in which the equations for
multiple process models are solved simultaneously. Offering products that are
based on both modeling techniques will allow the Company's customers to address
a broader range of problems.
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PRODUCTS AND SERVICES
SimSci's product strategy is to develop, market and sell its products under
its Open Simulation Application Framework to help customers increase engineering
productivity, leverage existing technology and improve plant profitability.
SimSci's products are designed to run on industry-standard platforms and
software environments, including 32-bit Windows and UNIX, and utilize an
easy-to-use GUI. The following table sets forth certain information with respect
to the Company's products, service offerings and products under development.
<TABLE>
<CAPTION>
FIRST/LATEST
RELEASE
PRODUCTS AND SERVICES DESCRIPTION APPLICATION PROCESS INDUSTRIES DATE
- ---------------------- --------------------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
PRINCIPAL PRODUCTS:
PRO/II General-purpose Design All June 1988/
simulation software Operations April 1996
with graphical Management
flowsheeting
environment for
processes in
steady-state
PROVISION Software integration Design All September
tool-set for Operations 1994/
integrating process Management September
industry software 1995
with OSAF
OTHER PRODUCTS:
PIPEPHASE Simulation software Design Oil/Gas production November
for pipeline networks Operations 1985/
Management May 1996
HEXTRAN Heat transfer Design All October
simulation software Operations 1980/
June 1994
INPLANT Simulation software Design All October
for plant piping Operations 1989/
systems February
1995
DATACON Data reconciliation Operations All February
software for process 1990/
data May 1994
OpenYield Integrated data Operations All June 1994/
reconciliation and Management November
yield accounting 1995
software
Visual Flare Simulation software Design Oil/Gas refining January
for flare relief Operations and petrochemicals 1995/
systems February
1996
SERVICE OFFERINGS:
ROM Rigorous On-line Operations Oil/Gas production, April 1991/
Modeling (ROM) and Management refining and April 1996
optimization service petrochemicals
utilizing several of
the companies
products
PRODUCTS UNDER DEVELOPMENT:
PROTISS Software for Design All In
simulating both Operations Development
steady-state and
dynamic conditions in
process operations
ROMEO Integrated system for Design All In
performing off-line Operations Development
process simulation Management
and on-line process
optimization
NETOPT Software for Design Oil/Gas production In
optimizing the Operations Development
production of oil and Management
gas fields
</TABLE>
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<PAGE> 31
PRINCIPAL PRODUCTS
PRO/II. PRO/II is a steady-state simulation program that enables process
engineers to rigorously model a wide range of organic and inorganic chemical
processes, such as those found in oil and gas, chemical and petrochemical
industries. Engineers use PRO/II to design new processes or to troubleshoot,
debottleneck and retrofit existing operations and assess compliance with safety
and environmental regulations. PRO/II has an intuitive and easy-to-use GUI
through PROVISION.
The Company derives a substantial portion of its total revenue from sales
of its PRO/II simulation product. Revenue attributable to sales of PRO/II
accounted for approximately 70% of the Company's total revenue in each of the
last three years and the six months ended June 30, 1996. The Company currently
expects PRO/II, individually or integrated with other products, to account for a
significant portion of the Company's total revenue in the future. See "Risk
Factors -- Product Concentration."
PROVISION. PROVISION is a graphical environment for process industry
software that enables third party, in-house and legacy software to interoperate
with the Company's simulation software through the Company's Open Simulation
Application Framework. PROVISION includes a set of tools that provides software
integrators or developers the software, development tools, documentation and
instructions needed to integrate process industry software into the PROVISION
environment. The PROVISION tool-set is designed to support the development of
GUI clients in client-server applications and consists of an object class
library and application program interface for building applications that use the
PROVISION flowsheet drawing capabilities, an object class library of process
engineering data specification controls used to build the data entry windows,
and the tools and information necessary to interact with PRO/II's database
server to provide access to PRO/II process data, stream information and
thermophysical property data.
OTHER PRODUCTS
PIPEPHASE. PIPEPHASE is a steady-state simulation program that enables
engineers to simulate multi-phase fluid flow in pipelines, networks and
production transmission systems and is typically utilized to simulate the flow
of gas or oil from the well to the processing complex.
HEXTRAN. HEXTRAN is a steady-state simulation program that enables
engineers to perform energy audits to monitor and optimize the performance of
existing heat exchange network configurations and to design new systems.
INPLANT. INPLANT is a rigorous, steady-state simulation program for
designing, rating and analyzing plant piping systems. Utilizing INPLANT's
Windows interface, engineers can efficiently rate and analyze the safety of
plant piping systems as well as design new piping systems and revamp a wide
variety of existing systems.
DATACON. DATACON is a data reconciliation program that enables users to
turn real time process data into consistent and reliable information. DATACON
reconciles flow, temperature and composition measurements to satisfy material
and energy balances around each unit in a process plant, detects gross errors in
measurements, pinpoints the errors' locations and confirms the presence or
absence of measurement redundancy.
OpenYield. OpenYield is an integrated data reconciliation and yield
accounting system designed to improve plant profitability. OpenYield tracks the
movements of material through a process, identifies sources of material
imbalance and reduces the uncertainty of material loss calculations. OpenYield
utilizes the capabilities of the Company's DATACON program to improve the
accuracy of plant data used in yield calculations by applying statistical
techniques to reconcile material balances on a unit-by-unit and plant-wide
basis. The Company is currently enhancing its OpenYield offering to operate
under the PROVISION environment and to include links to enterprise management
software, such as SAP, to provide an integrated plant performance and yield
accounting system.
Visual Flare. Visual Flare is a Windows-based simulation program that
enables process safety engineers to design and model safety systems and pressure
relief networks in oil and gas processing facilities. The
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<PAGE> 32
Company offers Visual Flare pursuant to an exclusive, worldwide marketing and
licensing agreement from a third party.
SERVICE OFFERINGS
The Company's principal service offering is ROM. ROM involves the
development of on-line software models of existing process plants. SimSci's core
products, such as PRO/II, DATACON and PIPEPHASE, are used by ROM engineers to
develop on-line models. ROM provides operations personnel with highly accurate
models for performing case studies and for determining how to improve operating
profits. ROM uses real-time plant data combined with current economic objectives
to precisely replicate plant operations and is designed to provide a real-world
model of an actual operating facility, calculate new process setpoints to
improve performance, and help determine the location and cause of operating
problems.
In addition, the Company offers engineering services to assist customers in
the application of simulation technology to manage their businesses effectively
and to maximize the benefits provided by SimSci's core products. SimSci's
engineering services include training, application consulting, project
implementation and application integration.
PRODUCTS UNDER DEVELOPMENT
PROTISS. PROTISS is an integrated software environment that provides full
access to the steady-state simulation capabilities of PRO/II as well as the
dynamic simulation technology licensed from a third party. PROTISS has been
developed to enable process and control engineers to create a steady-state plant
model and then to convert the steady-state model automatically to a dynamic
model. Dynamic plant models are highly robust due to the combination of
sequential modular and simultaneous solution techniques employed in the program.
PROTISS runs under the PROVISION GUI and is OSAF-compliant. PROTISS is being
jointly developed under an agreement with Strategic Analysis and Simulation
Technology, Inc.
NETOPT. NETOPT is a network optimization software application designed to
optimize the design, production and planning of oil networks and enhanced oil
recovery. NETOPT is being developed in conjunction with Mobil Oil Corporation.
ROMEO. ROMEO ("Rigorous On-line Modeling and Equation-based Optimization")
is a software application being jointly developed by the Company and Shell Oil
Company that is designed to enable engineers to rigorously model and optimize
plant operations on a unit, multi-unit and plant-wide basis, enhancing decision
support at all business levels. ROMEO is designed to provide a united framework
for data reconciliation, parameter estimation and process optimization. It will
automatically retrieve pertinent plant data from the control system and use the
information to predict new process setpoints rapidly and accurately to achieve
optimum performance. The ROMEO system is based on an object-oriented design and
will include a commercial database, facilitating data transfer between
applications and enhancing application interoperability.
CUSTOMERS
SimSci currently has over 500 customers across the major process
industries, including the petroleum, petrochemical and chemical industries, and
the engineering and construction industry that supports them. In 1995 and the
six months ended June 30, 1996, 64% and 65%, respectively, of SimSci's total
revenue was generated from customers outside of the United States.
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The following table sets forth selected customers of the Company,
categorized by process industry, whose current license and service agreements
with the Company have a total contract value of at least $100,000, and selected
academic institutions that use the Company's software for chemical engineering
education:
<TABLE>
<CAPTION>
ENGINEERING &
PETROLEUM INDUSTRY CHEMICAL INDUSTRY CONSTRUCTION INDUSTRY
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Agip SpA Allied Signal Corporation ABB Lummus Crest
Amerada Hess Corporation Enichem SpA Bechtel Corporation
Amoco Corporation Henkel KGaA Brown & Root, Inc.
Arco Hoechst A.G. Chisso Corporation
BP Oil Company Imperial Chemical Industries Edeleanu GmbH
Chevron U.S.A. Inc. PLC Fluor Daniel, Inc.
Citgo Petroleum Company Mitsubishi Chemical Foster Wheeler U.S.A.
Conoco Inc. Corporation Corporation
Den Norske Stats Oljeselskap Nippon Sanso Corporation Idem Isu Engineering Company,
a.s. Novacor Chemical Corp Ltd.
Exxon Oil Corporation Saudi Basic Industries Corp Ishikawajima-Harima Heavy
Hindustan Petroleum Corp. Ltd. Tokuyama Corp Industries Co. Ltd.
Honam Oil Refinery Co. Ltd. Vista Chemical Co. Jacobs Engineering Group, Inc.
Koa Oil Co. Ltd. ACADEMIC INSTITUTIONS JGC Corporation
Kuwait Oil Co. Carnegie-Mellon Davy John Brown Pty Ltd.
Mobil Oil Corporation Fachhochschule Ostfriesland KTI BV
Pertamina Indian Institute of Technology Kvaerner Engineering AS
Petroleo Brasileiro-Petrobras Kansas State University Lurgi AG
Petrolios de Venezuela Louisiana State University M.W. Kellogg Company Ltd.
Royal Dutch Shell Oil Company New Mexico State University Niigata Engineering Company
Saudi Arabian Oil Co. Oklahoma State University Nippon Oil Engineering and
Scientific Computing Pennsylvania State University Construction
Consulting Ltd.-Vniigas University of Calgary Raytheon Engineers &
Star Enterprise University of Southern Construction
Sun Company Inc. California Snamprogetti SpA
Texaco Refining and University of Texas Stone & Webster Engineering
Marketing, Inc. University of Wisconsin Corp.
Unocal Corporation Toyo Engineering Corporation
</TABLE>
Customers typically license SimSci's software for terms of one, three or
five years. During the past five years, over 95% of all licenses have been
renewed. Currently, the annualized cost for the license by a single U.S.
corporate user of one of SimSci's core products ranges from $10,000 to $36,000,
depending on the product and the license term. The license fees charged by
SimSci for each of its core products are typically based on the number of
licensed users, with the cost per user declining as the customer increases the
total number of licensed users. More than 95% of the Company's license contracts
entered into before 1996 did not separately identify both software license fees
and charges for customer support obligations. In 1996, the Company began
increasing the number of new and renewed contracts that separately identify
software license fees and maintenance and support fees. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
The Company ships software products within a short period after receipt of
an order and typically does not have a material backlog of unfilled orders.
Total revenue in any quarter is dependent (and will become substantially
dependent as the Company increases the number of contracts for new and renewing
customers that result in the recognition of license revenue upon shipment) on
orders booked and license renewals in that quarter and are not predictable with
any degree of certainty. See "Risk Factors -- Fluctuations in Future Operating
Results" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company derives a significant portion of its total revenue from
software licenses to companies in the petroleum industry, which is highly
cyclical. Accordingly, the Company's future success is dependent upon the
continued demand for process engineering software by companies in the petroleum
industry. The Company believes that pricing pressures experienced by petroleum
companies in connection with cost containment measures have led to delays and
reductions in certain capital and operating expenditures by many of such
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<PAGE> 34
companies in the past, and such delays or reductions could recur in the future.
Any such delays, reductions or fluctuations could have a material adverse effect
on the Company's business, operating results and financial condition. Further,
the Company's revenue has in the past been, and may in the future be, subject to
substantial period-to-period fluctuations as a consequence of general domestic
and foreign economic conditions, political developments and other factors
affecting spending in the petroleum industry. See "Risk Factors -- Concentration
of Revenue in the Petroleum Industry."
SALES AND MARKETING
SimSci markets its products and services through its direct sales
organization complemented by sales agents and distributors. As of June 30, 1996,
the Company's global direct sales force included 26 sales personnel located in
three sales and support offices in the United States and international sales
offices in the United Kingdom, Germany, Egypt, Japan, Singapore and Venezuela.
The Company currently intends to add to its direct sales and support force in
the United States and internationally. In addition, the Company devotes a
significant portion of its sales and marketing efforts to increasing penetration
of its products with new and existing large multinational customers. Due to
their size and geographically dispersed installations and decision-making
process, the Company assigns one senior sales representative world-wide
responsibility for sales to these customers.
In support of these sales efforts, the Company conducts marketing programs
intended to position and promote its products and services. SimSci markets its
products at a substantial discount to universities for use in teaching and
research. The Company participates in industry tradeshows, publishes articles
and advertisements in industry publications, conducts direct mail campaigns, and
sponsors industry conferences and seminars.
STRATEGIC ALLIANCES
SimSci has entered into a number of strategic alliances with respect to its
core products, new products and product enhancements, including a development
arrangement with Strategic Analysis and Simulation Technology, Ltd. with respect
to PROTISS; a development arrangement with Mobil with respect to NETOPT; and a
joint development arrangement with Shell Oil Company with respect to ROMEO. The
Company also has recently entered into a memorandum of understanding with IBM
regarding joint development, marketing and sales activities.
CUSTOMER SUPPORT
Substantially all of the Company's direct sales to customers include
maintenance and support contracts, which are typically 12 to 36 months and
entitle the customer to product updates and to technical support. In addition,
the Company offers instruction in the use of its products for various levels of
student proficiency. Users of the Company's products can also attend user group
conferences held at various times and locations worldwide.
PRODUCT DEVELOPMENT
The Company's development efforts are focused on expanding SimSci's
simulation software product line, designing enhancements to the Company's core
technology, and integrating existing and new products into the Company's Open
Simulation Application Framework. The Company's principal products under
development are PROTISS, NETOPT and ROMEO. The Company has made substantial
investments in product development. The Company believes that its future
performance will depend in large part on its ability to maintain and enhance its
current product line, develop new products that achieve market acceptance,
maintain technological competitiveness and meet an expanding range of customer
requirements. As of June 30, 1996, there were 88 employees on the Company's
research and development staff. The Company's research and development
expenditures in 1994, 1995 and the six months ended June 30, 1996 were $9.6
million, $8.6 million and $6.8 million, respectively, and represented 34%, 26%
and 31% of total revenue, respectively. The Company expects that it will
continue to commit substantial resources to product development in the future.
See "-- Products -- Products Under Development."
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<PAGE> 35
The simulation software market for process industries is subject to rapid
technological change, changing customer requirements, frequent new product
introductions and evolving industry standards that may render existing products
and services obsolete. As a result, the Company's position in its existing
markets or other markets that it may enter could be eroded rapidly by product
advancements by its competitors. The life cycles of the Company's products are
difficult to estimate. The Company's future success will depend, in part, upon
its ability to enhance existing products and to develop new products on a timely
basis. In addition, its products must address increasingly sophisticated
customer needs and keep pace with technological developments, and conform to
evolving industry standards. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products, or that new products and product
enhancements will meet the requirements of the marketplace or achieve market
acceptance. If the Company is unable to develop and introduce products in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, operating results and financial condition
would be materially and adversely affected.
The Company has in the past experienced delays in the release dates of
enhancements to certain of its products. If release dates of any future product
enhancements or new products are delayed or, if when released, they fail to
achieve market acceptance, the Company's business, operating results and
financial condition would be materially adversely affected. In addition, the
introduction or announcement of new product offerings or enhancements by the
Company or the Company's competitors may cause customers to defer or forgo
purchases of current versions of its products, which could in turn have a
material adverse effect on the Company's business, operating results and
financial condition. See "Risk Factors."
COMPETITION
The market for commercial simulation software used in the petroleum,
chemical and other process industries is intensely competitive and characterized
by rapidly changing technology, evolving industry standards, frequent new
product introductions and rapidly changing customer requirements. The Company
experiences significant competition from potential customers' decisions to
internally develop their own process design, simulation and optimization
applications as opposed to purchasing commercial software products such as the
Company's. As a result, the Company must continuously educate existing and
prospective customers about the advantages of the Company's products. There can
be no assurance that these customers or potential customers will perceive
sufficient value in the Company's products to justify purchasing them. In
addition, customers or potential customers could enter into strategic
relationships with one or more of the Company's competitors to develop, market
and sell competing products and services.
The Company has experienced and expects to continue to experience increased
competition from current and future competitors, many of whom have significantly
greater financial, technical, marketing and other resources than the Company.
The Company's current direct competitors, include Aspen Technology, Inc.,
Hyprotech Ltd. and Chemstations, Inc., and, with respect to the Company's
technology and consulting services, the Hi-Spec division of Honeywell, Inc., the
Setpoint and DMCC divisions of Aspen Technology, Inc. and ABB Simcon Inc. The
Company's competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources
to the development, promotion and sale of their products than the Company. Also,
many current and potential competitors have greater name recognition and more
extensive customer bases that could be leveraged, thereby gaining market share
to the Company's detriment. The Company expects to face additional competition
as other established and emerging companies enter the commercial simulation
software market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share, any of which could materially adversely
affect the Company's business, operating results and financial condition. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's current or prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to sell additional licenses and
maintenance and support renewals on terms favorable to the
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<PAGE> 36
Company. Further, competitive pressures could require the Company to reduce the
price of licenses for its products and related services, which could materially
adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would have a material adverse effect upon the Company's business, operating
results and financial condition.
The principal competitive factors in the Company's markets include:
accuracy of modeling, enhancing the technology's ease of use, the ability to
continually meet the customers' needs to leverage process information across the
enterprise and to link operations information with enterprise applications,
continually increase the size and complexity of processes that can be modeled
accurately and in a timely manner, the need to continue to leverage the
customers' operations and information technology strategies, customer support,
price, hardware flexibility and vendor financial stability. The Company believes
that the required knowledge of evolving software and hardware technologies and
the need to leverage these, the level of development effort, and the chemical
engineering and modeling expertise required to enter and succeed in the
simulation technology industry represent significant barriers against new
competitors. See "Risk Factors -- Competition."
PROPRIETARY RIGHTS
To date, the Company has relied upon a combination of copyright, trade
secret and trademark laws to protect its proprietary technology. PRO/II,
PROVISION, PROVISION TOOLKIT, PIPEPHASE, NETOPT, HEXTRAN, INPLANT, DATACON,
OpenYield, PROTISS and ROM are trademarks of the Company. The Company enters
into confidentiality agreements with its employees, developers, distributors and
customers and limits access to and distribution of the source code to its
software and other proprietary information. Policing unauthorized use of the
Company's products is difficult. There can be no assurance that the steps taken
by the Company in this regard will be adequate to prevent misappropriation of
its technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology.
In the future, the Company may receive communications from third parties or
have other reasons to seek licenses under third-party intellectual property
rights. In such cases, the Company may evaluate whether to obtain such licenses.
However, there can be no assurance that such licenses will be available or if
such licenses are made available, that the terms will not have a material
adverse effect on the Company's results of operations.
Certain technology used in the Company's products, including OpenYield,
Visual Flare, NETOPT, PROTISS and ROMEO, is licensed from third parties. These
licenses generally require the Company to pay royalties and to fulfill
confidentiality obligations. The Company believes that there are alternative
sources for each of the material components of technology licensed by the
Company from third parties. However, the termination of any of such licenses, or
the failure of the third party licensors to adequately maintain or update their
products, could result in delay in the Company's ability to ship certain of its
products while it seeks to implement technology offered by alternative sources.
Any required replacement licenses could prove costly. Also, any such delay, to
the extent it becomes extended or occurs at or near the end of a fiscal quarter,
could result in a material adverse effect on the Company's results of
operations. While it may be necessary or desirable in the future to obtain other
licenses relating to one or more of the Company's products or relating to
current or future technologies, there can be no assurance that the Company will
be able to do so on commercially reasonable terms or at all.
EMPLOYEES
As of June 30, 1996, the Company had a total of 243 employees, including 88
in research and development, 113 in sales and marketing and related customer
support services and 42 in general and administrative. Of these employees, 191
were located in the United States, 33 in Europe, six in South America and 13 in
Asia. The Company also employs contract and temporary employees from time to
time. None of the Company's employees is represented by a collective bargaining
agreement, nor has the Company experienced any work stoppage. The Company
considers its relations with its employees to be good.
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The Company currently subcontracts certain aspects of its research and
development to outside contractors. The Company may in the future experience
problems with its contractors, such as quality or on-time delivery problems. In
addition, certain of these contractors are located in India, and the Company may
therefore suffer adverse consequences as a result of communication, cultural or
political barriers or because the laws of other countries may be less protective
of the Company's intellectual property than are the laws of the United States.
In addition, the Company may in the future experience pricing pressure from its
contractors. To date, the Company has had only limited experience with the use
of research and development contractors. There can be no assurance that the
Company will be able to manage its contract developers effectively or that these
developers will meet the Company's future requirements for timely delivery of
high-quality products.
FACILITIES
The Company's principal administrative, sales, marketing and product
development facility occupies approximately 60,000 square feet in Brea,
California pursuant to a lease which expires in April 2008. In addition, the
Company also leases sales and support offices in Houston, Texas, Denver,
Colorado and Newtown, Pennsylvania. The Company also maintains international
offices in the United Kingdom, Germany, Egypt, Japan, Singapore and Venezuela.
The Company believes that its existing facilities are adequate for its current
needs and that suitable additional or alternative space will be available in the
future on commercially reasonable terms as needed.
36
<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
the date of this Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Charles R. Harris...................... 47 President and Chief Executive Officer and Director
L. Ronald Trepp........................ 58 Vice President, Finance and Chief Financial Officer
Daniel T. Nichols...................... 47 Vice President, Human Resources and Administration
Dirk M. Pfeiffer....................... 38 Vice President, Sales, Marketing and Engineering
Services
Katherine Sullivan Abrams.............. 57 Vice President, Research and Development
Dr. Narendra K. Gupta(1)(2)............ 47 Director
Walter G. Kortschak(1)(2).............. 37 Director
</TABLE>
- ---------------
(1) Member of Audit Committee of the Board of Directors
(2) Member of Compensation Committee of the Board of Directors
Charles R. Harris has served as President and Chief Executive Officer and
as a director of the Company since July 1995. From September 1994 to June 1995,
Mr. Harris was an independent consultant. From April 1993 to August 1994, Mr.
Harris was employed by Computervision Corp., a computer modeling equipment
provider ("Computervision"), as Vice President of the Industry Business Group
and a Member of the Management Committee. From 1980 to 1993, Mr. Harris was
employed by Hewlett-Packard Company, a computer and instrument manufacturer
("Hewlett-Packard") as Global Account Manager for General Motors/Electronic Data
Systems. Mr. Harris holds a B.A. degree and an M.S. degree from Emory University
in Georgia.
L. Ronald Trepp has served as Vice President, Finance and Chief Financial
Officer of the Company since June 1996. From December 1991 to June 1996, Mr.
Trepp was employed as Vice President, Finance and Chief Financial Officer of
Cimco, Inc., an injection molded parts and engineered resins company. From
August 1987 to December 1991, Mr. Trepp was employed by Computer Communications,
Inc., a data communications company, as Executive Vice President, Finance and
Chief Financial Officer. Mr. Trepp holds a B.S. degree and an M.B.A. degree from
the University of California, Los Angeles.
Daniel T. Nichols has served as Vice President, Human Resources and
Administration of the Company since February 1996. From February 1995 to
February 1996, Mr. Nichols was employed by Aspen Technology, Inc., a process
simulation software company, as Director of Human Resources. From April 1990 to
February 1995, Mr. Nichols was employed at Computervision, most recently as
Director of Technical and Professional Support. Mr. Nichols holds a B.S. degree
from the University of Massachusetts.
Dirk M. Pfeiffer has served as Vice President, Sales, Marketing and
Engineering Services of the Company since September 1995. From January 1993 to
June 1995, Mr. Pfeiffer was employed by SAP, an enterprise software company, as
Director of Sales and Marketing for the oil and gas industry. From September
1987 to December 1992, Mr. Pfeiffer was employed by Hewlett-Packard as the
European Account Manager for General Motors, Electronic Data Systems. Mr.
Pfeiffer holds a M.B.A. degree from the University of Cologne in Germany.
Katherine Sullivan Abrams became a consultant to the Company in August 1995
before joining the Company full-time as Vice President, Research and Development
of the Company in November 1995. From 1984 to February 1995, Ms. Abrams held
senior management positions with Computervision's Software Development business
unit, most recently as Director of Corporate Strategic Account Management.
Previously she had ten years of field and product development experience with
IBM. Ms. Abrams holds a B.S. degree from Cornell University.
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<PAGE> 39
Dr. Narendra K. Gupta has been a director of the Company since March 1994.
Dr. Gupta co-founded Integrated Systems Inc., a real-time software company, in
April 1980 and currently serves as its Chairman of the Board. Dr. Gupta is also
a director of Digital Link Corp., a data communications equipment manufacturer.
Dr. Gupta holds a M.S. degree from California Institute of Technology and a
Ph.D. from Stanford University.
Mr. Walter G. Kortschak has been a director of the Company since December
1993. Since August 1991, he has been a general partner of Summit Partners L.P.
where he has been employed since June 1989. Summit Partners L.P. and its
affiliates manage a number of venture capital funds, including Summit Ventures
III, L.P. and Summit Investors II, L.P., which are principal stockholders of the
Company. He is also a director of Diamond Multimedia Systems, Inc., HMT
Technology Corporation, McAfee Associates, Inc. and Mecon, Inc. and serves as a
director of several privately-held companies. Mr. Kortschak received a B.S.
degree from Oregon State University, an M.S. degree from the California
Institute of Technology and an M.B.A. degree from the University of California,
Los Angeles.
The Company currently has authorized three directors and intends to add two
additional directors in the near term. All directors hold office until the next
annual meeting of stockholders or until their successors have been elected and
qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and a Compensation Committee,
each of which consists of Dr. Gupta and Mr. Kortschak. The Audit Committee was
established in March 1992 and is responsible for reviewing the results and scope
of the audit and other services provided by the Company's independent auditors.
The Compensation Committee was established in June 1995 and is responsible for
the review and establishment of the Company's compensation programs for
executive officers and other employees of the Company and administers the
Company's stock plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Dr. Gupta and Mr. Kortschak,
neither of whom is an officer of the Company. No interlocking relationship
exists between any member of the Company's board of directors or the
Compensation Committee and any member of the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
DIRECTOR COMPENSATION
Other than Dr. Gupta, members of the Company's Board of Directors do not
receive compensation for their service as directors. Dr. Gupta receives $500 for
each Board or committee meeting he attends. In addition, Dr. Gupta is reimbursed
for his out-of-pocket expenses incurred in attending Board and committee
meetings. Directors have in the past been granted stock options under the
Company's 1994 Stock Option Plan.
In addition, non-employee directors are entitled to participate in the 1996
Director Option Plan (the "Director Plan"). The Director Plan provides for the
automatic grant of an option for 20,000 shares of Common Stock (the "First
Option") to each non-employee director on the earlier of: (i) the effective date
of the Director Plan, or (ii) the date on which the person first becomes a
non-employee director, unless immediately prior to becoming a non-employee
director, such person was a director of the Company. After the First Option is
granted to the non-employee director, he or she shall automatically be granted
an option to purchase 5,000 shares (a "Subsequent Option") each year on the date
of the annual stockholder's meeting of the Company at which such non-employee
director is re-elected as a director, if on such date he or she shall have
served on the Board for at least six months. Each First Option and each
Subsequent Option shall have a term of 10 years and the shares subject to the
option shall vest and become exercisable at a rate of 25% on the first
anniversary date of grant and at a rate of 1/48th of the shares per month
thereafter. The exercise prices of the First Option and each Subsequent Option
shall be 100% of the fair market value per share of the Common Stock, generally
determined with reference to the closing price of the Common Stock as reported
on the Nasdaq National Market on the date of grant.
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<PAGE> 40
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by the
Company to its Chief Executive Officer and the four most highly compensated
other executive officers of the Company (collectively, the "Named Executive
Officers") for services rendered in all capacities to the Company during the
Company's fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) SARS (#) ($)(2)
- ----------------------------------------- ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Harris........................ 1995 $86,413(3) $37,500 $148,670(4) 250,000 $4,583
President and Chief Executive Officer
Dr. Yui L. Wang(5)....................... 1995 173,826 -- -- -- 7,440
Former Chairman of the Board and Chief
Executive Officer
Dirk M. Pfeiffer......................... 1995 43,750(3) 37,500 -- 125,000 --
Vice President, Sales, Marketing and
Engineering Services
Richard N. Campbell(6)................... 1995 90,672 11,000 -- 20,000 10,391
Vice President, Finance and Controller
Katherine Sullivan Abrams................ 1995 18,667(3) 8,800 22,500(7) 20,000 --
Vice President, Research and Development
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other annual compensation in the form of perquisites and other personal
benefits has been omitted in those cases where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the Named Executive
Officer for such year.
(2) Represents premiums paid by the Company on a life insurance policy and a
health insurance policy for the benefit of the Named Executive Officer.
(3) Amounts based on annual salary of $175,000 for Charles R. Harris from July
1, 1995, $150,000 for Dirk M. Pfeiffer from September 15, 1995 and $110,000
for Katherine Sullivan Abrams from November 1, 1995.
(4) Represents amounts paid in connection with the reimbursement by the Company
of certain relocation expenses.
(5) Represents amounts received by Dr. Wang in his capacity as Chairman of the
Board. Dr. Wang also served as President and Chief Executive Officer of the
Company through June 1995. Dr. Wang resigned as Chairman of the Board in
May 1996.
(6) In June 1996, Mr. Campbell resigned as Vice President, Finance and
Controller.
(7) Represents compensation for services rendered as a consultant to the
Company.
39
<PAGE> 41
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
under the Company's 1994 Stock Option Plan granted to the Named Executive
Officers during fiscal 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM($)(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FIRST YEAR(1) ($/SHARE) DATE 5% 10%
- ---------------------------- ------------ -------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Harris........... 250,000 43% $2.67 7/4/05 $419,787 $1,063,823
Dr. Yui L. Wang............. -- -- -- -- -- --
Dirk M. Pfeiffer............ 125,000 22% 2.67 9/17/05 209,894 531,912
Richard N. Campbell(3)...... 20,000 3% 2.67 10/29/05 33,583 85,200
Katherine Sullivan Abrams... 20,000 3% 2.67 10/31/05 33,583 85,200
</TABLE>
- ---------------
(1) Based on options to purchase 575,000 shares of Common Stock granted during
fiscal 1995.
(2) Potential realizable value is based on the assumption that the price of the
Common Stock appreciates at the annual rate shown, compounded annually,
from the date of grant until the end of the 10-year option term. The 5% and
10% assumed annual compound rates of stock price appreciation are mandated
by rules promulgated by the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
(3) In June 1996, Mr. Campbell resigned as an officer and employee of the
Company.
The following table sets forth information with respect to the number of
options and the aggregate value of in-the-money options held by each Named
Executive Officer at December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-END
(#) ($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles R. Harris.......................... -- 250,000 -- $ 675,000
Dr. Yui L. Wang............................ -- -- -- --
Dirk M. Pfeiffer........................... -- 125,000 -- 337,500
Richard N. Campbell(2)..................... -- -- -- --
Katherine Sullivan Abrams.................. -- 20,000 -- 54,000
</TABLE>
- ---------------
(1) Based on the fair market value of the Company's Common Stock at December
31, 1995, $5.37 per share (as determined by the Company's Board of
Directors), less the exercise price payable for such shares.
(2) In June 1996, Mr. Campbell resigned as an officer and employee of the
Company.
STOCK PLANS
1994 Stock Option Plan. The Company's 1994 Stock Option Plan (the "1994
Plan") provides for the granting to employees and consultants of nonstatutory
stock options. The 1994 Plan was approved by the Board of Directors in March
1994 and by the stockholders in May 1994. Unless terminated sooner, the 1994
Plan will terminate automatically in March 2004.
40
<PAGE> 42
A total of 1,666,667 shares of Common Stock were reserved for issuance
pursuant to the 1994 Plan. As of June 30, 1996, 126,667 options to purchase
1,514,166 shares of Common Stock were outstanding under the 1994 Plan and
126,667 shares of Common Stock remained available for future grant.
The 1994 Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"), which Committee is required to be constituted to
comply with Section 16(b) of the Securities Exchange Act of 1934, as amended,
and applicable laws. The Committee has the power to determine the terms of the
options granted, including the exercise price, the number of shares subject to
each option and the exercisability thereof, and the form of consideration
payable upon exercise. In addition, the Board has the authority to amend,
suspend or terminate the 1994 Plan, provided that no such action may affect any
share of Common Stock previously issued and sold or any option previously
granted under the 1994 Plan. Options granted under the 1994 Plan are not
generally transferable by the optionee, and each option is exercisable during
the lifetime of the optionee only by such optionee. Options granted under the
1994 Plan must be exercised within thirty days of the end of optionee's status
as an employee or consultant of the Company, within six months of such
optionee's termination by death or disability and within ninety days of such
optionee's termination by retirement. In no event may an option granted under
the 1994 Plan be exercised later than the expiration of the option's ten-year
term. The exercise price of options granted under the 1994 Plan is determined by
the Committee, but may not be less than 85% of the fair market value of the
Common Stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of the
Company's outstanding capital stock, the exercise price of any option granted
must equal at least 110% of the fair market value on the date of grant. The term
of options granted under the 1994 Plan may not exceed ten years.
The 1994 Plan provides that in the event of a merger of the Company with or
into another corporation, a sale of substantially all of the Company's assets or
a like transaction involving the Company, each optionee shall have the right to
exercise his or her option to the extent that it has vested as of the date of
such transaction. In addition, if the successor corporation does not assume or
substitute for the options granted under the 1994 Plan, each optionee shall have
the right to exercise prior to such transaction 50% of the unvested portion of
his or her option.
As of June 30, 1996, 25,834 shares of Common Stock had been issued upon the
exercise of options granted under the 1994 Plan, options to purchase 1,514,166
shares of Common Stock at a weighted average exercise price of $4.26 per share
were outstanding and 126,667 shares remained available for future option grants.
The 1994 Plan will terminate in March 2004, unless sooner terminated by the
Board of Directors.
1996 Stock Plan. The Company's 1996 Stock Plan (the "1996 Plan") provides
for the granting to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), and for the granting to employees and consultants of
nonstatutory stock options and stock purchase rights ("SPRs"). The 1996 Plan was
approved by the Board of Directors in May 1996. The Company will seek
stockholder approval of the 1996 Plan prior to the effective date of the
offering. Unless terminated sooner, the 1996 Plan will terminate automatically
in May 2006. A total of 1,000,000 shares of Common Stock are currently reserved
for issuance pursuant to the 1996 Plan.
The 1996 Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"), which Committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, consist of two or more "outside directors" within
the meaning of Section 162(m) of the Code. The Committee has the power to
determine the terms of the options or SPRs granted, including the exercise
price, the number of shares subject to each option or SPR, the exercisability
thereof, and the form of consideration payable upon such exercise. In addition,
the Committee has the authority to amend, suspend or terminate the 1996 Plan,
provided that no such action may affect any share of Common Stock previously
issued and sold or any option previously granted under the 1996 Plan. Options
and SPRs granted under the 1996 Plan are not generally transferable by the
optionee, and each option and SPR is exercisable during the lifetime of the
optionee only by such optionee. Options granted under the 1996 Plan must
generally be exercised within three months of the end of optionee's status as an
employee or consultant of the Company, or within twelve months after such
optionee's termination by death or
41
<PAGE> 43
disability, but in no event later than the expiration of the option's ten-year
term. In the case of SPRs, unless the Committee determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or disability). The
purchase price for shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at a rate determined by the Committee. The exercise price of
all incentive stock options granted under the 1996 Plan must be at least equal
to the fair market value of the Common Stock on the date of grant. The exercise
price of nonstatutory stock options and SPRs granted under the 1996 Plan is
determined by the Committee, but with respect to nonstatutory stock options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the exercise price must at least be equal to the
fair market value of the Common Stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of the Company's outstanding capital stock, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the term of such incentive stock option must not exceed
five years. The term of all other options granted under the 1996 Plan may not
exceed ten years.
The 1996 Plan provides that in the event of a merger of the Company with or
into another corporation, a sale of substantially all of the Company's assets or
a like transaction involving the Company, each option shall be assumed or an
equivalent option substituted by the successor corporation. If the outstanding
options are not assumed or substituted for as described in the preceding
sentence, the Committee shall provide for the Optionee to have the right to
exercise the option or SPR as to all of the optioned stock, including shares as
to which it would not otherwise be exercisable. If the plan administrator makes
an option or SPR exercisable in full in the event of a merger or sale of assets,
the plan administrator shall notify the optionee that the option or SPR shall be
fully exercisable for a period of fifteen (15) days from the date of such
notice, and the option or SPR will terminate upon expiration of such period.
1996 Employee Stock Purchase Plans. The Company has adopted employee stock
purchase plans for U.S. and non-U.S. employees. Each plan provides for 100,000
shares of Common Stock. The Company's 1996 Employee Stock Purchase Plan for U.S.
Employees (the "U.S. Purchase Plan") was adopted by the Board of Directors in
May 1996. The Company will seek stockholder approval of the U.S. Purchase Plan
prior to the effective date of the offering. A total of 100,000 shares of Common
Stock has been reserved for issuance under the U.S. Purchase Plan. The U.S.
Purchase Plan, which is intended to qualify under Section 423 of the Code, has
two six-month offering periods each year beginning on the first trading day on
or after January 1 and July 1, respectively, except for the first such offering
period which commences on the first trading day on or after the effective date
of this Offering and ends on the last trading day on or before December 31,
1996. The U.S. Purchase Plan is administered by the Board of Directors or by a
committee appointed by the Board. Employees are eligible to participate if they
are customarily employed by the Company or any participating subsidiary for at
least 20 hours per week and more than five months in any calendar year. The U.S.
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions of up to 10% of an employee's compensation (including
commissions and overtime, but excluding other bonuses and incentive
compensation), up to a maximum of $20,000 for all offering periods ending within
the same calendar year. The price of stock purchased under the U.S. Purchase
Plan is 85% of the lower of the fair market value of the Common Stock at the
beginning or at the end of each offering period. Employees may end their
participation at any time during an offering period, and they will be repaid
their payroll deductions to date. Participation ends automatically upon
termination of employment with the Company.
Rights granted under the U.S. Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the U.S. Purchase Plan. The U.S. Purchase Plan provides
that, in the event of a merger of the Company with or into another corporation
or a sale of substantially all of the Company's assets, the Board of Directors
shall shorten the offering period then in progress (so that employees' rights to
purchase stock under the Plan are exercised prior to the merger or sale of
assets). The U.S. Purchase Plan will terminate in May 2006. The Board of
Directors has the authority to amend or terminate the U.S. Purchase Plan, except
that no such action may adversely affect any outstanding rights to purchase
stock under the U.S. Purchase Plan.
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<PAGE> 44
The Company's 1996 Employee Stock Purchase Plan for Non-U.S. Employees (the
"Foreign Purchase Plan") was adopted by the Board of Directors in May 1996, but
was not submitted to the Company's shareholders for their approval. A total of
100,000 shares of Common Stock (less the number of shares of Common Stock issued
under the U.S. Purchase Plan) has been reserved for issuance under the Foreign
Purchase Plan. The Foreign Purchase Plan is not intended to qualify under
Section 423 of the Code, but the terms of the Foreign Purchase Plan are
substantially similar to those of the U.S. Purchase Plan.
1996 Director Option Plan. The Company has reserved an aggregate of
125,000 shares of Common Stock for issuance under its 1996 Director Option Plan
(the "Director Plan"). The Director Plan was adopted by the Board of Directors
in May 1996, but will not become effective until the effective date of this
offering. The Director Plan provides for the automatic grant of an option for
20,000 shares of Common Stock (the "First Option") to each non-employee director
on the earlier of: (i) the effective date of the Director Plan, or (ii) the date
on which the person first becomes a non-employee director, unless immediately
prior to becoming a non-employee director, such person was a director of the
Company. After the First Option is granted to the non-employee director, he or
she shall automatically be granted an option to purchase 5,000 shares (a
"Subsequent Option") each year on the date of the annual stockholder's meeting
of the Company at which such non-employee director is re-elected as a director,
if on such date he or she shall have served on the Board for at least six
months. Each First Option and each Subsequent Option shall have a term of 10
years and the shares subject to the option shall vest and become exercisable at
a rate of 25% on the first anniversary date of grant and at a rate of 1/48th of
the shares per month thereafter. The exercise prices of the First Option and
each Subsequent Option shall be 100% of the fair market value per share of the
Common Stock, generally determined with reference to the closing price of the
Common Stock as reported on the Nasdaq National Market on the date of grant.
401(K) PLAN
The Company has a tax-qualified retirement plan (the "401(k) Plan")
covering substantially all of the Company's employees. The 401(k) Plan was
originally established as a stock bonus plan. Later, the plan was amended to be
a combined stock bonus/money purchase pension plan. Certain accounts accrued
under the 401(k) Plan in its earlier versions are still maintained for the
benefit of some participants. Pre-1994 Company stock accounts under the 401(k)
Plan continue to hold 2,258,090 shares of Company stock, or 31.7% of the total
outstanding shares. Following this offering, such accounts under the 401(k) Plan
will hold 2,118,781 shares of Company stock, or 23.0% of the total outstanding
shares. Currently, employees may elect to defer up to 15% of their compensation,
or the statutorily prescribed limit, if less, to the 401(k) Plan. The Company
matches the first 5% of an employee's compensation deferred to the 401(k) Plan
based on a sliding scale, with employees receiving less compensation receiving a
greater matching contribution percentage. The 401(k) Plan has a profit sharing
element whereby the Company can make a contribution in an amount to be
determined annually by the Board of Directors. The profit sharing contribution,
if any, is allocated prorata based on compensation to all eligible 401(k) Plan
participants. An employee's interest in his or her deferrals are 100% vested
when contributed. An employee's interest in matching contributions and profit
sharing contributions vest over 5 years from date of employment. The 401(k) Plan
is intended to qualify under Sections 401(a) and 501(a) of the Code. As such,
contributions to the 401(k) Plan and earnings on those contributions are not
taxable to the employees until distributed from the 401(k) Plan, and all
contributions are deductible by the Company when made.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's charter limits the monetary liability of its directors to the
Company or its stockholders for breach of such director's fiduciary duty to the
fullest extent permitted by the Delaware General Corporation Law (the "DGCL")
or, if the DGCL is not applicable, to the fullest extent permissible under
applicable law. Under the Company's by-laws, each person who was or is a party
or is threatened to be made a party to, or is involved in, any proceeding by
reason of the fact that he or she is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or other enterprise, shall be
indemnified and held harmless by the Company to the fullest
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<PAGE> 45
extent permitted by the DGCL against all costs, charges, expenses, liabilities
and losses (including attorneys' fees) reasonably incurred or suffered by such
person in connection with such proceeding. Such right to indemnification
includes the right to be paid by the Company the expenses incurred in defending
any such proceeding in advance of its final disposition. The Board of Directors
has discretion to provide indemnification to employees and agents of the Company
with the same scope and effect as the foregoing indemnification of directors and
officers. The foregoing right to indemnification and advancement of expenses
under the Company's by-laws is not exclusive of any other right which any person
may have or acquire under the Company's charter, any statute, agreement or
otherwise. In addition, the Company's charter authorizes the Company by bylaw,
agreement or otherwise to indemnify directors, officers, employees and agents in
excess of the indemnification permitted by applicable law.
In addition, the Company has entered into indemnification agreements with
each of its directors and executive officers and has obtained a directors' and
officers' liability insurance policy that insures such persons against the cost
of defense, settlement or payment of judgments under certain circumstances. As
of the date of this Prospectus, there is no pending litigation or proceeding
involving a director or officer of the Company as to which indemnification is
being sought, nor is the Company aware of any pending or threatened litigation
that may result in claims for indemnification by any director or officer.
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<PAGE> 46
CERTAIN TRANSACTIONS
In September 1992, the Company entered into a lease agreement with respect
to its headquarters with Brea Partners, a limited partnership in which the
Company has a 10% limited partnership interest and BVW Investments has a 34.6%
limited partnership interest. BVW Investments is a general partnership among the
Company's founders, N. Fred Brannock, Vincent S. Verneuil, Jr. and Dr. Yui L.
Wang. Mr. Brannock and Dr. Wang are former directors of the Company. The Company
believes that the lease agreement is on terms no less favorable to the Company
than could be obtained from an independent third party.
In December 1993, the Company entered into employment agreements with
Vincent S. Verneuil, Jr. and Dr. Yui L. Wang. The agreement with Mr. Verneuil
provides for an annual salary in the amount of $147,000, $155,920, $162,052 and
$168,534 for the calendar years 1993, 1994, 1995 and 1996, respectively. The
agreement with Dr. Wang provides for an annual salary in the amount of $162,000,
$171,720, $178,588 and $185,732 for the calendar years 1993, 1994, 1995 and
1996, respectively. Such agreements also provide for participation in the
Company's benefit plans. Such agreements terminate December 17, 1996 or upon the
earlier occurrence of certain other events. In May 1996, the Company entered
into resignation agreements with Mr. Verneuil and Dr. Wang pursuant to which Mr.
Verneuil and Dr. Wang resigned as Secretary and Chairman of the Board of the
Company, respectively, and the Company has agreed to pay Mr. Verneuil an amount
of approximately $278,000.
In December 1993, Summit Ventures III, L.P., Summit Investors II, L.P.,
Enterprise Partners II Associates, L.P. and Enterprise Partners II, L.P.
(collectively, the "Investors") purchased an aggregate of 1,666,667 shares of
the Company's Common Stock at a purchase price of $2.85 per share and acquired
warrants to purchase an aggregate of 438,598 shares of the Company's Common
Stock. In connection with such purchases, the Company entered into an agreement
with the Investors and its stockholders pursuant to which the Investors and the
stockholders have certain rights with respect to representation on the Company's
Board of Directors, restrictions on transfer of shares and rights to require the
Company to repurchase shares held by them. Such agreement shall expire upon the
closing of the offering.
In December 1994, the Company entered into a settlement and general release
agreement with Eugene L. Goda, former Chief Executive Officer and President of
the Company. Pursuant to such agreement, the Company paid Mr. Goda an aggregate
of $320,000.
45
<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of the date of this Prospectus
and as adjusted to reflect the sale of the shares of Common Stock offered hereby
with respect to (i) each person known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, (ii) each Selling
Stockholder, (iii) each of the Company's directors, (iv) each of the Named
Executive Officers and (v) all executive officers and directors as a group.
Except as otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned. Unless otherwise
indicated, the address for each stockholder is c/o Simulation Sciences Inc., 601
Valencia Avenue, Suite 100, Brea, California 92823.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES TO BE AFTER THE OFFERING
5% STOCKHOLDERS, DIRECTORS AND EXECUTIVE ------------------ SOLD IN THE ------------------
OFFICERS NUMBER PERCENT OFFERING NUMBER PERCENT
- ----------------------------------------------- -------- ------- ------------ -------- -------
<S> <C> <C> <C> <C> <C>
Summit Partners L.P.(1)(2)
499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301.......................... 1,684,212 23.7% 478,000(2) 1,206,212 12.8%
Enterprise Partners II, L.P.(3)
5000 Birch Street, Suite 6200
Newport Beach, CA 92660...................... 332,725 5.1 -- 332,725 3.5
Enterprise Partners II Associates, L.P.(3)
5000 Birch Street, Suite 6200
Newport Beach, CA 92660...................... 32,774 * -- 32,774 *
Dr. Yui L. Wang(4)............................. 1,220,107 17.2 114,941 1,105,166 11.3
N. Fred Brannock(5)............................ 866,309 12.2 79,625 786,684 8.0
Vincent S. Verneuil, Jr.(6).................... 866,309 12.2 79,625 786,684 8.0
401(k) Plan(7)................................. 2,258,090 31.7 139,309 2,118,781 22.5
Charles R. Harris(8)........................... 50,000 * -- 50,000 *
Dirk M. Pfeiffer(9)............................ 25,000 * -- 25,000 *
Katherine Sullivan Abrams(10).................. 4,000 * -- 4,000 *
Dr. Narendra K. Gupta(11)...................... 9,334 * -- 9,334 *
Walter G. Kortschak(12)........................ 1,684,212 23.7 478,000 1,206,212 12.8
All executive officers and directors as a group
(7 persons)(13).............................. 1,772,546 24.6 -- 1,421,668 14.5
OTHER SELLING STOCKHOLDER
Thomas L. Ringer(14)........................... 25,834 * 8,500 17,334 *
</TABLE>
- ---------------
* Less than one percent of the outstanding Common Stock.
(1) Includes shares beneficially owned or held of record after the offering by
the following funds: Summit Ventures III, L.P. (1,311,934) and Summit
Investors II, L.P. (21,400).
(2) Summit Partners L.P. holds two warrants to purchase an aggregate of 350,878
shares of Common Stock exercisable at $2.85 per share.
(3) Includes 87,720 shares of Common Stock underlying outstanding warrants.
(4) Represents 1,149,409 shares held of record by various trusts for the
benefit of members of Mr.Wang's immediate family and 70,698 shares held of
record by the Company's 401(k) Plan. Dr. Wang served as Chairman of Board
of Directors until May 1996 and served as President and Chief Executive
Officer of the Company from December 1994 until June 1995. Assuming the
over-allotment option is exercised in full, Dr. Wang will beneficially own
1,082,854 or 11.5% of the outstanding shares of Common Stock after the
offering.
(5) Represents 796,251 shares held of record by various trusts for the benefit
of members of Mr. Brannock's immediate family and 70,058 shares held of
record by the Company's 401(k) Plan. Mr Brannock served as Director of the
Company until May 1996 and served as Vice President of the Company until
November 1994. Assuming the over-allotment option is exercised in full, Mr.
Brannock will beneficially own 770,840 or 8.2% of the outstanding shares of
Common Stock after the offering.
(6) Represents 796,251 shares held of record by various trusts for the benefit
of Mr. Verneuil's immediate family, and 70,058 shares held of record by the
Company's 401(k) Plan. Mr. Verneuil served as Vice President and Secretary
of the Company until May 1996. Assuming the over-allotment option is
exercised in full, Mr. Verneuil will beneficially own 770,840 or 8.2% of
the outstanding shares of Common Stock after the offering.
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<PAGE> 48
(7) Represents shares held of record by the Company's 401(k) Plan which are
beneficially owned by employees and former employees of the Company.
(8) Represents 50,000 shares of Common Stock issuable upon exercise of stock
options that become exercisable within 60 days of the date of this
Prospectus.
(9) Represents 25,000 shares of Common Stock issuable upon exercise of stock
options that become exercisable within 60 days of the date of this
Prospectus.
(10) Represents 4,000 shares of Common Stock issuable upon exercise of stock
options that become exercisable within 60 days of the date of this
Prospectus.
(11) Represents 9,334 shares of Common Stock issuable upon exercise of stock
options that become exercisable within 60 days of the date of this
Prospectus.
(12) Mr. Kortschak, a director of the Company is a general partner of affiliates
of Summit Partners, L.P. Mr. Kortschak exercises shared investment and
voting power with respect to such shares, but disclaims beneficial
ownership of such shares.
(13) Includes 80,334 shares subject to stock options held by directors and
officers that are exercisable within 60 days of the date of this
Prospectus.
(14) Represents shares obtained in May 1996 through exercise of options pursuant
to the Company's 1994 Stock Option Plan. Mr. Ringer is a former director of
the Company.
DESCRIPTION OF CAPITAL STOCK
Following the completion of the offering, the authorized capital stock of
the Company shall consist of 30,000,000 shares of Common Stock, $.001 par value,
and 5,000,000 shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of the date of this Prospectus, there are 6,700,503 shares of Common
Stock outstanding (assuming conversion of all outstanding Preferred Stock and
exercise of stock options after June 30, 1996) held of record by five
stockholders. The holders of Common Stock are entitled to one vote per share on
all matters to be voted on by the stockholders. Subject to the rights of the
holders of the Preferred Stock, the holders of Common Stock are entitled to
receive ratably such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, the holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to the prior liquidation rights of holders of the Preferred
Stock described below. The Common Stock has no preemptive or other similar
rights, and there are no redemption or sinking fund provisions applicable to the
Common Stock. As of the date of this Prospectus, all of the outstanding shares
of Common Stock are, and the shares of Common Stock offered hereby will be,
fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares consisting of any series or the designation
of such series without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. Upon consummation of this offering, no shares of
Preferred Stock will be outstanding. The Company has no present intention to
issue shares of Preferred Stock.
REGISTRATION RIGHTS
Under the terms of the Registration Rights Agreement, the Investors, the
Founders and the 401(k) Plan, who in the aggregate will hold 4,820,193 shares of
Common Stock following this offering (the "Registrable Securities"), have
certain rights with respect to the registration of such shares of Common Stock
under the
47
<PAGE> 49
Securities Act. Under the Registration Rights Agreement, holders of more than
25% of the Registrable Securities may request that the Company effect a
registration and public offering under the Securities Act of the Registrable
Securities and, in certain events, shares of Common Stock held by officers and
employees of the Company, subject to certain conditions, including the right of
the underwriters to limit the number of shares of Common Stock to be included in
an underwritten public offering. In the event that the Company proposes to
register any of its equity securities under the Securities Act, holders of
Registrable Securities and, in certain events, officers and employees of the
Company who hold shares of Common Stock are entitled to receive notice thereof
and to include in such registration all or part of the Registrable Securities or
other shares of Common Stock, as the case may be, that they hold, subject to
certain conditions, including the right of the underwriters to limit the number
of shares of Common Stock to be included in the underwritten public offering.
Furthermore, following this offering holders of Registrable Securities have the
right to request up to two registrations on Form S-3, subject to certain
conditions; provided, that the Company shall not be required to effect such a
registration within 180 days of the effective date of the most recent
registration in which such holders had the right to participate.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
The Company's Charter provides that all stockholder action must be effected
at a duly called meeting or by unanimous written consent. The Bylaws also
provide that the Company's stockholders may call a special meeting of
stockholders only upon a request of stockholders owning at least 50% of the
Company's outstanding capital stock. These provisions are intended to enhance
the likelihood of continued stability in the composition of the Board of
Directors and in the policies furnished by the Board of Directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. These provisions are also designed
to reduce the vulnerability of the Company to an unsolicited acquisition
proposal and to discourage certain tactics that may be used in proxy fights.
These provisions of the Bylaws could discourage potential acquisition proposals
and could delay or prevent a change in control of the Company. Such provisions
could also have the effect of discouraging others from making tender offers for
the Company's shares and, as a consequence, they also may inhibit fluctuations
in the market price of the Company's shares that could result from actual or
rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested holder; (ii)
upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of the stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder, (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested
48
<PAGE> 50
stockholder or (v) the receipt by the interested stockholder of the benefit of
any loss, advances, guarantees, pledges or other financial benefits by or
through the corporation. In general, Section 203 defines an interested
stockholder as an entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. See "Risk
Factors -- Antitakeover effects of the Company's Charter, Bylaws and Section 203
of the Delaware General Corporation Law."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust
Company of California.
49
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Company's
Common Stock. Sales of substantial amounts of Common Stock in the public market
could adversely affect the market price of the Common Stock.
Upon completion of this offering, the Company will have 9,400,503 shares of
Common Stock outstanding. Of these outstanding shares, the 3,600,000 shares sold
in this offering will be freely transferable without restriction or further
registration under the Securities Act, unless they are held by "affiliates" of
the Company within the meaning of Rule 144 promulgated under the Securities Act
as currently in effect. Of the remaining 5,800,503 shares held by existing
stockholders, 25,334 shares are "restricted shares" within the meaning of Rule
144 and may not be sold in the absence of registration under the Securities Act
or an exemption therefrom, and 5,800,503 shares are eligible for sale without
restriction or further registration under Rule 144(k), unless they are held by
"affiliates" of the Company or subject to a "lock-up" agreement summarized
below.
The 25,334 "restricted shares" held by existing stockholders will be
eligible for sale without restriction or further registration beginning 90 days
after the date of this Prospectus under Rule 701, unless they are subject to a
"lock-up" agreement summarized below.
All holders of the Company's Common Stock, including all officers and
directors of the Company, have agreed with the Representatives of the
Underwriters and/or the Company that, until 180 days after the effective date of
this offering, they will not directly or indirectly offer, sell, pledge,
contract to sell (including any short sale), grant any option to purchase or
otherwise dispose of any shares of Common Stock (including, without limitation,
shares of Common Stock of the Company which may be deemed to be beneficially
owned by the undersigned on the date hereof in accordance with the rules and
regulations of the Securities and Exchange Commission (the "SEC") and shares of
Common Stock which may be issued upon exercise of a stock option or warrant) or
enter into any hedging transaction relating to the Common Stock. The Company has
agreed with the Representatives not to release any holders from such agreements
without the prior consent of Alex. Brown & Sons Incorporated. The Company has
also agreed not to sell, offer to sell, contract to sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or any rights
to acquire Common Stock for a period of 180 days after the effective date of
this offering without the prior written consent of Alex. Brown & Sons
Incorporated, subject to certain limited exceptions. The lockup agreements may
be released at any time as to all or any portion of the shares subject to such
agreements at the sole discretion of Alex. Brown & Sons Incorporated.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including any person who may be deemed to be an
"affiliate" of the Company, is entitled to sell within any three month period
"restricted shares" beneficially owned by him or her in an amount that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock or
(ii) the average weekly trading volume in shares of Common Stock during the four
calendar weeks preceding such sale, provided that at least two years have
elapsed since such shares were acquired from the Company or an affiliate of the
Company. Sales are also subject to certain requirements as to the manner of
sale, notice and the availability of current public information regarding the
Company. However, a person who has not been an "affiliate" of the Company at any
time within three months prior to the sale is entitled to sell his or her shares
without regard to the volume limitations or other requirements of Rule 144,
provided that at least three years have elapsed since such shares were acquired
from the Company or an affiliate of the Company. In addition, the SEC has
proposed revisions to Rule 144 and Rule 144(k), the effect of which would be to
shorten the holding period under Rule 144 from two years to one year and to
shorten the holding period under Rule 144(k) from three years to two years. If
enacted, these proposed revisions would increase, potentially substantially, the
number of shares that would be available for sale in the public market 180 days
after the Effective Date. Any shares subject to lock-up agreements may be
released at any time without notice by the Underwriters. In general, under Rule
701, any employee, consultant or advisor of the Company who purchases shares
from the Company in connection with a compensatory stock or option plan or other
written agreement related to compensation is eligible to resell
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<PAGE> 52
such shares 90 days after the effective date of the offering in reliance on Rule
144, but without compliance with certain restrictions contained in Rule 144.
As of the date of this Prospectus, the Company had reserved an aggregate of
1,666,667 shares of Common Stock for issuance pursuant to its 1994 Stock Option
Plan, and options to purchase 1,520,833 shares were outstanding under such plan,
and the Company had reserved an aggregate of 1,000,000, 125,000 and 200,000
shares, respectively, for issuance under its 1996 Stock Plan, 1996 Director
Option Plan and Employee Stock Purchase Plans. In addition, 413,167 shares of
Common Stock subject to vested stock options under the 1994 Stock Option Plan
will be eligible for sale upon expiration of the lock-up agreements. As soon as
practicable following the offering, the Company intends to file a registration
statement on Form S-8 under the Securities Act to register shares of Common
Stock reserved for issuance under the plans. Such registration statement will
automatically become effective immediately upon filing with the SEC, and such
shares will thereafter be freely transferable, subject to the lock-up agreements
summarized above. See "Risk Factors -- Shares Eligible for Future Sale."
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<PAGE> 53
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Wessels, Arnold & Henderson, L.L.C., have
severally agreed to purchase from the Company and the Selling Stockholders the
following respective number of shares of Common Stock (or warrants immediately
exercisable therefor) at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---------------------------------------------------------- ----------------
<S> <C>
Alex. Brown & Sons Incorporated...........................
Wessels, Arnold & Henderson, L.L.C........................
----------------
Total................................................... 3,600,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow
a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company and certain Selling Stockholders have granted to the
Underwriters an option, exercisable no later than 30 days after the date of this
Prospectus, to purchase up to an aggregate of 540,000 additional shares of
Common Stock at the initial public offering price, less the underwriting
discount, set forth on the cover page of this Prospectus. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriters name in the above table
bears to the total number of shares of Common Stock offered hereby, and the
Company and the Selling Stockholders will be obligated, pursuant to the option,
to sell shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby. If purchased,
the Underwriters will offer such additional shares on the same terms as those on
which the 3,600,000 shares are being offered.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm orders to any account over which they
exercise discretionary authority.
All holders of the Company's Common Stock, including all officers and
directors of the Company, have agreed with the Representatives of the
Underwriters and/or the Company that, until 180 days after the effective date of
this offering, they will not directly or indirectly offer, sell, pledge,
contract to sell (including
52
<PAGE> 54
any short sale), grant any option to purchase or otherwise dispose of any shares
of Common Stock (including, without limitation, shares of Common Stock of the
Company which may be deemed to be beneficially owned by the undersigned on the
date hereof in accordance with the rules and regulations of the SEC and shares
of Common Stock which may be issued upon exercise of a stock option or warrant)
or enter into any hedging transaction relating to the Common Stock. The Company
has agreed with the Representatives not to release any holders from such
agreements without the prior consent of Alex. Brown & Sons Incorporated. The
Company has also agreed not to sell, offer to sell, contract to sell, grant any
option to purchase or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
any rights to acquire Common Stock for a period of 180 days after the effective
date of this offering without the prior written consent of Alex. Brown & Sons
Incorporated, subject to certain limited exceptions. The lockup agreements may
be released at any time as to all or any portion of the shares subject to such
agreements at the sole discretion of Alex. Brown & Sons Incorporated.
Prior to the offering there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock will be
determined by negotiation among the Company and the Representatives. Among the
factors to be considered are prevailing market conditions, the results of
operations of the Company in recent periods, market capitalizations and stage of
development of other companies which the Company and the representative of the
Underwriters believe to be comparable to the Company, estimates of the business
potential of the Company, the present state of the Company's development, the
Company's management and other factors deemed relevant. The estimated initial
public offering price range set forth on the cover of this Prospectus is subject
to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Jeffrey D. Saper, a member of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, is Secretary of the
Company. Certain legal matters in connection with this offering will be passed
upon for the Underwriters by Morrison & Foerster LLP, Irvine, California.
EXPERTS
The consolidated financial statements and schedule of the Company included
in this Prospectus and elsewhere in the Registration Statement as of December
31, 1994 and 1995 and June 30, 1996 and for the years ended December 31, 1994
and 1995 and the six months ended June 30, 1996 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing elsewhere
herein and in the Registration Statement and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
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<PAGE> 55
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 under the Securities Act, including
amendments thereto, relating to the Common Stock offered hereby has been filed
by the Company with the SEC, Washington, D.C. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to such Registration
Statement and exhibits and schedules filed as a part thereof. A copy of the
Registration Statement may be inspected by anyone without charge at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any portion of the Registration Statement may be obtained from
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of prescribed fees. The SEC maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
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<PAGE> 56
SIMULATION SCIENCES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1995, and June 30, 1996...... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 (Unaudited) and 1996................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1993, 1994 and 1995 and the six months ended June 30, 1996......................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 (Unaudited) and 1996................... F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Simulation Sciences Inc.:
We have audited the accompanying consolidated balance sheets of Simulation
Sciences Inc. and subsidiaries (the Company) as of December 31, 1994 and 1995
and June 30, 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995 and the six months ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Simulation
Sciences Inc. and subsidiaries as of December 31, 1994 and 1995 and June 30,
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 and the six months ended June
30, 1996 in conformity with generally accepted accounting principles.
August 2, 1996 (except for paragraphs 14 and 15 of Note 4,
for which the date is September , 1996)
The accompanying consolidated financial statements include the effects of a
reverse stock split of the Company's common stock approved by the Company's
Board of Directors in May 1996, anticipated to be effective prior to the closing
of this offering. The above opinion is in the form which will be signed by
Deloitte & Touche LLP upon consummation of the reverse stock split, which is
described in Note 4 of the notes to the consolidated financial statements, and
assuming that, from September 17, 1996 to the date of such reverse stock split,
no other events will have occurred that would affect the accompanying
consolidated financial statements and notes thereto.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Costa Mesa, California
September 17, 1996
F-2
<PAGE> 58
SIMULATION SCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995 JUNE 30, 1996
---------- ---------- -----------------------
<S> <C> <C> <C> <C>
ACTUAL PRO FORMA
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1).................... $3,905,817 $5,442,283 $1,693,032
Short-term investments (Note 1)....................... 114,531 14,531 14,531
Accounts receivable, less allowance for doubtful
accounts of $427,944, $456,387 and $751,969 at
December 31, 1994, 1995 and June 30, 1996,
respectively........................................ 5,847,681 8,869,483 9,271,367
Unbilled accounts receivable (Note 1)................. 279,564 250,514 160,095
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 6)...................... 532,979
Income tax refund receivable (Note 7)................. 713,889 968,552 412,917
Deferred income taxes (Note 7)........................ 1,372,209 2,170,741 2,170,741
Prepaid expenses and other current assets............. 358,565 411,760 467,735
----------- ----------- -----------
Total current assets.............................. 13,125,235 18,127,864 14,190,418
LONG-TERM INSTALLMENTS RECEIVABLE, net of unamortized
discount of $154,932 at June 30, 1996 (Note 1)...... 2,685,816
PROPERTY AND EQUIPMENT (Note 1):
Computer equipment and programs....................... 3,621,406 4,126,674 5,429,138
Furniture and fixtures................................ 2,487,253 3,171,422 3,254,671
----------- ----------- -----------
6,108,659 7,298,096 8,683,809
Less accumulated depreciation......................... (4,263,722) (4,956,783) (5,312,530)
----------- ----------- -----------
Property and equipment, net......................... 1,844,937 2,341,313 3,371,279
OTHER ASSETS (Note 1)................................. 342,611 552,014 1,815,096
DEFERRED INCOME TAXES (Note 7)........................ 979,750 533,191 533,191
----------- ----------- -----------
$16,292,533 $21,554,382 $22,595,800
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................... $1,124,745 $1,401,529 $1,017,540
Accrued vacation and bonus payable.................... 552,266 1,103,794 1,091,479
Other accrued liabilities............................. 1,678,199 2,345,523 3,044,446
Income taxes payable (Note 7)......................... 504,867 1,087,698 1,142,544
Billings in excess of costs and estimated earnings on
uncompleted contracts (Note 6)...................... 219,526 209,639
Deferred revenue (Note 1)............................. 3,945,527 5,554,699 5,368,277
----------- ----------- -----------
Total current liabilities......................... 7,805,604 11,712,769 11,873,925
COMMITMENTS (Note 8)
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $.001
par value; 5,000,000 shares authorized, 1,666,668
shares issued and outstanding at December 31, 1994
and 1995 and June 30, 1996.......................... 4,802,120 4,802,120 4,802,120
STOCKHOLDERS' EQUITY (Notes 4 and 5):
Common stock, $.001 par value; 30,000,000 shares
authorized; 5,000,000, 5,000,000 and 5,025,835
shares issued and outstanding at December 31, 1994
and 1995 and June 30, 1996, respectively, 6,692,503
pro forma shares at June 30, 1996................... 5,000 5,000 5,026 $ 6,693
Additional paid-in capital............................ 1,470,402 1,470,402 1,540,599 6,341,052
Retained earnings..................................... 2,209,407 3,564,091 4,374,130 4,374,130
----------- ----------- -----------
Total stockholders' equity........................ 3,684,809 5,039,493 5,919,755 $10,721,875
----------- ----------- -----------
$16,292,533 $21,554,382 $22,595,800
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 59
SIMULATION SCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUE (Notes 1 and 9):
Software license revenue.................. $25,048,480 $25,608,641 $29,888,672 $13,953,002 $19,636,493
Services and other revenue................ 3,095,551 2,643,523 3,230,639 1,293,384 2,154,484
----------- ----------- ----------- ---------- -----------
Total revenue......................... 28,144,031 28,252,164 33,119,311 15,246,386 21,790,977
COST OF SALES:
Cost of software license revenue.......... 2,886,592 3,989,665 3,509,514 1,705,221 1,778,479
Cost of services and other revenue........ 1,243,664 2,697,857 3,250,878 1,394,398 1,552,462
----------- ----------- ----------- ---------- -----------
Total cost of revenue................. 4,130,256 6,687,522 6,760,392 3,099,619 3,330,941
----------- ----------- ----------- ---------- -----------
GROSS PROFIT.............................. 24,013,775 21,564,642 26,358,919 12,146,767 18,460,036
OPERATING EXPENSES (Notes 1, 5 and 8):
Sales and marketing....................... 9,842,083 10,473,325 11,662,381 5,663,499 7,338,579
Research and development.................. 8,230,140 9,633,982 8,621,381 4,330,601 6,844,944
General and administrative................ 3,784,907 3,858,002 3,868,506 1,368,370 3,066,513
----------- ----------- ----------- ---------- -----------
Total operating expenses.............. 21,857,130 23,965,309 24,152,268 11,362,470 17,250,036
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) FROM OPERATIONS............. 2,156,645 (2,400,667) 2,206,651 784,297 1,210,000
INTEREST AND OTHER INCOME................. 312,660 193,247 99,905 271,786 163,253
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES........................ 2,469,305 (2,207,420) 2,306,556 1,056,083 1,373,253
PROVISION (BENEFIT) FOR INCOME TAXES (Note
7)...................................... 865,567 (565,343) 951,872 435,825 563,214
----------- ----------- ----------- ---------- -----------
NET INCOME (LOSS)......................... $1,603,738 $(1,642,077) $1,354,684 $ 620,258 $ 810,039
----------- ----------- ----------- ---------- -----------
PRO FORMA NET INCOME PER SHARE............ $ .17 $ .10
----------- -----------
PRO FORMA WEIGHTED AVERAGE COMMON
SHARES.................................. 7,788,831 7,788,831
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 60
SIMULATION SCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances as of January 1, 1993.......................... 6,827,941 $ 6,828 $1,097,976 $7,002,359 $ 8,107,163
Contribution by a stockholder of 100% ownership interest
in affiliate (Note 5)................................. 615,985 615,985
Repurchase of common stock (Note 4)..................... (1,827,940) (1,828) (243,559) (4,754,613) (5,000,000)
Net income.............................................. 1,603,738 1,603,738
--------- ---------- ---------- ---------- --------
Balances as of December 31, 1993........................ 5,000,001 5,000 1,470,402 3,851,484 5,326,886
Net loss................................................ (1,642,077) (1,642,077)
--------- ---------- ---------- ---------- --------
Balances as of December 31, 1994........................ 5,000,001 5,000 1,470,402 2,209,407 3,684,809
Net income.............................................. 1,354,684 1,354,684
--------- ---------- ---------- ---------- --------
Balances as of December 31, 1995........................ 5,000,001 5,000 1,470,402 3,564,091 5,039,493
Stock option exercises (Note 4)......................... 25,834 26 70,197 70,223
Net income.............................................. 810,039 810,039
--------- ---------- ---------- ---------- --------
Balances as of June 30, 1996............................ 5,025,835 $ 5,026 $1,540,599 $4,374,130 $ 5,919,755
--------- ---------- ---------- ---------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 61
SIMULATION SCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1993 1994 1995 1996
---------- ---------- ---------- 1995 ----------
----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $1,603,738 $(1,642,077) $1,354,684 $ 620,258 $ 810,039
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization of
property and equipment....................... 811,648 885,005 693,060 209,019 355,747
Provision for doubtful accounts................ 213,540 120,404 28,443 443 295,582
Deferred income taxes.......................... (432,948) (1,014,737) (351,973) 87
Increase in cash surrender value of officers'
life insurance policies...................... (73,039)
Change in operating assets and liabilities:
Accounts receivable.......................... (45,690) (1,469,055) (3,050,245) 192,006 (697,466)
Unbilled accounts receivable................. 297,791 298,515 29,050 (145,423) 90,419
Costs and estimated earnings in excess of
billing on uncompleted contracts........... (421,613) (111,366) 532,979 154,433
Income taxes refund receivable............... (713,889) (254,663) 555,635
Prepaid expenses and other current assets.... (284,620) (15,958) (53,195) 140,588 (55,975)
Other assets................................. (112,770) 6,303 (209,403) (305,415) (1,263,082)
Accounts payable............................. 584,194 102,361 276,784 (592,055) (383,989)
Accrued vacation and bonus payable........... 78,086 84,379 551,528 228,120 (12,315)
Other accrued liabilities.................... 1,087,846 426,440 667,324 (278,165) 698,923
Accrued employee stock ownership
plan contribution.......................... (935,485) (487,675)
Income taxes payable......................... 233,477 (128,595) 582,831 133,520 54,846
Due to related party......................... (122,484)
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... (444,090) 219,526 (9,887)
Deferred revenue............................. 497,042 1,143,930 1,609,172 508,020 (186,422)
----------- ----------- ----------- ---------- -----------
Net cash provided by (used in) operating
activities............................... 2,534,623 (2,516,015) 2,625,902 865,436 252,055
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............. (1,155,543) (1,316,582) (1,227,460) (373,399) (1,385,713)
Proceeds from disposition of property and
equipment...................................... 578,471 38,024
Purchases of marketable securities............... (604,349) (100,000)
Proceeds from sale of marketable securities...... 426,981 609,022 100,000 100,000
Purchase of shares of affiliate.................. (1,000)
Long-term installments receivable................ (2,685,816)
Proceeds from officers' life insurance
policies....................................... 583,379
----------- ----------- ----------- ---------- -----------
Net cash (used in) provided by investing
activities............................... (1,333,911) 354,290 (1,089,436) (273,399) (4,071,529)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable........................ (30,000)
Net proceeds from issuance of preferred stock.... 4,802,120
Repurchase of common stock....................... (5,000,000)
Cash received as part contribution of ownership
interest in affiliate.......................... 321,605
Proceeds from stock option exercises............. 70,223
----------- ----------- ----------- ---------- -----------
Net cash provided by financing
activities............................... 93,725 70,223
----------- ----------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 1,294,437 (2,161,725) 1,536,466 592,037 (3,749,251)
CASH AND CASH EQUIVALENTS,
beginning...................................... 4,773,105 6,067,542 3,905,817 3,905,817 5,442,283
----------- ----------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, ending................ $6,067,542 $3,905,817 $5,442,283 $4,497,854 $1,693,032
=========== =========== =========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- Income taxes paid............... $ 502,121 $ 453,460 $ 270,142 $ 95,581 $ 240,217
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 62
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General and Nature of Operations -- Simulation Sciences Inc. is engaged
primarily in the development and marketing of computer software for simulation
applications primarily for the oil refinery and chemical industries all over the
world. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and losses have approximated management's expectations.
The accompanying consolidated financial statements include the accounts of
Simulation Sciences Inc. and its wholly owned subsidiaries in Japan, Venezuela,
Germany and the United Kingdom (collectively, the Company). All significant
intercompany transactions and balances have been eliminated.
Unaudited Information -- The information set forth in these consolidated
financial statements for the six months ended June 30, 1995 is unaudited and
reflects all adjustments, consisting only of normal recurring adjustments, that,
in the opinion of management, are necessary to present fairly the financial
position and results of operations of the Company for the period. Results of
operations for the interim periods are not necessarily indicative of the results
of operations for the full fiscal year.
Cash Equivalents -- Cash equivalents generally represent highly liquid
investments purchased with an original maturity date of three months or less.
Short-Term Investments -- Short-term investments are valued at market value
and consist of certificates of deposit and marketable equity securities. The
Company accounts for investments in accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. This statement specifies the accounting treatment of the
Company's investments in equity securities based on the investment
classifications defined in the statement. The Company has classified the equity
securities as available for sale, and in accordance with SFAS No. 115, they have
been recorded at market value as of December 31, 1994, 1995 and June 30, 1996.
The market value approximates the carrying amount at December 31, 1994, 1995 and
June 30, 1996.
Fair Value of Financial Instruments -- The recorded amounts of cash and
cash equivalents, investment securities, accounts receivable and accounts
payable at December 31, 1994 and 1995 and June 30, 1996 approximate fair value
in accordance with Statement of Financial Accounting Standards No. 107,
Disclosures About Fair Value of Financial Instruments, due to the relatively
short period of time between origination of the instruments and their expected
realization.
Long-Term Installments Receivable -- Long-term installments receivable
represent the present value of future payments under noncancelable license
agreements which provide for payments in installments over a one- to five-year
period. A portion of the revenue from each installment payment is recognized as
interest income in the accompanying consolidated statements of operations. The
interest rate in effect at June 30, 1996 was 8%.
Property and Equipment -- Property and equipment are stated at cost and
depreciated using the straight-line method over the estimated useful lives of
the related assets, generally five years.
Other Assets -- Included in other assets at June 30, 1996 is purchased
research and development costs of $1,000,000. The Company has acquired the right
to use certain technology from a third party and intends to incorporate such
technology into a product which is presently under development. Also included in
other assets at June 30, 1996 are $376,263 of costs related to the Company's
initial public offering. Such costs will be offset against the proceeds of such
offering if successful. If unsuccessful, such costs will be expensed.
Software Development Costs -- Development costs related to new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. After technological
feasibility is established, any additional costs would be capitalized in
accordance with
F-7
<PAGE> 63
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. Because the Company believes its current process for
developing software is essentially completed concurrently with the establishment
of technological feasibility, no costs have been capitalized as of December 31,
1994 or 1995 and June 30, 1996.
Revenue Recognition -- The Company recognizes revenue from product
licensing agreements in accordance with American Institute of Certified Public
Accountants Statement of Position No. 91-1, Software Revenue Recognition ("SOP
91-1"). SOP 91-1 generally requires recognition of license revenue upon shipment
or renewal and recognition of revenue for maintenance and customer support
ratably over the life of the contract. However, if license fees and maintenance
and customer support charges are not separately identified, then all revenue
from the contract must be recognized ratably over its life. More than 95% of the
Company's license contracts entered into before 1996 did not separately identify
both software license fees and charges for customer support obligations. As a
result, the Company recognized revenue from these contracts ratably over the
term of such contracts in accordance with SOP 91-1 ("Ratable Revenue"). The
remaining contracts identified the cost of maintenance and the license fee
separately and, under SOP 91-1, the Company recognized revenue from the license
portion of the contracts upon shipment or renewal ("License Revenue") and from
the service portion of the contracts ratably over their respective terms.
Accordingly, the revenue recognized under a contract resulting in License
Revenue recognition will be higher in the quarter of shipment or renewal, and
lower in later quarters, than that recognized under a contract resulting in
Ratable Revenue recognition. In 1996, the Company began increasing the number of
contracts for new and renewing customers that separately identify software
license fees and customer support charges, resulting in recognition of License
Revenue on an increased portion of contracts. Unbilled accounts receivable
related to license periods up to and including December 31, 1994 and 1995 and
June 30, 1996 under noncancelable license agreements amounted to $279,564,
$250,514, and $160,095, respectively, and has been recognized as revenue in
fiscal 1994, 1995 and the six months ended June 30, 1996.
Revenues from software product sales are recognized upon shipment of the
products to customers, and revenues from related customer software support
programs are recognized ratably over terms specified in the sale agreement. The
Company accounts for insignificant vendor obligations by deferring a portion of
the revenue and recognizing it either ratably as the obligations are fulfilled
or when the related services are performed.
Revenues related to development contracts are recognized on the
percentage-of-completion method, based generally on the ratio of software
engineering costs incurred to date to estimated total software engineering costs
at completion. Losses on contracts, if any, are recognized when such losses are
determined. Revenues from royalty agreements are recognized when earned.
Income Taxes -- The Company accounts for income taxes under the provisions
of SFAS No. 109, Accounting for Income Taxes. This statement requires the
recognition of deferred tax assets and liabilities for the future consequences
of events that have been recognized in the Company's financial statements or tax
returns. Measurement of the deferred items is based on enacted tax laws. The
Company provides for income taxes during interim reporting periods based on an
estimate of taxable income for the fiscal year.
Foreign Currency Translation -- In accordance with SFAS No. 52, Foreign
Currency Translation, the United States dollar is considered to be the
functional currency for the Company's foreign subsidiaries, and translation
adjustments are included in other income in the Company's consolidated
statements of operations.
Pro Forma Information -- The Company is preparing for an initial public
offering of its common stock which, upon completion, will result in the
conversion of all outstanding shares of preferred stock into shares of common
stock (Note 4). The accompanying pro forma information, which is unaudited,
gives effect to the conversion of all outstanding shares of preferred stock into
common stock and the exercise of all warrants to purchase shares of common stock
at or prior to the closing of the offering.
F-8
<PAGE> 64
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Net Income Per Share -- Pro forma net income per share is
computed by dividing net income by the weighted average number of common and
common equivalent shares outstanding. Weighted average common and common
equivalent shares include common shares, warrants to purchase shares of common
stock, stock options using the treasury stock method and, the pro forma
conversion of all outstanding shares of preferred stock into shares of common
stock.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
Topic 4D, stock options granted during the twelve months prior to the date of
the initial filing of the Company's Form S-1 Registration Statement have been
included in the calculation of common equivalent shares using the treasury stock
method as if they were outstanding for all periods presented.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Concentration of Revenues in the Petroleum Industry -- The Company derives
a substantial majority of its revenues from software licenses to companies in
the petroleum industry, which is highly cyclical. Accordingly, the Company's
future success is dependent upon the continued demand for computer-aided
chemical engineering software by companies in the petroleum industry. The
Company believes that economic downturns in the U.S., Europe, Japan and Asia and
pricing pressures experienced by petroleum companies in connection with cost
containment measures have led to delays and reductions in certain capital and
operating expenditures by many of such companies worldwide. The Company's
revenues have in the past been, and may in the future be, subject to substantial
period-to-period fluctuations as a consequence of such industry patterns,
general domestic and foreign economic conditions and other factors affecting
spending in the petroleum industry. There can be no assurance that such factors
will not have a material adverse effect on the Company's business, operating
results and financial condition.
2. CASH SURRENDER VALUE OF OFFICERS' LIFE INSURANCE POLICIES
The Company was the beneficiary of life insurance policies related to
officers of the Company. The policies had a face value of $7,600,000 and a cash
surrender value of $583,379 as of December 31, 1993. During 1994, these policies
were canceled and the cash surrender value was received.
3. REVOLVING LINE OF CREDIT
In July 1995, the Company entered into a secured lending arrangement (the
"Agreement") with Bank of America National Trust and Savings Association (the
"Bank"), providing for a $3.0 million revolving line of credit bearing interest
at the Bank's prime rate, collateralized by substantially all of the assets of
the Company. The Agreement expires in September 1996 and has certain financial
and other covenants. At June 30, 1996, there were no borrowings outstanding
under the Agreement and the Company was not in compliance with two of the
covenants. The Company received a letter waiving the breached covenants through
June 30, 1996 and intends to renew the agreement under substantially the same
terms and conditions as its present Agreement.
4. STOCKHOLDERS' EQUITY
On December 17, 1993, in a private placement offering, the Company sold
1,666,668 shares of Series A convertible preferred stock ($.001 par value) at a
price of $3.00 per share, raising proceeds of $4,802,120, net of offering costs
of $197,880. In connection with this offering, the Company also issued warrants
to the holders of Series A Convertible Preferred Stock to purchase 438,598
shares of the Company's common stock for $2.85 per share. Such warrants remain
outstanding at June 30, 1996 (Note 1).
F-9
<PAGE> 65
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The holders of Series A convertible preferred stock are entitled to receive
cumulative dividends at the rate of $.24 per share, per annum when and if
declared by the Board of Directors. No dividends have been declared to date.
Series A convertible preferred stock, including any accrued but unpaid
dividends, may be converted at the option of the holder into common stock of the
Company, assuming a preferred stock value of $3.00 and considering the fair
market value of the Company's common stock at the time of conversion, subject to
adjustment as defined.
Unless an initial public offering (meeting certain specifications) has
occurred, the holders of the preferred stock and related warrants and any common
stock issued upon conversion of the preferred stock or the warrants can require
that the Company repurchase such securities upon a sale of substantially all the
Company's assets, certain mergers and corporate reorganizations, or in December
1999 (with a two-year payout, if needed). Such repurchase would occur at the
higher of fair market value or the initial purchase price. It is anticipated
that all of the outstanding shares of preferred stock will be converted into
common stock on a share for share basis at or prior to the Company's initial
public offering (Note 1).
Preferred stockholders have liquidation preference over the common
stockholders in the event of liquidation, dissolution, merger or sale of the
Company. Liquidation preference per share is equal to $3.00, plus declared but
unpaid dividends, subject to adjustment as defined. Because there is no
mandatory redemption of the Series A convertible preferred stock, no accretion
of additional amounts to the carrying values of such preferred stock was
recorded.
On December 17, 1993, the Company repurchased from its stockholders
1,827,940 shares of common stock for $5,000,000. Upon repurchase by the Company,
the shares were canceled.
Effective March 2, 1994, the Company adopted the Simulation Sciences Inc.
1994 Stock Option Plan which provides for up to 1,666,667 options to purchase
common stock of the Company at market price as of the date of grant. The options
are to be issued to key employees and directors as determined by the Company's
Board of Directors. Such options vest ratably over five years. The following
table summarizes activity under the Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF PRICE OPTIONS
SHARES PER SHARE EXERCISABLE
--------- ----------- -----------
<S> <C> <C> <C>
BALANCE, January 1, 1994.......................... -- $ -- --
Granted........................................... 500,667 2.73
--------- ----------
BALANCE, December 31, 1994........................ 500,667 2.73
Granted........................................... 585,000 2.67
Canceled.......................................... (171,667) 2.73
--------- ----------
BALANCE, December 31, 1995........................ 914,000 2.67-2.73 65,800
-------
Granted........................................... 626,000 5.37-7.50
Exercised......................................... (25,834) 2.73
--------- ---------- -------
BALANCE, June 30, 1996............................ 1,514,166 $2.67-$7.50 160,600
========= ========== =======
</TABLE>
Subsequent to June 30, 1996, options to purchase 8,000 shares were
exercised at $2.73, options to purchase 26,667 shares at $7.50 per share were
granted and options for 12,000 shares at $2.73 were cancelled.
F-10
<PAGE> 66
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At June 30, 1996 126,667 shares were available for grant under the Option
Plan.
On May 2, 1996, the Company's Board of Directors approved the 1996 Stock
Option Plan (the "1996 Plan"), the 1996 Employee Stock Purchase Plan (the
"ESPP") and the 1996 Director Option Plan (the "Director Plan"). The 1996 Plan,
the ESPP and the Director Plan will not be become effective until the date of a
public offering of the Company's stock.
1996 Stock Plan. The 1996 Plan provides for the granting to employees of
incentive stock options and for the granting to employees and consultants of
nonstatutory stock options and stock purchase rights ("SPRs"). The 1996 Plan may
be administered by the Board of Directors or a committee of the Board (the
"Committee") which has the power to determine the terms of the options or SPRs
granted, including the exercise price, the number of shares subject to each
option or SPR, the exercisability thereof, and the form of consideration payable
upon such exercise. In addition, the Committee has the authority to amend,
suspend or terminate the 1996 Plan, provided that no such action may affect any
share of Common Stock previously issued and sold or any option previously
granted under the 1996 Plan. Options and SPRs granted under the 1996 Plan are
not generally transferable by the optionee, and each option and SPR is
exercisable during the lifetime of the optionee only by such optionee. Options
granted under the 1996 Plan must generally be exercised within three months of
the end of the optionee's status as an employee or consultant of the Company or
within twelve months after such optionee's termination by death or disability,
but in no event later than the expiration of the option's ten-year term. In the
case of SPRs, unless the Committee determines otherwise, the Restricted Stock
Purchase Agreement shall grant the Company a repurchase option exercisable upon
the voluntary or involuntary termination of the purchaser's employment with the
Company for any reason (including death or disability). The purchase price for
shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at a rate determined by the Committee. The exercise price of all incentive stock
options granted under the 1996 Plan must be at least equal to the fair market
value of the Common Stock on the date of grant. The exercise price of
nonstatutory stock options and SPRs granted under the 1996 Plan is determined by
the Committee, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code, the exercise price must at least be equal to the fair market value
of the Common Stock on the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of the
Company's outstanding capital stock, the exercise price of any incentive stock
option granted must equal at least 110% of the fair market value on the grant
date and the term of such incentive stock option must not exceed five years. The
term of all other options granted under the 1996 Plan may not exceed ten years.
The 1996 Plan provides that in the event of a merger of the Company with or into
another corporation, a sale of substantially all of the Company's assets or a
like transaction involving the Company, each option shall be assumed or an
equivalent option substituted by the successor corporation. If the outstanding
options are not assumed or substituted for as described in the preceding
sentence, the Committee shall provide for the Optionee to have the right to
exercise the option or SPR as to all of the optioned stock, including shares as
to which it would not otherwise be exercisable. If the plan administrator makes
an option or SPR exercisable in full in the event of a merger or sale of assets,
the plan administrator shall notify the optionee that the option or SPR shall be
fully exercisable for a period of fifteen (15) days from the date of such
notice, and the option or SPR will terminate upon the expiration of such period.
1996 Employee Stock Purchase Plans. The U.S. Purchase Plan, which is
intended to qualify under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"), has two six-month offering periods each year beginning on
the first trading day on or after January 1 and July 1, respectively, except for
the first such offering period which commences on the first trading day on or
after the effective date of this Offering and ends on the last trading day on or
before June 30, 1997. The U.S. Purchase Plan is administered by the Board of
Directors or by a committee appointed by the Board. Employees are eligible to
participate if
F-11
<PAGE> 67
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
they are customarily employed by the Company or any participating subsidiary for
at least 20 hours per week and more than five months in any calendar year. The
U.S. Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions of up to 10% of an employee's compensation (including
commissions and overtime, but excluding other bonuses and incentive
compensation), up to a maximum of $20,000 for all offering periods ending within
the same calendar year. The price of stock purchased under the U.S. Purchase
Plan is 85% of the lower of the fair market value of the Common Stock at the
beginning or at the end of each offering period. Employees may end their
participation at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with the Company. Rights granted under the U.S. Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the U.S. Purchase Plan. The U.S.
Purchase Plan provides that, in the event of a merger of the Company with or
into another corporation or a sale of substantially all of the Company's assets,
the Board of Directors shall shorten the offering period then in progress (so
that employees' rights to purchase stock under the Plan are exercised prior to
the merger or sale of assets). The Board of Directors has the authority to amend
or terminate the U.S. Purchase Plan, except that no such action may adversely
affect any outstanding rights to purchase stock under the U.S. Purchase Plan.
The Foreign Purchase Plan is not intended to qualify under Section 423 of
the Code, but the terms of the Foreign Purchase Plan are substantially similar
to those of the U.S. Purchase plan.
1996 Director Option Plan. Non-employee directors are entitled to
participate in the Director Plan. The Director Plan provides for the automatic
grant of an option for 20,000 shares of Common Stock (the "First Option") to
each non-employee director on the earlier of: (i) the effective date of the
Director Plan, or (ii) the date on which the person first becomes a non-employee
director, unless immediately prior to becoming a non-employee director, such
person was a director of the Company. After the First Option is granted to the
non-employee director, he or she shall automatically be granted an option to
purchase 5,000 shares (a "Subsequent Option") each year on the date of the
annual stockholder's meeting of the Company at which such non-employee director
is re-elected as a director, if on such date he or she shall have served on the
Board for at least six months. Each First Option and each Subsequent Option
shall have a term of 10 years and the shares subject to the option shall vest
and become exercisable as to 25% of the shares subject to the option on each of
the first four anniversaries after its date of grant. The exercise prices of the
First Option and each Subsequent Option shall be 100% of the fair market value
per share of the Common Stock, generally determined with reference to the
closing price of the Common Stock as reported on the Nasdaq National Market on
the date of grant.
Stock Split -- On May 2, 1996, the Company's Board of Directors approved a
1-for-3 reverse stock split of the Company's common stock to become effective
prior to the closing of the offering. All share, per share and conversion
amounts relating to common stock, preferred stock, warrants and stock options
included in the accompanying consolidated financial statements and footnotes
have been restated to reflect the stock split for all periods presented.
Reincorporation -- The Company reincorporated in the State of Delaware in
September 1996.
In 1993, the Company had a profit sharing plan and a defined contribution
money purchase pension plan covering substantially all employees. Both plans
were combined in an employee stock ownership plan (the "ESOP"). As of December
31, 1993, the ESOP owned 2,258,090 shares (27%) of the Company's common stock,
which were acquired from the three major stockholders of the Company. Total
pension and profit sharing expense was $837,675 for the year ended December 31,
1993.
On January 1, 1994, the ESOP was amended and restated to provide for the
combination of the plans into a 401(k) plan. The Company matches participating
employee (participant) contributions of up to 5% of
F-12
<PAGE> 68
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation at rates up to 100%, depending on the participant's compensation.
During the year ended December 31, 1994 and 1995, matching contributions totaled
$124,838 and $111,092, respectively.
Recently Issued Accounting Standard -- In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires adoption of the disclosure provisions no later than
fiscal years beginning after December 15, 1995 and adoptions of the recognition
and measurement provisions for non-employee transactions no later than after
December 15, 1995. The new standard defines a fair value method of accounting
for stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of this
award and is recognized over the service period, which is usually the vesting
period.
Pursuant to the new standard, companies are encouraged, but not required,
to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, but would be required to disclose in a note to the
financial statements pro forma net income, and if presented, net income per
share as if the Company had applied the new method of accounting. The accounting
requirements of the new method are effective for all employee awards granted
after the beginning of the fiscal year of adoption.
The Company has determined that it will not change to the fair value method
and will continue to use Accounting Principles Board Opinion No. 25 for
measurement and recognition of employee stock-based transactions.
5. RELATED PARTY TRANSACTIONS
For the eight-month period ended August 31, 1993, the Company paid service
fees totaling $1,431,070 to SimSci International Inc. (previously 100% owned by
one of the stockholders of the Company).
Effective August 31, 1993, the stockholder contributed 100% of the
outstanding stock of SimSci International Inc. to the Company in exchange for
$1,000. Accordingly, the Company has recorded a contribution to additional
paid-in capital of $615,985 as a result of this transaction. The contribution
was comprised substantially of cash ($321,605), property ($204,750) and the
forgiveness of a receivable ($89,630).
6. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
(BILLINGS IN EXCESS OF COST AND ESTIMATED EARNINGS ON UNCOMPLETED
CONTRACTS)
Contracts in progress consist of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ JUNE 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts.......... $1,706,898 $1,490,418 $1,107,664
Estimated earnings............................... 414,161 487,430 1,240,453
----------- ----------- -----------
2,121,059 1,977,848 2,348,117
Less billings to date............................ (1,588,080) (2,197,374) (2,557,756)
----------- ----------- -----------
Costs and estimated earnings in excess of
billings on uncompleted contracts (billings in
excess of cost and estimated earnings on
uncompleted contracts)......................... $ 532,979 $ (219,526) $ (209,639)
=========== =========== ===========
</TABLE>
F-13
<PAGE> 69
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
--------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal.................................. $ 529,990 $ (561,110) $ 224,311
State.................................... 149,570 78,964 228,876
Foreign.................................. 618,955 931,540 850,658
---------- ----------- ----------
1,298,515 449,394 1,303,845
Deferred federal and state................. (432,948) (1,014,737) (351,973)
---------- ----------- ----------
$ 865,567 $ (565,343) $ 951,872
========== =========== ==========
</TABLE>
A reconciliation of the Company's effective tax rate compared to the
statutory federal rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
---- ----- ----
<S> <C> <C> <C>
Income taxes at the statutory federal rate.............. 34.0% (34.0)% 35.0%
State taxes, net of federal benefit..................... 3.9 (0.7) 3.9
Foreign tax rate differential........................... (4.1) 10.7 (2.2)
Dividends from foreign subsidiaries..................... 4.4
Other................................................... 1.2 (1.6) 0.2
---- ----- ----
35.0% (25.6)% 41.3%
==== ===== ====
</TABLE>
The Company provides deferred income taxes for temporary differences
between assets and liabilities recognized for financial reporting purposes and
income tax purposes. The income tax effects of these temporary differences
representing significant portions of the deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS:
Deferred revenues............................................. $1,044,152 $1,968,207
Domestic loss carryforwards................................... 1,147,208
Accrued expenses.............................................. 476,550 737,158
Tax credit carryovers......................................... 338,333
---------- ----------
Total deferred tax assets................................... $2,667,910 $3,043,698
========== ==========
DEFERRED TAX LIABILITIES:
Depreciable assets............................................ $(201,576) $(191,246)
Deferred state taxes.......................................... (100,805) (134,950)
Other......................................................... (13,570) (13,570)
---------- ----------
Total deferred tax liabilities.............................. (315,951) (339,766)
---------- ----------
Net deferred tax asset...................................... $2,351,959 $2,703,932
========== ==========
</TABLE>
F-14
<PAGE> 70
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES
As of December 31, 1995, the Company has various operating lease
commitments expiring through 2008 for office space and rental equipment, as
follows:
<TABLE>
<S> <C>
Year ending December 31:
1996.............................................. $ 844,059
1997.............................................. 1,637,323
1998.............................................. 1,092,217
1999.............................................. 1,091,365
2000.............................................. 1,059,901
2001.............................................. 608,854
Thereafter........................................ 4,555,710
-----------
$10,889,429
===========
</TABLE>
Rent expense was $1,558,962, $1,832,491 and $1,828,365 for the years ended
December 31, 1993, 1994 and 1995, respectively, and $922,767 and $977,747 for
the six months ended June 30, 1995 and 1996, respectively. Certain stockholders
of the Company, in connection with their involvement in a partnership, acquired
a 44% interest in the Company's main office facility in October 1992. Total rent
expense incurred by the Company to such partnership amounted to $521,384,
$425,020 and $482,973 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $240,097 and $318,455 for the six months ended June 30, 1995
and 1996, respectively. The Company's lease with the partnership expires in
2008.
9. GEOGRAPHICAL INFORMATION
Revenue, income (loss) before income taxes and identifiable assets for the
Company's North American, European and Asian operations are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1993 1994 1995 1996
---------- ---------- ---------- 1995 ----------
----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE
North America:
Customers............ $11,429,913 $10,261,017 $11,095,791 $5,623,427 $7,876,495
Intercompany......... 2,073,080 1,911,727 2,543,834 1,205,388 2,236,146
----------- ----------- ----------- ----------- -----------
13,502,993 12,172,744 13,639,625 6,828,815 10,112,641
Europe/Middle
East/Africa:
Customers............ 9,023,205 9,726,969 11,416,180 5,140,345 6,370,523
Intercompany......... 1,053,755 3,144,229 3,921,029 1,912,922 2,437,639
----------- ----------- ----------- ----------- -----------
10,076,960.. 12,871,198 15,337,209 7,053,267 8,808,162
Japan:
Customers............ 3,224,397 3,994,161 5,109,689 2,274,321 4,114,769
Intercompany......... 190,062 363,991 361,440 168,743 148,298
----------- ----------- ----------- ----------- -----------
3,414,459 4,358,152 5,471,129 2,443,064 4,263,067
</TABLE>
F-15
<PAGE> 71
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- 1995 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Pacific Rim:
Customers............ 3,013,534 2,659,705 3,483,764 1,335,549 2,062,890
Intercompany......... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
3,013,534 2,659,705 3,483,784 1,335,549 2,062,890
Other*:
Customers............ 1,452,982 1,610,312 2,013,867 872,744 1,366,294
Intercompany......... 1,366,235 510,311 610,087 293,927 213,464
----------- ----------- ----------- ----------- -----------
2,819,217 2,120,623 2,623,954 1,166,671 1,579,758
Eliminations........... (4,683,132) (5,930,258) (7,436,390) (3,580,980) (5,035,541)
----------- ----------- ----------- ----------- -----------
$28,144,031 $28,252,164 $33,119,311 $15,246,386 $21,790,977
=========== =========== =========== =========== ===========
INCOME (LOSS) BEFORE
TAXES:
United States.......... $2,253,639 $(2,635,451) $1,474,826 $ 678,667 $ (32,791)
Japan.................. 70,953 194,170 282,149 172,717 460,372
Other.................. 144,713 233,861 549,581 204,699 944,672
----------- ----------- ----------- ----------- -----------
$2,469,305 $(2,207,420) $2,306,556 $1,056,083 $1,372,253
=========== =========== =========== =========== ===========
ASSETS:
United States.......... $17,391,713 $15,316,479 $20,419,549 $15,779,201 $20,853,847
Japan.................. 1,838,084 2,088,026 2,049,995 2,408,379 1,778,246
Other.................. 378,441 442,366 858,925 598,310 2,478,268
Eliminations........... (2,669,569) (1,554,338) (1,774,087) (2,037,660) (2,514,561)
----------- ----------- ----------- ----------- -----------
$16,938,669 $16,292,533 $21,554,382 $16,748,230 $22,595,800
=========== =========== =========== =========== ===========
</TABLE>
* Consists primarily of sales into Latin American countries.
F-16
<PAGE> 72
DESCRIPTION OF GRAPHICS
The graphic depicts the complete manufacturing cycle in the process
industry from the extraction of raw materials to the production of finished
products such as gasoline, paint, adhesives, etc. The graphic is comprised of
three main sections; top, middle and bottom. The top section includes the logo
of the Company and the following description: "SimSci is a leading provider of
commercial simulation software and related services to the process industries,
including the petroleum, petrochemical and industrial chemicals process
industries and the engineering and construction firms that support these
industries." The middle section is a graphic showing a broad circular arrow with
various icons and descriptive headings depicting the processing of materials
into finished products. The bottom section is comprised of the following
description: "SimSci's simulation software products and services are designed to
provide the information necessary to increase profitability by reducing capital
investment costs, improving plant yields and enhancing management decision
making."
The middle section is described here in more detail. As indicated, the
middle section shows a broad arrow in a circular configuration upon which six
smaller pictures or icons are superimposed with corresponding headings and
descriptions. The circular arrow surrounds a central picture of the Company's
logo and a computer monitor containing a screen capture from the Company's
software. Between the outer circular arrow and the central picture are four
two-way arrows; one over the central picture, one under, one at the left and one
at the right. These arrows point between the central picture and surrounding
circular arrow. Starting at the beginning of the broad circular arrow at the top
left of the graphic the first icon superimposed depicts an oil derrick and crude
oil below the earth's surface with the subheading: "Natural Resources." The
description following is: "Fluid Flow Simulation and Optimization." The second
icon depicts a pipeline with the subheading: "Raw Materials" and the
description: "Network Optimization and Materials Selection." The third icon
depicts a refinery with the subheading: "Raw Materials Processing" and the
description: "Process Design and Retrofitting; Process Simulation and
Optimization." The fourth icon depicts a processing plant and chemical reactors
with the subheading: "Intermediate Products and Processing" and the description:
"Operations Debottlenecking and Troubleshooting; Plant Simulation and
Optimization." The fifth icon depicts several finished products with the
subheading: "Finished Products" and the description: "Environmental Impact
Assessment and Safety Assurance." The sixth and final icon depicts several
individuals around a conference table with the subheading: "Corporate Planning"
and the description: "Scheduling, Planning and Enterprise Modeling."
<PAGE> 73
------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 5
Use of Proceeds........................ 13
Dividend Policy........................ 13
Capitalization......................... 14
Dilution............................... 15
Selected Consolidated Financial Data... 16
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 17
Business............................... 25
Management............................. 37
Certain Transactions................... 45
Principal and Selling Stockholders..... 46
Description of Capital Stock........... 47
Shares Eligible for Future Sale........ 50
Underwriting........................... 52
Legal Matters.......................... 53
Experts................................ 53
Additional Information................. 54
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
3,600,000 SHARES
LOGO
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
WESSELS, ARNOLD & HENDERSON
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the NASD filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee..................................................... $ 14,276
NASD filing fee.......................................................... 4,640
Nasdaq National Market listing fee....................................... 50,000
Blue sky fees and expenses............................................... 12,000
Printing and engraving expenses.......................................... 125,000
Legal fees and expenses.................................................. 300,000
Accounting fees and expenses............................................. 190,000
Transfer agent and registrar fees........................................ 10,000
D&O Premium Increase..................................................... 250,000
Miscellaneous............................................................ 44,084
----------
Total............................................................... $1,000,000
=========
</TABLE>
The Company will bear all of the foregoing fees and expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
"DGCL"), Article IX of the Company's Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation") (filed as Exhibit 3.3 to this
Registration Statement) eliminates the liability of the Company's directors to
the Company or its stockholders, except for liabilities related to breach of
duty of loyalty, actions not in good faith and certain other liabilities.
Section 145 of the DGCL provides for indemnification by the Company of its
directors and officers. In addition, Article VI of the Company's Bylaws (filed
as Exhibit 3.4 to this Registration Statement) requires the Company to indemnify
any current or former director or officer to the fullest extent permitted by the
DGCL. In addition, the Company has entered into indemnity agreements with its
directors and executive officers (a form of which is filed as Exhibit 10.1 to
this Registration Statement) that obligate the Company to indemnify such
directors and executive officers to the fullest extent permitted by the DGCL.
The Company also maintains officers' and directors' liability insurance, which
insures against the liabilities that officers and directors of the Company may
incur in such capacities.
Reference is made to the form of Underwriting Agreement filed as Exhibit
1.1 to this Registration Statement, which provides for indemnification of the
directors and officers of the Company signing the Registration Statement and
certain controlling persons of the Company against certain liabilities,
including those arising under the Securities Act of 1933, as amended (the
"Securities Act"), in certain instances by the Underwriters.
II-1
<PAGE> 75
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant has issued and sold the
following unregistered securities (adjusted to give effect to the one-for-three
reverse stock split to be effected prior to the closing of the offering):
(1) On December 17, 1993 the Registrant sold and issued 1,666,667
shares of Series A Convertible Preferred Stock and warrants for the
purchase of 438,598 shares of the Registrant's Common Stock at $2.85 per
share to certain Stockholders for cash in the aggregate amount of
$5,000,000.
(2) The Company granted incentive stock options or non-statutory stock
options to employees, directors and consultants under its 1994 Stock Option
Plan for 1,520,833 shares of the Company's Common Stock at exercise prices
ranging from $2.67 to $7.50 per share. Pursuant to the exercise of stock
options granted under the 1994 Stock Option Plan, the Company issued an
aggregate of 33,834 shares of its Common Stock to employees, directors and
consultants of the Company for consideration in the aggregate amount of
$92,065.
The sales and issuances of securities described in paragraph (1) were
deemed to be exempt from registration under the Securities Act, principally by
virtue of Section 4(2) thereof as transactions by an issuer not involving a
public offering.
The sales and issuances of securities described in paragraph (2) above were
deemed to be exempt from registration under the Securities Act by virtue of Rule
701 of the Securities Act.
The purchasers of such securities in each case represented their intention
to acquire the securities for investment only and not with a view to a sale or
distribution thereof and appropriate legends were affixed to securities issued
in such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant, as currently in effect
(previously filed as Exhibit 3.2)
3.2 Form of Restated Certificate of Incorporation of the Registrant to be effective
after the closing of the offering made pursuant to the Registration Statement
3.3* Bylaws of the Registrant (previously filed as Exhibit 3.4)
3.4 Form of Amended and Restated Bylaws to be effective after the closing of the
offering made pursuant to the Registration Statement
4.1** Form of specimen certificate for the Registrant's Common Stock
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation (including
the consent of such firm) regarding legality of securities being offered
10.1 Form of Indemnification Agreement entered into by the Registrant with each of its
directors and executive officers
10.2 401(k) Plan
10.3* 1994 Stock Option Plan and related agreements
10.4* 1996 Stock Plan and related agreements
10.5* 1996 Employee Stock Purchase Plan For U.S. Employees and related agreements
10.6* 1996 Employee Stock Purchase Plan For Non-U.S. Employees and related agreements
10.7* 1996 Director Option Plan and related agreements
10.8* Registration Rights Agreement dated December 17, 1993
10.9* Standard Office Lease dated September 1, 1992 between the Registrant and Brea
Partners, as amended
</TABLE>
II-2
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------
<C> <S>
10.10* Stock Purchase and Investment Agreement dated December 17, 1993 by and among the
Registrant, certain stockholders and Northern Trust Bank of California, N.A. as
Trustee of the Registrant's Employee Stock Ownership Plan and Money Purchase
Pension Plan
10.11+ Product Development and Marketing Agreement dated July 31, 1991 between the
Registrant and Special Analysis and Simulation Technology Limited
10.12+ Software License Agreement dated September 1, 1995 between Mobil Oil Corporation
and the Registrant
10.13+ Software Development and Licensing Agreement dated February 22, 1996 between
Shell Oil Products Company and the Registrant
10.14 Retirement Agreement entered into by the Registrant and Vincent S. Verneuil, Jr.
21.1* List of Subsidiaries
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included
as part of Exhibit 5.1 hereto)
23.2 Consent of Deloitte & Touche LLP, independent auditors
24.1* Powers of Attorney (included on page II-5)
27.1* Financial Data Schedule
</TABLE>
- ------------------
* Previously filed
** To be filed by amendment.
+ Confidential treatment requested for portions of this document.
(b) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts Schedules not listed above
have been omitted because the information required to be set forth therein is
not applicable or is shown in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Certificate of Incorporation and Bylaws, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in such Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in such
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
a) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
b) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Brea, State
of California, on September 17, 1996.
SIMULATION SCIENCES INC.
By: /s/ CHARLES R. HARRIS
------------------------------------
Charles R. Harris
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed on September 17, 1996, by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ CHARLES R. HARRIS President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer) and Director
Charles R. Harris
/s/ L. RONALD TREPP Vice President, Finance and Chief Financial
- --------------------------------------------- Officer (Principal Financial and
L. Ronald Trepp Accounting Officer)
/s/ NARENDRA K. GUPTA* Director
- ---------------------------------------------
Narendra K. Gupta
/s/ WALTER G. KORTSCHAK* Director
- ---------------------------------------------
Walter G. Kortschak
*By /s/ CHARLES R. HARRIS
- ---------------------------------------------
Charles R. Harris
Attorney-in-fact
</TABLE>
II-4
<PAGE> 78
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGED TO BALANCE AT
DESCRIPTION OF PERIOD COSTS AND EXPENSES DEDUCTIONS END OF PERIOD
- --------------------------------------------- ---------- ------------------ ---------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994............... $ 307,539 $120,405 $ $ 427,944
Year ended December 31, 1995............... 427,944 28,443 456,387
Six months ended June 30, 1996............. 456,387 295,582 751,969
</TABLE>
S-1
<PAGE> 79
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE NUMBER
- ----------- ----------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant, as currently in effect
(previously filed as Exhibit 3.2)
3.2 Form of Restated Certificate of Incorporation of the Registrant to be
effective after the closing of the offering made pursuant to the
Registration Statement
3.3* Bylaws of the Registrant (previously filed as Exhibit 3.4)
3.4 Form of Amended and Restated Bylaws to be effective after the closing
of the offering made pursuant to the Registration Statement
4.1** Form of specimen certificate for the Registrant's Common Stock
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(including the consent of such firm) regarding legality of securities
being offered
10.1 Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers
10.2 401(k) Plan
10.3* 1994 Stock Option Plan and related agreements
10.4* 1996 Stock Plan and related agreements
10.5* 1996 Employee Stock Purchase Plan For U.S. Employees and related
agreements
10.6* 1996 Employee Stock Purchase Plan For Non-U.S. Employees and related
agreements
10.7* 1996 Director Option Plan and related agreements
10.8* Registration Rights Agreement dated December 17, 1993
10.9* Standard Office Lease dated September 1, 1992 between the Registrant
and Brea Partners, as amended
10.10* Stock Purchase and Investment Agreement dated December 17, 1993 by and
among the Registrant, certain stockholders and Northern Trust Bank of
California, N.A. as Trustee of the Registrant's Employee Stock
Ownership Plan and Money Purchase Pension Plan
10.11+ Product Development and Marketing Agreement dated July 31, 1991
between the Registrant and Special Analysis and Simulation Technology
Limited
10.12+ Software License Agreement dated September 1, 1995 between Mobil Oil
Corporation and the Registrant
10.13+ Software Development and Licensing Agreement dated February 22, 1996
between Shell Oil Products Company and the Registrant.
10.14 Retirement Agreement entered into by the Registrant and Vincent S.
Verneuil, Jr.
21.1* List of Subsidiaries
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included as part of Exhibit 5.1 hereto)
23.2 Consent of Deloitte & Touche LLP, independent auditors
24.1* Powers of Attorney (included on page II-5)
27.1* Financial Data Schedule
</TABLE>
- ------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested for portions of this document.
<PAGE> 1
Exhibit 1.1
3,967,500 Shares
SIMULATION SCIENCES INC.
Common Stock
($0.001 Par Value)
UNDERWRITING AGREEMENT
September __, 1996
Alex. Brown & Sons Incorporated
Wessels, Arnold & Henderson, L.L.C.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
Simulation Sciences Inc., a Delaware corporation (the "Company"), and
certain Stockholders of the Company (the "Selling Stockholders") propose to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
3,450,000 shares of the Company's Common Stock, $0.001 par value (the "Firm
Shares"), of which 2,700,000 shares will be sold by the Company, and 750,000
shares will be sold by the Selling Stockholders. The respective amounts of the
Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto, and the respective amounts to be sold
by the Selling Stockholders are set forth opposite their names in Schedule II
hereto. The Company and the Selling Stockholders are sometimes referred to
herein collectively as the "Sellers." The Company and certain Selling
Stockholders also propose to sell at the Underwriters' option an aggregate of up
to 517,500 additional shares of the Company's Common Stock (the "Option Shares")
as set forth below.
As the Representatives, you have advised the Company and the Selling
Stockholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in part
1
<PAGE> 2
for the accounts of the several Underwriters. The Firm Shares and the Option
Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
(a) The Company represents and warrants to each of the
Underwriters as follows:
(i) A registration statement on Form S-1 (File No.
333-11017) with respect to the Shares has been carefully prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462 (b) of the Act,
herein referred to as the "Registration Statement," which shall be deemed to
include all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has become effective under the
Act and no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "Prospectus" means (a) the form of prospectus
first filed with the Commission pursuant to Rule 424(b) or (b) the last
preliminary prospectus included in the Registration Statement filed prior to the
time it becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the Prospectus shall be
deemed to refer to and include any documents incorporated by reference therein,
and, in the case of any reference herein to any Prospectus, also shall be deemed
to include any documents incorporated by reference therein, and any supplements
or amendments thereto, filed with the Commission after the date of filing of the
Prospectus under Rules 424(b) or 430A, and prior to the termination of the
offering of the Shares by the Underwriters.
(ii) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. Each of the
subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the
2
<PAGE> 3
Registration Statement (collectively, the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement. The Subsidiaries are the only subsidiaries,
direct or indirect, of the Company. The Company and each of the Subsidiaries are
duly qualified to transact business in all jurisdictions in which the conduct of
their business requires such qualification, except for those jurisdictions where
the failure to be so qualified would not, either singly or in the aggregate,
have a material adverse effect on the Company's business financial condition or
operating results. The outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable and are owned by the Company or another Subsidiary free and clear
of all liens, encumbrances and equities and claims; and no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in the Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the
Company, including all shares to be sold by the Selling Stockholders, have been
duly authorized and validly issued and are fully paid and non-assessable; the
portion of the Shares to be issued and sold by the Company have been duly
authorized and when issued and paid for as contemplated herein will be validly
issued, fully paid and non-assessable; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue and sale thereof. Neither
the filing of the Registration Statement nor the offering or sale of the Shares
as contemplated by this Agreement gives rise to any rights, other than those
which have been waived or satisfied, for or relating to the registration of any
shares of Common Stock.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform to the description thereof contained in the Registration Statement. The
form of certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation.
(v) The Commission has not notified the Company that
it has issued an order preventing or suspending the use of any Prospectus
relating to the proposed offering of the Shares nor has it notified the Company
that it has instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform to the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were
3
<PAGE> 4
made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from the
Registration Statement or the Prospectus, or any such amendment or supplement,
in reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter through the Representatives,
specifically for use in the preparation thereof.
(vi) The consolidated financial statements of the
Company and the Subsidiaries, together with related notes and schedules as set
forth in the Registration Statement, present fairly the financial position and
the results of operations and cash flows of the Company and the consolidated
Subsidiaries, at the indicated dates and for the indicated periods. Such
financial statements and related schedules have been prepared in accordance with
generally accepted principles of accounting, consistently applied throughout the
periods involved, except as disclosed herein, and all adjustments necessary for
a fair presentation of results for such periods have been made. The summary
financial and statistical data included in the Registration Statement presents
fairly the information shown therein and such data has been compiled on a basis
consistent with the financial statements presented therein and the books and
records of the Company. The pro forma financial information included in the
Registration Statement and the Prospectus present fairly the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, have been properly
compiled on the pro forma bases described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(vii) Deloitte & Touche LLP, who have certified
certain of the financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required by the
Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any of the Subsidiaries before any court or administrative agency or otherwise
which if determined adversely to the Company or any of its Subsidiaries might
result in any material adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and of the Subsidiaries taken as a whole or to prevent
the consummation of the transactions contemplated hereby, except as set forth in
the Registration Statement.
(ix) The Company and the Subsidiaries have good and
marketable title to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except those reflected in such financial statements (or as described in the
Registration Statement) or which are not material to the business of the
Company. The Company and the Subsidiaries occupy their leased properties under
valid and binding leases conforming in all material respects to the description
thereof set forth in the Registration Statement.
4
<PAGE> 5
(x) The Company and the Subsidiaries have filed all
Federal, State, local and foreign income tax returns which have been required to
be filed and have paid all taxes indicated by said returns and all assessments
received by them or any of them to the extent that such taxes have become due.
All tax liabilities have been adequately provided for in the financial
statements of the Company.
(xi) Since the respective dates as of which
information is given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or, to the
knowledge of the Company, any development involving a prospective material
adverse change in or affecting the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise), or prospects of
the Company and its Subsidiaries taken as a whole, whether or not occurring in
the ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company or the Subsidiaries, other than transactions in the ordinary
course of business and changes and transactions described in the Registration
Statement, as it may be amended or supplemented. The Company and the
Subsidiaries have no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(xii) Neither the Company nor any of the Subsidiaries
is or with the giving of notice or lapse of time or both, will be, in violation
of or in default under its Charter or Bylaws or under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a party or
by which it, or any of its properties, is bound and which violation or default
is of material significance in respect of the condition, financial or otherwise
of the Company and its Subsidiaries taken as a whole or the business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole.
The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a party, or of
the Charter or Bylaws of the Company or any order, rule or regulation applicable
to the Company or any Subsidiary of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction, except for
such conflicts, breaches or defaults which, either singly or in the aggregate,
would not be of material significance in respect of the condition, financial or
otherwise of the Company and its Subsidiaries taken as a whole or the business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and
5
<PAGE> 6
the consummation of the transactions herein contemplated (except such additional
steps as may be required by the Commission, the National Association of
Securities Dealers, Inc. (the "NASD") or such additional steps as may be
necessary to qualify the Shares for public offering by the Underwriters under
state securities or Blue Sky laws) has been obtained or made and is in full
force and effect.
(xiv) The Company and each of the Subsidiaries holds
all material licenses, certificates and permits from governmental authorities
which are necessary to the conduct of their businesses; and neither the Company
nor any of the Subsidiaries has infringed any patents, patent rights, trade
names, trademarks or copyrights, which infringement is material to the business
of the Company and the Subsidiaries taken as a whole. The Company knows of no
material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.
(xv) Neither the Company, nor to the Company's best
knowledge, any of its affiliates, has taken or may take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(xvi) Neither the Company nor any Subsidiary is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xviii) The Company and each of its Subsidiaries
carry, or are covered by, insurance in such amounts and covering such risks as
is adequate for the conduct of their respective businesses and the value of
their respective properties and as is customary for companies engaged in similar
industries.
(xix) The Company is in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any material liability; the Company has not
6
<PAGE> 7
incurred and does not expect to incur material liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the "Code");
and each "pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in all
material respects and, to the knowledge of the Company, nothing has occurred,
whether by action or by failure to act, which would cause the loss of such
qualification.
(xx) The Company confirms as of the date hereof that
it is in material compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, An Act Relating to Disclosure of doing Business with
Cuba, and the Company further agrees that if it commences engaging in business
with the government of Cuba or with any person or affiliate located in Cuba
after the date the Registration Statement becomes or has become effective with
the Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes in
any material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
(b) Each of the Selling Stockholders severally represents and
warrants as follows:
(i) Such Selling Stockholder now has and at the
Closing Date and the Option Closing Date, as the case may be (as such dates are
hereinafter defined), will have good and marketable title to the Firm Shares and
the Option Shares to be sold by such Selling Stockholder, free and clear of any
liens, encumbrances, equities and claims, and full right, power and authority to
effect the sale and delivery of such Firm Shares and Option Shares; and upon the
delivery of, against payment for, such Firm Shares and Option Shares pursuant to
this Agreement, the Underwriters will acquire good and marketable title thereto,
free and clear of any liens, encumbrances, equities and claims.
(ii) Such Selling Stockholder has full right, power
and authority to execute and deliver this Agreement, the Irrevocable Power of
Attorney (the "Power of Attorney"), and the Letter of Transmittal and Custody
Agreement (the "Custody Agreement") referred to below, and to perform its
obligations under such Agreements. The execution and delivery of this Agreement
and the consummation by such Selling Stockholder of the transactions herein
contemplated and the fulfillment by such Selling Stockholder of the terms hereof
will not require any consent, approval, authorization, or other order of any
court, regulatory body, administrative agency or other governmental body (except
as may be required under the Act, state securities laws or Blue Sky laws) and
will not result in a breach of any of the terms and provisions of, or constitute
a default under, organizational documents of such Selling Stockholder, if not an
individual, or any indenture, mortgage, deed of trust or other agreement or
instrument to which
7
<PAGE> 8
such Selling Stockholder is a party, or of any order, rule or regulation
applicable to such Selling Stockholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock of the
Company and, other than as permitted by the Act, the Selling Stockholder will
not distribute any prospectus or other offering material in connection with the
offering of the Shares.
(iv) Without having undertaken to determine
independently the accuracy or completeness of either the representations and
warranties of the Company contained herein or the information contained in the
Registration Statement, such Selling Stockholder has no reason to believe that
the representations and warranties of the Company contained in this Section 1
are not true and correct, is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or may adversely affect the
business of the Company or any of the Subsidiaries; and the sale of the Firm
Shares and the Option Shares by such Selling Stockholder pursuant hereto is not
prompted by any information concerning the Company or any of the Subsidiaries
which is not set forth in the Registration Statement. The information pertaining
to such Selling Stockholder under the caption "Principal and Selling
Stockholders" in the Prospectus is complete and accurate in all material
respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Sellers agree to sell to the Underwriters and each Underwriter agrees, severally
and not jointly, subject to adjustments in accordance with Section 9 hereof to
purchase, at a price of $_____ net price per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I hereof. The number
of Firm Shares to be purchased by each Underwriter from each Seller shall be as
nearly as practicable in the same proportion to the total number of Firm Shares
being sold by each Seller as the number of Firm Shares being purchased by each
Underwriter bears to the total number of Firm Shares to be sold hereunder. The
obligations of the Company and of each of the Selling Stockholders shall be
several and not joint.
(b) Certificates in negotiable form for the total number of
the Shares to be sold hereunder by the Selling Stockholders have been placed in
custody with Harris Trust Company of California as custodian (the "Custodian")
pursuant to the Custody Agreement executed by each Selling Shareholder for
delivery of all Firm Shares and any Option Shares to be sold hereunder by the
Selling Stockholders. Each of the Selling Stockholders specifically agrees that
the Firm Shares and any Option Shares represented by the certificates held in
custody for the Selling
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Stockholders under the Custodian Agreement are subject to the interests of the
Underwriters hereunder, that the arrangements made by the Selling Stockholders
for such custody are to that extent irrevocable, and that the obligations of the
Selling Stockholders hereunder shall not be terminable by any act or deed of the
Selling Stockholders (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law (including
the death of an individual Selling Stockholder or the dissolution of a corporate
Selling Stockholder) or by the occurrence of any other event or events, except
as set forth in the Custodian Agreement. If any such event should occur prior to
the delivery to the Underwriters of the Firm Shares or the Option Shares
hereunder, certificates for the Firm Shares or the Options Shares, as the case
may be, shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such event has not occurred. The Custodian is
authorized to receive and acknowledge receipt of the proceeds of sale of the
Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be
made in New York Clearing House funds by certified or bank cashier's checks
drawn to the order of the Company for the shares to be sold by it and to the
order of "Harris Trust Company of California, as Custodian" for the shares to be
sold by the Selling Stockholders, in each case against delivery of certificates
therefor to the Representatives for the several accounts of the Underwriters.
Such payment and delivery are to be made at the offices of Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at 10:00 a.m.,
Baltimore time, on the third business day after the date of this Agreement or at
such other time and date not later than five business days thereafter as you and
the Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(d) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company and certain Selling Stockholders listed on Schedule III
hereto hereby grant an option to the several Underwriters to purchase the Option
Shares at the price per share as set forth in the first paragraph of this
Section 2. The maximum number of Option Shares to be sold by the Company and the
Selling Stockholders is set forth opposite their respective names on Schedule
III hereto. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, the
Attorney-in-Fact, and the Custodian setting forth the number of Option Shares as
to which the several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time and
date at which such certificates are to be delivered. If the option
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<PAGE> 10
granted hereby is exercised in part, the respective number of Option Shares to
be sold by the Company and each of the Selling Stockholders listed in Schedule
III hereto shall be determined on a pro rata basis in accordance with the
percentages set forth opposite their names on Schedule II hereto, adjusted by
you in such manner as to avoid fractional shares. The time and date at which
certificates for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The number of Option Shares to be purchased by each Underwriter
shall be in the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such Underwriter bears
to the total number of Firm Shares, adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several Underwriters,
may cancel such option at any time prior to its expiration by giving written
notice of such cancellation to the Company and the Attorney-in-Fact. To the
extent, if any, that the option is exercised, payment for the Option Shares
shall be made on the Option Closing Date in New York Clearing House funds by
certified or bank cashier's check drawn to the order of the Company for the
Option Shares to be sold by it and to the order of "Harris Trust Company of
California, as Custodian" for the Option Shares to be sold by the Selling
Stockholders against delivery of certificates therefor at the offices of Alex.
Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland.
(e) If on the Closing Date or Option Closing Date, as the case
may be, any Selling Stockholder fails to sell the Firm Shares or Option Shares
which such Selling Stockholder has agreed to sell on such date as set forth in
Schedule II hereto, the Company agrees that it will sell or arrange for the sale
of that number of shares of Common Stock to the Underwriters which represents
Firm Shares or the Option Shares which such Selling Stockholder has failed to so
sell, as set forth in Schedule II hereto, or such lesser number as may be
requested by the Representatives.
3. OFFERING BY THE UNDERWRITERS.
(a) It is understood that the several Underwriters are to make
a public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
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(b) It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with a Master Agreement Among Underwriters entered into by you and
the several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) The Company will (A) use its best efforts to
cause the Registration Statement to become effective or, if the procedure in
Rule 430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus
in a form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A of the Rules and Regulations and (B) not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a copy
or to which the Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives
promptly (A) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (B) of receipt of any comments from the
Commission, (C) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information, and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(iii) The Company will cooperate with the
Representatives in endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction where it
is not now so qualified or required to file such a consent. The Company will,
from time to time, prepare and file such statements, reports, and other
documents, as are or may be required to continue such qualifications in effect
for so long a period as the Representatives may reasonably request for
distribution of the Shares.
(iv) The Company will deliver to, or upon the order
of, the Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period when
delivery of a Prospectus is required under the Act, as
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many copies of the Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request. The Company will
deliver to the Representatives at or before the Closing Date, four signed copies
of the Registration Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Representatives such number of copies
of the Registration Statement (including such number of copies of the exhibits
filed therewith that may reasonably be requested), and of all amendments
thereto, as the Representatives may reasonably request.
(v) The Company will comply with the Act and the
Rules and Regulations, and the Securities Exchange Act of 1934 (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(vi) The Company will make generally available to its
security holders, as soon as it is practicable to do so, but in any event not
later than 15 months after the effective date of the Registration Statement, an
earning statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date of
the Registration Statement, which earning statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been so made
available.
(vii) The Company will, for a period of five years
from the Closing Date, deliver to the Representatives copies of annual reports
and copies of all other documents, reports and information furnished by the
Company to its stockholders or filed with any securities exchange pursuant to
the requirements of such exchange or with the Commission pursuant to the Act or
the Securities Exchange Act of 1934, as amended. The Company will deliver to the
Representatives similar reports with respect to significant subsidiaries, as
that term is defined in the Rules and Regulations, which are not consolidated in
the Company's financial statements.
(viii) No offering, sale, short sale or other
disposition of any shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of Common Stock or
derivative of Common Stock (or agreement for such) will be made for a period of
180 days after the date of this Agreement, directly or indirectly,
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<PAGE> 13
by the Company otherwise than hereunder or with the prior written consent of
Alex. Brown & Sons Incorporated.
(ix) The Company will use its best efforts to list,
subject to notice of issuance, the Shares on the Nasdaq National Market.
(x) The Company has caused each officer and director
and all Stockholders of the Company to furnish to you, on or prior to the date
of this agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree not to offer,
sell, sell short or otherwise dispose of any shares of Common Stock of the
Company or other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for Common Shares or derivative of
Common Shares owned by such person or request the registration for the offer or
sale of any of the foregoing (or as to which such person has the right to direct
the disposition of) for a period of 180 days after the date of this Agreement,
directly or indirectly, except with the prior written consent of Alex. Brown &
Sons Incorporated ("Lockup Agreements"); provided, however, that Alex. Brown &
Sons Incorporated agrees that it will not enforce such agreement against any
stockholder of the Company in connection with the sale or other disposition of
shares of Common Stock of the Company in connection with the closing of a sale
of the Company effected by (i) a statutory merger of the Company with and into
another entity approved by the legally required vote of the Company's
stockholders or (ii) sale of all of the Company's outstanding stock to a person
or group of persons acting in concert.
(xi) The Company shall apply the net proceeds of its
sale of the Shares as set forth in the Prospectus and shall file such reports
with the Commission with respect to the sale of the Shares and the application
of the proceeds therefrom as may be required in accordance with Rule 463 under
the Act.
(xii) The Company shall not invest, or otherwise use
the proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company or any of the Subsidiaries to register as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act").
(xiii) The Company will maintain a transfer agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(xiv) The Company will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
(b) Each of the Selling Stockholders covenants and agrees with
the several Underwriters that:
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<PAGE> 14
(i) No offering, sale, short sale or other
disposition of any shares of Common Stock of the Company or other capital stock
of the Company or other securities convertible, exchangeable or exercisable for
Common Stock or derivative of Common Stock owned by the Selling Stockholder or
request the registration for the offer or sale of any of the foregoing (or as to
which the Selling Stockholder has the right to direct the disposition of) will
be made for a period of 180 days after the date of this Agreement, directly or
indirectly, by such Selling Stockholder otherwise than hereunder or with the
prior written consent of Alex. Brown & Sons Incorporated; provided, however,
that Alex. Brown & Sons Incorporated agrees that it will not enforce such
agreement against any stockholder of the Company in connection with the sale or
other disposition of shares of Common Stock of the Company in connection with
the closing of a sale of the Company effected by (i) a statutory merger of the
Company with and into another entity approved by the legally required vote of
the Company's stockholders or (ii) sale of all of the Company's outstanding
stock to a person or group of persons acting in concert.
(ii) In order to document the Underwriters'
compliance with the reporting and withholding provisions of the Tax Equity and
Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, each of the
Selling Stockholders agrees to deliver to you prior to or at the Closing Date a
properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
(iii) Such Selling Stockholder will not take,
directly or indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
5. COSTS AND EXPENSES.
(a) The Company will pay all costs, expenses and fees incident
to the performance of the obligations of the Sellers under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel the
Company and the Selling Stockholders; the cost of printing and delivering to, or
as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters'
Selling Memorandum, the Underwriters' Invitation Letter, the Listing
Application, the Blue Sky Survey and any supplements or amendments thereto; the
filing fees of the Commission; the filing fees and expenses (including legal
fees and disbursements) incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Shares; the Nasdaq National Market; and the expenses, including the fees and
disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Shares under State securities or Blue Sky laws. The Company
agrees to pay all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, incident to the offer and sale of
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<PAGE> 15
directed shares of the Common Stock by the Underwriters to employees and persons
having business relationships with the Company and its Subsidiaries. The Sellers
shall not, however, be required to pay for any of the Underwriters expenses
(other than those related to qualification under NASD regulation and State
securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
11 hereof, or by reason of any failure, refusal or inability on the part of the
Company or the Selling Stockholders to perform any undertaking or satisfy any
condition of this Agreement or to comply with any of the terms hereof on their
part to be performed, unless such failure to satisfy said condition or to comply
with said terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Shares or
in contemplation of performing their obligations hereunder; but the Company and
the Selling Stockholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
(a) The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
and the Selling Stockholders contained herein, and to the performance by the
Company and the Selling Stockholders of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company or the Selling
Stockholders, shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a Federal or state court of
competent jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Wilson
Sonsini Goodrich & Rosati, P.C., counsel for the Company and the Selling
Stockholders, dated the Closing Date or the Option Closing
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Date, as the case may be, addressed to the Underwriters (and stating that it may
be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; each of the
Subsidiaries has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification, or in which the
failure to qualify would have a materially adverse effect upon the business of
the Company and the Subsidiaries taken as a whole; and the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable and are owned by the Company or a
Subsidiary; and, to the best of such counsel's knowledge, the outstanding shares
of capital stock of each of the Subsidiaries is owned free and clear of all
liens, encumbrances and equities and claims, and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or of ownership
interests in the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus;
the authorized shares of the Company's Common Stock have been duly authorized;
the outstanding shares of the Company's Common Stock, including the Shares to be
sold by the Selling Stockholders have been duly authorized and validly issued
and are fully paid and non-assessable; all of the Shares conform in all material
respects to the description thereof under "Description of Capital Stock"
contained in the Prospectus; the certificates for the Shares, assuming they are
in the form filed with the Commission, are in due and proper form; the shares of
Common Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be validly issued,
fully paid and non-assessable when issued and paid for as contemplated by this
Agreement; and no preemptive rights of stockholders exist with respect to any of
the Shares or the issue or sale thereof in the Company's Charter or Bylaws or,
to the knowledge of such counsel, otherwise.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no
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<PAGE> 17
holder of any securities of the Company or any other person has the right,
contractual or otherwise, which has not been satisfied or effectively waived, to
cause the Company to sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Shares or the right to have any Common Shares
or other securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to require
registration under the Act of any shares of Common Stock or other securities of
the Company.
(iv) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(v) The Registration Statement, the Prospectus and
each amendment or supplement thereto complies as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations thereunder (except that such counsel need express no opinion as to
the financial statements and related schedules therein).
(vi) The statements under the captions
"Capitalization," "Description of Capital Stock" and "Shares Eligible for Future
Sale" in the Prospectus, insofar as such statements constitute a summary of
documents referred to therein or matters of law, fairly summarize in all
material respects the information called for with respect to such documents and
matters.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are no so filed
or described as required, and such contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the Company or any of the
Subsidiaries except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Charter or Bylaws of the Company, or any
agreement or instrument known to such counsel to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries may
be bound.
(x) This Agreement has been duly authorized, executed
and delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in
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connection with the execution and delivery of this Agreement and the
consummation of the transactions herein contemplated (other than as may be
required by the NASD or as required by State securities and Blue Sky laws as to
which such counsel need express no opinion) except such as have been obtained or
made, specifying the same.
(xii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
(xiii) This Agreement has been duly authorized,
executed and delivered on behalf of the Selling Stockholders.
(xiv) Each Selling Stockholder has full legal right,
power and authority, and any approval required by law (other than as required by
State securities and Blue Sky laws as to which such counsel need express no
opinion), to sell, assign, transfer and deliver the portion of the Shares to be
sold by such Selling Stockholder.
(xv) The Custody Agreement and the Power of Attorney
executed and delivered by each Selling Stockholder is valid and binding.
(xvi) The Underwriters (assuming that they are bona
fide purchasers within the meaning of the Uniform Commercial Code) have acquired
good and marketable title to the Shares being sold by each Selling Stockholder
on the Closing Date, and the Option Closing Date, as the case may be, free and
clear of all liens, encumbrances, equities and claims.
(a) In rendering such opinion Wilson Sonsini Goodrich & Rosati, P.C.
may rely as to matters governed by the laws of states other than Delaware and
California or Federal laws on local counsel in such jurisdictions, provided that
in each case Wilson Sonsini Goodrich & Rosati, P.C. shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, at the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Wilson Sonsini Goodrich & Rosati, P.C. may state that their
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belief is based upon the procedures set forth therein, but is without
independent check and verification.
(c) The Representatives shall have received from Morrison &
Foerster LLP, counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (ii), (iii), (iv) and (ix) of Paragraph (b) of this
Section 6, and that the Company is a duly organized and validly existing
corporation under the laws of the State of Delaware. In rendering such opinion,
Morrison & Foerster LLP may rely as to all matters governed other than by the
laws of the State of California or Delaware or Federal laws on the opinion of
counsel referred to in Paragraph (b) of this Section 6. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, or any amendment thereto, as of
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) as of
the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Morrison & Foerster LLP may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Morrison & Foerster, LLP a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the Shares under the State
securities or Blue Sky laws of such jurisdictions as the Representatives may
reasonably have designated to the Company.
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of Deloitte & Touche LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
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<PAGE> 20
(f) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the
Registrations Statement has been issued, and no proceedings for such purpose
have been taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as of the Closing
Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant
to Rules 424 or 430A under the Act have been made;
(iv) He or she has carefully examined the
Registration Statement and the Prospectus and, in his or her opinion, as of the
effective date of the Registration Statement, the statements contained in the
Registration Statement were true and correct, and such Registration Statement
and Prospectus did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading, and
since the effective date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to or an amendment of the
Prospectus which has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been any material adverse change or, to his or her knowledge, any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company and its Subsidiaries taken as a whole or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and the
Subsidiaries taken as a whole, whether or not arising in the ordinary course of
business.
(g) The Company and the Selling Stockholders shall have
furnished to the Representatives such further certificates and documents
confirming the representations and warranties, covenants and conditions
contained herein and related matters as the Representatives may reasonably have
requested.
(h) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the Nasdaq National Market.
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<PAGE> 21
(i) The Lockup Agreements described in Section
4(a)(x) are in full force and effect.
(a) The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Morrison Foerster
LLP, counsel for the Underwriters.
(b) If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Stockholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
(c) In such event, the Selling Stockholders, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
(a) The obligations of the Sellers to sell and deliver the portion of
the Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company and the Selling Stockholders, severally and
not jointly, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
any such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
controlling person is a party to any action or proceeding; provided, however,
that the Company and the Selling Stockholders will not be liable in any such
case to the extent that any such loss,
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<PAGE> 22
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. Notwithstanding the foregoing,
each Selling Stockholder (other than the Principal Stockholders, as defined
below) shall only be liable under this Section 8 to the extent, and only to the
extent, that any loss, claim, damage or liability of any Underwriter, or
controlling person, if any, arises out of or is based upon (i) any untrue
statement or omission, or any alleged untrue statement or omission, made in the
Registration Statement (or any amendment thereto) in reliance upon and in
conformity with information furnished to the Company by or on behalf of such
Selling Stockholder expressly for use in the Registration Statement (or any
amendment thereto) or any Preliminary Prospectus (or any amendment or supplement
thereto) or (ii) any breach of such Selling Stockholder's representation and
warranty made in Section 1(b)(iv) hereof. The term "Principal Stockholders"
shall mean Summit Ventures III, L.P. and Summit Investors II, L.P. In no event,
however, shall the liability of any Selling Stockholder, including any Principal
Stockholder, for indemnification under this Section 8(a) exceed the net proceeds
received by such Selling Stockholder from the Underwriters in the offering. This
indemnity agreement will be in addition to any liability which the Company or
the Selling Stockholders may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement, the Selling Stockholders, and each
person, if any, who controls the Company or the Selling Stockholders within the
meaning of the Act, against any losses, claims, damages or liabilities to which
the Company or any such director, officer, Selling Stockholder or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, Selling Stockholder or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
not be liable in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission has
been made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
22
<PAGE> 23
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) and by the Company and the Selling Stockholders in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
23
<PAGE> 24
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Stockholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(a) The Company, the Selling Stockholders and the Underwriters agree
that it would not be just and equitable if contributions pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, (ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation, and (iii) no
Selling Stockholder shall be required to contribute any amount in excess of the
proceeds received by such Selling Stockholder from the Underwriters in the
offering. The Underwriters' obligations in this
24
<PAGE> 25
Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
(a) If on the Closing Date or the Option Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or a Selling
Stockholder), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Stockholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case
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<PAGE> 26
may be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and the
Selling Stockholders or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company or of the Selling Stockholders
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. NOTICES.
(a) All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 101 California Street, 46th Floor, San Francisco, C 94111,
Attention: Paul V. Barber, Principal; with a copy to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202. Attention:
General Counsel; if to the Company or the Selling Stockholders, to Simulation
Sciences, Inc., 601 Valencia Avenue, Brea, CA 92823, Attention: President.
11. TERMINATION.
(a) This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30
a.m. on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole or the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and its Subsidiaries taken as a whole, whether or not arising in the
ordinary course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares
26
<PAGE> 27
or to enforce contracts for the sale of the Shares, or (iii) suspension of
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange or limitation on prices (other than limitations on hours or
numbers of days of trading) for securities on either such Exchange, (iv) the
enactment, publication, decree or other promulgation of any statute, regulation,
rule or order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by United States or New York State authorities, (vi) the suspension of trading
of the Company's common stock by the Commission on the Nasdaq National Market or
(vii) the taking of any action by any governmental body or agency in respect of
its monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
(a) This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
(A) The Company, the Selling Stockholders and the Underwriters
acknowledge and agree that the only information furnished or to be furnished by
any Underwriter to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under the Act
and the information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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<PAGE> 28
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement among the
Selling Stockholders, the Company and the several Underwriters in accordance
with its terms.
28
<PAGE> 29
Any person executing and delivering this Agreement as
Attorney-in-Fact for a Selling Stockholder represents by so doing that he has
been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to
a validly existing and binding Power of Attorney which authorizes such
Attorney-in-Fact to take such action.
Very truly yours,
SIMULATION SCIENCES INC.
By:
Title:
President
Selling Stockholders listed on Schedule II
By :
Title:
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By:
Authorized Officer
29
<PAGE> 30
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Underwriter Number of Firm Shares to be Purchased
- ---------------------------------------- -------------------------------------
<S> <C>
Alex. Brown & Sons Incorporated -----------
Wessels, Arnold & Henderson, L.L.C.
Total __________
</TABLE>
<PAGE> 31
SCHEDULE II
SCHEDULE OF SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Selling Stockholder Number of Firm Shares to be Sold
- --------------------------- --------------------------------
<S> <C> <C>
Total __________
----------
</TABLE>
<PAGE> 32
SCHEDULE III
SCHEDULE OF OPTION SHARES
<TABLE>
<CAPTION>
Maximum Number of Option Percentage of Total Number of
Name of Seller Shares to be Sold Option Shares
- ----------------------- ------------------------ -----------------------------
<S> <C> <C> <C>
---------- ----------
Total __________ 100%
</TABLE>
<PAGE> 1
EXHIBIT 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
SIMULATION SCIENCES INC.
Pursuant to Section 245 of the
General Corporate Law of the State of Delaware
Simulation Sciences Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Simulation Sciences Inc. (the
"Corporation"). The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on April 4, 1996.
2. The amendment and restatement of the Certificate of Incorporation
was proposed by the Corporation's Board of Directors and was duly approved by
the stockholders of the Corporation by written consent given in accordance with
the applicable provisions of Sections 228 and 242 of the Delaware General
Corporation Law.
3. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates,
integrates and further amends the provisions of the Certificate of Incorporation
of this Corporation.
4. The text of the Certificate of Incorporation is hereby restated and
amended to read in its entirety as follows:
I.
The name of the corporation (the "Corporation") is Simulation Sciences
Inc.
II.
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
-1-
<PAGE> 2
IV.
Section 1. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 30,000,000 shares of capital stock.
Of such authorized shares, Twenty-Five Million (25,000,000) shares shall be
designated "Common Stock," and have a par value of $.001 per share, and
Five Million (5,000,000) shares shall be designated "Preferred Stock,"
and have a par value of $.001 per share.
Section 2. The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors of the Corporation is authorized to
determine or alter the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock, and within the limitations or restrictions stated in
any resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or decrease (but not below
the number of shares of any such series then outstanding) the number of shares
of any such series subsequent to the issuance of shares of that series, to
determine the designation of any series, and to fix the number of shares of any
series. In case the number of shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status which they had prior
to the adoption of the resolution originally fixing the number of shares of such
series.
V.
To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as it may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director. The Corporation
is authorized to provide by bylaw, agreement or otherwise for indemnification of
directors, officers, employees and agents for breach of duty to the Corporation
and its stockholders in excess of the indemnification otherwise permitted by
applicable law. Neither any amendment nor repeal of this Article, nor the
adoption of any provision of this Certificate of Incorporation inconsistent with
this Article, shall eliminate or reduce the effect of this Article in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
VI.
Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation shall so provide.
VII.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
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<PAGE> 3
VIII.
Stockholders of the Corporation may take action by written consent in
lieu of a meeting only by unanimous written consent.
IX.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed this __ day of _________________, 1996.
SIMULATION SCIENCES INC.
By _________________________________________
Charles R. Harris
President and Chief Executive Officer
ATTEST:
______________________________
Jeffrey D. Saper, Secretary
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<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
SIMULATION SCIENCES INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is the agent named in the Certificate
of Incorporation until changed by the Board of Directors (the "Board").
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the corporation's
principal office in California.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third day
of May in each year at 2:00 p.m. However, if such day falls on a legal holiday,
then the meeting shall be held at the same time and place on the next succeeding
full business day. At the meeting, directors shall be elected and any other
proper business may be transacted.
<PAGE> 2
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called, at any time for
any purpose or purposes, by the Board of Directors or by stockholders owning at
least 50% of the Company's outstanding capital stock.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS
To be properly brought before an annual meeting, nominations for the
election of director or other business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the board of
directors, (b) otherwise properly brought before the meeting by or at the
direction of the board of directors, or (c) otherwise properly brought before
the meeting by a stockholder. For such nominations or other business to be
considered properly brought before the meeting by a stockholder such stockholder
must have given timely notice and in proper form of his intent to bring such
business before such meeting. To be timely, such stockholder's notice must be
delivered to or mailed and received by the secretary of the corporation not less
than ninety (90) days prior to the meeting; provided, however, that in the event
that less than one-hundred (100) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. To be in proper form, a stockholder's
notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to
make the nominations or propose the business and, as the case may be, of the
person or persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of
record of stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
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(iv) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, or the matter been proposed, or intended to be proposed by the
board of directors; and
(v) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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<PAGE> 4
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
The stockholders of the corporation may not take action by written
consent without a meeting unless such action is unanimous.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting (if otherwise permitted by these bylaws and the corporation's
certificate of incorporation), or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the board of directors may fix, in advance,
a record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action.
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If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.15 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and conduct of business.
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ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 NUMBER OF DIRECTORS
The number of directors shall not be less than three (3) nor more than
seven (7). The exact number of directors shall be three (3) until changed,
within the limits specified in the preceding sentence, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the stockholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
certificate of incorporation or by an amendment to this bylaw adopted by the
vote or written consent of the holders of a majority of the stock issued and
outstanding and entitled to vote or by resolution of a majority of the board of
directors.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stock holders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effec-
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tive, and each director so chosen shall hold office as provided in this section
in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by all
of the stockholders having the right to vote as a single class may be filled by
a majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of
stock or series thereof are entitled to elect one or more directors by the
provisions of the certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a majority of
the directors elected by such class or classes or series thereof then in office,
or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
A director elected or appointed to fill a vacancy shall serve until the
next annual meeting of stockholders or until a successor shall be elected and
qualified.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar
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communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board may be called by the chairman or the
president on three (3) days' notice to each director, either personally or by
mail, telegram, telex, or telephone; special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of two (2) directors unless the board consists of only one (1) director, in
which case special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of the sole director.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
facsimile or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight (48)
hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. The notice need not
specify the purpose or the place of the meeting, if the meeting is to be held at
the principal executive office of the corporation.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors
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present at any meeting at which there is a quorum shall be the act of the board
of directors, except as may be otherwise specifically provided by statute or by
the certificate of incorporation. If a quorum is not present at any meeting of
the board of directors, then the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof, may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these bylaws, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefore. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
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3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Any director may be removed from office by the stockholders of the
corporation only for cause and only by the affirmative vote of the holders of a
majority of the voting power of the outstanding shares of capital stock.
For purposes of the foregoing paragraph, "cause" shall mean (i)
continued willful failure to perform the obligations of a director, (ii) gross
negligence by the director, (iii) engaging in transactions that defraud the
corporation, (iv) fraud or intentional misrepresentation, including falsifying
use of funds and intentional misstatements made in financial statements, books,
records or reports to stockholders or governmental agencies, (v) material
violation of any agreement between the director and the corporation, (vi)
knowingly causing the corporation to commit violations of applicable law
(including by failure to act), (vii) acts of moral turpitude or (viii)
conviction of a felony.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corpo ration. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent
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<PAGE> 11
or disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the bylaws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), and Section 3.12 (action without a meeting), with such changes in
the context of those bylaws as are necessary to substitute the committee and its
members for the board of directors and its members; provided, however, that the
time of regular meetings of committees may also be called by resolution of the
board of directors and that notice of special meetings of committees shall also
be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to
appoint, such other officers and agents as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
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5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolu tion of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
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The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 TREASURER
The treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name
and to the credit of the corporation with such depositaries as may be designated
by the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
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ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or was
a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
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ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
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7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
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shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal represen tative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made
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against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of shareholders of any one or more classes of stock of
the corporation to restrict the transfer of shares
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of stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the General Corporation Law of
Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
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Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall have
attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has
failed within a reasonable time to take steps to dissolve, liquidate or
distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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EXHIBIT 5.1
September 16, 1996
Simulation Sciences Inc.
601 Valencia Avenue, Suite 100
Brea, CA 92823
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you
with the Securities and Exchange Commission on August 29, 1996 (as such may
thereafter be amended or supplemented, the "Registration Statement") in
connection with the registration under the Securities Act of 1933, as amended,
of 4,140,000 shares of Common Stock, (including 540,000 shares subject to an
over allotment option granted to the underwriters) (the "Stock") of Simulation
Sciences Inc. We understand that the Stock is to be sold to the underwriters for
resale to the public as described in the Registration Statement.
As your legal counsel, we have examined the proceedings taken by you in
connection with the issuance and sale of up to 4,140,000 shares of the
Stock.
It is our opinion that the 4,140,000 shares of Stock that may be
issued and sold by you and certain Selling Stockholders, when issued and sold in
the manner referred to in the Registration Statement and in accordance with the
resolutions adopted by the Board of Directors of the Company, will be legally
and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
Exhibit 10.1
SIMULATION SCIENCES INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
_______________, 1996, by and between Simulation Sciences Inc., a Delaware
corporation (the "Company"), and ____________________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and its
related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services
to the Company, the Company wishes to provide for the indemnification of, and
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. Certain Definitions.
(a) "Change in Control" shall mean, and shall be deemed to
have occurred if, on or after the date of this Agreement, (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934,
<PAGE> 2
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting Securities,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of related
transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that Indemnitee in good faith believes might
lead to the institution of any such action, suit, proceeding or alternative
dispute resolution mechanism, whether civil, criminal, administrative,
investigative or other.
(c) References to the "Company" shall include, in addition to
Simulation Sciences Inc., any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger to which Simulation
Sciences Inc. (or any of its wholly owned subsidiaries) is a party which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, agents or fiduciaries, so that if
Indemnitee is or was a director, officer, employee, agent or fiduciary of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, agent
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or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(d) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) of any Claim
regarding any Indemnifiable Event and any federal, state, local or foreign taxes
imposed on the Indemnitee as a result of the actual or deemed receipt of any
payments under this Agreement.
(e) "Expense Advance" shall mean an advance payment of
Expenses to Indemnitee pursuant to Section 3(a).
(f) "Indemnifiable Event" shall mean any event or occurrence
related to the fact that Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or any subsidiary of the Company, or is or
was serving at the request of the Company as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity.
(g) "Independent Legal Counsel" shall mean an attorney or firm
of attorneys, selected in accordance with the provisions of Section 2(c) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be
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in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean any appropriate person or
body consisting of a member or members of the Company's Board of Directors or
any other person or body appointed by the Board of Directors who is not a party
to the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
(j) "Voting Securities" shall mean any securities of the
Company that vote generally in the election of directors.
2. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any Claim by reason of (or
arising in part out of) any Indemnifiable Event against Expenses, including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses. Such payment of Expenses shall be made by the Company
as soon as practicable but in any event no later than five (5) business days
after written demand by Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 2(a) shall be subject to the condition
that the Reviewing Party shall not have determined (in a written opinion, in any
case in which the Independent Legal Counsel referred to in Section 2(c) hereof
is involved) that Indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an Expense
Advance shall be subject to the condition that, if, when and to the extent that
the Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a
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<PAGE> 5
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expense Advance shall be unsecured
and no interest shall be charged thereon. If there has not been a Change in
Control, the Reviewing Party shall be selected by the Board of Directors, and if
there has been such a Change in Control (other than a Change in Control which
has been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control), the Reviewing Party
shall be the Independent Legal Counsel. If there has been no determination by
the Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part under
applicable law, Indemnitee shall have the right to commence litigation seeking
an initial determination by the court or challenging any such determination by
the Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear in
any such proceeding. Absent such litigation, any determination by the Reviewing
Party shall be conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel, if desired by Indemnitee, shall be selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion to
the Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law and the Company agrees to abide
by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall not be required to pay Expenses of more than one Independent Legal
Counsel in connection with all matters concerning a single Indemnitee, and such
Independent Legal Counsel shall be the Independent Legal Counsel for any or all
other Indemnitees unless (i) the Company otherwise determines or (ii) any
Indemnitee shall provide a written statement setting forth in detail a
reasonable objection to such Independent Legal Counsel representing other
Indemnitees.
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<PAGE> 6
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified against
all Expenses incurred by Indemnitee in connection therewith.
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than five (5) business days after written demand by Indemnitee therefor to the
Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not
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<PAGE> 7
so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 3(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee (not to be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election so to do. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense
and (ii) if (A) the employment of separate counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by
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<PAGE> 8
such law, statute or rule to be applied to this Agreement, shall have no effect
on this Agreement or the parties' rights and obligations hereunder except as set
forth in Section 9(a) hereof.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any other
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity even though
Indemnitee may have ceased to serve in such capacity.
5. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder.
6. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
7. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
8. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
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<PAGE> 9
9. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
acts, omissions or transactions from which Indemnitee may not be relieved of
liability under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(c) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
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<PAGE> 10
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agree ment in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a court
of competent jurisdiction over such action determines that each of the material
assertions made by Indemnitee as a basis for such action were not made in good
faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action), and
shall be entitled to the advancement of Expenses with respect to such action,
unless as a part of such action a court having jurisdiction over such action
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked.
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<PAGE> 11
Addresses for notice to either party are as shown on the signature page of this
Agreement, or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware as applied to contracts between Delaware residents entered into and to
be performed entirely within the State of Delaware.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
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<PAGE> 12
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
SIMULATION SCIENCES INC.
By:_______________________________
Title:____________________________
Address:
AGREED TO AND ACCEPTED
INDEMNITEE:
________________________________________
(signature)
________________________________________
(name of Indemnitee)
________________________________________
________________________________________
(address)
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<PAGE> 1
EXHIBIT 10.2
SIMULATION SCIENCES INC.
401(K) PLAN
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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INTRODUCTION
ARTICLE I
DEFINITIONS................................................................................... I - 1
1.01 Accounts......................................................................... I - 1
1.02 Affiliate........................................................................ I - 1
1.03 Beneficiary...................................................................... I - 2
1.04 Board............................................................................ I - 2
1.05 Break in Service................................................................. I - 2
1.06 Code............................................................................. I - 2
1.07 Committee........................................................................ I - 2
1.08 Company.......................................................................... I - 2
1.09 Company Stock.................................................................... I - 3
1.10 Compensation..................................................................... I - 3
1.11 Distribution Date................................................................ I - 4
1.12 Effective Date................................................................... I - 4
1.13 Eligible Employee................................................................ I - 4
1.14 Employee......................................................................... I - 5
1.15 Employer Securities.............................................................. I - 5
1.16 ERISA............................................................................ I - 5
1.17 Highly Compensated Employee...................................................... I - 5
1.18 Hour of Service.................................................................. I - 8
1.19 Inactive Participants............................................................ I - 11
1.20 Investment Funds................................................................. I - 11
1.21 Leased Employee.................................................................. I - 11
1.22 Matching Contributions........................................................... I - 12
1.23 Nonhighly Compensated Employee................................................... I - 12
1.24 Normal Retirement Date........................................................... I - 12
1.25 Participant...................................................................... I - 12
1.26 Plan............................................................................. I - 12
1.27 Plan Year........................................................................ I - 12
1.28 Pretax Deferrals................................................................. I - 12
1.29 Qualified Election Period........................................................ I - 12
1.30 Qualified Participant............................................................ I - 13
1.31 Trust Fund....................................................................... I - 13
1.32 Trustee.......................................................................... I - 13
1.33 Valuation Date................................................................... I - 13
1.34 Valuation Period................................................................. I - 13
1.35 Vested Portion................................................................... I - 13
1.36 Year of Service.................................................................. I - 13
ARTICLE II
ELIGIBILITY AND PARTICIPATION............................................................ .... II - 1
2.01 Plan Participation............................................................... II - 1
2.02 Plan Enrollment.................................................................. II - 1
</TABLE>
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<TABLE>
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2.03 Reemployment..................................................................... II - 2
2.04 Employment After Normal Retirement Date.......................................... II - 2
2.05 Termination of Participation..................................................... II - 2
2.06 Inactive Participation and Transfers............................................. II - 2
2.07 Leave of Absence................................................................. II - 3
ARTICLE III
CONTRIBUTIONS................................................................................. III - 1
3.01 Pretax Deferrals................................................................. III - 1
3.02 Matching Contributions........................................................... III - 4
3.03 Nonelective Contributions........................................................ III - 4
3.04 Discretionary Profit Sharing Contribution........................................ III - 4
3.05 Makeup Contributions............................................................. III - 5
3.06 Rollover Contribution............................................................ III - 5
ARTICLE IV
PARTICIPANT ACCOUNTS: ALLOCATIONS............................................................ IV - 1
4.01 Participant Accounts............................................................. IV - 1
4.02 Allocation of Pretax Deferrals................................................... IV - 5
4.03 Allocation of Matching Contributions............................................. IV - 5
4.04 Allocation of Nonelective Contributions.......................................... IV - 6
4.05 Allocation of Discretionary Profit
Sharing Contributions........................................................... IV - 7
ARTICLE V
INVESTMENTS: ALLOCATION OF GAINS AND LOSSES.................................................. V - 1
5.01 Investment of Accounts Other than
Pre-1994 Accounts............................................................... V - 1
5.02 Transfers of Existing Account Balances
Between Investment Funds........................................................ V - 1
5.03 Allocation of Investment Fund Gains and Losses................................... V - 1
5.04 Voting Company Stock............................................................. V - 3
ARTICLE VI
WITHDRAWALS WHILE EMPLOYED.................................................................... VI - 1
6.01 Hardship Withdrawals............................................................. VI - 1
6.02 Processing and Payment of Withdrawals............................................ VI - 3
6.03 Loans to Participants............................................................ VI - 3
ARTICLE VII
RETIREMENT AND DEATH BENEFITS................................................................. VII - 1
7.01 Retirement Benefits.............................................................. VII - 1
7.02 Death Benefits................................................................... VII - 1
ARTICLE VIII
TERMINATION BENEFITS AND VESTING REQUIREMENTS................................................. VIII - 1
8.01 Benefits at Termination of Employment............................................ VIII - 1
</TABLE>
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<TABLE>
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8.02 Vesting Requirements............................................................. VIII - 1
8.03 Forfeitures...................................................................... VIII - 2
8.04 Reinstatement of Forfeiture Accounts............................................. VIII - 3
8.05 Determination of Years of Service................................................ VIII - 3
ARTICLE IX
DISTRIBUTION OF BENEFITS...................................................................... IX - 1
9.01 Form of Benefits for the Pretax Deferral
Accounts, Matching Contribution Accounts,
Discretionary Profit Sharing Accounts and
Rollover Accounts for Retirement and
Other Termination............................................................... IX - 1
9.02 Form of Benefits for Prior Accounts,
Pre-1994 Money Purchase Company Stock
Accounts and Pre-1994 Money Purchase
Other Investment Accounts for Retirement
and Other Termination........................................................... IX - 1
9.03 Form of Benefits for Pre-1994 Stock
Bonus Company Stock Accounts and Pre-1994
Stock Bonus Other Investments Account
for Retirement and Other Termination............................................ IX - 10
9.04 Distribution Requirements........................................................ IX - 10
9.05 Timing of Distributions.......................................................... IX - 12
9.06 Eligible Rollover Distributions.................................................. IX - 14
9.07 Rights and Options on Distributions of
Shares of Company Stock from Pre-1994
Accounts........................................................................ IX - 15
9.08 Diversification of Investments of Pre-1994
Money Purchase Company Stock Account and
Pre-1994 Stock Bonus Company Stock Account...................................... IX - 19
9.09 Cash Dividends................................................................... IX - 21
ARTICLE X
DESIGNATION OF BENEFICIARY.................................................................... X - 1
ARTICLE XI
CONTRIBUTION AND ALLOCATION LIMITATIONS....................................................... XI - 1
11.01 Limitation on Annual Additions................................................... XI - 1
11.02 Limitation on Participant's Pretax Deferrals..................................... XI - 5
11.03 Limitation on Allocation of Matching
Contributions................................................................... XI - 12
11.04 Combined Limitation on Participant's
Pretax Deferrals and Matching Contributions..................................... XI - 14
11.05 Employer Aggregation Rules....................................................... XI - 15
11.06 Family Aggregation Rules......................................................... XI - 16
ARTICLE XII
</TABLE>
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<TABLE>
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PLAN ADMINISTRATION........................................................................... XII - 1
12.01 Appointment of Committee......................................................... XII - 1
12.02 Powers and Duties................................................................ XII - 1
12.03 Actions by the Committee......................................................... XII - 4
12.04 Interested Committee Members..................................................... XII - 4
12.05 Investment of Plan Assets........................................................ XII - 4
12.06 Indemnification.................................................................. XII - 5
12.07 Conclusiveness of Action......................................................... XII - 6
12.08 Payment of Expenses.............................................................. XII - 6
12.09 Claims Procedure................................................................. XII - 6
12.10 Arbitration Procedure............................................................ XII - 10
12.11 Effect of Fiduciary Action....................................................... XII - 14
ARTICLE XIII
AMENDMENT, TERMINATION, AND MERGER............................................................ XIII - 1
13.01 Company's Right to Amend......................................................... XIII - 1
13.02 Company's Right to Terminate..................................................... XIII - 1
13.03 Plan Merger and Consolidation.................................................... XIII - 2
ARTICLE XIV
TRUST FUND AND THE TRUSTEE.................................................................... XIV - 1
ARTICLE XV
ADOPTION BY AFFILIATE......................................................................... XV - 1
15.01 Affiliate Participation.......................................................... XV - 1
15.02 Action Binding on Participating Affiliates....................................... XV - 1
15.03 Termination of Affiliate Participation........................................... XV - 1
ARTICLE XVI
TOP-HEAVY PROVISIONS.......................................................................... XVI - 1
16.01 Definitions...................................................................... XVI - 1
16.02 Determination of Top-Heavy
Status - Single Plan............................................................ XVI - 4
16.03 Determination of Top-Heavy
Status - Multiple Plans......................................................... XVI - 5
16.04 Effect of Top-Heavy Status....................................................... XVI - 6
ARTICLE XVII
MISCELLANEOUS................................................................................. XVII - 1
17.01 Voluntary Plan................................................................... XVII - 1
17.02 Limitation on Reversion of Contributions......................................... XVII - 1
17.03 Nonalienation of Benefits........................................................ XVII - 2
17.04 Inability to Receive Benefits.................................................... XVII - 2
17.05 Unlocated Participants........................................................... XVII - 2
17.06 Limitation of Rights............................................................. XVII - 3
17.07 Invalid Provisions............................................................... XVII - 3
17.08 One Plan......................................................................... XVII - 3
</TABLE>
<PAGE> 6
<TABLE>
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17.09 Headings......................................................................... XVII - 3
17.10 Governing Law.................................................................... XVII - 3
</TABLE>
<PAGE> 7
INTRODUCTION
Effective January 1, 1976, Simulation Sciences Inc. (the "Company") established
the Simulation Sciences Inc. Employee Stock Ownership Plan. The Plan was amended
as of January 1, 1987 and later amended and restated as of January 1, 1989 to
comply with the provisions of the Tax Reform Act of 1986. The Plan, as in effect
on January 1, 1989, was actually a combination of two plans, a Stock Bonus Plan
and a Money Purchase Pension Plan.
As of December 31, 1993, the Stock Bonus Plan was merged into the Money Purchase
Pension Plan and all assets representing Participants' Account balances under
the Stock Bonus Plan were transferred into the Money Purchase Pension Plan.
Effective January 1, 1994, the Money Purchase Pension Plan is amended and
restated as a Profit Sharing Plan with a 401(k) feature effective April 1, 1994.
This restatement modified many provisions of the Plan, as in effect, prior to
January 1, 1994, including the Plan's contribution formulas.
The merger of the Stock Bonus Plan into the Money Purchase Pension Plan and the
restatement of the Money Purchase Pension Plan was intended to preserve all
vesting and distribution provisions in effect under each separate plan to the
extent required by applicable statutes. To the extent that any such provisions
were not properly preserved by the explicit language of this Plan, as amended
and restated, such provisions are incorporated herein by this reference and will
be afforded each affected Participant or Beneficiary upon request.
The purpose of this Plan is to enable participating employees to accumulate
capital for retirement through a convenient, tax-efficient method of regular
savings and Matching Contributions from the Company.
<PAGE> 8
The document describes the Plan as in effect on January 1, 1994. Effective
January 1, 1994 the Plan is renamed the Simulation Sciences Inc. 401(k) Plan.
The Plan is intended to qualify under Code Sections 401(a) and 401(k).
Contributions to the Plan will be made without regard to current or accumulated
earnings and profits of the Company. However, the Plan will continue to be
designed to qualify as a profit sharing plan under Code Sections 401(a), 402,
412, and 417. All Plan funds will be invested in a Trust.
<PAGE> 9
ARTICLE I
DEFINITIONS
Whenever the following capitalized terms are used in this Plan, they have the
meaning specified below. Other words and phrases used in the Plan are not
defined in this Article I, but, for convenience, are defined when introduced in
the text. Unless the context indicates otherwise, the masculine pronoun refers
to a man or woman. Words in the singular include the plural and vice versa,
unless the context indicates otherwise.
1.01 Accounts means a Participant's:
(a) Pre-1994 Money Purchase Company Stock Account
(b) Pre-1994 Stock Bonus Company Stock Account
(c) Pre-1994 Money Purchase Other Investments Account
(d) Pre-1994 Stock Bonus Other Investments Account
The above Accounts may also be referred to collectively as "Pre-1994
Accounts."
(e) Prior Profit Sharing Account
(f) Prior Money Purchase Pension Account
The above Accounts in Subsections (e) and (f) may also be
referred to collectively as "Prior Accounts."
(g) Discretionary Profit Sharing Account
(h) Rollover Account
Effective April 1, 1994, Accounts shall also include a
Participant's:
(i) Pretax Deferral Account and
(j) Matching Account.
All of these Accounts are described in Section 4.01.
1.02 Affiliate means the Company; any corporation included in a controlled
group of corporations within the meaning of
<PAGE> 10
Code Section 414(b) where the Company is also a member; any trade or
business under common control with the Company within the meaning of
Code Section 414(c); any member of an affiliated service group within
which the Company also is included within the meaning of Code Section
414(m); and any other entity required to be aggregated with the Company
under regulations in Code Section 414(o). For purposes of Section
11.01, Affiliate will be determined by substituting "more than 50%" for
"at least 80%" each place it appears in the above-referenced Code
Sections as they relate to "parent/subsidiary groups."
1.03 Beneficiary means the person, persons, or entity designated by the
Participant in accordance with Article X to receive any death benefit
that becomes payable under the Plan.
1.04 Board means the Board of Directors of the Company.
1.05 Break in Service means a Plan Year during which an Employee completes
less than 501 Hours of Service; provided, however, that for purposes of
Article II, the eligibility computation period will be used to measure
Breaks in Service.
1.06 Code means the Internal Revenue Code of 1986 as it currently exists and
includes any subsequent amendments.
1.07 Committee means the Committee described in Article XII.
1.08 Company means Simulation Sciences Inc. and any Affiliate that adopts
the Plan according to Article XV, and any successor by change of name,
merger, purchase of stock or purchase of assets. For purposes of
Articles V, XII, XIII, XIV and XV, Company means Simulation Sciences
Inc.
<PAGE> 11
1.09 Company Stock means shares of any class of stock, preferred or common,
voting or nonvoting, which are issued by the Company, including
Employer Securities.
1.10 Compensation means:
(a) All base compensation paid by the Company in cash to a
Participant during the Plan Year, but excluding commissions,
bonuses, overtime, and severance pay. Compensation will
include amounts deferred under Code Sections 125 and 401(k).
Compensation shall be recognized beginning with the date on
which an Eligible Employee becomes a Participant.
(b) For purposes of Section 11.01 and Article XVI only, an
Employee's wages as defined in Code Section 415(c)(3) and its
regulations. In no case will amounts deferred under Code
Sections 125 and 401(k) be included as Compensation under this
Subsection (b).
(c) For purposes of Subsection 11.02(b), an Employee's wages as
defined in Code Section 414(s).
(d) Participant Compensation taken into account for computing
benefits will not exceed $200,000. This dollar limit will be
adjusted automatically for each Plan Year to the amount
prescribed by the Secretary of the Treasury or delegate.
Effective for Plan Years beginning on and after January 1,
1994, this amount shall be decreased to $150,000. This dollar
limit will be adjusted automatically for each Plan Year for
increases in the cost of living in accordance with Code
Section 401(a)(17)(B). The cost-of-living adjustment in
<PAGE> 12
effect for a calendar year applies to any period, not
exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in
the determination period, and the denominator of which is 12.
In determining Compensation of an Employee, the rules of Code
Section 414(q)(6) shall apply; provided, however, that
"family" shall include only the Employee's spouse or his
lineal descendants who have not attained age 19.
1.11 Distribution Date means the date as of which the Vested Portion of a
Participant's Account is distributed, as described in Section 7.01 (in
the case of Normal Retirement), Section 7.02 (in the case of death),
and Section 8.01 (in the case of any other termination of employment).
1.12 Effective Date means January 1, 1989. The effective date of this
amendment and restatement of the Plan is January 1, 1994.
1.13 Eligible Employee means any Regular Employee, employed by the Company
excluding any person who is a Leased Employee within the meaning of
Code Section 414(n)(2), and any Employee whose employment is covered by
the terms of a collective bargaining agreement, unless such agreement
specifically provides for such coverage under this Plan. Any Temporary
Employee of the Company shall not be considered an Eligible Employee
unless such Temporary Employee becomes a Regular Employee. For purposes
of this
<PAGE> 13
Section 1.13, a "Regular Employee" means any Employee other than a
"Temporary Employee" and a "Temporary Employee" is any Employee who
performs specific on call duties for a limited period of time.
1.14 Employee means any person employed by the Company or an Affiliate whose
income is subject to withholding of income tax and/or for whom Social
Security contributions are made by the Company and any other person
qualifying as a common law employee of the Company.
1.15 Employer Securities means Common Stock issued by the Company having a
combination of voting power and dividend rights equal to (a) that class
of Common Stock of the Company having the greatest voting power and (b)
that class of Common Stock of the Company having the greatest dividend
rights. Noncallable preferred stock shall be treated as Employer
Securities if such stock is convertible at any time into Common Stock
which meets the above requirements, and if (as of the date of
acquisition by the Plan) the conversion price is reasonable.
1.16 ERISA means the Employee Retirement Income Security Act of 1974 as it
currently exists and includes any subsequent amendments.
1.17 Highly Compensated Employee means:
(a) Any Employee who performs service during the determination
year and is described in one or more of the following groups:
(1) An Employee who is a 5% owner, as defined in Code
Section 416(i)(1), at any time during the
determination year or the look-back year.
<PAGE> 14
(2) An Employee who receives compensation in excess of
$75,000, adjusted at the same time and in the same
manner as under Code Section 415(b), during the
look-back year.
(3) An Employee who receives compensation in excess of
$50,000, adjusted at the same time and in the same
manner as under Code Section 415(b), during the
look-back year and is a member of the top-paid group
for the look-back year.
(4) An Employee who is an officer, within the meaning of
Code Section 416(i), during the look-back year and
who receives compensation in the look-back year
greater than 50% of the dollar limitation in effect
under Code Section 415(b)(1)(A) for the calendar year
in which the look-back year begins.
(5) An Employee who is both described in Subsections (2),
(3), or (4) above when these Subsections are modified
to substitute the determination year for the
look-back year and one of the 100 Employees who
receives the most Compensation from the Company
during the determination year.
(b) For purposes of the definition of Highly Compensated Employee
the following will apply:
(1) The determination year is the Plan Year for which the
determination of who is highly compensated is being
made.
<PAGE> 15
(2) The look-back year is the 12 month period immediately
preceding the determination year, or if the Company
elects, the calendar year ending with or within the
determination year.
(3) The top-paid group consists of the top 20% of
Employees ranked on the basis of Compensation
received during the year. For purposes of determining
the number of employees in the top paid group,
Employees who have not completed 6 months of service
by the end of the Plan Year (including service in the
immediately preceding Plan Year), who normally work
less than 17-1/2 hours per week, who work less than 6
months during any year or who have not had their 21st
birthday by the end of the Plan Year shall be
excluded.
(4) The number of officers is limited to 50 (or, if less,
the greater of 3 Employees or 10% of Employees).
(5) When no officer has Compensation in excess of 50% of
the Code Section 415(b) limit, the highest paid
officer is treated as highly compensated.
(6) Compensation is compensation within the meaning of
Code Section 415(c)(3) including elective or salary
reduction contributions to a cafeteria plan or cash
or deferred arrangement.
<PAGE> 16
(7) Employers aggregated under Code Sections 414(b), (c),
(m), or (o) are treated as a single employer.
(c) A former Employee who has a separation year prior to the
determination year and who was a highly compensated active
employee for either (1) such Employee's separation year or (2)
any determination year ending on or after the Employee's 55th
birthday will be a Highly Compensated Employee. Generally, a
separation year is the determination year the Employee
separates from service. An Employee who separated from service
before January 1, 1987, will be included as a Highly
Compensated Employee only if the Employee was a 5% owner or
received Compensation in excess of $50,000.
1.18 Hour of Service means:
(a) Each hour for which an Employee is directly or indirectly paid
by, or entitled to payment from, an Affiliate for the
performance of duties. These hours are credited to the
Employee in the computation period in which the duties are
performed.
(b) Each hour, up to five hundred and one hours, for which an
Employee is directly or indirectly paid by, or entitled to
payment from an Affiliate on account of a period of time
during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability), layoff,
jury duty, funeral leave, military duty or leave of absence.
However, an Employee is not entitled to credit for such hours
if payment is made or due under a plan maintained
<PAGE> 17
solely for the purpose of complying with applicable workers'
compensation, unemployment compensation or disability
insurance laws, or if such payment solely reimburses an
Employee for his medical or medically related expenses.
In the case of a payment which is made or due on account of a
period during which an Employee performs no duties, and which
results in crediting of hours under this Subsection (b), or in
the case of an award or agreement for back pay, to the extent
that such award or agreement is made with respect to a period
described in this Subsection (b), the number of hours and the
computation period in which they are to be credited are
determined in accordance with Section 2530.200(b)-2(b) and (c)
of Title 29 of the Code of Federal Regulations, which Section
is incorporated herein by this reference.
(c) Each hour that would be a regularly scheduled working hour (or
vacation or holiday) but for the Employee's absence in
military service with the armed forces of the United States of
America, if the Employee is reemployed by the Company within
90 days after his discharge while he has reemployment rights
under Federal law (or within such longer period during which
he has such reemployment rights).
(d) In the case of a salaried Employee who is not paid on an
hourly basis, he shall be credited with Hours of Service on
the basis of 45 hours for each week for which the Employee
would be credited with at least one Hour of Service.
<PAGE> 18
(e) Each hour for which an Employee is entitled to back pay,
regardless of mitigation of damages, which has been either
awarded or agreed to by an Affiliate. These hours are credited
to the person in the computation period to which the award,
agreement or payment pertains. However, an Employee will not
be credited with hours under this Subsection (e) if he
received credit for the same hours under Subsections (a), (b),
(c) or (d).
(f) Solely for purposes of determining whether an Employee has
incurred a Break in Service, an Employee who is absent from
employment with an Affiliate for maternity or paternity
reasons will be credited with the Hours of Service that would
otherwise be credited under Subsections (a), (b), (c), and
(d), above, if the Employee were not absent for such reasons.
Where such Hours of Service cannot be determined, the Employee
will be credited with eight Hours of Service for each normal
work day of the absence. No more than five hundred and one
Hours of Service will be credited under this Subsection for
any single absence for maternity or paternity reasons.
The Hours of Service credited under this Subsection will be
credited in the computation period in which the Employee's
maternity or paternity absence began. However, if the Employee
has completed at least five hundred and one Hours of Service
in such computation period without including any Hours of
Service credited under this Subsection, then such Hours of
Service credited under this Subsection will be credited in the
next following computation period.
<PAGE> 19
Absence for maternity or paternity reasons means an Employee
is absent because:
(1) the Employee is pregnant,
(2) the Employee gave birth to a child,
(3) an adopted child is placed with the Employee, or
(4) the Employee is caring for his natural or adopted
child immediately after the child is born or placed
with the Employee.
The provisions of this Subsection will not apply unless the
Employee provides information to the Committee, within the
time limits established by the Committee, sufficient to
establish that the absence is for maternity or paternity
reasons and the duration of such absence.
1.19 Inactive Participants means those who were Participants but transferred
to and are in an employment status where they are no longer Eligible
Employees.
1.20 Investment Funds means the funds in which a Participant may invest
Accounts according to Section 5.01.
1.21 Leased Employee means any person (other than an Employee of the
Company) who pursuant to an agreement between the Company and a leasing
organization has performed services for the Company, or related persons
determined in accordance with Section 414(n)(6) of the Code on a
substantially full time basis for a period of at least one year, and
such services are of a type historically performed by employees in the
business field of the
<PAGE> 20
Company or related person. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to services
performed for the Company shall be treated as provided by the Company.
A Leased Employee shall not be considered an Employee of the Company
if: (i) the Leased Employee is covered by a money purchase pension plan
providing: (1) a nonintegrated employer contribution rate of at least
10 percent of compensation, as defined in Section 415(c)(3) of the
Code, but including amounts contributed pursuant to a salary reduction
agreement which are excludable from the Employee's gross income under
Section 125, Section 402(e)(2), Section 402(h) or Section 403(b) of the
Code, (2) all persons employed by the leasing organization who are or
may become "leased employees" (within the meaning of Code Section
414(n)) immediately participate in the money purchase pension plan, and
(3) full and immediate vesting; and (ii) Leased Employees do not
constitute more than 20 percent of the Company's nonhighly compensated
workforce.
1.22 Matching Contributions means Company contributions allocated to
Participants' Matching Contribution Accounts under Section 4.03.
1.23 Nonhighly Compensated Employee means a person employed by an Affiliate
who is not a Highly Compensated Employee.
1.24 Normal Retirement Date means the date on which a Participant attains
age 65.
1.25 Participant means any Employee who is a Participant as provided in
Article II. Where appropriate to the context, it also includes Inactive
Participants.
<PAGE> 21
1.26 Plan means the Simulation Sciences Inc. 401(k) Plan as described in
this document and includes any subsequent amendments.
1.27 Plan Year means the 12 months beginning January 1 and ending the
following December 31. The Plan Year will be the limitation year for
purposes of Code Section 415 and Plan Section 11.01.
1.28 Pretax Deferrals means the amount contributed to this Plan under
Section 3.01 by the Company in lieu of being paid to the Participant as
salary or wages.
1.29 Qualified Election Period means the six (6) Plan Year period beginning
with the first Plan Year in which the Participant first became a
Qualified Participant.
1.30 Qualified Participant means any Participant who has attained age
fifty-five (55) and has completed ten (10) years of participation under
the Plan.
1.31 Trust Fund means assets of the Plan held by the Trustee and subject to
the trust agreement described in Article XIV.
1.32 Trustee means the person, persons, bank, and/or other entity selected
by the Board to hold the Trust Fund according to Article XIV.
1.33 Valuation Date means the close of business on the last day of each
calendar quarter and any other date as of which the Committee, in its
sole discretion, determines that a valuation of the Trust Fund is
necessary or advisable for the operation of the Plan. With respect to
Company Stock, the Valuation Date shall be December 31 of each year.
<PAGE> 22
1.34 Valuation Period means the three-month period (or twelve-month period
with respect to Company Stock) ending on a Valuation Date.
1.35 Vested Portion means nonforfeitable portion. The Vested Portion of a
Participant's Accounts is determined in accordance with the provisions
of Section 8.02.
1.36 Year of Service means each Plan Year during which the Employee
completes 1,000 Hours of Service, except as noted below.
For purposes of eligibility for participation, the initial
participation computation period shall be the 12-month period beginning
with the date on which the Employee first performs an Hour of Service.
The initial participation computation period beginning after a one-year
Break in Service shall measure from the date on which an Employee again
performs an Hour of Service. If the Participant fails to have a Year of
Service in his or her initial participation computation period, the
participation computation period shall shift to the Plan Year in which
the initial participation computation period ended.
For purposes of vesting, a Year of Service shall mean all Plan Years
during which an Employee has completed a Year of Service as described
above, including any Plan Year during which he has completed 1,000 or
more Hours of Service but has not yet become eligible to participate in
the Plan.
Years of Service with any corporation, trade or business which is a
member of a controlled group of corporations under common control (as
defined under Code Sections 414(b) and 414(c)) or is a member of an
affiliated service
<PAGE> 23
group (as defined under Code Section 414(m)) shall be recognized.
Years of Service for purposes of this Plan shall also include any Years
of Service with SimSci International and JSD Consultants, Inc.
<PAGE> 24
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.01 Plan Participation
(a) Each Participant in the Plan on December 31, 1993 will
continue as a Participant in the Plan as restated, effective
January 1, 1994.
(b) Each Eligible Employee will become a Participant on the
earlier of:
(i) April 1, 1994 if such individual is an Eligible
Employee on that date; or
(ii) the first day of January, April, July or October
coincident with a next following the date he
completes one Year of Service.
(c) Any Eligible Employee who is at least age 40 shall be eligible
to participate on the first day of January, April, July or
October coincident with or next following his 40th birthday.
2.02 Plan Enrollment
Upon becoming a Participant, an Eligible Employee must complete and
file a form designating a Beneficiary. In addition, to make Pretax
Deferrals he must authorize the Company to reduce Compensation by the
deferral amount according to Section 3.01, and must designate
allocation of Pretax Deferrals among the Investment Funds. The form
must be delivered to the Committee no fewer than 15 days before
participation is to begin. An Eligible Employee who declines to
participate when first eligible may elect to do so as of any subsequent
January 1, April 1, July 1, or October 1, provided the Committee
receives a completed
<PAGE> 25
election form no fewer than 15 days before January 1, April 1, July 1
or October 1.
2.03 Reemployment
A Participant or an Employee who met the eligibility requirements in
Section 2.01, terminated employment, and then is rehired as an Eligible
Employee may elect to become a Participant under Section 2.02 on the
date he is rehired. A rehired Employee who had not met the eligibility
requirements in Section 2.01 before employment terminated will be
eligible to enter the Plan on the first January 1, April 1, July 1 or
October 1 coincident with or immediately following satisfaction of the
requirements in Section 2.01.
Notwithstanding other provisions of this Section 2.03, a Participant or
rehired Employee who is reemployed following a Break in Service shall
participate on his date of reemployment provided that if the
Participant or rehired Employee is reemployed after a Break in Service
and has no vested rights under the Plan and the number of consecutive
one-year Breaks in Service equals or exceeds five years or the number
of aggregate years of pre-break service, whichever is greater, he shall
be treated as a new Employee for purposes of participation.
2.04 Employment After Normal Retirement Date
A Participant who continues employment as an Eligible Employee after
his Normal Retirement Date continues to be a Participant for all Plan
purposes.
2.05 Termination of Participation
A Participant stops being a Participant on the date he or his
Beneficiary receives distribution of the entire Vested Portion of his
Accounts due to termination of employment, retirement or death.
<PAGE> 26
2.06 Inactive Participation and Transfers
A Participant who transfers to an employment status with an Affiliate
in which he is no longer an Eligible Employee becomes an Inactive
Participant. An Inactive Participant is not eligible to make Pretax
Deferrals from Compensation earned after the date of transfer. Matching
Contributions will not be allocated to an Inactive Participant's
Accounts after the date of transfer unless such contributions are
attributable to Pretax Deferrals made prior to the date of transfer.
Accounts of Participants who become Inactive Participants continue to
be held under the Plan until entitled to a distribution under Articles
VII and VIII. An Inactive Participant continues to have the right to
direct Account investment under Article V and to make withdrawals under
Article VI.
An Employee who transfers to an employment status with an Affiliate in
which he is an Eligible Employee may become a Participant according to
Section 2.01. He is not eligible to make Pretax Deferrals from
Compensation earned while not a Participant. Matching Contributions
will not be based on Compensation earned before the Employee's date of
transfer and becoming a Participant.
2.07 Leave of Absence
A Participant's employment is not considered terminated for purposes of
the Plan if the Participant has been on leave of absence with the
consent of the Company, provided that he returns to the employ of the
Company within thirty (30) days after the leave (or within such longer
period as may be prescribed by law). Leave of absence shall mean a
leave granted by the Company, in accordance with rules uniformly
applied to all Participants, for reasons of health or public service or
for reasons determined by the
<PAGE> 27
Company to be in its best interests. Solely for purposes of preventing
a Break in Service, a Participant on such leave of absence shall be
credited with eight (8) Hours of Service for each business day of the
leave. A Participant who does not return to the employ of the Company
within the prescribed time following the end of the leave of absence
shall be deemed to have terminated his employment as of the date when
his leave began, unless such failure to return was the result of his
death or Retirement.
<PAGE> 28
ARTICLE III
CONTRIBUTIONS
3.01 Pretax Deferrals
(a) Pretax Deferral
Percentage Upon Plan enrollment or reenrollment, each
Participant may elect to make Pretax Deferrals which equal not
less than 1% and not more than 15% of Compensation. A
Participant's Pretax Deferral percent must be a fixed whole
percent.
Compensation otherwise payable to the Participant for each pay
period while an election under this Section 3.01 is in effect
is reduced by the amount of Pretax Deferrals. These
contributions are allocated to Participant's Pretax Deferral
Account.
In addition to the above, each January, a Participant may make
a Pretax Deferral from his annual bonus equal to not less than
1% and not more than 15% of such bonus amount. Such Pretax
Deferral percent must be a fixed whole percent. This
contribution will be allocated to a Participant's Pretax
Deferral Account.
(b) Change in Percent or Suspension of Pretax Deferrals
The Pretax Deferral percent remains in effect, despite any
change in Compensation, until the Participant elects to change
this percent. Effective as of the first day of any January,
April, July or October, a Participant may elect to change the
Pretax Deferral percent by filing an election with the
Committee at least 15 days before the effective date of the
change.
<PAGE> 29
A Participant may suspend all Pretax Deferrals at any time by
filing an election form with the Committee at least 15 days
before the pay period in which the suspension will occur. A
Participant who has elected to suspend all deferrals may
resume Pretax Deferrals effective as of the first day any
January, April, July or October following a six month
suspension.
Participants must file an election with the Committee at least
15 days before the effective date of the resumption, according
to rules established by the Committee.
(c) Status of Pretax Deferrals
Pretax Deferrals are made by payroll deductions authorized by
the Participant and are to be contributed monthly to the Plan
by the Company. Pretax Deferrals constitute Company
contributions under the Plan and are intended to qualify as
elective contributions under Code Section 401(k).
(d) Calendar Year Limitation
Regardless of provisions in Subsections (a) and (b) above,
once a Participant's Pretax Deferrals reach $9,240 (indexed)
in any calendar year, all subsequent deferrals will be
suspended for the rest of the calendar year.
Pretax Deferrals will automatically resume on the following
January 1. Unless the Participant elects to change the Pretax
Deferral percent according to Subsection (b) above, Pretax
Deferrals will resume at the percent in effect on suspension
date.
<PAGE> 30
Pretax Deferrals will not include any deferrals properly
distributed as excess annual additions.
If for any reason, a Participant's total elective deferrals
(within the meaning of Code Section 402(g)(3)) to this Plan or
to all employer plans exceed the above limit under this
Subsection (d) or, if greater, exceed $9,500 when added to
deferrals under an arrangement described in Code Section
403(b), during any calendar year, the Committee shall direct,
in the case of an excess only to this Plan, distribution of
the excess portion held in this Plan. A Participant may assign
to this Plan (in the case of an excess to two or more employer
plans) any excess Pretax Deferrals made during the taxable
year of the Participant by notifying the Committee prior to
April 15 of the calendar year following the year in which the
Pretax Deferrals were made the amount of excess Pretax
Deferrals to be assigned to the Plan. A Participant is deemed
to notify the Committee of any excess Pretax Deferrals that
arise by taking into account only those excess Pretax
Deferrals made to this Plan and any other plans of the Company
or Affiliate. The distribution of excess deferrals will be
made no later than April 15 of the following calendar year and
will be adjusted by gain or loss allocable to the excess
deferrals for the taxable year of the Participant in which the
deferrals were made.
Gain or loss allocable to excess deferrals for the taxable
year in which such deferrals were made shall be determined in
accordance with regulations issued by the Secretary of the
Treasury or his delegate.
<PAGE> 31
(e) Adjustment to $9,240 Limit
The $9,240 limit in Subsection (d) above will be adjusted each
calendar year, as permitted under Code Section 402(g)(5).
(f) Limitation of Liability
Each payment to the Trust Fund under Subsection 3.01(a) equal
to the amount of a Participant's Pretax Deferrals is a
discharge from the Company's financial obligations under the
Plan regarding the Participant's corresponding reduction in
Compensation.
3.02 Matching Contributions
The Company will make a Matching Contribution for each month which,
when added to any forfeited amounts under Section 8.03, shall be equal
to the sum of amounts to be allocated to Participants' Matching
Contribution Accounts under Section 4.03 for that Plan Year.
3.03 Nonelective Contributions
The Company may make Nonelective Contributions which qualify as
Qualified Nonelective Contributions, as defined in Code Section
401(m)(4)(C), to the extent necessary to satisfy the nondiscrimination
tests described in Sections 11.02 and 11.03 of the Plan. The Company
shall not be required to make a Nonelective Contribution for any Plan
Year, and the Company's Board of Directors shall have sole discretion
to determine whether any such contribution shall be made for a Plan
Year.
3.04 Discretionary Profit Sharing Contribution
The Company may make a Discretionary Profit Sharing Contribution to the
Plan for a Plan Year although it is not required to. Whether or not
such a contribution will
<PAGE> 32
be made and the amount of such contribution shall be determined
annually by the Company.
3.05 Makeup Contributions
In addition to other Company contributions described in this Article
III, the Company may make special makeup contributions to the Plan, if
necessary. A makeup contribution is necessary if: there are
insufficient forfeitures under the Plan to restore a Participant's
Matching Contribution Account or Profit Sharing Account according to
Section 8.04; a Participant's or Beneficiary's Accounts must be
reinstated according to Section 17.05; or if a mistake or omission in
allocating contributions is discovered and cannot be corrected by
revising prior allocations.
3.06 Rollover Contribution
Subject to Committee approval, an Eligible Employee or Participant may
make a Rollover Contribution to the Plan which does not exceed the
maximum amount of Rollover Contribution permitted under Code Section
402(c). The contribution must be in cash and must meet all applicable
rollover requirements under the Code. The Committee will establish
uniform, nondiscriminatory procedures for the treatment of Rollover
Contributions.
<PAGE> 33
ARTICLE IV
PARTICIPANT ACCOUNTS: ALLOCATIONS
4.01 Participant Accounts
The Committee will maintain the following Accounts for each
Participant:
(a) A Pretax Deferral Account which is:
(i) Credited with the Participant's Pretax Deferrals and
Nonelective Contributions, if any,
(ii) Adjusted for investment results and expenses, and
(iii) Charged with withdrawals and distributions.
The Vested Portion of a Participant's Pretax Deferral Account
is always one hundred percent.
(b) A Matching Contribution Account which is:
(i) Credited with the Participant's share of Matching
Contributions (including any forfeited amounts used
to reduce such contributions under Section 8.03) if
any,
(ii) Adjusted for investment results and expenses, and
(iii) Charged with distributions.
The Vested Portion of a Participant's Matching Contribution
Account is determined according to Section 8.02.
<PAGE> 34
(c) A Discretionary Profit Sharing Account which is:
(i) Credited with the Participant's share of
Discretionary Profit Sharing Contributions, if any,
(ii) Adjusted for investment results and expenses, if any,
and
(iii) Charged with distributions.
The Vested Portion of a Participant's Discretionary Profit
Sharing Account is determined according to Section 8.02.
(d) A Rollover Account which is:
(i) Credited with the Participant's Rollover
Contributions,
(ii) Adjusted for investment results and expenses, if any,
and
(iii) Charged with withdrawals and distributions.
The Vested Portion of a Participant's Rollover Account is
always 100%.
PRE-1994 ACCOUNTS
(e) A Pre-1994 Money Purchase Company Stock Account which is:
(i) Credited with the Participant's Company Stock Account
balance as of December 31, 1993 under the Simulation
Sciences Inc. Money Purchase Pension Plan, if any
<PAGE> 35
(ii) Adjusted for investment results and expenses, if any,
and
(iii) Charged with distributions.
The Vested Portion of a Participant's Pre-1994 Money Purchase
Company Stock Account is determined according to Section 8.02.
(f) A Pre-1994 Stock Bonus Company Stock Account which is:
(i) Credited with the Participant's Company Stock Account
balance as of December 31, 1993 under the Simulation
Sciences Inc. Stock Bonus Plan, if any
(ii) Adjusted for investment results and expenses, if any,
and
(iii) Charged with distributions.
The Vested Portion of a Participant's Pre-1994 Stock Bonus
Company Stock Account is determined according to Section 8.02.
(g) A Pre-1994 Money Purchase Other Investments Account which is:
(i) Credited with a Participant's Other Investments
Account balance as of December 31, 1993 under the
Simulation Sciences Inc. Money Purchase Pension
Plan, if any,
(ii) Adjusted for investment results and expenses, if any,
and
<PAGE> 36
(iii) Charged with distributions.
The Vested Portion of a Participant's Pre-1994 Money Purchase
Other Investments Account is determined according to Section
8.02.
(h) A Pre-1994 Stock Bonus Other Investments Account which is:
(i) Credited with a Participant's Other Investments
Account balance as of December 31, 1993 under the
Simulation Sciences Inc. Stock Bonus Plan, if any,
(ii) Adjusted for investment results and expenses, if any,
and
(iii) Charged with distributions.
The Vested Portion of a Participant's Pre-1994 Stock Bonus
Other Investments Account is determined according to Section
8.02.
PRIOR ACCOUNTS
(i) A Prior Profit Sharing Account which is:
(i) Credited with the Participant's Prior Profit Sharing
Account balance as of December 31, 1993 under the
Simulation Sciences Inc. Stock Bonus Plan, if any,
(ii) Adjusted for investment results and expenses, if any,
and
(iii) Charged with distributions.
The Vested Portion of a Participant's Prior Profit Sharing
Account is determined according to Section 8.02.
<PAGE> 37
(j) A Prior Money Purchase Pension Account which is
(i) Credited with the Participant's Prior Money Purchase
Pension Account balance as of December 31, 1993 under
the Simulation Sciences Inc. Money Purchase Pension
Plan, if any,
(ii) Adjusted for investment results and expenses, if any,
and
(iii) Charged with distributions.
The Vested Portion of a Participant's Prior Money Purchase Pension
Account is determined according to Section 8.02.
4.02 Allocation of Pretax Deferrals
Company contributions resulting from a Participant's Pretax Deferrals
according to Section 3.01 will be allocated to the Participant's Pretax
Deferral Account. An allocation will occur for each month in which the
Participant has Pretax Deferrals withheld from Compensation. The
allocation amount will equal the Participant's Pretax Deferrals
withheld during this payroll period.
4.03 Allocation of Matching Contributions
Each month, Matching Contributions will be allocated to each
Participant's Matching Contribution Account, at a rate equal to a
percentage of the Participant's Pretax Deferrals withheld during that
month determined according to the following table. Such Matching
Contributions shall be based only on the first 5% of a Participant's
Compensation.
<PAGE> 38
Participant's Matching
Compensation Contribution Rate
0 - $ 25,000 100%
$25,001 - $ 50,000 75%
$50,001 - $ 75,000 50%
$75,001 - $100,000 25%
over $100,000 0%
The rate of the Company Matching Contribution will be based on the
Participant's base annual pay rate in effect at the time such
contribution is made.
Any forfeiture of a Participant's unvested Account balance shall be
used to reduce the Company Matching Contribution to the extent provided
in Section 8.03.
Additionally, the Company shall make a Matching Contribution on the
Pretax Deferral which is based on the Participant's bonus amount, at
the same rate determined according to the above table. Such Matching
Contribution shall be based only on the first 5% of the Participant's
bonus.
4.04 Allocation of Nonelective Contributions
Nonelective Contributions shall be allocated to the Pretax Deferral
Account of each Participant either in the ratio that the Compensation
of each such Participant for the Plan Year bears to the total
Compensation of all such Participants for the Plan Year, or in equal
dollar amounts. Notwithstanding the foregoing sentence, the Company, in
its sole discretion, may limit allocation of the Nonelective
Contribution to certain Participants who are Nonhighly Compensated
Employees. Except for the hardship withdrawal rules under Section 6.02
and the provisions relating to the determination of the Matching
<PAGE> 39
Contributions, Nonelective Contributions shall be treated as Pretax
Deferrals for all purposes under the Plan.
4.05 Allocation of Discretionary Profit Sharing Contributions
Discretionary Profit Sharing Contributions, if any, on behalf of an
eligible Participant, as defined below, shall be allocated to such
Participant's Discretionary Profit Sharing Account in the ratio that
the Compensation for each such Participant for the Plan Year bears to
the total Compensation of all such Participants for the Plan Year.
A Participant must have earned a Year of Service in such year to be
eligible for a Discretionary Profit Sharing Contribution.
<PAGE> 40
ARTICLE V
INVESTMENTS: ALLOCATION OF GAINS AND LOSSES
5.01 Investment of Accounts Other than Pre-1994 Accounts
Participant Accounts are invested in the Trust Fund. Each Participant
may direct investment of his Pretax Deferral Account, Matching
Contribution Account, Discretionary Profit Sharing Account, Rollover
Account, Prior Profit Sharing Account, as available, and Prior Money
Purchase Pension Account, as available, in any of the Plan's Investment
Funds. The Board, or an investment committee approved by the Board,
will select the Investment Funds available under the Plan.
As of any first day of any January, April, July or October, the
Participant may designate the Investment Fund(s) in which future
contributions are invested provided he gives at least 15 days prior
written notice to the Committee. Contributions must be invested in 10%
increments with the total equaling 100%.
5.02 Transfers of Existing Account Balances Between Investment Funds
A Participant has the right as of the first day of any January, April,
July and October, to have all or part of his Accounts (as available)
(other than his Pre-1994 Accounts) transferred between Investment Funds
provided he gives at least 15 days prior written notice to the
Committee, according to rules established by the Committee. Accounts
must be transferred among Investment Funds in 1% increments.
5.03 Allocation of Investment Fund Gains and Losses
As of each Valuation Date, the Committee will determine the net
investment gain or loss, after adjustment for any
<PAGE> 41
applicable expenses, of each Investment Fund since the immediately
preceding Valuation Date.
The net investment gain or loss of each Investment Fund will be
allocated to each Participant's Accounts. This allocation will be in
the same proportion as the following, for each Participant, bears to
the following for all Participants:
(a) The balance of the Participant's Accounts held in the
Investment Fund as of the immediately preceding Valuation
Date,
(b) One-half of the Pretax Deferrals made by the Participant and
one-half of the Matching Contributions, if any, allocated to
the Accounts since the immediately preceding Valuation Date
and directed by the Participant to be invested in the
Investment Fund,
(c) An adjustment to reflect any transfers, to or from the portion
of the Participant's Accounts invested in the Investment Fund,
made effective after allocating gains or losses as of the
immediately preceding Valuation Date, and
(d) A reduction for any withdrawals or distributions paid from
portion of the Accounts invested in the Investment Fund and
paid after allocating gains or losses as of the immediately
preceding Valuation Date.
(e) Forfeitures, if any, allocated pursuant to Section 4.04, and
(f) Restoration of any forfeited amounts pursuant to Section 8.03.
<PAGE> 42
The Committee shall direct the Trustee with respect to the investment
of the Pre-1994 Accounts. To that extent, the Committee may direct that
up to 100% of the balances in such Accounts be invested in Company
Stock, provided that all purchases of Company Stock shall be made at no
more than fair market value as of the most recent Valuation Date.
5.04 Voting Company Stock
Voting rights, if any, with respect to all Company Stock held in the
Trust shall be exercised by the Trustee at the direction of the
Committee, except that with respect to any corporate matter which
involves the voting of such shares with respect to the approval or
disapproval of any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all
assets of a trade or business, or such similar transaction as the
Secretary of the Treasury may prescribe in regulations, each present or
former Participant (or, in the event of his death, his Beneficiary)
shall have the right to direct the Trustee as to the manner in which
voting rights appurtenant to Company Stock allocated to his Company
Stock Account are to be exercised.
When present or former Participants or the Beneficiaries thereof are
entitled to direct the manner in which voting rights of allocated
Company Stock are to be exercised, the Company shall furnish to the
Trustee and to the present or former Participant or the Beneficiary
thereof a notice or information statement that complies with applicable
law and the Company's charter and by-laws with respect to security
holders in general. In cases in which the Trustee is required to vote
shares of Company Stock in accordance with instructions from the
Committee, the Trustee shall not exercise its power to vote Company
Stock
<PAGE> 43
for which it has not received timely instructions from the Committee.
In cases in which Participants are entitled to direct the Trustee as to
the manner in which voting rights are to be exercised, the Trustee
shall vote both allocated shares for which it has not received
direction, as well as unallocated shares, in the same proportion as
directed shares are voted, and the Trustee shall have no discretion in
such manner.
Notwithstanding the provisions of the preceding paragraphs of this
Section 5.04, each Participant and/or Beneficiary shall be entitled to
direct the voting of any Employer Securities which are allocated to his
Company Stock account to the extent such Employer Securities were newly
acquired by or transferred to the Trust in connection with a Securities
Acquisition Loan completed after June 6, 1989 to which Section 133 of
the Code applied.
In the event the Company should at any time have a registration-type
class of securities, each Participant and/or Beneficiary shall be
entitled to direct the voting of any shares of Company Stock allocated
to his Pre-1994 Accounts, with respect to all issues requiring a vote.
<PAGE> 44
ARTICLE VI
WITHDRAWALS WHILE EMPLOYED
6.01 Hardship Withdrawals
(a) A Participant may request a withdrawal from his Pretax
Deferral and Rollover Accounts to the extent necessary to meet
a financial hardship as defined in Subsection (b) below. The
maximum withdrawal equals the Participant's total Pretax
Deferrals and Rollover Account, subject to the following:
(i) The amount withdrawn may not exceed the amount
necessary to meet the Participant's financial
hardship;
(ii) A Participant may not withdraw Nonelective
Contributions nor earnings attributable to Pretax
Deferrals or Nonelective Contributions;
(iii) Withdrawals must first be made from the Participant's
Rollover Account.
(b) A distribution is on account of financial hardship if it is
made on account of:
(i) Expenses incurred or necessary for medical care
described in Code Section 213(d) for the Participant,
his spouse or dependents (as defined in Code Section
152);
(ii) The costs directly related to the purchase (excluding
mortgage payments) of the Participant's principal
residence;
<PAGE> 45
(iii) The payment of tuition and related educational
expenses for the next 12 months of post secondary
education for the Participant, his spouse or
dependents (as defined in Code Section 152); or
(iv) The need to prevent eviction from or mortgage
foreclosure of the Participant's principal residence.
In determining the financial hardship the Committee shall
comply with the Code and the regulations thereunder.
(c) A Participant will not be able to make a hardship withdrawal
under this Section 6.01 until he has obtained:
(i) All distributions (other than hardship withdrawals)
available under this Plan and any other Company or
Affiliate-sponsored qualified plan, and
(ii) A loan, to the maximum extent, under Section 6.03 and
under the loan provision of any Company-sponsored
qualified plan.
A Participant must provide the Committee with such information
and evidence as shall be reasonably necessary for the
Committee to determine whether or not a financial hardship
exists. The distribution may not be in excess of the amount of
the financial need (including amounts, necessary to pay any
federal, state or local income taxes or penalties reasonably
anticipated to result from the distribution.)
<PAGE> 46
(d) The following applies to Participants who make a hardship
withdrawal:
(i) Pretax Deferrals will be suspended for twelve months
beginning with the pay period after the hardship
withdrawal, and
(ii) The dollar limit in Section 3.01(d) will be reduced
for the calendar year after the hardship withdrawal
by Pretax Deferrals for the calendar year of the
hardship withdrawal.
No other in-service withdrawals (other than loans pursuant to
Section 6.03) are allowed under this Plan.
6.02 Processing and Payment of Withdrawals
Hardship withdrawal requests will be processed by the Committee as of
the Valuation Date immediately preceding the date the request is
received. Upon Committee approval, payment will be made as soon as
practical. Payment will be made in a single sum, in cash.
If a Participant elects to withdraw less than the total value of his
Pretax Deferral and Rollover Accounts (less Nonelective contributions,
if any) and the Accounts are invested in one or more Investment Funds,
the withdrawal will be made from each Investment Fund on a prorata
basis.
6.03 Loans to Participants
Participants may borrow from their Pretax Deferral Account according to
written procedures for loans established by the Committee, which terms
and conditions are incorporated
<PAGE> 47
herein. These terms and conditions include, but are not limited to:
(a) A Participant may have no more than one loan from this Plan
outstanding at any time.
(b) The Participant must apply for the loan, sign a note payable
to the Trustee in the proper amount on a form prescribed by
the Committee, pledge the Vested Portion of his Pretax
Deferral Account equal to the loan amount as collateral for
the loan, and authorize payroll deductions for payment of
interest and principal, all in accordance with Committee
procedures. In addition, prior to receiving a loan, each
married Participant must present to the Committee the written
consent of his spouse, witnessed by a Plan representative or
notary public. Such spousal consent must acknowledge the
effect of the loan.
(c) The repayment period for any loan will be determined by mutual
agreement between the Committee and Participant with
repayments not less frequent than quarterly. However, this
repayment period, including any extensions resulting from
consolidating a loan into a subsequent loan, will not be
longer than the earlier of 5 years or the date the Participant
terminates employment with the Company, except in the case of
a loan made for purposes of acquiring a dwelling unit which
within a reasonable time is to be used as the principal
residence of the Participant.
(d) The amount of the loan must be at least $1,000, but may not
exceed the lesser of:
<PAGE> 48
(i) $50,000 reduced by the highest outstanding loan
balance under the Plan during the twelve months
preceding the date of the loan; or
(ii) 50% of the Participant's Pretax Deferral Account and
Rollover Account, valued on the Valuation Date
immediately before the date the request for the loan
is received.
(e) All loans will bear an interest rate equal to the prime rate
plus 1% in effect on the last day of the month preceding the
month the request for a loan is received. The interest rate
will be fixed for the term of the loan.
(f) The Committee will establish a loan account for the
Participant and will credit the loan account with an amount
equal to the loan principal granted. Each repayment of
principal received by the Trustee from the Participant will
reduce the balance credited to the loan account. Each payment
of principal and interest will increase the balance in the
Participant's non-loan Accounts.
(g) With respect to a Participant actively employed by the
Company, repayment will be accomplished through regular
payroll deductions. With respect to a Participant who is not
actively employed, repayment will be accomplished as
determined by mutual agreement between the Committee and the
Participant. A Participant is entitled to prepay, without
penalty, the total accrued interest and outstanding principal.
Such prepayment may be made by increasing the amount of
payroll deductions or by any other means approved by the
Committee.
<PAGE> 49
(h) If a Participant terminates employment with the Company, the
note in the Participant's Account will be canceled and the
unpaid balance deemed distributed by the Trust Fund unless the
Participant elects to repay the loan in full immediately upon
termination.
(i) The events constituting default on the loan and the steps that
will be taken in such event shall be determined by the
Committee and set forth in the written procedures which are
incorporated herein.
(j) Despite the above provisions of this Section 6.03 the
Committee reserves the right to stop granting loans to
Participants at any time.
(l) Loans will be made from each Investment Fund on a prorata
basis.
<PAGE> 50
ARTICLE VII
RETIREMENT AND DEATH BENEFITS
7.01 Retirement Benefits
The retirement benefit payable under the Plan to a Participant whose
employment with all Affiliates terminates on or after his Normal
Retirement Date is 100% of the value of all his Accounts on the
Distribution Date. The Participant's Distribution Date is the Valuation
Date coinciding with or immediately after his employment termination
date.
7.02 Death Benefits
The death benefit payable to a Beneficiary in the case of a Participant
whose employment with all Affiliates terminates due to death (or who
dies after termination of employment under Section 7.01 but before the
Distribution Date under such Section ) is 100% of the value of all his
Accounts on the Distribution Date which shall be paid to the
Participant's Beneficiary as a cash lump sum.
Notwithstanding the foregoing, distributions of a Participant's Prior
Accounts, Pre-1994 Money Purchase Company Stock Account and Pre-1994
Money Purchase Other Investments Account, unless payable as a Qualified
Preretirement Survivor Annuity, and distributions from a Participant's
Pre-1994 Stock Bonus Company Stock Account and Pre-1994 Stock Bonus
Other Investments Account shall be paid to his Beneficiary according to
the provisions in Section 9.03.
The Distribution Date for a Participant is the Valuation Date
coinciding with or immediately after the date the Participant dies.
<PAGE> 51
ARTICLE VIII
TERMINATION BENEFITS AND VESTING REQUIREMENTS
8.01 Benefits at Termination of Employment
The Plan benefit payable to a Participant whose employment with all
Affiliates terminates for any reason other than death or retirement on
or after his Normal Retirement Date is the Vested Portion of his
Accounts (determined under Section 8.02) on the Distribution Date,
which is the Valuation Date coinciding with or immediately after his
employment termination date.
A Participant with no vested interest in the Plan will be deemed to
have received a distribution on his termination of employment date.
8.02 Vesting Requirements
(a) The Vested Portion of a Participant's Pretax Deferral Account
and Rollover Account is always one hundred percent.
(b) The Vested Portion of a Participant's Matching Contribution
Account and Discretionary Profit Sharing Account is based on
his Years of Service as of the date employment terminates, as
follows:
<TABLE>
<CAPTION>
Years of Service Vested Portion
---------------- --------------
<S> <C>
Less than one 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
</TABLE>
Regardless of the preceding sentence, when a Participant
reaches his Normal Retirement Date while an Affiliate
Employee, the Vested Portion of
<PAGE> 52
his Matching Contribution Account and Profit Sharing Account
is always one hundred percent.
(c) The Vested Portion of a Participant's Pre-1994 Accounts and
Prior Accounts will be determined in accordance with the
following schedule:
<TABLE>
<CAPTION>
Years of Service Vested Portion
---------------- --------------
<S> <C>
Less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
Notwithstanding the foregoing schedule, a Participant in the
Plan prior to January 1, 1989 shall vest under the following
vesting schedule to the extent it would produce a higher
vested percentage:
Years of Service Vested Portion
---------------- --------------
<S> <C>
Less than 1 0%
1 but less than 2 10%
2 but less than 3 20%
3 but less than 4 30%
4 but less than 5 40%
5 but less than 6 50%
6 but less than 7 60%
7 but less than 8 70%
8 but less than 9 80%
9 but less than 10 90%
10 or more 100%
</TABLE>
Notwithstanding the foregoing, when a Participant reaches his
Normal Retirement Date while an Affiliate Employee, the Vested
Portion of the Accounts under this Subsection (c) of Section
8.02 is always one hundred percent.
8.03 Forfeitures
<PAGE> 53
For a Participant terminating employment before the Vested Portion of
his Accounts (other than his Pretax Deferral Account and Rollover
Account) is one hundred percent, the nonvested portion of the Accounts
will be forfeited as of the Valuation Date coinciding with or next
following the date on which he incurs five consecutive one-year Breaks
in Service (or, upon any cashout distribution as described in Treas.
Reg. Section 1.411(a)7(d)(4)(i) or (ii), ignoring paragraph (D) of each
such provision). Such forfeited amount will be used first, to restore
forfeited Accounts under 8.04, if any, and next, to reduce the Company
Matching Contribution, as of the last day of the calendar quarter on or
after the Participant incurs such Break in Service or cash-out, if
applicable. In the event there is any forfeited amount remaining, it
shall be held in a suspense account and used in the following Plan Year
to either restore forfeited Accounts or reduce the Company Matching
Contribution. A Participant with no vested balance will be deemed to
receive a cashout distribution of zero.
8.04 Reinstatement of Forfeiture Accounts
(a) For a Participant who terminates employment before the Vested
Portion of his Accounts is 100% and who is rehired before
incurring 5 consecutive one-year Breaks in Service, the value
of his Accounts forfeited when employment terminated, under
Section 8.03, will be restored (without interest) to his
Accounts.
(b) For a Participant who terminates employment before the Vested
Portion of his Accounts is 100% and is rehired after incurring
5 consecutive one-year Breaks in Service, the value of his
Accounts forfeited under Section 8.03 will not be restored.
<PAGE> 54
8.05 Determination of Years of Service
(a) Subject to the provisions of Subsection (b), for purposes of
determining the Vested Portion of a Participant's Accounts,
all of the Participant's Years of Service with all Affiliates
shall be taken into account.
(b) If a Participant was reemployed by an Affiliate after
incurring a one year Break in Service, the following special
rules will apply in determining his Years of Service for
purposes of this Article VIII:
(i) If the Participant was reemployed after incurring
five consecutive one-year Breaks in Service, his
Years of Service after such Break in Service will not
increase his vested interest in any amounts in his
Accounts attributable to his Years of Service prior
to the Break in Service.
(ii) If the Participant participated in this Plan prior to
his termination of service, a new Matching
Contribution Account and Discretionary Profit Sharing
Account will be established to reflect his interest
in the Plan attributable to Matching Contributions
and Discretionary Profit Sharing Contributions
allocated to his Account after his Break in Service.
(iii) If the Participant was reemployed after incurring
five consecutive one year Breaks in Service, and he
did not have a vested interest under the Plan at the
time of his prior termination of service, then his
Years
<PAGE> 55
of Service prior to such Break in Service shall not
be included in determining his vested interest in his
new Matching Contribution Account and Discretionary
Profit Sharing Account if his consecutive one year
Breaks in Service equal or exceed his Years of
Service completed prior to such Break in Service. For
this purpose, the Participant's Years of Service
before his Break in Service shall not include any
Years of Service disregarded under Code Section
411(a)(6)(d) by reason of a prior Break in Service.
<PAGE> 56
ARTICLE IX
DISTRIBUTION OF BENEFITS
9.01 Form of Benefits for the Pretax Deferral Accounts, Matching
Contribution Accounts, Discretionary Profit Sharing Accounts and
Rollover Accounts for Retirement and Other Termination
Amounts distributable under Articles VII and VIII from a Participant's
Pretax Deferral Account, Matching Contribution Account, Discretionary
Profit Sharing Account and Rollover Account will be distributed as a
single cash lump sum distribution.
9.02 Form of Benefits for Prior Accounts, Pre-1994 Money Purchase Company
Stock Accounts and Pre-1994 Money Purchase Other Investment Accounts
for Retirement and Other Termination
With respect to a Participant's Prior Profit Sharing Account, Prior
Money Purchase Pension Account, Pre-1994 Money Purchase Company Stock
Account, Pre-1994 Money Purchase Other Investments Account only
(collectively the "QJSA Accounts"), amounts distributable under
Articles VII and VIII are distributed as follows:
(a) Unmarried Participant
Unless a Participant elects otherwise, the normal form of
retirement benefit for an unmarried Participant shall be an
annuity which shall pay monthly payments to such Participant
for life. Such payment shall continue to the first day of the
month in which the Participant's death occurs. The annuity
shall be purchased from an insurance company.
(b) Married Participant
<PAGE> 57
Unless a Participant elects otherwise, the normal form of
retirement benefit for a married Participant shall be a
Qualified Joint and Survivor Annuity. Notwithstanding anything
to the contrary in this Subsection (b), a Qualified Joint and
Survivor Annuity need not be provided unless the Participant
and his spouse have been married throughout the one-year
period ending on the Annuity Starting Date or the date of the
Participant's death, if earlier.
A Participant who makes an election to waive a Joint and Survivor
Annuity under Section 9.02(e) with respect to his Prior Accounts,
Pre-1994 Money Purchase Company Stock Account and Pre-1994 Money
Purchase Other Investments Account shall be entitled to a form of
distribution under Section 9.03.
(c) Definitions
(i) Qualified Joint and Survivor Annuity. An immediate
annuity for the life of the Participant, with a
survivor annuity for the life of the spouse which
equals 50%, 75% or 100% (as elected by the
Participant) of the amount which is payable during
the joint lives of the Participant and spouse, and
which is purchased from an insurance company using
the amount of the vested portion of the Participant's
QJSA Accounts. The automatic form of joint and
survivor annuity shall be a 50% Joint and Survivor
Annuity, unless an alternate survivor percentage is
elected by the Participant.
(ii) Annuity Starting Date
<PAGE> 58
(A) The first day of the first period for which
an amount is payable as an annuity (whether
by reason of retirement or disability).
(B) The Annuity Starting Date shall, in the case
of a benefit not payable in the form of an
annuity, be the first day on which all
events have occurred which entitle the
Participant to such benefit.
(C) The first day of the first period for which
a benefit is to be received by reason of
disability shall be treated as the Annuity
Starting Date only if such benefit is not an
auxiliary benefit within the meaning of Code
Section 417(f)(2)(B).
(d) Qualified Pre-Retirement Survivor Annuity
Unless an optional form of benefit is selected within the
Applicable Election Period pursuant to 9.02(e), below, if a
Participant dies before the Annuity Starting Date, the
Participant's surviving spouse (if any) will receive an
annuity for life, purchased from an insurance company, using
100% of the Participant's QJSA Accounts.
(e) Waiver of Automatic Survivor Benefits
A Participant may elect not to receive either or both the
Qualified Joint and Survivor Annuity and the Qualified
Preretirement Survivor Annuity as follows:
<PAGE> 59
(i) The Participant's election shall be made during the
Applicable Election Period. For purposes of this
Section 9.02(e), the Applicable Election Period shall
be:
(A) In the case of a Qualified Joint and
Survivor Annuity, the 90-day period ending
on the Annuity Starting Date, or
(B) In the case of a Qualified Preretirement
Survivor Annuity, a period beginning on the
first day of the Plan Year in which the
Participant attains age 35 and ending on the
date of the Participant's death. If a
Participant separates from service, the
Applicable Election Period begins on the
date of separation with respect to benefits
accrued before the separation from service.
(C) A Participant who is under age 35 as of the
end of any current Plan Year may make a
special qualified election to waive the
Qualified Preretirement Survivor Annuity for
the period beginning on the date of such
election and ending on the first day of the
Plan Year in which the Participant will
attain age 35. Such election shall not be
valid unless the Participant receives a
written explanation of the Qualified
Preretirement Survivor Annuity which is
comparable to the explanation
<PAGE> 60
required under Subsection (f)(i), below.
Qualified Preretirement Survivor Annuity
coverage will be automatically reinstated as
of the first day of the Plan Year in which
the Participant attains age 35. Any new
waiver on or after such date shall be
subject to the full requirements of this
Section .
(ii) The Participant's election under this Section 9.02(e)
may be revoked in writing during the Applicable
Election Period. If any such election is revoked, the
person making such revocation shall retain the right
to make another election during the Applicable
Election Period. Each new election or change of
beneficiary by the Participant shall require a new
spousal consent in the same manner as provided for
herein. The number of revocations shall not be
limited.
(iii) An election by a Participant to waive automatic
survivor benefits hereunder shall be effective only
if the Participant's spouse consents to such election
in writing, such consent acknowledges the effect of
the Participant's election and such consent is
witnessed by a Plan representative or a notary
public. Additionally, a Participant's waiver will not
be effective unless the election designates a form of
benefit payment which may not be changed without
spousal consent (or the spouse expressly permits
designations by the
<PAGE> 61
Participant without any further spousal consent).
(iv) Any consent by a spouse is effective only with
respect to such spouse. Spousal consent is not
required if the Participant establishes to the
satisfaction of the Committee that there is no spouse
or that the spouse cannot be located. Subsequent
changes in beneficiaries or the form of benefits
payable to a beneficiary must be consented to by the
spouse in the manner set forth above. The consent of
the spouse is irrevocable, but a revocation by the
Participant may be made without the consent of the
spouse.
(f) Notice Procedures
(i) Written explanation of Qualified Joint and Survivor
Annuity form of benefit.
(A) The Committee shall provide to each
Participant a written explanation of:
(1) The terms and conditions of the
Qualified Joint and Survivor
Annuity;
(2) The Participant's right to make,
and the effect of, an election to
waive the Qualified Joint and
Survivor Annuity form of benefits;
(3) The rights of the Participant's
spouse;
<PAGE> 62
(4) The right to make, and the effect
of, a revocation of an election;
(5) The right to defer distribution
until age 65; and
(6) For Plan Years beginning after
1988, a general description of the
eligibility conditions and other
material features of the optional
benefit forms of benefits and
sufficient additional information
to explain the relative values of
the optional forms of benefits
available under the Plan.
(B) The written explanation shall be provided by
the Committee no less than 30 days and no
more than 90 days prior to the Annuity
Starting Date.
(ii) Notice of Right to Decline a Qualified Preretirement
Survivor Annuity:
(A) The Committee shall provide a notice to
Participants which is comparable to the
notice required with respect to the
Qualified Joint and Survivor Annuity.
(B) The notice to be provided to the Participant
shall be provided within the applicable
period.
<PAGE> 63
(1) Expect as provided at Subsection
(b)(ii), the applicable period
means, with respect to a
Participant, whichever of the
following periods ends last:
(aa) The period beginning with
the first day of the Plan
Year in which the
Participant attains age 32
and ending with the close
of the Plan Year in which
the Participant attains
age 35.
(bb) A reasonable period ending
after the individual
becomes a Participant.
(cc) A reasonable period ending
after the Qualified
Preretirement Survivor
Annuity is no longer fully
subsidized.
(dd) A reasonable period ending
after Code Section
401(a)(11) first applies
to the Participant. Code
Section 401(a)(11) would
first apply when a benefit
is transferred from a plan
not subject to the
survivor annuity
requirements of Code
<PAGE> 64
Section 401(a)(11) to a
plan subject to such
Section or at the time of
an election of an annuity
under a defined
contribution plan
described in Code Section
401(a)(11)(B)(iii).
(2) In the case of a Participant who
separates from service before
attaining age 35, the applicable
period means the period beginning
on year before the separation of
service and ending one year after
such separation.
If such a Participant returns to
service, the Plan must also comply
with Subsection (i).
(3) For purposes of Subsection (i), a
reasonable period ending after the
enumerated events described above
is the end of the two-year period
beginning one year prior to the
date the applicable event occurs,
and ending one year after such
date. In the case of a Participant
who separates from service before
the Plan Year in which age 35 is
attained, notice shall be provided
within the two-year period
beginning one year prior to
separation and ending one year
after separation. If such a
<PAGE> 65
Participant thereafter returns to
employment with the Company, the
applicable period for such
Participant shall be redetermined.
(g) Transitional Rule
An election by a Participant to waive an automatic survivor
benefit which is made after December 31, 1983, but before the
first day of the Plan Year to which these survivor coverage
requirements apply, is not effective unless the Participant's
spouse consents to the election in the manner provided in
Section 9.02(e).
9.03 Form of Benefits for Pre-1994 Stock Bonus Company Stock Accounts and
Pre-1994 Stock Bonus Other Investments Account for Retirement and Other
Termination
Benefits payable on account of death or retirement from a Participant's
Pre-1994 Stock Bonus Company Stock Account and Pre-1994 Stock Bonus
Other Investments Account will be made in a lump sum, in cash unless,
at Company discretion, distribution shall be in the form of Company
Stock in which case a Participant's benefit will be distributed in the
form of whole shares of Company Stock. In the event the Company should
at any time have a registration-type class of securities, the
Participant will be allowed to elect to receive his distribution either
in the form of cash or Company Stock.
Notwithstanding the foregoing, with respect to a Participant who
terminates employment for reasons other than retirement or death and
who has a Pre-1994 Stock Bonus Company Stock Account and Pre-1994 Stock
Bonus Other Investments Account balance that exceeds $500,000 (valued
as of the Distribution Date), distribution of such
<PAGE> 66
Accounts will be made in substantially equal annual installments over a
period of five years, plus one year (but not more than 5 additional
years) for each one hundred thousand dollars $100,000 (or fraction
thereof) by which such Account balances exceed $500,000. The dollar
limits in the preceding sentence shall be adjusted as provided in
Section 409(o) of the Code.
9.04 Distribution Requirements
Notwithstanding any other provision of this Plan, the restrictions of
this Section 9.04 shall apply to any distribution of a Participant's
Account. Distributions under this Section 9.04 shall comply with the
regulations under Code Section 401(a)(9), including Treasury Regulation
Section 1.401(a)(9)-2, which are hereby incorporated by reference. The
sole purpose of this Section 9.04 is to limit the manner in which
benefit payments may be made under the Plan in accordance with Code
Section 401(a)(9) and this Section 9.04 does not confer any rights or
benefits upon any Participant, spouse or Beneficiary.
(a) Distributions not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) The life of the Participant,
(ii) The life of the Participant and a designated
Beneficiary,
(iii) A period certain not extending beyond the life
expectancy of the Participant, or
<PAGE> 67
(iv) A period certain not extending beyond the joint and
last survivor expectancy of the Participant and a
designated Beneficiary.
(b) In the event the Participant dies after distribution of the
benefit has commenced, the remaining portion of such benefit
will continue to be distributed at least as rapidly as under
the method of distribution being used prior to the
Participant's death.
(c) In the event the Participant dies before distribution of the
benefit has commenced, the Participant's entire interest will
be distributed by December 31 of the calendar year containing
the fifth anniversary of the Participant's death except to the
extent that an election is made to receive distributions in
accordance with (i) or (ii) below:
(i) If any portion of the Participant's interest is
payable to a designated Beneficiary, distributions
may be made over the life or over a period certain
not greater than the life expectancy of the
designated Beneficiary commencing on or before
December 31 of the calendar year immediately
following the calendar year in which the Participant
died;
(ii) If the designated Beneficiary is the Participant's
surviving spouse, the date distributions are required
to begin in accordance with (i) above shall not be
earlier than the later of (A) December 31 of the
calendar year immediately following the calendar year
in which the Participant died,
<PAGE> 68
or (B) December 31 of the calendar year in which the
Participant would have attained age 70-1/2. If the
spouse dies before payments begin, subsequent
distributions shall be made as if the spouse had been
the Participant.
For purposes of Subsections (b) and (c) above, payments will be
calculated by use of the return multiples specified in Section 1.72-9
of the regulations under the Code. Life expectancy of a surviving
spouse may be recalculated annually; however, in the case of any other
designated Beneficiary, life expectancy may not be recalculated after
the time payments begin.
9.05 Timing of Distributions
(a) Regardless of provisions in Articles VII and VIII, if a
Participant's employment terminates for any reason and the
value of the Vested Portion of his Accounts on the Valuation
Date coinciding with or immediately after his employment
termination date does not exceed $3,500, the Distribution Date
is the Valuation Date coinciding with or immediately after his
employment termination date. In the event such balance of a
Participant is greater than $3,500 and such Participant and
his spouse, if any, do not consent in writing to a
distribution in the manner established by the Committee, his
Distribution Date is the Valuation Date coinciding with or
immediately after the later of his sixty-fifth birthday or
termination of employment. Notwithstanding the foregoing, a
Participant may elect a Distribution Date following any
Valuation Date, subject to Subsection (b) below.
<PAGE> 69
(b) Plan distributions are made within 60 days after the date the
Participant leaves employment or dies, but in no event later
than 60 days after the end of the Plan Year in which the
Participant: attains age 65; reaches the tenth anniversary of
Plan participation; or terminates employment--whichever is
latest. The entire interest of a Participant in this Plan will
commence to be distributed no later than April 1 after the
calendar year in which the Participant attains age 70-1/2,
even if still employed.
(c) For a Participant with an Account balance over $3,500 who
terminates employment before his Normal Retirement Date and he
and/or his spouse do not consent to immediate distribution,
the benefit value payable, held in his Accounts, will be
invested according to his investment direction made in
connection with electing the Distribution Date. The direction
must comply with the requirements of Article V. These amounts
will remain so invested and will share in the appropriate
gains, losses, and expenses of the Trust Fund through the
Valuation Date as of which they are distributed.
If the Participant dies before his Distribution Date, the
benefit value, determined as of the Valuation Date coinciding
with or immediately after his death, will be distributed to
his Beneficiary as of that Valuation Date.
9.06 Eligible Rollover Distributions
This Section applies to distributions made on or after January 1, 1993.
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's (as defined in Subsection (c) of this
<PAGE> 70
Section 9.06) election under this Section , a Distributee may elect, at
the time and in the manner prescribed by the Committee, to have any
portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Distributee in a Direct
Rollover. For purposes of this Section , the following definitions
shall apply:
(a) Eligible Rollover Distribution. An Eligible Rollover
Distribution is any distribution of all or any portion of the
balance to the credit of the Distributee, except that an
Eligible Rollover Distribution does not include any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the Distributee and the
Distributee's designated Beneficiary, or for a specified
period of ten years or more; any distribution to the extent
such distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
(b) Eligible Retirement Plan. An Eligible Retirement Plan is an
individual retirement account described in Section 408(a) of
the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust described in
Section 401(a) of the Code, that accepts the Distributee's
Eligible Rollover Distribution. However, in the case of an
Eligible Rollover
<PAGE> 71
Distribution to the surviving spouse, an Eligible Retirement
Plan is an individual retirement account or individual
retirement annuity.
(c) Distributee. A Distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in section
414(p) of the Code, are Distributees with regard to the
interest of the spouse or former spouse.
(d) Direct rollover. A Direct Rollover is a payment by the Plan to
the Eligible Retirement Plan specified by the Distributees.
9.07 Rights and Options on Distributions of Shares of Company Stock from
Pre-1994 Accounts
(a) Right of First Refusal
If the distribution of the Plan benefit from any of the
Pre-1994 Accounts is made in the form of shares of Company
Stock, such shares of Company Stock distributed by the Trustee
may, as determined by the Company or the Committee, be subject
to a "right of first refusal," until such time as such shares
are publicly traded. Such a "right" shall provide that prior
to any subsequent transfer, the shares must first be offered
by written offer, to the Trust, and then, if refused by the
Trust, to the Company. In the event that the proposed transfer
constitutes a gift or other such transfer at less than fair
market value, the price per share shall be determined by an
independent appraiser (appointed by the Board of Directors) as
of the Valuation Date coinciding with or immediately
<PAGE> 72
preceding the date of exercise, except in the case of a
transfer to a Disqualified Person. The term "Disqualified
Person" shall mean a person who is a fiduciary; a person
providing services to the Plan; an employer any of whose
employees are covered by the Plan; an owner, directly or
indirectly, of fifty percent (50%) or more of:
(i) the total combined voting power of all classes of
voting stock or of the total value of all classes of
the stock of the Company,
(ii) the capital interest or the profits interest of a
partnership, or
(iii) the beneficial interest of a trust or unincorporated
enterprise, which is an employer or an employee
organization any of whose employees or members are
covered by the Plan; a member of the family of any
disqualified person; a corporation, partnership,
trust or estate of which (or in which) fifty percent
(50%) or more of (1) the combined voting power of all
classes of stock entitled to vote or the total value
of all classes of stock of such corporation, (2) the
capital interest or profit interest of such
partnership, or (3) the beneficial interest of such
trust or estate is owned, directly or indirectly, or
held by disqualified persons; an officer, director
(or any individual having powers, similar powers and
responsibilities), a ten percent (10%) or more
shareholder, or a highly compensated employee
(earning ten percent (10) or more of the yearly wages
of an
<PAGE> 73
employer) of a disqualified person; or a ten percent
(10%) or more (in capital or profits) partner or
joint venturer of a disqualified person.
In the event of a proposed purchase by a prospective
bona fide purchaser, the offer to the Trust and the
Company shall be at the greater of fair market value,
as determined by an independent appraiser (appointed
by the Board of Directors) as of the December 31
coinciding with or immediately preceding the date of
exercise (except in the case of a purchase by a
Disqualified Person), or at the price offered by the
prospective bona fide purchaser. In the case of a
purchase by or transfer to a Disqualified Person,
fair market value shall be determined as of the
actual date of the transaction. Valuations must be
made in good faith and based on all relevant factors
for determining the fair market value of securities.
The Trust may accept the offer at any time during a
period not exceeding fourteen (14) days after receipt
of such offer. In the event the Trust does not accept
such offer, the Company may accept such offer at any
time during said fourteen (14) day period.
In the case of a purchase from a Disqualified Person,
all purchases of Company Stock shall be made at
prices which, in the judgment of an independent
appraiser, do not exceed the fair market value of
such shares as of the date of the transaction.
<PAGE> 74
(b) "Put" Option.
If the distribution of the Plan benefit from the Pre-1994
Money Purchase Company Stock Account or Pre-1994 Stock Bonus
Company Stock Account is made in the form of shares of Company
Stock, a Participant or a Beneficiary, or a donee or heir or a
Participant or Beneficiary, shall be granted at the time that
such shares are distributed to him, an option to "put" the
shares to the Company; provided, however, that all such shares
are so put; and provided, further, that the Trust shall have
the option to assume the rights and obligations of the Company
at the time the "put" option is exercised. A "put" option
shall provide that, for a period of sixty (60) days after such
shares are distributed to a Participant or a Beneficiary, or
donee or heir of a Participant or Beneficiary (and, if the
"put" is not exercised within such sixty (60) day period, for
an additional period of sixty (60) days in the following Plan
Year), he would have the right to have the Company purchase
such shares at their fair market value, as defined hereinabove
in Subsection (a). Such "put" option shall be exercised by
notifying the Company in writing.
In the case of a lump sum distribution of Company Stock, the
terms of payment for the purchase of such shares of stock
shall be as set forth in the "put" and may be paid either in a
lump sum or in up to five (5) equal annual installments (with
interest on the unpaid principal balance at a reasonable rate
of interest), as determined by the Committee. Payment for the
purchase of such shares must commence within thirty (30) days
after the
<PAGE> 75
"put" is exercised. The period during which the put option is
exercisable does not include any time during which the
distributee is unable to exercise it because the party bound
by the put option is prohibited from honoring it by applicable
Federal or state law. If payment is made in installments,
adequate security and a reasonable rate of interest must be
provided. In the case of an installment distribution, payment
must be made within (30) days after the put option is
exercised with respect to any installment distribution of
Employer Securities.
In the case of a purchase from a Disqualified Person, all
purchases of Company Stock shall be made a prices which, in
the judgment of an independent appraiser, do not exceed the
fair market value of such shares as of the date of the
transaction.
The requirement of this Subsection 9.07(b) shall not apply to
the distribution of any portion of a Participant's Plan
benefit which has been diversified, distributed or transferred
to another plan.
9.08 Diversification of Investments of Pre-1994 Money Purchase Company Stock
Account and Pre-1994 Stock Bonus Company Stock Account
Within ninety (90) days after the close of each Plan Year in the
Qualified Election Period, each Qualified Participant shall be
permitted to direct the Plan as to the investment of not more than
twenty-five percent (25%) of the value of his Pre-1994 Money Purchase
Company Stock Account and Pre-1994 Stock Bonus Company Stock Account
which is attributable to Employer Securities which were
<PAGE> 76
acquired by the Plan after December 31, 1986, to the extent such value
exceeds the amount to which a prior election, if any, applies. In the
case of the sixth (6th) year of the Qualified Election Period, the
preceding sentence shall be applied by substituting "fifty percent
(50%)" for "twenty-five percent (25%)." The Participant's direction
shall be effective no later than ninety (90) days after the close of
the Plan Year.
The Plan Committee shall offer at least three investment options (not
inconsistent with regulations prescribed by the Internal Revenue
Service) to each Participant who makes an election under this Section
9.08.
In lieu of offering such investment options, the Plan Committee may
direct that all amounts subject to Participant elections under this
Subsection be distributed to Qualified Participants. In the event the
Company should at any time have a registration-type class of
securities, each Qualified Participant may elect to receive his
distribution in the form of cash or Company Stock. All such
distributions shall be distributed within ninety (90) days after the
close of the Plan Year and shall be subject to the requirements of
Section 9.07 of this Plan.
In lieu of receiving a distribution under this Subsection, a Qualified
Participant may direct the Plan to transfer his distribution to another
qualified plan of the Company which accepts such transfers, provided
that such plan permits employee-directed investments and does not
invest in Employer Securities to a substantial degree. Such transfer
shall be made within ninety (90) days after the close of the Plan Year.
<PAGE> 77
9.09 Cash Dividends
Cash dividends, if any, on shares of Company Stock allocated to
Participants' Accounts may be accumulated in the Trust or may be paid
to Participants currently as determined in the sole discretion of the
Committee, exercised in a uniform and nondiscriminatory manner.
<PAGE> 78
ARTICLE X
DESIGNATION OF BENEFICIARY
A Participant may designate the person, persons, or entity to receive any death
benefit that becomes payable under the Plan, subject to the spousal consent
requirements under Section 9.02.
If more than one Beneficiary is named, the Participant may specify the sequence
and/or proportion in which payments will be made to each Beneficiary. In the
absence of this specification, payments will be made in equal shares to all
named Beneficiaries. A Participant may change his Beneficiary designation from
time to time by written notice delivered to the Committee in the manner and form
prescribed by the Committee.
If a Participant has designated a Beneficiary other than his spouse as sole
Beneficiary, the designation will not be valid unless the spouse consents in
writing and the consent is witnessed by a Plan representative or a notary
public. Such consent must acknowledge the effects of the election. The spouse's
consent requirement is waived if the Committee is satisfied the spouse cannot be
located or the Participant has no spouse.
If no valid Beneficiary has been designated or if no designated Beneficiary is
living when the Participant dies, payment of any death benefit, to the extent
permitted by law, will be made in the following order:
(a) Surviving spouse, or
(b) Executors or administrators of the Participant's estate.
Any minor's share will be paid to the adult or adults who, in the opinion of the
Committee, have assumed custody and support of the minor. Any death benefit
payable to executors or administrators will be paid in a lump sum. Proof of
death satisfactory to the Committee must be furnished before payment of any
death benefit under the Plan.
<PAGE> 79
ARTICLE XI
CONTRIBUTION AND ALLOCATION LIMITATIONS
11.01 Limitation on Annual Additions - Effective January 1, 1987
(a) Basic Limitation on Annual Additions
(i) In spite of any other Plan provisions, the amount of
Annual Additions, as defined below, allocated to a
Participant for any Plan Year will not exceed the
lesser of:
(A) $30,000, or if greater, 25 percent of the
defined benefit dollar limitation provided
in Code Section 415(b)(a)(A); or
(B) 25% of the Participant's Compensation (as
defined in Subsection 1.10) for the Plan
Year.
(ii) For purposes of this Article XI a Participant's
Annual Additions means the amount of:
(A) Company Contributions,
(B) Participant contributions,
(C) Forfeitures, and
(D) Contributions for post-retirement medical
benefits, to the extent required by Code
Section 415(e) or A(d)(2),
<PAGE> 80
allocated to Accounts under this Plan and accounts under all
other defined contribution plans (as defined in Code Section
414(i)) adopted by an Affiliate.
Pretax Deferrals and Matching Contributions in excess of the
actual deferral and contribution percent tests described in
Sections 11.02 and 11.03, are considered as Annual Additions,
even if corrected through distribution.
(b) Participation in This Plan and a Defined Benefit Plan
If a Participant has been a participant in a qualified defined
benefit plan (as defined in Section 3(35) of ERISA and Section
414(j) of the Code) maintained by an Affiliated, the sum of
the Participant's Defined Benefit Plan Fraction and Defined
Contribution Plan Fraction for any year shall not exceed one.
For purposes of this Subsection (c) only, the following words
and phrases will have the meaning specified below:
(i) "Defined Benefit Plan Fraction" for any Plan Year
will mean a fraction where the numerator is the
Participant's Projected Annual Benefit, as defined
below, as of the end of the year and the denominator
is the lesser of 1.25 multiplied by the dollar limit
in effect under Section 415(b)(1)(A) of the Code for
such Plan Year or 1.4 multiplied by 100% of the
Participant's average annual earnings for the highest
<PAGE> 81
three consecutive calendar years of participation.
(ii) "Defined Contribution Plan Fraction" for any Plan
Year will mean a fraction, not to exceed one, where
the numerator is the sum of all Annual Additions made
on behalf of such Participant to his Accounts in such
Plan Year and for all prior Plan Years, and the
denominator is the sum of the lesser of (A) or (B)
determined for such Plan Year and for each prior
calendar year during which the Participant was
employed by the Affiliate:
(A) One and twenty five-hundredths multiplied by
the dollar limit in effect under Section
415(c)(1)(A) of the Code for such Plan Year;
(B) One and four-tenths multiplied by 25% of the
Participant's earnings in such Plan Year.
(iii) "Participant's Projected Annual Benefit" will mean
the annual benefit to which the Participant would be
entitled under all Affiliate-sponsored defined
benefit plans assuming the Participant continues
employment until his Normal Retirement Date, that the
Participant's compensation continues until his Normal
Retirement Date at the rate in effect during the
current calendar year, and that all other factors
relevant for determining benefits under the
<PAGE> 82
Plan remain constant at the level in effect during
the current calendar year.
(iv) In calculating the Defined Contribution Plan
Fraction, the Committee may, at its discretion, make
the election described in Code Section 415(e)(6).
Furthermore, the Defined Contribution Plan Fraction
shall be adjusted to permanently subtract from the
numerator of such fraction an amount equal to the
product of:
(A) The sum of the Defined Contribution Plan
Fraction and the Defined Benefit Plan
Fraction as of the day immediately preceding
the determination date, and
(B) The denominator of the Defined Contribution
Plan Fraction as of the determination date.
The determination date, as used in 18 this Section 11.01, is
the first day immediately preceding the first limitation year
beginning after 1986. The foregoing adjustment applies only if
both the defined benefit plan and defined contribution plan
were in existence on May 6, 1986 and if both plans satisfied
Code Section 415 for the last limitation year beginning before
January 1, 1987. In addition, the adjustment will be made only
after any accruals in excess of the Code Section 415 limits,
as amended by the Tax Reform Act of 1986, are reduced.
<PAGE> 83
(c) Reduction in Annual Additions and Elimination of Excess
Amounts
If the limitations described in Subsections (a) and
(b) above otherwise would be exceeded for a Participant for a
Plan Year, the excess will be eliminated as follows:
(1) First, provisions of any other plans established by
an Affiliate which have caused the limits to be
exceeded will be applied. Provisions of a defined
benefit plan will be applied before provisions of a
defined contribution plan.
(2) Second, the amount of any Pre-Tax Deferrals will be
reduced. The reduction amount will be paid to the
Participant as cash compensation and will be subject
to all federal, state, municipal, and/or county
taxes, and other deductions which apply to cash
compensation.
If reallocation of excess Matching Contribution amounts causes
the limitations of Subsections (a) and (b) above to be
exceeded for all other Plan Participants for the Plan Year,
the remaining excess amounts will be held unallocated in a
suspense account to which no gains or losses will be
allocated. If a suspense account exists at any time during the
Plan Year, other than the Plan Year described in the preceding
sentence, all amounts in the suspense account must be
allocated to Participants' Accounts (subject to the
limitations of Code Section 415) before any Company
contributions which are Annual Additions may be made to the
Plan for that Plan Year.
<PAGE> 84
11.02 Limitation on Participant's Pretax Deferrals
(a) Regardless of Section 3.01, the Pretax Deferral percent
elected by one or more Participants under Section 3.01 will be
modified as provided in Subsection (c) below if the
requirements of Subsection (b) below are not satisfied.
(b) For each Plan Year an Actual Deferral Percent will be
determined for each Eligible Employee entitled to make Pretax
Deferrals according to Section 2.01. This percent will be
determined by dividing the Participant's Pretax Deferrals and
Nonelective Contributions and Matching Contributions treated
as Pretax Deferrals allocated to the Pretax Deferral Accounts
during the Plan Year, if any, by Compensation, as defined in
Subsection 1.08(c). The Actual Deferral Percent for an
Eligible Employee electing not to make Pretax Deferrals for
the Plan Year shall be zero.
The average of Actual Deferral Percents for all Eligible
Employees who are Highly Compensated Employees for the Plan
Year (High Average), when compared to the average of Actual
Deferral Percents for all Eligible Employees who are Nonhighly
Compensated Employees for the Plan Year (Low Average), must
meet one of the following requirements:
(i) The High Average must be no greater than the Low
Average times 1.25, or
(ii) The excess of the High Average over the Low Average
must not be greater than two percentage points, and
the High Average must
<PAGE> 85
be no greater than the Low Average times two.
For purposes of determining Actual Deferral Percents, Pretax
Deferrals shall include excess Pretax Deferrals of Highly
Compensated Employees as described in Section 3.01(d) but
excluding excess Pretax Deferrals of Nonhighly Compensated
Employees that arise solely from Pretax Deferrals made under
this Plan or other plans of the Company and excluding Pretax
Deferrals that are taken into account in determining the
Actual Contribution Percentage test (as described in Section
11.03) provided that the Actual Deferral Percentage test, as
described above, is satisfied both with and without exclusion
of such Pretax Deferrals.
(c) If the Committee determines under Subsection (b) above that a
Participant is not eligible to defer any or all amounts within
the election made under Section 3.01, the Committee may elect,
at its discretion, to pursue any of the following steps or any
combination of them:
(i) The Committee may authorize a suspension or reduction
of Pretax Deferrals made under Section 3.01 according
to Committee rules. These rules may include
provisions authorizing suspension or reduction of
deferrals above a specific dollar amount or percent
of Compensation.
(ii) The Committee may reduce the Pretax Deferrals of
Highly Compensated Employees to the percent necessary
to meet the requirements of Subsection (b). The
<PAGE> 86
reduction will be accomplished by reducing the Pretax
Deferrals of Highly Compensated Employees in order of
their Actual Deferral Percents, beginning with the
Participant having the highest percent until a
requirements of Subsection (b) is met. The amounts
reduced, together with earnings for the Plan Year,
will be paid to affected Participants by the end of
the following Plan Year. The amount of earnings on
Pretax Deferrals shall be determined under
regulations issued by the Secretary of the Treasury
or his delegate.
(d) The Committee's determination under Subsection (c) above will
be reasonable, consistent, and nondiscriminatory.
(e) A Pretax Deferral will be taken into account for a Plan Year
only if:
(i) The Pretax Deferral relates to Compensation that
either would have been received by the Employee in
the Plan Year but for the deferral election, or is
attributable to services performed by the Employee in
the Plan Year and would have been received within
2-1/2 months after the close of the Plan Year but for
the deferral election; or
(ii) The Pretax Deferral is allocated to the Employee as
of a date within that Plan Year.
For purposes of Subsection (ii) above, a Pretax Deferral will
be considered allocated as of a date within a Plan Year if the
allocation is not
<PAGE> 87
contingent on participation or performance of services after
such date and the Pretax Deferral is actually paid to the
trust no later than 12 months after the Plan Year to which the
Pretax Deferral relates.
(f) Notwithstanding the foregoing, Nonelective Contributions, as
described at Section 3.03, and Matching Contributions that are
treated as Pretax Deferrals, for purposes of applying the
limitations set forth at Section 11.02(b) will be non-
forfeitable when made and subject to the same distribution
restrictions that apply to Pretax Deferrals.
For purposes of this Section 11.02, such contributions are
referred to as "Qualified Nonelective Contributions" and
"Qualified Matching Contributions" respectively. Such
Qualified Nonelective Contributions and Qualified Matching
Contributions which may be treated as Pretax Deferrals may
satisfy these requirements without regard to whether they are
actually taken into account as Pretax Deferrals. In addition
to the foregoing, Qualified Nonelective Contributions (subject
to any restrictions under Section 4.04) and/or Qualified
Matching Contributions can only be treated as Pretax Deferrals
provided that:
(i) the Nonelective Contributions, including or excluding
those Qualified Nonelective Contributions treated as
Pretax Deferrals for purposes of Section 11.02(b),
satisfy the requirements of Code Section 401(a)(4);
and the Matching Contributions satisfy the
requirements of Code Section 401(m). Those
<PAGE> 88
Qualified Nonelective Contributions and Qualified
Matching Contributions treated as Pretax Deferrals
for purposes of Section 11.02(b) shall be disregarded
in making this determination.
(ii) Except as provided in Subsection (i) above, the
Qualified Nonelective Contributions and Qualified
Matching Contributions which are treated as Pretax
Deferrals for purposes of Section 11.02(b) are not
taken into account in determining whether any other
contributions or benefits satisfy Code Section
401(a)(4), and are not taken into account in
determining whether other Matching Contributions meet
the requirements of Code Section 401(m); and
(iii) The Qualified Nonelective Contributions may not be
treated as Pretax Deferrals for purposes of Section
11.02(b), if the effect is to increase the difference
between the Actual Deferral Percentage for the group
of eligible Highly Compensated Employees and the
Actual Deferral Percentage for the group of all other
eligible Employees.
(iv) The Qualified Nonelective Contributions and Qualified
Matching Contributions satisfy the requirements of
Section 11.02(b) as if such contributions were Pretax
Deferrals.
(g) The Actual Deferral Percentage for any Participant who is a
Highly Compensated Employee for the Plan Year and who is
eligible to have Pretax Deferrals (and Nonelective
Contributions or Matching
<PAGE> 89
Contributions, or both, if such Contributions are treated as
Pretax Deferrals, as provided for at Subparagraph (f) above),
allocated to his Accounts under two or more arrangements
described in Section 401(k) of the Internal Revenue Code that
are maintained by the Employer, shall be determined as if such
Pretax Deferrals (and, if applicable, Nonelective
Contributions or Matching Contributions, or both), were made
under a single arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred arrangements that
have different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated
as a single arrangement. Notwithstanding the foregoing,
certain plans shall be treated as separate if mandatorily
disaggregated under regulations under Section 401(k) of the
Internal Revenue Code.
(h) For purposes of determining the Actual Deferral Percentages
under Section 11.02(b), Pretax Deferrals, Nonelective
Contributions and Matching Contributions must be made before
the last day of the twelve-month period immediately following
the Plan Year to which such contributions relate.
(i) The Company shall maintain such records as are necessary to
demonstrate satisfaction of the Actual Deferral Percentage
Test set forth in this Section 11.02 and the amount of
Nonelective Contributions or Matching Contributions, or both,
treated as Pretax Deferrals, as provided for at Subsection (f)
above.
(i) The determination and treatment of the Actual Deferral
Percentage of any Participant shall
<PAGE> 90
satisfy such other requirements as may be prescribed by the
Secretary of Treasury.
(k) This Section 11.02 will be applied after taking into account
any reductions in, or repayments of Pretax Deferrals required
by Sections 3.01 and 11.01(c).
<PAGE> 91
11.03 Limitation on Allocation of Matching Contributions
(a) Despite Section 11.02 Matching Contributions allocated to one
or more Participants under that Section will be modified as in
Subsection (c) below if the requirements of Subsection (b)
below are not satisfied.
(b) For each Plan Year an Actual Contribution Percent will be
determined for each Eligible Employee using the method for
calculating the Actual Deferral Percent under Subsection
11.02(b) and taking into account Matching Contributions,
Nonelective Contributions, forfeitures of Matching
Contributions allocated to a Participant's Account under
Section 8.03, and those Pretax Deferrals which are not
required to satisfy the requirements of Section 11.02(b). The
Actual Contribution Percent of an Eligible Employee who
receives no Matching Contribution shall be zero.
The average of Actual Contribution Percents for all
Participants who are Highly Compensated Employees for the Plan
Year (High Average), when compared to the average of Actual
Contribution Percents for all Participants who are Nonhighly
Compensated Employees for the Plan Year (Low Average), must
meet one of the requirements described in Subsections
11.02(b)(1) and (2).
(c) If the Committee determines, in its discretion, that
allocations of Matching Contributions to Participants'
Matching Contribution Accounts for a Plan Year do not meet a
requirement of Subsection (b) above, or, in the event a
Matching Contribution is made with respect to a Pretax
Deferral which is returned in accordance with Section 3.01(d)
or
<PAGE> 92
11.02(c), the Committee will reduce allocations of Matching
Contributions to the Accounts of certain Participants who are
Highly Compensated Employees to the extent necessary to meet
that requirement. The reduction will be accomplished by
reducing allocations to the Accounts of Participants who are
Highly Compensated Employees in order of their Actual
Contribution Percents, beginning with the Participant having
the highest percent until a requirement of Subsection (b) is
met.
(1) Vested Portions will be returned, together with
earnings for the Plan Year, to affected Participants
by the end of the following Plan Year, or
(2) Nonvested amounts will be allocated, together with
earnings for the Plan Year, according to Section
4.03.
The amount of earnings on Matching Contributions shall be
determined under regulations issued by the Secretary of the
Treasury or his delegate.
The amount by which each Highly Compensated Employee's
allocations of Matching Contributions is reduced shall be
considered as an "excess aggregate contribution". Excess
aggregate contributions shall be treated as an annual addition
under Section 11.01(a).
(d) The Committee may treat Pretax Deferrals as Matching
Contributions, pursuant to Treasury Regulations in order to
meet the requirement of Subsection (b), above.
<PAGE> 93
(e) A Matching Contribution for a Plan Year will be taken into
account if the following requirements are met:
(1) It is made on account of the Participant's Pretax
Deferrals for the Plan Year;
(2) It is allocated to the Participant's Matching
Contribution Account during the Plan Year; and
(3) It is paid to the Trust Fund within 12 months after
the close of such Plan Year.
(f) The Committee's determination under Subsection (c) above will
be reasonable, consistent, and nondiscriminatory. The
Committee will not be liable to any Participant (or
Beneficiary, if applicable) for any losses caused by
inaccurately estimating the amount of any Matching
Contributions.
11.04 Combined Limitation on Participant's Pretax Deferrals and Matching
Contributions
(a) If, after any and all necessary adjustments are made pursuant
to Sections 11.02(c) and 11.03(c) of the Plan, the sum of the
Actual Deferral Percentage and the Actual Contribution
Percentage of the entire group of eligible Highly Compensated
Employees exceeds the "aggregate limit" as described in (b),
below, then the Average Actual Contribution Percentage of the
entire group of eligible Highly Compensated Employees shall be
further reduced pursuant to Section 11.03(c), until the limit
is not exceeded. The amount of reduction shall be considered
an "excess aggregate
<PAGE> 94
contribution" and shall either be forfeited or distributed
pursuant to Section 11.03(c) of the Plan.
(b) The "aggregate limit" shall mean the sum of (i) 125% of the
greater of the average Actual Deferral Percentage of
Non-Highly Compensated Employees for the Plan Year or the
Actual Contribution Percentage of Non-Highly Compensated
Employees under the Plan subject to Section 401(m) of the
Internal Revenue Code for the Plan Year and (ii) the lesser of
200% or two plus the lesser of such Actual Deferral Percentage
or average Actual Contribution Percentage. "Lesser" is
substituted for "greater" in (i), above, and "greater" is
substituted for "lesser" after "two plus the" in (ii), above,
if it would result in a larger "aggregate limit." Multiple use
does not occur if either the Actual Deferral Percentage or the
Actual Contribution Percentage of the Highly Compensated
Employees does not exceed 1.25 multiplied by the Actual
Deferral Percentage and the Actual Contribution Percentage of
the Non-Highly Compensated Employees.
11.05 Employer Aggregation Rules
For purposes of Sections 11.02 and 11.03, Pretax Deferrals, and
Matching Contributions and After-Tax Contributions that are made under
two or more plans that are aggregated for purposes of Code Section
401(a)(4) and 410(b) (other than Code Section 410(b)(2)(A)(ii)) are to
be treated as made under a single plan. If two or more plans are
permissively aggregated for purposes of Sections 11.02 and 11.03, such
aggregated plans must satisfy Code Sections 401(a)(4) and 410(b) as
though they were a single plan. The actual deferral percent and actual
contribution percent of a Highly Compensated Employee will be
<PAGE> 95
determined by treating all plans subject to Sections 11.02 and 11.03
under which the Highly Compensated Employee is eligible as a single
plan.
11.06 Family Aggregation Rules
(a) A Highly Compensated Employee who is either a 5% owner or one
of the 10 most Highly Compensated Employees is subject to the
family aggregation rules of Code Section 414(q)(6) as
described below.
(b) The actual deferral percent (ADP) and actual contribution
percent (ACP) (determined separately) for the family group is
determined by combining the contributions and Compensation of
all eligible Family Members.
Except to the extent taken into account under this Subsection
(b), the contributions and Compensation of all Family Members
are disregarded in determining the ADP and/or ACP for the
groups of Highly Compensated and Non-highly Compensated
Employees.
(c) Family Members means with respect to an Employee, such
Employee's spouse, lineal ascendants or descendants and their
spouses.
(d) If the ADP and/or ACP of a Highly Compensated Employee is
determined under the above family aggregation rules, and the
requirements of Section 11.02 and/or 11.03 are not satisfied,
then the ADP and/or ACP is reduced in accordance with the
leveling method and the excess contributions and/or excess
aggregate contributions are allocated among the Family Members
in proportion to the contributions of each Family Member that
have been combined.
<PAGE> 96
ARTICLE XII
PLAN ADMINISTRATION
12.01 Appointment of Committee
The Board will appoint a Committee consisting of not fewer than three
members to administer the Plan. Vacancies in the Committee resulting
from death, resignation, or otherwise, will be filled periodically by
the Board appointing new Committee members. Any Committee member may be
removed at any time at the Board's discretion.
12.02 Powers and Duties
The Committee shall have full power to administer the Plan and to
construe and apply all its provisions on behalf of the Company. The
Company shall be the Named Fiduciary within the meaning of Section
402(a) of ERISA for purposes of Plan administration. The Committee's
power and duties, unless properly delegated, shall include, but shall
not be limited to:
(a) Discretionary authority in interpreting the Plan and deciding
questions relating to eligibility, continuity of service, and
benefit amounts; deciding disputes in its sole and absolute
discretion which may arise with regard to the rights of
Employees, Participants, former Participants, and their legal
representatives, spouses, former spouses, or Beneficiaries
under the terms of the Plan. All interpretations, corrections
and decisions of the Committee in regard to any matter or
questions relating to this Plan or the administration thereof
shall be final, conclusive and binding upon all persons
affected or possibly affected thereby. The validity of any
such interpretation, correction or decision shall
<PAGE> 97
not be given de novo review if challenged in court, by
arbitration or in any other forum, and shall be upheld unless
clearly arbitrary or capricious;
(b) Obtaining such information from the Company with respect to
its Employees as shall be necessary to determine the rights
and benefits of such Employees under the Plan. The Committee
may rely conclusively upon such information furnished by the
Company;
(c) Compiling and maintaining all records necessary for the Plan;
(d) Authorizing the Trustee to make payment of all benefits as
they become payable under the Plan;
(e) Engaging legal, administrative, investment, consulting,
accounting and other professional services as the Committee
deems proper;
(f) Adopting rules and regulations for the administration of the
Plan, not inconsistent with the Plan.
(g) Determining whether domestic relations orders represent
"qualified domestic relations orders" as that term is defined
in Section 414(p) of the Code or a successor provision. If the
Committee determines the order is a qualified domestic
relations order it shall direct the manner and time of
distribution pursuant to the order. Prior to such
determination the Committee shall promptly notify the
Participant affected by the order and any payee under the
order of the receipt of the order. The Committee shall send
such notices to
<PAGE> 98
the address set forth in the order, or if the address is not
set forth therein, to the last known address. Such notice
shall state that the Committee is in the process of
determining whether the order is a qualified domestic
relations order and such notice shall also permit a reasonable
period under the circumstances for comment with respect to
such determination. During such period the Committee shall
cause the amounts otherwise payable under the order to be
segregated in a separate account. After the determination is
made, the Committee shall notify the Participant and any payee
under the order of such determination. Any payee may designate
a representative for receipt of copies of notices sent to the
payee with respect to the order;
(h) Publishing and transmitting to each Participant such Plan
summaries, reports and statements of benefits as may be
required by regulations;
(i) Delivering statements of vested benefits to terminated
Participants;
(j) Making available copies of the Plan, Trust Agreement, and
latest annual report during reasonable business hours;
(k) Reporting to the Company the amount and due dates of the
contributions which are required to maintain the Plan as a
qualified Plan under the appropriate Code Sections , and as
set forth in the provisions of this Plan;
<PAGE> 99
(l) Providing for a valuation of trust assets at fair market value
as of the last day of each Plan Year; and
(m) Doing and performing such other actions as may be provided for
in other parts of this Plan.
12.03 Actions by the Committee
The Committee may act at a meeting, or in writing without a meeting, by
the vote or assent of a majority of its members. The Committee will
appoint a person, who is permitted to be but not required to be a
member, to act as Secretary and record all Committee actions. The
Committee has authority to designate in writing a member authorized to
execute papers and perform other ministerial duties on its behalf.
12.04 Interested Committee Members
No Committee member may participate in a Committee action on a matter
where that member has an individual interest as a Plan Participant.
These matters will be determined by a majority of other Committee
members.
12.05 Investment of Plan Assets
The Plan assets shall be invested and controlled by the Committee;
provided, however, that the actual management of Trust investments may
be delegated to the Trustee or may be delegated to one or more
investment managers appointed by the Committee. Any investment manager
appointed hereunder shall have the power to manage, acquire or dispose
of assets of the Plan and shall be either an investment adviser
registered under the Investment Advisers Act of 1940, or a bank, as
defined in that Act, or an insurance company qualified to perform such
services under the laws of more than one state. If an investment
manager has been appointed, the Trustee
<PAGE> 100
shall neither be liable for acts or omissions of such investment
manager nor be liable for acts or omission of such investment manager
in carrying out such responsibility. The custody of Plan assets shall
at all times be retained by the Trustee, unless they consist of
insurance contracts or policies issued and held by an insurance
business in a state. In addition to appointment of investment managers,
the Committee shall have the following duties and responsibilities:
(a) Periodically reviewing the investment of Plan assets and the
performance of the Trustee and any investment managers. With
respect to the Trustee, the Committee shall advise the Board
of Directors of any matters which might be relevant to the
decision as to whether the services of the Committee shall
determine the desirability of appointing or retaining
investment managers.
(b) Determining an investment policy to be followed with respect
to the Plan assets and communicating this policy to the person
or persons responsible for investing the Plan assets.
The Committee may, by written resolution, allocate its investment
duties and responsibilities to one or more of its members or delegate
such duties and responsibilities to any other persons; provided,
however, that any such allocation or delegation shall be terminable
upon such notice as the Committee deems reasonable and prudent under
the circumstances.
12.06 Indemnification
The Company indemnifies and holds each Committee member harmless from
effects and consequences of their acts, omissions, and conduct in their
official capacities,
<PAGE> 101
except to the extent these effects and consequences result from their
own willful misconduct, breach of good faith, or gross negligence in
performing their duties. This right of indemnification excludes rights
to which each Committee member may be entitled under law.
12.07 Conclusiveness of Action
Any action on matters within the discretion of the Committee is
conclusive, final, and binding on all Plan Participants and on all
persons claiming any rights under the Plan, including Beneficiaries.
12.08 Payment of Expenses
Committee members will serve without compensation for these services.
The compensation or fees of accountants, counsel, and other specialists
as well as any other costs of administering the Plan or Trust Fund,
unless paid directly by the Company, will be paid from the Trust Fund
and will be charged against Participant Accounts.
12.09 Claims Procedure
(a) Normally, a Participant, Beneficiary or spouse need not
present a formal claim in order to qualify for rights or
benefits under this Plan. However, if any such person (a
"claimant") does not believe that he or she will receive the
benefits to which the person is entitled or believes that
fiduciaries of the Plan have breached their duties or that the
Plan is not being operated properly or that his or her legal
rights have been or are being violated with respect to the
Plan, the claimant must file a formal claim under the
procedures set forth in this Section . A formal claim must be
filed within six months of the date upon which the claimant
(or his or her predecessor in interest) first know (or should
have known) of the facts upon which the
<PAGE> 102
claim is based, unless the Plan Administrator, in writing,
consents otherwise. The procedures in this Section shall apply
to all claims that any person has with respect to the Plan,
including claims against fiduciaries and former fiduciaries,
unless the Plan Administrator determines, in its sole
discretion, that it does not have the power to grant, in
substance, all relief reasonably being sought by the claimant.
(b) A claim by any person shall be presented to the Plan
Administrator in writing. A claims official appointed by the
Plan Administrator shall, within ninety days of receiving the
claim, consider the claim and issue his or her determination
thereon in writing. The claims official may extend the
determination period for up to an additional ninety days by
giving the claimant written notice. With the consent of the
claimant, the determination period can be extended further. If
the claim is granted, the benefits or relief the claimant
seeks will be provided.
(c) If the claim is wholly or partially denied, the claims
official shall, within ninety days (or such longer period as
described above), provide the claimant with written notice of
the denial, setting forth, in a manner calculated to be
understood by the claimant:
(i) the specific reason or reasons for the denial,
(ii) specific references to pertinent Plan provisions on
which the denial is based,
<PAGE> 103
(iii) a description of any additional material or
information necessary for the claimant to perfect the
claim and an explanation of why the material or
information is necessary, and
(iv) an explanation of the Plan's claim review procedure.
If the claims official fails to respond to the claim in a
timely manner, the claimant may treat the claim as having been
denied by the claims official.
(d) Each claimant shall have the opportunity to appeal in writing
the claims official's denial of a claim to a review official
designated by the Plan Administrator (which may be a person or
a committee) for a full and fair review. A claimant must
request review of a denied claim within sixty days after
receipt by the claimant of written notice of denial of his or
her claim or within sixty days after such written notice was
due, if the written notice was not sent. In connection with
the review proceeding, the claimant or his or her duly
authorized representative may review pertinent documents and
may submit issues and comments in writing. The claimant may
only present evidence and theories during the review which the
claimant presented during the claims procedure, except for
information which the claims official requested the claimant
to provide to perfect the claim (see subsection (c)(iii)). Any
claims which the claimant does not in good faith pursue
through the review stage of the procedure shall be treated as
having been irrevocably waived.
<PAGE> 104
(e) The Plan Administrator shall adopt procedures pursuant to
which claims shall be reviewed and may, in its discretion,
adopt different procedures for different claims without being
bound by past actions. Any procedures adopted, however, shall
be designed to afford a claimant a full and fair review of his
or her claim.
(f) The decision by the review official upon review of a claim
shall be made not later than sixty days after the written
request for review is received by the Plan Administrator,
unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered as soon
as possible, but not later than one hundred twenty days after
receipt of the request for review, unless the claimant agrees
to a greater extension of that deadline.
(g) The decision on review shall be in writing and shall include
specific reasons for the decision written in a manner
calculated to be understood by the claimant, with specific
references to the pertinent Plan provisions on which the
decision is based.
(h) If a claimant pursued his or her claim through the review
stage of the claims procedure and the claim was denied (or the
review official failed to decide the claim on a timely basis,
in which case it shall be deemed denied), the claimant will be
permitted to appeal the denial by arbitration pursuant to
Section 12.10 of the Plan. In no event shall any claim to
which this procedure applies be subject to resolution by any
means (such as in a court of
<PAGE> 105
law) other than by this claim procedure or arbitration under
Section 12.10.
(i) This Section shall apply to a claim notwithstanding any
failure by the Plan Administrator or its delegates to follow
the procedures in this Section with respect to the claim.
However, an arbitrator reviewing such a claim may permit a
claimant to present additional evidence or theories if the
arbitrator determines that the claimant was precluded from
presenting them during the claim and review procedures due to
procedural errors of the Plan Administrator or its delegates.
(j) To be entitled to any benefit under the Plan, a claimant must
agree to these dispute resolution and arbitration procedures,
which shall be presumed unless the claimant asserts otherwise.
12.10 Arbitration Procedure
(a) If a claimant's appeal is denied, his or her sole remaining
remedy shall be to appeal the matter to an impartial
arbitrator. Arbitration shall be in accordance with the Model
Employment Arbitration Procedures of the American Arbitration
Association (the "AAA") before an arbitrator who is familiar
with employee benefit matters and who is licensed to practice
law in the State in which the arbitration is convened (the
"Arbitrator"). The Arbitrator shall be selected in the
following manner from a list of eleven arbitrators drawn by
the AAA from its panel of labor and employment arbitrators:
Each party shall designate all arbitrators on the list whom
they find acceptable; the arbitrator shall be chosen by
alternate striking from the list of arbitrators acceptable to
<PAGE> 106
both parties, with the party who did not initiate the
arbitration striking first. If only one arbitrator is
acceptable to both parties, he or she shall be the arbitrator.
If none of the arbitrators are acceptable to both parties, a
new panel of arbitrators shall be obtained from the AAA and
the selection process shall recommence. The arbitration shall
take place in or near the city in which the claimant is or was
last employed by the Employer or, in which the Plan is
principally administered, whichever is specified by the Plan
Administrator, or in such other location as may be acceptable
to both the claimant and the Plan Administrator. The
Arbitrator shall apply federal law. The Arbitrator shall have
the exclusive authority to resolve any factual or legal claim
relating to the Plan or relating to the interpretation,
applicability or enforceability of this arbitration provision,
including but not limited to, any claim that all or any part
of this provision is void or voidable. The arbitration shall
be final and binding upon all parties.
(b) The claimant must submit a request for arbitration to the Plan
Administration within sixty days of receipt of the written
denial of his or her appeal (or within sixty days of the date
he or she should have received that determination).
(c) The claimant and the Plan shall equally share the fees and
costs of the Administrator. Each party shall pay its own costs
and attorneys' fees, if any. The Arbitrator, in his or her
discretion, may award reasonable attorneys' fees to the
prevailing party.
<PAGE> 107
(d) The claimant must deposit with the Plan Administrator one-half
of the anticipated fees and costs of the Arbitrator, as
reasonably determined by the Plan Administrator before the
arbitration. At least two weeks before delivering his or her
decision, the Arbitrator shall send his or her final bill for
fees and costs to the Plan Administrator for payment. The Plan
Administrator shall apply the amount deposited by the claimant
to pay the claimant's share of the Arbitrator's fees and costs
and shall return any surplus deposit after all fees and costs
have been billed by the Arbitrator. If claimant's deposit is
exhausted, claimant shall be billed for any remaining fees and
costs claimant owes. Failure to pay any amount or deposit any
amount within seven days after it is billed shall constitute
the claimant's irrevocable election to withdraw claimant's
arbitration request and abandon his or her claim.
(e) At least thirty days before the arbitration hearing, the
parties must exchange lists of witnesses, including any expert
witness, and copies of all exhibits intended to be used at the
hearing. The claimant may not present any evidence, facts,
arguments or theories at the arbitration which were not
pursued in the appeal, except pursuant to Section 12.09(i) or
in response to new evidence, facts, arguments or theories
presented on behalf of the Plan.
(f) The Plan Administrator shall submit to the Arbitrator a
certified copy of the record upon which the review official's
decision was made. The Arbitrator may grant the claimant's
appeal, in whole or in part, only if the Arbitrator determines
<PAGE> 108
that its grant is justified because (1) the review official
was in error upon an issue of law, (2) the review official
acted arbitrarily or capriciously in denying the appeal, or
(3) the review official's findings of fact, if applicable,
were not supported by substantial evidence.
(g) The Arbitrator shall have jurisdiction to hear and rule on
pre-hearing disputes and is authorized to hold pre-hearing
conferences by telephone or in person as the Arbitrator deems
necessary. The Arbitrator shall apply the Federal Rules of
Evidence and shall have the authority to entertain a motion to
dismiss or a motion for summary judgment by any party and
shall apply the standards governing such motions under the
Federal Rules of Civil Procedure. The Arbitrator shall render
an award and opinion in the form typically rendered in labor
arbitrations. The results of the arbitration, unless otherwise
agreed to by the parties or ordered by the Arbitrator on
motion, shall not be confidential and may be reported by any
news agency or legal publisher or service.
(h) Either party may (1) designate one expert witness, (2) take
the deposition of one individual and the other party's expert
witness, (3) propound requests for production of documents to
any party, (4) subpoena witnesses and documents for the
arbitration, but only as to the discovery permitted in this
paragraph (or any additional discovery permitted by the
Arbitrator on a showing of substantial need), (5) arrange for
a court reporter to provide a stenographic record of the
proceedings at the party's own cost, (6) upon request at the
close of the hearing, be given leave to file a
<PAGE> 109
post-hearing brief within the time limit established by the
Arbitrator and (7) bring an action in any court of appropriate
jurisdiction to compel arbitration under this provision and to
enforce an arbitration award.
(i) If any part of these arbitration procedures are void and
unenforceable, in whole or in part, that shall not affect the
validity of the remainder of the procedures.
(j) No party has the right to sue in any state or federal court
with respect to any matter to which the Plan's claim or
arbitration procedure applies, except as provided in
Subsection (h).
12.11 Effect of Fiduciary Action
The Plan shall be interpreted by the Plan Administrator and all Plan
fiduciaries in accordance with the terms of the Plan and their intended
meanings. However, the Plan Administrator and all plan fiduciaries
shall have the discretion to make any findings of fact needed in the
administration of the Plan, and shall have the discretion to interpret
or construe ambiguous, unclear or implied (but omitted) terms in any
fashion they deem to be appropriate in their sole judgment. The
validity of any such finding of fact, interpretation, construction or
decision shall not be given de novo review if challenged in court, by
arbitration or in any other forum, and shall be upheld unless clearly
arbitrary or capricious. To the extent the Plan Administrator or any
Plan fiduciary has been granted discretionary authority under the Plan,
the Plan Administrator's or Plan fiduciary's prior exercise of such
authority shall not obligate it to exercise its authority in a like
fashion thereafter. If, due to errors in drafting, any Plan provision
does not accurately
<PAGE> 110
reflect its intended meaning, as demonstrated by consistent
interpretations or other evidence of intent, or as determined by the
Plan Administrator in its sole and exclusive judgment, the provision
shall be considered ambiguous and shall be interpreted by the Plan
Administrator and all Plan fiduciaries in a fashion consistent with its
intent, as determined by the Plan Administrator in its sole discretion.
The Plan Administrator, acting as a nonfiduciary settlor and without
the need for Board of Directors' approval, shall amend the Plan
retroactively to cure any such ambiguity, notwithstanding anything in
the Plan to the contrary. This Section may not be invoked by any person
to require the Plan to be interpreted in a manner which is inconsistent
with its interpretation by the Plan Administrator or by any Plan
fiduciaries. All actions taken and all determinations made in good
faith by the Plan Administrator or by Plan fiduciaries shall be final
and binding upon all persons claiming any interest in or under the
Plan.
<PAGE> 111
ARTICLE XIII
AMENDMENT, TERMINATION, AND MERGER
13.01 Company's Right to Amend
Except as provided below, the Company, only by written document
executed by its President, with its corporate seal affixed and attested
to by its Secretary, has the right to amend the Plan at any time and
periodically to any extent it deems advisable. No amendment may
increase the duties or responsibilities of the Trustee without the
Trustee's written consent. No amendment may attempt to transfer any
part of the corpus or income of the Trust Fund for purposes other than
the exclusive benefit of Participants and their Beneficiaries.
No Plan amendment, unless it expressly provides otherwise, shall be
applied retroactively to increase the benefit or vested percentage of a
former Participant whose employment terminated before the date the
amendment became effective unless and until he again becomes an
Employee.
No Plan amendment, unless it expressly provides otherwise, shall be
applied retroactively to increase the amount of service credited to any
person for employment before the date the amendment became effective.
Except as provided in the preceding two paragraphs, all rights under
the Plan shall be determined under the terms of the Plan as in effect
at the time the determination is made.
13.02 Company's Right to Terminate
The Company, only by written document executed by its President, with
its corporate seal affixed and attested to by its Secretary, has the
right to terminate the Plan in whole or in part at any time. Upon
termination, partial
<PAGE> 112
termination, or complete discontinuance of Plan contributions affected
Participants will have a 100% Vested Portion in all their Accounts.
13.03 Plan Merger and Consolidation
If the Plan is merged or consolidated with any other plan, or if Plan
assets or liabilities are transferred to any other plan, Participants
will be entitled to a benefit immediately after the merger,
consolidation, or transfer, determined as if the Plan had then
terminated, at least equal to the benefit to which they would have been
entitled had the Plan terminated immediately before the merger,
consolidation, or transfer.
<PAGE> 113
ARTICLE XIV
TRUST FUND AND THE TRUSTEE
The Company will select a Trustee to hold and invest the Trust Fund in
accordance with the terms of a trust agreement. The Company may provide that the
Trustee has sole discretion as to the securities or other property in which the
Trust Fund is invested or reinvested, in which case the Trustee will be the
Named Fiduciary within the meaning of ERISA with respect to investment,
management, and control of the Trust Fund. The Trustee agreement may include a
provision for participating in a joint or associated trust fund to pool
investment experience. The Company periodically may change Trustees or elect to
terminate the trust and invest Plan assets in any other method acceptable under
ERISA.
<PAGE> 114
ARTICLE XV
ADOPTION BY AFFILIATE
15.01 Affiliate Participation
An Affiliate may adopt the Plan for the benefit of any specified group
of its Employees, effective on the date specified in the adoption. To
adopt the Plan:
(a) The Affiliate must deliver to the Company a certified copy of
the Affiliate's Board resolution adopting the Plan, and/or any
other adopting documents the Company may require, and
(b) The Company must file a copy of the resolution and a copy of
the Company's Board resolutions approving the adoption with
the current Trustee.
15.02 Action Binding on Participating Affiliates
As long as the Company is party to the Plan and the trust agreement, it
has exclusive authority to act under the Plan and trust agreement for
any Affiliate in all matters relating to the Committee, the Trustee,
and designation of Affiliates. This action taken by the Company
automatically will include and be binding on any Affiliate that is a
party to the Plan.
15.03 Termination of Affiliate Participation
The Company reserves the right, in its sole discretion and at any time,
to terminate any or all Affiliates' participation in this Plan. The
termination will be effective immediately upon the Company's notice of
termination to the Trustee and the Affiliate being terminated.
<PAGE> 115
ARTICLE XVI
TOP-HEAVY PROVISIONS
16.01 Definitions
Wherever used in this Article XVI, the following words and phrases have
the meaning specified below:
(a) Accumulated Accounts means the total value of an Employee's
Accounts as of the Valuation Date coinciding with or
immediately before the Determination Date as defined in
Subsection (b) below. Accumulated Accounts include:
(1) Amounts attributable to Employee contributions (other
than deductible Employee contributions),
(2) Amounts rolled over or transferred directly from a
plan sponsored by an unrelated employer (within the
meaning of Code Section 414(b), (c), or (m)), but
only if received by the Plan before January 1, 1984,
(3) Amounts rolled over or transferred directly from a
plan sponsored by an Affiliate, without regard to
when received by the Plan, and
<PAGE> 116
(4) Distributions to the Employee as determined according
to Code Section 416(g)(3) during the Plan Year which
includes the Determination Date and the four
immediately preceding Plan Years, unless already
reflected in the Employee's Accounts.
Accumulated Accounts do not include any distribution rolled
over or transferred directly to an Affiliate.
Accumulated Accounts do not include the Accounts of an
Employee who has not performed any Service during the 5-year
period ending on the Determination Date. However, Accounts
will be included for Employees who again perform Service.
(b) Determination Date means, in any Plan Year except the first
Plan Year, the last day of the immediately preceding Plan
Year. In the first Plan Year, Determination Date means the
last day of the Plan Year.
(c) Key Employee means an Employee, former Employee, or
Beneficiary of an Employee, former Employee, or deceased
Employee who, during the current Plan Year or any of the four
immediately preceding Plan Years, is:
<PAGE> 117
(1) An officer with annual Compensation from the Company
(in the officer year) greater than 50% of the maximum
dollar limit under Code Section 415(b)(1)(A) in
effect for the calendar year in which the Plan Year
ends. In any Plan Year, officer will not include more
than the lesser of:
(A) 50 Employees, or
(B) The greater of three Employees or 10% of the
greatest number of Employees the Company had
during the current Plan Year or any of the
four immediately preceding Plan Years.
This limited number of officers will be selected from
the group of all persons otherwise considered
officers under this Subsection (c)(i) in the current
Plan Year or four immediately preceding Plan Years,
selecting only those with the highest annual
Compensation in this 5-year period,
(2) An Employee who owns, during the Plan Year containing
the Determination Date or any of the four preceding
Plan Years, at least a 1/2% interest in the Company,
unless at least 10 other Employees own, during the
Plan Year containing the Determination Date or any of
the four immediately preceding Plan Years, a greater
percent interest than this Employee. However, an
Employee will not be considered an owner under this
Subsection (c)(ii) unless annual Compensation from
the Company for the Plan
<PAGE> 118
Year of ownership is greater than the maximum dollar
amount under Code Section 415(c)(1)(A) in effect for
the calendar year in which that Plan Year ends.
Employee ownership interest during a Plan Year is
their greatest ownership interest at any time during
the Plan Year. If two Employees have the same
ownership interest, the Employee with the greater
Compensation in the Plan Year of this ownership is
considered to have the greater ownership interest,
(3) An Employee who owns at least 5% of the Company, or
(4) An Employee who owns at least 1% of the Company and
has annual Compensation from the Company of more than
$150,000.
To determine the number of officers, all Employees of
Affiliates will be considered Employees of the Company. To
determine Compensation from the Company for purposes of this
Subsection (c), only, all pay, as stated on Form W-2 for the
calendar year ending within the Plan Year including elective
or salary reduction contributions to a cafeteria plan or cash
or deferred arrangement, from all Affiliates will be treated
as earned from the Company. To determine ownership interest,
each Affiliate will be treated as a separate employer.
Ownership includes any interest constructively owned under
applicable Code provisions.
16.02 Determination of Top-Heavy Status - Single Plan
<PAGE> 119
If this Plan is the only retirement plan qualified under Code Section
401(a) maintained by an Affiliate, the rules of this Section 16.02 will
apply to determine if this Plan is Top-Heavy. The Plan is Top-Heavy
during a Plan Year if, as of the Determination Date in that Plan Year,
the value of Accumulated Accounts under the Plan of all Key Employees
exceeds 60% of the value of Accumulated Accounts under the Plan of all
Employees.
16.03 Determination of Top-Heavy Status - Multiple Plans
(a) If an Affiliate maintains more than one retirement plan
qualified under Code Section 401(a), the rules of this Section
16.03 will apply to determine if this Plan is Top-Heavy.
This Plan is Top-Heavy during a Plan Year if the Plan is
required to be in the Aggregation Group on the Plan's
Determination Date for that Plan Year and the Aggregation
Group is Top-Heavy.
The Aggregation Group is Top-Heavy if the value of Accumulated
Accounts for all Key Employees in all plans in the group
exceeds 60% of the value of Accumulated Accounts for all
employees in all plans in the group. Accumulated Accounts of
each plan will be determined separately as of each plan's
Determination Date and then aggregated by calendar year. If a
Plan in the Aggregation Group is a defined benefit plan (as
defined in Code Section 414(j)), for purposes of this
Subsection (a) Accumulated Accounts value means the present
value of benefits as defined under the Top-Heavy provisions of
that plan.
(b) The Aggregation Group consists of all the Affiliate's
retirement plans qualified under Code
<PAGE> 120
Section 401(a) which are either required or permitted to be in
the Aggregation Group.
A plan is required to be in the Aggregation Group if during
the Plan Year containing the Determination Date or any of the
4 preceding Plan Years:
(1) The Plan has at least one Key Employee, or
(2) The Plan is required to be aggregated with a plan
with at least one Key Employee so that the latter
plan meets requirements of Code Sections 401(a)(4)
and 410.
A plan is permitted to be in the Aggregation Group if it is
not required to be in the Aggregation Group, provided it does
not prevent the entire Aggregation Group from meeting
requirements of Code Sections 401(a)(4) and 410.
16.04 Effect of Top-Heavy Status
If the Plan is Top-Heavy for any Plan Year, the requirements of this
Section 16.04 apply during that Plan Year, superseding all other Plan
provisions inconsistent with its terms.
(a) Minimum Vesting
The Vested Portion of a Participant who has completed 1 Hour
of Service in any Plan Year in which the Plan is Top-Heavy is
determined under the schedule below or the applicable schedule
in Section 8.02, whichever is more favorable to the
Participant:
<PAGE> 121
<TABLE>
<CAPTION>
Year of
Service Vested Portion
------- --------------
<S> <C>
Fewer than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
In each Plan Year in which the Plan is not Top- Heavy which
occurs immediately after a Plan Year in which the Plan is
Top-Heavy, a Participant's Vested Portion will be determined
under the applicable schedule in Section 8.02. However, in a
Plan Year occurring immediately after a Plan Year in which the
Plan is Top-Heavy, an Employee participating in the Plan
during the election period has the right to elect to continue
being subject to the vesting schedule above. The election
period begins on the date the Plan is determined not to be
Top-Heavy and ends on the later of 60 days after the Plan is
determined not to be Top-Heavy or 60 days after the Employee
receives written notice that the Plan is no longer Top-Heavy.
(b) Minimum Contribution
On the last day of any Plan Year in which the Plan is
Top-Heavy a Matching Contribution will be allocated to the
appropriate Account of each Employee eligible to participate
in the Plan under Section 2.01 on that date. This
contribution, when aggregated with all other contributions
allocated to the Participant's Pretax Deferral, Matching
Contribution, and Rollover Accounts during the Plan Year must
equal the lesser of:
(i) 3% of the Participant's Compensation for the calendar
year ending in such Plan Year, or
<PAGE> 122
(ii) A percent of the Participant's Compensation, as
defined in Subsection (1) above, equal to the percent
at which contributions (including Pretax Deferrals)
are allocated under Sections 4.02, 4.03, 4.05, and
4.06 (or required to be allocated) for the Plan Year
for the Key Employee whose percent is the highest for
the year. Effective January 1, 1989 Pretax Deferrals
allocated under Section 4.02 will be excluded.
The Company will make an additional Plan contribution
sufficient to make the allocation described above.
This Subsection (b) applies without regard to contributions or
benefits under Social Security or any other federal or state
law.
(c) Adjustment to Limitation on Annual Additions
(i) If an Affiliate also maintains a qualified defined
benefit plan (as defined in Code Section 414(j)) the
denominator of both the defined benefit plan fraction
and defined contribution plan fraction, as described
in Code Section 415(e), for the Plan Year will be
adjusted by substituting 1 for 1.25 in each place the
figure occurs.
(ii) The adjustments above are not required if:
(A) The Plan would not be Top-Heavy if 90% were
substituted for 60% in Sections 16.02 and
16.03, and
<PAGE> 123
(B) Subsection (b)(1) above is adjusted by
substituting 4% for 3% where the figure
occurs.
(3) The adjustments referred to in Subsection (c)(1)
above do not apply to any Participant as long as no
Company contributions, forfeitures, salary deferrals,
or nondeductible voluntary contributions are
allocated to those Participant Accounts and the
Participant does not accrue any benefits under the
defined benefit plan.
<PAGE> 124
ARTICLE XVII
MISCELLANEOUS
17.01 Voluntary Plan
The Plan is purely voluntary on the part of the Company. Establishment
of the Plan, any Plan amendment, creation of any fund or account, or
payment of any benefits are not construed as giving any Employee or
person any legal or equitable right against the Company, the Trustee,
or the Committee unless this right is specifically provided for in the
Plan or conferred by affirmative action of the Committee or the Company
according to Plan provisions. These actions also are not construed as
giving any Employee or Participant the right to continue in the
Company's employment. All Employees and Participants remain subject to
discharge as though this Plan had not been established.
17.02 Limitation on Reversion of Contributions
Except as provided in Subsections (a), (b), and (c) below,
contributions made under the Plan are held for the exclusive benefit of
Participants and their Beneficiaries and may not revert to the Company.
(a) A contribution made by a mistake of fact may be returned to
the Company within one year after being contributed to the
Plan.
(b) All Company contributions to the Plan are conditioned on their
deductibility under Code Section 404. To the extent the
deduction is
<PAGE> 125
disallowed, the amount disallowed may be returned to the
Company within one year after disallowance.
(c) All Plan contributions are conditioned on the Plan's initial
qualification under Code Sections 401(a) and 401(k). If the
Plan does not qualify, any contributions may be returned to
the Company within one year after the qualification is denied.
17.03 Nonalienation of Benefits
Participants and Beneficiaries are entitled to all benefits
specifically set out under Plan provisions, but these benefits or any
property rights in them may not be assigned or distributed to any
creditor or other claimant of a Participant or Beneficiary. Regardless,
the Plan will comply with provisions of a qualified domestic relations
order as defined in Code Section 414(p).
17.04 Inability to Receive Benefits
If the Committee receives evidence that:
(a) A person entitled to receive any payment under the Plan is
physically or mentally incompetent to receive payment and to
give a valid release for payment, and
(b) Another person or institution is then maintaining or has
custody of this person, and no guardian, committee, or other
representative of the estate of the person has been duly
appointed by a Court of competent jurisdiction,
<PAGE> 126
then payment may be made to the other person or institution
referred to in Subsection (b) above. Payment to the other
person or institution is a valid, complete discharge for the
payment.
17.05 Unlocated Participants
If the Committee is unable, after reasonable and diligent effort, to
locate a Participant or Beneficiary entitled to payment under the Plan,
the payment due will be forfeited. However, if the Participant or
Beneficiary later files a claim for benefit, it will be reinstated.
Notification by certified or registered mail to the last known address
of the Participant or Beneficiary is deemed a reasonable and diligent
effort to locate this person.
17.06 Limitation of Rights
Nothing in the Plan expressed or implied is intended or will be
construed to give any person, firm, or association other than the
Company, the Participants, and their successors in interest any right,
remedy, or claim under or because of this Plan.
17.07 Invalid Provisions
If any Plan provision is held illegal or invalid for any reason, the
provision will not affect the remaining parts of the Plan. The Plan
will be construed and enforced as if the illegal and invalid provision
had never been adopted as part of the Plan.
17.08 One Plan
<PAGE> 127
This Plan may be executed in any number of counterparts, each of which
is deemed an original. The counterparts constitute one and the same
instrument and may be sufficiently evidenced by any counterpart.
17.09 Headings
Headings of Articles and Sections are inserted solely for convenience
and reference; they are not part of the Plan.
17.10 Governing Law
The Plan is governed by and construed according to federal laws
governing employee benefit plans qualified under the Code and according
to laws of California where those laws do not conflict with applicable
federal laws.
<PAGE> 128
IN WITNESS WHEREOF, Simulation Sciences Inc. has caused this Plan,
as amended and restated, to be executed on this 28th day of March, 1994.
SIMULATION SCIENCES INC.
Attest:
By: By: /s/ Eugene L. Goda
---------------------------- --------------------------------
Secretary
Title: President/CEO
-----------------------------
Corporate Seal
<PAGE> 1
Exhibit 10.11
PRODUCT DEVELOPMENT AND MARKETING AGREEMENT
BETWEEN
SPECIAL ANALYSIS AND SIMULATION TECHNOLOGY LIMITED
AND
SIMULATION SCIENCES INCORPORATED
<PAGE> 2
STAR DEVELOPMENT AND MARKETING AGREEMENT
This Agreement ("AGREEMENT") which is dated 31 July, 1991, is entered
into by Special Analysis and Simulation Technology Limited, a private limited
company incorporated in the United Kingdom ("SAST"), and Simulation Sciences
Inc., a California corporation ("SIMSCI").
SAST and SIMSCI agree as follows:
1. PURPOSE
To develop and market a general purpose dynamic process simulator.
2. SOFTWARE INVOLVED AND AS DESCRIBED IN THE AGREEMENT
OTISS - SAST's existing dynamic simulation program.
XENG - SAST's existing engineering user interface to OTISS.
TAPPS - SAST's existing Thermodynamic And Physical Property system.
PRO/II - SIMSCI's existing steady-state simulator.
PTP - SIMSCI's existing physical and thermodynamic properties
packages.
GUI - SIMSCI's new partially developed graphical user interface for
PRO/II.
PRISM - SIMSCI's new partially developed integrated engineering
environment.
3. BACKGROUND
SAST is an engineering consultant specializing in performing dynamic
simulation studies and supplying dynamic process simulators. SAST has developed
a dynamic simulator program ("OTISS") used by themselves to model process plants
for purposes of design and operations analysis and also for inclusion in
engineering, plant management and operator training simulators. SAST markets its
consulting services and simulators to the process industries in Europe, The
Middle East and Australasia. SAST is also investigating extending its activities
into North America.
SIMSCI develops and markets simulation software to the process industries
worldwide. SIMSCI's steady-state simulator ("PRO/II") is used for design and
analysis of process plants. PRO/II is licensed to many of the major petroleum
and chemical companies in the USA, Europe, Middle East, Far East, and South
America.
SAST and SIMSCI believe there is a potentially significant market for a
general purpose, dynamic chemical process simulation program. They believe that
a program which integrates OTISS and PRO/II functionalities within a consistent
graphical user interface would offer the user unique and powerful capabilities.
It is the intention of SAST and SIMSCI to cooperate in producing such a
simulation program, which is hereinafter referred to as "STAR".
An integrated engineering environment ("PRISM"), is currently under
development by SIMSCI. It is intended that PRISM will ultimately be used to
integrate OTISS and PRO/II, allowing the transparent interchange of data between
both programs.
A new graphical user interface ("GUI") being developed by SIMSCI for
PRO/II which allows input preparation and output review of a steady-state
process model via forms, menus and a PFD drawing can be extended to be used for
inputting data to OTISS to allow input preparation and output review of a
dynamic simulation model via forms, menus and a P&ID drawing.
4. STAR CONCEPT
STAR will be an integration of SIMSCI's new GUI, the PRO/II physical and
thermodynamic properties packages ("PTP"), and the PRO/II steady-state
simulator, together with SAST's dynamic simulator packages OTISS, XENG and TAPPS
within an integrated engineering environment. The environment will provide a
consistent user interface and also allow for the
<PAGE> 3
transparent exchange of data between PRO/II and OTISS for both steady-state and
dynamic simulation modeling.
5. ORGANIZATION RESPONSIBILITIES
SIMSCI will assemble a product team in Denver, Colorado to develop and
market STAR.
SIMSCI will be responsible for co-ordination of the overall STAR
developments to be carried out within SAST and SIMSCI and, for STAR sales,
marketing and technical support.
SIMSCI will be responsible for carrying out all STAR developments
excluding developments specific to OTISS which will be the responsibility of
SAST.
SAST will contribute experts to the product team to support SIMSCI in
development, marketing, customer training and support. SAST may also carryout
STAR developments at its UK office in co-ordination with the SIMSCI product
team.
SAST may engage in custom STAR developments independently for its own
internal use and, at its option, such developments may be made available to
SIMSCI and the product team for integration into STAR.
Backed up by the product team, SIMSCI's field sales and support
Organization will provide all STAR sales and customer training and support.
5.1 DEVELOPMENT
Development will include:
(a) enhancing OTISS as necessary to improve its user friendliness,
diagnostics and robustness;
(b) developing PRISM application servers to transfer PRO/II PFD
model information on topology, unit and stream information, and physical and
thermodynamic properties to OTISS and to transfer OTISS unit and stream
information from OTISS back to PRO/II;
(c) developing the extended GUI for OTISS input and output
including P&ID drawings, forms and menus;
(d) writing applications, training aids and user documentation.
5.2 SALES & MARKETING
SIMSCI's marketing and field sales and support staffs will be responsible
for STAR sales and marketing. The product team will be significantly involved in
supporting this activity.
SIMSCI will discuss its STAR sales and marketing plans with SAST and will
keep SAST advised of sales activities on a regular basis.
SIMSCI will maintain a STAR sales register which will be made available
to SAST immediately upon request.
5.3 TRAINING & TECHNICAL SUPPORT
SIMSCI product team and field support staff will provide all STAR
customer training and support. The product team will be significantly involved
in supporting this activity.
6. SCHEDULE AND RESOURCE COMMITMENTS
6.1 DEVELOPMENT
<PAGE> 4
A STAR prototype will be developed within [ * ] of signing of this
AGREEMENT. The prototype will be developed by SIMSCI at its Denver, Colorado
office and a duplicate will be installed in SAST's offices in Brentford, UK.
The prototype will serve to demonstrate the basic functionality of STAR
and to elicit feedback from interested customers. SAST and SIMSCI shall
co-operate and use their respective best efforts to generate financial support
for STAR development from existing and potential customers.
STAR product development will start in [ * ] or earlier should
adequate customer funding be raised. The first STAR version will be ready for
general release within [ * ] of the start of this development.
STAR development will be performed by a [ * ] team located in Denver,
Colorado consisting of [ * ] SIMSCI developers and [ * .] SAST will also
provide a [ * ] man support to the product team from its United Kingdom office.
The SAST engineer will support development until the STAR product is ready for
first general release to the market. After the first general release to the
market, the SAST engineer will remain in Denver to continue development support
and to respond to maintenance, enhancements and bug fixing-of OTISS. Prior to
the first general release to the market, [ * ] additional SAST engineer will
join the Denver product team to help with training and support as allowed for in
Article 6.3.
6.2 SALES & MARKETING PLAN
Upon signing of this agreement SAST and SIMSCI will contribute marketing
resources to the following activities:
- STAR market analysis
- STAR product funding activities with existing and potential customers
- OTISS and STAR prototype demonstrations
- STAR pre-release promotions and market awareness activities, mailings,
meetings
In 1992, as the STAR's first general release to the market approaches,
SAST and SIMSCI will each contribute marketing resources to plan and prepare
materials in preparation for the release:
- STAR materials and promotions SIMSCI sales and support staff training
- SIMSCI sales and support staff training
- STAR introduction planning worldwide
6.3 TECHNICAL SUPPORT
Prior to the first general release to the market of the STAR product a
[ * ] SAST engineer will be stationed in Denver, Colorado for [ * ] to help
train and support customers and train SIMSCI support people at the same time. In
subsequent years SIMSCI will take on greater responsibility for the training and
support. It is anticipated, however, that [ * ] SAST engineers will be required
in Denver, Colorado for the first [ * ] years of this AGREEMENT.
6.4 OTISS LICENSES
Until STAR product development is completed and its first general release
to the market, SAST and SIMSCI may agree to provide OTISS to customers under an
early STAR license to generate early financial support and industry involvement
in the STAR product development.
Terms for licensing and the incremental resources required to train and
support early STAR licenses will be negotiated under an amendment to this
AGREEMENT.
[
*
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 5
*
.]
A list of existing and potential OTISS licensees is provided as Appendix
A to this AGREEMENT.
SAST will have the continuing right to issue OTISS licenses in
conjunction with their consulting business. [
*
.] These licenses, are hereinafter referred to as
"RUN-TIME" licenses.
[ *
.]
SAST will have the continuing right to license OTISS in conjunction with
its training simulator business.
SAST will have the continuing right to use its OTISS technology in
conjunction with its advanced process control business.
[ *
.]
7. PROPRIETARY RIGHTS
OTISS, XENG and TAPPS, and the proprietary knowhow embodied within these
programs, and all specifications, manuals, documents, drawings and other
tangible materials pertaining to these programs will be and remain the property
of SAST.
STAR (excluding OTISS, XENG, TAPPS and other software developed by SAST),
PRO/II, PRISM, GUI and PTP, the proprietary knowhow embodied within those
programs, and all specifications, manuals, documents, drawings, and other
tangible materials pertaining to those programs will be and remain the property
of SIMSCI.
All custom developments carried out by SAST for its own internal use will
be and remain proprietary to SAST.
In order to attain the purposes of this AGREEMENT, SAST and SIMSCI will,
from time to time, find it necessary to provide other certain confidential
information which the disclosing party considers to be proprietary
("CONFIDENTIAL INFORMATION"). In particular, this shall apply to, but not be
limited to, any source-code that one party shall disclose to the other.
Each party agrees to keep confidential all CONFIDENTIAL INFORMATION
disclosed to it by the other party, and to protect the confidentiality thereof
in the same manner it protects the confidentiality of similar information and
data of its own (at all times exercising at least a reasonable degree of care in
the protection of CONFIDENTIAL INFORMATION); provided, however, that neither
party shall have any such obligation with respect to use or disclosure to others
not parties to this AGREEMENT- of such CONFIDENTIAL INFORMATION as can be
established to:
(a) have been known publicly;
(b) have been known generally in the industry before communication
by the disclosing party to the recipient;
(c) have been developed independently by the recipient;
(d) have become known publicly, without fault on the part of the
recipient, subsequent to disclosure by the disclosing party;
(e) have been known otherwise by the recipient before
communication by the disclosing party; or
(f) have been received by the recipient at any time from a source
(other than the disclosing party) lawfully having possession of such
information.
Notwithstanding the above, nothing herein shall prevent a recipient from
disclosing all or part of the CONFIDENTIAL
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 6
INFORMATION which it is legally compelled to disclose (by oral deposition,
interrogatories, request for information or documents, subpoena, civil
investigative demand, or any other process); provided, however, that before any
such disclosure the recipient shall notify the disclosing party in writing of
any such order or request to disclose and co-operate with the disclosing party
(at the disclosing party's cost) with respect to any procedure sought to be
pursued by the disclosing party in protecting against such disclosure.
8. STAR LICENSING
SIMSCI will contract directly with all STAR customers and will license
STAR in a similar manner as it does its other products. A current standard
SIMSCI third party license agreement is included as Appendix C to this AGREEMENT
for reference and will be modified as appropriate.
A reference will be included in the license that STAR includes OTISS,
TAPPS and XENG which are software products of SAST.
SIMSCI licenses include for providing software in object code form to run
on a wide array of hardware and backed up with training, support, maintenance
and development services.
SAST agrees to provide on a timely basis object code program modules to
enable SIMSCI to fulfill its duties in accordance with STAR license conditions.
SAST agrees, at its sole discretion, to provide source code to SIMSCI
should the need arise for interfacing or other special applications.
SIMSCI agrees, at its sole discretion, to provide STAR, PRO/II and GUI
source-code to SAST should the need arise for interfacing or other special
applications in connection with STAR developments.
Prior to providing source code to the other party, SAST and SIMSCI may
decide, at their sole discretion, to require the other party to agree to
additional source code security terms in the form of an amendment to this
AGREEMENT. Said terms shall be reasonable and neither party shall withhold
access to source code unreasonably.
SIMSCI will continue to market STAR only so long as SIMSCI determines, in
its sole discretion, that it is economically feasible to do so.
Should for any reason SIMSCI decide to cease marketing STAR, or to
significantly reduce its marketing effort, SIMSCI will give six months written
notice to SAST of its intention to do so. SAST and SIMSCI will then enter
negotiations to determine how STAR should be developed, supported and marketed
in the future. Both parties will use their best endeavors to reach a speedy
agreement. SAST will continue to have rights to use STAR for its own internal
purposes as provided under Article 11.
9. STAR SOFTWARE LICENSE FEE SHARING
All full release ("FULL RELEASE") STAR license fees collected will be
shared during the term of this AGREEMENT between SIMSCI and SAST as follows:
<TABLE>
<CAPTION>
Total Cumulative STAR
License Fees SAST % SIMSCI %
<S> <C> <C>
[ [
* *
] ]
</TABLE>
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 7
All license fees for the use of STAR shall be payable by the customer to
SIMSCI. SIMSCI does not guarantee the collection of any license fees but will
use its best endeavors to secure payment including resorting to the Courts.
SAST's share of STAR license fees collected will be paid to SAST at the end of
each quarter immediately following collection.
All early release ("EARLY RELEASE") STAR license fees will be shared
according to the involvement of the respective parties and, failing agreement,
those fees shall be shared equally. This shall apply until the EARLY RELEASES of
STAR are replaced by FULL RELEASES of STAR.
EARLY RELEASE STAR license fees will contribute to the total cumulative
STAR license fees shown in the above table for the purposes of determining the
share percentages.
[ *
.]
10. CONSULTING
10.1 SAST
For the duration of this agreement SAST will be deemed to have a fully
paid up non-exclusive license to use STAR in its consulting services business
for design and operations analysis. SAST may also use STAR to build dynamic
models which are to be delivered as part of a simulator under a RUN-TIME
license.
SAST has the continuing right to issue RUN-TINE OTISS licenses as
provided for in Article 6.4.
STAR may not be delivered or licensed as a part of a SAST built model
except under a separate software license from SIMSCI.
10.2 SIMSCI
For the duration of this AGREEMENT SIMSCI will be deemed to have a paid
up [ * ] license to use OTISS, XENG and TAPPS in STAR as provided for
in this AGREEMENT.
SIMSCI may provide specialized consulting, training, and model building
services to its customers for both off line and an line applications, except as
precluded under Article 15.
SIMSCI will not arrange to or build operator training simulators.
11. TERM
This AGREEMENT shall terminate on [ * ]. Provided that the party
exercising the option is not then in default under any of the terms of this
AGREEMENT, each party shall have the option to extend the term of this AGREEMENT
for an additional period of [ * ] following the initial term. The option may
be exercised by either party by giving written notice of exercise to the other
party not less than six months prior to the end of the initial term. Thereafter
it shall continue to remain in force until either party gives notice of their
intention to terminate the AGREEMENT. The minimum period of notice shall be six
months.
Upon termination of this AGREEMENT SIMSCI will have the right to continue
offering STAR including OTISS, XENG and TAPPS to existing STAR licensees for a
period of five years to satisfy actual and implied service commitments. Under
these conditions STAR revenues will continue to be distributed in accordance
with this AGREEMENT.
Upon termination of this AGREEMENT SIMSCI will have an option to acquire
a paid up perpetual license to use OTISS, XENG and TAPPS in its products for a
negotiated one time fee.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 8
Upon termination of this AGREEMENT SAST will have the right to continue
using STAR internally, including PRO/II, for a period of five years; thereafter,
SAST will have an option to acquire a paid up perpetual license to use STAR for
a negotiated one time fee.
Upon termination of this AGREEMENT licensing of STAR will continue only
as allowed for in Article 8.
12. GOVERNING LAW
It is the intention of the parties that the internal laws of the State of
California, USA (irrespective of its choice-of-law principles) shall govern the
validity of this AGREEMENT, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
13. PUBLICITY
SAST and SIMSCI will publicize the relationship and each company's
contribution to STAR as appropriate in the various materials, media and
promotional activities describing STAR.
14. EXPENSES
Unless agreed to the contrary, each party shall bear its own expenses in
support of STAR development, sales, training and support.
15. COMPETITION
SIMSCI agrees not to compete with SAST in building or marketing process
training simulators or in its process dynamic simulation consultancy services.
SAST agrees not to compete with SIMSCI in developing or marketing dynamic
simulator software in applications covered by this agreement.
16. EXCLUSIVITY
This AGREEMENT is [ *
.]
Should SIMSCI decide not to support STAR in a particular process industry
or application then SIMSCI agrees to inform SAST of this situation. SAST may
then, at its sole discretion, consider supplying OTISS.
SAST agrees during the term of this AGREEMENT not to [ *
], except as provided for herein. SAST also agrees [
*
.]
[ * .]
[ *
.]
[ *
.]
SAST and SIMSCI shall, from time to time, supply each other with a list
of organizations and persons to be excluded from licenses under this provision
and, if either party disputes the inclusion of any entity or person on such
list, the matter shall
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 9
be submitted to arbitration as provided in Article 18.10. Appendix B to this
AGREEMENT contains an initial list.
17. SAST OFFICES IN USA
SAST is considering opening an office in Denver, Colorado to develop its
consulting services business. SIMSCI offers to assist SAST in starting up this
office. SIMSCI facilities and resources, to the extent available, will be
offered at cost or in exchange for additional consideration. The parties will
enter into a separate agreement for this purpose.
18. MISCELLANEOUS
18.1 BINDING ON SUCCESSORS AND ASSIGNS
Subject to, and unless otherwise provided for in this AGREEMENT, each and
all of the covenants, terms, provisions, and agreements contained in this
AGREEMENT shall be binding on, and inure to the benefit of, the permitted
successors and assigns of the parties hereto. However, this AGREEMENT may be
assigned without the written consent of the non-assigning party to subsidiaries
(provided such subsidiaries are at least fifty percent owned by the assigning
party) and parent corporations of the assigning party.
18.2 SEVERABILITY
If any provision of this AGREEMENT or the application thereof, shall be
declared invalid, illegal or unenforceable by court or other authority of
competent Jurisdiction, then the remainder of this AGREEMENT and application of
such provision to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto.
18.3 ENTIRE AGREEMENT
This AGREEMENT, and the documents referred to in this AGREEMENT, along
with their exhibits, constitute the entire understanding and agreement of the
parties with respect to their subject matter and supersede all prior and
contemporaneous agreements or understandings.
18.4 AMENDMENT AND CHANGES
No amendment, modification, supplement, or other purported alteration of
this AGREEMENT shall be binding on the parties unless it is in writing and is
signed on behalf of the parties by their own authorized representatives.
18.5 COUNTERPARTS
This AGREEMENT may be executed in any number of counterparts, each of
which shall be an original as against any party whose signature appears thereon
and all of which together shall constitute one and the same instrument.
18.6 NO WAIVER
The failure of any party to enforce any of the provisions of this
AGREEMENT shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
18.7 NO JOINT VENTURE
Nothing contained in this AGREEMENT shall be deemed or construed as
creating a joint venture or partnership between the parties. Except as expressly
set forth, no party by virtue of this AGREEMENT is authorized as an agent,
employee, or legal representative of any other party, and the relationship of
the parties is, and at all times will continue to be, that of independent
contractors.
18.8 FURTHER ASSURANCES
<PAGE> 10
Each party agrees to co-operate fully with the other party and to execute
such further instruments, documents, and agreements, and to give such further
written assurances as may be reasonably requested by the other party, to better
evidence and reflect the transactions described in and contemplated by this
AGREEMENT, and to carry into effect the intents and purposes of this AGREEMENT.
18.9 ARBITRATION
Any controversy or claim arising out of or relating to this AGREEMENT, or
its breach, will be settled by arbitration in a neutral country as may be
mutually agreed. Failing agreement SIMSCI and SAST agree to arbitration being
held in Switzerland or The Netherlands.
18.10 ATTORNEY'S FEES
If any party brings any action or proceeding to enforce, protect, or
establish any right or remedy in connection with this AGREEMENT, the prevailing
party shall be entitled to recover its attorneys, fees. Arbitration is
proceeding for purposes of this provision.
18.11 NOTICES
Whenever any party desires or is required to give any notice, demand, or
request with respect to this AGREEMENT, each such communication shall be in
writing and shall be effective only if is delivered by overnight messenger
services, express or electronic means (with confirmed receipt), addressed as
follows:
SAST: Special Analysis and Simulation Technology Limited
Waterway House
The Ham
Brentford
Middlesex TW8 8EQ
United Kingdom
SIMSCI: Simulation Sciences Inc.
1051 West Bastanchury
Fullerton, CA 92633
USA
Such communications shall be effective when they are received by the
addressee. Any party may change its address for such communications by giving an
appropriate notice to the other party in conformity with this Article.
<PAGE> 11
IN WITNESS whereof the parties have executed this AGREEMENT.
SPECIAL ANALYSIS AND SIMULATION TECHNOLOGY LIMITED a private
limited company incorporated in the United Kingdom
By: /s/ Graham William Griffiths
----------------------------------------------------------
Name: GRAHAM WILLIAM GRIFFITHS
----------------------------------------------------------
Title: MANAGING DIRECTOR
----------------------------------------------------------
Date: 31 JULY, 1991
----------------------------------------------------------
SIMULATION SCIENCES INC., a California corporation
By: /s/ N. Fred Brannock
----------------------------------------------------------
Name: N. FRED BRANNOCK
----------------------------------------------------------
Title: VICE PRESIDENT, MARKETING
----------------------------------------------------------
Date: 31 JULY, 1991
----------------------------------------------------------
<PAGE> 12
APPENDIX A
EXISTING "OTISS" LICENSES
[
*
]
"OTISS" LICENSES ALREADY UNDER NEGOTIATION
[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 13
APPENDIX B
SAST COMPETITORS
[
*
]
SimSci COMPETITORS
[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 14
COMPUTER PROGRAM LICENSE AGREEMENT
Between
SIMULATION SCIENCES INC.
And
___________________________________________
(LICENSEE)
At_________________________________________
(ADDRESS)
___________________________________________
(CITY) (STATE) (ZIP CODE)
___________________________________________
(COUNTRY)
SIMULATION SCIENCES INC. (herein called SIMSCI) agrees to grant and the LICENSEE
agrees to accept the non-exclusive License to use Licensed Programs based on the
following terms and conditions.
LICENSED PROGRAM
Licensed Program (herein called the PROGRAM) is each program furnished by SIMSCI
to LICENSEE as listed below and includes all supporting materials.______________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
LICENSE FEES
The License fees are listed below:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TERM Upon acceptance by SIMSCI this Agreement shall become effective
________________ and shall remain in effect for a term of ________________ ( )
months. And, marked by 'X' below,
( ) During the term of this Agreement this Agreement is noncancelable.
( ) Upon conclusion of the Agreement term this Agreement shall continue in
effect thereafter on a month-to-month basis cancelable by either party upon
thirty (30) days written notice.
CONTENT
This Agreement consists of this cover page, the General Terms and Conditions on
the reverse side hereof plus pages marked 'X' below, each of which is enclosed
in this Agreement as a part hereof:
( ) PROGRAM Unit Price Schedule
( ) Special Terms
ENTIRE AGREEMENT
This Agreement shall be construed in accordance with the laws of the State of
California and shall constitute the entire Agreement between SIMSCI and
LICENSEE.
<PAGE> 15
The terms and conditions of the Agreement are agreed to by: SIMULATION SCIENCES
INC.
(LICENSEE)
By
---------------------------------- --------------------------------
Authorized Signature Authorized Signature
- ------------------------------------ --------------------------------
Name (Type or Print) Name (Type or Print)
- ------------------------------------ --------------------------------
Title Title
- ------------------------------------ --------------------------------
Date Date
<PAGE> 16
APPENDIX C
SIMSCI THIRD-PARTY LICENSE AGREEMENT
<PAGE> 1
EXHIBIT 10.12
SOFTWARE LICENSE AGREEMENT
BETWEEN
MOBIL OIL CORPORATION
AND
SIMULATION SCIENCES, INC.
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
RECITALS 3
I. DEFINITIONS 3
II. GRANTS AND TITLE 4
III. CONFIDENTIALITY 5
IV. FEES PAYABLE TO MOBIL 5
V. REPORTS AND ACCOUNTING 6
VI. GUARANTEES AND LIABILITIES 7
VII. BEST EFFORTS 8
VIII. TERM AND TERMINATION 8
IX. NOTICES 9
X. ASSIGNMENT 10
XI. MISCELLANEOUS MATTERS 10
SIGNATURES 11
</TABLE>
2
<PAGE> 3
SOFTWARE LICENSING AGREEMENT
THIS AGREEMENT, which is to be effective as of the 1st day of
September, 1995 (hereinafter the "Effective Date"), is herewith made and entered
into by and between:
MOBIL OIL CORPORATION, a corporation of the State of New York, United
States of America (hereinafter referred to as "MOBIL"); and
SIMULATION SCIENCES, INC., a corporation of California, United States
of America (hereinafter referred to as "SimSci").
RECITALS
WHEREAS, MOBIL and certain of its Affiliates have developed a
proprietary computer software system known as "MOPT Software" for optimizing
complex field operations such as running a refinery power plant or running oil
and gas field operations.
WHEREAS, SimSci has developed a proprietary computer software system
which enables end users to simulate multi-phase flow operations known as
PIPEPHASE Software.
WHEREAS, MOBIL and certain of its Affiliates, in connection with
SimSci, have developed a proprietary computer software (herein "PPOPT Software")
that interfaces MOBIL's MOPT software to SimSci's PIPEPHASE Software.
WHEREAS, SimSci wishes to combine MOPT and PPOPT Software to develop an
integrated software for simulator/ optimizer multi-phase flow operations in oil
and/or gas production/transmission operations (herein "PIPEPHASE-NETOPT
Software") and to license said software to potential licensees.
WHEREAS, SimSci desires to obtain a license from MOBIL to use MOPT and
PPOPT Software to develop the PIPEPHASE-NETOPT Software under the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, the Parties agree as follows:
I. DEFINITIONS
1.01 "Affiliate" as used herein shall mean any company controlled
by, controlling, or under common control with a Party hereto.
For purposes of this Agreement, "control" is understood to
mean the direct or indirect beneficial ownership of Fifty
Percent (50%) or more of the stock entitled to Vote in the
election of directors or, if there is no such stock, Fifty
Percent (50%) or more of the ownership interest in such
company. Further, in connection with MOBIL, "Affiliate" as
used herein shall include Mobil Producing Nigeria, Ltd.
1.02 "MOPT Software" as used herein shall mean MOBIL's proprietary
software system including the source code and any update
versions for use in optimizing complex multi-phase flow
operations in oil and/or gas production/transmission
operations.
1.03 "PIPEPHASE-NETOPT" shall mean a derivative work of the MOPT
Software interfaced with PPOPT Software and any update
versions which has been developed by or on behalf of SimSci
for use in simulating and optimizing complex multi-phase flow
operations in oil and/or gas production transmission
operations.
3
<PAGE> 4
1.04 "PPOPT Software" shall mean MOBIL's proprietary software
system for use in interfacing MOPT Software with
PIPEPHASE-NETOPT Software.
1.05 "Party" as used herein shall mean MOBIL or SimSci, as
appropriate in the context in which it appears; "Parties"
shall mean both MOBIL and SimSci.
1.06 "PIPEPHASE-NETOPT Licensees" as used herein shall mean
petroleum producing or related companies, other than MOBIL and
its Affiliates, which are licensees of PIPEPHASE-NETOPT
Software.
1.07 "PIPEPHASE Software" as used herein shall mean SimSci's
proprietary software system for modeling oil and/or gas
production/transmission operations, excluding any third party
integration modules.
II. GRANTS AND TITLE
2.01 MOBIL or an Affiliate of MOBIL shall provide SimSci One (1)
complete copy of MOPT Software and PPOPT Software including
One (1) copy each of the source code, operating instructions
and associated manuals and any update versions. MOBIL herewith
grants to SimSci, subject to all of the terms and conditions
of this Agreement, a [
* ] right to:
(a) use MOPT Software interfaced with PPOPT Software to
develop PIPEPHASE-NETOPT Software; and
(b) the right to extend to PIPEPHASE-NETOPT Licensees the
right to use the PIPEPHASE-NETOPT Software (not
including the source code) solely for the use in
simulating and optimizing multi-phase flow operations
in oil and/or gas production/transmission operations.
2.02 MOBIL or an Affiliate shall provide up to [ * ] man-days
per year of technical support to SimSci for the optimization
portion of the PIPEPHASE-NETOPT Software [ * ]
2.03 Title to the PIPEPHASE-NETOPT and PIPEPHASE Softwares,
operating instruction manuals and any other related
documentation, including the media containing the
PIPEPHASE-NETOPT and PIPEPHASE Software, is and shall continue
to be the sole and exclusive property of SimSci. MOBIL shall
retain exclusive ownership and intellectual rights to the MOPT
and PPOPT Software, operating instruction manuals and any
other related documentation, including the media containing
the MOPT and PPOPT Software.
2.04 SimSci grants to MOBIL and its Affiliates a [
* ] right to use any improvements,
derivatives, updates or modifications made by SimSci to the
MOPT and/or PPOPT Software; provided, however, MOBIL's right
to use PIPEPHASE-NETOPT Software shall be governed by Section
2.05 hereof.
2.05 Provided that a valid PIPEPHASE license agreement between
MOBIL and SimSci is in effect, SimSci shall provide MOBIL and
its Affiliates with an [ * ]
right to use PIPEPHASE-NETOPT Software pursuant to the terms
of such license agreement and a right to use any future update
versions and revisions of the PIPEPHASE-NETOPT Software to
replace existing versions at no additional cost. The
PIPEPHASE-NETOPT Software shall be subject to the
confidentiality obligations in Section 3.01 hereof.
4
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 5
2.06 During the term of this Agreement, SimSci agrees [
*
] for
steady state commercial simulation and optimization of
multi-phase oil and/or gas field flow operations in oil and/or
gas production/transmission operations.
III. CONFIDENTIALITY
3.01 SimSci agrees that it will not disclose, in whole or in part,
the MOPT/PPOPT Software including the source code and any
documentation including any derivative work or modification to
any third party nor use the MOPT/PPOPT Software including the
source code and/or documentation for any purpose except as
expressly authorized herein. SimSci agrees that it will
contractually prohibit PIPEPHASE-NETOPT Licensees from (i)
disclosing PIPEPHASE-NETOPT Software and documentation
(including any derivative work or modification made by or on
behalf of SimSci) to any third party, or (ii) using the
PIPEPHASE-NETOPT Software except on its own computers.
3.02 The MOPT and PPOPT Software are to be used by SimSci only for
the purpose of developing the PIPEPHASE-NETOPT Software.
SimSci further agrees not to make any copies of the MOPT and
PPOPT Software, (except as may be necessary in connection with
SimSci's licensing of PIPEPHASE-NETOPT Software to
PIPEPHASE-NETOPT Licensees as provided by this Agreement),
their operating instructions or manuals or source code without
the express written authorization of MOBIL, except that SimSci
may maintain One (1) back-up copy of the MOPT and PPOPT
Software (excluding the source code) for emergency use in the
event that the principal copy should become inoperable. MOBIL
agrees that it will not disclose, in whole or in part, the
PIPEPHASE Software or the PIPEPHASE-NETOPT Software including
the source code and documentation (including any derivative
work or modification) to any third party nor use the PIPEPHASE
Software or the PIPEPHASE-NETOPT Software including the source
code and/or documentation for any purpose except as expressly
authorized herein or as covered by a separate license
agreement from SimSci.
IV. FEES PAYABLE TO MOBIL
4.01 For PIPEPHASE licensees who subsequently license
PIPEPHASE-NETOPT Software, SimSci shall pay MOBIL a fee based
upon the increment between SimSci's basic PIPEPHASE license
fees and the PIPEPHASE-NETOPT licenses fees according to the
following schedule:
[ * ] of the 1st [ * ]/year in
net incremental fees;
[ * ] of the 2nd [ * ]/year in
net incremental fees;
[ * ] of the 3rd [ * ]/year in net
incremental fees;
[ * ] of all net incremental fees above
[ * ]
For PIPEPHASE-NETOPT licensees who have not previously
licensed PIPEPHASE Software the above net incremental fee will
be deemed to be [ * ] of the contractual license fees for
PIPEPHASE-NETOPT Software without any additional modules and
less any independent agents commissions and fees.
5
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 6
Examples illustrating the calculation of Mobil's share of the
license fees in accordance with Section 4.01 are as follows:
Example 1: if the total license fees received for
PIPEPHASE-NETOPT licensees who have not previously licensed
PIPEPHASE Software during a year are [ * ] the net
incremental fees are [ * ] and MOBIL receives [
* ]
Example 2: if an existing PIPEPHASE licensee is paying [ * ]
per year for the use of PIPEPHASE and decides to license
PIPEPHASE-NETOPT for a total of [ * ] per year, the net
incremental fees will be [ * ] per year [ * ] per year
less [ * ] per year). The royalty due to MOBIL will be
based on the incremental fees above and according to the
schedule given.
All fees payable to MOBIL as provided herein are payable in
the manner specified in Section 5.03.
V. REPORTS AND ACCOUNTING
5.01 SimSci shall submit to MOBIL an annual report within sixty
(60) days following the end of each calendar year listing (1)
each license granted by SimSci for use of the PIPEPHASE-NETOPT
Software; (2) the number of PIPEPHASE-NETOPT Licensees who
have not previously licensed PIPEPHASE Software and the
license fees received during that period; and (3) the
incremental license fees between SimSci's basic PIPEPHASE
license fees and the license fees charged for the
PIPEPHASE-NETOPT Software licensed during that period.
Concurrent with the submission of the foregoing report SimSci
shall pay to MOBIL its share of the license fees in accordance
with Section 4.01 hereof.
5.02 SimSci agrees to keep records in sufficient detail to verify
all reports and payments due under this Agreement and to
permit access thereto by a duly authorized representative of
MOBIL, at MOBIL's cost, on reasonable notice and during
regular business hours, to the extent necessary to verify the
accuracy and completeness of such reports and payments. MOBIL
agrees not to use the accounts prepared or specified above for
any other purpose than determining SimSci's compliance with
this Agreement.
5.03 All payments by SimSci to MOBIL hereunder shall be payable in
currency of the United States of America by telegraphic
transfer to MOBIL's Account #3880-0134 at Citibank Delaware,
ABA No. 031100209, New Castle, Delaware 19720, U.S.A., or such
other place as MOBIL may hereafter designate, in writing, and
shall be net to MOBIL without deductions for any transfer
charges, taxes or other charges levied on such payments. Any
tax or other governmental charge with the exception of MOBIL's
United States of America income taxes, arising out of, levied,
based upon or otherwise related to this Agreement or to
payments made hereunder, shall be added to the payment herein
provided and shall be paid by SimSci.
5.04 Any payments due hereunder which are not made in full when due
shall bear interest on the unpaid balance from the date said
payment was due through the date said payment (including
interest) is made, said interest [
*
] on the date said payment was due or on the date said
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<PAGE> 7
payment is made, whichever annual rate is higher; provided,
however, that in no event shall said annual rate exceed the
maximum legal rate for corporations. Said payment, when made,
shall be accompanied by all interest so calculated.
5.05 SimSci or an Affiliate of SimSci shall provide up to a
combined total of [ * ] man-days per year of technical
support to MOBIL and/or its Affiliates for use of the
optimization portion of the PIPEPHASE-NETOPT Software at [
* ] above the current lease fees for the
PIPEPHASE license from SimSci to MOBIL provided that such a
valid license agreement is in effect between SimSci and MOBIL.
VI. GUARANTEES AND LIABILITIES
6.01 EXCEPT AS OTHERWISE PROVIDED HEREIN, THE MOPT/PPOPT SOFTWARE
AND THE USER MANUAL AND ANY OTHER MATERIAL SUPPLIED THEREWITH
ARE PROVIDED ON AN "AS-IS" BASIS WITHOUT ANY WARRANTY,
GUARANTEE OR REPRESENTATION OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6.02 Except as may be expressly provided herein, MOBIL shall have
no liability to SimSci or to any third party regarding the
MOPT/PPOPT Software or the PIPEPHASE-NETOPT Software or the
written materials associated with it, whether in contract,
tort, negligence, strict liability, warranty (express or
implied), or otherwise arising out of or relating to the use
of the MOPT/PPOPT Software and/or PIPEPHASE-NETOPT Software,
and SimSci agrees to hold MOBIL harmless from and against any
and all such liability.
6.03 MOBIL hereby agrees to indemnify, defend and hold harmless
SimSci against any cost, liability, damage or expense
(including without limitation, reasonable attorneys' fees)
arising out of or relating to any allegation or claim that the
MOPT Software and/or PPOPT Software as provided to SimSci
hereunder constitute an infringement or other violation of any
patent, copyright, trade secret or other proprietary right of
any third party.
6.04 SimSci hereby agrees to indemnify, defend and hold harmless
MOBIL and its Affiliates against any cost, liability, damage
or expense (including without limitation, reasonable
attorneys' fees) arising out of or relating to any allegation
or claim that the PIPEPHASE-NETOPT Software as provided to
MOBIL hereunder constitute an infringement or other violation
of any patent, copyright, trade secret or other proprietary
right of any third party.
6.05 SimSci hereby agrees to indemnify, defend and hold harmless
MOBIL and its Affiliates against any cost, liability, damage
or expense (including without limitation, reasonable
attorney's fees) arising out of or relating to acts of SimSci
or its employees, agents or Affiliates.
6.06 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, IN
NO EVENT SHALL EITHER PARTY BE LIABLE HEREUNDER FOR ANY
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING BY WAY OF EXAMPLE BUT NOT BY WAY OF LIMITATION SUCH
DAMAGES AS LOSS OF USE, LOSS OF PROFITS OR PLANT OR UNIT
DOWNTIME).
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respect to the omitted portions.
<PAGE> 8
VII. BEST EFFORTS
7.01 SimSci agrees that it shall use its best efforts to develop
the PIPEPHASE-NETOPT Software [ * ] and to promote
and license the PIPEPHASE-NETOPT Software, in a similar manner
to existing SimSci software and that such best efforts are
basic and material obligation of this Agreement. SimSci's
normal marketing effort includes the production of publicity
material, contacting prospective licensees, presentation to
potential clients by SimSci's Sales Department or their
representatives where applicable in the same fashion or SimSci
promotes its own software.
7.02 SimSci shall keep MOBIL informed concerning SimSci's
promotional activities. In addition, SimSci shall submit
copies of all promotional documents and brochures to MOBIL.
7.03 SimSci shall submit reports to MOBIL within sixty (60) days of
each one-half calendar year which will update MOBIL regarding
SimSci's promotional activities.
7.04 MOBIL may at its sole discretion, assist SimSci in SimSci's
promotional efforts by providing assistance as requested by
SimSci.
VIII. TERM AND TERMINATION
8.01 This Agreement will remain in full force and effect, unless
terminated sooner as provided herein, for [ * ] years
from the Effective Date. This Agreement will be automatically
extended for additional [ * ] year terms unless written
notice of termination is given by one of the Parties no less
than sixty (60) days prior to the end of any term.
8.02 If SimSci shall fail or refuse to pay the payments or render
reports as herein provided, or-if either Party shall be in
default for sixty (60) days or longer of any other material
obligation imposed by this Agreement, the non-defaulting Party
may, at its option, give notice to the defaulting Party
specifying the claimed particulars of such default. If such
default is not remedied within thirty (30) days after such
notice, the non-defaulting Party may, at its option, terminate
this Agreement by written notice to the defaulting Party
and/or proceed to enforce the defaulted obligation by any
available legal means. The failure of either Party to exercise
its rights hereunder with respect to a default by the other
Party shall not be construed as a waiver of such Party's right
to do so nor prevent such Party from subsequently asserting
such rights with regard to the same or similar defaults.
8.03 Either Party may terminate this Agreement without prejudice to
claims and obligations then accrued if:
(a) the other Party is subject to a petition in
bankruptcy or an order is made or effective
resolution is passed for its liquidation or
(b) the other Party becomes insolvent, is adjudged
bankrupt, or makes any assignment of assets for the
benefit of its creditors; or
(c) the other Party sells, assigns, transfers, mortgages,
pledges, charges, leases or otherwise disposes of or
creates any lien, charge or encumbrance on or trust
in respect of the whole or
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<PAGE> 9
any part of its interest in this Agreement contrary
to the provisions herein; or
(d) this Agreement is abrogated or materially modified,
in whole or in part, by any law, government or
government agency.
8.04 From and after the date of termination of this Agreement,
neither Party shall have any further rights hereunder except
that such termination shall not: (1) relieve either Party of
its obligations under Article III with respect to
confidentiality; (2) relieve either Party of its obligations
under Sections 6.03 and 6.04 with respect to indemnities; or
(3) affect or impair rights made available to MOBIL under the
provisions of Section 2.04 hereof.
In addition, in the event of termination of this Agreement,
SimSci shall return to MOBIL all copies of the MOPT/PPOPT
Software source code. The licenses granted by SimSci to MOBIL
and its Affiliates under Sections 2.04 and 2.05 shall survive
termination of this Agreement. Also, upon termination of this
Agreement, [
*
]
8.05 Any termination of this Agreement shall not relieve SimSci's
obligations under this Agreement with respect to payments to
MOBIL for the calendar year in which the termination occurs.
In the event MOBIL terminates this Agreement, the royalty fees
payable to MOBIL as specified in Section 4.01 shall [ *
] after the effective date of termination. [
*
]
8.06 The license for the use of PIPEPHASE Software by MOBIL shall
be covered in a separate license agreement and nothing herein
shall be construed as granting of a license for the use of
PIPEPHASE Software by MOBIL.
IX. NOTICES
9.01 The addresses of the Parties hereto for purposes of notices,
reports and other communications shall be as follows:
MOBIL: Office of Patent Counsel
MOBIL OIL CORPORATION
3225 Gallows Road
Fairfax, Virginia 22037-0001
Attn: Interparties
SimSci: SIMULATION SCIENCES, INC.
601 South Valencia Avenue
Brea, California 92621
Attn: Product Manager -
Fluid Flow Products
9.02 Any notices expressly provided for under this Agreement shall
be in writing and shall be given either manually or by mail or
telegram. Such notice shall be deemed sufficiently given if
and when received by the Party to be notified at its address
specified under Section
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<PAGE> 10
10.01, or if and when mailed by registered mail, postage
prepaid, addressed to such Party at such address. Either
Party, by notice in writing to the other Party, may change its
address for receiving such notices.
X. ASSIGNMENT
10.01 This Agreement shall not be assignable by either Party without
the prior written consent of the other Party hereto, except
that either Party may assign this Agreement to an Affiliate
without such consent and either Party may assign this
Agreement without such consent to a person, firm or
corporation acquiring all or substantially all of the business
and assets of such Party and either Party may encumber its
rights hereunder without such consent in connection with a
grant of security interest in all or substantially all of its
general intangibles to its primary lender. No assignment of
this Agreement shall be valid unless and until all of the
obligations of the assignor hereunder have been assumed, in
writing, by the assignee.
When duly assigned in accordance with the foregoing, this
Agreement shall be binding on and shall inure to the benefit
of the assignee.
XI. MISCELLANEOUS MATTERS
11.01 This instrument contains the entire Agreement between the
Parties hereto with respect to licensing of the MOPT/PPOPT
Software by SimSci and supersedes all previous communications,
representations, understandings and agreements, either oral or
written, with respect thereto. No alteration or amendment of
this Agreement shall be effective unless in writing executed
with the formality of this Agreement. Further, no waiver of
any right under this Agreement shall be of any effect or
binding upon either Party unless such waiver is in writing and
is signed by the Party so waiving such right or rights.
11.02 This Agreement shall be governed by and interpreted in
accordance with the substantive laws of the State of New York.
SimSci understands and recognizes that the MOPT/PPOPT Software
and PIPEPHASE-NETOPT Software and the information related
thereto are subject to the Export Administration Regulations
of the U.S. Department of Commerce and may be subject to other
U.S. Government regulations relating to the export of
technical data from the United States and to equipment and
products produced therefrom. SimSci agrees to comply fully
with all such regulations as may from time to time be in
force.
11.03 SimSci shall have no right, except with express written
approval of MOBIL, to use MOBIL's name or the name of any
MOBIL Affiliate in advertising and sales promotional
activities.
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<PAGE> 11
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
signed in duplicate original copies by their duly authorized representatives.
SIMULATION SCIENCES, INC. MOBIL OIL CORPORATION
By: /S/ Y.L. WANG By: /s/ MOBIL OIL CORPORATION
Title: CHAIRMAN By: VP
Date: SEPTEMBER 6, 1995 Date: 11/5/95
11
<PAGE> 1
EXHIBIT 10.13
ORIGINAL
{PRIVATE}
SOFTWARE DEVELOPMENT AND LICENSING AGREEMENT
This is an agreement by and between Shell Oil Products Company, acting for
itself and as agent for Shell Oil Company, both companies incorporated under the
laws of the state of Delaware (collectively referred to hereinafter as "Shell"),
and Simulation Sciences, Inc. ("SIMSCI"), a company incorporated under the laws
of the state of California.
1. BACKGROUND
1.1 Shell employs system optimization methods embodied in certain
computer software and elsewhere (On-Line Optimization Technology; hereinafter
"OLOT") which includes a solver "OPERA" software) and computer software
embodying a modeling language, system and architecture ("MITRE" software). OLOT
is proprietary to Shell Oil Company and comprises substantial and valuable trade
secrets and copyrightable works. MITRE and OPERA are further described in
Exhibit B.
1.2 OLOT is used by Shell to control various oil and gas refinement and
chemical production processes. This is done in part through steady state and
dynamic process simulation and optimization.
1.3 SIMSCI is in the business of producing and/or marketing computer
software applications which incorporate graphical user interface ("GUI")
technology, process flowsheeting functionalities, and thermodynamic equation
solution tools (collectively referred to hereafter as "SS Works") used in the
oil and gas refinement and chemical manufacturing processes. SS Works are
proprietary to SIMSCI and contain substantial and valuable trade secrets and
copyrightable works. SS Works are further described in Exhibit C.
1.4 Shell desires SIMSCI to incorporate OLOT in a client-server system
as part of a robust optimization software package integrating SS Works and
SIMSCI believes it can modify and enhance SS Works and OLOT so that it is
capable of performing in such a system. Such modified and enhanced software is
referred to hereinafter as "The Software." The Software is further described in
Exhibit D.
1.5 Others in the field of oil and gas refinery operations and chemical
production and elsewhere could benefit from the use of The Software and would be
willing to do so under royalty bearing licenses of The Software.
1.6 SIMSCI is willing to develop The Software in consideration of the
right to obtain a royalty bearing license to use OLOT in The Software with the
right to sublicense OLOT as incorporated in The Software.
1.7 Exhibit A contains a fist of definitions used throughout this
Agreement.
2. DEVELOPMENT
2.1 SIMSCI and Shell hereby appoint the following individuals as
Development Coordinators who shall be the primary points of contact for the
direction, coordination and resolution of issues relative to the development and
implementation of The Software:
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<PAGE> 2
Shell: Manager, Operation Systems
SIMSCI: General Manager, ROM Business Unit
2.2 Either party may replace a Development Coordinator by notice to the
other party.
2.3 As soon as practicable after the execution of this Agreement, but
not later than thirty (30) days from the Effective Date, the Development
Coordinators shall prepare a Development Plan which shall include a timetable
for development activities, a detailed list of specific development
deliverables, and a specific list of tasks to be performed by each party. The
Development Plan shall also set forth a mechanism for determining the extent of
support which will be given to modifications of Preexisting Works. The
Development Plan shall not be considered complete until both Development
Coordinators agree in writing to its contents. Once approved by both parties,
The Development Plan may only be changed with the written approval of (i) each
party's respective Development Coordinator, or (ii) an officer of Shell and an
officer of SIMSCI.
2.4 The parties shall carry out their respective obligations set forth
in the Development Plan in accordance with the timetable set forth therein. In
addition to any other obligations that may be set forth in the Development Plan,
Shell shall provide [ * ] man-years of development work in support thereof (the
computation of which shall be according to generally accepted software industry
standards), in addition SIMSCI shall pay to Shell (on a time and materials basis
at rates according to those customarily paid in the software development
industry) a monthly fee for any additional development work provided by Shell
wherein such work is a result of changes to the Development Plan.
2.5 Each party will maintain detailed records to document the
originality of the work product generated by the execution of the Development
Plan and any other work produced under the terms of this Agreement. Such records
shall include, at a minimum, weekly archival copies of in-progress source code,
up-to-date lists of the names of personnel participating in each activity
involving development work, and a complete fist of all third-party materials
(e.g., compiler libraries) used in developing The Software (together with
complete copies of license agreements authorizing the use of such materials).
Both parties shall have the right to inspect such records at reasonable times in
the ordinary course of business upon at least one business day's notice.
2.6 From time to time, but at least every six (6) weeks, the
Development Coordinators will memorialize the progress of work in support of the
Development Plan ("Development Work") with a written summary report. This report
shall also identify any significant unresolved problems in the Development Work
along with the then-current plans and estimated dates for resolving problems.
2.7 Each party shall notify the other promptly upon becoming aware of
any potentially significant delay in the Development Work. All doubt with
respect to whether or not a delay will be significant will be resolved in favor
of such notification.
2.8 Each party shall promptly respond to all inquiries made by the
other party's Development Coordinator with respect to any matter that could
reasonably be expected to delay the Development Work.
2.9 From time to time, but no less frequently than every eighteen
months (measured from the Effective Date), the parties will meet to review the
competitive aspects of The Software and make decisions regarding future features
and functionality of The Software; mutually agreed decisions shall be
memorialized in The Development Plan. The parties shall consider in each such
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respect to the omitted portions.
<PAGE> 3
meeting the technology employed or to be employed in The Software and whether
any new techniques, methods, processes, or approaches pertaining to the Field
should be employed in future versions of The Software as may be necessary for it
to retain its competitive advantage in the marketplace.
2.10 The Development Plan shall specify the means by which each party
carries out their respective obligations regarding confidentiality of the other
party's Preexisting Works and any enhancements thereof.
3. LICENSE GRANT
3.1 During the term of this Agreement, SIMSCI is granted the [ * ]
rights within the Field to:
(a) use all embodiments of OPERA and MITRE Software provided
to SIMSCI by Shell whether in source code, executable code, or any other format
for the purpose of developing, producing, enhancing, and distributing The
Software;
(b) prepare derivative works of OPERA and MITRE Software in
source code, executable code, or any other format as necessary to develop,
produce, enhance, and distribute The Software;
(c) distribute OPERA and MITRE Software and any derivative
works thereof but only as each are embodied in The Software and further limited
to distribution of embodiments in executable code format only and only pursuant
to sublicense agreements described hereunder; and
(d) to reproduce and distribute OPERA and MITRE Software
documentation to the extent necessary to enable sublicensees to operate OPERA
and MITRE Software as an element of The Software.
3.2 During the term of this Agreement, SIMSCI is granted the [
* ] right to use MITRE and OPERA Software for its own
internal purposes and for the development of Unrelated Software; the
distribution rights of such Unrelated Software shall be subject to the terms and
conditions of a separate agreement.
3.3 Notwithstanding the exclusive character of the licenses granted in
Section 3.1 of this Agreement above, SIMSCI takes such licenses subject to the
express reservation of rights by Shell, its Affiliates, and Subsidiaries to use,
reproduce, make and have made derivative works, perform, and display MITRE
software, OPERA Software, MITRE documentation and OPERA documentation in any
form, manner, or medium for its own internal purposes and for any other purpose
outside of the Field with respect to OPERA and MITRE and both inside and outside
the Field with respect to MITRE.
3.4 Shell grants to SIMSCI the [ * ] right to use, reproduce,
distribute, perform, and display OPERA Software solely in association with SS
Works (which includes all of such works which SIMSCI currently uses in the
conduct of performing "ROM" services) in the Field prior to the Commercial
Release of The Software. Distribution of OPERA Software is limited to executable
code format only and shall be further limited to sublicensees of SS Works.
3.5 SIMSCI grants to Shell the [ * ] rights to use, reproduce, make and
have made derivative works, perform, and display SS Works in source code,
executable code, or any other format for the sole purpose of developing and
enhancing The Software.
3.6 SIMSCI grants to Shell a [
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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*
]
3.7 Shell grants to SIMSCI a [ * ] license to use Marks; however, such
rights shall be limited to use in connection with The Software.
3.8 If, after a Commercial Release of the Software, this Agreement
shall terminate for any reason other than a Material breach of this Agreement by
SIMSCI then SIMSCI shall have an option to obtain a [ * ] license to use,
reproduce, and distribute OPERA and/or MITRE but only as part of The Software
and according to the following terms:
(a) for such a license in OPERA [ * ] this
license will inure upon [ * ] plus [ * ].
(b) for such a license in OPERA [ * ] this
license will inure upon [ * ] plus [ * ].
(c) for such a license in MITRE [ * ] this
license will inure upon [ * ] plus [ * ].
(d) for such a license in MITRE [ * ] this
license will inure upon [ * ] plus [ * ].
The "fair market value" of the licenses described in this Section 3.8
shall be determined by the mutual agreement of Shell and SIMSCI. If Shell and
SIMSCI are unable to agree upon any such fair market value, the fair market
value shall be determined by a mutually acceptable appraiser. If Shell and
SIMSCI are unable to agree on such an appraiser, an appraiser shall be chosen by
an arbitrator as provided under Section 16. 1. Any appraiser chosen by the
arbitrator shall be a member of a nationally recognized accounting firm
(provided that such accounting firm shall not have been retained by either
SIMSCI or Shell within the three-year period immediately preceding the
appointment of the appraiser). The decision of any appraiser shall be final. If
SIMSCI disagrees with the final determination of the fair market value it can
refuse to exercise the option to acquire the license.
3.9 If, after a Commercial Release of the Software, this Agreement
shall terminate for any reason other than the Material breach of this Agreement
by Shell then Shell shall have a [ * ] license to use the then current version
of the Software or any prior version thereof to the same extent permitted by any
other provision of this Section 3.0 [
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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* ]; further in the
event of such termination, the conditions governing the provision of Software
Services by SIMSCI set forth in Section 11.6 below shall continue for a period
of three years from the date of such termination after witch Software Services
shall be available to Shell according to SIMSCI's then-current commercial terms
for such services.
3.10 SIMSCI grants to Shell a [ *
] license to use, reproduce, perform, display, and make
and have made derivative works of Work Chunks in executable code, source code,
and any other format. Such rights shall be with the right to sublicense.
4. DISTRIBUTION
4.1 Except to the extent provided otherwise herein all matters
relating to SIMSCI's distribution, marketing, and promotion of The Software
shall be determined exclusively by SIMSCI in its business judgment, including
without limitation: the design and implementation of SIMSCI's marketing program,
the selection of marketing channels, the timing and sequence of product
announcements and roll-out programs, pricing strategy, commercial terms
associated with the provision of Software Services and other maintenance and
support Activities, and suggested software and hardware compatibility
guidelines. Such matters shall be undertaken at SIMSCI's sole expense and SIMSCI
shall have sole responsibility for establishing and collecting all fees and
charges applicable thereto.
4.2 Any distribution of The Software shall be pursuant to written
sublicensing agreements. SIMSCI shall use commercially reasonable efforts to
secure within such agreements provisions which, to the extent permitted by the
law of the jurisdiction in which the agreement is likely to be interpreted or
enforced, will contain terms which:
(a) provide a disclaimer of warranty, representations, and
liability with respect to the use and operation of The Software;
(b) provide an exclusion of incidental consequential, special,
punitive, or exemplary damage remedies against Shell;
(c) provide a limitation of Shell's maximum liability to the
amount that such sublicensee has paid in licensing fees or royalties;
(d) proscribe or limit decompilation, reverse engineering, or
other surreptitious accessing of The Software to reveal any trade secrets or
other proprietary know-how embodied therein to which the sublicensee is not
granted rights; and
(e) protect Shell's Intellectual Property Rights to
substantially the same degree that they are protected herein and further,
SIMSCI shall indemnify and hold Shell harmless from all loss, cost, or
damage to Shell or its Affiliates or Subsidiaries from claims of third parties
to the extent that such loss, cost or damage could have been mitigated through
the use of any of the above provisions of this Section 4.2.
4.3 SIMSCI shall ensure that all copies of The Software or any
Documentation relating to The Software which are distributed to any third party
bear all of the legends, marks, and notices as follows:
(a) a copyright legend indicating proper copyright ownership
in The Software or Documentation,
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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<PAGE> 6
(b) the words "CONTAINS LICENSED PROPRIETARY MATERIAL OF SHELL
OIL COMPANY
(c) on hard-copy materials, such patent markings as Shell may
request,
(d) a restricted-rights legend conforming to the Federal
Acquisition Regulations (FARS) then in effect that apply to software developed
entirely at private expense,
(e) indicators of trademark claim or registration wherever any
Shell trademark appears. Each such marking shall also be caused to appear, as
appropriate in a sign-on screen, boot-up screen or similar screen display in a
manner plainly perceptible to an end user each time the end user commences using
The Software or Documentation.
4.4 Shell shall not undertake any marketing activities without first
obtaining SIMSCI's written consent but shall provide assistance to SIMSCI in its
marketing effort provided that, without providing Shell any warranty of the
success of its marketing efforts, SIMSCI will use commercially reasonable
efforts to aggressively promote and license The Software in The Field throughout
the Oil and gas refinement and chemical manufacturing industry.
4.5 Further to Section 4.4 above, Shell's assistance to SIMSCI shall
include, to the extent that such assistance is reasonable and as SIMSCI shall
request from time to time: providing advice and commentary on marketing
materials, interacting with prospective sublicensees as shag be practicable, and
participating in trade events; Shell's Development Coordinator will participate
in such activities to the degree that such participation is reasonable.
4.6 SIMSCI will not distribute copies of Computer Software performing
the same functions as-those of The Software without the prior written consent of
Shell which consent shall not be unreasonably withheld.
5. INVENTIONS, WORKS OF AUTHORSHIP, AND
OWNERSHIP OF INTELLECTUAL PROPERTY
5.1 Nothing in this Agreement shall affect the ownership of
Intellectual Property Rights that may exist in the Preexisting Works.
5.2 Each party shall own all right, title, and interest in its own
Inventions and Works of Authorship to the extent that such Inventions and Works
of Authorship do not constitute Work Chunks including any Intellectual Property
Rights therein subject to the licenses set forth hereunder. SIMSCI shall own all
fight, title, and interest in Work Chunks.
5.3 It is the express intention of the parties that The Software shall
not comprise a Joint Work of Authorship, but shall, rather comprise a
compilation and/or derivative work of the preexisting works of the parties and
that SIMSCI shall own all right, title, and interest in the copyrights to the
compilation and/or derivative works referred to herein as The Software but not
to the Preexisting Works of Shell or its licensors or Enhancements thereof.
5.4 A party first having knowledge of any Invention or Works of
Authorship shall promptly disclose to the other party the substance thereof
including providing complete and accurate copies of all source code, executable
code, design documentation, work notes, test data, reports, samples, and other
tangible evidence of results of such Invention or Work of Authorship and any
information concerning any third party Intellectual Property Rights that may
affect the utilization of the Invention or Work of Authorship.
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<PAGE> 7
5.5 Unless prohibited by the operation of Section 6 hereunder, the
party conceiving an Invention or creating a Work of Authorship shall promptly,
and at its sole expense, diligently prepare, file, and prosecute patent
applications and copyright registrations and thereafter maintain any patents
issued or copyright registrations based thereon; provided that if that party
does not elect to so file, then the other party may do so at its own expense.
5.6 Each party shall provide at its own expense and without additional
compensation all assistance requested or required by the other party and not
shown to be unreasonable under the circumstances in the establishment,
preservation, and enforcement of its Intellectual Property in The Software and
any Preexisting Works relating to The Software. This assistance shall include,
without limitation (a) executing patent applications and copyright
registrations, (b) executing all oaths, declarations, assignments, powers of
attorney, and other papers requested by the other party, and (c) communicating
all facts known.
5.7 Neither party shall without first having obtained the written
consent of the other, assign, mortgage, or grant a security interest in any
Invention or Work of Authorship Relating to The Software other than as set forth
in this Agreement.
5.8 SIMSCI acknowledges that the ownership of the Marks licensed
hereunder by Shell is rested in Shell and agrees that it will do nothing
inconsistent with such ownership and that all use of the Marks by SIMSCI shall
inure to the benefit of and be on behalf of Shell.
5.9 SIMSCI will not attack the title of Shell to its Marks or attack
the validity of this Agreement with respect to the Marks.
6. CONFIDENTIAL INFORMATION
6.1 Either party may receive the confidential information of the other
including, but not limited to, technical and/or business information which may
be disclosed orally, electronically, or in writing or via any other tangible
form or by inspection of facilities or in any other way.
6.2 Confidential information shall not include information which prior
to the time of disclosure is in the public knowledge or literature, or is in the
possession of the receiving party without obligation of confidentiality; and
information shall cease to be considered confidential if it subsequently becomes
part of the public knowledge or literature without fault of the receiving party,
or is disclosed to the receiving party without obligation of confidentiality by
a third party having the legal fight to do so, or is independently developed by
the employees of the receiving party who have not had access to it. Upon request
by either party, the other party shall advise whether it considers particular
information or materials to be confidential.
6.3 All confidential information shall remain the property of the
disclosing party. The receiving party shall not disclose or confirm any
confidential information to third parties nor publish the same. In addition, the
receiving party and its employees shall not use any confidential information for
any purpose other than in connection with the work performed hereunder.
6.4 In handling confidential information, the receiving party shall use
at least the same degree care as it uses for safeguarding its own confidential
information but shall provide such confidential information no less than a
reasonable degree of care in any event.
6.5 The receiving party shall limit the disclosure of confidential
information to its employees or agents who have a need to know such information
for the purpose of acting in accordance with this Agreement and such information
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<PAGE> 8
will be disclosed to only such of their personnel who have agreed in writing to
be bound by restrictions on its disclosure which are at least as restrictive as
those applicable to the receiving party hereunder.
6.6 Upon termination of this Agreement, the receiving party shall
return to the disclosing party or destroy any confidential information of the
disclosing party as the disclosing party may so instruct the receiving party
except that each party may retain one (1) copy of the confidential information
received from the other party solely for archival purposes to demonstrate the
scope of the disclosure.
6.7 Notwithstanding the foregoing confidentiality and nonuse
obligations, Shell shall have the right to disclose confidential information
related to The Software to Affiliates and Subsidiaries of Shell, provided that
such Affiliates and Subsidiaries have first agreed to be bound to at least the
same extent as Shell itself is bound, by the restrictions set forth herein on
its disclosure and use.
6.8 Notwithstanding the foregoing confidentiality and nonuse
obligations, SIMSCI shall have the right to disclose confidential information
related to The Software to third party consultants, provided that SIMSCI has
first obtained the written agreement of each such consultant to be bound to at
least the same extent as SIMSCI itself is bound, by the restrictions set forth
herein on its disclosure and use.
6.9 If a receiving party is ordered by a court, administrative agency,
or other governmental body of competent jurisdiction to disclose confidential
information of a disclosing party, or if it is served with or otherwise becomes
aware of a motion or similar request that such an order is to be issued, then
the receiving party will not be liable to the disclosing party for disclosure of
its confidential information required by such order if the receiving party
complies with the following requirements:
(a) if an order which has already issued calls for immediate
disclosure, then the receiving party shall immediately move for or otherwise
request a stay of such order to permit the owner of the confidential information
to respond to such order;
(b) the receiving party shall immediately notify the
disclosing party of the motion or order by the most expeditious means possible;
and
(c) the receiving party shall join or agree to (or at a
minimum shall not oppose) a motion or similar request by the disclosing party
for an order protecting the confidentiality of the confidential information,
including joining or agreeing to (or nonopposition to) a motion for leave to
intervene by the owner of the confidential information.
6.10 Further to the above provisions for nondisclosure and nonuse of
confidential information, where the disclosure of confidential information would
be necessary for purposes of obtaining patent protection, the party seeking such
patent protection shall not disclose any confidential information belonging to
the other party without first having obtained the written consent of that party,
such consent shall not be unreasonably denied. This provision shall have effect
even if it results in foregoing patent protection which a party might otherwise
be able to obtain.
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<PAGE> 9
7. QUALITY STANDARDS
7.1 SIMSCI agrees that the nature and quality of all services rendered
by SIMSCI in connection with the Marks; all goods sold or licensed by SIMSCI
under the Marks; and all related Advertising, promotional and other related use
of the Marks by SIMSCI shall be consistent with reasonable standards set by
Shell.
7.2 SIMSCI shall cooperate with Shell in facilitating Shell's program
to attain and maintain high standards of such nature and quality, will permit
reasonable inspection of SIMSCI's operation, and will supply Shell with
specimens of all uses of the Marks upon request. SIMSCI shall comply with all
applicable laws and regulations and obtain all appropriate government approvals
pertaining to the sale, distribution, and advertising of goods and services
covered by this Agreement.
7.3 SIMSCI shall use the Marks only in the form and manner and with
appropriate legends as prescribed from time to time by Shell and, except for
SIMSCI trademarks and servicemarks, will not use any other trademark or service
mark in combination with any of the Marks without the prior written approval of
Shell.
7.4 No Shell Affiliate or Subsidiary shall engage in the installation
or maintenance of The Software for any party other than Shell or its Affiliates
or Subsidiaries without first completing SIMSCI's integration certification
program wherein such Affiliates or Subsidiary must demonstrate an ability to
perform such activities within the standards of performance which SIMSCI
requires of its own personnel conducting the same activities.
8. TRADEMARK AND INFRINGEMENT PROCEEDINGS
8.1 SIMSCI shall promptly notify Shell of any unauthorized use of the
Marks (or materials exhibiting such Marks) by others promptly as it comes to
SIMSCI's attention. Shell shall have the sole right and discretion to bring
infringement, unfair competition proceedings or any other claims involving the
Marks or any other Intellectual Property belonging to Shell and licensed to
SIMSCI under this Agreement.
9. ROYALTIES AND FEES
9.1 In consideration for the use of Shell Marks and the use of
technology embedded within or based upon OPERA solver Computer Software, wherein
the parties expressly agree that such technology contains substantial and
identified trade secrets and other know-how, SIMSCI shall pay to Shell the sum
of [
* ], payable immediately upon execution of this Agreement, and in addition,
SIMSCI shall pay to Shell [ * ] of the Net Sales of The Software. Should this
Agreement terminate prior to a Commercial Release of The Software for any reason
other than a Material Breach of this Agreement by SIMSCI then Shell shall refund
to SIMSCI a pro rata share of the fee paid to Shell according to the following
formula:
Amount refunded = B X [ * ]
Where
A = [ * ], and
B = [ * ]
No refund shall be provided to SIMSCI if such termination shall occur after [ *
] months from the Effective Date.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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<PAGE> 10
9.2 In addition to the amounts payable to Shell set forth in Section
9.1 and in consideration for the use of Shell technology embodied in or based
upon the Shell MITRE modeling Computer Software, SIMSCI shall pay to Shell one
lump sum payment of [
*
], and in addition, SIMSCI shall pay to Shell
[ * ] of the Net Sales of The Software during the
first [ * ] year period beginning on the Effective Date and [ *
] of Net Sales thereafter. The parties shall incorporate such technology in
The Software in a Commercial Release of The Software unless doing so is Not
Viable.
9.3 In addition to the amounts payable to Shell set forth in Sections
9.1 and 9.2 and in consideration for the use of Shell technology embodied in or
based upon the Shell OPERA solver Computer Software pursuant to Section 3.4,
SIMSCI shall pay to Shell [ * ] of the total amount received ("Amount Received")
by SIMSCI by licensees of SS Works wherein SS Works are employed in association
with the Shell OPERA Computer Software. The Amount Received shall include,
without Stations all royalties, sublicensing fees, and other revenues realized
by SIMSCI in connection with its distribution of SS Works employed in
Association with OPERA Software less any bonafide trade or cash discounts or
rebates paid or granted by SIMSCI.
9.4 Notwithstanding any of the obligations of 9.3 above, SIMSCI shall
make available to Shell, its Affiliates and Subsidiaries installation
maintenance services, training services, and any other support typically
associated with Enhancements and Upgrades relative to the installation of SS
Works in association with OPERA Computer Software at the currently agreed upon
commercial terms and rates for similar services relative to SS Works in
association with OPERA Computer Software and no payment shall be due to Shell by
SIMSCI based upon the provision of such services and the installation of such
Computer Software and Shell shall make no additional payment for the use of
OPERA Computer Software in association with SS Works.
9.5 SIMSCI shall pay all applicable sales or use taxes, charges, or
fees which now or hereafter are required to be paid or collected by Shell as a
result of this Agreement, or to provide Shell with a valid exemption
certificate. In the event that SIMSCI fails to timely pay taxes or to provide a
valid exemption certificate, SIMSCI shall indemnify and hold Shell harmless from
any liability for taxes, interest, penalties, and other expense by reason of
SIMSCI's failure.
10. REPORTS, RECORDS, AND PAYMENTS
10.1 Within thirty (30) days following the close of each calendar
quarter during each year, SIMSCI shall submit to Shell a statement of SIMSCI's
Total Net Sales and any royalty or other payment due under the terms of this
Agreement showing in detail the manner of calculating the same and shall,
together with such statement, submit to Shell any payment due by SIMSCI to
Shell. Shell shall have ninety (90) days from the receipt of such statement to
dispute the contents of such accounting and, if Shell fails to provide SIMSCI
with notice of such dispute by the end of the ninety (90) day period referenced
above, such accounting shall be deemed correct and acceptable to Shell.
10.2 SIMSCI shall keep books and records pertaining to the subject
matter of this Agreement in accordance with generally accepted accounting
principles. This requirement to keep such books and records shall be directed
only to the complete documentation of its licensing operations under this
Agreement and such records may be inspected after reasonable notice by Shell or
a certified public accountant appointed by Shell during normal business hours
for the purpose of verifying the accuracy of reports and payments made under
this Agreement.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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<PAGE> 11
10.3 Shell shall keep books and records in accordance with generally
accepted accounting principles to reflect the execution of its obligation to
provide [ * ] man-years of development work as set forth in Section 9.1 above.
Such books and records may be inspected after reasonable notice by SMSCI or a
certified public accountant appointed by SIMSCI during normal business hours for
the purpose of verifying the accuracy of reports and services provided under
this Agreement.
10.4 SIMSCI shall provide in Agreements with those parties having
distribution rights in The Software under this Agreement that books and records
shall be kept substantially in accordance with this Section 10 except that such
agreements shall provide Shell as well as SIMSCI with the right of inspection
and audit of such books and records.
10.5 SIMSCI shall promptly provide notice to Shell of any and all
sublicensees authorized pursuant to this Agreement and shall provide Shell with
copies of said sublicense agreements.
11. MAINTENANCE AND SERVICES
11.1 Shell shall provide services to SIMSCI for the maintenance and
upkeep of MITRE and OPERA Computer Software. The Maintenance Period will begin
on the Effective Date and with end automatically immediately upon the latter of:
termination of this Agreement or the date of expiration, cancellation, or
termination of the last to expire sublicense of The Software by SIMSCI executed
during the term of this Agreement. Notwithstanding the foregoing, in no event
shall this obligation by Shell to provide services survive the termination of
this Agreement by a period of more than three years from the date of termination
of this Agreement and no such services with be provided by Shell for any
sublicensee/end-user of The Software.
11.2 During the Maintenance Period, Shell will make the following
support available to SIMSCI:
(a) telephone support at substantially all times from 9:00
a.m. until 5:00 p.m. central time each business day;
(b) Bug Fixes but only to the extent that such services can be
reasonably provided, and are provided that SIMSCI first provides Shell with a
report of such Bug in sufficient detail to enable a reasonably skilled
programmer to understand it and such that Shell is able to reproduce the Bug in
the applicable operating environment and such Bug can be reasonably verified as
residing in NETRE or OPERA and not elsewhere,
(c) where Shell is not able to provide a Bug Fix and a Bug is
identified by SIMSCI Shell win either provide SIMSCI with a work around
sufficient to alleviate any Material adverse effect of the Bug or provide SIMSCI
with a written response describing Shell's then-existing diagnosis of the Bug
and an outline of a plan and timetable for correcting it, and
(d) use commercially reasonable efforts to provide SIMSCI with
enhancements and further development/maintenance services requested by SIMSCI
but not otherwise planned by Shell, provided that SIMSCI pays to Shell fees
which are customarily paid for such services in the software industry where such
fees are provided on a time and materials basis.
11.3 During the development of The Software and for the term of This
Agreement while any Commercial Release of The Software is made available by
SIMSCI, Shell shall use commercially reasonable efforts to provide Enhancements
and Upgrade Versions of NETRE and OPERA such that NHTRE and OPERA retains
functional parity with the most widely used Computer Software in modeling
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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<PAGE> 12
applications in the oil and gas refining industry and if Shell, in its judgment,
is not able to do so then it will use commercial reasonable efforts to identify
a third party to conduct such development provided that such third party shall
be mutually agreeable to both SIMSCI and Shell.
11.4 During the Maintenance Period, SIMSCI will make the following
support ("Support") available to Shell:
(a) telephone support regarding the operation of The Software
at substantially all times from 9:00 a.m. until 5:00 p.m. central time each
business day;
(b) Bug Fixes but only to the extent that such services can be
reasonably provided, and further provided that Shell first provides SIMSCI with
a report of such Bug in sufficient detail to enable a reasonably skilled
programmer to understand it and such that SIMSCI is able to reproduce the Bug in
the applicable operating environment and such Bug can be reasonably verified as
residing in The Software and not elsewhere,
(c) where SIMSCI is not able to provide a Bug Fix and a Bug is
identified by Shell, SIMSCI will either provide Shell with a work around
sufficient to alleviate any Material adverse effect of the Bug or provide Shell
with a written response describing SIMSCI's then-existing, diagnosis of the Bug
and an outline of a plan and timetable for correcting it and
(d) use commercially reasonable efforts to provide Shell with
enhancements and further development/maintenance services requested by Shell but
not otherwise planned by SIMSCI, provided that Shell pays to SMSCI fees which
are customarily paid for such services in the software industry where such fees
are provided on a time and materials basis, but if SIMSCI shall agree to provide
any greater amount or more expansive type of Support to any sublicensee of The
Software than as are set forth herein, then SIMSCI shall promptly notify Shell
or its Affiliates or Subsidiaries of the terms. of such agreement, and extend to
Shell, its Affiliates and Subsidiaries such amount and type of Support under the
same terms effective as of the date on which they became effective in respect to
the sublicensee.
11.5 During the development of The Software and for the term of This
Agreement when any Commercial Release of The Software is made available by
SIMSCI shall use commercially reasonable efforts to provide Enhancements and
Upgrade Versions The Software such that The Software retains functional parity
path the most widely used Computer Software in The Field and if SIMSCI is not
able to do so then it will use commercially reasonable efforts to identify a
third party to conduct such development provided that such third party shall be
mutually agreeable to both SIMSCI and Shell.
11.6 In exchange for SIMSCI's provision of Software Services (which
shall include the Support described in Section 11.4) during the term of this
Agreement, Shell shall make three annual payments of [ * ] per Copy. The first
payment will be made upon delivery to a Shell location for installation in
on-line optimization. If an installation is canceled prior to commissioning
thereof then a pro-rata refund of the paid fees will be made to Shell according
the following formula:
Amount Refunded = [ * ]
Where:
C = [ * ]
D = [ * ]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
12
<PAGE> 13
and no further payment shall be due from Shell with respect to that Copy,
provided, however, that SIMSCI shall make no such refund if a cancellation
occurs more than twelve (12) months after delivery of a Copy to the installation
question and all payments due under this Section will be due as provided herein.
At the beginning of the each year during the term of this Agreement, the
arithmetic average of the last four (4) annual payments due will be calculated
("AA4Y", which average shall include the immediately preceding year but shall
not include the Additional payments calculated hereunder for any preceding
year). During the first four years of the term of ties Agreement AA4Y shall be
calculated as the arithmetic average for the actual number of years since
inception. If the AA4Y is larger than the immediately preceding year's payment
for Software Services, then the difference between AA4Y and the immediately
preceding year's payment for Software Services will be due to SIMSCI from Shell.
SIMSCI shall make available to Shell Affiliates Software Services according to
these same terms. Further to the above, SIMSCI shall make available Software
Services at no charge to Shell, its Affiliates and Subsidiaries in connection
with off-fine uses of The Software for the internal purposes of Shell, its
Affiliates, or Subsidiaries.
11.7 If SIMSCI shall agree to provide Software Services to any
sublicensee of The Software at a rate which calculated on an equivalent basis in
respect to the per Copy fees are lower than those provided to Shell, its
Affiliates and Subsidiaries as set forth in Section 11.6 above, then SMSCI shall
promptly notify Shell or its Affiliates or Subsidiaries of the terms of such
agreement, and extend to Shell, its Affiliates and Subsidiaries the lower fees
or other materially more favorable financial terms, effective as of the date on
which they became effective in respect to the sublicensee.
11.8 SIMSCI shall charge Maintenance Fees to its sublicensees which
fees and manner of payment shall be solely in the discretion of SIMSCI. SIMSCI
shall pay to Shell [ * ] of the total amount payable to SIMSCI by third parties
for such Maintenance Fees.
12. WARRANTY AND LIMITATION OF LIABILITY
12.1 EXCEPT AS MAY BE EXPRESSLY SET FORTH ELSEWHERE IN THIS AGREEMENT
THE PARTIES REPRESENT AND WARRANT THAT THEY HAVE THE RIGHT TO MAKE GRANTS SET
FORTH HEREIN BUT MAKE NO REPRESENTATIONS, EXTEND NO WARRANTIES, EITHER EXPRESS
OR IMPLIED, AND ASSUME NO RESPONSIBILITIES WHATSOEVER WITH RESPECT TO THE
PERFORMANCE, MERCHANTABILITY, OR FITNESS PERFORMANCE, MERCHANTABILITY, OR
FITNESS FOR A PARTICULAR PURPOSE OF THE MATERIALS LICENSED HEREUNDER OR ANY
INFORMATION CONTAINED THEREIN TO THE OTHER PARTY, THEIR LICENSEES, OR ANY OTHER
TRANSFEREES.
12.2 EXCEPT AS MAY BE EXPRESSLY SET FORTH ELSEWHERE IN THIS AGREEMENT,
ANY REPORT, DATA, COMPUTER PROGRAM OR OTHER MEDIUM FOR CONVEYING INFORMATION
HEREUNDER IS PROVIDED ON AN "AS IS" BASIS WITHOUT ANY WARRANTIES, EXPRESS OR
IMPLIED INCLUDING BUT NOT LIMITED TO ANY WARRANTY CONCERNING THE RESULTS OR
EFFECTS OBTAINED THROUGH THE USE OF THE LICENSED MATERIALS OR THAT THEY WERE FIT
FOR ANY USE INTENDED AND IN NO EVENT SHALL A PARTY BE LIABLE FOR LOSS OF
PROSPECTIVE PROFITS OR INDIRECT OR CONSEQUENTIAL DAMAGES TO THE OTHER EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
12.3 Should Shell be restricted from using any portion of The Software
due to an interference with an Intellectual Property Right of a third party
resulting from the use or incorporation of such interfering materials by SIMSCI
then, as a sole remedy for Shell, SIMSCI or its affiliates shall either obtain
such right for the benefit of the Shell or obtain for Shell the right to use
works having similar functionality to those of the materials whose use is no
longer permitted; provided, however, if neither of the foregoing can be
obtained, Shell shall have the right to terminate this Agreement.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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<PAGE> 14
12.4 Should SIMSCI be restricted from using or licensing any portion of
The Software due to an interference with an Intellectual Property Right of a
third party resulting from the use or incorporation of such interfering
materials by Shell then, as a sole remedy for SIMSCI, Shell or its Affiliates or
Subsidiaries shall either obtain such right for the benefit of SIMSCI or obtain
for SIMSCI the right to use works having similar functionality to those of the
materials whose use is no longer permitted; provided, however, if neither of the
foregoing can be obtained, SIMSCI shall have the right to terminate this
Agreement.
12.5 Subject to the limitation set forth herein, SIMSCI warrants to
Shell that the Software made available to Shell (other than OPERA and MITRE
portions thereof) will conform to the then current specifications for the
Software. Subject to the limitation set forth herein, Shell warrants to SIMSCI
that OPERA and MITRE made available to SIMSCI will conform to the specifications
made available to SIMSCI during the scoping study related to the Software.
13. INDEMNIFICATION AGAINST DAMAGE
13.1 Each party shall indemnify and hold harmless the other from all
loss, cost, damage, liability, or expense for bodily injuries to or death of
persons and/or damage to or destruction of property arising out of or in
connection with performance of this Agreement, to the extent that such injury,
death, damage or destruction results from the negligence or with misconduct of
the party indemnifying the other or its employees, agents, or contractors.
Without in any way limiting the foregoing undertakings, each party will maintain
proper amounts and types of workers compensation insurance covering all its
employees performing under this Agreement.
13.2 The indemnification in the preceding Section 13.1 shall not apply
to any loss, cost, damage, liability or expense arising out of or in connection
with the use of the Software.
14. TERM AND TERMINATION
14.1 Unless renewed this Agreement shall expire [ * ] years from the
Effective Date-at which time the parties shall negotiate regarding possible
renewal of this Agreement.
14.2 If either party fails to comply with any Material provision of
this Agreement, the other party may serve the breaching party written notice of
the breach and, unless such breach is fully cured within sixty (60) days from
the receipt of notice, the nonbreaching party may thereupon, at its option serve
notice of the termination on the breaching party, whereupon this Agreement shall
immediately terminate.
14.3 Upon termination of this Agreement all of the rights and
obligations of a party shall be extinguished except that any payments accrued
and payable shall be paid and the following rights and obligations shall
survive: Section 3.8, Section 3.9, Section 3.10, Section 5.6, Section 6.0,
Section 8.0, those provisions of Section 11 which survive according to their own
terms, Section 12.0, Section 13.0, Section 15.0, Section 16.0, Section 17.0 (but
only to the extent that because of a Default of SIMSCI survival is required for
its enforcement), and the right to receive a final report in the manner of
Section 10.2.
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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<PAGE> 15
15. NONSOLICITATION
15.1 During the term of this Agreement and for twelve (12) months
thereafter, neither party will hire nor make an offer to hire any employee of
the other who is involved with development or licensing of The Software without
the prior written consent of the other party.
16. ARBITRATION
16.1 Any controversy or claim ("claim"), whether based on contract,
tort, statute or other legal or equitable theory (including but not limited to
any claim of fraud, misrepresentation or fraudulent inducement or any question
of validity or effect of this Agreement including this clause) arising out of or
related to this Agreement (including any amendments or extensions), or the
breach or termination thereof shall be settled by arbitration in accordance with
the then current CPR Institute for Dispute Resolution Rules for Non-Administered
Arbitration of Business Disputes, and this provision. The arbitration shall be
governed by the United States Arbitration AM 9 U.S.C. Sections 1-16 to the
exclusion of any provision inconsistent therewith or which would produce a
different result, and judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction.
16.2 Any such arbitration shall be held in Houston, Texas and shall be
decided by one arbitrator mutually agreeable to the parties who shall determine
the claims of the parties and render a final award. The arbitrator shall set
forth the reasons for the award in writing.
17. GRANT OF SECURITY INTEREST
17.1 To secure SIMSCI's performance of its obligations under this
Agreement, this Agreement constitutes a security agreement in which SIMSCI as
debtor hereby grants to Shell as secured party a security interest, under the
Uniform Commercial Code or equivalent law and The Copyright Act, in the [ * ]
rights in Shell and its Affiliates and Subsidiaries to use, reproduce, make
derivative works, have made derivative works by third parties, perform, display,
and distribute (to Affiliates and Subsidiaries) The Software, any Preexisting
Works and Work Chunks, any derivative works or compilations thereof and any
after acquired or developed technology which shall be incorporated in The
Software (collectively, "Secured Property") for the internal use of the same in
the Field by Shell, its Affiliates, and Subsidiaries (but Shell's rights to use
SS Works shall be limited to use in conjunction with The Software only), and
further, the collateral shall include a complete copy (in all past, present and
planned versions of The Software including all of the Preexisting Works thereto)
of all source code (including commentary thereto); executable code; programming
notes; flowcharts; design documentation; diagrams; test results relating to The
Software; and any other materials in the possession of SIMSCI its assigns,
affiliates, contractors, or agents, required by a reasonably skilled computer
programmer, computer scientist, or engineer to use, maintain, modify, or enhance
The Software.
17.2 Notwithstanding the provisions of Section 17.1, Shell shall not
have the right to exercise any of the provisions of Section 17.1 pursuant to its
Security Interest unless SIMSCI shall be in Default. A Default, for the purposes
of this Section 17 shall constitute any of the following:
(a) the failure of SIMSCI to fully pay to Shell all sums to
Shell under any section of this Agreement for [ * ] preceding quarters (wherein
the total of such sums due for the total of all quarters in question exceeds [ *
], and further after applicable notice and expiration of cure periods), however,
no quarterly payment which is the subject of a good faith dispute between Shell
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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<PAGE> 16
and SIMSCI shall constitute a nonpaying quarter for the purposes of such
calculation and following any resolution of such dispute SIMSCI shall have sixty
(60) days to pay any amounts determined to be owing for such disputed payment to
remain outside of such calculation;
(b) SIMSCI or its assigns ceases to license or otherwise distribute
and provide Software Services for Computer Software in the Field, wherein such
action is demonstrated by (i) the express communication of SIMSCI or its assigns
of such action to Shell via written communication by SIMSCI's Development
Coordinator or the Chief Executive Officer of SIMSCI or its assigns, (ii) the
failure of SIMSCI or its assigns to provide Shell with written assurances to the
contrary within ninety (90) days of a receipt of a written good-faith inquiry of
such action Shell's Development Coordinator or an Officer of Shell, (iii) the
issuance of a decree, order, or finding of fact that such action has occurred by
an Arbitrator acting in accordance with Section 16 above, a court of competent
jurisdiction, or a government agency having authority to render such a decree,
order, or finding of fact.
17.3 To aid in perfecting this security interest, SIMSCI will execute a
financing statement in a form required by all jurisdictions (including the
filing requirements of the US Copyright Office) in which such instrument will be
filed and will execute such other documents from time to time for purposes of
evidencing, recording, or perfecting this security interest as Shell may
reasonably request, without additional consideration.
18. GENERAL PROVISIONS
18.1 This Agreement shall extend to and be binding upon the successors
and assigns of the parties hereto; provided, however, that notwithstanding the
right by SIMSCI to sublicense certain rights granted herein, SIMSCI shall not
assign this Agreement in whole or in part without first having obtained the
written consent of Shell; and any such attempt to assign the same without the
prior written consent of Shell shall be void and shall not be binding on Shell,
except that SIMSCI shall be permitted to so assign this Agreement in whole
without first obtaining the written permission of Shell if such assignment is to
an assignee of all of SIMSCI assets and provided that such assignee assumes all
of the obligations and duties of SIMSCI hereunder and further provided that such
assignee provides Shell ,with timely written notice of the same.
18.2 No failure, emission or delay on the part of Shell or SIMSCI in
exercising any right under this Agreement will preclude any other further
exercise of that right under this Agreement.
18.3 THIS AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS OF SHELL AND
SIMSCI SHALL BE DETERMINED (WITH RESPECT TO THE INTERPRETATION OF THE CONTRACT
AND ITS PERFORMANCE IRRESPECTIVE OF THE FORUM IN WHICH SUCH ISSUES SHALL ARISE),
ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
18.4 This Agreement shall not be construed to establish a joint
venture, partnership or other formal business organization. Furthermore, the
parties agree that this Agreement does not constitute a partnership for tax
purposes. In the event that it is so construed, however, the parties agree to be
excluded from the provisions of Subchapter K of the United States Internal
Revenue Code of 1986, as amended. In no event shall such relationship constitute
a partnership for U.S.
federal income tax purposes.
18.5 SIMSCI agrees that it will abide by the United States Department
of Commerce regulations concerning the export or re-export of United States
source technical data, or the direct product thereof, to unauthorized
destinations in respect of information supplied by Shell hereunder.
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18.6 Any notice by either party to the other shall be given by
depositing it in the U.S. Mail postage prepaid, and addressed as follows:
Shell: Shell Oil Products Company
Westhollow Technology Center,
P.O. Box 1380
Houston, TX 77251
ATTN: Emilio J. Nunez
SMISCI: Simulation Sciences Inc.
2950 North Loop West, Suite 830
Houston, TX 77092
ATTN: Victor Rice
18.7 This Agreement shall not be modified except by written instrument
signed by authorized representatives of the parties hereto.
18.8 The parties to this Agreement shall be excused from the
performance of their respective obligations hereunder and to the extent that
such performance is delayed, hindered or prevented by causes reasonably beyond
the control of the party to perform, including but not limited to fire,
explosion, strike, labor disputes, acts of God or any act or omission of any
governmental authority. The party wishing to avail itself of the provisions of
this Section 18.8 shall give notice in writing to the other party. After receipt
of such notice, the other parry may, at its sole election, terminate this
Agreement at any time after thirty (30) days from the date of the aforesaid
notice, provided that the said act of force majeure continues to prevent
performance of this Agreement.
18.10 PURSUANT TO ARTICLE 6 OF THE UNITED NATIONS CONVENTION ON
CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (UN CONVENUON), THE PARTIES AGREE
THAT THE UN CONVENTION SHALL NOT APPLY TO THIS AGREEMENT.
18.11 This Agreement comprises the entire agreement between Shell and
SIMSCI with respect to the subject matter hereof and there are no agreements,
understandings, promises, conditions oral or written, expressed or implied,
concerning the subject matter of this Agreement or in consideration hereof that
are not merged therein or superseded thereby.
SHELL OIL PRODUCTS COMPANY SIMULATION SCIENCES, INC.
By: /s/ SHELL OIL PRODUCTS COMPANY By: /s/ CHARLES R. HARRIS
Date: Feb. 22, 1996 Date: Feb. 22, 1996
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EXHIBIT A
DEFINITIONS
THIS AGREEMENT IS SUBJECT TO ARBITRATION
A.1 An "Affiliate" of Shell shall mean: N.V. Koninkhjke Nederlandsce Petroleum
Maatschappij, a company of The Netherlands, The Shell Transport and Trading
Company, P.L.C., an English company, and any company (other than Shell) in
whatever country organized, in which either or both of said companies shall, at
the time in question and directly or indirectly through one or more
intermediates, own or have the power to exercise control of fifty percent (50%)
or more of the stock having the right to vote in election of directors or, any
company (other than Shell), in whatever country organized, in which Shell, at
the time in question and directly or indirectly through one or more
intermediaries, owns or has the power to exercise control of fifty percent (50%)
or more of the stock with the right to vote in an election of directors.
A "Subsidiary" of Shell shall mean any company (other than Shell), in
whatever country organized, in which Shell, at the time in question and directly
or indirectly through one or more intermediaries has the right to vote in an
election of directors and wherein Shell or its Affiliates exercises operational
control of the facility in which a Copy is to be installed.
A-2 "Bug" shall mean an error in Computer Software which interferes with a
designed functionality of the Software as a result of the improper
implementation of that functionality. A "Bug Fix" is a correction of such an
error.
A.3 "Commercial Release" shall mean a version of Computer Software released into
the stream of commerce and available to third parties who would be willing to
pay for the right to use such Computer Software in the course of their
operations.
A.4 The terms "Computer Program" and "Computer Software", and "Tools" (whether
or not capitalized) refer to a set or sets of statements or instructions, to be
used directly or indirectly in a computer in order to bring about a certain
result.
A.5 The term "Copy", with respect to The Software shall mean an embodiment of
The Software used for on-line optimization of a specific process unit at a given
site (e.g. a crude distilling complex or a catalytic reforming unit complex) a
Copy includes the use of such copy, whether centrally or remotely, by those
involved in implementing, supporting, evaluating, studying or in any way dealing
with that specific process unit. Thus, for example, a Copy may include several
copies of The Software that are all used to support a single unit.
A.6 "Documentation" means textual and/or graphic material, perceivable directly
to humans and/or with the aid of a device or machine, relating to a computer
program.
A.7 "Enhancement" shall mean the addition of functionalities, functional
attributes, or interface means to Computer Software that did not previously
exist in such Software and which do not require substantial changes to the
underlying architecture of Software.
A.8 "Executable Code" means a series of one or more instructions executable
after suitable processing by a computer or other programmable machine, without
compilation or assembly.
A.9 "Effective Date" means the signature date of the last party to sign this
Agreement.
A.10 "Field" means the field of on-line optimization systems and technology.
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A.11 "Intellectual Property Rights" means any and all rights to exclude existing
from time to time in a jurisdiction under patent law, copyright law, moral
rights law, trade-secret law, semiconductor chip protection law, trademark law,
unfair competition law, or other similar rights.
A.12 "Invention" shall mean any invention, discovery, process, art, method
(including mathematical algorithms), machine, manufacture, composition of
matter, or improvement thereof Relating to The Software, whether or not
patentable, to the extent that it is the subject of an Intellectual Property
Right. The terms "Conceived", "Reduced to Practice", and other like and related
terms shall have their ordinary meanings as they are used in the patent laws of
the United States.
A.13 "Marks" shall mean the use of the terms "Shell Oil Company" and "Shell Oil
Products Company". When used, the Marks shall only be used in a manner to
indicate that The Software and Documentation owe their origin, at least in part,
to Inventions and Works of Authorship belonging to Shell Oil Company. No other
of use of trademarks owned or claimed by Shell Oil Company shall be included
within the meaning of the term Marks.
A.14 "Material", with respect to a particular matter (e.g., a Breach), means
that the Matter is shown to affect adversely (a) the rights and benefits of the
other party under this Agreement; or (b) the ability of the other party to
perform its obligations hereunder; in either case to such a degree that a
reasonable person in the management of his or her own affairs would be more
likely than not to decline to enter into this Agreement in view of the matter in
question.
A.15 "Maintenance Fees" means the total amount of fees and other revenue
realized by SIMSCI in connection with the installation, provision of maintenance
services, training services, or support fees associated with The Software.
A.16 "Net Sales" means the total amount payable to SIMSCI by licensees of The
Software or any derivative work based thereupon and performing optimization
and/or simulation. Net Sales shall be less any bonafide trade or cash discounts
or rebates paid or granted by SIMSCI and shall include, without limitation all
royalties, sublicensing fees, and other revenues realized by SIMSCI in
connection with its distribution of The Software or such derivative works. For
purposes of this Agreement revenue is realized when received.
A.18 "Preexisting Works" shall mean those works of a party which have been
created prior to the Effective Date of this Agreement.
A.19 "Software Services" shall mean the development of Bug Fixes, Enhancements,
and Upgrade Versions of The Software together with other preventative and
remedial measures for the optimization of the use of The Software in the
environment in which its use is intended and which are customarily provided by
software developers commercially engaged in the production and distribution of
custom Computer Software.
A.20 "Source Code" (whether in upper or lower case) means a series of
instruction or statements, in a high-level computer language or in a lower level
computer language such as assembly language, which is in a form which is readily
readable by humans trained in the particular computer language in question. It
is normally transformed by an interpreter or compiler into machine-readable
executable code for actual use on a computer.
A.21 "Upgrade Version" means a version of a computer program that incorporates
additional capability or functionality that requires significant changes to the
architecture or high-level design characteristics of the program.
A.22 "Unrelated Software" means Computer Software having utility in commercial
applications other than those in which The Software is licensed to end users.
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A.24 "Not Viable" with respect to the decision to use technology embedded in
MITRE or based thereupon in Commercial Releases of The Software shall mean that
SIMSCI can demonstrate either: (a) the inclusion of such technology within The
Software would require SIMSCI to dedicate more than [ * ] of its current
available man-hours/calendar year in Software Services relative to what would be
required by other Computer Software having similar functional capabilities, or
(b) that The Software could not be made to perform its expected functions
because of the use of such technology.
A.25 "Work of Authorship" shall mean a work of authorship protestable under the
copyright laws of an applicable jurisdiction.
A.26 "Work Chunk" shall mean a method, process, technique, algorithm,
subroutine, class, object, or other sequence of instructions reduced or
reducible to computer code which add functional or expressive attributes to the
Preexisting Works useful in The Field and if, taken together with the
Preexisting Works, would constitute Computer Software having all of the
functional and expressive attributes of The Software or a derivative work
thereof Work Chunks shall not include Preexisting Works and Enhancements
compiled together with Preexisting Works.
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EXHIBIT _____
THIS AGREEMENT IS SUBJECT TO ARBITRATION
EXHIBIT B
MITRE AND OPERA DESCRIPTION
[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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THIS AGREEMENT IS SUBJECT TO ARBITRATION
EXHIBIT C
SS WORKS DESCRIPTION
[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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EXHIBIT D
"THE SOFTWARE DESCRIPTION"
[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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[
*
]
[ * ] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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EXHIBIT 10.14
RETIREMENT AGREEMENT
This Retirement Agreement ("Agreement") is made by and between
Simulation Sciences Inc. (the "Company") and Dr. Vincent S. Verneuil, Jr.
("Executive") effective as of May 1, 1996 (the "Effective Date").
WHEREAS, Executive has rendered many years of service to and been
employed by the Company;
WHEREAS, the Executive has now decided to retire from his employment by
the Company and accordingly relinquish any claims arising from or related to the
employment relationship;
WHEREAS, the Company and Executive have entered into a Confidentiality
Agreement dated March 22, 1991 (the "Confidentiality Agreement");
NOW, THEREFORE, in consideration of the mutual promises made herein,
the Company and Executive (collectively referred to as "the Parties") hereby
agree as follows:
1. Retirement: Executive hereby retires from his positions as the
Company's Secretary and Manager of Flowsheet and Organization effective as of
May 1, 1996. In consideration for this Agreement, Executive's Employment
Agreement with the Company dated as of December 17, 1993 is hereby terminated
without any default.
2. Retirement and Severance. The Company agrees to make payments to
Executive at the rate of fourteen thousand forty-four and 58/100 Dollars
($14,044.58) per month for the time period from the effective date of his
retirement through December 31, 1997 (the "Payment Period") in accordance with
the Company's payroll practices. During the Payment Period, Executive will not
be entitled to accrual of any employee benefits, including, but not limited to,
vacation benefits or bonuses.
3. Benefits. Executive's group insurance coverage will terminate as of
May 31, 1996. Effective June 1, 1996, Executive shall be eligible to participate
in the Early Retiree Medical Plan. The Company will provide Executive with an
enrollment package for participation in the Early Retiree Medical Plan.
4. Confidential Information. Executive shall continue to maintain the
confidentiality of all confidential and proprietary information of the Company
and shall continue to comply with the terms and conditions of the
Confidentiality Agreement between Executive and the Company.
<PAGE> 2
5. Payment of Salary. The Parties acknowledge and agree that:
(a) On the date of execution of this Agreement, all salary,
accrued vacation and any and all other benefits, commissions or other such sums
then due Executive will be paid to Executive.
(b) In light of the payment by the Company of all wages due,
or to become due to Executive, that California Labor Code section 206.5 is not
applicable to the Parties here. Said section provides in pertinent part:
No employer shall require the execution of any release of any
claim or right on account of wages due, or to become due, or
made as an advance on wages to be earned, unless payment of
such wages has been made.
6. Release of Claims. Executive agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Executive
by the Company. Executive and the Company, on behalf of themselves, and their
respective heirs, executors, officers, directors, employees, investors,
shareholders, administrators, affiliates, divisions, subsidiaries, predecessor
and successor corporations, and assigns, hereby fully and forever release each
other and their respective heirs, executors, officers, directors, employees,
investors, shareholders, administrators, attorneys, affiliates, divisions,
subsidiaries, predecessor and successor corporations, and assigns, of and from
any claim, duty, obligation or cause of action relating to any matters of any
kind, whether presently known or unknown, suspected or unsuspected, that any of
them may possess arising from any omissions, acts or facts that have occurred up
until and including the Effective Date of this Agreement including, without
limitation,
(a) any and all claims relating to or arising from Executive's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to, or arising from,
Executive's right to purchase, or actual purchase of shares of stock of the
Company;
(c) any and all claims for wrongful discharge of employment;
breach of contract, both express and implied; breach of a covenant of good faith
and fair dealing, both express and implied; negligent or intentional infliction
of emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage;
negligence; and defamation;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1967, the Americans with Disabilities Act of 1990 and the California Fair
Employment and Housing Act;
(e) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination; and
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<PAGE> 3
(f) any and all claims for attorneys' fees and costs in excess
of $50,000.
The Company and Executive agree that the release set forth in this section shall
be and remain in effect in all respects as a complete general release as to the
matters released. This release does not extend to any obligations incurred under
this Agreement.
7. Acknowledgment of Waiver of Claims under ADEA. Executive
acknowledges that he is waiving and releasing any rights he may have under the
Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Executive and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
ADEA after the Effective Date of this Agreement. Executive acknowledges that the
consideration given for this waiver and release Agreement is in addition to
anything of value to which Executive was already entitled. Executive further
acknowledges that he has been advised by this writing that (a) he should consult
with an attorney prior to executing this Agreement; (b) he has at least
twenty-one (21) days within which to consider this Agreement; (c) he has at
least seven (7) days following the execution of this Agreement by the parties to
revoke the Agreement; and (d) this Agreement shall not be effective until the
revocation period has expired.
8. Transition Assistance In view of the Executive's important role with
the Company, the Executive will participate in up to two (2) Company employee
meetings expected to be held in May 1996 as reasonably requested in order to
offer his support for the officers of the Company and assist in a smooth
transition, subject to the absence of scheduling conflicts.
9. Civil Code Section 1542. The Parties represent that they are not
aware of any claim by either of them other than the claims that are released by
this Agreement. Executive and the Company acknowledge that they have been
advised by legal counsel and are familiar with the provisions of California
Civil Code Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Executive and the Company, being aware of said code section, agree to
expressly waive any rights they may have thereunder, as well as under any other
statute or common law principles of similar effect.
10. Tax Consequences. The Company makes no representations or
warranties with respect to the tax consequences of the payment of any sums to
Executive under the terms of this Agreement. During the Payment Period, the
Company will make deductions and withhold from Executive's severance payments in
accordance with the Company's payroll practices and on the basis of information
provided by Executive.
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11. No Representations. Each party represents that it has had the
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Agreement. Neither party has
relied upon any representations or statements made by the other party hereto
which are not specifically set forth in this Agreement.
12. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
13. Entire Agreement. This Agreement represents the entire agreement
and understanding between the Company and Executive concerning Executive's
separation from the Company and supersedes and replaces any and all prior
agreements and understandings concerning Executive's relationship with the
Company and his compensation by the Company, including but not limited to that
certain Employment Agreement between the Company and the Executive dated
December 17, 1993. The Confidentiality Agreement is not terminated by this
Agreement.
14. No Oral Modification. This Agreement may only be amended in writing
signed by Executive and the President of the Company.
15. Governing Law. This Agreement shall be governed by the laws of the
State of California as applied to agreements entered into and performed in
California solely by California residents.
16. Effective Date. This Agreement is effective seven days after it has
been signed by both Parties.
17. Counterparts. This Agreement may be executed in counterparts, and
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
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IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
SIMULATION SCIENCES INC.
Dated: _____________, 1996 By: _____________________________
Title: _____________________________
Dr. Vincent S. Verneuil, Jr.,
an individual
Dated: _____________, 1996 By: _____________________________
Dr. Vincent S. Verneuil, Jr.
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Simulation Sciences, Inc.
We consent to the use in this Amendment No. 1 to Registration Statement of
Simulation Sciences Inc. on Form S-1 (No. 333-11017) of our report dated August
2, 1996 (except for paragraphs 14 and 15 of Note 4, for which the date is
September , 1996), appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the heading "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Simulation Sciences, Inc.,
listed in Item 16. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Costa Mesa, California
September 17, 1996
